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creditfoncier.com
UPDATE TO THE 2013 REGISTRATION DOCUMENTINCLUDING THE 2014 HALF-YEAR FINANCIAL REPORT
This update to the registration document is available at www.creditfoncier.com
This document is a free translation into English of Crédit Foncier’s update to the 2013 Registration document issued in the French language and is provided solely for the convenience of English speaking readers. Every effort has been made to ensure that the English translation is an accurate representation of the original; however, in case of discrepancy the French version will prevail and is the only binding version.
The original update to the Registration document was filed with the Autorité des marchés financiers (AMF - French Financial Markets Authority) on August 29, 2014 in accordance with Article 212-13 of its General Regulations under the number D.14-0335-A01. It supplements the registration document filed with the AMF on April 10, 2014 in accordance with Article 212-13 of its General Regulations, under file no. D.14-0335. It may be used in support of a financial transaction if accompanied by a prospectus duly approved by the AMF. This document was produced by the issuer and its signatories are responsible for its content.
1 - CRÉDIT FONCIER IN THE FIRST HALF OF 2014
2 - RISK MANAGEMENT 3 - FINANCIAL INFORMATION 4 - OTHER INFORMATION
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
UPDATE TO THE 2013 REGISTRATION DOCUMENTIncluding the 2014 half-year financial report
Abbreviations used in this document:Millions of euros: €mBillions of euros: €bnThousands of euros: €k
COMPANY PROFILE 4KEY FIGURES 5
1. CRÉDIT FONCIER IN THE FIRST HALF OF 2014 7
2. RISK MANAGEMENT 25
3. FINANCIAL INFORMATION 71
4. OTHER INFORMATION 117
PRESENTATION
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
COMPANY PROFILEProfile
A central role on the real estate markets
Crédit Foncier is the leading specialist in real estate financing and services in France.
As a wholly-owned subsidiary of Groupe BPCE, the second-largest banking group in France (1), Crédit Foncier serves all those who seek, for one reason or another, the expertise and unique insight that will help them find the solutions to their real estate needs: individuals of course, but also professionals, investors and local authorities. Crédit Foncier offers all of these players its innovative capacity, creativity and over 160 years of experience on the market.
Crédit Foncier focuses on five major businesses: granting loans to individuals, financing for real estate investors and professional customers, financing for public entities, real estate services and refinancing operations.
Company profileFounded: 1852Business sector: Banking, real estateFacts and figures:2,881 employees at Crédit Foncier (average headcount in 2013)253 branches7,000 business partners in the real estate sector (developers, single-family home builders, real estate agents, wealth managers)No. 1 lender to low-income households (2)
No. 1 issuer of covered bonds in the world (3)
Fourth-largest real estate consultant in France (4)
Business lines
Direct loans to individuals
Crédit Foncier provides individuals with home ownership financing for both new and existing homes. It is particularly active in lending to low-income families, a segment in which it held a 42% market share as of May 15, 2014 (2). Crédit Foncier is also active in the rental investment sector and financing to seniors through specialised products such as the Prêt viager hypothécaire (reverse mortgage).
Financing of real estate investors and professional customers
Crédit Foncier helps property investors and professional customers carry out their operations. Crédit Foncier also provides these partners with its expertise in the area of credit arranging and syndication of business financing.
Financing of public entities
Crédit Foncier lends to local authorities and entities in charge of social housing. Its teams develop and support the financing of major infrastructure projects through complex arrangements such as public-private partnerships (PPPs).
Real estate services
Real estate services are provided by Crédit Foncier Immobilier, a wholly-owned subsidiary of Crédit Foncier that offers services in two areas: (1) consulting, research and valuation and (2) brokerage and property management. It targets institutional investors, other investor groups, residential and commercial property groups and major landlords. Crédit Foncier Immobilier also produces studies and forecasts on the real estate markets. These are highly prized by professionals in the property sector, public entities and, more broadly, the media, which draws heavily on the findings.
Financial operations
This business provides refinancing on loans granted by Crédit Foncier and the other banking networks of Groupe BPCE. Most of the business is handled by Compagnie de Financement Foncier, a wholly-owned subsidiary of Crédit Foncier whose purpose is to fund mortgage and public-sector lending activities by issuing obligations foncières and through securitisation.
(1) Second in number of branches (source: database, banks’ websites in 2013); second in market share for customer savings and customer lending (source: Bank of France Q3 2013); second in penetration rate among professionals and individual entrepreneurs (source: Pépites CSA survey 2011-2012).
(2) 42% market share in loans to low-income families (Prêt à l’accession sociale) - source: SGFGAS.(3) Natixis study: “Overview of Covered Bond Programmes” (Tour d’horizon des programmes d’obligations sécurisées) - March 2014.(4) Source: revenue data retrieved from societe.com.
PRESENTATION
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
KEY FIGURESCrédit foncier group activity
(in €m)
06/30/2014 06/30/2013
Loan production (management data) 4,340 5,025
Individuals 3,049 3,484
Corporates 770 1,131
• Public sector 411 879
• Private sector 359 252
Subsidiaries (1) 521 410
New issuances 3,437 2,965
o/w issuances of obligations foncières 3,437 2,965
Securitisation 923 -
(1) The “Subsidiaries” line has been included in order to isolate certain activities for which a market-type approach is not appropriate (loans to staff, consumer loans issued by Banco Primus and SOCFIM’s real estate development activities).
(in €m)
06/30/2014 12/31/2013
Gross securities and receivables (1) 114,170 119,342
Individuals 57,814 58,063
Corporates 56,356 61,279
• Public sector 48,367 53,084
• Private sector 7,989 8,195
Receivables managed on behalf of third parties 3,999 2,984
(1) Management data at year-end under IFRS 7.
PRESENTATION
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
Consolidated financial data(in €m)
06/30/2014(Basel III)
12/31/2013(Basel II)
Consolidated balance sheet
Balance sheet total 146,751 147,960
Consolidated equity - Group share 3,646 3,590
Regulatory capital 4,273 4,095
o/w basic regulatory capital 3,999 (3) 4,028
o/w regulatory core capital (1) 3,775 (4) 3,748
Solvency ratio - Standardised approach (2) 9.1% 9.9%
Tier-1 ratio (basic capital) 8.5% 9.7%
Core Tier-1 ratio (core capital) 8.0% 9.0%
(1) After deducting perpetual deeply subordinated notes.(2) Calculated on the basis of capital requirements presented in Section 4.4 of the Risk Management Report.(3) Total Tier-1.(4) Common equity Tier-1.
(in €m)
06/30/2014 06/30/2013
Consolidated results
Net banking income 336 330
Individuals 282 276
Private corporate sector 46 46
Public corporate sector 23 22
International corporate sector 8 27
Holding companies -23 -41
Gross operating income 63 65
Income before tax -1 1
Group share of net income 2 10
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
THE GROUP 8Highlights 8Functional organisational structure 9Administrative and executive bodies 10Positioning 11Ratings 12Share capital 12Capital transactions 13
COMMERCIAL AND FINANCIAL ACTIVITY 14Economic environment 14Commercial activity 15
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THE GROUPHighlights
CRÉDIT FONCIER, A KEY PLAYER ON THE REAL ESTATE MARKET
January Launch of the new corporate website: www.creditfoncier.com
MarchAnnual Real Estate Markets presentation (2013 review and outlook) at the Maison de la Mutualité conference centre: two roundtable discussions (on regional disparity and the seniors segment) followed for the first time by sessions in six regional cities.
April • National Real Estate Conference (Salon national de l’immobilier) held in Paris at Porte de Versailles.• Revitalisation campaign for the Prêt viager hypothécaire (reverse mortgage).
June • Crédit Foncier returns to television for the Football World Cup.
GROUP STRATEGY
January Launch of the La bonne année campaign in the French press.
February Launch of the BPCE partnership with the Olympic Games in Sochi.
April Signing of a partnership protocol between Crédit Foncier and Banque Populaire Aquitaine Centre Atlantique (BP ACA) under BPCE: €100 million and banking penetration of 1,000 contracts (Group synergies).
April - June Crédit Foncier participates in the ECB’s asset quality review (AQR).
June Deployment of the partnership with the 450 branches of Caisse d’Epargne Île-de-France.
SOCIETAL AND ENVIRONMENTAL ENGAGEMENT
March - April• Cube 2020 conference and launch of the “eco-habits” (éco-gestes) challenge.• Sustainable Development Week: two conferences on CSR at Crédit Foncier and Crédit Coopératif and on energy
scarcity (Renewable Energy Liaison Committee - CLER).
CRÉDIT FONCIER RESEARCH PUBLISHED ON WWW.CREDITFONCIER.COM
January “A Recovering Residential Market on the Eve of 2014”.
March Presentation of Crédit Foncier’s annual study at the Maison de la Mutualité in Paris: “Real Estate Market Review for 2013 and Outlook for 2014”.
April “The Path to Acquiring a Principal Residence: From Dream to Reality”.
May “Home Ownership for Low-Income Families”.
June “The Real Estate Lending Market in Europe”.
INNOVATION
April Launch of the 4th BPCE Innovation Awards.
June Launch of the 2nd "Springboards to Innovation" (Tremplins de l’innovation).
REFINANCING
February Start of online distribution of term deposits for legal entities.
March Public issuance of €1bn with a 5-year maturity on March 4.
April Public issuance of €1bn with a 10-year maturity on April 29.
May Successful completion of the public securitisation operation - the first since 1995, with 8,900 loans to individuals amounting to €923m.
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
Functional Organisational StructureGeneral Management and the Executive CommitteeAt June 30, 2014
Éric FILLIATChief of Financial
ManagementFinance Division
Mathieu LEPELTIERChief Risk Officer
Risk and Compliance Division
Sandrine GUÉRINChief of Corporate and
Investment Banking (CIB)Financial Operations
Philippe DUPINCorporate transactions
François GUINCHARDIndividual transactions
Luc RONDOTInformation systems
Corinne DECAUXLegal Department
Patrick CHASTANTInspection Generale Division
Bruno DELETRÉChief Executive Officer
Jean-Pierre POUGETDeputy Chief of Financial
ManagementFinance Division Accounting
and taxation
Muriel COLLEResources Division
Thierry DUFOURDeputy CEO
Finance and Operations
Nordine DRIFDevelopment
Stéphane IMOWICZReal Estate Services
Isabelle SELLOS-MAHECorporates
(public & private)
Anne-Marguerite GASCARD
Sales networks
Alain DAVIDDevelopment
Philippe PETIOTDeputy CEO
Retail and Corporate
Retail and Corporate Banking Division. Finance and Operations Division. Resources and steering Division. Member of the Executive General Management Committee.
François PÉROLChairman
Ressources and steering Division
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Administrative and Executive BodiesExecutive Management
Composition of Executive Management(at June 30, 2014)
Bruno DELETRÉ, Chief Executive Officer.Thierry DUFOUR, Deputy Chief Executive Officer, in charge of Finance and Operations.Philippe PETIOT, Deputy Chief Executive Officer, in charge of Retail and Corporate Banking.
The Executive Management Committee also comprises:• Éric FILLIAT, Chief of Financial Management, Finance
Division;• Sandrine GUÉRIN, Chief of Corporate and Investment
Banking, Financial Operations;• Mathieu LEPELTIER, Chief Risk Officer, Risk and Compliance
Division.
Board of Directors
Composition of the Board of Directors(at June 30, 2014)
Board of Directors• François PÉROL, Chairman of the Board of Directors• Gérard BARBOT, Chairman of the Remuneration Committee• Meka BRUNEL, Member of the Remuneration Committee• Nathalie CHARLES, Member of the Remuneration Committee• Pierre DESVERGNES• Bruno DUCHESNE• Nicole ETCHEGOÏNBERRY, Member of the Audit Committee• Christine FABRESSE• Jean-Yves FOREL• Dominique GARNIER, Member of the Audit Committee• Catherine HALBERSTADT• Francis HENRY, Member of the Remuneration Committee• Jean-Hervé LORENZI, Member of the Audit Committee• Anne MERCIER-GALLAY• Stéphanie PAIX• Nicolas PLANTROU• Jean-Paul DUMORTIER, Member of the Remuneration
Committee• BPCE, represented by Daniel KARYOTIS, Chairman of the
Audit Committee
Non-voting Directors• Jean-Marc CARCELÈS• Emmanuel POULIQUEN• Michel SORBIER
Central Works Council Delegates• Jean-Marc GILANT (management representative)• Valérie FIX (client executives, banking representative)
Government Auditor• Olivier BUQUEN
Changes to the composition of the Board of Directors in the first half of 2014The Annual General Shareholders’ Meeting of April 30, 2014 ratified the appointment of Jean-Paul DUMORTIER as non-voting director to replace Marc JARDIN.
The Board meeting of June 24, 2014 appointed:• Nicolas PLANTROU, to replace Jean-Paul FOUCAULT as
Director.• Jean-Paul DUMORTIER, to replace Jean CLOCHET as
Director.• Emmanuel POULIQUEN, to replace Jean-Paul DUMORTIER
as non-voting Director.
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
PositioningOrganisation chart of Groupe BPCEAt June 30, 2014
FLOAT
100% 100% *
50%50%
72% 100%
28%
* Indirectly through Local Savings Companies.
8.8 MILLION COOPERATIVE SHAREHOLDERS
BPCECENTRAL INSTITUTION
ORGANIZATION CHART OF GROUPE BPCE AT JUNE 30, 2014
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RatingsStandard & Poor’s (S&P) Moody’s Fitch Ratings
ST LT Outlook Date ST LT Outlook Date ST LT Outlook Date
Crédit Foncier A-2 A- Developing 07/04/2014 P-1 A2 Negative 05/29/2014 F1 A Stable 08/19/2014
Affiliated with BPCE
A-1 A Negative 07/07/2014 P-1 A2 Negative 05/29/2014 F1 A Stable 07/30/2014
Cie FF* A-1+ AAA Stable 06/24/2014 Aaa Stable 01/21/2010 AA+ Stable 07/02/2014
VMG** AAA Aaa AAA
Ratings updated on the date the update to the 2013 Registration document was filed.* Cie FF: Compagnie de Financement Foncier.** VMG: Vauban Mobilisations Garanties.
Moody’sMoody’s rating agency affirmed France’s Aa1 rating, the second-best assessment, while maintaining a negative outlook due to the flagging competitiveness of the country’s economy. Due to this announcement on May 29, 2014, Crédit Foncier’s long-term ratings outlook is negative.
Standard & Poor’s (S&P)On June 24, 2014, S&P confirmed its long-term and short-term ratings for Compagnie de Financement Foncier with a stable outlook.
Fitch RatingsFitch confirmed the AA+ rating (outlook stable) of Compagnie de Financement Foncier’s public sector covered bonds. The rating given to obligations foncières is limited by France’s long-term AA+ rating in view of the significant exposure to public sector entities.
Share CapitalCharacteristicsAt June 30, 2014, Crédit Foncier’s share capital amounted to €1,331,400,718.80, divided into 369,833,533 shares fully paid-up in cash, each with a nominal value of €3.60. Crédit Foncier does not own any of its own shares. The total number of voting rights is equal to the number of shares. The bylaws do not contain any provisions that are more restrictive than legal provisions regarding changes to the shareholding structure and the rights of different share classes that could be created.Crédit Foncier has not issued securities that can be converted into capital such as convertible bonds that can be exchanged or redeemed for equity instruments, warrants etc., nor options for management and staff to purchase shares.
Ownership structure breakdownSince August 5, 2010, BPCE has owned 100% of the equity and voting rights of Crédit Foncier, with the exception of the shares held by members of the Board of Directors.
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Capital TransactionsRestructuring
Financière Desvieux
On April 29, 2014, Crédit Foncier completed the liquidation of Financière Desvieux, which had completed its corporate purpose.
Sergic Invest
In May 2014, Foncier Participations disposed of its entire ownership share in Sergic Invest (8.25% of share capital).
Foncier Diagnostics
To simplify Crédit Foncier’s organisational structure, Foncier Diagnostics underwent a simplified merger in April 2014, effective retroactive to January 1, 2014.
Developing and improving the Group’s existing structures
Cofimab
On March 27, 2014, Crédit Foncier advanced €10.4m to finance the buyout of a business/office building belonging to LFI Poissy Parc.
Sipari
In May 2014, Sipari repaid €332,954 in advances made to it by Crédit Foncier as part of operations carried out by Foncier Pro.
Sipari-Vélizy
On May 16, 2014, Crédit Foncier advanced an additional €684,567 in respect of the SAS DUCHESSE D’HARCOURT transaction.
Transactions within Groupe BPCE
Fideppp
On February 10, 2014, Crédit Foncier paid €630,000 for the allocation of 630 B shares, bringing the portion of paid-up capital in Crédit Foncier’s total commitment to 61%.
Fideppp 2
On March 10, 2014, Crédit Foncier paid up €623,000, bringing the portion of paid-up capital in Crédit Foncier’s total subscription commitment to 4.15%.
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COMMERCIAL AND FINANCIAL ACTIVITYEconomic environmentGrowth returns but remains sluggishThe World Bank has lowered its growth outlook for 2014. It now expects global growth in 2014 to be 2.8%, compared to the 3.2% announced in January (5).The global economy remains fragile despite improved prospects. Economic risks have risen as a result of geopolitical instability in Ukraine and the Middle East. Meanwhile, low inflation in the advanced economies and weaker prospects in the emerging countries could emerge as new risks.Nonetheless, the global economy should benefit from the momentum in the United States, where the International Monetary Fund expects growth to reach approximately 2.75% (6).In Japan, the policies put in place by Prime Minister Abe (“Abenomics”) - intended to pull the country out of deflation and support growth - have been slow to yield results. Meanwhile, Japan’s economy has been propped up by the depreciation of the yen against the US dollar.Finally, the Chinese economy - the world’s second largest - is slowing, hurt by declining foreign demand.On the eurozone front, two disparate trends can be seen: encouraging growth for a handful of countries including Germany, Austria and Belgium, and faltering performance across the rest of the eurozone. Despite exiting recession one year ago, the eurozone is still showing some signs of weakness. In the first quarter of 2014, the region saw GDP growth of 0.2% (7), largely sustained by the strength of Germany’s economy.Europe’s recovery is likely to remain fragile in the coming quarters.
On the French real estate market, interest rates on real estate loans continued their downward trend in the first half of the year, reaching historically low levels of 2.85% on average (8) (excluding insurance and guarantee costs).
Still waiting for the ECB’s monetary policy to produce resultsAgainst the backdrop of a slow recovery and low interest rates, in early June the European Central Bank (ECB) took measures aimed at curbing inflation. At 0.5% (9), the European rate of inflation in June 2014 was in the “danger zone” - far from the ECB’s 2% target. In an attempt to remedy this, the ECB Governing Council announced a number of measures aimed at supporting the flow of credit to the eurozone economy and easing monetary conditions through the provision of unlimited liquidity.
The first of these measures is a 10 bp reduction in key rates: 0.15% for the refi rate, -0.10% for the deposit rate and a 40 bp reduction for the marginal lending facility rate (10). The second measure is the implementation of a series of TLTROs (Targeted Long-Term Refinancing Operations) that will allow banks to receive funding with longer maturities (up to four years), to be used to finance new loans to the private sector (excluding housing loans).The various measures announced by the ECB will take time to yield results. Although the effects on banks are varied, the impact is positive overall. In countries like Spain, Italy and Portugal, these measures will give institutions access to lower-cost financing. Furthermore, the deposit rate for banks with excess liquidity will be lower.
(5) World Bank - Global economic prospects - June 2014.(6) http://www.imf.org/external/french/pubs/ft/survey/so/2014/res040814af.htm(7) Natixis Research: “European Growth Hits the Brakes” (Coup de frein sur la croissance européenne).(8) http://creditfoncier.com/saga-taux-du-credit-immobilier-au-plus-bas(9) http://www.insee.fr/fr/themes/info-rapide.asp?id=29(10) Natixis Research: “What are the Effects of the ECB’s Package?” (“BCE : quels effets du package ?”).
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Commercial Activity
Individual customersThe market situation observed in 2013 remained unchanged during the first half of 2014, as the market was still relatively sluggish.New real estate has not been the sole casualty of this trend; the existing homes market has also seen spiralling weakness. Thankfully, interest rate levels have prevented an even more severe downturn. For the past 18 months, interest rates on real estate loans to individuals by banks in France have remained particularly low, falling to 2.85% on average in May, their lowest level since the late 1940s (11).
French real estate markets
The residential real estate market
THE NEW PROPERTY SECTOR: New real estate construction permits over the 12-month period from June 2013 to May 2014 fell 20.7% (compared to June 2012 to May 2013) to 389,444 (12). On the same period of comparison, housing starts also declined (-8.5%), amounting to 312,066 (12).With respect to sales of new homes, particularly in the development sector, the first quarter of 2014 saw a 5% decline from the first quarter of 2013 (13). This drop is due to weak individual investor activity in the sector - in the first quarter of 2014, this segment accounted for 37% of sales, compared to 40% over all of 2013 (14).Prices have remained stable since mid-2012 (13); in the first quarter of 2014, apartments sold for €3,852/m² (13).
In the single-family home construction sector, total sales were down by 8% year-on-year at end-May 2014 compared to the same period one year earlier (15). Paradoxically, prices have continued to rise (+2.3%) (13), reflecting the high cost of property and construction.
THE EXISTING PROPERTY SECTOR: On a one-year rolling basis, the number of transactions on existing properties was 735,000 at the end of May 2014, against 719,000 at the end of December 2013; an increase of 2.2% (16). The total figure is nonetheless lower than the average over the last 10 years (approximately 800,000).Business in this sector remains robust thanks to anticipations of a rise in transfer duties and the exceptional allowance on capital gains from the sale of secondary homes until August 2014.Prices are falling on most markets under pressure from demand, which is putting buyers in a strong position: -1.6% in Paris (at end-April) and -1.3% outside Paris (March), year-on-year (17).
The real estate lending market in France
The sharp drop in interest rates on loans (2.85% on average in May), coupled with a relative decline in sales prices, has kept lending volumes stable. Although these volumes have stagnated since the beginning of the year, 2014 should see a very gradual market advance (approximately €130bn in committed loans) (17) compared with 2013.According to projections, production increase for the first semester of 2014 should be around 2% compared to the same period of 2013 (18). Hence, the increase should be around 1.3% for the new property market and around 2% for the existing property market (18).
Crédit Foncier’s activity in the first half of 2014
Organisation
In 2013, Crédit Foncier undertook major efforts to standardise furnishings across its branches and among its exclusive agents. As of mid-2014, Crédit Foncier has 253 points of sale under the unique Crédit Foncier brand distributed throughout France. In the first half of the year, 16 branches were refurbished to match the new branch concept, bringing the total number of refurbished branches to 31 since the programme was launched in 2012. Additionally, five branch inaugurations and the start of refurbishments on 18 additional branches are already planned for the second half of 2014.
(11) Observatoire Crédit Logement/CSA - May 2014.(12) French Ministry of Ecology, Sustainable Development and Energy, Observation and Statistics Department (Service de l’observation et des statistiques), no. 528.(13) French Ministry of Ecology, Sustainable Development and Energy, Observation and Statistics Department (Service de l’observation et des statistiques), no. 521.(14) French Federation of Real Estate Developers’ Observatory (Observatoire de la FPI France).(15) Caron Marketing (Markemétron no. 185).(16) CI-CDG, Q1 2014.(17) Crédit Foncier Immobilier (real estate market analysis, July 1, 2014).(18) Observatoire de la Production des Crédits Immobiliers – forecast 1st semester 2014.
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Product range
As the year of important project launches on the online channel and new developments on mobile interfaces, 2014 saw Crédit Foncier innovate through the introduction of several new products and services:• Foncier Direct Epargne, a new term deposit sales operation
that will expand the services on offer and attracts new customers, with 100% online subscription;
• Foncier Garantie Investisseur, providing access to group insurance that covers the savings of borrowers who acquire new or existing property for rental purposes. In cash management terms, this corresponds to the difference between the monthly payment on the real estate loan (including borrower’s insurance) and the rent payment collected by the investor upon the occurrence of a covered event.
Communication: Crédit Foncier returns to television
Following on the heels of the La Bonne Année and Le Bon Moment press and radio campaigns in early 2014, it must be emphasised the return of Crédit Foncier to television, during the Football World Cup, with a new advertising spot in line with the communication efforts launched in 2013.The aims of this TV advertising campaign were:• to reaffirm the position of Crédit Foncier de France as a real
estate financing specialist;• to stand out against the competition;• to reach out to the public with the message that they can
realise their housing ambitions.
The advertising spot was shown between June 12 and July 13 during the 64 World Cup matches on the beIN Sports network, which owned full and exclusive broadcasting rights for the event. It conveyed an upbeat, modern message, highlighting the emotions felt by customers when they obtain their loan. This TV spot will be rebroadcast in the second half of the year on the TNT network.
Individuals: loan production
After posting excellent results in 2013 despite a bleak market backdrop, Crédit Foncier’s production activities in the first half of 2014 saw a decline. Total new loans distributed amounted to €3.190m. However, in the low-income segment, Crédit Foncier remains in the lead, with 42% market share in loans to low-income families (PAS) (19) and 27% market share in PTZ+ (enhanced interest-free loans) (20), placing it ahead of competing banks.
Loan production breakdown in the first half of 2014
By distribution channel
Approved agents64%
Walk-inclients10%
Exclusive agents17%
Private clients2%
Non-residents1%
Belgium3%
Other3%
By market
New property ownership35%
Existing property ownership39%
Rental investment(new construction)12%
Rental investment (existing)3%
Renovation2%
Misc. incl. Belgium9%
(19) SGFGAS data at May 15, 2014.(20) SGFGAS data for the first half of 2014.
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Outlook for the second half of 2014
The real estate market
The prospects for France’s real estate market in 2014 are unlikely to be an improvement over the trends seen in 2013. As of mid-2014, prices remain on a decline, creating good opportunities for buyers. At the same time, however, development is slowing due to low investor confidence.Recognising these difficulties, the French government has announced measures aimed at reviving the housing market, including simplified construction standards and expanded access to interest-free loans. Some of these measures shall come into force in the second half of 2014.
Crédit Foncier
Against this backdrop, Crédit Foncier is continuing its development efforts, focusing on synergies with Banque Populaire banks and Caisses d’Epargne in keeping with Groupe BPCE’s “Growing Differently” (Grandir autrement) strategic plan. This collaborative strategy, initiated in early 2014 to respond effectively to the needs of a demanding clientele, has been reciprocated through efforts by customers from the Group’s various networks.Leveraging its expertise in regulatory affairs, property financing and real estate loans with terms above 25 years, Crédit Foncier has been able to offer the Group’s Banks impressive financing and refinancing solutions that are flexible, effective and competitive.At the same time, Crédit Foncier has focused on improving customer service through digital development and strengthened relationships with real estate sector professionals.
