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I. Savings Protection
- Secured obligations
- Premiums
- Institutional programs
- Banking institutions undergoing liquidation
- Relations with multilateral agencies

II. Liability Management and Refinancing

- Liabilities
- Liability management strategies

III. Support and Strengthening of Financial Institutions

- BanCrecer
- Grupo Financiero Scotiabank Inverlat
- Banco del Atlántico

IV. Divestment and Recovery of Assets

- Portfolio
- Non-fixed assets and real estate properties
- Corporate assets
- Supervision
- Attention to bank debtors

V. Legal Action

VI. Management and Budget

- Management of personnel
- Organization, innovation and quality
- Material resources and general services
- Programming and budget
- Financial accounting

VII. Systems

VIII. Regulation and Evaluation

IX. Social Communication and Institutional Linkages

I. Bank Savings Protection

Commercial bank deposit figures to June 2002 registered an accrued balance of

1,013,085.2 million pesos, corresponding to 28.5 million contracts, not including
investment banking transactions and repurchase agreements (Reportos).

The two main sources of commercial bank deposits were checking accounts
(76% of all contracts) and promissory notes payable at maturity (13%).
Remaining contracts savings accounts, deposits withdrawable on pre-established
days and fixed term deposits.

The first range of deposits includes those with balances up to one thousand
pesos – comprising 14.3 million contracts with an average balance of 7,195.3
million pesos. This range includes 50% of all bank savers, calculated based on
the number of contracts in the system.

The breakdown of Mexican commercial bank deposits (in pesos) is shown in the
following graph:

Breakdown of Deposits by Range*


Balances (in thousands of pesos)








Hasta 1 1a5 5 a 10 10 a 50 50 a 100 100 a 250 250 a 500 500 a Más de
1,000 1,000
Range in thousands of pesos

Saldo % del Total de contratos

* It does not include balances and contracts corresponding to Investment Banking and Repurchase Agreements
Source Banco de México, Economic Indicators.

The first eight ranges of the breakdown correspond to contracts with balances up
to one million pesos, accounting for 99% of the total number of contracts in the

According to the maximum 400 thousand USD coverage amount per individual or
company in force as of January 1, 2005, and assuming that each depositor
manages only one contract, almost all banking contracts are already covered.

Secured Obligations

In accordance with Article 6 of the Law for the Protection of Bank Savings
(LPAB), obligations guaranteed by the IPAB are those referred to in sections I
and ii of Article 46 of the Credit Institutions Law. These are, demand deposits,
deposits withdrawable on pre-established days, savings and time deposits, and
loans and credit transactions accepted by credit institutions.

In 2002, four Secured Obligations’ Payment Programs corresponding to Banca

Quadrum, Banco Anáhuac, Banco Industrial and Banco del Sureste were carried
out. Programs applicable to the first three cases ended during this same year;
the term set by law to submit payment applications for Banco del Sureste ended
January 31, 2003.

The amount paid through Secured Obligations’ Payment Programs concluded in

2002 reached 9,946 million pesos, corresponding to 635 depositors, accounting
for 99% of the total value of obligations secured of those institutions.

At Banca Quadrum, the process started March 4 and the 60 day term set by lay
for the submission of applications ended May 3. 4,598 million pesos were paid to
608 depositors, this is 98% of the total value of obligations secured of such
institution. The average time between application submission and payment was 7

At Banco Anáhuac payments were equal to 787 million pesos, made to three
clients; this accounted for 100% of all secured obligations at such institution. In
this case, payment of secured obligations was made on August 5, 2002, two days
after the liquidation resolution was published.

At Banco Industrial, 4,561 million pesos were paid to 24 savers, this meant
almost 100% of the total value of secured obligations. 99% of the total amount of
secured obligations was paid on August 27, 2002, one day after the liquidation
resolution was published.

As far as Banco del Sureste is concerned, liquidation resolution was published on

December 2, 2002, therefore the term to submit secured obligations payment
applications ended January 31, 2003.

Out of the total number of banks which started their liquidation process in 2002,
Banco del Sureste was the one with the largest number of clients. 1,800.06
million pesos had been paid to 6,388 savers by December 31, 2002, this is,
96.54% of all secured obligations. The average time used by the Institute to issue
resolutions on payments not made at bank branch offices directly was 10
business days. This was due to the time taken to take files from the southeast
region to the operations center in Mexico City.

The true payment challenge of liquidations carried out in 2002 was due to the
application of a new method -with which no previous had been accrued. Such

method was similar to a mass production line and was based on a differentiation
analysis of applications.

This means that data on the process to be followed to claim deposits, together
with a prefilled application with personal information and balances registered at
bank systems is sent to the client address for checking purposes. The purpose of
such action is to save time when the client goes to the bank branch offices for
registration. At the same time, the public is informed on the bank liquidation
process through printed media.

Payment applications were received at branch offices of each of the

aforementioned banks, during week days and schedules in which they usually
served their clients until before closing.

The experience of each secure obligations’ payment process has allowed for
modifications, adjustments and improvements to the system and procedures.

Version 2 -speedier and more efficient- of the Secured Obligations’ System was
used at Banco Industrial, with the incorporation of a greatly simplified processing
of applications of individuals with updated documentation, and automated
management of joint accounts.

Version 3 was used at Banco del Sureste. Such version allows applications with
simplified processing characteristics and under 1,000 pesos to be paid in cash
directly at bank branch offices. Therefore, 30% of savers received payment

Moreover, as portion of a continuous improvement process and in compliance

with Article 15 of the LPAB, on March 3, 2002 the Resolution by which the
Institute for the Protection of Bank Savings informed of modifications to the
payment procedure applicable to secured obligations was published in the Official
Gazette of the Federation. Such Resolution was modified on August 23 and
November 28 of such same year.

General Rules for the Treatment of Joint Accounts or those accounts with more
that one account holder -as referred to in Article 14 of the LPAB- published in the
Official Gazette of the Federation were amended on August 23, 2002.

It is worth mentioning that due to the contribution of the Secured Obligations’

Payment Process to the efficiency and innovation of the public administration
operation in general, the INNOVA award, given by the Executive branch office,
was received.

- Premiums
In the event of insolvency, payment suspension or bankruptcy and in order to be
able to reimburse insured bank savers the guaranteed amount of their deposits in
a timely manner, the IPAB obtains financial resources through premiums
collected from full-service banking institutions. This is done with the aim of
contributing to the stability of the financial system.

In compliance with Article 20 of the LPAB, full-service banking institutions are
required to pay the IPAB regular and extraordinary premiums set by the
Governing Board within ranges set by the LPAB. In 2002, the total premium
amount collected was 5,009.1 million pesos.

In compliance with Transitory Article Tenth of the LPAB, three fourths of

premiums were earmarked for financial strengthening programs of full-service
commercial banking institutions managed by the IPAB. In addition, the Governing
Board decided that the remaining portion of the premiums was to be used to
cover operating and administration expenses of the IPAB and in order to create a
reserve fund for the protection of bank savings.

The IPAB focuses on minimizing fund expenses by conducting activities that

allow for the early detection of possible institution insolvency problems, such as
the “Timely Detection System”, portion of the so-called “Early Warning”
mechanisms. Based on an analysis of banking institution’s financial information,
detection of possible problems that could lead to potential insolvency or
bankruptcy conditions and issuance of the corresponding warnings is possible.

- Institutional Problems

Debtor Support Programs

Debtor Support Programs were designed in order to alleviate the difficult situation
experienced by individuals and organizations in a debtor position in the
commercial banking system. Such programs were implemented by offering
discounts to debtors that remained current in their payments. It should be noted
that the cost of such discount is shared by the federal government and
commercial banks; the portion corresponding to the federal government subsidy
is financed by the banking system.

Based on these considerations, and in accordance with Transitory Article

Nineteen of the LPAB and the operating mechanism defined by the Ministry of
Finance and Public Credit (SHCP), the IPAB is the institution in charge of
managing and controlling financing granted to the federal government for the
application of the programs, in those items representing payment discounts
corresponding to Agriculture, Business and Housing Programs.

Payments made by the IPAB to full-service commercial banking institutions are

carried out within the time frame established by the Ministry of Finance (SHCP).
Such payments are made when the IPAB receives a report from the National
Banking and Securities Commission (CNBV) indicating the banking institutions
that reasonably complied with the correct application of programs, the amounts of
the support measures generated within the context of these programs and
corresponding adjustments.

In the case of Business and Agricultural Programs, the CNBV report should
indicate the percentage of conditional support that the federal government will
have to cover due to the application of these programs by each bank.

During the 2002 fiscal year, the IPAB made the following payments corresponding
to the application of programs.

Month Net Payment*
(Amounts in millons of pesos)

January Housing -3.0

May Business 74.8

June Agriculture, Business and Housing 12,800.4

July Agriculture, Business and Housing 108.2

August Business and Housing 1,973.5

September Business 0.5

November Business and Housing 507.9

December Business -0.4

Total 15,461.9
*Net payment on reimbursements, sanctions, reimbursements derived from percentage adjustments and

Housing Programs

In January, 2002, collection from reimbursements and sanctions from Banca

Cremi, Banco Obrero, Banco Oriente and Banco Unión (in liquidation process)
was carried out derived from Housing Programs of sub-accounts 95-98, 1999 and
2000, corresponding to adjustments reported by the CNBV based on results
issued by the special audit practiced to such institutions in compliance with
directions issued by the Commission and based on the procedure determined by
the SHCP for such purpose. Collection was equal to 3.0 million pesos.

The first payment was made on the first bank business day of June and
corresponded to sub-account 2001, equal to 3,030.4 million pesos. Then, on the
first bank business day of July, August and November, payments were issued to
banking institutions which delivered the audit report as to the correct application
of Housing Programs in sub-account 2001 -equal to 71.2, 1,973.5 and 471.1
million pesos, respectively- out of the established time

Business Programs

Based on the process established by the SHCP and adjustments to support

percentages of Business Programs to be undertaken by the Federal Government
and issued to by the CNBV to the IPAB, payment and reimbursement were made
on the first bank business day of May to Banco del Atlántico and Banco
Internacional equal to 74.8 million pesos.

Payment equal to 68.2 million pesos from the 2001 Business Programs’ sub-
account was made on the first bank business day of June.

The third payment, equal to 19.6 million pesos, was made on the first bank
business day of July to banking institutions that did not deliver the audit report on
the application of Business Programs of the 2001 sub-account on a timely

Reimbursement on collection and updating to BanCrecer derived from situations

not responsibility of the bank was made in August. Such payment was equal to
0.02 million pesos and made in compliance with modifications corresponding to
supports granted for Business Programs of the 2001 sub-account issued by the

On the first bank business day of September, 0.5 million pesos were paid to
Banco Regional de Monterrey. Such institution belatedly provided results of the
audit report on the correct application for the Business Program in its non-
conditional branch of the 2001 sub-account.

Based on the audit conducted to Banco Mercantil del Norte, the CNBV delivered
a list of adjustments to the IPAB in compliance with the Business Plan in its non-
conditional branch of the 1996 and 1997 sub-accounts for the same amounts and
items as the previously mentioned registries, which lead to sanctions and
reimbursements on September 3, 2001. The SHCP established the procedure to
liquidate the adjustments and reimburse sanctions and reimbursements to such
banking institution.

On the other hand, 36.8 million pesos were paid to Banco Internacional on
November since it belatedly provided the audit report on the correct application of
Business Programs corresponding to the 2001 sub-account.

Based on the external audit conducted to Banca Quadrum (in liquidation), the
CNBV delivered a list of adjustments in compliance with the Business Plan in its
non-conditional branch of the 2000 sub-account; on the first bank business day
of December, the IPAB collected 0.4 million pesos corresponding to
reimbursements and sanctions.

Agricultural Programs

According to the operating mechanism defined by the SHCP, a 9,701.9 million

pesos payment of obligations generated by the application of Agricultural

Programs corresponding to the 1996 and 2001 sub-accounts was made on the
first bank business day of June. On July, one payment equal to 17.4 million
pesos was made to banking institutions that belatedly provided audit reports on
the correct application of Agricultural Programs corresponding to the 2001 sub-

In order to evaluate the operating efficiency and estimate the costs of the
programs, the IPAB prepared the bases for consultation, which are updated
monthly in accordance with information generated by the Management System of
the Debtor Support Programs. Moreover, some IPAB officers receive the
Executive Report on the Debtor Support Programs that provides updated
information on the status of obligations corresponding to the federal government
for the application of the programs on items involving payment discounts.

