Notes to Financial Statements - BDO

Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)Under an existing BSP circular, expanded commercial banks are required to comply with the minimum capital requirement of P4,950. As ofthe dates of the statements of condition, the Group has complied with the above capitalization requirement.There have been no material changes in the Group’s management of capital during the period.19.2 Capital AllocationThe allocation of capital between specific operations and activities is, to a large extent driven by optimization of the return achieved on thecapital allocated. The amount of capital allocated to each operation or activity is based primarily upon the regulatory capital, but in somecases the regulatory requirements do not reflect fully the varying degree of risk associated with different activities. In such cases the capitalrequirements may be flexed to reflect differing risk profiles subject to the overall level of capital to support a particular operation or activitynot falling below the minimum required for regulatory purposes. The process of allocating capital to specific operations and activities isundertaken independently of those responsible of the operation and is subject to review by the ALCO.Although maximization of the return on risk-adjusted capital is the principal basis used in determining how capital is allocated within the Groupto particular operations or activities, it is not the sole basis used for decision making. Account also is taken of synergies with other operationsand activities, the availability of management and other resources and the fit of the activity with the Group’s longer term strategic objectives.The Group’s policies in respect of capital management and allocation are reviewed regularly by its Board of Directors.19.3 Capital StockCapital stock consists of the following:Common shares – P10 par valueAuthorized – 5,500,000,000 sharesIssued and outstanding –2,302,032,661 shares in 2008 and 2007; and2,270,629,069 shares in 2006Number of Shares2008 2007 2006Balance at beginning of year 2,302,032,661 2,270,629,069 939,593,142Issued during the year - 31,403,592 1,331,036,9272,302,032,661 2,302,032,661 2,270,630,069Preferred shares – P10 par valueAuthorized – 1,000,000,000 sharesIssued and outstanding –500,000,000 shares in 2008;none in 2007 and 2006 500,000,000 - -Common shares – P10 par valueAuthorized – 5,500,000,000 sharesIssued and outstanding –2,302,032,661 shares in 2008 and 2007; and2,270,629,069 shares in 2006Amount2008 2007 2006Balance at beginning of year P 23,020 P 22,706 P 9,396Issued during the year - 314 13,31023,020 23,020 22,706Preferred shares - P10 par valueAuthorized – 1,000,000,000 sharesIssued and outstanding –500,000,000 shares in 2008;none in 2007 and 2006 5,000 - -P 28,020 P 23,020 P 22,706On August 30, 2008, the Board of Directors approved the issuance of up to 500,000,000 perpetual, voting, non-cumulative, convertible, nonparticipating,peso-denominated Series A preferred shares qualifying as Tier 1 capital of the Group. The conversion right is at the option ofthe holder after three years from the issue date or at the option of the Group at any time after issue date upon the occurrence of certain triggerevents such as: (i) a change in tax status of the preferred shares, or (ii) the preferred shares do not qualify as Tier 1 capital of the Groupas determined by the BSP or other applicable laws and regulations. Dividend rate is at 6.5% per annum of the par value. Subsequently, onSeptember 30, 2008, the Bank issued 500,000,000 preferred shares at P10 per share or a total value of P5,000.Thinking Ahead To Get You Ahead • Annual Report 2008 63