SUMMARY
ACTIVITY WITH INDIVIDUALS
(in €m)
06/30/2014 06/30/2013
Loan production 3,048 3,484
(in €m)
06/30/2014 12/31/2013
Outstanding loans at end of period
57,814 58,063
Direct loans to individuals
49,692 49,908
Residential mortgage-backed securities in Europe (stock)
8,122 8,155
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Real estate investors and public entities
In a lacklustre economic context, the reactions of real estate markets have been mixed:• The property development market has suffered from
decreased demand for housing linked to declines in rental investment and sales to live-in owners.
• The commercial real estate market has seen a rebound, with the volume of committed transactions rising by 81% to €10.5bn from €5.8bn over the same period in 2013. The lease market also saw a slight recovery, with higher demand and an increase in surface areas leased.
• The uncertainties of 2013 coupled with the electoral context in 2014 have led to a slowdown in the project financing market, particularly in public-private partnerships. Market consolidation in this segment has increased in recent months for projects under €100m.
• Despite receiving comprehensive support, the players on the social housing market have had difficulty meeting the expectations of public authorities in the most sensitive communities.
• Finally, beyond electoral considerations, various measures have strongly influenced the public sector market (local authorities and the government-run hospital sector), significantly reducing investment capacities for the years to come.
INVESTMENTS IN PUBLIC ENTITIES
Social housing
The market in the first half of 2014
Housing production is a key concern for the public authorities. To stimulate production, seven decrees have been issued since July 2013. These have been accompanied by a consultation process - conducted between November 2013 and February 2014 - focusing on four major efforts: simplifying standards, stimulating the housing sector, adjusting the housing supply and promoting innovation in the building sector. Four priorities have been formulated based on these efforts - promoting home ownership, streamlining construction standards to remove barriers, supporting low-income housing and creating a new supply of intermediary housing - to further stimulate the housing sector. Taken together, these measures should make it easier for “social housing landlords” to build more housing, particularly in
sensitive communities; to date, however, they have continued to face the challenge of housing scarcity. Nonetheless, social housing landlords have already undertaken numerous initiatives aimed at enhancing their property portfolios to meet the needs of their tenants, limit the vacancy rate and take part in urban renewal projects.
Crédit Foncier’s activity in the first half of 2014
Thanks to Crédit Foncier, Groupe BPCE maintains its leadership position on the social housing sector. Since the beginning of 2014, Crédit Foncier has played its role both as a service provider for the establishment of regulated loans on behalf of the Caisses d’Epargne and as a distributor of available resources. This type of financing is particularly well suited to the needs of social housing landlords, assisting them in their renovation projects, the enhancement of existing housing and the acquisition of property, among others.
Loan production in the first half of 2014
By customer type
Associations7%
Other21%
Social housinglandlords65%
EPLs*7%
* Local public companies.
French local authorities
The market in the first half of 2014
The public sector market is influenced by various factors:• cyclical factors such as elections, which inhibit investment by
local authorities: this year, the impact has been particularly strong given that local government represents, on average, 70% of investments carried out by local authorities;
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• structural factors, such as reforms to local taxation and equalisation, public spending cuts and reforms to regional government.
Taken together, these factors reduce local authorities’ visibility and investment capacity.Financing is now abundantly available and more diversified than before. It is available from commercial banks, from the Caisse des dépôts et des consignations (CDC - French Deposits and Consignments Fund), from the European Investment Bank (EIB) and from the market, which responds positively to bond issuances. Furthermore, the Agence France Local, an agency that provides financing to local authorities created in 2013, is gradually expanding its presence.
Crédit Foncier’s activity in the first half of 2014
Facing stiffer competition, Crédit Foncier leveraged its ability to offer loans with terms above 20 years to bid on tenders, particularly from French départements, in collaboration with the Caisses d’Epargne.At the end of June 2014, new loan production stood at €314m; this figure is down from the same period in 2013, due primarily to decreased demand from local governments.On the debt management front, Crédit Foncier has continued to provide support to its customers, offering them the most suitable arbitrage solutions on the basis of market trends. For several years now, Crédit Foncier has provided structured debt management for local authorities. At the end of June, the 2014 transaction volume in this segment amounted to €48m.
Loan production breakdown
By type of customer
Towns25%
EPCIs*31%
Departments33%
Hospital centres11%
* EPCI: French inter-municipal cooperative bodies (Établissement public de coopération intercommunale).
Project and infrastructure financingOn the project financing market, the first half of the year was marked by reduced activity of market players. This is the outcome of the reduction in the number of calls for tenders initiated in 2013, the electoral context and budget restrictions that put a freeze on a number of government-led projects (21). Furthermore, these calls for tender only concern investments of under €30m. According to the Mission d’appui aux partenariats public-privé (MAPPP - Mission in Support of Public-Private Partnerships), the number of calls for tender initiated since the beginning of the year is down from the same period last year (22). The same source also reports that the number of new contracted partnership projects launched in 2014 stands at one to two per month, compared to two to three in the same period of 2013 (22).
Crédit Foncier’s activity in the first half of 2014
Thanks to Crédit Foncier’s positioning on both "traditional" public-private partnerships and private financing projects, it has been able to reach a level of activity in project and infrastructure financing comparable to that seen in previous years. Indeed, Crédit Foncier has been able to adapt to changes in project type with respect to the size, characteristics and partners involved.
Operations being financed by Crédit Foncier include the following:Crédit Foncier and Caisse d’Epargne Île-de-France, in association with BPIfrance, are financing the construction of the new AREN’ICE skating rink for the agglomeration community of Cergy Pontoise (CACP). The rink will house the French Ice Hockey Federation. The public service contract covers the design, construction and interior and exterior finishing of the skating rink, as well as upkeep, maintenance (including major renovations), operations and financing. The shareholders of the Aren’Ice company are Fideppp, Financière Duval, Cofely finance et investissement and UCPA.
(21) MAPPP, May 2014.(22) MAPPP, July 2014.
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REAL ESTATE INVESTORS AND PROFESSIONAL CUSTOMERSThe commercial real estate market in the first half of 2014
The first half of 2014 proved particularly dynamic, with investment up 81% over the same period of 2013 (€10.5bn (23) vs. €5.8bn), making it the best performing first half-year since 2007.This upturn is partially due to the maturation of major transactions initiated in late 2013 spilling over into 2014, such as the Beaugrenelle shopping centre, the disposal of a Klépierre sales portfolio and the sale of shares in Coeur Défense. This volume reflects the return of transactions of a very large scale, three of them valued at approximately €1.3bn each (24). Transactions of above €100m accounted for two-thirds of transactions (24); eight of these were above €200m (24). A similar maturation of large-scale transactions is not, however, anticipated for the rest of 2014. This growth is also representative of the progressive internationalisation of the Parisian market, involving investors from the United Kingdom, the United States, the Middle East and Asia.
Despite these trends, the characteristics of the market remain similar to those seen in previous years, namely:• the dominant position of equity-rich market players:
insurance and mutual companies (17.4%), SPCI-OPCI retail (REITs and real estate mutual funds) (7.7%) and unlisted funds, including sovereign and open-end funds (29.4%) (24);
• the return of private investors (unlisted real estate companies and others) (37.5%) (24);
• the return of listed real estate companies, which are resuming purchasing after two years of deleveraging (5.5%) (24);
• reduced investment from Middle Eastern and Asian funds, partly offset by North American funds.
Across all asset classes (office space, commercial, logistics), the French market is characterised by a lack of “prime”-quality supply, which has the effect of limiting the volume invested.
Price levels and the scarcity of “core” supply in office space have led to changes in geographic distribution. Office space categorised as “central business district” now only represents 12% of purchasing intentions (25), compared to 31% for the immediate suburbs (première couronne) and the rest of Paris. While investors are prepared to venture to new areas to obtain higher returns, they continue to prioritise assets that represent a secure source of income. Returns on “core” commercial and office space have dipped to a low point of 4% in Paris and 5.5% in Lyon and Lille (24). Nonetheless, interest is growing significantly in unsecured transactions, vacant properties and properties requiring restructuring (25), with 8% of the period’s transactions involving properties requiring renovation and restructuring (25).
Another positive sign from the Parisian office market has been the 24% year-on-year increase in leased surface area (26), which reached 1.1 million m2. However, the 2014 overall area projections for 1.8-2 million m2 shows a significant decline compared with 2012 and lower than the average of the past 10 years.The “prime” commercial/shopping centre asset class has continued to attract investors despite dampened consumer spending. Over €3bn were invested in this asset class over the half-year period thanks to two very significant transactions accounting for 70% of the half-yearly performance (24). Over the full-year period, investments in commercial assets could exceed €4bn.
Following positive performance in 2013, growth in logistics assets has been hampered by a weak economic context and a shortage of “prime” supply. The markets of the Île-de-France region and Lyon accounted for 50% of these investments over the period. With respect to financing, banks are gradually easing their eligibility criteria while remaining cautious and selective.
(23) Source: CFI Etudes, H1 2014.(24) Source: CBRE - Marketview Q2 2014 - Investissement France.(25) French Investment Meter (Baromètre de l’investissement français), June 2014.(26) Pierre Papier article, July 10, 2014 and CFI Etudes.
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Crédit Foncier’s activity in the first half of 2014
Crédit Foncier’s activity in the first half of the year was robust.It benefited from the strategy implemented in 2013, which aimed to match the financing on offer (both long-term and lease financing) with the types of assets sought out and acquired by customers. As such, Crédit Foncier’s activity has been twofold: it has helped customers finance their major acquisition and restructuring projects with a view to market repositioning, and it has provided assistance for the acquisition of property with development potential.
Through its Locindus subsidiary, which specialises in real estate leasing and long-term financing with long maturities, Crédit Foncier has been able to meet the financing needs associated with commercial buildings and those of its private investor clientele.
Thanks to the establishment of a specialised unit dealing with syndication, Crédit Foncier now ranks among the top players in the arrangement of large-scale transactions and has the ability to bring in alternative lenders to participate in its transactions.
In this vein, Crédit Foncier and SCOR provided financing for the upcoming acquisition and restructuring of the Tour Hachette in the 15th arrondissement of Paris.
Additionally, Locindus has supported Financière Teychené in its various projects, most notably as the leading funder of the new St Max Park Avenue shopping centre, which is being built in Saint-Maximin in the French department of Oise.
Outlook for 2014
Investment on the real estate investment markets should amount to approximately €20bn (24). This total, above the €16bn recorded for 2013, reflects the maturity of the French market, the volume of capital available for investment and the historically low interest rates, which help maintain the attractiveness of this asset class despite the fall in profitability. The year-end breakdown of investments by market players and asset types should be quite similar to previous years, with the notable return of listed real-estate companies for purchase.
SUMMARY
Business with real estate investors and public facilities
(in €m)
06/30/2014 06/30/2013 (1)
Loan production 770 1,131
Public sector 411 879
of which:
French local authorities 301 620
Social housing 110 259
Private sector 359 252
(1) On a like-for-like basis.
(in €m)
06/30/2014 12/31/2013
Outstanding loans at end of period 56,356 61,279
Public sector 48,367 53,084
of which:
French local authorities 17,855 17,347
Social housing 8,282 8,323
International public and sovereign sector (1) 18,299 23,450
Securities backed by loans to individuals with guarantees from a Step 1 state (≥ AA- rating)
3,931 3,964
Private sector (France and international)
7,989 8,195
(1) Of which French sovereigns: €12,611m at 12/31/2013 and €6,565m at 06/30/2014.
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Real estate servicesAt the end of its third year, Crédit Foncier Immobilier confirmed its place as the fourth-largest French real estate consultant (27). After the teams were reorganised, Crédit Foncier Immobilier undertook an ambitious development plan, both internally, with branches of Groupe BPCE, and externally, with an expanded market share.Revenues in the first half of 2014 reached €15.46m with prospective revenues of €21.26m, up 5% from the same period in 2013.
Consulting and Valuation
Consulting and audit
Crédit Foncier’s Consulting and Audit Division achieved revenues of €0.985m in the first half-year, with its prospective revenues rising by 38% over 2013. Numerous audits falling under the scope of the property streamlining project initiated by BPCE have been conducted, alongside the development of external audits with public and private users.
Crédit Foncier Expertise
Revenues for Crédit Foncier Expertise in the first half-year were €7.04m, in line with seasonally-adjusted targets. Prospective revenues, which include ongoing projects, are 12% higher than those from the same period in 2013. These results are being driven by strong regional sales momentum (+42%) and the development of projects on behalf of banking institutions, including BPCE. They reflect the internal team restructuring process, aimed to improve production quality and efficiency.
Serexim
With revenues of €3.36m, this property assessment specialist is in line with its targets with respect to external customers. Numerous framework agreements were renegotiated with them in the first half-year.
Research
Activities of Crédit Foncier Immobilier’s Research Department generated revenues of €0.36m. The Department has developed a new “real estate market appraisal” service, set for launch in September 2014.
Brokerage division
Ad Valorem Investissement
Revenues reached €0.56m in the first half-year, with “block” sales of new entire buildings having been delayed this year. Some major transactions are currently being finalised, which should help the division reach its development targets.
Ad Valorem Bureaux
The office leasing market continued to suffer this year. Revenues were €0.22m in the first half-year, with positive prospects for the signing of new contracts in July.
Ad Valorem Résidentiel
New product sales have been on an upswing since the start of the year, with 204 reservations compared to 149 in the same period of 2013. Meanwhile, existing real estate has suffered due to uncertainty surrounding delays in the implementation of the housing law (the loi Alur). Despite this adverse context, sales of existing real estate are up 25% over last year in terms of prospective revenues. The high-end business, driven by Ad Valorem’s Millesime brand, has already exceeded 62% of prospective revenues.Overall, revenues for Ad Valorem Résidentiel in the first half of the year amounted to €2.41m.
Ad Valorem Gestion
Property management and leasing operations generated revenues of €0.52m in the first half of the year. The six-month period was particularly dynamic for new property leases.
(27) Source: societe.com - revenues at 12/31/2013: Jones Lang LaSalle: €159.3m/CBRE: €152.1m/BNP Paribas Real Estate: €147.2m/CFI: €41m.
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Banco Primus’ activityBanco Primus distributes auto loans in Portugal to individual customers for the purchase of used cars and manages its portfolios in run-off since the end of 2011 (mortgage loans in Portugal and Spain, car loans in Hungary).After two consecutive years of declining business, Banco Primus has returned to growth.Loan production in the first half of 2014 amounted to €36m, up by 28% from the first half of 2013. Banco Primus’ market share in the used car financing market in Portugal was 9.7% for the half-year period.
Its loan portfolio at June 30, 2014 broke down as follows:• Active portfolio: €276m• Run-off portfolio: €326m• Total: €602m
The company had a Core Tier-1 ratio of 12.0% at June 30, 2014.
Banco Primus has paid back its credit line with the European System of Central Banks and is fully refinanced by Crédit Foncier. The company is wholly owned by Crédit Foncier.
Financial OperationsMarket conditions
In 2014, the European Central Bank (ECB) maintained its monetary policies aimed at mitigating the risk of deflation through the provision of unlimited liquidity and took measures to stimulate lending to the economy through TLTROs (Targeted Long-Term Refinancing Operations). In early June, the ECB lowered its deposit rate into negative territory (-0.10%), an unprecedented move for a major central bank, in addition to lowering its refi rate for refinancing operations in the Eurosystem to 0.15%, an all-time low.
The lending market maintained its performance during the first half of 2014, building on the momentum from 2013 in a context of very low interest rates and easing volatility despite the presence of geopolitical tensions between Ukraine and Russia and in the Middle East. The narrowing of credit spreads has mainly been driven by the search for yield and an insufficient net supply of bonds on the primary market.
In the first half-year, nearly €69bn of covered bonds were issued on the euro public market, a rise of 25% over the first half of 2013. The issuers have been concentrated on the 5+ year maturity segment.
Review of transactions
Faced with this market environment, on June 30, 2014 Crédit Foncier Group issued nearly €4.4bn in medium-term and long-term debt, nearly €1bn of which was through its CFHL-1 2014 securitisation vehicle.
Compagnie de Financement Foncier, a wholly-owned subsidiary of Crédit Foncier, raised €3.4bn in long-term funding with an average maturity of 12 years. Public-sector transactions represented 62% of the issues, compared to 38% for private placements. On the public market, the first half-year saw two benchmark issuances of €1bn with maturities of five and ten years.
Breakdown of issuances of obligations foncières by Compagnie de Financement Foncier in the first half of 2014
By geographic area
Other3%
United Kingdom7%
Scandinavia4%
Benelux3%
Switzerland9%
Asia4%
France 13%
Germany57%
By type of investor
Pension funds5%
Central banks8%
Asset managers17%
Insurancecompanies43%
Banks22%
Other5%
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Crédit Foncier also revived the public securitisation market in France through a transaction that disposed of a portfolio of 8,900 residential mortgage-backed securities (RMBS) amounting to €923m, consisting entirely of receivables originated by Crédit Foncier.
In addition to being fully deconsolidating for the transferor (Crédit Foncier) - a first on the French market - this transaction required the establishment of special structural mechanisms in order to meet the demands of investors. This transaction, oversubscribed three times, demonstrates investors’ interest in Crédit Foncier as well as Crédit Foncier’s long-standing expertise in this domain. CFHL-1 2014 is also fully in line with Groupe BPCE’s “Growing Differently” (“Grandir autrement”) strategic plan and with the efforts undertaken by Crédit Foncier, which expects that this form of refinancing will be regularly used alongside obligations foncières.
Breakdown of CFHL-1 2014 securitisation units
By type of investor
Pension funds5%
Supra4%
Asset managers39%
Insurance companies2%
Banks45%
Others5%
By geographic area
Others10% United Kingdom
24%
Benelux24%
United States5%
France 21%
Germany16%
Strategic plan
In line with its shareholder’s “Growing Differently” (“Grandir autrement”) strategic plan, the first half of 2014 saw Crédit Foncier intensify refinancing operations by Compagnie de Financement Foncier (a wholly-owned subsidiary of Crédit Foncier) for branches of Groupe BPCE.
As of June 30, 2014, nearly €2.5bn in loans were refinanced for BPCE, the Caisses d’Epargne and Banque Populaire banks, through:• direction production on the balance sheet of Crédit Foncier
(€0.35bn) (loans to local governments and individuals via tools available to sales staff of the Caisses d’Epargne and Banque Populaire banks - the “Boxes”);
• the disposal and pledging of public sector loans to Compagnie de Financement Foncier (€2.15bn).
These transactions in support of Groupe BPCE will continue in the second half of the year.
With respect to the run-off of its international assets, Crédit Foncier continued to seize opportunities in the first half of 2014 to dispose of international public sector securities on the markets (approximately €60m sold), and is working with BPCE on a project that would see its residual portfolio of securitisations external to BPCE transferred by the end of 2014.
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2 - RISK MANAGEMENT
Introduction - General risks of Crédit Foncier Group 28 1 - General organisation & methodology 28 2 - Risk factors 28 3 - Pillar 3 32 4 - Capital and capital adequacy ratios 33 5 - Credit and counterparty risks 37 6 - Analysis of delinquencies 49 7 - Risk mitigation techniques 51 8 - Securitisations 53 9 - Recommendations from the Financial Stability Forum 5710 - Market risk 6211 - Liquidity, interest rate and foreign exchange risks 6412 - Operating risks 6713 - Intermediation risk 6914 - Settlement risk 6915 - Non-compliance risk 6916 - Other Risks: Caisse de Retraite (French pension fund) of Crédit Foncier
for employees who entered employment before March 1, 2000 69
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RISK MANAGEMENT Detailed contents
INTRODUCTION 28GENERAL RISKS OF CRÉDIT FONCIER GROUP 28
1 - GENERAL ORGANISATION & METHODOLOGY 28
2 - RISK FACTORS 28
2.1 - Risks related to macroeconomic conditions, the financial crisis and the tightening of regulatory requirements 282.2 - Risks related to the existing asset transfer agreement between Compagnie de Financement Foncier and Crédit Foncier 292.3 - Risks related to the structure of Crédit Foncier Group 292.4 - Risks related to the activities of Crédit Foncier Group 30
3 - PILLAR 3 32
3.1 - Regulatory framework 323.2 - Scope of application 33
4 - CAPITAL AND CAPITAL ADEQUACY RATIOS 33
4.1 - Capital management 334.2 - Composition of prudential capital 334.3 - Capital requirements 354.4 - Solvency ratios 37
5 - CREDIT AND COUNTERPARTY RISKS 37
5.1 - Analysis of commitments 375.2 - Commitments by customer portfolio 43
6 - ANALYSIS OF DELINQUENCIES 49
6.1 - Delinquencies 496.2 - Cost of risk 49
7 - RISK MITIGATION TECHNIQUES 51
7.1 - Collateral valuation and management 517.2 - Main insurers 517.3 - Effect of credit risk mitigation techniques 527.4 - Balance sheet and off-balance sheet netting 52
8 - SECURITISATIONS 53
8.1 - Objectives, activities and risk monitoring 538.2 - Approach and external credit ratings 538.3 - Crédit Foncier Group’s exposures to securitisation transactions 54
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9 - RECOMMENDATIONS FROM THE FINANCIAL STABILITY FORUM 57
9.1 - CDOs and exposures to monoline insurers and other credit enhancers 579.2 - Exposures to Commercial Mortgage-Backed Securities (CMBS) 599.3 - Other subprime and Alt-A exposures (RMBS, loans, etc.) 619.4 - Special Purpose Entities (SPEs) 619.5 - Leveraged buyouts (LBOs) 619.6 - Securitisation glossary 62
10 - MARKET RISKS 62
10.1 - Market risk monitoring 6210.2 - Equity risk 63
11 - LIQUIDITY, INTEREST RATE AND FOREIGN EXCHANGE RISKS 64
11.1 - Organisation and monitoring of ALM risks 6411.2 - Methodology for assessing structural risks 6411.3 - Liquidity risk monitoring 6411.4 - Interest rate risk monitoring 6611.5 - Foreign exchange risk monitoring 67
12 - OPERATING RISKS 67
12.1 - General framework 6712.2 - Governance 6712.3 - Management environment 6712.4 - Organisation of business continuity plans (BCP) 6712.5 - IT Risks 6712.6 - Legal risks 6812.7 - Insurance 68
13 - INTERMEDIATION RISK 69
14 - SETTLEMENT RISK 69
15 - NON-COMPLIANCE RISK 69
16 - OTHER RISKS: CAISSE DE RETRAITE (FRENCH PENSION FUND) OF CRÉDIT FONCIER FOR EMPLOYEES WHO ENTERED EMPLOYMENT BEFORE MARCH 1, 2000 69
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Introduction
General Risks of Crédit Foncier GroupCrédit Foncier is potentially exposed to three types of risk:• credit and counterparty risks: Section 5;• structural risks (liquidity risk, interest rate risk and foreign
exchange rate risk): Section 11;• operating risks: Section 12.
In contrast, Crédit Foncier Group does not carry out any proprietary trading operations and does not therefore directly assume any financial market risk on its ordinary transactions other than ALM: Section 10 - Market Risk.
The other risks that Crédit Foncier Group’s businesses are exposed to are:• intermediation risk: Section 13;• settlement risk: Section 14;• non-compliance risk: Section 15.
1 - General organisation & methodologyFor further information, please refer to pages 98 to 105 of the 2013 Registration document.
2 - Risk factors2.1 - Risks related to macroeconomic conditions, the financial crisis and the tightening of regulatory requirementsCrédit Foncier group has exposures to international public counterparties: sovereigns, local authorities (cities, regions, provinces, cantons, etc.) and public sector entities. These exposures are mainly located in European Union countries, Switzerland, the United States, Canada and Japan. Default by one of these counterparties could affect Credit Foncier Group. However, the most significant part of the financing granted by Crédit Foncier consists of real estate loans to individuals, loans to French local authorities and loans to real estate developers.
Despite an improvement in the economic and budget situation in the world’s leading economies, the global environment is still fragile and uncertain in the short and medium term. Significant risks continue to weigh on certain European banks, and in the event of default and in the absence of adequate management, these risks could impact the entire banking sector’s funding conditions and undermine sovereign issuers’ creditworthiness. Creditors could potentially also be affected by the terms of any support measures provided to the banking industry, in an environment of growing supervision by the ECB.
The creditworthiness of local authorities as a whole remains contingent on the success of structural reforms (improving the current account balance, privatisations, improved governance, etc.) and a recovery in economic growth in order to ensure a sustainable improvement in public finances; these factors could impact local authorities’ financing terms. In terms of Crédit Foncier Group’s exposures, these challenges are particularly acute for countries that have received international support or bailed out their banking sector, including Cyprus (exposure to the sovereign), Spain (local authorities), Portugal (sovereign and local authorities), Ireland (sovereign) and Slovenia (sovereign).
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For further details, refer to Section 5.2.2.2 of this document.
Regarding Italy, Crédit Foncier Group is exposed to changes in the public deficit and the government’s funding capacities. Creditors could also be affected by political instability and a slowdown in the reform process, which could once again significantly raise the funding costs of Italian local authorities (as in 2011 and 2012).
In response to the financial crisis, governments have adopted or are in the process of seeking parliamentary approval for a number of regulatory measures, which represent a major change in relation to the current framework (Basel III regulation (CRD IV/CRR), European Market Infrastructures (EMIR), MiFID 2, French banking reform, European Banking Union, etc.). The analysis and interpretation of these measures, which comes from various sources, could generate additional constraints for Crédit Foncier Group to ensure its compliance with all these requirements.
The implementation and enforcement of these measures could:• increase capital and liquidity requirements;• generate a structural increase in funding costs;• increase certain costs for Crédit Foncier Group (compliance,
reorganisation, etc.).
It is still difficult to accurately evaluate the full extent of these measures (in particular those that are still in progress or not yet finalised) and their impact on the financial markets in general, and Crédit Foncier Group in particular.
Furthermore, a number of exceptional measures taken by some governments (support measures), central banks (interest rate cuts, unlimited liquidity under the LTRO programme and unlimited purchases of government securities under the OMT programme) and regulators, intended to stabilise the financial markets and support financial institutions, have recently been, or may eventually be, suspended or ended. This situation and the widespread uncertainty in terms of growth could have a negative impact on financial institutions’ business conditions.
Crédit Foncier Group also has exposures to non-public sector counterparties. The portfolio of loans to non-public sector counterparties is mostly covered by first-ranking mortgages or equivalent guarantees. In the event of default by these counterparties, Crédit Foncier can enforce these real estate guarantees in order to minimise the financial consequences of the default. A rise in interest rates could impact property prices and may affect the value of the guarantees used to secure Crédit Foncier’s loans.
2.2 - Risks related to the existing asset transfer agreement between Compagnie de Financement Foncier and Crédit FoncierCompagnie de Financement Foncier is Crédit Foncier Group’s société de crédit foncier.