Moreover, the IPAB updates web page Program information in order to include
balances of the federal government’s share of the financing involved in the
application of these programs. Web page can be consulted by banking
institutions and the CNBV to verify monthly movements made by the IPAB, in
accordance with the operating procedure established by the SHCP and
information that this Commission makes available.

- Banking Institutions Undergoing Liquidation

There are two key elements on liquidation processes of full-service banking

institutions: surveillance and follow-up. One of the mechanisms used by the IPAB
for such purpose has been the Committee for the Sale of Banking Institutions,
which held 25 meetings during the 2002 period, with the participation of liquidator

- Banco Anáhuac

On April, 2002, the CNBV informed the SHCP the existence of reasons to revoke
authorization granted to Banco Anáhuac to operate as a full-service banking
institution. Therefore, such Secretariat gave stockholders a 60 day term to
provide capital in compliance with applicable provisions.

On July 29, 2002, in compliance with Article 29, fraction I of the Law for Credit
Institutions that sets the IPAB as body acting as liquidator for full-service banking
institutions undergoing a liquidation process in compliance with articles 55; 68
fractions IX and XX; 80 fraction XXVI of the LPAB, and 13 fraction XXXV of the
Organic Statute of the Institute, the Governing Board approved the appointment
of Ruiz Urquiza y Cía, S.C. as proxy liquidator of Anáhuac, subject to the fact that
such institution actually enters a liquidation process.

On August 1st, and after the term given to the shareholders of Anáhuac to
provide capital necessary to keep the operation of the institution within legal limits
elapsed, and since they did not do so, the SHCP agreed to revoke authorization
given to Anáhuac to organize and operate as full-service banking institution and,
in consequence, status of dissolution and liquidation was issued.

Based on the aforementioned, the day after such term elapsed, the delivery-
reception act took place between the Supervising Manager of Anáhuac and the
IPAB. After that, through a contract of mandate, the IPAB granted Ruiz Urquiza y
Cía, S.C. necessary empowerment to act as proxy liquidator of Anáhuac,
therefore starting the process.

On October 1st, and in full observance of the Guidelines for the Sale of
Commercial Banking Institutions approved by the Governing Board of the IPAB,
Ruiz Urquiza y Cía, S.C. formally delivered the Sale Operating Schedule to the

On October 17, the Committee for the Sale of Banking Institutions reviewed the
Sale Operating Scheduled and recommended submission to the Governing
Board of the IPAB for approval. Approval concluded on November 6.

- Banco Industrial

On November 26, 2001, the CNBV requested the IPAB to take due and
necessary actions to reach a resolution in compliance with the LPAB on the
strengthening and sale or liquidation of Banco Industrial.

Therefore, the IPAB hired Analítica Consultores, S.C. as specialized consulting

firm in order to conduct a technical study to determine actual feasibility of Banco
Industrial and to analyse the convenience of granting financial support from the
IPAB for its strengthening process or, as the case may be, proceed with the
liquidation process.

The Governing Board of the IPAB analysed the technical study submitted by the
consultant considering the less costly alternative. On May 14, 2002, it decided
not to grant financial support to such institution in compliance with terms of Article
28 of the LPAB.

The CNBV informed the SHCP that reasons to revoke authorization given to
Industrial to act as full-service banking institution existed, therefore the Ministry of
Finance asked Industrial to act in consequence and as deemed adequate and
gave shareholders a 60 day term to capitalize such Institution.

On July 29, in compliance with Articles 55; 68, fractions IX and XX; 80 fraction
XXVI of the LPAB and 13, fraction XXXV of the Organic Statute of the IPAB, the
Governing Board approved the appointment of S.C.I., S.A. de C.V. (SCI) as proxy
liquidator subject to the entering of the institution to a liquidation process.

On August 22, after the term granted to shareholders to reincorporate the capital
necessary to keep the Institution in operation in compliance within legal limits had
elapsed without the reintegration of such capital, the SHCP agreed to revoke
authorization granted to Industrial and, in consequence, the application of a
dissolution and liquidation status.

On August 26, the SHCP published the revoking statements and the delivery-
reception act took place between the Supervising Manager of Industrial and the

IPAB so that it could act as liquidator. After that, through a contract of mandate,
the IPAB granted SCI necessary empowerment to act as proxy liquidator of
Industrial, therefore starting the process.

On November 14, the Committee for the Sale of Banking Institutions received the
Sale Operating Scheduled submitted by the Proxy liquidator and recommended
submission to the Governing Board of the IPAB for approval.

- Banco del Sureste

On November 26, 2001, the CNBV requested the IPAB to take due and
necessary actions to reach a resolution in compliance with the LPAB on the
strengthening and sale or liquidation of Banco del Sureste.

On May 20, the IPAB hired Accenture, S.C. in order to conduct a technical study
to determine actual feasibility of Banco del Sureste in compliance with the LPAB
and to analyse the convenience of granting financial support from the IPAB for its
strengthening process or, as the case may be, proceed with the liquidation

The Governing Board of the IPAB analysed the less costly alternative and on
August 1st, it decided to follow the consulting firms’ recommendation and not to
grant financial support to such institution.

On August 16, the CNBV informed the SHCP that reasons to revoke
authorization given to Sureste to act as full-service banking institution existed,
therefore the Ministry of Finance asked Sureste to act in consequence and as
deemed adequate and gave shareholders a 60 day term to capitalize such

On November 6, in compliance with Articles 55; 68, fractions IX and XX; 80

fraction XXVI of the LPAB and 13, fraction XXXV of the Organic Statute of the
IPAB, the Governing Board approved the appointment of S.C.I., S.A. de C.V.
(SCI) as proxy liquidator subject to the entering of the institution to a liquidation

On November 28, after the term granted to shareholders to replenish the capital
necessary to keep the Institution in operation in compliance within legal limits had
elapsed without the reintegration of such capital, the SHCP agreed to revoke
authorization granted to Sureste and, in consequence, the application of a
dissolution and liquidation status.

The following day, the delivery-reception act took place between the Supervising
Manager of Sureste and the IPAB so that it could act as liquidator. After that,
through a contract of mandate, the IPAB granted SCI necessary empowerment to
act as proxy liquidator of Industrial, therefore starting the process.

On December 2, the SHCP published the revoking statement and the IPAB
published the liquidation resolution for Sureste, therefore starting the payment
process of secured obligations in compliance with the LPAB.

- Bursamex, S. A., Casa de Bolsa

In compliance with Transitory Article Seventh of the LPAB, the IPAB undertook
ownership of the strengthening programs’ operations conducted by Fameval.
Therefore, on April 2000, Banco de México -acting as trustee of Fameval-, the
IPAB and Bursamex entered an agreement in which the latter acknowledged the
amount due in favour of the Institute.

On November 2001, a regular and extraordinary stockholders’ meeting of the

shareholders of Bursamex was held. There, the IPAB capitalized the debt in its
favour therefore becoming holder of 99.99% of all Casa de Bolsa stocks.
Likewise, the IPAB appointed individuals with acknowledged good name in the
financial sector as members of the Board of Directors of Bursamex to conduct a
better administration of the institution and prepare it for sale. On November 2002,
the CNBV withdrew the managerial intervention it kept at Bursamex since May
1996. In such same date, a meeting of the Board of Directors was held in order
to appoint the Director General of Casa de Bolsa.

- Unión, Cremi, Oriente, Obrero, Capital, Interestatal y Pronorte

On March 5, 2002, through the Proxy liquidator of the IPAB, each of the seven
institutions in liquidation executed professional service rendering agreements
with Ruiz, Urquiza y Cía, S.C. in which procedures for the review of the general
balance sheet and of some transactions of Unión, Cremi, Oriente, Obrero,
Capital, Interestatal y Pronorte in the period between July 1st, 1998 and
September 30, 2001 were agreed in order to determine the fiscal cost to be
drawn from Unión, Cremi, Oriente, Obrero, Capital, Interestatal y Pronorte, and
the analysis of the intervention management conducted by the CNBV in such
same periods (accounting management audit).

In compliance with approved reference terms, and due to significant

advancement in the review works, meetings between Ruiz, Urquiza y Cía., S.C.
end the supervising managers of the seven institutions, the proxy liquidator and
representatives of the IPAB and the CNBV, were held in order to analyse
observations derived from the review.

Once the review was concluded, the auditing firm received comments from the
former supervising managers of the aforementioned institutions. December 6,
2002 was set as due date for the issuance of such comments.

By the end of 2002, advancement on 37 scheduled processes for the liquidation

of the seven institutions was submitted, in which schedules approved in the
Continuance and Conclusion Strategy included in the Sale Operating Schedule
(modified) were taken as applicable parameter.

The following chart illustrates the status of the 37 processes to December 2002,
according to the classification made by the proxy liquidator:

Without Date
Total of
Group Late On Time of Concluded
Investment in 13 0 11 0 2

Corporate 12 0 7 2 3

Non-Fixed Assets 12 1 9 2 0
and Real Estate
Property (with
Trusts and

Total 37 1 27 4 5

By the end of December, and after 30% of all assets held on September 2001
(date in which the liquidation process started) had been solved, the total yet to be
liquidated was equal to 11,620.1 million pesos. On the other hand, since the
amount of liabilities registered during December was equal to 202,462.1 million
pesos, the corresponding deficit was 187,020.6 million pesos.

The following are the main advancements registered in the liquidation process
during 2002:

- A package of 4,145 credits (commercial, industrial, mortgage and

consumption, most of them past-due) of Cremi, Unión and Oriente underwent
a bidding process and 100.6 million pesos obtained – accounting for 8.5% of
book value and 10% on capital value.
- On April, Algase, S.A. de C.V. paid 3 million dollar for 23% of the
participation of Banco Unión in its capital stock.
- On August, holding of PIC’s (Highway Indemnity Notes) was sold through
public bidding and maturity of one issuance concluded; in the first case,
more that 715 million pesos were obtained, and in the second 88 million
pesos. Alienation of titles took place over book value.
- Grupo Empresarial Ángeles paid 3.2 million dollars to pay for the difference
in net working capital resulting from the purchase operation of Real Turismo
and its subsidiaries (Camino Real Hotels).
- In the case of the mortgage-loan portfolio, collection activities continued in
order to keep its value, therefore allowing for an average monthly flow of
more than 35 million pesos.

- Past-due mortgage-loan portfolio of Cremi, Oriente, Capital and Interestatal
was auctioned on November 4, therefore generating revenues for 271 million
pesos, amount accounting for 26.8% of book value.

- Banca Quadrum

Since Quadrum did not achieve capitalization within the term granted by the
SHCP, on February 28, 2002 such authority revoked authorization granted for its
organization and operation as full-service banking institution, therefore entering a
liquidation process.

Moreover, the Governing Board of the IPAB approved the granting of special
empowerment to KPMG, Cárdenas Dosal, S.C. (KPMG) act as proxy liquidator of
Quadrum. According to this, execution of the mandate agreement was on March
4, 2002.

On that same day, delivery-reception acts of Quadrum took place between the
supervising manager of the CNBV and the IPAB, and between the latter and the
proxy liquidator.

During the year herein reported, performance of KPMG as proxy liquidator was
supervised by the IPAB. KPMG participated at 11 meetings of the Committee for
the Sale of Banking Institutions at which it submitted -in compliance with
guidelines- the report corresponding to the first 60 days of performance, the Sale
Operating Schedule and 7 monthly performance reports.

On the last day of 2002, the sale process of Quadrum showed significant
advancements, among which the following are worth mentioning:

- Reduction of negative capital, from 2,074 million pesos to approximately

1,467 million pesos;
- Portfolio recovery increased to about 985 million pesos; this is, 50% of the
total portfolio according to figures of the initial liquidation balance issued on
March 3, 2002; 703 million pesos out of such amount had to do with
collection – accounting for 93% of the outstanding portfolio – and the
remaining 282 million pesos corresponded to the alienation of the business
and consumption portfolio in force, carried out at 92.1% of net book value.
- Satisfactory execution of the secured obligations’ payment process, in
coordination with IPAB officers. It is worth mentioning that this is the first
process of this type in Mexico.

Follow-up of Institutions
Information on the financial performance of institutions is relevant for the IPAB
since it allows for the timely detection and attention of situations which might lead
to the deterioration of bank capital. If under extreme circumstances resources
were necessary for a given financial support or reimbursement to depositors, cost
would have direct incidence on the protection of bank savings fund.

The IPAB conducts periodic analysis of the financial situation and evolution of the
institutions. Quarterly reviews of financial data are conducted and, as the case
may be, special studies by sector and/or by institution are also conducted.

Moreover, based on reports presented by the institutions, follow-up is conducted

every six moths on the compliance of financial strengthening commitments of
those full-service banking institutions which expressed their willingness to adhere
to the New Program referred to in Article Transitory Fifth of the LPAB.

Support form International Institutions

On January 18, 2002 a simple credit contract was signed with Nacional
Financiera, acting as Financial Agent of the Federal Government, for 505 million
dollars. Such credit was derived from Loan Agreement 7060-ME executed by
Nacional Financiera and the International Reconstruction and Fostering Bank.
The credit was signed in order to contribute to the banking reconstruction
program through the refinancing of IPAB’s liabilities.

On February 2002, the Institute used 150 million dollars. During the second half
of the year, the IPAB gave Nacional Financiera evidence to proceed with the
second credit disbursement to be done during 2003.

I.5 Relationship with Analysts and Investors and Multilateral Institutions

The IPAB is an entity in full observance of transparency and strongly committed

with accountability. Such commitment is stressed by its close relationship it holds
with national and foreign analysts and investors in order to keep them well
informed on its activities and financial status. The purpose is to achieve timely
dissemination of public information in order to reduce disinformation on the
activities of the IPAB and position it adequately before opinion issuing sources.
In order to do so, the IPAB produces and disseminates sources of information
that meet the needs of the external and internal public by means of the
integration and analysis of information issued by a number of sources.1_/

In order to make the obtention of data on the IPAB more efficient, the web section
on Investor Relations was updated and automated formats for data inquiries and
audience were offered to the public. In this same regard, representatives of 22
private, public and multilateral financial institutions were received at the premises
of the IPAB. Moreover, with the involvement of personnel from different areas, at
least 125 data inquiries from Mexico and abroad were channelled and answered.
In 2002,a strategic plan was designed and implemented in order to keep the
public informed on the characteristics, benefits and limitations of the Deposit
Insurance System in Mexico. The plan includes a long term educational program
to be implemented in 2003.

In order to meet such purpose, 450 analysts and investors were surveyed during 2001. Results –obtained
form a rate of reply greater than 30% - provided valuable information for the development of new products
undertaken during 2002.

International Association of Deposit Insuring Institutions

After notice of its creation on August 2002, the International Association of

Deposit Insuring Institutions (IADI) announced the creation of Standing and
Regional Committees as well as the representatives of national institutions
presiding them.

The IPAB was selected to preside the Latin American Regional Committee made
up, in the initial phase, by the savings protection institutions of Argentina, Brazil,
El Salvador, Mexico and Peru.

Moreover, the IPAB is also member of the Standing Committees on Research

and Guidelines, Government and Affiliation and Communications.

Together with Regional Committees, the Standing Committees are in charge of

the design and implementation of the activities of the Association.

The participation of the IPAB at the IADI allows it to know and play an active role
in the development of international best practices in the savings protection area,
since they include guidelines and recommendations emerging from the
experiences and learning of countries that have implemented or reformed their
deposit insurance system.

II. Management of Liabilities and Refinancing

Based on an explicit mandate of the LPAB, the IPAB assumed the obligations of
the Fund for the Protection of Bank Savings (Fobaproa) and of the Support Fund
for the Securities Market (Fameval) corresponding to the bank rescue efforts
stemming from the December 1994 financial crisis.

As a result, the IPAB continued with the actions implemented by the financial
authorities through the following programs: Capitalization and Loan Portfolio
Purchase, Financial Strengthening, Liabilities of Intervened Banking Institutions,
Debtor Support and Payment in Kind.

The main challenge was to design a sustainable strategy to face these financial
obligations and improve terms and conditions of the debt.

In order to prevent higher pressure on public finance and affect other items of
expenditure of the federal government, the executive branch through the IPAB
determined that the best possible strategy to face liabilities derived from the bank
rescue was to pay the real component of interests derived from such liabilities
and empower the IPAB to refinance its payment obligations.

To this end, Congress authorized the IPAB to contract loans or issue securities
for the sole purpose of exchanging or refinancing its liabilities, providing liquidity
to its securities and improve the terms and conditions of its financial obligations,
in accordance with the stipulations of Article 2 of the Revenue Law for fiscal
years 2000, 2001 and 2002.

The IPAB has refinanced its liabilities through bond issues for the Protection of
Bank Savings (BPAs) and by contracting loans granted by commercial banking
institutions, the development banks and international financial institutions. In
addition, with resources allocated through the Budget of Expenditures of the
Federation and funds obtained from premiums paid by the banks and recovery of
assets, the IPAB was able to manage its debt and improve its debt-maturity

- Liabilities

As of December 31, 2002, total liabilities were 804,123 million pesos, a 3.4%
percent reduction in real terms and a 2.1 percent increase in nominal terms,
compared to levels observed at the close of the year 2001.
The following chart illustrates the evolution of liabilities during 2002:

Evolution of IPAB Liabilities

(Figures in millions of pesos)

Balances as of Variation
Item December 31 December 31 Nominal Real
2001 2002
Promissory notes from the Capitalization
and Portfolio Loan Purchase Program 195,226 208,409 6.8 1.0
Financial strengthening 196,766 128,065 -34.9 -38.4
Liabilities of intervened banks
77,030 19,207 -75.1 -76.4
Issues placed and credits
contracted 300,333 419,994 39.8 32.3

Acknowledgement of debts
From institutions in liquidation - 16,417 N/A N/A

Other liabilities 9,001 7,244 -19.5 -23.9

Subtotal-liabilities corresponding
to the IPAB 778,356 799,336 2.7 -2.8

Debtor support program 9,411 4,788 -49.1 -51.9

Total IPAB Liabilities 787,768 804,123 2.1 -3.4

Figures might not coincide due to rounding-out
*Fix exchange rate at the end of 2001: 9.1423 pesos per dollar
*Fix exchange rate at the end of December 2002: 10.3125 pesos per dollar

Liabilities derived from the Fobaproa Capitalization and Loan Portfolio

Purchase Program

As of December 31, 2002, obligations derived from the Fobaproa Capitalization

and Loan Portfolio Purchase Program totalled 208,409 million pesos. This
represents a one percent increase in real terms over the amount registered at the

end of 2001, of 195,226 million pesos. Growth is due to the compounding of
interest on the promissory notes that comprise this program.

Capitalization and Loan Portfolio Purchase Program

(figures in millions of pesos)
Balances as of Variation (%)
December 31 December 31
Nominal Real
2001 2002
Banamex 71,307 76,519 7.3 1.5
Bancomer 73,844 78,618 6.5 0.7
Banorte 11,144 11,880 6.6 0.9
BBV 12,299 13,080 6.4 0.6
Bital 26,631 28,311 6.3 0.6
Total 195,226 208,409 6.8 1.0
Figures might not coincide due to rounding-out
*Fix exchange rate at the close of December 2001: 9.1423 pesos per dollar
*Fix exchange rate at the close of December 2002: 10.3125 pesos per dollar

Liabilities derived from financial strengthening programs

Based on powers granted to the IPAB through Article 2 of the Revenue Law for
2002, different actions were undertaken that allowed the IPAB to reduce its
obligations corresponding to the financial strengthening programs by 68,701
million pesos, this is 38.4 percent in real terms This reduction was derived from
the strengthening process of Banco del Atlántico through the contracting of a
loan with Banco Internacional and from the reduction of liabilities with Bampaís
and Serfín which represented a 99.3 and 47.8 percent in real terms, respectively.

Financial Strengthening Program

Figures in millions of pesos

Balances as of Variation (%)

December 31 December 31
Nominal Real
2001 2002
Atlántico 47,017 0 (100.0) (100.0)
Banco del Centro 0 0 N/A N/A
BanCrecer 46,270 46,283 0.0 (5.4)
Banpaís 4,866 34 (99.3) (99.3)
BBV 5,209 4,953 (4.9) (10.0
Mexicano 28,528 28,868 1.2 (4.3)
Promex 24,841 25,835 4.0 (1.6)
Serfín 40,034 22,092 (44.8) (47.8)
Total 196,766 128,065 (34.9) (38.4)
Figures might not coincide due to rounding-out.
*Fix exchange rate to December 2001: 9.1423 pesos per dollar
*Fix exchange rate to December 2002: 10.3125 pesos per dollar

Liabilities of intervened banking institutions

According to Articles 68, fraction IV and Transitory Seven of the LPAB, the
Governing Board of the IPAB approved actions necessary for the implementation
of the strategy for restructuring and assumption of obligations incurred by the
seven banking institutions intervened by the CNBV.

Therefore, the IPAB entered assumption of liabilities agreement with Banco

Unión, Banca Cremi, Banco Obrero, Banco de Oriente, Banco Interestatal, Banco
Promotor del Norte and Banco Capital, full-service banking institutions in

Moreover, and in order to eliminate financing operations that such institutions

carried out in the interbank market, a mechanism was implemented (through the
execution of Trade Commission Contracts) through which the IPAB was to
channel necessary resources for the payment of obligations within its scope of

Through this mechanism, during the 2002 period resources equal to 37,594
million pesos and 65 million dollars were transferred. On December 2002, the
IPAB undertook some liabilities of Banco Unión and Banco Obrero directly,
therefore making payments for 834 million pesos. Therefore, estimated liabilities
to cover the operations of the aforementioned institutions were reduced by 56.2
percent in real terms.
Liabilities of Intervened Banking Institutions
(Figures in millions of pesos)

Balances as of
Concept December 31 December 31
2001 2002
Liabilities of intervened banking 77,030 19,207
Reconocimiento de adeudos de 16,417
instituciones en liquidación*
Total 77,030 35,624
Nominal Variation -53.8%
Real Variation -56.2%
On December 2002 reclassification of debts of Banco Unión and Banco Obrero, since the IPAB
directly undertook some liabilities.

Liabilities for issues placed and loans obtained

Based on Article 2 of the Revenue Law of the Federation for the Fiscal Year
2002, the IPAB issued BPAs for 79,150 million pesos at face value, of which
54.600 million pesos corresponded to BPAs at a three year term; 5,800 million
pesos at 5-year term and 18,750 million pesos in a new debt instrument called
Savings Protection Bond with Quarterly Payment of Interest (BPAT) with a five
year maturity issued as of July, 2002. Such amounts were consistent with the
Yearly Financing Program, as well as with the issue calendar published each

Moreover, on February 28, the IPAB used 150 million dollars corrresponding to
the second loan in dollars contracted with Nacional Financiera, S.N.C., in relation
with loan 7060-ME of the International Reconstruction and Fostering Bank. On
the other hand, on July 19, 2002, a loan in national currency was contracted with
Banca Serfín for 8,936 million pesos, used completely on July 25, 2002.

Finally, as portion of the closing of the strengthening process of Banco del

Atlántico, on October 1st, a loan with Banco Internacional was contracted for 47,
357 million pesos.

Refinancing Operations
(figures in millions of pesos)
Balances as of Variation
December 31, December 31, Nominal Real
2001 2002
Banamex 21,144 14,625 (30.8) (34.6)
Nafin 1 4,635 6,821 47.2 39.2
Banorte 35,383 32,887 (7.1) (12.1)
Nafin 2 2,314 2,616 13.1 7.0
Citibank 28,966 28,967 0.0 (5.4)
Inverlat 10,821 7,060 (34.8) (38.3)
BPA's 151,885 231,546 52.4 44.2
Serfín 10,035 19,011 89.4 79.2
Nafin 3 35,149 35,160 0.0 (5.4)
Bital 0 41,301 N/A N/A
Total 300,333 419,994 39.8 32.3
Figures might not coincide due to rounding-out
*Fix exchange rate at the close of December 2001: 9.1423 pesos per dollar
*Fix exchange rate at the close of December 2002: 10.3125 pesos per dollar

Refinancing operations took liabilities for issues placed and loans contracted to
419,994 million pesos, this is a 32.3 percent increase in real terms

With resources form the refinancing operations undertaken by the IPAB during
2002, payment for 137,384 million pesos and 339 million dollars were made.