Compagnie de Financement Foncier’s purpose is to grant or acquire secured loans and exposures to public sector entities, which it finances by issuing obligations foncières, other privileged instruments and resources not benefiting from the privilege set up by article L.513-11 of the French Monetary and Financial Code.
Crédit Foncier and Compagnie de Financement Foncier are bound by asset transfer agreements in order to guarantee the quality of the assets held by Compagnie de Financement Foncier.
2.3 - Risks related to the structure of Crédit Foncier GroupAt the end of 2011, Crédit Foncier announced a five-year strategic plan. Its implementation was ramped up in November 2013 when the parent company, Groupe BPCE, set in motion its “Growing Differently” strategic plan. Two main reasons were behind this acceleration: tightening regulatory constraints and an economic and financial environment that encouraged asset disposals.
The plan has five components: (i) the development of the core business in France serving Crédit Foncier clients and those of the Group’s retail banking networks; (ii) the end of international activities and the reduction of the balance sheet; (iii) the development of new funding tools in addition to obligations foncières; (iv) cost savings aimed at improving Crédit Foncier’s ability to withstand adversity and enabling its business lines to attain a sufficient level of profitability; and (v) the reinforcement of synergies with Groupe BPCE. Under the strategic plan, financial objectives have been established
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for Crédit Foncier Group on the basis of hypotheses; these hypotheses do not, under any circumstances, constitute projections or forecasts of expected results. The actual results obtained by Crédit Foncier may differ from these objectives for various reasons, including the occurrence of one or multiple risks as outlined in this section.
2.4 - Risks related to the activities of Crédit Foncier GroupCrédit Foncier Group is exposed to various categories of risk that are inherent to banking activities.
There are three major categories of risk associated with the activities of Crédit Foncier Group, as listed below. The following risk factors allude to, or give specific examples of, various types of risk (including the impact of the most recent financial crisis) and describe some additional risks to which Crédit Foncier Group is exposed.
2.4.1 - Nature of risks inherent to the activities of Crédit Foncier Group
• Credit and counterparty risksCredit risk is the risk of financial loss caused by a counterparty’s inability to honour its contractual obligations. The counterparty may be a bank, a financial institution, a government entity or sub-entity, an investment fund, a non-public counterparty or an individual. Credit risk arises from lending activities as well as from other activities for which Crédit Foncier Group is exposed to the risk of default by a counterparty (on capital markets, from the sale/purchase of derivatives and from settlement).
For more details, refer to Section 5 of this document.
• Structural risks (liquidity risk, interest rate risk and foreign exchange risk) Asset and liability management involves the following three types of risk: liquidity risk, interest rate risk and foreign exchange risk:- liquidity risk is the risk of not being able to honour one’s
commitments or not being able to unwind or offset a position, within a given period and at a reasonable cost, due to the market situation. Crédit Foncier Group’s exposure to liquidity risk is assessed by determining a liquidity gap. This gap is measured by taking into account either the run-off at maturity or run-off agreements or renewal assumptions through stress tests and the monitoring of available liquid assets;
- interest rate risk is the risk incurred in the event of interest rate fluctuations stemming from all balance sheet and off-balance sheet transactions, with the exception, where applicable, of transactions subject to market risks (trading book). In accordance with BPCE standards, Crédit Foncier Group’s exposure to interest rate risk is assessed by determining an interest rate gap, which is equal to the difference between fixed-rate assets and fixed-rate liabilities;
- Foreign exchange risk is the risk incurred in the event of exchange rate fluctuations (against the euro) stemming from all balance sheet and off-balance sheet transactions; measurement and monitoring indicators are based on foreign exchange position measurements per currency.
For more details, refer to Section 10 of this document.
• Operating risksOperating risk is the risk of losses due to inadequacies or weaknesses in internal processes, or due to external events, whose occurrence may be deliberate, accidental or natural. Internal processes include, but are not limited to, human resources and information systems, risk management systems and internal control systems (including fraud prevention). External events include floods, fires, storms, earthquakes and armed attacks.
For more details, refer to Section 11 of this document.
2.4.2 - Potential impact of credit ratings on the profitability of Crédit Foncier Group
Credit ratings have a significant impact on the liquidity situation of Crédit Foncier and its entities on the financial markets. A ratings downgrade could affect the liquidity situation of Crédit Foncier, increase its funding costs and limit access to capital markets, derivatives markets and collateralised funding. An increase in credit spreads could make Crédit Foncier Group’s funding costs significantly more expensive.
Credit spreads are susceptible to unpredictable and highly volatile behaviour. The market’s perception of the issuer’s creditworthiness is also a factor in this regard.
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2.4.3 - Potential impact of provisions on the results or financial position of Crédit Foncier Group
As part of their lending activities, Crédit Foncier Group entities periodically set aside provisions for doubtful loans and receivables, which are booked in its income statement under “cost of risk”. The overall level of provisions is established based on historical losses, the volume and type of loans granted, market practices, loan arrears, economic conditions and other factors that reflect the recovery rate on various loans. While Crédit Foncier Group entities strive to always have sufficient levels of provisions available, their lending activities may, in future, lead them to increase provisions for losses on loans in the event of a rise in non-performing assets, a deterioration of economic conditions leading to an increase in counterparty defaults and bankruptcies or for any other motive. The results and financial position of Crédit Foncier Group may be adversely affected by any significant increase in provisions for losses or a significant change in Crédit Foncier Group’s assessment of the risk of loss on its portfolio of non-impaired loans, by any changes to IFRS accounting standards, or by the materialisation of any losses that exceed the established provisions for the relevant loans.
2.4.4 - Potential impact of unanticipated future events on the financial statements of Crédit Foncier Group
The application of current IFRS standards and interpretations requires Crédit Foncier Group entities to make use of certain estimates for the preparation of their financial statements, namely: accounting estimates for the establishment of provisions on doubtful loans and receivables, provisions for potential litigation, and the fair value of certain assets and liabilities. If these estimates prove to be significantly inaccurate, particularly in the event of considerable or unanticipated market changes, or if the methods used to make the estimates require modification in line with future IFRS standards or interpretations, Crédit Foncier Group may be exposed to unanticipated losses.
2.4.5 - Potential impact of interest rate changes on the net banking income and results of Crédit Foncier Group
The net interest income earned by Crédit Foncier Group over a given period significantly influences the net banking income and profitability for this period. In addition, significant changes to credit spreads, such as the widening of spreads seen recently, may influence the operating income of Crédit Foncier Group. Interest rates are sensitive to numerous factors that may be beyond the control of Crédit Foncier Group entities. Market interest rate variations could affect interest rates applied to interest-bearing assets, in inverse fashion to variations in interest rates paid on interest-bearing liabilities. An adverse change in the yield curve could result in a decline in net interest income from lending activities. Furthermore, Crédit Foncier Group’s profitability may be adversely affected by an increase in interest rates over the period during which short-term financing is available and by maturity mismatches.
For further information, refer to section 10 of this document.
2.4.6 - Potential impact of exchange rates changes on the results of Crédit Foncier Group
Crédit Foncier Group entities may conduct some of their business in currencies other than the euro; thus, their net banking income and results may be impacted by changes in foreign exchange rates. As part of their comprehensive risk management policy, Crédit Foncier and its entities regularly complete transactions to hedge their exposure to exchange rate risk. However, under extreme market conditions, some limited hedging may be insufficient to offset the adverse effects of exchange rate variations on operating income.
For further information, refer to section 10 of this document.
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2.4.7 - Potential impact from the interruption or failure of IT systems used by Crédit Foncier Group or third parties
Like the majority of its competitors, Crédit Foncier Group is highly dependent on communication and information systems due to the quantity and increasing complexity of the transactions it must conduct. Any breakdown, interruption or failure of these systems may result in errors or interruptions in systems used for customer management, general accounting, deposits, transactions and/or loan processing. As interconnectivity with its customers is increasing, Crédit Foncier Group may also be increasingly exposed to the risk of operational failure by its customers’ information systems.
For further information, refer to page 147 of the 2013 Registration document.
3 - Pillar 33.1 - Regulatory frameworkRegulatory supervision of the capital of credit institutions is conducted in accordance with rules established by the Basel Committee. As such, credit institutions must comply with a series of recommendations (termed “Basel III”), which rely on three “pillars” that form one indivisible whole:
PILLAR 1Pillar 1 establishes minimum capital requirements. It is intended to ensure minimum capital coverage of credit risk, market risk and operating risk. To calculate capital requirements, the financial institution may use either a “standardised” or “advanced” approach.
For further information, refer to section 4 of this document.
PILLAR 2
Pillar 2 complements and reinforces Pillar 1 by establishing a prudential monitoring framework.It involves:• analysis by the bank of all of its risks, including those already
covered by Pillar 1;• calculation by the bank of its capital requirements in terms
of economic capital;• comparison by the banking supervisor of its own analysis
of the bank’s risk profile against the analysis conducted by the bank, aimed at adapting its prudential measures by capital exceeding minimum requirements or by any other appropriate technique.
PILLAR 3
Pillar 3 aims to enforce market discipline through a set of disclosure requirements. These requirements, which are both qualitative and quantitative in nature, help improve financial transparency with respect to the evaluation of risk exposure, procedures for risk assessment and capital adequacy.
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These recommendations are applied on the European level through the Capital Requirements Directive (CRD), which was enacted in French legislation via the French ministerial decree of February 20, 2007 on capital requirements for credit institutions and companies.
Credit institutions subject to this decree are required to maintain a solvency ratio of at least 8% at all times. The solvency ratio corresponds to the ratio of total prudential capital to the sum of:• credit and dilution risk-weighted exposures; and• capital requirements for the prudential monitoring of market
risk and operating risk multiplied by 12.5.
A new set of recommendations, termed “Basel III”, were issued by the Basel Committee in 2011. These recommendations were adopted by EU Directive CRD IV in June 2013 and are currently being enacted in law.
3.2 - Scope of applicationThe prudential consolidation scope, as defined in the French decree of February 20, 2007 on capital requirements, is identical to the accounting consolidation scope (see Note 9 of Crédit Foncier’s Consolidated Financial Statements at June 30, 2014).
The credit institutions whose individual management ratios are supervised within the framework of Group consolidated management ratios, in compliance with the provisions of articles 4.1 and 4.2 of regulation No. 2000-03 of the French Committee on Banking and Financial Regulation (CRBF), have been identified in the statutory consolidation scope (see Note 9 of Crédit Foncier’s Consolidated Financial Statements at June 30, 2014).
4 - Capital and capital adequacy ratios 4.1 - Capital managementMonitoring of Crédit Foncier Group’s capital has the dual goal of complying with regulatory ratios and optimising the allocation of capital and return on capital generated by its activities. This monitoring is presented on a quarterly basis to Executive Management.
Crédit Foncier Group uses the standardised approach to calculate capital requirements for all its portfolios.
For further information, please refer to page 107 of the 2013 Registration document.
4.2 - Composition of prudential capitalPrudential capital is determined in accordance with EU Directive CRD IV and the European CRR regulation, which are applicable as of January 1, 2014, in view of the national options specified by the Autorité de Contrôle Prudentiel et de Résolution (ACPR - French Prudential Supervisory and Resolution Authority). It is broken down into three categories: Common Equity Tier One, Additional Tier One and Tier Two.
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(in €m)
06/30/201412/31/2013
(Pro-forma Basel III)
Total equity capital 4,273 4,366
Tier One capital 3,999 4,045
Common Equity Tier One 3,775 3,821
Tier one capital instruments 1,732 1,732
Retained earnings 2,131 2,130
Unrealised or deferred capital gains and losses 217 271
Temporary adjustments related to minority interests 78 79
Temporary adjustments related to prudential filters 21 37
- Goodwill receivables 43 43
- Other intangible assets 6 7
- Deferred tax assets dependent on future profits and not resulting from temporary differences
40 -
- Deferred tax assets dependent on future profits and resulting from temporary differences (above 10% threshold)
546 583
Other temporary adjustments to common equity Tier One capital 707 820
Additional Tier One capital (AT1) 224 224
Tier Two capital (T2) 274 321
Tier Two capital instruments (T2) 106 153
Collective provisions for credit risk 158 160
Other temporary adjustments to tier two capital 10 8
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4.3 - Capital requirementsCrédit Foncier Group calculates regulatory capital requirements for both credit risk and operating risk according
to the standardised method under current regulations. Crédit Foncier Group is not subject to market risk disclosure rules.
(in €m)
06/30/2014
Requirements for credit risk (A)
Public administrations 16
Institutions 175
Regional administrations 421
Corporates 341
Retail customers 186
Mortgage-backed exposures 1,137
Exposures at default 158
Equities 29
Securitisations 981
Other assets 118
3,562
MARKET RISK-WEIGHTED EXPOSURES (B) -
TOTAL REQUIREMENTS FOR OPERATING RISK (C) 95
CREDIT VALUATION ADJUSTMENT (D) 103
CAPITAL REQUIREMENTS (A)+(B)+(C)+(D) 3,761
CAPITAL REQUIREMENTS AT 12/31/2013 3,321
At December 31, 2013, the requirements were calculated in accordance with the French decree of February 20, 2007; results were presented by initial asset class (before substitution of the final counterparty’s asset class, for exposures covered by a personal guarantee).
In accordance with COREP and calculated in accordance with CRR/CRD IV since March 31, 2014, by convention, results are presented by final exposure category (after substitution of the final counterparty’sexposure category, for exposures covered by a personal guarantee).
At June 30, 2014, 30% of these capital requirements were linked to mortgage-backed exposures and 51% represented requirements on corporates, retail customers, regional administrations and securitisation.
The average credit risk weighting (excluding the “other assets” class) is 32%, reflecting the low level of risk of Crédit Foncier Group’s portfolio of loans, with most loans backed by mortgages or guarantees.
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(in €m)
CREDIT RISK-WEIGHTED EXPOSURES
with breakdown of VaR according to Basel III regulatory weightings
Public adminis-trations
and central banks
Institu-tions
Regional adminis-trations
CorporatesRetail
customers(2)
Mortgage-backed
exposures
Exposures at default
EquitiesSecuri-
tisationsTotal
Weighted assets
Credit risk requirement
Net exposure (1) (on-and off-balance sheet)
24,406 21,369 33,071 6,722 3,110 36,968 1,870 740 11,516 139,772
Value at risk (3) 23,122 21,034 32,142 5,758 3,097 36,356 1,844 740 11,516 135,609
WEIGHTING AFTER TAKING INTO ACCOUNT THE CREDIT RISK MITIGATION TECHNIQUE
0% 22,452 15,709 7,226 13 45,399 0 0
7% 116 116 8 1
10% 0 0 0
15% 6 0 6 1 0
20% 434 1,581 23,961 1,489 407 4,349 32,220 6,444 516
35% 9 30,936 30,945 10,831 866
50% 230 3,744 747 762 2,854 49 2,263 10,648 5,324 426
75% 3,097 2,426 5,523 4,142 331
100% 0 94 3,295 140 1,589 221 3,551 8,891 8,891 711
150% 192 255 447 670 54
250% 1 1 3 0
350% 1,060 1,060 3,709 297
1,250% 238 238 2,980 238
Other weightings 62 55 117 49 4
Total value at risk 23,122 21,034 32,142 5,758 3,097 36,356 1,844 740 11,516 135,609 43,050 3,444
Total weighted value at risk
203 2,189 5,267 4,264 2,323 14,214 1,972 357 12,262 43,050
Average weighting 1% 10% 16% 74% 75% 39% 107% 48% 106% 31.7%
Credit risk requirement 16 175 421 341 186 1,137 158 29 981 3,444
OTHER NON-CREDIT OBLIGATION ASSETS 118
TOTAL CREDIT RISK REQUIREMENTS 3,562
(1) Source: COREP, June 30, 2014, based on a slightly different structural presentation compared to the presentation of overall credit risk exposure under IFRS 7.(2) The Basel “Retail customers” classification consists mainly of Individuals and to a lesser extent Professionals (craftsmen, merchants, independent
professionals) and Associations.(3) Value at risk corresponds to on- and off-balance sheet items to which a credit conversion factor is applied.
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4.4 - Solvency ratiosAt June 30, 2014, the solvency ratio (28) was 9.1% and the Common Equity Tier-1 (CET1) Ratio (28) was 8.0%.
The Tier-1 ratio was 8.5%.
5 - Credit and Counterparty RisksUnless otherwise mentioned, the data shown in the tables and charts in this section are adjusted management figures, balance sheet commitments (excluding signed commitments and financial guarantees given) representing the overall exposure to credit risk under IFRS consolidated gross figures (performing and doubtful).
5.1 - Analysis of commitmentsIn the interest of clarity and consistency, since the decree of end-2008 Crédit Foncier has chosen to unify the disclosures provided under IFRS 7, Pillar 3 of Basel III (Title I, Eighth Section of Regulation (EU) no. 575/2013 of June 26, 2013) and the Financial Stability Forum (G7). The risk management disclosures required within this framework and the capital disclosures required by amendment IAS 1 form an integral part of the financial statements which were subject to a limited review by the Statutory Auditors.
5.1.1 - Credit risk exposure
Credit risk arises when a counterparty is unable to meet its commitments and it may result in a change in credit quality or default by the counterparty.
Commitments exposed to credit risk include existing or potential receivables, in particular loans, debt or equity securities, performance swaps, performance guarantees or confirmed or unused commitments.
5.1.2 - Counterparty risk exposure
Counterparty risk is the risk that the counterparty to a transaction might default before the settlement of all cash payments, whether the transaction is classified in the banking or trading book.
For Crédit Foncier, this risk is essentially represented by exposure to counterparties on derivatives transactions used for hedging purposes.
These exposures are covered by margin calls to establish collateral.
(28) Basel III, standardised approach, Pillar 2.
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5.1.3 - Overall credit risk exposure (IFRS 7 summary)
Overall net credit risk exposure
The table below shows all of Crédit Foncier Group’s exposures, including financial guarantees given and signed commitments, net of provisions for impairment.
(in €m)
Consolidated contribution 06/30/2014 12/31/2013
OVERALL NET CREDIT RISK EXPOSURE (1) 141,988 146,136
See note 4.7.3 to the Consolidated financial statements at 06/30/2014
Central banks (2) 5,343 7,400
Financial assets at fair value through profit or loss (excl. variable-income securities)
3,017 2,754
Hedging derivatives (3) 6,919 6,289
Available-for-sale financial assets (excl. variable-income securities) 3,257 2,946
Interbank transactions 12,028 15,218
Customer transactions 102,576 102,335
Held-to-maturity financial assets 136 135
Sub-total (excluding financial guarantees given and signed commitments) 133,276 137,077
Financial guarantees given 1,171 1,355
Signed commitments 7,541 7,704
(1) Net outstandings after impairment.(2) Exposure to overnight deposits with central banks has been included in the credit risk table.(3) Amounts offset under liabilities (see the consolidated financial statements).
Credit risk exposures by Basel classification taken from COREP include total assets, including off-balance sheet commitments (signed commitments and financial guarantees
given) to which a credit conversion factor is applied, and are as follows:
(in €m)
06/30/14Total exposure
Amount %
Exposures to credit risk by category
Public administrations 24,406 17%
Institutions 21,369 15%
Regional administrations 33,071 24%
Corporates 6,722 5%
Retail customers 3,110 2%
Mortgage-backed exposures 36,968 26%
Exposures at default 1,870 1%
Equities 740 1%
Securitisations 11,516 8%
Credit risk exposure 139,772 100%
Credit risk exposure at 12/31/2013 143,516
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In accordance with COREP, calculated in accordance with CRR/CRD IV since March 31, 2014, by convention, results are presented by final exposure category (after substitution of the final counterparty’s exposure category, for exposures covered by a personal guarantee).
At December 31, 2013, results were presented by initial asset class (before substitution of the final counterparty’s asset class, for exposures covered by a personal guarantee).
The breakdown of Crédit Foncier Group’s exposures by Basel category at June 30, 2014 shows a concentration in the Basel “Mortgage-backed exposures” segment (26%) and in the “Regional administrations” segment (24%).
Overall gross credit risk exposure
The following table shows all of Crédit Foncier Group’s IFRS exposures, at June 30, 2014 and at December 31, 2013, before impairment, including financial guarantees given and signed commitments.
(in €m)
06/30/2014 12/31/2013 Change12/2013 to 06/2014
OVERALL GROSS EXPOSURE TO CREDIT RISK (1) 143,025 147,187 -2.8%
O/w excluding financial guarantees given and signed commitments (2) 134,286 138,100 -2.8%
o/w OUTSTANDING CUSTOMER LOANS (2) 114,170 119,342 -4.3%
RETAIL (2) (a) 57,814 58,063 -0.4%
o/w outstanding direct loans (France and Europe) 49,692 49,908 -0.4%
o/w securities backed by residential mortgage loans (RMBS) in Europe (4) 8,122 8,155 -0.4%
CORPORATES (public and private sector) 56,356 61,279 -8.0%
Public sector corporates (2) (b) 48,367 53,084 -8.9%
o/w direct loans to the French public sector 26,137 25,670 1.8%
o/w French local authorities (FLA) 17,855 17,347 2.9%
o/w Social housing 8,282 8,323 -0.5%
o/w direct loans and commitments on international public sector and sovereigns 18,299 23,450 -22.0%
o/w French sovereigns 6,565 12,611 -47.9%
o/w International 11,734 10,839 8.3%
o/w securities backed by loans with government or institutional guarantees (5) 3,931 3,964 -0.8%
Private sector corporates (2) (c) 7,989 8,195 -2.5%
o/w direct loans and obligations (3) 7,877 7,953 -1.0%
o/w commercial mortgage backed securities (CMBS) 112 242 -53.2%
o/w BANKS and Others (2) (d) 20,116 18,758 7.2%
(1) Gross outstandings before impairment, excluding reverse mortgages €680m.(2) Adjusted management figures.(3) Obligations = reclassification of three International Public Financing counterparties as Corporate customers in line with the Basel II resegmentation carried
out in Q1 2012.(4) Including the Elise mutual fund and CFHL.(5) Including two mutual funds.
(a), (b), (c), (d): The relative weight in percentage terms is illustrated on the following page.
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The cessation of international activities and the balance sheet deleveraging are major components of Crédit Foncier Group’s strategic plan. Accordingly, exposures are down by 2.8% to €143bn over the first half year of 2014.
Direct retail loans are down 0.4%, to €49.7bn, following an external securitisation transaction. Crédit Foncier reopened the public securitisation market through a transaction that disposed of a portfolio of loans to individuals for the acquisition of their principal residence amounting to €0.9bn, consisting entirely of receivables originated by Crédit Foncier.
At the same time, Private Sector Corporate exposures fell by 8% to €56.4bn. This drop is linked to the reduction in deposits with the Banque de France, which were at €5.3bn at June 30, 2014 compared to €11.4bn at end of 2013.
Exposures by Basel category
June 30, 2014
Retail (a)43%
Public Sector corporates (b) 36%
Private Sector corporates (c)6%
Banks and other (d)15%
€134,286m
December 31, 2013
Retail (a)42%
Public sector corporates (b) 38%
Private sector corporates (c)6%
Banks and other (d)14%
€138,100m
5.1.4 - Breakdown of credit risk exposures
5.1.4.1 - Breakdown by region
The geographical breakdown of the portfolio at the end of June 2014 show little change compared to year-end 2013, remaining concentrated in the European Economic Area (93%) and particularly in France (going from 77% in 2013 to 76% in 2014).
Commitments located in the European Economic Area mainly include eligible assets to sociétés de credit foncier; other commitments in the European Economic Area are almost entirely composed of bank commitments for cash management or derivatives transactions.
As a reminder, commitments located in the United States consist only of loans to States or highly rated local authorities that are guaranteed by the federal government and do not include any direct or indirect real estate exposures.
Geographic breakdown of exposures 06/30/2014 12/31/2013
France 76% 77%
Other EEA countries 17% 16%
• o/w Germany 2% 2%
• o/w Spain 4% 4%
• o/w Italy 5% 5%
• o/w Netherlands 2% 2%
• o/w Portugal 1% 1%
• o/w Belgium 1% 1%
• o/w United Kingdom 1% 1%
• o/w Austria <0.5% <0.5%
• o/w Poland <0.5% <0.5%
• o/w Slovenia <0.5% <0.5%
• o/w Ireland <0.5% <0.5%
• o/w Slovakia <0.5% <0.5%
• o/w Hungary <0.5% <0.5%
• o/w Cyprus <0.5% <0.5%
• o/w Iceland <0.5% <0.5%
• o/w Czech Republic <0.5% <0.5%
• o/w Greece <0.5% <0.5%
Switzerland 2% 2%
North America (US and Canada) 4% 4%
Japan 1% 1%
Others <0.5% <0.5%
Balance sheet total 100% 100%
BALANCE SHEET ASSETS (in €m) 134,286 138,100
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5.1.4.2 - Breakdown by business sector
The breakdown of outstanding balance sheet loans by business sector covers loans to corporate customers. It therefore includes exposures to RMBS in Europe, for which the final risk is linked to individual customers.
Only exposures to direct loans to Individual customers (€50bn at June 30, 2014) are not covered in this table.
The five leading sectors account for 94% of these exposures. Excluding bank exposures (over half of which are intra-group commitments), their nature illustrates Crédit Foncier Group’s role in financing the real estate and public sectors. The principal sectors are:
• administration (25%) - under the BPCE classification, this includes local authorities and sovereigns;
• securitisation (14%), with real estate or public sector underlyings only;
• real estate in the broad sense decreased to 14%, compared with 15% in 2013.
Furthermore, other sectors that are financed (particularly Pharma-Health, 6%) mainly receive financing through real estate assets.
Lastly, the “Others” category covers a number of different sectors (transport, tourism, construction and public works, communication, agri-food, energy, etc.).
Sector breakdown of credit risk exposures(excluding direct loans to Individuals)
06/30/2014 12/31/2013
Finance-Insurance
The top five business sectors accounted
for 94% at 06/30/2014
37% 40%
Administration 25% 22%
Securitisation 14% 14%
Property rentals 12% 13%
Pharmaceuticals-Healthcare 6% 5%
Real estate
Others accounted for 6%
at 06/30/2014
2% 2%
Services 1% 1%
Utilities 1% 1%
Energy 1% 1%
Others 1% 2%
Balance sheet total 100% 100%
BALANCE SHEET ASSETS (in €m) 84,594 88,193
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5.1.4.3 - Breakdown of exposures by product family
The breakdown of Crédit Foncier Group’s balance sheet commitments (loans, securities and financial transactions) by product family at June 30, 2014 shows a concentration of
loans (63%) and securities (9% for securitisations and 10% for bonds).
Product families (breakdown as a %) 06/30/2014 12/31/2013
Loans (1) 63% 61%
Short-term credit facilities 12% 15%
Bonds (Banking) 10% 10%
Securitisation 9% 9%
Derivatives 6% 5%
Shares/Funds - -
Other on-balance sheet products - -
Bonds (Trading (2)) - -
Balance sheet total 100% 100%
BALANCE SHEET ASSETS (in €m) 134,286 138,100
(1) Customer loans excluding cash facilities.(2) Crédit Foncier does not own any trading securities; bonds are held in connection with credit transactions or for hedging the ALM portfolio.