Payments made in 2002
National Currency 1 Dollars 2

Atlántico 49,857 -
Cremi 21,626 2
BPA's 13,108 -
Unión 12,609 57
Santander Serfín 9,395 14
Banamex Citigroup 8,420 -
Internacional 7,041 -
Banorte 3,940 228
Inverlat 2,710 -
Oriente 2,163 -
Bancrecer 1,961 -
Nafin 1,423 32
BBVA Bancomer 1,101 -
Obrero 1,086 1
Fira * 808 -
Interestatal 110 5
Nafin * 17 -
Fovi * 9 -
Total 137,384 339
Figures in millions of pesos
Figures in millions of pesos
* Liabilities undertaken from Banco Unión Banco Obrero

Liabilities derived from the Debtor Support Program

Liabilities derived from the Debtor Support Program show a 51.9 percent
decrease in real terms due to prepayment of various balances of these

Liabilities derived from loans granted by Banco de México

In accordance with Transitory Article Eighth of the LPAB, the IPAB assumed the
loans that Banco de México (Central Bank) granted to the Fobaproa and the
Fameval, which at the close of 2002 totalled 77,380 million pesos. It is important
to stress that these loans will be gradually eliminated without representing an
expense for the IPAB, therefore they are not included in this financial statements.

- Liability management strategy

Liability management of the IPAB during 2002 was designed to deal with
contractual obligations, improve the debt maturity profile and contribute to the
reduction of financial costs derived from bank strengthening programs.

The key purpose of such strategy focused on maintaining obligations at

manageable levels taking revenues earmarked for such purposes: bank
premiums, liability recovery and resources allocated through the Budget of
Expenditures of the Federation, Branch 34.

The strategy implemented included: a) the issue of a new titles, the BPATs in
order to expand maturity profile and the average “repreciación” of BPAs; b) keep
the issuance of BPAs favouring market consolidation of this 3-year maturity

instrument; c) continue with the gradual replacing of loans derived from
strengthening operations implemented by the Fobaproa with market securities;
d) as the case may be, contracting of loans with banking institutions and
international entities in market conditions, in order to improve maturity profiles
and , as possible, reduce financial cost of the debt and e) early amortization of
liabilities based on maturity times levelling and cost.

As seen in the following graph, the IPAB’s management strategy allowed it to

meet its obligations, improve debt maturity profile and generate sustainable
evolution of its liabilities:
Expenditure Profile


Million Pesos





0 20 20 20 20 20 20 20 20 20 20 20
00 01 02 03 04 05 06 07 08 09 10

Original 1999 Current 2002

Loan Contracting

During 2002, and based on empowerment granted by Congress to refinance its

liabilities, the IPAB contracted the following loans:

- On February 28, use of the first 150 million dollars from the second simple
loan agreement entered with Nacional Financiera regarding Loan Agreement
7060-ME executed with the International Reconstruction and Fostering Bank
for total amount of up to 505 million dollars.

- On July 19, a simple loan agreement was executed with Serfín for 8.9 billion
pesos, divided into four equal installments2. Such loan was fully used on July
25. Resources were used for prepayments to Banamex for 6.5 billion pesos
and Banorte fro 2.5 million pesos. It is worth mentioning that loan conditions
allow for prepayments with no penalty applicable.

- On October 2002, a loan was contracted with Banco Internacional for 47,357
million pesos for the conclusion of the strengthening process of Banco del

The rate applicable to this loan is the 28 day TIIE plus 0.25 percentage points, with interest payments every
28 days, at a ten-year maturity. The principal will be amortized in ten semi-annual installments as of
January, 2008.

Issuance of Bonds for the Protection of Bank Savings (PBAs)

In accordance with Article Two of the Revenue Law of the Federation for the
Fiscal Year 2002, the IPAB continued with the issuance and placement of BPAs
at 3 and 5-year maturities with Banco de México as financial agent.

Moreover, on July 4, the IPAB issued the new debt instrument, the BPAT, for the
first time.

General characteristics of the BPATs are:

Issuer: IPAB
Security denomination: Bond for the Protection of Bank Savings
Placement agent: Banco de México
Base rate: CETES 28
Nominal value: 100,00
Placement method: Through auction
Yield: CETES 91 or PRLV (2) plus add-on rate
Interest payment: Every 91 days on nominal value
Term of the issue: 5 years
Payment of principal: On maturity
Redemption: Banco de México
Fiscal and reulatory tratment Government bond

These pay interests every 91 days, based on the highest of the existing annual yield rates when comparing 91
day Cetes in a primary placement and the rate of Promissory Notes with Yield Payable at Maturity for corporations
at one month term, as published by Banco de México.

It must me mentioned that BPATs as well as BPAs have a contingent mechanism

established in Article Two of the Revenue Law of the Federation for the Fiscal
Year of 2002, which states that “in the event that on the dates on which payment
of the principal or interests is due on the securities that the Bank (Banco de
México) has placed for the Institute for the Protection of Bank Savings, the IPAB
does not have sufficient funds to cover such payments, the Central Bank itself
must proceed to issue and place securities for the IPAB, for the amount
necessary to cover the corresponding payments in the account that for such
purposes Banco de México has established for the IPAB.”

Such same Article stipulates that “in compliance with the provisions of Article 45
of the Law for the Protection of Bank Savings, it is hereby established that until
the placement referred to in the preceding paragraph is undertaken, the Bank will
be able to debit the current account that it manages for the Treasury of the
Federation, to service the debt that the IPAB shall issue without instructions
issued by the Treasurer of the Federation.”

In 2002, issuance and placement of BPAs and BPATs was the main source of
financing for the IPAB, totalling resources with a nominal value of 79,150 million

Bonds for the Protection of Bank Savings
(Figures in millions of pesos)
2002 BPA T Total
3 years 5 years
1 Quarter
13,000 2,800 15,800
2 Quarter
15,600 3,000 18,600
3rd Quarter 13,000 - 20,000
4th Quarter 13,000 - 11,750 24,750
Total 54,600 5,800 18,750 79,150
During 2002, it was considered advisable to maintain the policy of weekly
placements in the case of 3-year BPAs and every fourteen days for 5-year BPAs.
Nevertheless, as of July, with the first issuance of BPATs, the need for weekly
placements arose.

The following graphs show the behaviour during the 2002 period of 3-year and 5-
year BPAs and BPATs, respectively.

5 year BPAs demand







May -02

May -02








3 year BPAs demand

















BPAT Demand



times 5.0















During this year consolidation on 3-year BPAs demand – with an average of 4.2
times -was observed; average demand of 5-year BPAs on the first half of the year
was 3.1 times. It is worth mentioning that demand on such instruments was
similar to that observed in 2001.

As observed in the following graph, during the first three months after the
introduction of the BPAT to the market, demand had an erratic behaviour.
Demand observed during the second half, however, was 3.49 times.

BPAT Demand




- No











Weighted spread of BPAs requested by participant agents in the primary

placement declined 0.1. percentage points on average for 3-year BPAs , from 0.8
percentage points in 2001 to 0.7 percentage points at the end of 2002.

3-year BPA spreads










On the other hand, weighted spread for 5-year BPAs increased 0.1 percentage
points in a primary placement, with an average of 0.9 percentage points during
2002 and 0.8 percentage points in 2001.
5-year BPA spreads

















Weighted spread of BPTAs during the July-December period averaged 0.8

percentage points in a primary placement.

BPAT spreads










Advance Payments

As portion of the liability management strategy of the IPAB, advance payments

were made to obligations contracted with Banco Nacional de México, for 6,500
million pesos and with Banco Mercantil del Norte for 2,500 million pesos and 520
million dollars. Moreover, resources were channelled through the Trade
Commission Contract to Banca Cremi, Banco Unión and Banco Obrero so that
they, in turn, could made advance payments to different creditors for a total of
16,684 million pesos and 39 million dollars.

Transfers of the Federal Government

In the Budget of Expenditures of the Federation for the 2002 term, transfer to the
IPAB for 28,494 million pesos -corresponding to Branch 34 Savers Program- was
authorized. Such resources were received and channelled entirely to maintain the
IPAB’s obligations at a sustainable level, therefore meeting entire use of such
resources in compliance with the program set for the year. Likewise, as far as
Branch 32 is concerned, Debtor Support Program, 15,506 million pesos were
allocated to the IPAB.

In 2002, the IPAB channeled a significant amount of resources to take care of

liabilities of intervened institutions -now in liquidation- and meet Article Transitory
Seventh of the LPAB. Therefore, the debt maturity profile was contained and kept
at sustainable levels and adequately meeting financial requirements set for the
year in the Annual Financing Program.

The IPAB has prevailed as debt issuer fully acknowledged by national and
international investors. To December 2002, it placed an accrued amount equal to
232,610 million pesos in titles; 79,150 million of which were placed in 2002. It is
worth mentioning that this year average demand of titles was 3.97 times the
amount bidden.

At the same time, the possibility of conducting financial operations in order to

reduce the financial cost of support programs was still managed with International
Financial Institutions. In this regard, the loan operation conducted with the
International Reconstruction and Fostering Bank for a second loan through
Nacional Financiera is worth mentioning.

The liability management strategy has allowed for timely fulfilment of IPAB’s
contractual obligations, and to the keeping liabilities within a sustainable level. It
is worth mentioning that in 2002, a 28 percent reduction on total liabilities in real
terms was observed.

III. Support and Strengthening of Financial Institutions

- BanCrecer
On September 2001, and in compliance with public bidding provisions, the IPAB
granted Banco Mercantil del Norte shares representing 100 percent of the capital
stock of BanCrecer.

On January 2002, in compliance with provisions of the purchase-sale agreement,
the IPAB paid 1 million 564 shares of BanCrecer for an amount equal to 1,293
million 339 thousand 472 pesos to provide BanCrecer with 2,500 million pesos as
net worth to November 30, 2001, since due to the separation of assets for 40,258
million pesos and net value of 3,249 million pesos -which were assigned to a trust
of which the IPAB is trustee-, the capital of BanCrecer was under the level stated
in the basis.

In such same date, once Banorte paid for the shares of BanCrecer, and the IPAB
separated the unproductive assets of BanCrecer from the balance, transfer of the
total number of shares of BanCrecer took place.

Taking other similar operations in consideration, the IPAB and Banorte included
an adjustment procedure to the price paid for the shares in the purchase-sale
agreement. This was made through an audit of the purchase. Therefore, a 60 day
term was set for Banorte as of the share’s transfer date to detect nonregistered
assets or nonexistent liabilities.

On March 8, 2002, Banorte submitted the shares’ price adjustment application for
580.0 million pesos.

On May 2002, the IPAB replied to the aforementioned application declaring it fully
inadmissible and made reference to limitations and terms set forth in the
purchase-sale agreement.

On August 1st,and after reviewing statements sent by the IPAB, Banorte sent a
document stating its interest in proceeding with the dialog and negotiations
tending to the solution of existing differences, and requesting conclusion of the
case. Moreover, Banorte stated not to reserve itself the exercise of actions or
rights regarding the price adjustment process of shares making up 100% of the
capital stock of BanCrecer.

The IPAB accepted to conclude the price adjustment process therefore

concluding the sale procedure of the 100% of shares of BanCrecer.

- Grupo Financiero Scotiabank Inverlat (GFSI formerly, Grupo

Financiero Inverlat)

During the involvement of the Fobaproa in the strengthening of Grupo Financiero

Inverlat, in 1996 a number of agreements were executed with The Bank of Nova
Scotia (Scotiabank). In compliance with applicable law, the IPAB undertook rights
and obligations of the Fobaproa corresponding to such agreements.

The IPAB, Scotiabank, GFSI and Banco Inverlat executed the Modifying and
Concluding Agreement, by means of which -among other things- some conditions
for the sale of shares kept by the IPAB and GSI were set.

Shares of GFSI are: Scotiabank, 55%; IPAB, 36% and Fideicomiso Unión
F/3540-5, 9%.

On December 2002, the Governing Board approved, among other things, i) the
shares’ sale scheme and ii) hiring of specialized third parties that would
participate in the alienation process of shares.

On such same month, the IPAB hired NM Rothschild & Sons (México) S.A. de
C.V. as financial agent as specialized third party participating in the execution of
the alienation process by means of a public bid of shares.

The IPAB estimates to conclude alienation of its share participation at GFSI by

the first semester of 2003.

- Banco del Atlántico

Upon agreement of the Governing Board, on December 7, 2001, the IPAB, Grupo
Financiero Bital (GFBital), Banco Internacional, (Bital) and Banco del Atlántico
(Atlántico) entered an agreement -with the participation of the CNBV- with the
terms and conditions applicable to conclude the financial strengthening process
of Atlántico in compliance with Article Transitory Ninth of the LPAB.

In compliance with such agreement, the IPAB would conduct the strengthening of
Atlántico with financial data available to December 31, 1999 and considering
results of the valuation of assets and liabilities conducted by Mancera, S.C. The
agreement included two mutually excluding schemes to conclude the operation:
on the one hand, the strengthening process, purchase-agreement and merger of
Atlántico and Bital, and on the other, an alternate scheme which, even though the
economic effects of the first were kept, the operation was to be closed keeping
Bital free from certain legal contingencies which at the time of the agreement
prevailed for Atlántico, without affecting the rights of third parties.