5.1.5 - Risk diversification and concentration risk
This table shows the weight of the leading counterparties in a specific category, respectively the 10, 20, 50 or 100 largest counterparties. It should be read in the light of their relative weight in terms of amounts. This ranking was established on groups of counterparties and exposures, including signed commitments and financial guarantees given.
For securitisations (in run-off since 2011), which account for a significant proportion of the portfolio of large counterparties, 97% of risks are concentrated in the top 50 exposures. This concentration can be attributed to the strategy implemented by Crédit Foncier Group a number of years ago, aimed at acquiring large-scale deals on the primary market. In terms of credit risk, this concentration is only apparent since the underlying assets are mainly housing loans to individuals and therefore have a high degree of granularity.
The French Local Authorities-Social Housing sectors and large corporates have a much lower concentration, reflecting the risk diversification policy.
Direct exposure to Sovereigns is concentrated (fewer than 20 counterparties) as only a few European States are concerned.
Summary - Concentration of major counterparties in millions of euros and as a percentage at June 30, 2014
Exposures by Basel category Top 10 Top 20 Top 50 Top 100 Total
Securitisation5,799
[50%]8,408[73%]
11,177[97%]
11,533[100%]
11,533
FLA and Social Housing *
3,701[13%]
5,634[20%]
9,388[34%]
13,030[47%]
27,866
Large Corporates1,399[21%]
2,034[31%]
3,250[49%]
4,444[67%]
6,647
International Public Sector Financing
4,387[57%]
5,875[76%]
7,537[98%]
7,722[100%]
7,722
Sovereigns11,563
[100%]11,577
[100%]11,577
[100%]11,577
[100%]11,577
Specialised financing
5,799[52%]
5,799[72%]
5,799[94%]
5,799[100%]
2,637
* Including general public administrations (8411Z).
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5.2 - Commitments by customer portfolio
5.2.1 - Individual customers
5.2.1.1 - Direct loans
5.2.1.1.1 - Direct real estate loans
The majority of outstandings are backed by Basel II-eligible guarantees, with a high proportion of first-ranking mortgages. A portion of regulated loan production is also backed by an SGFGAS counter-guarantee. The remaining outstandings are backed by a guarantee provided by Compagnie Européenne de Garantie (formerly SACCEF), Crédit Logement or a mutual guarantee company. Pledges can be added to these guarantees.
In France, outstanding loans to Individual customers remained relatively stable compared to December 2013 (-0.4%) after growing by 2.9% in 2013. These comprised 74% new home ownership loans (equivalent to 2013 levels), 41% of which were loans for low-income families (PAS/PTZ loans) (39% in 2013), confirming Crédit Foncier’s growing market share in this segment. The amount of outstandings was therefore stable despite a gloomy real estate lending market.
Fixed-rate loans comprised 76% of outstandings, continuing their rise (74% in 2013, 69% in 2012 and 64% in 2011). At the same time, variable-rate loans recorded a steady decline.
Internal scoring
The breakdown below illustrates the quality of direct outstanding loans to Individuals: 57% have a “favourable” rating ranging from 3 to 7, down slightly compared to 2013 (58%). Including the “acceptable” rating (8), this percentage is 84% compared to 85% in 2013. This breakdown has been practically stable over the past three years, with 5% of outstandings in default at December 31, 2014 (compared to 4% at year-end 2013). The percentage of “uncertain” ratings (9) fell from 6% to 5% at the end of June 2014, while the portion of unrated loans fell from 5% to 6%. The risk profile on the portfolio of direct loans to Individuals was comparable to that at the end of 2013.
58%
27%
4% 2%
57%
27%
6% 5% 5% 3% 4% 2% 0%
10%
20%
30%
40%
50%
60%
70%
Favourable Acceptable Uncertain Not ratedsubsidiaryand branch
(exemptions)
Default NotratedCFF
Dec.-13: €49,764m june-14: €49,564m
Real estate bridging loans to Individual customers
Outstanding bridging loans have declined sharply in recent years. They stabilised in early 2014, with outstandings amounting to €316m at 30 June 2014, compared with €314m at December 31, 2013 and €350m at December 31, 2012. New bridging loan production, which accounts for 1% of total outstanding loans to Individuals, is still subject to enhanced vigilance, particularly regarding the liquidity of the assets backing the bridging portion of the loan.
Amicable recovery, insolvency and litigation involving Individual customers
In what remains an unfavourable economic environment, outstandings subject to amicable recovery remained stable compared with 2013 (1.9%). However, the percentages of outstanding loans subject to insolvency proceedings and loans under litigation both rose by 0.2 points. The provisions of the Lagarde law to protect consumers against over-indebtedness and the growing number of new legal procedures also contributed to this increase in early 2014. Furthermore, delays in processing foreclosures are getting longer. In the current economic and social environment, supporting customers during the amicable recovery process is complicated and difficult, and a large number of cases are still being transferred to insolvency or litigation.
Outstandings by management structure (France)
0%
1%
2%
3%
4%
5%
6%
12/31/2013 06/30/2014
Litigation
Insolvency
Amicable recovery
5% 5.4%
1.9% 1.9%
0.6% 0.8%
2.5% 2.7%
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5.2.1.1.2 - Loan restructuring and auto financing
Banco Primus, a Crédit Foncier subsidiary headquartered in Lisbon, distributes auto loans in Portugal. It is also overseeing the run-off of a portfolio of mortgage loans in Spain and Portugal and auto loans in Hungary.
TOTAL OUTSTANDINGS at June 30, 2014 €602m
Of which auto loans (Portugal) €275m
Of which mortgages (Spain) €218m
Of which mortgages (Portugal) €90m
Of which auto loans (Hungary) €18m
Loans at risk (repayments in arrears by 90 days or more) 23%
Default provisioning rate 49%
Average LTV (mortgage business) 78%
Capital adequacy ratio (Core Tier 1) 12%
In the first half of 2014, the auto loan activity in Portugal showed a high level of new loan production and stable loss-ratio indicators, which demonstrate the efficiency and quality of local loan origination procedures. Recent generations of loans (2011-2013) continue to be of better quality in terms of credit risk than those from the first generations (2008-2010).
There are still considerable disparities in the run-off portfolio:• In Spain, the loss ratio and the average LTV are growing: the
mortgage financing business, which is in run-off, has been impacted by the downward trend in the local real estate market. In addition, the provisioning rate for outstandings at risk rose in 2013 and approached 40% at 30 June 2014. Via the adjudication process of pledged real estate assets, the bank acquired a portfolio of assets that it is trying to sell;
• In Portugal, outstanding mortgage loans suffered from the quality of the initial loan production, with a litigation rate over 56% at end-June 2014. The risk on loans in litigation is monitored on an individual basis to ensure adequate provisioning (the coverage rate of outstandings in arrears by 90 days or more is 39%);
• The portfolio of auto loans in Hungary continues to be amortised rapidly due to the high level of early repayments, which now represents 3% of total outstandings compared to 5% the year before.
5.2.1.2 - Risk transfer operations
During the first half of 2014, Crédit Foncier also reopened the public securitisation market in France through a transaction that disposed of a portfolio of residential mortgage-backed securities (RMBS) amounting to €923m, consisting entirely of receivables originated by Crédit Foncier.
In addition to moving the assets entirely off the balance sheet of the transferor (Crédit Foncier) - a first on the French market - this transaction required the establishment of special structural mechanisms in order to meet the demands of investors. This transaction, which was 3 times oversubscribed demonstrates investors’ interest in Crédit Foncier as well as Crédit Foncier’s longstanding expertise in this domain. CFHL-1 2014 is also fully in line with Groupe BPCE’s “Growing Differently” (Grandir autrement) strategic plan, which expects that this form of funding will be regularly used alongside obligations foncières.
5.2.1.3 - Positions on residential mortgage-backed securities (RMBS) in Europe
Securitisation and residential mortgage acquisition activities are addressed in a separate section of this report, in accordance with the rules of financial transparency (see section 8.3.1 in Chapter 8 - Securitisations - for more details).
5.2.2 - Public sector portfolio
5.2.2.1 - French public sector
During the first six months of the year, direct loans outstanding to the French public sector (€27bn at June 30, 2014), which include French local authorities and social housing, increased by 2%. The doubtful loans ratio remained close to zero.
5.2.2.1.1 - French local authorities (FLA)
Crédit Foncier Group acts as a partner with Groupe BPCE retail networks in financing activities targeting French local authorities and other local institutions.
In the first half of 2014, the growth of FLA outstandings portfolio rose by nearly 3%. The quality of outstandings is both high and stable over time: as on December 31, 2013, 94% of outstandings have a favourable or an acceptable rating (87% have a favourable rating).
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French local authorities portfolio
Breakdown by rating
87%
7% <0.5% 5%
87%
<0.5% <0.5% <2% 0.5%
4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Dec.-13: €17,347m june-14: €17,855m
Favourable Acceptable Uncertain Otherformats
Default Notrated
7% 0%
5.2.2.1.2 - Social housing
This business line originates regulated loans (“prêt locatif social” - PLS; “Prêt locatif intermédiaire” - PLI) or unregulated loans for the social housing sector in collaboration with Groupe BPCE.
In the social housing sector, the majority of loans were granted within the PLS budget by Caisse des Dépôts et Consignations. Crédit Foncier is thus active in the financing of social housing transactions and medical/social housing transactions (retirement homes, care homes) meeting strong demand and significantly supported by the government. These transactions are backed by guarantees provided by local authorities or by mortgages.
Outstandings have been stable since December 31, 2013.
The proportion of counterparties rated “favourable” is 83%. This is higher than at the end of 2013.
The risk profile of unrated outstandings is solid: it mainly comprises organisations that receive the Employers’ Contribution to the Construction Effort (29) and their subsidiaries, which are not covered by BPCE’s scoring systems. When the commitment decision is taken, these counterparties are subject to an individual analysis.
Social Housing portfolio
Breakdown by rating
83%
2% <0.5%
0% 0% <0.5%
81%
0% 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Favourable Acceptable Uncertain Other formats
Default Not rated
Dec.-13: €8,323m June-14: €6,987m
0%
17%
1%
16%
Starting from the second quarter of 2014, Associations (€1.3bn) are excluded from the above assets because they are rated by another internal tool (in which 47% of outstandings are rated “favourable” and 52% are “acceptable”).
5.2.2.2 - International Public Sector Financing (IPF) and Sovereigns
5.2.2.2.1 - International Public Sector Financing (IPF)
Outstandings from the IPF portfolio are concentrated in the local authorities of the euro zone countries (including Italian regions and the autonomous communities in Spain), the United States (states, counties) and Japan (prefectures).
At June 30, 2014, IPF outstandings amounted to €7,722m, compared to €7,244m at year-end 2013, a variation of €478m (+7%) over the year. With regard to the net carrying amount under IFRS (without taking swaps into account), the change in IPF portfolio outstandings is mainly due to fluctuations in the rate of the hedged component and in the exchange rate for securities in foreign currencies. Most of the change was recorded outstandings for Japanese positions: in the first half, the exchange rate of the euro against the yen declined, which resulted in an increase of equivalent value in euros of Crédit Foncier’s Japanese positions. We note that the limited number of securities disposals during the first semester involved North American positions.
(29) The Employers’ Contribution to the Construction Effort (PEEC) is a mechanism in which private-sector, non-agricultural companies employing 20 employees or more (10 employees or more prior to 2006) contribute to the construction of new homes. This programme was formerly known as the “1% Logement” scheme.
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Exposures by internal rating for the IPF portfolio
June 30, 2014
€7,722m
Not rated6%
BBB29%
BB5%
AAA1%
A19%
AA40%
December 31, 2013
€7,244m
Not rated7%
BBB29%
BB5%
AAA1%
A19%
AA39%
The IPF portfolio is mainly rated internally by Crédit Foncier’s Risk Management Division. The fact that the last review of IPF outstandings scores was the end of 2013 and their next review will be in the second half of 2014 explains the portfolio’s stability on a yearly basis.
5.2.2.2.2 - Sovereigns
Crédit Foncier’s Sovereigns portfolio comprises outstanding French sovereign debt as well as exposures to foreign sovereigns, which have been in run-off since the second half of 2011.
At June 30, 2014, outstandings in the Sovereigns portfolio, as the net carrying amount under IFRS, amounted to €10,577m. It amounted to €16,206m at the end of 2013, a 34% decline over the half-year period. We recall that at the end of 2013, outstandings in the Sovereigns portfolio included Compagnie de Financement Foncier’s treasury investments with the Banque de France, notably including liquidity resulting from the transfer of the securitisation portfolio to Crédit Foncier.
Crédit Foncier uses Groupe BPCE’s internal rating system.
Exposures to Sovereigns by internal rating *
June 30, 2014
AAA to AA-62%
A+ to A5%
A- to BBB+28%
BBB to BBB-4%
BB+ to BB<0.5%
€10,577m
BB- to B1%
December 31, 2013
AAA to AA-78%
A+ to A3%
A- to BBB+16%
BBB to BBB-2%
BB+ to BB<0,5%
BB- to B<0,5%
€16,206m
* Basel II ratings after credit enhancement.
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The outstandings of the Sovereign portfolio excluding France are broken down as follows:
0
500
1,000
1,500
2,000
2,500
3,000
Dec.-13: €3,595m June-14: €4,013m
Hungary
CyprusIrland
Czech Rep.
Slovakia
Slovenia
PolandItaly
14 354052
56113
112159
173216
227
366434
2,957
2,640
14
Restated for French sovereign exposure, outstandings in the Sovereigns portfolio amounted to €4,013m, a 12% increase over the period. As was the case with the IPF portfolio, this corresponds to changes in exchange rates for securities in foreign currencies; to changes in the market value for lines recorded in available-for-sale; and to changes of the underlying security for the other securities.
5.2.3 - Exposure to banks
Given the structure of its activities and its refinancing needs, Crédit Foncier manages a significant volume of exposures to counterparty banks on an ongoing basis. Most of these exposures resulted from the need to make treasury investments and the hedging requirements (through swaps in particular) of its main activities (credit origination, bond issuances, etc.). A significant portion of banking exposures also corresponds to long-term transactions carried out in connection with International Public Sector Financing (IPF): Landesbank grandfathered debt in Germany, Swiss cantonal banks, etc. This type of exposure is backed by sovereigns or semi-sovereigns.
Since 2012, Crédit Foncier has optimised its derivatives portfolio in order to lower the number of outstanding contracts and to reduce associated liquidity. We note that in the second half of 2014, pursuant to the European Market Infrastructure Regulation (EMIR), Crédit Foncier will begin netting some of its currently over-the-counter derivatives transactions.
Particular attention is paid to the banking sector, and limits on this sector have been considerably lowered since 2010.
Exposures to banks by internal rating
June 30, 2014
€20,015m
AA 7%
Not rated2%
AAA 3%
BBB 2%
A 86%
December 31, 2013
€18,650m
AA 9%
Not rated4%
AAA 4%
BBB 1%
A 82%
Note: the breakdown of exposures to banks is based on management amounts in the IT systems.
Transactions with banks involve high gross volumes ultimately accounting for low net amounts due to valuations and netting impacts (derivative transactions are accompanied by collateralisation hedging mechanisms). The charts above present the balance-sheet value of these transactions, which does not necessarily accurately detail the credit risk incurred on derivatives transactions.
5.2.4 - Private sector portfolio
The Private Corporates business as a whole accounted for just under €8bn in assets, most of which is comprised of direct loans (over 98%), with the remainder being CMBS securitisations (less than 2%).
Direct loans to the private corporate sector concern several types of activities:• real estate development, housing developments and, to a
lesser extent, property dealers, via short-term loans or off-balance sheet undertakings, either directly or through its subsidiary SOCFIM;
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• long-term investments, covering real estate asset financing via conventional medium- and long-term loans and real estate leasing, granted by Crédit Foncier’s subsidiary, Locindus;
• public-private partnership (PPP) transactions. In this segment, Crédit Foncier usually offers specialised financing involving a revenue stream from the transaction, control over the financed assets, and a significant percentage of public guarantees.
5.2.4.1 - Direct loans
5.2.4.1.1 - Analysis of exposures
Outstanding direct loans to private sector corporates amounted to €7,877m at June 30, 2014. The main exposures concern property development activities in France, long-term investors and corporates amounting to €5.5bn at year-end 2014, stable against 2013 (new loan production in 2014 was offset by repayments and the gradual development of the syndication business).
Real estate development
At the end of 2012, all of Crédit Foncier’s real estate development activities were transferred to its subsidiary SOCFIM, which is now the only entity to undertake new transactions. The management of residual outstandings on Crédit Foncier’s balance sheet is now outsourced to the subsidiary.
The majority of financing was granted to major clients in the real estate development sector. Transactions financed for other clients had satisfactory ratings and a solid capital to pre-construction sales ratio.
In real estate development, Crédit Foncier Group’s new loan production (via its subsidiary SOCFIM) declined slightly in the first half of 2014 compared with the previous year on a like-for-like basis (Crédit Foncier and SOCFIM).
The monitoring of these activities continued, with periodic sector reviews and a system of limits regularly updated in conjunction with Groupe BPCE’s Risk Management Division. Problematic cases related to a stable and limited number of players.
Long-term investors and specialised financing
New loan production for long-term investors and specialised financing was relatively strong in the first half of 2014, increasing against the previous year. Outstandings in this sector rose by around 1%, even though a significant portion of loans originated in 2013 and 2014 were syndicated externally.
Risk linked to long-term investors is reviewed periodically, particularly with respect to rental vacancies, rent trends and the valuation of mortgage guarantees.
Total exposure to unlet assets was at €148m at June 30, 2014 versus €160m at December 31, 2013. As in the real estate development segment, problematic loans relate to a limited number of counterparties.
Corporates
For Crédit Foncier, this sector mainly consists of real-estate leasing transactions carried out by its subsidiary Locindus. It should be noted that in this sector, the lender owns the building and thus enjoys a solid guarantee, making it easier to put the property back up for rent.
5.2.4.1.2 - Breakdown by rating
Internal rating of the private sector portfolio (excluding public-private partnerships and CMBS)
0%
10%
20%
30%
40%
50%
60%
70%
Dec.-13: €5,453m June-14: €5,521m
Favourable Acceptable Uncertain Otherformats
Default
50%
30%
1% 7%
52%
31%
1% 7% 9% 12%
In the private corporate sector, 83% of outstandings have a favourable or acceptable score, compared to 80% at year-end 2013. Only 1% of overall outstandings were rated “uncertain”. Meanwhile, the default rate has stabilised at 7% since the end of 2013.
5.2.4.2 - Other securitisation transactions
These activities are addressed in a separate section of this report, in accordance with the rules of financial transparency (see section 7.3.1 in Chapter 7 - Securitisations - for more details).
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6 - Analysis of delinquencies6.1 - DelinquenciesCrédit Foncier Group’s risk hedging
(in €m)
Exposures 06/30/2014 12/31/2013
Balance sheet
Doubtful loan
percentage
Doubtful loan percentage
(excl. subsidised
sector)
Balance sheet
Doubtful loan
percentage
Doubtful loan percentage
(excl. subsidised
sector)
Retail 57,814 4.22% 4.18% 58,063 4.03% 4.02%
• Direct loans (France and Europe) 49,692 4.90% 4.86% 49,908 4.69% 4.67%
• RMBS in Europe 8,122 - - 8,155 - -
Public sector 48,367 <0.5% <0.5% 53,084 <0.5% <0.5%
• French public sector 26,137 <0.5% <0.5% 25,670 <0.5% <0.5%
• International Public Sector Financing and Sovereigns (direct loans and obligations)
18,299 - - 23,450 - -
• Securities backed by individual customer loans with government or institutional guarantees
3,931 - - 3,964 - -
Private corporate sector 7,989 7.01% 6.11% 8,195 8.85% 7.97%
Exposure to banking sector and other 20,116 <0.5% <0.5% 18,758 <0.5% <0.5%
TOTAL 134,286 2.26% 2.19% 138,100 2.24% 2.18%
6.2 - Cost of riskCost of risk - Individuals and Corporates
At June 30, 2014, the cost of risk amounted to €64m, stable compared to June 30, 2013 (€65m). This includes:• the increase in delinquencies on the Individual customers
portfolio, and the reduction of the value of certain guarantees;• provisions recorded on certain corporate exposures,
corresponding to activities that Crédit Foncier no longer holds. This provisioning remained low in the first half of 2014.
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Cost of risk - Individuals and Corporates
(in €m)
12/31/2013 Net allocations to provisions
Losses on non-hedged receivables
Recoveries of amortised
receivables06/30/2014
Interbank loans and receivables
Customer loans and receivables -252 -58 -9 4 -63
Signed commitments 2 0 0
Cost of risk - Individuals and corporates (A) -250 -59 -9 4 -63
of which individual cost of risk -183 -66
of which cost of risk on portfolio basis (collective provisions) -67 3
Overall credit risk exposure * (B) 146,136 141,988
Cost of risk as % of total exposures (C=A/B) -0.17% -0.04%
* Total exposure to credit risk: gross outstandings (performing and doubtful) including off-balance sheet commitments.
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7 - Risk Mitigation TechniquesThe portfolio of loans to non-public sector counterparties (Individuals, social housing, Corporates) is mostly covered by real estate mortgages or personal guarantees.
7.1 - Collateral valuation and managementFor the financing of professional assets or large home loans, the assets pledged to guarantee the loans are assessed by a property valuation expert (Foncier Expertise).The terms of these valuations were unchanged in the first half of 2014.
Crédit Foncier updates the mortgage values of pledged collateral annually. These values may be updated automatically using real estate indices showing annual trends or by an expert, depending on the type and/or amount of the collateral.
Among the loans guaranteed by a first-ranking mortgage or a lender’s lien, some are doubly secured by an additional guarantee from a mutual guarantee company or local authority, which is also the predominant guarantee in the social housing market.
7.2 - Main insurersThe main providers of personal guarantees on mortgage loans to Individual customers are the SGFGAS, mortgage insurance companies (e.g. CEGC (formerly SACCEF)) as well as other credit institutions (mainly Crédit Logement and intra-group bank guarantees).• The Société de Gestion du Fonds de Garantie à l’Accession
Sociale à la propriété (SGFGAS) provides a guarantee from the French state for home ownership loans governed by regulated loan agreements and guaranteed by first-rank collateral (mortgage or lender’s lien). Accordingly, it receives the French’s government’s external ratings and allows a 0% weighting of loans for which SGFGAS coverage was signed prior to December 31, 2006. Due to a change in SGFGAS coverage methods, guarantees granted thereafter have a 21% average weighting for the loans in question. This new treatment has been taken into account beginning in the second quarter of 2014.
• Crédit Logement is a financial institution, a subsidiary of most large French banking networks, whose long-term rating is Aa3 at Moody’s and A+ at Standard & Poor’s. Loans guaranteed by Crédit Logement receive a 50% weighting under the standardised approach, related to the regulatory weighting applicable to credit institutions and deducted from the credit ratings of the country where the underlying collateral is located (France in this case).
• CEGC (Compagnie Européenne de Garanties et Cautions, formerly SACCEF) is a company that specialises in bank loan surety and is owned by Natixis Garanties. The downgrading of Standard & Poor’s external rating from AA- to A+ in the last quarter of 2008 changed the weighting of the outstandings covered: weighting of 35% or 75% for residential property loans and 50% for other types of individual loans. The Autorité de Contrôle Prudentiel et de Résolution (ACPR, French Prudential Supervisory and Resolution Authority) authorised loans in the real estate loan portfolio guaranteed by SACCEF to be classified using the standardised approach in order to apply a single weighting of 35% at December 31, 2008 and at subsequent reporting dates until the advanced IRB approach is adopted.
• Guarantees are also provided by other mortgage insurance companies (Mutuelle générale des Postes, Télégraphes et Téléphones (MG PTT), Mutuelle du Trésor, Mutaris Caution, etc.).
• NHG is a guarantee provided by the Dutch government on mortgages acquired by Crédit Foncier in late 2007. This portfolio of loans guaranteed by NHG amounted to €69m.
• Other insurers are credit institutions, mainly providing intra-group guarantees (Caisses d’Epargne and BPCE), or public sector legal persons (mainly for PPPs). Note: a financial guarantee of €2.8bn has been provided to Crédit Foncier by Caisse Nationale des Caisses d’Epargne in connection with the acquisition of Ixis CIB’s French local authorities business.
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7.3 - Effect of credit risk mitigation techniquesCrédit Foncier’s portfolio is predominantly covered by first-ranking mortgages or eligible personal guarantees.
Loan insurers
June 30, 2014
First-ranking mortgages and other protection16%
Local authorities and Sovereigns - France27%
Other covered exposures3%
First-ranking mortgages only23%
Residential mortgage-backedsecurities (RMBS)7%
Public sector securitisation 4%
Local authorities- International11%
Developer loans,bridging loans and others 2%
Other guarantees (incl. SACCEF guarantee)7%
€114bn
December 31, 2013
€119bn
First-ranking mortgages and other protection15%
Local authorities and Sovereigns - France30%
Other covered exposures 3%
First-ranking mortgages only22%
Residential mortgage-backedsecurities (RMBS)7%
Public sector securitisation 3%
Developer loans, bridge loans and other 2%
Other guarantees (incl. SACCEF guarantee)9%
Local authorities - International9%
7.4 - Balance sheet and off-balance sheet nettingCrédit Foncier Group assesses exposures tied to derivatives by applying an add-on to current exposures. Groupe BPCE has a policy of systematically entering into framework agreements with its banking counterparties. The vast majority of the time, these are collateralisation agreements with margin call triggers that reduce the actual exposure. In the specific case of Compagnie de Financement Foncier, these agreements are asymmetrical, meaning that only the counterparties provide collateral if needed.
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8 - SecuritisationsUnless otherwise mentioned, the data shown in the tables and charts in this section are adjusted management figures, balance sheet commitments (excluding signed commitments and financial guarantees given) representing the overall exposure to credit risk under IFRS consolidated gross figures (performing and doubtful).
8.1 - Objectives, activities and risk monitoringAll of Crédit Foncier’s securitisation transactions belong to the banking book and Crédit Foncier is not an investor in any resecuritisation transactions.
8.1.1 - Objectives
The Crédit Foncier Group invests in shares of securitisations originated by third parties, mainly European financial institutions selling mortgage loan portfolios through RMBS deals.
The developments described in this section refer exclusively to units of securitisations held by the bank with respect to its operations as an investor and are classified in its banking book.
8.1.2 - Crédit Foncier investments and risk management system
For further information, refer to page 126 of the 2013 Registration document.