On October 1st 2002, necessary actions were taken in order to conclude and
formalize the strengthening process of Atlántico, foreseen in the alternate
scheme of the agreement executed on December 7, 2001. Under such
circumstances, the amount channelled by the IPAB for the strengthening process
of Atlántico was 8,957.2 million pesos in force December 31, 1999.

On that same day, Atlántico executed a debt acknowledgement and assignment

agreement with Bital in which Atlántico assigned Bital all its liabilities in
compliance with the alternate scheme of the agreement executed on December
7, 2001. The amount of liabilities was equal to 63,794.9 million pesos to June 30,

In consideration for the fulfilment of such obligations, Atlántico assigned and Bital
took all assets from the former, excepting the complementary asset account
consisting on preventive reserves for credit risks equal to 1,678.1 million pesos,
since such reserves had been previously created by Bital; exception of dation in
payment represented a cost for the latter, which actually was its participation on
the strengthening of Atlántico; cash availabilities equal to 2.05 million pesos.

The following chart details the concept of assets and liabilities object of the
assignment agreement:

Liability Asset Adjusted
Balance to Reserve balance
Concept assignment to assignment to balance to
06/30/02 exclusion before
Bital Bital 06/30/02
Availabilities 1,819.5 1,819.5 -1,817.5 2.05

Availabilities for advance 48,779.5 48,779.5 -48,779.5 0

payment of instrument
Remaining assets 11,519.8 1,678.2 13,197.9 -13,197.9 0

Total assets 62,118.8 63,796.9 -63,794.9 2.05


With Bital 33,889.5 33,889.5 -33,889.5 0

Remaining 29,905.4 29,905.4 -29,905.4 0

Legal contingency reserve 2.0

Total liabilities 63,794.9 63,794.9 -63,794.9 0

Net worth -1,676.1 2.05 0.05

Revenue from reversion 1,678.2

Liabilities + capital 62,118.8 63,796.9 2.05

(figures in millions of pesos)

On December 24, 2002, GFBital paid 79.6 million pesos to the IPAB as
increased value derived from the financial strengthening process implemented at
Atlántico in compliance with clause Eleventh of the Agreement executed on
December 7, 2001.

On December 2001, the IPAB hired Pricewaterhouse Coopers, S.C. and

Gallástegui y Lozano, S.C. to carry out audit referred to in Article Transitory Ninth
of the LPAB.

If illegal operations were found, applicable claims and reports would be filed in
order to delimit obligations as applicable. On the other hand, in compliance with
clause Sixth of the agreement, Bital bound itself to pay the IPAB for any amount
which, in terms of the final audit report, might correspond to damage or breach
caused by Bital as administrator of Atlántico.

IV. Divestment and Recovery of Assets

- Portfolio

During 2002, the IPAB conducted the placement of four commercial, industrial
and mortgage loan portfolios belonging to banking institutions, that as part of the
bank rescue program were intervened by the CNBV or supported by the IPAB.

Divestment was carried out through public bidding processes and in compliance
with the LPAB, ensuring transparence and objectivity at all times.

The following are the four operations:

Clonsing Type of Portfolio by Capital Investor % Price Revenue
Date Originating Bank

Commercial and industrial

portfolio of banking institutions
Mar/1/02 $1,103.5 Commercial 9.12% $100.6
undergoing liquidation
(Cremi, Oriente y Unión)

Commercial and industrial

Sep/20/02 portfoliio of BBV-1 and Banca $1,254.4 Secorse 13.75% $172.5

Mortgage Portfolio of banking

institutions undergoing ??Sólida
Nov/15/02 $1,012.0 26.78% $271.0
liquidation (Cremi, Oriente, ??Habitat
Interestatal and Capital)

Mortgage Portfolio of banking

Dec/13/02 institutions undergoing $1,068.4 Lend Lease 6.91% $73.8
liquidation (Oriente)*

?? Portfolio which was being administered by Lend Lease, including 6 real estate properties with a value of $7.9 million pesos and in relation
with the administrator had purchase option. (Figures in millions of pesos).

- Commercial and Industrial Portfolio of Banking Institutions Undergoing


On February 26, 2002, the bidding took place for the sale of a commercial and
industrial portfolio property of Banca Cremi, Banco de Oriente and Banco Unión,
institutions undergoing liquidation, made up by 4,145 loans with a principal value
of 1,103.5 million pesos. The whole portfolio was assigned to FirstCity
Commercial Corporation, administrating company, which submitted the highest
bid equivalent to 9.12 percent with respect to the capital, and representing the
recovery of 100.6 million pesos. The operation was closed on March 15, 2002.

- Commercial and Industrial Loan Portfolio of BBV-1 and Banca


On September 6, 2002, results of the bidding for the sale of the commercial and
industrial loan portfolio of Banco Bilbao Vizacya and Banca Promex, made up by
1,722 loans with a principal value of 1,254.4 million pesos took place. The whole
portfolio was assigned to Servicios de Cobranza, Recuperación y Seguimiento,
S.A. de C.V. (Secorse), administrating company, which submitted the highest bid
equal to 13.75 percent respect to capital. Recovery was equal to 172.5 million
pesos. Closing took place on September 20, 2002.

- Mortgage Loan Portfolio of Banks Undergoing Liquidation

On November 4, 2002 results of the bidding for the sale of a portfolio of 5,542
past-due mortgage loans, granted by Banca Cremi, Banco Capital, Banco
Interestatal and Banco de Oriente, with a principal value of 1,012.0 million pesos
took place.

The portfolio was divided into two packages: the first, with a value of 363.9
million pesos, was assigned to Sólida, Administradora de Portafolios, S.A. de
C.V., with a bid of 25.42 percent of the principal value, representing a recovery
value of 92.5 million pesos; the second, with a value of 648.2 million pesos was
assigned to Administradora Habitat, S.A. de C.V. which offered 27.54 percent of
the principal value, this is a recovery of 178.5 million pesos. Total recovery was
equal to 271.0 million pesos, accounting for 26.78 percent of the principal value.
The closing of the operation took place on November 15, 2002.

- Corporate Loan Portfolio of Banks Undergoing Liquidation

On November 22, 2002 results of the bidding for the sale of 5,514 commercial
and industrial loans, outstanding and past-due, granted by Banca Cremi, Banco
Capital, Banco Interestatal, Banco Promotor del Norte and Banco de Oriente
(institutions undergoing liquidation), as well as Banco Santander Mexicano. Total
principal value was equal to 4,973.9 million pesos.

Sale strategy consisted on the creation of 12 packages; a purchase option for the
administrator was also incorporated to the sale, with a package of loans and real
estate property with a principal value of 1,068,4 million pesos, administrated by
Lend Lease since 1998 through a shared flow administration agreement.

Out of the 12 packages bidden, 11 were considered deserted due to the absence
of bids or due to a low bid submitted by only one bidder. The only package
assigned was that of the portfolio of Banco Oriente administered by Lend Lease,
in which the administrator exercised its purchase option. Recovery value was
equal to 73.8 million pesos, accounting for 6.91 percent of the principal value.
Closing took place on December 13, 2002.

Sale of four commercial, industrial and mortgage loan portfolios, with a principal
value equal to 4,438.3 million pesos, allowed for a recovery of 617.9 million
pesos, equivalent to 13.92 percent in average.

- Non-fixed assets and real estate property

On January 10, 2000 the Governing Board authorized strategies for the sale of
real estate, non-fixed assets and pieces of art property of intervened banking
institutions, currently in liquidation, applied as of this year and still in force.

The same strategies were applied to non-fixed assets, real estate and works of
art from financial strengthening processes of Banca Serfín and BanCrecer.

- Real Estate

Regardless the fact that the program dealing with the sale higher-value real
estate property, natural developments and lesser-value real estate property with
through a bidding process stipulated that specialized third party experts would be
contracted, the Governing Board of the IPAB authorized for the public auction to
be carried out by intervened institutions directly without participation of placement

In order to take full advantage of the portfolio of real estate dealers, authorization
was obtained from the Governing Board to provide placement agents registered
at the IPAB a list of real estate properties selected for auction. The purpose of
such action was that they could register clients interested in one or several real
estate properties, and if won, to give a commission to the agent that registered.

Moreover, authorization from the Governing Board was obtained to sell, in the
same process, property contained in real estate properties, provided they
maximize the value and minimize recovery times.

Higher value real estate property with commercial potential

Higher value real estate properties are those with a value of over 10 million
pesos, which can be considered as individual or natural development (individual
real estate properties whose value, as a whole, exceeds the previously
mentioned figure).

In 2002, banking institutions undergoing liquidation selected from their inventory

those real estate properties that they considered could be sold individually and
without the involvement of placement agents, therefore taking care of promotion
and sale through public auction.

In the case of real estate properties with commercial potential, sale by auction
signs with telephone numbers and e-mail addresses were placed where
interested parties could obtain further information. Moreover, placement agents
registered at the IPAB received a list of real estate properties scheduled for sale.

When the bank detected that potential buyers existed, summons for bids were
published in nationwide or local newspapers, as the case may be, describing the
property to be auctioned and the procedure to be followed in order to know bases
for auctions.

On the date announced, and in the presence of Public Notary, 29 auctions were
held and 425.4 million pesos were received from a total of 817 real estate

All real estate properties were valued individually and care was taken that
appraisals contained the minimum elements for knowing real market value, such
as cost, revenue and market.

Lesser Value Real Estate Property sold as Package

This strategy focused on the sale of real estate property of Banco Unión, Banca
Cremi, Banco Obrero and Banco de Oriente (all for sale).

On January 30, 2002 auction of a package of 3,688 available and non-available

real estate properties took place with a reference value of 517.0 million pesos.
605.0 million pesos were obtained.

Since real estate properties were located at different states, transfers of title took
from March to December; in some cases, problems with real estate properties
which made transfer of title or physical handing over difficult keeps the possibility
of giving them back to the owner banks alive. Based on interest displayed by the
purchaser and selling banks, joints efforts have been made with legal areas in
order to minimize the number of real estate properties in such situation.

- Non-fixed Assets

Non-fixed assets property belonging to banks being sold to December 2001 was
equal to 267,038 records available for sale and 68,004 not available for sale
(being used by the banks).

It is important to mention that during 2002, the market for this type of assets
followed the recessive inertia observed in worldwide economy. Therefore, in
some cases appraisals did not reflect the real conditions of the market at the time
of auction.

On the other hand, attachment processes on assets of Banco Unión and Banco
Obrero resulted in the suspension of auctions of such goods. Therefore, the
commercial scheme suggested by banking institutions being sold lost interest for
placement agents since goods subject to attachment represented 70 percent of
the total number. Two catamaran type vessels with an expected recovery price of
20.0 million pesos, club and association memberships, furniture and office
equipment, machinery and industrial equipment were among such assets.

As the recovery program moves ahead, remaining assets are less attractive
because they are either obsolete, in bad conditions or disseminated all over the

Goods are classified as follows:

Those located in warehouses: These are characterized as being of common

use and do not require specialized process for their sale, among them are:
furniture, office equipment, textiles, household goods, building material,
automotive spare parts, electric material, communications and computer
equipment, automotive vehicles and spare goods.

Special: These require a specialized marketing process for their sale. Such is the
case of ships, airplanes, certain type of machinery and equipment, jewelry,
pieces of art and the right of access and use of clubs and associations.

Recovery Results

In 2002, 212,375 goods from banks undergoing liquidation processes were sold,
as well as from trusts of Banca Serfín and BanCrecer, through Fénix,
Administración de Activos, R.L. de C.V. and the IPAB itself. This allowed
recovery of 14.7 million pesos. As compared to 2001, units sold registered a 790
percent increase and as far as the recovery amount is concerned, increase was
equal to 136 percent.

Results obtained were due to the commercial strategy focused on the sale of
batches made up by a large number of units, such is the case of 84,500 pieces of
automotive spare parts and electric material in Mexico City and 105,000 units of
electric material, vehicles, shelving, furniture and office equipment in some
southeastern states. Sale processes are:

Proceses begun in 2001 and concluded in 2002

N° Date Type of Goods No. Of Goods Sale Value

1 Jan-30 -02 Household furniture 755 $1.0
2 Feb-21-02 Household furniture 787 $1.2
3 Mar-14-02 Automotive spare parts and 48,491 $.1
electric material
4 Apr-18-02 Jewelry and accesories 12 $.08
5 Jul-10-02 Automotive spare parts and 36,055 $.2
electric material
Total 86,100 $2.5
Money figures in millions of pesos

Proceses begun and concluded in 2002

N° Date Type of Goods No. Of Goods Sale Value

1 Feb-21-02 Boxes and Memberships Puebla 7 $.3
2 Feb-28-02 Automotive vehicles 44 $1.7
3 Mar-13-02 Memberships Tijuana 3 $.1
4 Mar-14-02 Microcomputer, Computer and Communication Eq. 291 $.01
5 May-17-02 Furniture and Office Equipment P. Reforma 362-364 3,462 $1
6 May-30-02 Automotive vehicles 44 $2.8
7 Jun-14-02 South region (furniture, office equipment, machinery 2,370 $.4
and construction equipment, electric material and
automotive vehicles
8 Jun-18-02 DF-Puebla Warehouses (furniture, office equipment, 101 $.05
decoration devices, appliances)
9 Jun-28-02 Furniture and office equipment P. Reforma 136 (real 3,991 $1.7
estate property with content )
10 Jul-10-02 Microcomputer, Computer and Communication Eq. 375 $.2
11 Jul-12-02 DF-Puebla Warehouses (furniture, office equipment, 8,850 $.6
decoration items, appliances)
12 Aug-21-02 Jewelry and accessories 122 $.1
13 Sep-10-02 Furniture and office equipment (IPAB) 2,410 $.3
14 Sep-20-02 South region (furniture, office equipment, machinery 102,210 $.7
and construction equipment, electric material and
automotive vehicles
15 Sep-30-02 Furniture and office equipment Av. Desierto de los 1,562 $.3
Leones 19 (real estate property with content)
16 Oct-03-02 Works of art and decoration items 212 $1.3
17 Oct-30-02 Furniture and office equipment Av. 2 Oriente (real 39 $.3
estate property with content)
18 Dec-10-02 Works of art and decoration items 13 $.2
19 Dec-10 -02 Jewelry and accessories 169 .2
Total 126,275 $12.2
Money figures in millions of pesos

15 our or 50 registered companies were summoned for the placement process.

Four restricted invitation auctions and four public were held. Moreover, six direct
sales took place and 24 summons were published in daily newspapers circulating
throughout the country.

On the other hand, 21 public auctions were held and three processes were
declared void because the initial reference values were higher than prices
prevailing on the market at the time. Therefore, in subsequent auctions, opening
prices had to be adjusted to forced sale values or reduced, through prior
agreement between banks and the IPAB.

Louis C. Morton, Auction House, which resulted winner in the bidding process
held by institutions owning pieces of art and decoration items, held two auctions.

It is worth mentioning that almost all items out of the original number of pieces of
art belonging to banks undergoing a liquidation process were sold; only 26
pieces, representing 80.8 thousand pesos of expected recovery remained,
therefore such items were included as part of real estate properties to be sold in
the corresponding recovery program.

It is important to mention that in the non-fixed asset portion, 5,600 pieces of

furniture and office equipment were sold resulting in 2.2 million pesos. Sell
content with real estate properties is convenient since furniture and equipment
were installed based on the physical requirements of such properties;

dismounting means labour, transportation and warehousing expenses, together
with a significant reduction on recovery values.

On the other hand, 2,400 non-fixed assets were sold through public auction.
They included furniture and office equipment, electric material and computer
equipment property of the IPAB derived from the Fobaproa operation for an
amount of 312 thousand pesos.

It is worth mentioning that based on processes conducted to date, a record of

almost 100 parties interested in the acquisition of non-fixed assets has been
created. Therefore, auction organization is possible in market niches with easy
promotion and held at accessible places without the services of specialized third

BanCrecer, S.A.

As a result of the financial strengthening process of BanCrecer, the bank

executed a service rendering agreement with Fénix, Administración de Activos, S.
de R.L. de C.V. involving loan portfolio preparation, collection and management.
The agreement states that Fénix will undertake management of several assets for
a four year period, and that, among other activities, it shall sale loans and assets
through auctions or public bids meeting LPAB provisions.

As a result of the sale to Banco Mercantil del Norte, BanCrecer donated 7,752
real estate properties and flow rights on another 283 real estate properties to the
IPAB. In turn, the IPAB decided to create a trust in the Trust Division at Banco
Mercantil del Norte to include real estate properties received as donation.

Moreover, the IPAB received assignment of rights on the agreement originally

executed between BanCrecer and Fénix, and in compliance with such agreement
and during the second half of the year 44 auctions and the sale of 728 real estate
properties with a sale value of 388.5 million pesos took place.

During the first half of the year, an expropriation process of a real estate property
conducted by the Government of the State of Querétaro -for which it paid 29.0
million pesos- was the only issue taken care of.

Formalization of legal procedures derived from the donation to the IPAB and the
contribution to the trust of real estate properties and non-fixed assets meant that
during the first half of the year, and based on instructions issued by the IPAB,
Fénix did not carry out any auctions. Moreover, definition of fiscal conditions
applicable to such trust derived from the sale of real estate properties and
invoicing of non-fixed assets was necessary.

With the involvement of the IPAB, the trustee and Fénix, advancements on the
donation and contribution processes were possible. Nevertheless, by year end,
signature of purchase-sale public deeds of 723 real estate properties and
invoicing of 9 non-fixed assets were still pending.

Banca Serfin, S.A. (Grey Assets)

As a result of the financial strengthening of Banca Serfín, an atypical agreement

was executed between the IPAB and Banca Serfín on January 2000, with the aim
of establishing various trusts that would concentrate both non-fixed assets and
real estate property belonging to the bank. This property was to be sold through a
trustee, seeking to obtain the maximum recovery in the shortest time possible.

Seeking to accelerate the sale of real estate properties in the hands of the
trustee, the Governing Board authorized application of the same strategies used
for real estate properties of intervened banks, this is:

- Individual sale of higher-value real estate properties or natural

- Sale of real estate properties for which an offer had been received.
- Sale in a package.

In 2001, the IPAB and the Trustee prepared the basis for a public bid in order to
contract the services of a professional real estate agent which in compliance with
already mentioned strategies and provisions of the LPAB would sale all
properties included in the above mentioned the trusts.

Six nationally renowned real estate companies, two of which submitted technical
and economic proposals, answered summons. Lomelín Hermanos Bienes
Raíces, S.C. was declared winner before Public Notary. The fiduciary executed a
service rendering agreement with Lomelín on October 19, 2001.

The term of the aforementioned agreement is 15 months with the possibility of

one extension; the agreement is divided into two stages: that of preparation –
consisting on certification, reclassification, packing, valuation, preparation of
auction or bid guidelines, and sale. The second stage is divided into individual
and package sale, and must include real estate properties not sold individually.

The total number of real estate properties is 4,300, approximately, with a book
value of 2,046 million pesos. This includes real estate properties for which offers
have been received as well as higher-value properties with commercial potential.
The agent must now validate which real estate properties may be sold
individually, in order to obtain the maximum possible recovery, and which must
be grouped to create a more attractive package.

Obligation to promote and advertise is worth mentioning. This includes mass

media, internet, as well as the distribution of booklets among local and national
real estate brokers.

Moreover, for the individual real estate property sale process, the agent must rely
upon local and national real estate companies in order to complement its
marketing and sale infrastructure; and it must consider all real estate brokers
members of the Mexican Association of Real Estate Professionals submitting
bidders for auction processes.

In order to provide greater certainty and, therefore, attracting better offers, as well
giving utmost transparency to the process, the agreement stipulated that the
winning agent would sub-contract prestigious firms to prepare certification and
appraisal works. Accenture, S.C. was hired for the certification portion and it, in
turn, hired American Appraisal México, S.A. de C.V. for the appraisal portion of
the work.

All real estate properties were valued individually; all appraisals included costs,
income and market data in order to obtain real market value.

Based on the aforementioned agreement, Lomelín carried out 31 public auctions

and sold 1,217 real estate properties with a value of 716.9 million pesos.

Moreover, on June, Lomelín Hermanos prepared and summoned the public bid of
a package of 1,600 real estate properties, approximately. Accenture, S.C. worked
on the elaboration of a financial model for determining the reference value, which
was reviewed and validated by the IPAB. The Governing Board approved the
sale of the package and the application of the methodology for determining
reference price of real estate property packages.

As portion of the preparation works to provide more certainty to participants, a

Public Notary was hired to verify -through random sampling of public records of
several states- that properties were free and clear and to date in the payment of
taxes, rights and services for property transfer purposes to auction winners.

Logistics preparation lead to a rescheduling of the auction to late February, 2003.

- Corporate Assets

In terms of corporate assets, recovery in 2002 was of 4,962.8 million pesos;

2,702.9 million pesos were obtained from sale and stock and title recuperation,
and 2,259.9 million pesos from credit related collection.

The IPAB, together with the SHCP, sold 137,338,377 shares of Grupo BBVA
Bancomer, S.A. de C.V., which accounted for 1.5 percent of the capital stock of
the issuer through an International Public Bid procedure. Goldman, Sachs &
Company was contracted for such purpose as global coordinator of the operation.

The bid took place on June 19, and 1,112 million pesos received. Since Goldman
Sachs did not exercise its overalloting option, on October 2002 Nacional
Financiera S.N.C. was contracted to allot the 8,437,166 shares pending for sale
through the Mexican Stock Market.

Banca Cremi, Banco Unión, Banco de Oriente and Banco Obrero promoted a
public auction process of PIC’s (Highway Indemnity Notes) through Monex, Casa
de Bolsa, S.A. de C.V., 802.4 million pesos were obtained.

Other significant recoveries came from the sale of a 3.0 percent participation at
Desc, S.A. de C.V. holding company through the Mexican Stock Exchange for

224.3 million pesos and 44.3 percent of La Gran Plaza, S.A. de C.V. for 325.3
million pesos.

In terms of corporate loans, the group of institutions collected loans for 1,661.0
million pesos in cash and 598.9 million pesos in kind, through 28 economic

The IPAB holds 36.69 percent of shares of Cintra, S.A. de C.V., holding
company, directly; such percentage resulted from the financial strengthening
processes of Banco Mexicano, Banca Serfín and BanCrecer, and a 13.8 percent,
indirectly, through Intervened Banking Institutions and Trusts.

Through its participation in the stockholders’ meeting and the board of directors,
the IPAB has promoted the sale of airlines. Therefore, on May 2002, Cintra -after
a restricted invitation bid was summoned- selected Merrill Lynch as the agent for
the sale process. In 2002, however, the worldwide airline market underwent one
of the worst crisis ever and conditions for a competitive sale at a price that would
truly reflect the actual flow generating capacity of the companies did not exist.
The commitment is to keep up monitoring market conditions during 2003 in order
to undertake the sale process as soon as possible.

- Supervision

It is important to stress that property called in Trusts as flow sources -derived

from the Portfolio Capitalization and Purchase Program and the Financial
Strengthening Program-, as well as flows obtained from managing companies by
virtue of Portfolio Assignment Contracts, are managed by the Institutions

The performance of such institutions is constantly monitored as far as recovery,

sale and performance are concerned of property entrusted to them.

Budget vs. Real Income

Type of Recovery Annual % Result

Recovery through trusts

Budget $1,929
Real $3,953
Budget vs. Real (Surplus or Deficit) $2,023 205 %

Flows shared with managers

Budget $811
Real $1,460
Budget vs. Real (Surplus or Deficit) $648 180%

Sale of Non-Fixed Assets or Real Estate

Budget $1,344
Real $1,877
Budget vs. Real (Surplus or Deficit) $533 140%


Budget $4,084
Real $7,290
Budget vs. Real (Surplus or Deficit) $3,205 178%
Figures in millions of pesos

- Attention to Bank Debtors

In the year 2002, the IPAB received representatives of various social groups of
bank debtors, namely “El Barzón”, and acted as liaison with financial institutions
that were the originators of the loans and portfolio managers, in order to set
negotiation tables to work on resolutions on loans granted or managed by them.

Furthermore, attention was paid to local and federal representatives who

delivered payment proposals to financial institutions with which those represented
by them obtained loans, with the purpose of having them reviewed and obtain
authorization for execution. It is important to underline that the IPAB only acts as
liaison to deliver such payment proposals.

V. Legal Action

In the year 2002, the IPAB participated in the formalization of legal acts related to
recovery, sale and management processes of shares and equity in which the
IPAB has legal and economic interest.