8.2 - Approach and external credit ratings
8.2.1 - Approach used
At June 30, 2014, the weighting of securitisation positions is calculated using the standard Basel II method. The weighting is based on external ratings assigned by the three major rating agencies: Moody’s, Standard & Poor’s and Fitch.
At June 30, 2014, all the tranches held by Crédit Foncier were rated by external agencies. If the tranche has different ratings by the three agencies, the Basel III criterion is applied: the lower of the two best ratings is used.
8.2.2 - Summary of accounting standards used in connection with securitisations
Crédit Foncier’s securitisation portfolio is held to maturity and is carried on the balance sheet under “Loans and receivables due from customers” (which protects from any fair value changes). The impact of any disposals of shares held by Crédit Foncier is immediately taken to the income statement.
8.2.3 - Stress scenario on the RMBS portfolio
Crédit Foncier Group’s entire portfolio of mortgage-backed securities (RMBS, including NHG RMBS) is regularly stress-tested to assess the resilience of the assets held in extreme scenarii.
Only the most damaging scenarii are liable to generate losses on some of the RMBS positions held by Crédit Foncier Group. These scenarii assume a combination of events of such a magnitude that they appear unlikely at this stage, by simulating:• the high ratio of new defaults, applied to the transaction’s
maturity (which results in the most risky transactions in the portfolio being allocated an aggregate default ratio of 25% of the original amount of the securitised receivables);
• an abrupt and lasting collapse in real estate prices of differing magnitudes depending on the country;
• very low early repayment rates applied to the end of the transaction.
The defaults modelled during the stress tests correspond to foreclosures, corresponding to a conservative hypothesis because, in reality, loans that have reached the default stage do not systematically involve foreclosure.
In the event of such a “catastrophic” scenario as described above, a final cash flow deficit could be recorded at maturity, accounting for 0.4% (discounted) of the outstanding principal of the transactions under stress. The simulation gave rise to the recording of a collective provision on the external securitisation portfolio amounting to €51m at December 31, 2013.
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8.2.4 - Impaired assets/external securitisations
No arrears or losses were recognised on the Crédit Foncier Group’s securitisation portfolio in the first half of 2014.
8.2.5 - Securitisation transactions backed by a guarantee
At June 30, 2014, two portfolio transactions were enhanced by a monoline insurer or benefited from a financial guarantee by a credit institution. These transactions amounted to €84m at end-June 2014.
8.3 - The Crédit Foncier Group’s exposures to securitisation transactions
8.3.1 - Securitisation exposures by type of underlying asset
At June 30, 2014, Crédit Foncier held an external securitisation portfolio with outstandings amounting to €11.5bn, down €376m compared to year-end 2013 (-3%).
The portfolio’s outstandings remained stable over the period, especially when this change is compared to 2013, which saw Crédit Foncier implement significant disposals of credit lines as part of running off the portfolio.
(in €m)
06/30/2014 12/31/2013 Difference
Residential mortgage 7,896 8,115 -219
RMBS_PRIME 7,896 8,115 -219
Public sector 3,525 3,552 -27
ABS_STUDENTLOANS/FFELP
1,692 1,692 -
RMBS_PRIME_NHG 1,833 1,860 -27
CMBS 112 242 -130
Overall total 11,533 11,909 -376
8.3.2 - Geographic breakdown of external securitisation positions
The entire securitisation portfolio is exposed to Europe and the United States. In Europe, the exposures are focused mainly in Spain (RMBS, 40% of the portfolio’s total outstandings), the Netherlands (RMBS and NHG RMBS: 19% of total outstandings) and in Italy (RMBS: 13% of outstandings).
The US portfolio (15% of total outstandings) is highly secure as it comprises mostly Step 1 category (rated ≥ AA-) senior US student loan securitisations backed by the Federal government (FFELP programme).
(in €m)
Exposures to external securitisation positions by country
06/30/2014 12/31/2013
Amount % Amount %
Germany 619 5% 649 5%
Spain 4,632 40% 4,744 40%
United states 1,692 15% 1,692 14%
Europe 48 <0.5% 54 0%
France 14 <0.5% 113 1%
Greece 3 <0.5% 4 <0.5%
Italy 1,502 13% 1,554 13%
Netherlands 2,201 19% 2,236 19%
Portugal 791 7% 822 7%
United Kingdom 30 <0.5% 42 <0.5%
Overall total 11,533 100% 11,909 100%
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Breakdown by region of external securitisation positions
June 30, 2014
€11,533mEurope excl. France 0%
Portugal 7%
US 15%
Spain 40%
Germany 5%
United Kingdom0%
Greece0%
Netherlands 19%
France 0%Italy 13%
December 31, 2013
€11,909mEurope excl. France <0,5%
Portugal 7%
US 14%
Spain 40%
Germany 5%
United Kingdom<0,5%
Greece<0,5%
Netherlands 19%
France 1%Italy 13%
8.3.3 - Breakdown of external securitisation positions by rating
(in €m)
Exposure to external securitisation positions by rating
06/30/2014 12/31/2013
Amount % Amount %
AAA 1,733 15% 2,913 24%
AA+ 245 2%
AA 1,372 12% 554 5%
AA- 998 9% 957 8%
A+ 703 6% 772 6%
A 662 6% 1,190 10%
A- 963 8% 1,052 9%
BBB+ 1,288 11% 743 6%
BBB 850 7% 857 7%
BBB- 1,414 12% 1,456 12%
BB+ 548 5% 551 5%
BB 419 4% 419 4%
BB- 93 1% 98 1%
B 233 2% 234 2%
B- 3 <0.5% 4 <0.5%
D 9 <0.5% 107 1%
OVERALL TOTAL 11,533 100% 11,909 100%
During the period, ratings shifted from AAA to the AA category: AAA-rated outstandings now account for 15% of total outstandings (compared to 24% in 2013), whereas AA-rated outstandings now represent 23% of the portfolio (versus 13%). This is mainly due to the downgrading of student loans transactions’ Basel II ratings after rating agencies revised their methodology. This event nonetheless had no impact in terms of consumption of regulatory capital (see below).
The ≤ B+ category comprises four RMBS transactions (three Spanish and one Greek) and one CMBS transaction. All these transactions are subject to specific monitoring and are included on the Watch List.
The external securitisation portfolio has a satisfactory risk profile given that 88% of its outstandings comprises transactions whose Basel II rating is investment grade (only transactions with ratings greater than BB+). This proportion was slightly higher than at year-end 2013.
Reflecting the perceived end to the crisis among European countries, ratings agencies upgraded the ratings of some portfolio RMBS. For the time being, these actions have had no positive impact on capital with regard to securitisation positions, but they do seem to mark a turnaround in the trend that had prevailed until then.
Breakdown of external securitisation positions by rating
June 30, 2014
€11,533m
≤B2%
BBB 31%
BB 9%
A 20%
AAA 15%
AA 23%
December 31, 2013
€11,909m
≤B3%
BBB 26%
BB 9%
A 25%
AAA 24%
AA 13%
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8.3.4 - Breakdown by weighting
Crédit Foncier uses the standardised approach to determine its capital requirements for securitisations. The breakdown of outstanding positions by Basel weighting is as follows:
Breakdown of external securitisation positions by rating
Basel II weighting Standardised
approach
06/30/2014 12/31/2013
Amount % Amount %
20% 4,349 38% 4,424 37%
50% 2,327 20% 3,014 25%
100% 3,551 31% 3,057 26%
350% 1,060 9% 1,068 9%
1,250% 245 2% 345 3%
OVERALL TOTAL 11,533 100% 11,909 100%
As the Basel weighting is directly contingent on the external rating of securitisation positions, the migration of ratings previously described (from the AAA category to AA) did not lead to the decrease of risk-weighted assets to 20% because the associated transactions remained rated ≥ AA-. In contrast, we note that there are less risk-weighted assets to 50% and more risk-weighted assets to 100%. This is mainly explained by an Italian RMBS whose Basel II rating declined from A to BBB+.
The exposures listed in the table with a risk weighting of 1,250% comprise a CMBS that has been included on the Watch List for several years (provisioned credit lines), as well as three Spanish RMBS and a Greek RMBS, included on the Watch List at June 30, 2014.
8.3.5 - External securitisation positions backed by residential mortgages (RMBS, excluding NHG RMBS) in Europe
At December 31, 2013, 68% of the securitisation portfolio (€8bn) is comprised of securities backed by “prime” European Union mortgage loans (Crédit Foncier has no direct or indirect exposure to the US mortgage market).
The proportion of outstandings with Basel II ratings ≥ AA+ was stable from the end of 2013 at 17%, as was the proportion of Step 1 (≥ AA-) outstandings. The above-mentioned Italian RMBS downgrade inflated the proportion of BBB-rated outstandings at the of expense A-rated outstandings.
Despite these downgrades, 84% of RMBS outstandings are still rated in the investment grade category (≥ BBB-).
External RMBS securitisation positions backed by loans to Individuals
June 30, 2014
€7,896m
BBB44%
AA 12%
A 22%
AAA 5%
BB 14%
B3%
December 31, 2013
€8,115m
BBB37%
AA 12%
A 30%
AAA 5%
BB 13%
B3%
8.3.6 - External securitisation positions in the public sector
This category comprises securitisation transactions whose underlying is backed by a guarantee issued by a public entity. Outstanding securitisation positions in this portfolio amounted to €3,525m at June 30, 2014, stable compared to the end of 2013. 38% of the outstandings in this portfolio are Basel II AAA rated; over 84% of outstandings are rated in the Step 1 category (≥ AA-).
This portfolio comprises two types of transactions:• NHG RMBS (€1,833m): Dutch mortgage loan securitisations
backed by an NHG guarantee, a Dutch public entity that plays a similar role in the Netherlands as SGFGAS in France. The final risk on these transactions is therefore borne by the Dutch government. This portfolio decreased considerably
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compared with 2013; over and above the natural amortisation of the portfolio, nearly €1.5bn in securities were sold during the year. 76% of the outstandings of this portfolio are rated in the Step 1 category (≥ AA-), up slightly on 2013.
• FFELP Student loans (€1,692m): backed by a Federal guarantee covering at least 98% of the outstanding principal of the loan. At June 30, 2014, 93% of FFELP student loans enjoyed a Step 1 Basel II rating (Basel II rating ≥ AA-).
External securitisation positions backed by public sector assets
June 30, 2014
€3,525m
BBB<0,5%
AA 46%
A 15% AAA
38%
December 31, 2013
€3,552m
BBB<0,5%
AA 13%
A 16%
AAA 70%
8.3.7 - Other external securitisation transactions
Crédit Foncier Group’s exposure to other types of securitisations only includes Commercial Mortgage-Backed Securities (CMBS). The outstanding of these transactions represents €112m, down sharply due to the redemption and sale of portfolio credit lines.
With the exception of one CMBS transaction, representing lower outstandings of €10m and placed on the Watch List, the CMBS portfolio appears low risk.
An individual provision covers at-risk CMBS.
9 - Recommendations of the Financial Stability ForumIn its report of April 7, 2008, the Financial Stability Forum (FSF) - G7 issued a series of recommendations in response to the financial crisis, particularly in terms of financial transparency, valuation, risk management and ratings agencies.
In the conclusions of the Senior Supervisors Group report, the FSF called for improved financial communication in the following five areas:• exposure to CDOs (Collateralised Debt Obligations) or direct
exposure to monolines;• exposure to CMBS (Commercial Mortgage-Backed
Securities);• other subprime and Alt-A exposure and exposure to US
mortgages more generally;• special purpose entities;• leveraged buyouts.
These disclosure requirements were discussed in a working group involving the FBF (French Banking Federation), the SGCB (Corporate Secretariat of the Prudential Control Committee) and the AMF (French Financial Markets Authority) in order to adapt the FSF recommendations for France. Financial information tables were therefore drawn up to meet these five requirements.
9.1 - CDOs and exposures to monoline insurers and other credit enhancers
9.1.1 - Collateralized debt obligation (CDO)
The Crédit Foncier Group has no exposure to CDOs.
9.1.2 - Credit enhancers
9.1.2.1 - Enhanced assets
The book value of credit-enhanced assets in the table below does not correspond to direct exposures to monoline insurers. It represents secondary guarantees extended by monoline companies to Crédit Foncier on some of its assets. In all cases, Crédit Foncier holds an initial claim against a primary counterparty other than the monoline. These guarantees generally cover public sector financing transactions (loans or
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securities) extended directly to a sovereign state or to a local authority or public institution.These commitments are legally structured as financial guarantees (and not CDS) and constitute an additional security for the underlying asset. These guarantees are neither valued nor recognised on Crédit Foncier’s balance sheet (only the enhancement premium is recognised as an expense when the
guarantee is extended outside of the underlying security or loan).The breakdown of this monoline-insured portfolio is based on the nominal value of the investment lines at June 30, 2014, according to the initial credit enhancer (without taking into account takeovers of certain companies by rival monolines which have since taken place).
(in €m)
ENHANCED ASSETS
06/30/2014Gross notional
amount of enhancements
Gross notional amount
of hedged instruments
Fair value of hedged
instruments
Fair value of enhancements
before adjustments
Fair value of hedges
purchased
Fair value of enhancements net of hedges
and before adjustments
Fair value adjustments for monoline
credit risk (recognised
on the enhancement)
Residual exposure to
counterparty risk from
monolines
Enhancements acquired from monolines
On CDOs (US residential market) with subprime underlyings
- - - - - - -
On CDOs (US residential market) with non-subprime underlyings
- - - - - - -
Counterparty risk on other transactions
1,947 1,947 2,380 - - - -
TOTAL 06/30/2014 1,947 1,947 2,380 - - - -
TOTAL 12/31/2013 1,937 1,937 2,250 - - - -
The breakdown of underlying assets by intrinsic rating is shown below.
(in €m)
06/30/2014 Nominal/internal rating
%Monoline Monoline rating AA A BBB Non-Investment Grade
Not Available
Total
AMBAC Not available 11 15 371 397 20%
CIFG Not available 133 133 7%
FGIC Not available 99 99 5%
AGMC A 239 747 145 1,131 58%
MBIA BBB+ 78 109 187 10%
Total 239 836 293 371 208 1,947100%
% 12% 43% 15% 19% 11%
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9.1.2.2 - Breakdown of gross exposures by underlying rating (nominal value)
The monoline rating is the lower of the two best ratings from Standard & Poor’s, Moody’s and Fitch Ratings at June 30, 2014. The intrinsic rating of the underlying asset is consistent with its pre-enhancement Basel II rating at the same date.
In light of the restructuring of the monoline sector, the rating now used for securities initially enhanced by FSA is that of Assured Guaranty. This monoline was rated A2 (Moody’s), AA (Standard & Poor’s) at June 30, 2014. Similarly, securities enhanced by MBIA are now rated by the National Public Finance Guarantee Corporation (A3 by Moody’s and AA- by Standard & Poor’s at June 30, 2014), which now guarantees North American local authorities.
Exposures whose intrinsic rating is shown as “not available” do not strictly speaking have a Basel II rating, but are subject to internal scoring by Crédit Foncier placing them in the investment grade category (≥ BBB-), mainly owing to their external ratings. These are direct commitments to North American public sector entities.
9.2 - Exposures to Commercial Mortgage-Backed Securities (CMBS)At June 30, 2014, one “at risk” CMBS position held by Crédit Foncier Group was placed on the securitisation Watch List. The gross book value of this tranche was €9.3m. They are carried on Crédit Foncier’s balance sheet and have been provisioned for 75% of their amount on average since the end of 2013.
9.2.1 - Table of at-risk CMBS exposures(in €m)
Table of at-risk CMBS exposures at 06/30/2014
Portfolio type United States Other markets at risk
Gross exposure (gross value on the balance sheet before impairment/depreciation)Residual balance sheet value
- 9
Accumulated impairment and depreciation recognised through profit or loss (since outset)o/w impairment and depreciation for this year onlyHaircuts recognised through profit or loss
- -7
Accumulated changes in value recognised in equity (since outset)o/w changes in value for this year onlyHaircuts recognised in equity (OCI)
- -
% of total CMBS haircuts(accumulated impairment and depreciation recognised through P&L/gross exposure)
- 75%
Fair value of hedgesExternal hedges not included in the calculation of losses and impairments
- -
Net exposure (net of impairment and depreciation) - 2
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9.2.2 - Breakdown of CMBS by sector
Having refocused its business, Crédit Foncier Group has been running off its CMBS portfolio since 2011. The proportion of exposures deemed “at risk”, like the CMBS portfolio’s outstandings, sharply declined over the period with the disposal of provisioned “at-risk” exposures.
Breakdown of CMBS by sector
June 30, 2014
“At risk” (based on Watch list) 8%
€112mNon-risky92%
December 31, 2013
“At risk” (based on Watch list) 53%
€242mNon-risky47%
9.2.3 - Geographic breakdown of CMBS
Crédit Foncier’s entire CMBS portfolio is located in Europe. The “Europe” category in the chart below corresponds to pan-European CMBS (whose underlying assets are divided among several European countries).
Breakdown of CMBS by region
June 30, 2014
Europe43%€112m
United Kingdom27%
France13%
Italy17%
Germany0%
December 31, 2013
Europe22%€242m
United Kingdom17%
France47%
Italy8%
Germany6%
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9.2.4 - Breakdown of CMBS by rating
The entire portfolio is rated by one or more rating agencies. Tranches rated ≤B correspond to the “at risk” exposures mentioned above.
Breakdown of CMBS by rating
June 30, 2014
AA17%
€112m
≤B8%
BBB35%
A27%
AAA13%
December 31, 2013
AA12%
€242m
≤B44%
BBB17%
A19%
AAA8%
9.3 - Other subprime and Alt-A exposures (RMBS, loans, etc.)Crédit Foncier Group has no direct or indirect exposure to subprime or Alt-A assets. Crédit Foncier has no exposure to the U.S. mortgage market more generally.
Excluding the “at-risk” assets described in section 9.2, which are subject to individual provisioning, Crédit Foncier Group had no CMBS on the securitisation Watch List at June 30, 2014.
9.4 - Special Purpose Entities (SPEs)At June 30, 2014, Crédit Foncier Group had no exposure to SPEs (ABCP or other).
9.5 - Leveraged buyouts (LBOs)Definition of an LBO:• a structured credit transaction, with a leverage effect, i.e.
bank borrowings, set up for the buyer of a target company;• with or without the participation of the target’s management;• a holding company is created whose capital is wholly or
partly owned by one or more financial sponsors.
The presence of a financial sponsor and a holding company is what qualifies this type of transaction as an LBO.
9.5.1 - Exposure to leveraged buyouts (LBOs)
At June 30, 2014, the Crédit Foncier Group identified five leveraged buyout deals amounting to €102m, slightly down compared to the end of 2013.
(in €m)
06/30/2014 12/31/2013
FINAL SHARES
Number of deals 5 7
Commitments 102 105
SHARES FOR SALE
Number of deals
Commitments
TOTAL 102 105
All the target companies acquired through leveraged buyout deals are based in France.
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9.5.2 - Change in exposures to leveraged buyouts (LBO)
LBO EXPOSURES 06/30/2014 12/31/2013
Total (gross) 102 105
Provisions -33 -33
TOTAL (NET OF PROVISIONS) 69 72
o/w final shares 69 72
o/w shares for sale - -
Crédit Foncier’s LBO exposures decreased slightly from €72m to €69m, net of provisions.
9.6 - Securitisation glossaryFor further information, refer to page 137 of the 2013 Registration document.
10 - Market risksFor further information, refer to page 138 of the 2013 Registration document.
10.1 - Market risk monitoring
10.1.1 - Operation
For further information, refer to page 138 of the 2013 Registration document.
10.1.2 - Scope & measurement
As transposed from BPCE’s market risk standards, Crédit Foncier’s Financial Charter requires VaR monitoring of:• transactions made to take advantage of short-term price
fluctuations (transactions systematically compartmentalised as proprietary trading);
• surplus equity capital cash reinvestment transactions (transactions in the financial investment sub-compartment of the Equity capital compartment).
Crédit Foncier’s market risk is therefore assessed by monitoring parametric VaR, which is calculated on a daily basis by BPCE using the Scenarisk tool. This tool assesses the potential losses that speculative activity may cause, by calculating a synthetic value-at-risk (VaR) measurement, with a confidence level and holding period of 99% and one day respectively. The results are consolidated at the BPCE level.
Monitoring of the Proprietary account is subject to a VaR limit, while the Equity capital - financial investments compartment has a volume, allocation, market value and volatility limit.
10.1.3 - Limit and supervision
In the first half of 2014, Crédit Foncier did not have any transactions in the proprietary trading or equity capital - financial investment compartments.
As long as these compartments remain empty, the control systems provided for under BPCE’s market risk standards and transposed in Crédit Foncier’s Financial Charter are not applicable.
Any development in the Proprietary trading compartment is subject to the express and prior approval, renewed every year, of Crédit Foncier’s Chief Executive Officer, Deputy CEO and Board of Directors, as well as the approval of BPCE, which can decide to end such development if the required conditions are not met.
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10.2 - Equity risk
10.2.1 - Investment approaches and procedures
Investment by BPCE entities (excluding Natixis) is regulated by a list of authorised financial products and an approval procedure for new financial products. These operational safeguards ensure that financial products are used appropriately and comply with regulations and Groupe BPCE risk standards.
The use of financial products by Groupe BPCE entities is validated by the New Financial Products and New Activities Committee and must comply with risk limits (market, credit risk, etc.) and the constraints set forth in the Financial Management Charter for each compartment (justification of the hedging strategy for ALM products, daily liquidity for proprietary trading assets, etc.).
In addition, specific measures for processing investment requests have been established by Groupe BPCE for the following financial products:• funds of listed shares;• funds of unlisted shares (private equity/infrastructure/real
estate);• securitisation vehicles;• structured products whose structure and pay off have been
validated by the New Financial Products and New Financial Activities Committee.
For Crédit Foncier and its subsidiaries, new investments (equity investments and real estate funds) are first examined
by the relevant departments before approval by the Executive Management committee and the Board of Directors where appropriate, according to the amount involved. In accordance with Groupe BPCE rules and in keeping with established thresholds, new investments are transmitted to the Group Investment Committee.
The investment rules for real estate funds (including SIIC) follow the same process.
10.2.2 - Objectives
In 2007, Crédit Foncier Group established an investment policy for real estate investment vehicles (SIIC, OPCI and closed funds) and equity investments to develop growth drivers for Crédit Foncier’s financing and related activities. At June 30, 2014, these commitments amounted to €57m. With regard to long-term equity holdings, Crédit Foncier does not include this portfolio in its daily VaR monitoring.
There have been no new investments of this type in 2014.
10.2.3 - Accounting techniques and valuation methods
For further information, refer to page 139 of the 2013 Registration document.
10.2.4 - Crédit Foncier’s exposure
At June 30, 2014, Crédit Foncier Group’s exposure to equity risk amounted to €222m (compared to €227m at December 31, 2013), broken down as follows:
(in €m)
At 06/30/2014 Cost or historic value
Fair value or adjusted value
Net unrealised capital gains or losses
Gross unrealised capital gains
Gross unrealised capital losses
Financial assets at fair value through profit or loss (fair value option)
- - - - -
Available-for-sale financial assets 194 222 28 31 -3
TOTAL 194 222 28 31 -3
Total at 12/31/2013 201 227 26 26 -
Source: accounting data (IFRS consolidation June 30, 2014).
At June 30, 2014, total unrealised gains or losses (consolidated figures) on equity exposures in the banking book amounted to €28m booked to unrealised or deferred gains and losses.
Prudentially, this unrealised capital gain of €28m on available-for-sale financial assets, booked to equity, is deducted from core capital where it does not pertain to available-for-sale
securities deducted from equity. Therefore, at June 30, 2014, 45% of this neutralised pre-tax capital gain was recognised as additional capital (Tier-2), after applying a phase-in percentage of 80%, amounting to €10m.
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11 - Liquidity, interest rate and foreign exchange risksFor further information, refer to page 140 of the 2013 Registration document.
11.1 - Organisation and monitoring of ALM risksFor further information, refer to page 140 of the 2013 Registration document.
11.2 - Definition of liquidity, interest rate and foreign exchange risks
11.2.1 - Definition of liquidity, interest rate and foreign exchange risks
For further information, refer to page 140 of the 2013 Registration document.
11.2.2 - Measurement of liquidity, interest rate and foreign exchange risks
For further information, refer to page 140 of the 2013 Registration document.
11.2.3 - Limit system
The limit system applied for 2014 was validated by the ALM Committee on March 4, 2014. It is based on the breakdown of Crédit Foncier Group’s limits for the system set out in Groupe BPCE’s ALM risk management standards.Compliance with these limits is monitored at least quarterly by the ALM Committee and reported to the Risk Committee.
The system is based on three types of limits:• regulatory limits: one-month liquidity ratio for liquidity risk,
sensitivity of the economic value of equity for interest rate risk;
• internal management limits in accordance with the Groupe BPCE standards: liquidity gap (central scenario and stress scenario) and asset-liability coverage ratio for liquidity risk, sensitivity of the net interest margin and fixed-rate gap monitoring for interest rate risk;
• internal Crédit Foncier limits, especially for monitoring short-term (ST) interest rate risk.
A limit system is also applied in each subsidiary.
This system is updated annually.
11.3 - Liquidity risk monitoring
11.3.1 - Organisation of the Crédit Foncier Group’s refinancing
The majority of Crédit Foncier Group’s funding is derived from medium- and long-term issuances carried out by Compagnie de Financement Foncier, the Aaa/AAA/AA+ rated société de crédit foncier and group subsidiary, and from short- and medium-long term funding from BPCE.
During the first half of 2014, Crédit Foncier Group already issued €3.4bn in obligations foncières and carried out a €0.9bn securitisation transaction.Crédit Foncier Group also has a pool of eligible liquid assets. Gross assets that were eligible for ECB refinancing operations amounted to €45bn (nominal amount before haircut if pledged, and without recognising the regulatory overcollateralisation of Compagnie de Financement Foncier), including €31.9bn in residential receivables in respect of the temporary ECB mechanism of February 2012.A great part of these assets are held by Compagnie de Financement Foncier, amounting to €38.5bn. Compagnie de Financement Foncier can use these eligible assets up to a net amount that can be estimated at €17.3bn after haircut and based on the ECB’s current rules, while respecting applicable regulatory constraints.
As of June 30, 2014, the Crédit Foncier Group had not requested refinancing from the ECB.
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
11.3.2 - Compliance with limits
11.3.2.1 - Regulatory 1-month liquidity ratio
At June 30, 2014, Crédit Foncier’s liquidity ratio (on an individual basis) was 110%.Compagnie de Financement Foncier liquidity ratio was 2,704%.
11.3.2.2 - The overnight borrower limit
Over the period, Crédit Foncier had neither systematic nor occasional recourse to very short-term refinancing (overnight - weekly), which is subject to a defined limit by BPCE; no observations are called for, since Crédit Foncier is in compliance with this limit.