Advisory was given in the management and sale process of assets property of
Cintra, by attending stockholders’ meetings in which the Corporate Restructuring
Program and total reform of its social statutes were approved. Moreover, the
IPAB conducted necessary follow-up on the restricted invitation bid for the
appointment of Cintra’s asset sale agent; of which Merrill Lynch México, Casa de
Bolsa was the winner.

On the other hand, the sale process of capital stock of Grupo Financiero BBVA
Bancomer, S.A. de C.V. took place. Such process was conducted jointly by the
IPAB and the SHCP, through the placement of their respective share packages
through one offering in the Mexican, United States’ and European stock markets.
Such action allowed the IPAB to maximize recovery value.

Furthermore, legal advisory was provided for the process and execution of the
purchase-sale agreement of 4.77 percent of capital stock of Grupo Canadá, S.A.
de C.V. in trust 2000-1B identified as “Grey Assets”, created with Banca Serfín.

Follow up and execution of the debt acknowledgement and payment agreement

entered by Grupo Empresarial Ángeles and Banco Unión on March 20, 2002,
regarding payable net working capital. As a result of the aforementioned
agreement, Banco Unión concluded the asset sale process of Cadena de Hoteles
Camino Real Portfolios 1.

In terms of surveillance, during the year 2002 advisory and legal support was
provided to the follow-up and fulfillment of contractual conditions undertaken by
the Fobaproa or the IPAB with full-service banking institutions through its fiduciary
division, or derived from agreements of assignment in management of assets
executed with managing companies.

Contributions were made to the interpretation of contractual conditions in terms of

surveillance on the above mentioned tasks, as well as in terms of replies to
inquiries made by banking institutions or portfolio managers to the IPAB.
Likewise, support was provided in the design of contracting procedures applicable
to service rendering companies in charge of performance audits of such

Legal assistance was provided on 64 sale processes undertaken for non-fixed

assets, real estate property and pieces of art. Furthermore, legal follow-up was
conducted on contracting processes -through restricted invitation- of placement
agents responsible for certain sale procedures. It is important to stress that as far
as sales are concerned, specific aspects of each asset were taken into

Regarding loan portfolios, assistance was provided to the respective areas in loan
portfolio sale processes.

On the other hand, inquiries on the purpose of the Institute and the empowerment
of its administrative units were answered; and legal analyses on the scope of
transitory articles of the LPAB were conducted.

At the same time, advisory was provided in the review process of the Organic
Statute and General Organization Manual of the IPAB.

Legal advisory was provided during the 17 sessions held in the previous year of
the Acquisitions, Leasing and Service Rendering Committee.

Inquiries on different provisions in the Official Gazette of the Federation were
answered and applications on agreements and reports presented by the
Governing Board of the IPAB were taken care of.

Assistance was provided to the secretary of the Governing Board on control and
follow-up processes of agreements reached by the Board.

It is important to mention that during the year 2002, the Governing Board held 19
meetings and reached 248 agreements within its scope and in compliance with
Article 80 of the LPAB. 1938 documents and 64 agreements of the Governing
Board were certified by the Legal Area, which also took part in the preparation of
120 administrative agreements.

In order to gain greater control and greater quality on certifications, the procedure
agreement called “Certification of agreements reached by the Governing Board,
and of documents held by the different areas of the IPAB”, was updated.

Moreover, timely follow-up of the review process of the Public Account conducted
by the Audit Office of the Federation (Auditoría Superior de la Federación) was
conducted; and legal notifications (known as “requerimientos”) issued by such
same office were attended in time.

Derived from the participation of the IPAB at international deposit insurance

associations, active involvement took place at an institutional taskforce created
due to the incorporation of the IPAB as member with authority to speak and vote
of the International Deposit Insurers Association.

The Assistant Legal Secretariat through its general directorates also took part in
the conclusion of the price adjustment process of the shares of BanCrecer
submitted by Banco Mercantil del Norte and in the preparation of mandates
granted by the IPAB to D&T Case, proxy liquidator in charge of the liquidation of
seven full-service banking institutions.

On the other hand, legal documentation for the formalization of the reception and
delivery process of the Industrial and Del Sureste banks was prepared, and
support was provided on the legal analysis of payment applications of obligations
secured at Banca Quadrum, Banco Anáhuac, Banco Industrial and Banco del

Projects on terms of reference applicable to legal audits to be conducted at

Estrategia Bursátil, Mexival Banpaís and Valores Bursátiles de México (all
brokerage firms), as well as at Banco Industrial, Banco Anáhuac, Banco del
Sureste and Quadrum were prepared and delivered to the CNBV and to the
Internal Control Body of the IPAB.

Attention and follow-up were provided to twenty one preliminary investigations

and 40 criminal actions derived from audits conducted to loans reported by
auditor Michael Mackey.

The IPAB fully collaborated with the Public Ministry on the follow-up to the filing of
a claim against so-called representatives of the IPAB. Warrants of arrest were
obtained against them.

Moreover, criminal actions were taken against members of El Barzón of Sinaloa

who took the facilities of Banco Interestatal at such state; facilities were recovered
and warrants of arrest issued against those responsible for the action, currently
facing criminal processes.

Criminal action was also taken in the Federal District against people who blocked
and damaged the facilities of the IPAB. Possible responsibility of the accused
was proved.

On the other hand, audit of criminal issues on banks undergoing liquidation was
coordinated (to date, 90% advancement, including 526 issues, has been

As far as legal controversies are concerned in civil, trade and labor related
issues, which affect the IPAB directly or indirectly, legal defense of 52
contingencies –including 38 lawsuits and 14 “writs of amparo” on administrative
and civil matters. Out of the total number of the above mentioned legal
processes, 16 contingencies were received during the year 2002 (8 lawsuits and
8 “writs of amparo”); one contested trial and 4 civil and administrative “writs of
amparo” were concluded.

9 external attorneys were hired to represent the IPAB at several trials; 78

notifications (“requerimientos”) from the legal authority and 130 applications from
individuals were received and taken care of in a timely and efficient manner.

In the year 2002, follow-up continued on the mercantile plenary suit filed by Celia
Reyes Luján viuda de Nieto and Walfre Nieto Reyes against Banco del Atlántico
at Civil Court though external attorneys of the credit institution against which the
issue was filed.

The status of the aforementioned process is: on August 15, 2002 the Superior
Court of Justice of the Federal District modified the judgment, therefore, Celia
Reyes and Walfre Nieto Reyes filed a “writ of amparo”.

To date, the above mentioned process has been solved; the Collegiate Court
Fourth on Civil issues of the Federal District decided not to grant the “writ of
amparo” to such people.

VI. Management and Budget

During the year 2002, the IPAB acted in compliance with the 2002-2006 National
Development Plan and with priorities, strategies and institutional programs
determined by the Executive Secretariat, the Governing Board and the Public

The IPAB carried out a series of activities in the following fields:

- Management of Personnel
- Organization, Innovation and Quality
- Material Resources and General Services
- Programming and Budget
- Financial Accounting

It is worth mentioning that operation expenses focused on fulfilment of key

objectives of the IPAB and were exercised with austerity, discipline and

Lines of action implemented by the IPAB in the administrative area, led to the
achievement of the following objectives:

- To work with a more compact and flexible organizational structure

promoting integral administrative modernization.

- To have an efficient highly committed team.

- To provide administrative unites with the necessary goods, inputs,

services and material support with the highest quality and at the
lowest cost.

- To assure rational and transparent use of the financial resources

necessary for the operation of the IPAB.

- To guarantee timely and reliable information on the financial

situation of the IPAB.

- Management of Personnel

People are the most valuable asset of the IPAB. In this regard, the chapter on
personal services was the most important item on operation expenses; salaries,
benefits, fiscal and social security obligations were complied with in a timely
manner in accordance with General Working Conditions.

In full compliance with the Budget of Expenditures of the Federation and other
regulations, the personal service item was met with full transparency and in total
observance of ranges authorized by the Governing Board.

In the beginning of the year, the authorized number of people at the IPAB was
721; nevertheless, in compliance with budgetary austerity and discipline policies
issued by the Federal Government through the SHCP and in full observance of
the Budgetary Savings Program approved by the Governing Board, by December
2002, the authorized number of people was six hundred, with an approximate
seventeen percent reduction as compared to the previous term.

It is worth mentioning that such number, that includes people at the Internal
Control Body, was adjusted to the new organizational structure in force since
June, without affecting the level of service and fulfilment of responsibilities
entrusted to each given area.
During the year, a marginal increase on the list of personnel as compared to the
2001 closing was reported; this is equivalent to a 8.5 percent increase, according
to the organizational restructuring process undertaken in the middle of the year.

Due to the need for highly trained personnel, institutional recruiting and selection
policies were followed by means of psychometric tests and interviews that
allowed the assessment of competitiveness.

On the other hand, instructions were issued for the application of an institutional
training program to update knowledge in specific areas of personnel, such as
economic-financial, legal, risk management and personal development.

As a result of the 2002 Annual Training and Development Program, courses and
seminaries were held.

- Organization, Innovation and Quality

In order to meet its mission and provide necessary attention to functions included
in the LPAB, the new Organic Statute of the IPAB was published during the first
semester; such action allowed for the organizational restructuring of the IPAB and
included functions and responsibilities of each administrative unit and of the
personnel in charge of fulfilment.

Based on the agreement for the creation of the Commission for Transparency
and for the Fighting of Corruption in the Public Federal Administration focused on
the fostering of the corruption prevention and fighting culture, as well as of the
transparency culture in public performance, documentation and application of
Procedures continued to fight actions inclined to corruption, considering
measures recommended by the Internal Control Body.

The Quality Operating Committee was created with the support of the Executive
Secretariat, and initial processes subject to ISO 9001:2000 standard were

The INNOVA 2002 award was given to the IPAB by the President of Mexico for
the Secured Obligations Payment Process fostered by the Savings Protection

- Material Resources and General Services

The Annual Procurement Program for the timely and cost efficient purchasing and
contracting of goods and services to the support the different areas of the IPAB in
the compliance of their responsibilities, met targets set. During the year, 839

requisitions of goods and services were received accounting for a 28 percent
increased as compared to the previous term. It is worth mentioning that during the
whole period no claims were submitted by suppliers.

In order to increase efficiency and evaluate levels of response, attention

standards were set for the different processes of procurement.

Moreover, a new inventory control system was developed; it contributes to the

optimisation of resources by acquiring only what is strictly necessary. Likewise,
updating of records and identification receipts of furniture, office and computer
equipment, telephone devices and vehicles are all kept in one single document in
an automated way.

- Programming and Budget

The original budget of expenditures authorized for the IPAB for the 2002 fiscal
period in terms of cash flow was equal to 168.1 billion pesos. 128.1 billion out of
such amount (76.3%) were used to pay for interests and principal derived from
savers and debtors support programs and to release new issues and credits of
the IPAB; 818.1 million pesos (0.5% of the total) were used to pay for operation
administrative expenses and 39.1 billion pesos (23.3%) were devoted to financial
investments, including the balance of the Bank Savings Protection Reserve.

Based on recommendations issued by the Governing Board, modifications were

made to the operation administrative budget which affected the budgetary ceiling
of chapters 1000 of personal services and 3000 of general services.

Adjustments were equal to 65.7 million pesos, 23.6 million pesos (36%) out of
such amount corresponded to budgetary reductions to the personal service
chapter and 42.1 million pesos (64%) to the general services chapter.

Moreover, the IPAB integrated its 2002 Budgetary Savings Program, in fulfilment
of commitments which in terms of rationality, austerity and budgetary discipline
were set by the Budget of Expenditures of the Federation and provisions of
Savings in the Public Federal Administration for the year 2002, which meant an
additional reduction of 40.9 million pesos. Such budgetary savings effort was
conducted in the personal services item (15.7 million pesos, accounting for 38%)
and in the general services item (25.2 million, accounting for 62%).

Budgetary reductions mentioned -which as a whole reached a total of 106.6

million pesos – meant that the original administrative budget of 818.1 million
pesos was reduced to 711.5 million pesos – meaning a 13 percent budgetary

It must be mentioned, that regardless previously described budgetary

modifications, during the year the operation of the IPAB followed guidelines on
rationality of expenditures, optimisation of resources and maximizing of
productivity as strategic courses of action. Likewise, the IPAB generated
significant reductions on the application of expenditures and timely exercise
without forgetting goals set it its programs and activities.

Likewise, systematisation of the execution, payment, recording and control
process of expenditures applicable to the operation budget of the IPAB was
implemented in order to fulfil continuous improvement and administrative

All administrative units of the IPAB were actively involved in the programming and
budgeting process for the year 2003 based on policies and guidelines issued by
the SHCP. Approval of the 2003 budget (which at a cash flow level equals 229.5
billion pesos) from Congress and authorization from the Secretariat was obtained.