11.3.2.3 - Cash projections and liquidity stress tests
Crédit Foncier makes liquidity projections under its central scenario over one year and in stressed situations: catastrophic scenario notably preventing further issuance or funding.
11.3.2.4 - Limit associated with the assets/liabilities ratio
The static liquidity gap limits are as follows:• 0-3 years: 85%• 3-6 years: 70%• 6-10 years: 55%
Furthermore, in order to ensure a forward-looking approach to liquidity management, the Risk Committee has established an approved reference level based on the observation ratio for static liquidity, as follows:• 0-3 years: 90%• 3-6 years: 75%• 6-10 years: 60%
Assets/liabilities ratio at the end of June 2014
LimitRatio at 06/30/2014 Observation threshold
50%
60%
70%
80%
90%
100%
110%
02/2
023
06/2
014
10/2
014
02/2
015
06/2
015
10/2
015
02/2
016
06/2
016
10/2
016
10/2
017
10/2
018
10/2
020
10/2
019
10/2
021
10/2
022
10/2
023
02/2
017
06/2
017
02/2
018
06/2
018
02/2
019
06/2
019
02/2
020
06/2
020
02/2
021
06/2
021
02/2
022
06/2
022
06/2
023
06/2
024
02/2
024
11.3.3 - Key events of the first half of 2014
• Update to Crédit Foncier Group’s Financial Charter.• Continuation of the working groups on regulatory ratios.
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
11.3.4 - Outlook for the second half of 2014
• Automation of regulatory ratio calculation with the aim of reducing their production times.
• Ongoing improvement of indicator calculation tools.• Review of early repayment model.• Preparation of the migration to the Group’s information
system.
11.4 - Interest rate risk monitoring
11.4.1 - Compliance with limits
11.4.1.1 - Static gap limit
The limit presented corresponds to BPCE’s limit. At June 30, 2014, Crédit Foncier Group was in compliance with this limit over the entire observation period.
Static gap limit at June 30, 2014 (in €bn)
Entity limitStatic gap limit June 2014
- 4
- 5
- 3
- 2
- 1
0
1
2
3
4
5
Ass
ets
Liab
iliti
es
06/2
014
12/2
014
06/2
015
12/2
015
06/2
016
12/2
016
06/2
017
12/2
017
06/2
018
12/2
018
06/2
019
12/2
019
06/2
020
12/2
020
06/2
021
12/2
021
06/2
022
12/2
022
06/2
023
12/2
023
11.4.1.2 - Net Present Value (NPV) of capital
Consumption of regulatory capital (including working capital in fixed-rate outstandings and their run-off as agreed over 20 years) for a +200 bp curve shock was 5.05% at June 30, 2014.
11.4.1.3 - Sensitivity of net interest margin
After applying four yield curve deformation scenarios, the net interest margin sensitivity should be lower than +/-5% in the year N+1 and +/-9% in N+2 (year-on-year).These four scenarios correspond to a 100-bp drop, 100-bp increase, flattening (+50 bp short term, -50 bp long term) and steepening (-50 bp short term, +50 bp long term).
As of June 30, 2014, the worst-case scenarios for the net interest margin were as follows over years 1 and 2:
Year 1 Year 2
NIM sensitivity limits +/-5% +/-9%
“Worst case” sensitivity limits -4.38% -0.12%
11.4.2 - Key events during the first half of 2014
• Update to Crédit Foncier Group’s Financial Charter.• Implementation of the Crédit Foncier Group’s new balance
sheet hedging policy.• Development of an internal software to secure the monitoring
of static rates indicators.
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
11.4.3 - Outlook for the second half of 2014
• Review of indicators monitoring short-term interest rate risk.• Ongoing improvement of indicator calculation tools (NIM).• Review of early repayment model.
11.5 - Foreign exchange risk monitoringIn terms of foreign-exchange risk, the BPCE ALM standards specify that the spot foreign position by currency is limited to 5% of total balance sheet assets in the currency. This limit only applies if the outstandings in the foreign currency exceed the euro equivalent of €1m.As well as BPCE’s foreign exchange limit, Crédit Foncier Group has established a foreign-exchange limit with a euro-equivalent value of €8m for all currencies combined and €5m per currency.Based on data provided by the middle office, quarterly information is sent to the ALM Committee indicating compliance with these position limits.
Limits were observed in the first half of 2014.
12 - Operating RisksNo major changes to the operating risk approach were noted in the first half of 2014.
For further information, refer to page 145 of the 2013 Registration document.
12.1 - General frameworkFor further information, refer to page 146 of the 2013 Registration document.
12.2 - GovernanceFor further information, refer to page 146 of the 2013 Registration document.
12.3 - Management environment
12.3.1 - Management network
For further information, refer to page 146 of the 2013 Registration document.
12.3.2 - Methods and tools
For further information, refer to page 146 of the 2013 Registration document.
12.4 Organisation of business continuity plans (BCP)For further information, refer to page 147 of the 2013 Registration document.
12.5 - IT RisksFurther to the decision to pool Crédit Foncier’s information systems on the Group’s IT platform, a migration programme was operationally launched in late 2012. This programme was the IT department’s main priority in 2013.
The deadlines are currently being met and the budget remains within the overall amount allocated to this project.
For further information, refer to page 148 of the 2013 Registration document.
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
12.6 - Legal risksFor further information, refer to page 148 of the 2013 Registration document.
12.6.1 - Exceptional events and litigation
The sharp increase in interest rates in 2007 and 2008 led some borrowers holding adjustable-rate loans (with a payment calculation clause based on a technical rate, called the Payment Calculator Maximum Rate, that is different from the interest rate) to dispute the meaning and scope of this contractual provision.
To remedy this situation, a mediation process was signed on November 12, 2009, with the consumer associations UFC Que Choisir and AFUB (Association française des usagers de banque) and Collectif Action. Crédit Foncier has fully complied with the outcome of this process. The mediation process is now over.A very small minority of customers, acting either individually or collectively, have initiated legal proceedings against Crédit Foncier in order to have their loan conditions renegotiated. The number of cases still outstanding is very low. Whenever possible, Crédit Foncier is relying on a set of legal decisions, which are more and more in its favour, to come to a fair transactional settlement with the plaintiffs.
***
In July 2008, Crédit Foncier financed the construction of a hospital in Saudi Arabia. After disbursing the first two tranches, Crédit Foncier refused to disburse the third tranche due to the non-completion of the terms provided for in the contract. As no agreement was reached between Crédit Foncier and the borrower to revise the project, Crédit Foncier terminated the financing agreement in July 2009, with all sums loaned immediately falling due, and initiated protective measures on the guarantees it holds. The borrower then filed a counter-claim against Crédit Foncier for improper breach of loan, whereas the deposit undermined the validity of this undertaking.
Two arbitration awards on July 31, and November 15, 2012 validated, respectively, the amount of Crédit Foncier’s receivable and the guarantee it holds. The borrower and the guarantor appealed against both rulings. The borrower appealed to the French supreme court against the judgment made by the Paris court that validated the arbitral sentence about the amount due. This judgement is still ongoing. Paris court should soon rule on the validity of the guarantee.
The protective measures that were taken are being maintained.
***
A press campaign called the public’s attention to the rights that Group insurance policy holders may have to participate in loan-insurance policies. This campaign implicitly targets investment institutions.
Crédit Foncier has already taken the organisational measures necessary to process potential claims that may be made against it and has prepared a technical argument to respond to any such claims by demonstrating the lack of borrowers’ claim with regard to Crédit Foncier.
No other government, legal or arbitration proceedings exist, including any other proceeding of which the company is aware, pending or scheduled, or which threaten or is likely to have, or have had over the last 12 months, a significant impact on the financial situation or profitability of the Company and/or Crédit Foncier Group.
For further information, please refer to pages 147 to 150 of the 2013 Registration document.
12.6.2 - Material contracts
For further information, refer to page 150 of the 2013 Registration document.
12.7 - InsuranceFor further information, refer to page 151 of the 2013 Registration document.
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13 - Intermediation riskFor further information, refer to page 152 of the 2013 Registration document.
14 - Settlement riskFor further information, refer to page 152 of the 2013 Registration document.
15 - Non-compliance riskNon-compliance risks are monitored by the Compliance Division, which has two separate units: Compliance and Ethics, and Financial Security.
In the first half of 2014, Crédit Foncier introduced reporting intended for the central repository, pursuant to the EMIR regulation, according to the applicable calendar.
For further information, please refer to pages 153 to 155 of the 2013 Registration document.
16 - Other Risks: Caisse de Retraite (French Pension Fund) of Crédit Foncier for Employees who Entered Employment before March 1, 2000For further information, refer to page 156 of the 2013 Registration document.
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
ANALYSIS OF RESULTS 72
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2014 76
STATUTORY AUDITORS’ REPORT ON FINANCIAL INFORMATION FOR THE FIRST HALF OF 2014 116
3 - FINANCIAL INFORMATION
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 FINANCIAL INFORMATION / ANALYSIS OF RESULTS
Analysis of resultsConsolidated resultsGroup share of net income during the first semester of 2014 amounted to €2m.Crédit Foncier’s main consolidated financial indicators at June 30, 2014 were as follows:Loan production: €4.3bnOutstanding loans (end of period): €114.2bnNet banking income: €336mGroup share of net income: €2mTotal balance sheet: €146.8bn
Consolidated equity (group share): €3.6bnConsolidated European capital adequacy ratio: 9.1%, of which Common Equity Tier One: 8.0% under Basel III standard method.
(in em)
06/30/2014 06/30/2013 Change
Net banking income 336 330 6
Operating expenses -273 -265 -8
Gross operating income 63 65 -2
Cost of risk -64 -65 1
Income of associates 1 1 0
Income from other non-current assets -1 0 -1
Income before tax -1 1 -2
Income taxes 4 10 -6
Minority interests -1 -1 0
Group share of net income 2 10 -8
C/I ratio * 81.3% 80.3% +1.0 pt
* C/I ratio (operating expenses/NBI).
Net banking income amounted to €336m, up by 2% compared to the first half of 2013. The main reason for this change is the negative impact in 2013 of transactions aimed at reducing the size of the balance sheet, initiated in late 2011 as part of the strategic plan (disposal of securities and buyback of obligations foncières).Additionally, it should be noted that the reassessment of the credit spread on structured issuances at fair value through profit or loss represented a €22m expense in the first half of 2014 (compared to a €12m expense in the first half of 2013). The increase in other banking income and expenses was mainly due to the impact of asset disposals and the impact of the first-time consolidation of Scribes.
Overheads, depreciation and amortisation amounted to €273m, up by 3% compared to the first half of 2013; however, excluding an exceptional €11m increase in 2013, costs would have been down by 2%. This change is the consequence of both a decrease in personal expenses (particularly as a result
of the provisional retirement agreement set up in 2012) and by control over costs for fees and communication/marketing expenses.It should also be noted that the project to share computing resources with Caisses d’Epargne platform is fully operational.
Gross operating income amounted to €63m.
Cost of risk resulted in a net provision of €64m in the first half of 2014. This figure includes provisions for certain corporate files and for individuals that have been classified to doubtful. Group share of net income amounted to €2m for H1 2014. Crédit Foncier complied with prudential ratios, with a Common Equity Tier One ratio (CET1 under Basel III) of 8.0% under the standard method.
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 FINANCIAL INFORMATION / ANALYSIS OF RESULTS
Consolidated balance sheet
(in em)
ASSETS 06/30/2014 12/31/2013
Cash and amounts due from central banks 5,343 7,400
Financial assets at fair value through profit or loss 3,017 2,754
Hedging derivatives 6,919 6,289
Available-for-sale financial assets 3,478 3,172
Loans and receivables due from credit institutions 12,028 15,218
Loans and receivables due from customers 102,576 102,335
Revaluation difference on interest rate risk-hedged portfolio 5,658 4,127
Held-to-maturity financial assets 136 135
Current tax assets 144 346
Deferred tax assets 1,038 1,054
Accrued income and other assets 6,259 4,973
Investments in associates 57 56
Investment property 30 34
Property, plant and equipment 48 47
Intangible assets 7 7
Goodwill 13 13
TOTAL 146,751 147,960
(in em)
LIABILITIES 06/30/2014 12/31/2013
Financial liabilities at fair value through profit or loss 4,620 4,527
Hedging derivatives 8,419 6,284
Amounts due to credit institutions 43,382 44,070
Amounts due to customers 212 268
Debt securities 79,798 82,242
Revaluation difference on interest rate risk-hedged portfolio
Current tax liabilities 1 2
Deferred tax liabilities 1
Accrued expenses and other liabilities 5,541 5,854
Provisions 234 234
Subordinated debt 800 789
Group share of consolidated equity 3,646 3,590
o/w net income for the period 2 -130
Minority interests 98 99
TOTAL 146,751 147,960
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 FINANCIAL INFORMATION / ANALYSIS OF RESULTS
The IFRS consolidated balance sheet at June 30, 2014 amounted to €146.8bn, representing a decrease of 0.8% compared to December 31, 2013.
Working cash balances, placed with the Banque de France, amounted to €2.1bn.
Loans and receivables due from credit institutions decreased by €3.2bn following the cessation of the ECB liquidity withdrawals, which amounted to €4bn at December 31, 2013. This was partially offset by a €1bn increase in loans to BPCE under L.211-38.
Other loans and receivables due from customers remained stable.
Loans and receivables due from credit institutions decreased by €0.7bn following a €1.5bn decrease in ECB financing, which was partially offset by BPCE refinancing.
Debt securities decreased by €2.4bn, mainly due to the decrease in bond issuances.
Group share of consolidated equity increased by €0.1bn, mainly due to a decrease in unrealised capital losses net of deferred interest on AFS securities (30).
OutlookCrédit Foncier is unaware of any deterioration affecting the Group’s outlook since the date of its last financial statements.
(30) AFS: Available for sale.
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 - FINANCIAL INFORMATION
ANALYSIS OF RESULTS 72
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2014 76
STATUTORY AUDITORS’ REPORT ON FINANCIAL INFORMATION FOR THE FIRST HALF OF 2014 116
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 FINANCIAL INFORMATION / CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 - CONSOLIDATED BALANCE SHEET - ASSETS 782 - CONSOLIDATED BALANCE SHEET - LIABILITIES 793 - CONSOLIDATED INCOME STATEMENT 804 - STATEMENT OF NET INCOME AND GAINS OR LOSSES POSTED TO EQUITY 815 - STATEMENT OF CHANGES IN EQUITY 826 - CASH FLOW STATEMENT (INDIRECT METHOD) 83
Note 1 - Legal and financial framework - Significant events during the period and events after June 30, 2014 841.1 - Legal framework 841.2 - Guarantee mechanism 841.3 - Significant events during the first half of 2014 841.4 - Post-balance sheet events 84
Note 2 - Applicable accounting standards and comparability 852.1 - Regulatory framework 852.2 - Accounting standards 852.3 - Use of estimates 852.4 - Presentation of the consolidated financial statements and balance sheet date 87
Note 3 - Notes to the consolidated balance sheet 883.1 - Financial assets and liabilities at fair value through profit or loss 883.2 - Available-for-sale financial assets 893.3 - Fair value of financial assets and liabilities 903.4 - Loans and receivables 933.5 - Held-to-maturity financial assets 943.6 - Reclassification of financial assets 953.7 - Goodwill 963.8 - Due to credit institutions and customers 963.9 - Debt securities 973.10 - Provisions 983.11 - Subordinated debt 993.12 - Share capital 99
Note 4 - Notes to the income statement 1004.1- Interest and similar income and expenses 1004.2 - Fee and commission income and expenses 1004.3 - Net gains or losses on financial instruments at fair value through profit or loss 1014.4 - Gains or losses on available-for-sale financial assets 1014.5 - Income and expenses on other activities 1024.6 - Operating expenses 1024.7 - Cost of risk 1034.8 - Share in net income of companies accounted for by the equity method 1044.9 - Income tax 105
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2014In accordance with IFRS
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 FINANCIAL INFORMATION / CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Segment reporting 106
Note 6 - Commitments 108
Note 7 - Assets pledged as collateral 109
Note 8 - Offsetting financial assets and liabilities 110
Note 9 - Scope of consolidation 1119.1 - Changes in the scope of consolidation during the first half of 2014 1119.2 - Scope of consolidation at June 30, 2014 1129.3 - Consolidated securitisation transactions 113
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 FINANCIAL INFORMATION / CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 - Consolidated balance sheet - Assets(in em)
Notes 06/30/2014 12/31/2013
Cash and amounts due from central banks 5,343 7,400
Financial assets at fair value through profit or loss 3.1.1 3,017 2,754
Hedging derivatives 6,919 6,289
Available-for-sale financial assets 3.2 3,478 3,172
Loans and receivables due from credit institutions 3.4.1 12,028 15,218
Loans and receivables due from customers 3.4.2 102,576 102,335
Revaluation adjustment on interest rate risk-hedged portfolio 5,658 4,127
Held-to-maturity financial assets 3.5 136 135
Current tax assets 144 346
Deferred tax assets 1,038 1,054
Accrued income and other assets 6,259 4,973
Investments in associates 57 56
Investment property 30 34
Property, plant and equipment 48 47
Intangible assets 7 7
Goodwill 3.7 13 13
TOTAL ASSETS 146,751 147,960
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 FINANCIAL INFORMATION / CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2 - Consolidated balance sheet - Liabilities(in em)
Notes 06/30/2014 12/31/2013
Financial liabilities at fair value through profit or loss 3.1.2 4,620 4,527
Hedging derivatives 8,419 6,284
Due to credit institutions 3.8.1 43,382 44,070
Due to customers 3.8.2 212 268
Debt securities 3.9 79,798 82,242
Revaluation adjustment on interest rate risk-hedged portfolio
Current tax liabilities 1 2
Deferred tax liabilities 1
Accrued expenses and other liabilities 5,541 5,854
Technical reserves of insurance companies 61 55
Provisions 3.10 173 179
Subordinated debt 3.11 800 789
Equity 3,744 3,689
• Group share of consolidated equity 3,646 3,590
Share capital and additional paid-in capital 1,731 1,731
Retained earnings 2,130 2,259
Gains and losses recognised directly in equity -217 -270
Net income for the period 2 -130
• Non-controlling (minority) interests 98 99
TOTAL LIABILITIES AND EQUITY 146,751 147,960
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 FINANCIAL INFORMATION / CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3 - Consolidated income statement(in em)
Notes 06/30/2014 06/30/2013
Interest and similar income 4.1 2,987 3,055
Interest and similar expenses 4.1 -2,759 -2,836
Fee and commission income 4.2 107 108
Fee and commission expenses 4.2 -6 -9
Net gains or losses on financial instruments at fair value through profit or loss 4.3 -41 3
Net gains or losses on available-for-sale financial assets 4.4 9 -18
Income from other activities 4.5 69 63
Expenses from other activities 4.5 -30 -36
NET BANKING INCOME 336 330
Operating expenses 4.6 -268 -258
Depreciation, amortisation and impairment of property, plant & equipment and intangible assets
-5 -7
GROSS OPERATING INCOME 63 65
Cost of risk 4.7 -64 -65
OPERATING INCOME -1 0
Share in net income of associates 4.8 1 1
Gains or losses on other assets -1
INCOME BEFORE TAX -1 1
Income tax 4.9 4 10
NET INCOME 3 11
Non-controlling (minority) interests -1 -1
GROUP SHARE OF NET INCOME 2 10
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 FINANCIAL INFORMATION / CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4 - Statement of net income and gains and losses recognised directly in equity
(in em)
Notes 06/30/2014 06/30/2013
NET INCOME 3 11
Revaluation differences on defined-benefit schemes 3
Tax impact from revaluation differences on defined-benefit schemes -1
Items that cannot be reclassified to net income 2
Foreign exchange rate adjustments
Change in value of available-for-sale financial assets 83 107
Change in value of hedging derivatives
Taxes -29 -36
Items that can be reclassified to net income 54 71
Share of unrealised gains and losses recognised directly in the equity of associates
GAINS AND LOSSES RECOGNISED DIRECTLY IN EQUITY (AFTER TAX) 54 73
NET INCOME AND GAINS AND LOSSES RECOGNIZED DIRECTLY IN EQUITY 57 84
Group share 56 82
Non-controlling (minority) interests 1 2
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
3 FINANCIAL INFORMATION / CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5 - Statement of changes in equity(in em)
Share capital and additional paid-in
capital
Retained earnings
Gains and losses recognised directly in equity
Group share of net
income
Total group share of
consolidated equity
Equity held in
minority interests
Total consolidated
equity
Equity Additional paid-in capital
Change in fair value of financial instruments
Revaluation adjustment
on employee-related
liabilities
Available-for-sale financial assets
Hedging derivatives
Consolidated equity at January 1, 2013
1,331 400 2,274 2 -419 3,588 97 3,685
Dividends paid in 2013 on 2012 income
-2 -2
Capital increase
Impact of acquisitions and disposals on minority interests
-13 -13 2 -11
Gains and losses recognised directly in equity
71 71 71
Net income 10 10 1 11
Other changes
Consolidated equity at June 30, 2013 1,331 400 2,261 2 -348 0 10 3,656 98 3,754
Consolidated equity at December 31, 2013 1,331 400 2,259 2 -272 0 -130 3,590 99 3,689
Appropriation of 2013 income
-130 130
Impact of IFRS 10 and IFRS 11
Consolidated equity at January 1, 2014 after appropriation
1,331 400 2,129 2 -272 0 0 3,590 99 3,689
Dividends paid in 2014 on 2013 income
-3 -3
Capital increase
Impact of acquisitions and disposals on minority interests
Gains and losses recognised directly in equity
54 54 54
Net income 2 2 1 3
Other changes 1 -1
Consolidated equity at June 30, 2014 1,331 400 2,130 1 -218 2 3,646 98 3,744
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3 FINANCIAL INFORMATION / CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6 - Cash flow statement (Indirect method)In the cash flow statement below, “operating activities” refers to the entity’s primary income-generating activities as well as all other activities which are neither investment activities nor financing activities. They particularly include transactions related to obligations foncières and other long-term non-subordinated resources.
“Investment activities” refer to acquisitions and disposals of long-term assets, and to investments which are not included in cash equivalents.“Financing activities” refer to activities which have an impact on capital (both its amount and its composition), cash dividends paid, and the entity’s subordinated loans.
(in em)
06/30/2014 06/30/2013Income before tax -1 1
Net depreciation and amortisation of property, plant and equipment and intangible assets 5 7
Net movements in provisions and provisions for impairment -12 54
Share in net income of associates -1 -1
Net gains/losses on investing activities -14 -17
Income/expenses on financing activities 16
Other movements -1,406 1,726
Total non-monetary items included in net income before tax -1,428 1,785
Net increase or decrease arising from transactions with credit institutions 4,471 4,983
Net increase or decrease arising from transactions with customers 243 3,278
Net increase or decrease arising from transactions involving financial assets and liabilities -2,312 -11,406
Net increase or decrease arising from transactions involving non-financial assets and liabilities -1,281 -909
Taxes paid 192 157
Net increase or decrease in assets and liabilities from operating activities 1,313 -3,897Net cash flows generated by operating activities (A) -116 -2,112
Net increase or decrease related to financial assets and equity investments 27 4
Net increase or decrease related to investment properties 11 4
Net increase or decrease related to property, plant & equipment and intangible assets -5 -3
Net cash flows generated by investing activities (B) 33 5
Net increase or decrease from transactions with shareholders -2
Net increase or decrease from financing activities 15 -1
Net cash flows generated by financing activities (C) 13 -1Impact of changes in exchange rates (D)NET INCREASE OR DECREASE IN CASH AND CASH EQUIVALENTS (A+B+C+D) -70 -2,108
Cash and amounts due from central banks 7,400 3,706
Net demand deposits with credit institutions -1,444 503
Current accounts with overdrafts 548 639
Demand deposits in credit -192 -136
Accounts and deposits at overnight rates -1,800
Opening cash balance 5,956 4,209
Cash and amounts due from central banks 5,343 19
Cash and amounts due from central banks (assets) 5,343 19
Net demand deposits with credit institutions 543 2,082
Current accounts with overdrafts 626 2,028
Demand deposits and loans 472
Demand deposits in credit -83 -418
Closing cash balance 5,886 2,101NET INCREASE OR DECREASE IN CASH AND CASH EQUIVALENTS -70 -2,108
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Note 1 - Legal and financial framework - significant events during the period and events after June 30, 2014
1.1 - Legal framework
Crédit Foncier, a subsidiary of BPCE, specialises in real estate and public sector financing. It operates on the individual customers market (real estate financing, appraisals and services), the private corporate market and the public sector market.
1.2 - Guarantee system
Crédit Foncier is a direct subsidiary of BPCE. As such, it is covered by its parent company guarantee and Groupe BPCE guarantee and liquidity mechanism. As a direct subsidiary, Crédit Foncier does not contribute to the network solidarity mechanism and will not be called upon in the event of a Banque Populaire or Caisse d’Epargne default.
1.3 - Significant events during the first half of 2014
1.3.1 - External securitisation transactions
On May 16, Crédit Foncier concluded a public residential mortgage-backed securitisation transaction.To satisfy prudential requirements, upon initiation of the project Crédit Foncier established a loan portfolio for securitisation amounting to approximately €1bn and retained over 5% of the selected outstandings.The transfer to the Securitisation Mutual Fund (FCT) concerned 8,900 loans for a total outstanding of €923m.The assets received within the transfer, in addition to the cash received, were recorded on the balance sheet at fair value at the transaction date.
Since Crédit Foncier does not have the capacity to influence the returns on this transaction, it does not control the FCT as defined by IFRS 10.The loans transferred were derecognised as defined by IAS 39 because the risks and benefits of the transferred loans portfolio (early repayments, delayed payment, credit risk) were transferred almost in their entirety.The net impact of this transaction on the Group’s income in the first half of 2014 is not significant.
1.3.2 - Impairment of cash-generating units (CGUS)
As there was no evidence of impairment in the first half of 2014, the Group did not record any additional impairment losses.
1.3.3 - Valuation of issuer spreads
The recognition of the change in credit spreads on structured issuances recorded under the fair value option had a negative impact on income of -€22m before tax in the first half of 2014, compared to -€12m in the first half of 2013.
1.3.4 - Change in cost of risk
The first half of 2014 recorded a negative cost of risk of -€64m compared to -€65m in 2013. These figures are explained in the Risk Management Report.
1.3.5 - Reclassification of financial assets
No reclassifications were carried out by the Group during the period.
1.4 - Post-balance sheet events
No other event that is likely to have a significant impact on the financial statements at June 30, 2014 had occurred between the closing date and July 30, 2014, the date of the Board of Directors’ meeting that approved the financial statements.
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Note 2 - Accounting principles and comparability
2.1 - Regulatory framework
Pursuant to EU regulation 1606/2002 of July 19, 2002 governing the application of international accounting standards, Crédit Foncier Group prepared its condensed consolidated financial statements for the first half of 2014 in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and applicable at that date, excluding certain provisions of IAS 39 regarding hedge accounting (31).This condensed consolidated interim financial information for the six months ended June 30, 2014 was prepared in accordance with IAS 34 (“Interim Financial Reporting”). As such, the notes presented concern the most significant items of the half-year period and should be read in conjunction with the Group’s consolidated financial statements for the year ended December 31, 2013.
2.2 - Accounting standards
The accounting standards and interpretations applied and described in Crédit Foncier’s annual financial statements as of December 31, 2013, have been complemented by the standards, amendments and interpretations applicable to financial periods beginning as of January 1, 2014, in particular:
• New standards on consolidation, IFRS 10 (“Consolidated Financial Statements”), IFRS 11 (“Joint Arrangements”) and IFRS 12 ("Disclosure of Interests in Other Entities”).On December 11, 2012, the European Commission adopted Regulation (EU) no. 1254/2012 as regards IFRS 10 (“Consolidated Financial Statements”), IFRS 11 (“Joint Arrangements”) and IFRS 12 (“Disclosure of Interests in Other Entities”). On April 4, 2013, the European Commission adopted Regulation (EU) no. 313/2013 concerning the phase-in measures applicable to these new standards.
IFRS 10 and IFRS 11 are applicable retrospectively. Due to the marginal impact of these standards’ first-time application, financial information has not been restated.This analysis takes into account IFRIC’s ongoing interpretation efforts with respect to real estate development activities. Its findings, expected by the end of 2014, could raise questions about consolidation under the proportional method for real estate transactions under joint control.This first-time application of IFRS 10 and IFRS 11 has no impact on the Group’s financial statements.
In view of these new standards, on December 11, 2012 the European Commission also approved an amendment to Regulation (EC) no. 1126/2008 concerning IAS 27 (“Separate Financial Statements”) and IAS 28 (“Investments in Associates and Joint Ventures”).
• Amendment to IAS 32 ("Presentation: Offsetting Financial Assets and Financial Liabilities”).On December 13, 2012, the European Commission adopted Regulation (EU) no. 1256/2012, amending Regulation (EC) no. 1126/2008, adopting changes to IAS 32. These changes, applicable retrospectively from January 1, 2014, clarify the rules with respect to offsetting financial assets and liabilities on the balance sheet.These clarifications address the concepts of “legally enforceable right to offset” and “simultaneous settlement”.The impact of this amendment on the presentation of the Group’s financial statements is not significant.
• Amendment to IAS 39 and IFRS 9 (“Novation of Derivatives and Continuation of Hedge Accounting”).On December 19, 2013, the European Commission adopted Regulation (EU) no. 1375/2013, amending Regulation (EC) no. 1126/2008, adopting changes to IAS 39. These changes, applicable from January 1, 2014, exceptionally allow the continuation of hedge accounting in situations where a derivative designated as a hedging instrument is transferred by novation of one counterparty with a central counterparty due to legislative or regulatory provisions.Given that the Group did not conduct a transfer by novation of one counterparty with a central counterparty due to legislative or regulatory provisions over the period, this amendment had no impact on existing hedging relationships.
The other standards, amendments and interpretations adopted by the European Union had no significant impact on the Group’s financial statements.
2.3 - Use of estimates
In some cases, the preparation of financial statements requires the use of assumptions and estimates with regard to uncertain future events.
(31) These standards are available on the European Commission’s website: http://ec.europa.eu/internal_market/accounting/ias_fr.htm
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Management is required to exercise judgement in making these estimates and assumptions, based on information available at the balance sheet date.
Future results may differ from these estimates.
In the particular case of the June 30, 2014 closing, accounting estimates that require assumptions were mainly used for the following assessments:
• fair value of financial instruments assessed using valuation techniques;
• impairment of financial assets and in particular the permanent impairment of available-for-sale financial assets and impairment of loans and receivables, individual impairments or those calculated on a collective (portfolio) basis;
• provisions recorded under liabilities and provisions relating to insurance policies;
• assessment of expenses related to pension schemes and future employee benefits;
• deferred tax assets and liabilities;• goodwill impairment tests.
Determination of fair value
General principles
Fair value is defined as the amount received for the sale of an asset or paid for the transfer of a liability in an arm’s-length transaction between market participants at the valuation date.Crédit Foncier Group assesses the fair value based on the assumptions that market players would use to set the price of an asset or liability. For derivatives, these assumptions include the evaluation of counterparty risk (CVA - Credit Valuation Adjustment) and non-performance risk (DVA - Debit Valuation Adjustment). This evaluation is based on traditional parameters.
The valuation of derivatives for which the counterparty is a member of Groupe BPCE solidarity mechanism (see Note 1.2) are not subject to CVA or DVA calculation.
At June 30, 2014, CVA and DVA amounts were insignificant.
Fair value hierarchy
Level 1 fair value and the concept of an active market
In the case of financial instruments, the most reliable evidence of fair value is a quoted price on an active market (“level 1 fair value”). Where such prices exist, they must be used without adjustment to assess fair value.An active market is a market on which transactions for assets or liabilities occur with sufficient frequency and volume.
Level 2 fair value
If there are no quoted prices on an active market, fair value may be determined in accordance with generally accepted valuation methods reflecting accepted financial theories and favouring observable market valuation methods (“level 2 fair value”)."Level 2" valuations are based on observable inputs and models that are widely used by the market (discounted cash flow model, interpolation, etc.).
Level 3 fair value
If observable market inputs are inadequate, fair value may be determined by applying a valuation method based on internal models (“level 3 fair value”) using non-observable data. The model used must be periodically updated by reconciling its results with prices for recent transactions.
Transfers between fair-value levels
The Group carried out no transfers between fair value levels during the first half of 2014.
Special cases
Fair value of financial instruments booked at amortised cost
Fair value calculations for financial instruments that are not at fair value on the balance sheet are provided for information only and must be interpreted with caution.In fact, for most cases, the values provided are not intended to be produced and in practice they normally cannot be.
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Fair values calculated in this way are provided for information only in the notes to the financial statements. These values are not the indicators used to manage commercial banking activities, for which the management model is the collection of contractual cash flows.
Accordingly, simplified assumptions were used to assess the fair value of these instruments.
2.4 - Presentation of the consolidated financial statements and balance sheet date
The condensed consolidated financial statements are drawn up on the basis of accounts as of June 30, 2014 of entities included within the consolidation scope of Crédit Foncier Group. The Group’s consolidated financial statements for the period ending June 30, 2014 were approved by the Board of Directors on July 30, 2014.
The IFRS imposes no model for summary financial statements. The format used complies with the format proposed by Recommendation no. 2013-04 of the French national accounting board (Autorité des normes comptables), dated November 7, 2013.
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Note 3 - Notes to the consolidated balance sheet
Note 3.1 - Financial assets and liabilities at fair value through profit or loss
These assets and liabilities are composed of trading transactions and include derivatives and certain assets and liabilities which the Group has chosen to designate at fair value as of the acquisition or issuance date, in accordance with the option available under IAS 39; i.e. structured loans granted by the Group are posted as assets, and structured issuances from Compagnie de Financement Foncier are posted as liabilities.
Derivative assets and liabilities in the trading book are contracted to hedge the structured transactions described above.
Note 3.1.1 - Financial assets at fair value through profit or loss
(in em)
06/30/2014 12/31/2013
Trading FV option Total Trading FV option Total
Loans to customers 2,260 2,260 2,148 2,148
Loan book 2,260 2,260 2,148 2,148
Repurchase agreements (1)
Trading derivatives (1) 757 757 606 606
TOTAL FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS 757 2,260 3,017 606 2,148 2,754
(1) The information presented takes into account the effects of offsetting carried out in accordance with IAS 32 (see note 8).
Financial assets accounted for under the fair value option concern structured loans granted to the French Local Authorities (FLA), recorded in the “Different accounting treatment” category. This choice enables the hedging procured through the structured derivative to be translated.
Note 3.1.2 - Financial liabilities at fair value through profit or loss
(in em)
06/30/2014 12/31/2013
Financial liabilities held for trading
Trading derivatives (1) 864 742
Debt securities 3,756 3,785
Financial liabilities designated at fair value through profit or loss 3,756 3,785
Total financial liabilities at fair value through profit and loss 4,620 4,527
(1) The impacts of offsetting carried out on June 30, 2014 on derivatives are described in Note 8.
Financial liabilities designated at fair value under the fair value option consist mainly of structured issuances carried out by Compagnie de Financement Foncier. Derivatives accounted for at fair value and embedded in these liabilities are not separated from the host contract and are managed in the same manner.
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Note 3.2 - Available-for-sale financial assets
These are non-derivative financial assets that are not classified as assets at fair value through profit or loss, held to maturity, or loans and receivables.
(in em)
06/30/2014 12/31/2013
Government bonds and similar securities 2,313 2,099
Bonds and other fixed-income securities 910 813
Impaired securities 2 1
Fixed-income securities 3,225 2,913
Investments in associates 217 217
Other variable-income securities
Impaired securities 11 29
Equities and other variable-income securities 228 246
Loans to customers 32 33
Loan book 32 33
Gross amount of available-for-sale financial assets 3,485 3,192
Impairment of fixed-income securities and loans -1 -1
Long-term impairment on equities on other variable-income securities -6 -19
TOTAL AVAILABLE-FOR-SALE FINANCIAL ASSETS, NET 3,478 3,172
Gains and losses on available-for-sale financial assets (before tax) posted to equity -257 -336
Available-for-sale assets are impaired on the basis of impairment indicators when the Group considers that its investment will not be recovered in full. For listed equity securities, the impairment indicator is a decline of over 50% or of longer than 36 months from the historical cost.
As of June 30, 2014, the gains and losses recognised directly in equity include, more specifically, the revaluation of the “sovereign” securities component.
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Note 3.3 - Fair value of financial assets and liabilities
Note 3.3.1 - Fair-value hierarchy of financial assets and liabilities
The breakdown of financial instruments by type of price or valuation model is shown below:
(in em)
Quoted on active market(level 1)
Valuation techniques
using observable
data(level 2)
Valuation techniques using non-observable
data(level 3)
Book value as of 06/30/2014
Quoted on active market(level 1)
Valuation techniques
using observable
data(level 2)
Valuation techniques using non-observable
data(level 3)
Book value as of 12/31/2013
FINANCIAL ASSETS 2,371 8,537 2,506 13,414 2,150 7,687 2,378 12,215
Derivatives 757 757 606 606
Of which interest-rate derivatives 696 696 547 547
Of which foreign-exchange derivatives
61 61 59 59
Financial assets held for trading 757 757 606 606
Other financial assets 2,260 2,260 2,148 2,148
Financial assets designated at fair value through profit or loss
2,260 2,260 2,148 2,148
Of which interest-rate derivatives
5,486 5,486 4,973 4,973
Of which foreign-exchange derivatives
1,433 1,433 1,317 1,317
Hedging derivatives 6,919 6,919 6,290 6,290
Investments in associates 22 200 222 20 206 226
Other securities 2,371 829 23 3,223 2,150 762 2,912
Of which fixed-income securities 2,371 23 2,394 2,150 762 2,912
Other financial assets 10 23 33 9 24 33
Available-for-sale financial assets
2,371 861 246 3,478 2,150 791 230 3,171
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(in em)
Quoted on active market(level 1)
Valuation techniques
using observable
data(level 2)
Valuation techniques using non-observable
data(level 3)
Book value as of 06/30/2014
Quoted on active market(level 1)
Valuation techniques
using observable
data(level 2)
Valuation techniques using non-observable
data(level 3)
Book value as of 12/31/2013
FINANCIAL LIABILITIES 13,039 13,039 10,811 10,811
Derivatives 864 864 742 742
Of which interest-rate derivatives
822 822 705 705
Of which foreign-exchange derivatives
42 42 43 43
Of which other -6 -6
Financial liabilities held for trading
864 864 742 742
Securities 3,756 3,756 3,785 3,785
Financial liabilities designated at fair value through profit or loss
3,756 3,756 3,785 3,785
Of which interest-rate derivatives
6,474 6,474 4,735 4,735
Of which foreign-exchange derivatives
1,945 1,945 1,549 1,549
Hedging derivatives 8,419 8,419 6,284 6,284
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3.3.2 - Analysis of financial assets and liabilities under level 3 fair value hierarchy
(in em)
01/01/2014
Gains and losses posted over the period Management events in the period
Transfers of the period
Other changes (1) 06/30/2014
Income statement
Equity Purchases/Issuances
Disposals/Redemptions
to another accounting category
to/from another
level
Transactions still on the
balance sheet as of 06/30/2014
Transactions removed from the balance sheet as of 06/30/2014
FINANCIAL ASSETS 2,378 134 1 1 4 -6 -6 2,506
Other financial assets
2,148 111 3 -2 2,260
Financial assets designated at fair value through profit or loss
2,148 111 3 -2 2,260
Hedging derivatives
Investments in associates
207 1 1 -3 -6 200
Other financial assets
23 23 1 -1 46
Available-for-sale financial assets 230 23 1 1 -4 -6 246
(1) Cancellation of the fair value of the AFS portfolio of Locindus following the entry of its subsidiaries in the scope (see Note 9).
At June 30, 2014, financial instruments valued by a technique that uses non-observable data include structured loans to local authorities at fair value option and equities and advances to unconsolidated subsidiaries.
During the period, €134m of losses were recognized in net income in respect of financial assets classified as Level 3 remaining in the portfolio at June 30, 2014.
During the period, €1m of gains and losses recognized directly in equity in respect of financial assets classified as Level 3 remaining in the portfolio at June 30, 2014.
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3.4 - Loans and receivables
These are non-derivative financial assets with fixed or determinable payments that are not traded on an active market. Most loans granted by the Group fall into this category. Loans and receivables also include securities that are not traded on an active market, as well as those that are reclassified under the amendment to IAS 39 and IFRS 7, adopted by the European Union on October 15, 2008.
Mortgage loans to the subsidised sector benefit from French State guarantees both for credit and interest rate risk. These are loans granted in the period from 1950 to 1995 when Crédit Foncier had a near monopoly on the distribution of State-subsidised loans within the scope of a policy to promote construction.
They amounted to €364m at June 30, 2014 and €411m at December 31, 2013.
3.4.1 - Loans and receivables due from credit institutions
(in em)
06/30/2014 12/31/2013
Loans and receivables due from credit institutions 12,028 15,218
Total loans and receivables due from credit institutions 12,028 15,218
The fair value of loans and receivables due from credit institutions amounted to €12,017m at June 30, 2014 (compared to €15,206m at December 31, 2013).
Amounts due from transactions with the network amounted to €328m as of June 30, 2014 (€263m as of December 31, 2013).
Breakdown of gross loans and receivables due from credit institutions
(in em)
06/30/2014 12/31/2013
Current accounts with overdrafts 627 549
Repurchase agreements 15 90
Deposits and loans 10,006 12,911
Finance leases 2
Subordinated and participating loans 24 24
Securities classified as loans and receivables 1,356 1,642
Total gross loans and receivables due from credit institutions 12,028 15,218
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3.4.2 - Loans and receivables due from customers
(in em)
06/30/2014 12/31/2013
Loans and receivables due from customers 103,585 103,358
Impairment calculated on an individual basis -799 -811
Impairment calculated on a collective basis -210 -212
TOTAL LOANS AND RECEIVABLES DUE FROM CUSTOMERS 102,576 102,335
The fair value of loans and receivables due from customers accounts for €102,132m at June 30, 2014 (compared to €100,758m at December 31, 2013).
Breakdown of gross loans and receivables due from customers
(in em)
06/30/2014 12/31/2013
Current accounts with overdrafts 1 1
Loans to financial sector customers 3 2
Short-term credit facilities 1,743 2,346
Equipment loans 18,241 17,305
Home loans 56,824 57,304
Export loans
Finance leases 574 562
Other loans 1,756 1,615
Other facilities granted to customers 79,141 79,134
Securities classified as loans and receivables 21,413 21,128
Other loans and receivables due from customers
Impaired loans and receivables 3,030 3,095
Total of gross loans and receivables due from customers 103,585 103,358
3.5 - Held-to-maturity financial assets
These are non-derivative financial assets with fixed or determinable payments and fixed maturity which Crédit Foncier has the positive intention and ability to hold until maturity.
(in em)
06/30/2014 12/31/2013
Bonds and other fixed-income securities 136 135
Gross amount of held-to-maturity financial assets 136 135
TOTAL HELD-TO-MATURITY FINANCIAL ASSETS 136 135
The fair value of held-to-maturity financial assets was €136m at June 30, 2014 (compared to €135m at December 31, 2013).
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3.6 - Reclassification of financial assets
In compliance with the amendments to IAS 39 and IFRS 7 (“Reclassification of Financial Assets”), Crédit Foncier reclassified certain available-for-sale financial assets as “Loans and receivables” in 2008.
The table below shows the book value and fair value of these assets:
(in em)
12/31/2013 06/30/2014 Change
o/w principal repayments/
disposals over the period
o/w change in value due to exchange
rate differences
o/w change in value due to interest
rates
o/w amortisation
of credit component at
reclassification date
Amortised cost (nominal +/- premium/discount)
8,084 7,832 -251 -348 97 n/a n/a
Accrued interest 94 97 3 n/a ns ns n/a
Valuation of interest rate component (hedged)
1,187 1,698 511 n/a 29 482 n/a
Valuation of credit component (unhedged)
-85 -81 4 n/a n/a n/a 4
Impairment -7 -7 0 n/a n/a n/a n/a
Net book value 9,273 9,539 267 -348 126 482 4
FAIR VALUE 8,485 8,928 443
n/a: not applicable.n.s.: not significant.
Fair value hedges were contracted for reclassified assets showing interest rate and/or currency risk. Any change in value of the hedged items between the reclassification date and the balance sheet date is recognised in income and offset by the change in value of the attendant hedging instruments (interest rate and/or currency swaps), where appropriate. Amortisation of the credit component at the reclassification date is also posted to income and offset by the amortisation of unrealised losses on available-for-sale financial assets carried in equity to be recycled to the income statement at the time of reclassification.
If these assets had not been reclassified, equity to be reclassified to the income statement would have included additional post-tax capital gains of €116m as of June 30, 2014.
As the “interest rate” component and the “exchange rate” components of these assets were hedged, the impact on the income statement is limited to interest for the period.
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3.7 - Goodwill
This item comprises unallocated goodwill. Goodwill arising from transactions carried out during the period is detailed in Note 9 - Scope of consolidation.
(in em)
06/30/2014 12/31/2013
CFI 13 13
Total goodwill 13 13
(in em)
06/30/2014 12/31/2013
Opening net value 13 13
Closing net value 13 13
3.8 - Due to credit institutions and customers
3.8.1 - Due to credit institutions
(in em)
06/30/2014 12/31/2013
Demand deposits 95 2,003
Accrued interest 4 4
Due to credit institutions - repayable on demand 99 2,007
Term deposits and loans 43,176 40,822
Repurchase agreements 1,147
Accrued interest 107 94
Due to credit institutions - repayable at agreed maturity dates 43,283 42,063
TOTAL DUE TO CREDIT INSTITUTIONS 43,382 44,070
The fair value of debts to credit institutions was €43,388m at June 30, 2014 (compared to €44,078m at December 31, 2013).
Amounts due from transactions with the network amounted to €70m as of June 30, 2014, compared to €71m as of December 31, 2013.
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3.8.2 - Due to customers
(in em)
06/30/2014 12/31/2013
Current accounts 162 185
Demand deposits and loans 32 73
Term accounts and loans 18 10
Other amounts due to customers 50 83
TOTAL DUE TO CUSTOMERS 212 268
The fair value of debts to customers was €212m at June 30, 2014 (compared to €268m at December 31, 2013).
3.9 - Debt securities
Debt securities are broken down by type, except subordinated and deeply subordinated notes, which are shown under “Subordinated debt”.
(in em)
06/30/2014 12/31/2013
Bonds 76,260 78,611
Interbank securities and negotiable debt securities 2,227 1,796
Total 78,487 80,407
Accrued interest 1,311 1,835
TOTAL DEBT SECURITIES 79,798 82,242
The fair value of debt securities amounted to €79,818m at June 30, 2014 (compared to €82,265m at December 31, 2013).
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3.10 - Provisions(in em)
12/31/2013 Additions UtilisedReversals
not utilisedOther
changes (1) 06/30/2014
Provisions for end-of-career benefits 14 1 15
Provisions for other long-term benefits 26 26
Provisions for long-service awards 3 3
Provisions for post-employment benefits 1 1
Provisions for employee benefits 44 1 45
Provisions for off-balance sheet commitments
27 1 -1 27
Provisions for claims, litigation, fines and penalties relating to operating expenses
19 1 -3 -1 16
Provisions for claims, litigation, fines and penalties relating to banking activities
29 1 30
Provisions for litigation 48 2 -3 -1 46
Other provisions for liabilities and charges relating to operating activities
32 -2 30
Other provisions for liabilities and charges relating to unconsolidated equity investments
1 1
Other provisions for liabilities and charges relating to banking activities
19 1 -3 17
Other provisions 52 1 -5 48
Provision for restructuring costs 8 -1 7
TOTAL PROVISIONS 179 5 -9 -2 173
(1) Including changes in consolidation scope and exchange rates.
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3.11 - Subordinated debt
This item includes subordinated debt and deeply subordinated notes.Subordinated debt is classified separately from issuances of other debt and bonds, because in the event of default, holders of subordinated debt rank after all senior debt holders but before holders of participating loans and securities and deeply subordinated notes.
The deeply subordinated notes issued by Crédit Foncier Group have the following terms and conditions:
• newly-issued notes have pari passu rank among themselves as well as with all other deeply subordinated securities of the issuer;
• interest must be paid when net income is reported for the year, regardless of whether or not that income is paid out in the form of dividends. In such cases the payment of the coupon is no longer at the discretion of the issuer, and the contractual obligation to deliver cash is indeed a financial liability within the meaning of IFRS.
(in em)
06/30/2014 12/31/2013
Term subordinated debt 481 481
Perpetual deeply subordinated debt 280 280
Total 761 761
Accrued interest 27 12
Revaluation of hedged items 12 16
TOTAL SUBORDINATED DEBT 800 789
The perpetual deeply subordinated debt corresponds to a €280m bond issuance by Crédit Foncier at 5.48% on February 4, 2004. This bond was purchased in full by BPCE.
The fair value of subordinated debt was €799m at June 30, 2014 (compared to €789m at December 31, 2013).
3.12 - Share capital
06/30/2014 12/31/2013
Number of shares Nominal(in €) Capital (in €m) Number of shares Nominal(in €) Capital (in €m)
Ordinary shares
Value at opening 369,833,533 3.60 1,331 369,833,533 3.60 1,331
Decrease in capital
VALUE AT CLOSING 369,833,533 3.60 1,331 369,833,533 3.60 1,331
There are no special shares in the Group’s share capital.
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Note 4 - Notes to the income statement
4.1 - Interest and similar income and expenses
This item comprises interest income and expenses - calculated using the effective interest rate method - on financial assets and liabilities measured at amortised cost, which include interbank and customer items, held-to-maturity assets, debt securities and subordinated debt.
It also includes accrued interest receivable on fixed-income securities classified as available-for-sale financial assets and derivatives used for hedging purposes. Accrued interest on derivatives used as cash flow hedges is posted to the income statement symmetrically with the accrued interest on the hedged item.
(in em)
06/30/2014 06/30/2013
Income Expenses Net Income Expenses Net
Due to and from customers 1,532 -2 1,530 1,552 -3 1,549
Transactions with credit institutions 56 -256 -200 57 -184 -127
Finance leases 12 12 13 13
Debt securities and subordinated debt -1,303 -1,303 -1,357 -1,357
Hedging derivatives 1,334 -1,191 143 1,376 -1,289 87
Available-for-sale financial assets 52 52 56 56
Held-to-maturity financial assets 1 1 1 1
Other interest income and expenses -7 -7 -3 -3
TOTAL INTEREST INCOME AND EXPENSES 2,987 -2,759 228 3,055 -2,836 219
4.2 - Fee and commission income and expenses(in em)
06/30/2014 06/30/2013
Income Expenses Net Income Expenses Net
Interbank and cash transactions
Due to and from customers 36 -1 35 39 -4 35
Financial services rendered 4 -3 1 3 -2 1
Sale of insurance products 61 61 60 60
Payment processing services
Securities transactions -2 -2 -2 -2
Trust activities 2 2 2 2
Transactions on financial instruments and derivatives 2 2 2 2
Other fees and commissions 2 2 2 -1 1
TOTAL FEE AND COMMISSION INCOME AND EXPENSES 107 -6 101 108 -9 99
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4.3 - Net gains or losses on financial instruments at fair value through profit and loss
(in em)
06/30/2014 06/30/2013
Profit or loss on financial instruments held for trading 15 165
Profit or loss on financial instruments designated at fair value through profit or loss -45 -164
Profit or loss on hedging transactions -12 2
- Ineffective portion of fair value hedges -12 2
• Fair value adjustment on hedging instruments -1,186 233
• Fair value adjustment on hedged items attributed to the hedged risks 1,174 -231
- Ineffective portion of cash flow hedges
- Ineffective portion of foreign-currency net investment hedges
Foreign exchange transactions 1
TOTAL NET GAINS OR LOSSES ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS -41 3
4.4 - Gains or losses on available-for-sale financial assets
This item includes dividends from variable-income securities, gains and losses on the sale of available-for-sale financial assets and other financial instruments not at fair value, impairment losses on variable-income securities caused by a long-term impairment and gains or losses on the disposal of loans and similar securities.
(in em)
06/30/2014 06/30/2013
Net gains or losses on disposals 2 -29
Dividends received 7 11
Long-term impairment of variable-income securities
TOTAL NET GAINS OR LOSSES ON AVAILABLE-FOR-SALE FINANCIAL ASSETS 9 -18
The automatic application of impairment indicators did not result in any new material impairments in the first half of 2014.
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4.5 - Income and expenses on other activities(in em)
06/30/2014 06/30/2013
Income Expenses Net Income Expenses Net
Income and expenses on insurance activities (1) 33 -13 20 30 -15 15
Income and expenses on real estate activities 2 -2
Income and expenses on leasing activities 2 -1 1 -1 -1
Income and expenses on investment property 5 -1 4 5 -1 4
Share of income from joint ventures -1 -1 2 2
Rebilled expenses and income paid over -1 -1
Other operating income and expenses 26 -13 13 21 -11 10
Additions and reversals to provisions on other operating income and expenses
3 -1 2 3 -5 -2
Other banking income and expenses 29 -15 14 26 -17 9
TOTAL INCOME AND EXPENSES ON OTHER ACTIVITIES 69 -30 39 63 -36 27
(1) Insurance activities carried out by Crédit Foncier Group consist of the sale of reverse mortgages for the seniors segment. These capitalised-interest loans are repayable on the death of the borrower by transfer of the property pledged as collateral.In this respect, they correspond to the definition of contracts that incur insurance risk as under IFRS 4.