- Financial Accounting

The administrative modernization, the safety of accounting records and the

integral information system recommended the development of an Integral
Accounting Systems that meets authorization, use and operation requirements of
the SHCP.

Since the program was released, automated information from the computer
based modules of the operating areas is received by means of interfaces which
allow timely updating of accounting records such as depreciation, interest and
payment provisions, therefore contributing to an efficiency increase on the
issuance of timely and reliable financial information.

As portion of such report, financial statements of the IPAB as of December 2002

and 2001 certified by an external auditor are herein included.

In order to provide greater transparency and reliability to operations which by

legal mandate are conducted by the IPAB, the external auditor issues a quarterly
review limited to financial statements published on newspapers and on the
website of the IPAB. This allows consultations of financial data of the IPAB.

It is important to underline that since the IPAB was created in 1999, certified
opinions issued by external auditors (quarterly and annually) have been clean.

On the other hand, timely delivery of financial and budgetary information to the
Integral Information System, as set by applicable guidelines, has been met at all

VII. Computer Systems

Among other things, during the year 2002 the IPAB paid due attention to the
observation issued by the Audit Office of the Federation through the presentation
of the conciliation of reportable transactions of auditor M. Mackey.

Since July 2002, data received from financial institutions at month closing, as well
as quarterly information on reportable credits recovery from Mackey arrive at the

IPAB between day 20 and 25 of the following month. Therefore, compared to
previous semesters, a 30 to 45 days of oportuneness has been gained.

In order to optimise data delivery times, systems developed by the IPAB were
installed at 5 financial institutions.

On September, the Statistic Report of the IPAB was redesigned, generating 11

documents through the year.

In 2002, 13 applications were developed and released, among them:

Data Inquiry Format: facilitates data inquiries from the administrative units of the
IPAB through Intranet.

Institutional Information Handling (cards): allows centralization,

administration, control and service on research activities on information
documents at an institutional level; among them, cards for appearances and
information of the Official Gazette of the Federation are worth mentioning.

Visitor Control: facilitates visitor entrance and exit control at IPAB buildings, as
well as follow-up on visitors to IPAB officers.

White book integration: an application for the integration of White Books was
implemented, based on a workflow scheme.

Management Control System for the Payment of Secured Obligations: its

purpose is to administer payments of secured obligations whenever liquidation is
undertaken at any given institution. The system was optimised based on the
experience at Quadrum. The new version was implemented on December 2 for
the liquidation process of Banco del Sureste.

Financial Programming: it is used for the programming of revenue and

expenditures for the next 30 years, for decision making purposes and in order to
find new financial schemes that would allow the IPAB to meet obligations

Surveillance System: this application facilitates recovery control and follow-up of

banking institutions.

Application of managerial reports on awarded real estate property: this tool

allows inquiries of information at a managerial level on awarded real estate
properties, through reports that display such information according to consultation

Integration of data on auctions to the loading process of awarded non-fixed

assets and real estate property: the application for the obtention, centralization
and data loading processes corresponding to inventories of awarded property
including handling of Historic Information was released. Version 2.0 consists on
the integration to inventory of auction processes related data.

Control of refunds and service rendering parties: makes trial refunds control

Follow-up of legal processes: controls and makes follow-up and progress

easier on legal processes.

Integral administration system: a new accounting system.

In terms of infrastructure, the switchboard was improved by substituting the

battery rack, therefore availability time was increased in the event of an electric
failure to two hours. Regarding energy backup equipment (Ups), total charge was
achieved, therefore allowing for proper switching off of all equipments and proper
saving of data; likewise, 9 harmonic suppressors were installed in order to
guarantee the quality of the electric power available for computer systems at the

In terms of telephone networking, 471 telephone devices were substituted and

replaced, and new provisions were implemented for restricted call control
purposes. Reduction was equal to 28 percent on monthly invoicing.

Finally, among other things, the following actions were taken in order to
strengthen security and infrastructure at the IPAB: implementation of the Net IQ
(mail identifier); execution of a multi-annual agreement with Enterprise
Agreement which derived on a 38.4 percent institutional benefit on costs due to
the reduction that Microsoft granted at Federal Government level and the
installation of two servers featuring “fault tolerance” technology and two portable
projectors with the same number of portable screens.

During the year, 3,284 reports to IPAB users were attended by the Help Desk.
Weighted quality on efficiency of services rendered with respect to response time
was 98.71 percent and infrastructure availability was 99.7 percent. Likewise, a
total of 956 requirements from different administrative units were also attended.

VIII. Regulation and Evaluation

In order to contribute to the fulfilment of the mission of the IPAB, on June 2002
the area of Regulation and Evaluation was created based on the values that rule
its performance, and in order to cooperate with efforts made by each
administrative unit focused on the meeting of institutional objectives.

The key commitment of this Directorate is to design the Institutional Planning and
Evaluation System for the short, middle and long terms, so that by means of
standards, procedures, criteria, guidelines and technical specifications a quality
system can be designed for the control and evaluation of the different programs
of the IPAB and of its administrative units.

Likewise, and in compliance with statutory authority granted, this Directorate

leads the formulation of the annual work plan for the IPAB; conducts follow-up
and evaluates due observance of applicable law and implements mechanisms for

the updating of internal regulations. It also sets guidelines for institutional
programs and for reports on the operations of the IPAB sent to the Congress and
the Executive Branch.

On the other hand, this Directorate submits proposals on policies, limits, models
and procedures applicable for the integral management of the different types of
risks encountered by the IPAB; it also integrates and safeguards documentary
files on each of the following operations carried out by the IPAB: financial
support, sale and liquidation of institutions, secured obligations, sale of goods,
shares and capital stock, and loan portfolio.

In order to provide due fulfilment of its responsibilities as far as planning and

evaluation are concerned, the Annual Work Program for 2002 was prepared
detailing strategies, projects and activities to be performed by the different areas
that make up the IPAB and later submitted to the Governing Board for approval.
Regarding the 2003 annual work program, general guidelines were issued so that
it may include all necessary information for the measurement of the meeting of
goals set for each administrative unit.

Moreover, the semi-annual self-evaluation report was integrated. This report is

not only a diagnosis of activities performed during the given period but it also
facilitates institutional planning to measure fulfilment of results of indicators,
objectives and goals.

In order to standardize reports and provide institutional documents with the

necessary clearness and accuracy, the Information Mapping Documentation and
Procedure Method was implemented. The method will be fully implemented
during 2003. The purpose is to use it in the elaboration of reports, manuals,
guidelines, policies, notes of the Governing Board, this is in all internal

Guidelines for the elaboration of indicators are a support tool in planning that will
allow all areas to measure the achievement of their strategic objectives through
parameters that compare results obtained vs. programmed.

Basis for the design and implementation of the evaluation and follow-up system
were planned. Such system will monitor achievement of goals set by the areas
using a managerial information board that will make decision making easier and,
as the case may be, make corrections on direction and/or reorient resources.

On the other hand, analysis and follow-up were conducted on observations made
by the Internal Control Body of the IPAB and meetings were scheduled with the
corresponding heads of areas in order to clarify and take actions. Thanks to
follow-up audits and improvement agreements sponsored by the Internal Control
Body, 95 observations were attended representing 66 percent of the total.

In order to meet objectives and fulfil activities in the Regulation area, the Specific
Organization Manual was created in order to provide the necessary objectives
and functions for each of the areas that make it up as well as to define

institutional processes and procedures on which the administrative units take

Also, the Institutional Process and Procedure Catalogue was prepared in order to
start updating, reduction and simplification by each area of the IPAB.
Methodology for the elaboration of processes and procedures was set and the
first step taken for the review and updating of such regulatory-organizational
documents, which purpose is to be precise, efficient, uniform, clear and

On the other hand, areas of opportunity were detected to be incorporated to

processes susceptible to quality certification processes based on ISO 9001:2000.
The purpose is to create a continuous improvement culture on the operating
processes of the IPAB. In order to train project leaders on processes to be
incorporated to the ISO 9001:2000 standard, a course was held for internal
auditors and leading auditors who will play a key role in the obtention of such
As far as process control is concerned, 144 documentary files (White Books)
were prepared of each of the following operations: financial support; institution
sale and liquidation; sale of secured obligations; sale of property, shares and
equity, and loan portfolios conducted by the IPAB during such given period.

Likewise, in compliance with Article 65 of the LPAB, reports proving the legality
and transparency of each and every sale operation at the IPAB were prepared
and sent to Congress.

Regarding risk administration, three Value at Risk (VaR) models were prepared
in order to evaluate the positions of the investment portfolio of the IPAB before
market risk. 1) Parametric VaR, 2) Historic Full Valuation VaR and 3) Delta
Historic VaR.

Results are presented in two reports (one daily and one weekly) which are
distributed to the corresponding areas. The daily report shows the Value at Risk
of the portfolio at a seven day horizon of investment, calculated with the
Parametric and Historic Value; it also includes the duration GAP of the portfolio
for currencies, pesos, dollars and UDIs, as well as the duration of each such

The weekly report includes the Value at Risk of the portfolio of investment and it
also contains a summary of IPAB investments, a duration GAP of portfolio
assets, sensitiveness measurements such as Duration and Dollar-Duration and
an evaluation of compliance of the treasury investment regime approved by the
Governing Board. Such report also includes a calendar of relevant events which
affect market risk values and a calendar of publishing of relevant information for
the week in question.

IX. Social Communication and Institutional Relations

Since the start-up of operations, the IPAB has considered communication with
society as a key element of its true essence as public serving entity. This has

allowed the projection of the core values of its activities: Transparency, Legality,
Independence, Efficiency and Consistency.

Therefore, as an ongoing effort to strengthen institutional image, during the year

2002 the dynamics of social communication actions focused on the improvement
of the knowledge that society has of the IPAB. The “Peso Ahorrado, Peso
Asegurado” (Peso Saved, Peso Insured) campaign was disseminated through
the mass media from January to April.

During those three months, printed media -nationwide newspapers and

magazines- published the institutional message 267 times. Likewise, national and
regional radio and television broadcasted 7,944 impacts, therefore achieving
broad coverage of national savers.

On the other hand, in the information area society was informed of the dynamics
of the tasks undertaken by the IPAB through 48 press releases sent to printed
and electronic media nationwide. Follow-up of information based on press
releases that appeared on different printed means of communication during the
year 2002, showed 208 notes published on the activities of the IPAB.

The information task, however, was not limited to press releases. In order to
expand and complement information, 23 interviews were scheduled between the
journalists and public servants of the IPAB. Likewise, during such same period,
informal meetings and approaches with reporters, journalists and radio
broadcasters took place.

Inserts and displays bear the same transcendence in terms of communication for
the IPAB. Some of them must by printed in compliance with law and others in
order to stress operation transparency. Therefore, during the period of this report,
275 public notices, bid summons and reports were printed - among which BPA
placements, financial statements and notices on discoverage of Deposit
Insurance are worth mentioning.

Likewise, as part of the publishing tasks of the IPAB, editions of the Legal
Framework and regulations, as well as IPAB In Numbers were updated, and the
2001 Annual Report was printed. Such documents were distributed internally and
to journalists, members of Congress and groups interested in the activities of the

It is important to mention that 155 inquiries from the general public were received
via e-mail by the IPAB; all of them were answered.

As far as the relationship of the IPAB with the Congress is concerned, the
objective posed for the year 2002 was that of consolidation through timely
handling of information requested by the different instances of the legislative

The Executive Secretary of the IPAB reported in three occasions before

commissions of Congress on topics related to the IPAB and in full compliance of
applicable law.

Likewise, Institute officers held 18 meetings with legislators, political party
foundations and other bodies of the Legal Branch in order to provide further
information on issues related to the IPAB.

The most recurrent issues dealt with at such meetings were: 1) Deposit insurance
administered by the IPAB; 2) Eventual sale of Cintra; 3) Liquidation process of
intervened banks; 4) Reports on revisions conducted to banking institutions that
participate in the Capitalization and Portfolio Purchase Program; 5) Reforms to
the LPAB; 6) Operation of the IPAB; 7) 2001 Public Account, 8) Budget of the
IPAB for the year 2003.

In compliance with law, the IPAB delivered quarterly reports to Congress on the
amounts of payments made by each banking institution as premiums.

On December 2002, the IPAB obtained approval from Congress for the 2003
budget, which includes budgetary transfers which allow the IPAB to meet its
mandate by law.