4.6 - Operating expenses(in em)
06/30/2014 06/30/2013
Personnel costs -143 -156
Taxes other than on income -20 -20
External services and other operating expenses -105 -82
Other administrative costs -125 -102
TOTAL OPERATING EXPENSES -268 -258
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4.7 - Cost of risk
4.7.1 - Cost of risk
Cost of risk for the period
(in em)
06/30/2014 06/30/2013
Net charge to provisions and provisions for impairment -59 -73
Recoveries of amortised receivables 4 13
Irrecoverable loans and receivables not covered by provisions for impairment -9 -5
TOTAL COST OF RISK -64 -65
Cost of risk for the period by asset type
(in em)
06/30/2014 06/30/2013
Interbank transactions
Customers transactions -63 -64
Other financial assets -1 -1
TOTAL COST OF RISK -64 -65
4.7.2 - Impairment and provisions for credit risk
(in em)
01/01/14 Addition Reversals Other changes 06/30/2014
Available-for-sale financial assets 1 1
Interbank transactions
Customers transactions 1,023 177 -191 1,009
Held-to-maturity financial assets
Other financial assets 1 1
Impairment losses recognised in assets 1,025 177 -191 1,011
Provisions for signed commitments and financial guarantees granted
27 1 -1 27
TOTAL IMPAIRMENTS AND PROVISIONS FOR CREDIT RISK 1,052 178 -192 1,038
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4.7.3 - Total exposure to credit risk and counterparty risk
(in em)
06/30/2014 12/31/2013
Central banks 5,343 7,400
Financial assets at fair value through profit and loss (excl. variable-income securities) 3,017 2,754
Hedging derivatives 6,919 6,289
Available-for-sale financial assets (excl. variable-income securities) 3,257 2,946
Loans and receivables due from credit institutions 12,028 15,218
Loans and receivables due from customers 102,576 102,335
Held-to-maturity financial assets 136 135
Net exposure of balance sheet commitments 133,276 137,077
Financial guarantees given 1,171 1,355
Signed commitments 7,568 7,731
Provisions for signed commitments -27 -27
Net exposure of off-balance sheet commitments 8,712 9,059
TOTAL NET EXPOSURE TO CREDIT RISK AND COUNTERPARTY RISK 141,988 146,136
4.8 - Share in net income of associates
(in em)
06/30/2014 06/30/2013
Non-financial companies
Maisons France Confort PI 1 2
GCE Foncier Coinvest - -
Scribérica - -
Euroscribe - -
Share in net income of associates 1 2
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4.9 - Income tax(in em)
06/30/2014 06/30/2013
Current taxes -8 -24
Deferred taxes 12 34
Income tax 4 10
Reconciliation between the tax expense in the financial statements and the theoretical tax expense
(in em)
06/30/2014 06/30/2013
NET INCOME BEFORE TAX AND CHANGE IN THE VALUE OF GOODWILL (A) -1 1
Group share of net income 2 10
Share of non-controlling interests in consolidated companies 1 1
Share in net income of associates 1 1
Income taxes 4 10
Standard income tax rate in France (B) 38.00% 36.10%
THEORETICAL INCOME TAX EXPENSES AT CURRENT FRENCH TAX RATE (AxB) 0 0
Impact of permanent differences 5 4
Temporary increase in corporate income tax
Taxes on previous year, tax credits and other taxes 6 6
Variable carryforward impact -7
Other items
INCOME TAX 4 10
Effective tax rate (income tax expenses divided by taxable income) -574.00% -686.00%
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Note 5 - Segment reportingAffiliated to BPCE, Crédit Foncier Group is the largest specialised real estate financing institution in France, providing customised financing solutions and real estate services to individuals and corporates as part of an overall asset management approach. It also provides financing for the public sector, both in France and abroad.
Pursuant to IFRS 8 and given the considerable size of Crédit Foncier’s businesses, the Group’s internal organisation and management structures are based around five main business lines within the framework of the Group’s governing and decision-making bodies.
Individual Customers sector
This sector involves three different activities:
• mortgage financing for first-time home buyers or rental investment property, through both regulated and non-regulated loans, along with a range of banking services;
• real estate advisory and services for individual and corporate customers;• value-enhancement of Crédit Foncier property assets through rentals and the sale of buildings.
Private sector
This sector has access to a full range of financing products and solutions designed for real estate professionals (developers, investors, corporations and public-private partnerships):
• long-term or short-term financing via traditional or structured loans;• real estate leasing;• guarantees and other off-balance sheet commitments and related banking services (deposit and investment activity).
Public sector
In this sector, Crédit Foncier provides financing to French local authorities and social housing organisations (HLM and semi-public corporations).
International sector
In this sector, Crédit Foncier provides international financing services in the form of:
• financing for foreign local authorities (by acquiring bonds issued by public entities or quasi-public entities and financing for foreign local authorities in the form of loans or subscriptions to bond issuances);
• acquisition of risk-free residential mortgage loans;• income on disposals of securities, in line with the operational roll-out of Crédit Foncier Group’s strategic plan.
Holding structure
Indirect income and expenses from support activities are reallocated to the businesses. Certain items that are considered non-business line are shown separately in this division, which includes: “Share in income of associates”, “Gains and losses on other assets”, and “Change in the value of goodwill”.
The income tax expense is the difference between income tax expenses paid by the business lines at a normative rate, and total income tax expenses.
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(in em)
Individuals Private sector Public sectorInternational
sectorHolding 06/30/2014
Net banking income 282 46 23 8 -23 336
Operating expenses -221 -25 -19 -8 -273
Gross operating income 61 21 4 -23 63
C/I ratio * 78.4% 54.3% 82.6% n.s. 81.3%
Cost of risk -68 21 -17 -64
Share in income of associates 1 1
Gains and losses on other assets -1 -1
Income before tax -7 42 4 -17 -23 -1
Income tax 3 -16 -2 6 13 4
Minority interests -1 -1
GROUP SHARE OF NET INCOME -4 26 2 -11 -11 2
* C/I ratio (operating expenses/NBI).n.s.: not significant.
(in em)
Individuals Private sector Public sector International sector Holding 06/30/2014
Financial assets * 49,692 7,900 26,715 23,877 5,987 114,171
Other 32,580 32,580
Total balance sheet assets 49,692 7,900 26,715 23,877 38,567 146,751
* The breakdown of assets by sector is based on the distribution of commitments granted in the Risk Management report (overall gross exposure to credit risk, IFRS 7).
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Note 6 - Commitments
6.1 - Financing and guarantee commitments and commitments on securities
Financing commitments
(in em)
06/30/2014 12/31/2013
Total financing commitments 16,065 13,741
Financing commitments given 7,568 7,732
- to credit institutions 12 12
- to customers 7,556 7,720
• Confirmed credit facilities 6,503 6,644
• Other commitments given 1,053 1,076
Financing commitments received 8,497 6,009
- from credit institutions 8,497 6,009
Guarantee commitments
(in em)
06/30/2014 12/31/2013
Total guarantee commitments 93,939 97,926
Guarantee commitments given 14,942 17,842
- to credit institutions 13,772 16,489
- to customers 1,170 1,353
Guarantee commitments received 78,997 80,084
- from credit institutions 18,432 18,667
- from customers 60,565 61,417
Guarantee commitments given include signed commitments and financial instruments pledged as collateral.
Financing instruments pledged as collateral include receivables assigned as collateral in connection with refinancing schemes. Detailed information on these instruments and related schemes are presented in Note 7.
Commitments on securities
(in em)
06/30/2014 12/31/2013
Commitments on securities (securities for delivery) 97 42
Commitments on securities (securities receivable) 62 15
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Note 7 - Financial assets pledged as collateral
7.1 - Financial assets pledged as collateral(in em)
06/30/2014
Outright securities
lendingRepos
Assets sold or pledged
as collateralSecuritisations Total
FINANCIAL ASSETS PLEDGED AS COLLATERAL 11,773 13,770 25,543
Financial assets designated at fair value through profit or loss 297 297
Loans and receivables 11,773 13,473 25,246
Repurchase agreements and securities lending
Credit Foncier Group performs repurchase agreements as well as securities lending.Under these agreements, the security may be transferred again by the assignee at the time of repurchase or lending transaction. Nonetheless, the assignor must return it to the assignee at the operation’s maturity. The cash flows generated by the security are also transmitted to the assignor.The Group considers it has preserved virtually all of the risks and benefits of the repurchased or lent securities. Consequently, they have not been derecognised. Financing has been posted to liabilities in case the financed securities are repurchased or lent.
Transfer of receivables
Crédit Foncier Group sells receivables as collateral (articles L.211-38 and L.313-23 et seq. of the French Monetary and Financial Code) in connection with refinancing guarantees, in particular to its parent company. This type of collateral sale carries the legal transfer of contractual rights and therefore “asset transfer” within the meaning of IFRS 7. The Group is nonetheless exposed to almost all the risks and benefits, which means the receivables are retained in the balance sheet.
Consolidated securitisation transactions
For consolidated securitisation transactions:
• the portion of transferred receivables attributable to outside investors is considered to be given as collateral to third parties;• the portion of transferred receivables attributable to units and bonds underwritten by the Group and eliminated on consolidation
is not considered as collateral to third parties, except if these securities were used as part of a refinancing mechanism.
At June 30, 2014, outstanding loans held in consolidated securitisation funds whose priority shares guarantee refinancing issued by the VMG subsidiary (see Note 9.3 - Consolidation securitisation transactions) amounted to €749m.
In accordance with French law, the intrinsic securities attached to covered bond issuances are not booked as guarantee commitments given. Covered bonds issued by Compagnie de Financement Foncier enjoy a preferential claim consisting of eligible assets.
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Note 8 - Offsetting financial assets and liabilitiesThe Group does not offset financial assets and liabilities in the balance sheet under IAS 32 netting rules.Financial assets and liabilities “under netting agreements not offset in the balance sheet” correspond to outstandings of transactions under netting framework or similar arrangements, but which do not meet the restrictive netting criteria in IAS 32. This is the case particularly with transactions for which the right to offset can only be exercised in the event of default, insolvency or bankruptcy of one of the parties to the contract.For these instruments, the columns “Associated assets and financial instruments received as collateral” and “Associated liabilities and financial instruments given as collateral” include:
• for repurchase agreements:- borrowing or lending resulting from reverse repurchase agreements with the same counterparty, as well as securities received
or given as collateral (at the fair value of these securities);- margin calls in the form of securities (at the fair value of these securities);
• for derivatives transactions, the fair value in the opposite direction with the same counterparty, as well as margin calls in the form of securities.
Margin calls received or paid in cash are included in the columns “Margin calls received (cash collateral)” and “Margin calls paid (cash collateral)”.Financial instruments under netting agreements not offset in the balance sheet mainly consist of over-the-counter repurchase agreements or derivatives.
8.1 - Financial assets(in em)
Financial assets under netting agreements not offset in the balance sheet
06/30/2014 12/31/2013
Net amount of financial
assets disclosed in the balance
sheet
Associated financial liabilities
and financial
instruments received as collateral
Margin calls
received (cash
collateral)
Net exposure
Net amount of financial
assets disclosed in the balance
sheet
Associated financial liabilities
and financial
instruments received as collateral
Margin calls
received (cash
collateral)
Net exposure
Derivatives 7,615 4,095 3,034 486 6,861 3,714 2,842 305
TOTAL FINANCIAL ASSETS 7,615 4,095 3,034 486 6,861 3,714 2,842 305
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8.2 - Financial liabilities(in em)
Financial liabilities under netting agreements not offset in the balance sheet
06/30/2014 12/31/2013
Net amount of financial liabilities
disclosed in the balance
sheet
Associated financial
assets and financial
instruments given as
collateral
Margin calls paid (cash collateral)
Net exposure
Net amount of financial liabilities
disclosed in the balance
sheet
Associated financial
assets and financial
instruments given as
collateral
Margin calls paid (cash collateral)
Net exposure
Derivatives 9,268 4,095 4,415 758 7,041 3,708 2,917 416
Repurchase agreements
1,148 1,148
TOTAL FINANCIAL LIABILITIES
9,268 4,095 4,415 758 8,189 4,856 2,917 416
Note 9 - Scope of consolidation
9.1 - Changes to the scope of consolidation in the first half of 2014
The Financière Desvieux subsidiary was liquidated.
In an effort to streamline the financial reporting process, 10 companies previously consolidated by Locindus that were non-material since their creation are now consolidated with Crédit Foncier Group. The integration of these companies into the financial statements of Crédit Foncier Group does not represent a significant impact.
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9.2 - Scope of consolidation at June 30, 2014
Companies whose contribution to the consolidated financial statements is not significant are not included in the scope of consolidation. Significance is determined according to the increasing significance method. Under this principle, any entity included in a sub-consolidation scope is included in higher levels of consolidation, even if it is not significant at these levels.
Units in debt securitisation funds are wholly owned by Credit Foncier and Vauban Mobilisations Garanties.
Consolidated companies Legal form Consolidation method % Control % Interest
Financial institutions
Compagnie de Financement Foncier SA Full 100.00 100.00
SCA Ecufoncier SCA Full 95.00 5.00
Comptoir Financier de Garantie (CFG) SA Full 100.00 100.00
Locindus SA Full 74.49 74.49
SOCFIM SA Full 99.99 99.99
Banco Primus SA Full 100.00 100.00
Non-financial companies
Cofimab SNC Full 99.99 99.99
Crédit Foncier Immobilier SA Full 100.00 100.00
Gramat Balard SARL Full 100.00 99.99
Vauban Mobilisations Garanties (VMG) SA Full 100.00 99.99
Vendôme Investissements SA Full 99.99 99.99
Foncier Participations SA Full 100.00 100.00
Société d’investissement et de Participation Immobilière (SIPARI) SA Full 99.99 99.99
SEREXIM SAS Full 100.00 100.00
Foncière d’Evreux SA Full 100.00 99.99
SOCFIM Participations Immobilières SNC Full 100.00 99.99
Crédit Foncier Expertise SA Full 100.00 100.00
Oxiane SAS Full 100.00 74.49
Scribe Bail SAS Full 100.00 74.49
Scribe Bail Activ SAS Full 100.00 74.49
Scribe Bail Com SAS Full 100.00 74.49
Scribe Bail Hôtel SAS Full 100.00 74.49
Scribe Bail Logis SAS Full 100.00 74.49
Scribe Bail Tertiaire SAS Full 100.00 74.49
Scribeuro SAS Full 100.00 74.49
Scribérica SAS Equity method 50.00 37.24
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Euroscribe SAS Equity method 50.00 37.24
GCE Foncier Coinvest SAS Equity method 49.00 49.00
Maison France Confort P-I SAS Equity method 49.00 24.01
Securitisation funds
Partimmo 05/2003 FCC Full 100.00 100.00
Partimmo 11/2003 FCC Full 100.00 100.00
Zèbre 1 FCC Full 100.00 100.00
Zèbre two FCC Full 100.00 100.00
Zèbre 2006-1 FCC Full 100.00 100.00
Special purpose vehicle
9.3 - Securitisation transactions
Securitisation is a financial arrangement that enables a company to improve its balance sheet liquidity. Technically speaking, assets are selected on the basis of the quality of their attendant guarantees and pooled in a special purpose vehicle, which acquires them by issuing securities that are subscribed for by investors.
Securitisation arrangements initiated by the Group are realised for its own account as part of the asset-liabilities management so as to access refinancing on the markets at advantageous terms and conditions. The refinancing is carried out through its subsidiary, Vauban Mobilisations Garanties (VMG).
The special purpose entities created as part of these arrangements are consolidated, given that the Group exercises control within the meaning of IFRS 10.The table below shows asset transfers that have not been fully or partially written off.
(in em)
Asset typeYear of
creationExpected maturity
Initial nominal amount
06/30/2014
Securitisation funds (FCC and FCT)
Priority shares
Specific shares
VMG Crédit Foncier
Partimmo 05/2003 Residential mortgage loans 06/11/03 July 2021 987 74 45
Partimmo 11/2003 Residential mortgage loans 11/12/03 March 2029 1,045 99 40
Partimmo sub-total 2,032 173 85
Zèbre 1 Residential mortgage loans 11/25/04 October 2023 1,173 111 43
Zèbre two Residential mortgage loans 10/28/05 July 2024 739 94 59
Zèbre 2006-1 Residential mortgage loans 11/28/06 January 2033 689 146 58
Zèbre sub-total 2,601 351 160
OVERALL TOTAL 4,633 524 245
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ANALYSIS OF RESULTS 72
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2014 76
STATUTORY AUDITORS’ REPORT ON FINANCIAL INFORMATION FOR THE FIRST HALF OF 2014 116
3 - FINANCIAL INFORMATION
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Statutory auditors’ report on the financial information for the first half of 2014Period from January 1, 2014 to June 30, 2014
CRÉDIT FONCIER DE FRANCE S.A.19, rue des Capucines75 001 Paris
To the Shareholders,
In compliance with the assignment entrusted to us by your Annual General Shareholders’ Meeting and in accordance with the requirements of article L.451-1-2 III of the French Monetary and Financial Code, we hereby report to you on:
• the review of the accompanying condensed interim consolidated financial statements of Crédit Foncier de France S.A. for the period from January 1 to June 30, 2014;
• the verification of information contained in the interim management report.
These condensed consolidated interim financial statements have been prepared under the responsibility of your Board of Directors. Our role is to express an opinion on these financial statements based on our review.
I. Opinion on the financial statements
We conducted our review in accordance with professional standards applicable in France. A review essentially consists of interviewing persons responsible for accounting and financial matters and in applying analytical procedures. A review is substantially less extensive than an audit carried out in accordance with the professional standards applicable in France. As a result, we are less confident that the financial statements, taken as a whole, do not contain significant misstatements than we would be based on a full audit.
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRS as adopted by the European Union applicable to interim financial information.
II. Specific verification
We have also verified the information given in the Group’s interim management report commenting on the condensed interim financial statements subject to our review.
We have no observations to make regarding its fair presentation and consistency with the condensed interim consolidated financial statements.
Paris La Défense and Neuilly-sur-Seine, August 29, 2014
The Statutory Auditors:
KPMG AuditA department of KPMG S.A.Jean-François DandéPartner
PricewaterhouseCoopers AuditAnik ChaumartinPartner
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4 - OTHER INFORMATION
PERSONS RESPONSIBLE FOR THE DOCUMENT AND FOR AUDITING THE FINANCIAL STATEMENTS 118
CROSS-REFERENCE TABLE 119
CROSS-REFERENCE TABLE BETWEEN THE ANNUAL FINANCIAL REPORT AND THE UPDATED REGISTRATION DOCUMENT 122
4 ADDITIONAL INFORMATION
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Persons responsible for the document and for auditing the financial statementsPerson responsible for updating the Registration document and the interim financial report
Mr Bruno DELETRÉ, Chief Executive Officer of Crédit Foncier
Statement from the person responsible for the Registration document
I hereby declare, after having taken every reasonable measure for this purpose, that the information provided in this update to the Registration document is, to the best of my knowledge, true to fact and that no information has been omitted that would change the interpretation of the information provided.
I hereby declare that, to the best of my knowledge, the condensed consolidated financial statements of Crédit Foncier de France for the first half of 2014 have been prepared in accordance with applicable accounting standards and are an accurate reflection of the assets, financial position and results of the Company and the consolidated entities, and that the interim management report presents an accurate picture of the important events that occurred during the first six months of the year, their impact on the accounts as well as a description of the principal risks and uncertainties for the remaining six months of the year.
I received a letter from the Statutory Auditors indicating that they have completed their work, which consisted of verifying the information on the financial position and the financial statements provided in this update of the Registration document, which they have read in its entirety.
Paris, August 29, 2014
Chief Executive Officer,Bruno DELETRÉ
Person responsible for the financial information
Ms Sandrine GUÉRIN, Deputy Chief Executive Officer - Financial Operations
Persons responsible for auditing the financial statements
Permanent Statutory Auditors
KPMG AuditMember of the Compagnie Régionale des Commissaires aux comptes de Versailles (Regional Association of Statutory Auditors of Versailles)1, Cours Valmy - La Défense 92923Represented by Jean-François DANDÉStart of first term: April 26, 2010Length of term: 6 yearsExpiry of current term: At the end of the Annual General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2015
PricewaterhouseCoopers AuditMember of the Compagnie Régionale des Commissaires aux comptes de Versailles (Regional Association of Statutory Auditors of Versailles)63, rue de Villiers - 92200 Neuilly-sur-SeineRepresented by Anik CHAUMARTINLength of term: 6 yearsDate term was renewed: May 10, 2012Expiry of current term: At the end of the Annual General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2017
Substitute Statutory Auditors
Malcolm McLARTYMember of the Compagnie Régionale des Commissaires aux comptes de Versailles (Regional Association of Statutory Auditors of Versailles)1, Cours Valmy - La Défense 92923Start of first term: April 26, 2010Length of term: 6 yearsExpiry of current term: At the end of the Annual General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2015
Étienne BORISMember of the Compagnie Régionale des Commissaires aux comptes de Versailles (Regional Association of Statutory Auditors of Versailles)63, rue de Villiers - 92200 Neuilly-sur-SeineLength of term: 6 yearsDate term was renewed: May 10, 2012Expiry of current term: At the end of the Annual General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2017
4 ADDITIONAL INFORMATION
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
Cross-reference tableListing of debt security issuances and derivatives with a nominal value of less than €100,000(Annex IV of regulation EC no. 809/2004)
Update to the 2013 Registration
document filed with the AMF
on August 29, 2014
2013 Registration document
filed with the AMF on April 10, 2014
Items Pages Pages
1. PERSONS RESPONSIBLE
1.1. Persons responsible for information 118 311
1.2. Statement by persons responsible 118 311
2. STATUTORY AUDITORS
2.1. Identification of Statutory Auditors 118 311
2.2. Statutory Auditors for the period covered by the historical financial disclosures 118 311
3. SELECTED FINANCIAL INFORMATION
3.1. Financial information 5-6 5
3.2. Historic financial information for interim periods 5-6 n/a
4. RISK FACTORS 25-69 95-156
5. INFORMATION ABOUT THE ISSUER
5.1. History and development of the Company 6
5.1.1. Legal and commercial name of the issuer 304
5.1.2. Place of registration of the issuer and its registration number 304
5.1.3. Date of incorporation and term of the issuer 304
5.1.4. Registered office and legal form of the issuer 304
5.1.5.Recent events affecting the issuer that have a material impact on the evaluation of the issuer’s solvency
74 305
5.2. Investments
5.2.1.Description of the main investments carried out since date of last financial statements
13 18-21
5.2.2.Information on main forthcoming investments for which the Executive Bodies have already made significant commitments
n/a n/a
5.2.3.Information on the expected sources of financing needed to honour the commitments referred to in 5.2.2.
n/a n/a
4 ADDITIONAL INFORMATION
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
6. BUSINESS OVERVIEW
6.1. Principal activities 15-24 23-36
6.1.1. Main categories of services provided 23; 6-8
6.1.2. New product sold or new activity 16 26
6.2. Main markets 15-24 25-36
6.3. Competitive positioning 16 26
7. ORGANISATIONAL STRUCTURE
7.1. Description of the Group and the Company’s position within the Group 11-12 16
7.2. Dependence on other entities in the Group 11-12/112-113 16/24/237/290
8. TREND INFORMATION
8.1.Declaration that no significant deterioration has affected the outlook of the Company since the date of its last financial report
74 305
8.2. Events reasonably likely to have a material effect on the issuer’s outlook 74 305
9. PROFIT FORECASTS AND ESTIMATES n/a n/a
10. ADMINISTRATIVE, EXECUTIVE AND SUPERVISORY BODIES
10.1.Names, business addresses and functions of the administrative and management bodies and principal activities performed by them outside the company
9-10 40-55
10.2. Conflicts of interest statement 56
11. FUNCTIONING OF THE ADMINISTRATIVE AND EXECUTIVE BODIES
11.1. Information on the Audit Committee. Name of members and summary of terms 39/67
11.2. Corporate Governance 10 38-76
12. MAJOR SHAREHOLDERS
12.1. Ownership, control 11-12 18
12.2. Known arrangements liable to result in a change in control n/a n/a
13. FINANCIAL INFORMATION CONCERNING THE COMPANY’S ASSETS & LIABILITIES, FINANCIAL POSITION AND PROFIT AND LOSSES
13.1. Historic financial information 164-238
13.2. Annual Financial Statements
a) Balance sheet 166-167
b) Income Statement 168
c) Cash flow statement 171
d) Accounting methods and explanatory notes 172-238
13.3. Auditing of annual historical financial information
13.3.1. Statutory Auditors’ report 239-240
13.3.2. Other information from the Registration document audited by the Statutory Auditors 65-76/78-92/242-292
13.3.3.Financial information contained within the Registration document not obtained from the audited financial statements
n/a
4 ADDITIONAL INFORMATION
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
13.4. Date of latest financial information
13.4.1. Last year for which financial information has been audited 76-772012 Registration
document*
13.5. Interim and other financial information
13.5.1Quarterly and half-year financial information since the date of the last audited financial statements
n/a
a) Balance sheet 78-79
b) Income Statement 80
c) Consolidated cash flow statement 83
d) Accounting methods and explanatory notes 84-114
13.5.2. Interim financial information since the end of the most recent year n/a n/a
13.6. Legal and arbitration proceedings 68 148-150
13.7. Significant change in the financial or sales position 74 305
• Statement 74 305
14. ADDITIONAL INFORMATION
14.1. Share capital 12 18
14.1.1. Total subscribed capital 12 18
14.2. Memorandum and by-laws 304-305
14.2.1. Register and corporate purpose 304
15. MATERIAL CONTRACTS
• Related-party agreements 294-302
16. THIRD-PARTY INFORMATION, STATEMENTS BY EXPERTS AND DECLARATIONS OF INTEREST n/a
17. DOCUMENTS AVAILABLE TO THE PUBLIC
Location where documents may be viewed during the dates that the Registration document is valid
305
* In accordance with Articles 28 of EC Regulation No.809-2004 and 212-11 of the AMF General Regulations, the consolidated financial statements for the financial year ended December 31, 2013 and the related Statuary Auditors’ report, presented on pages 164 to 240 of Registration document No.D.14-0335 filed with the AMF on April 10, 2014.
4 ADDITIONAL INFORMATION
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2014 HALF-YEAR FINANCIAL REPORT - CRÉDIT FONCIER
Cross-reference table between the annual financial report and the updated Registration documentIn accordance with Article 212-13 of the AMF’s General Regulations, this update includes information from the interim financial report mentioned in Article L.451-1-2 of the French Monetary and Financial Code.
ITEMS COMPRISING THE INTERIM FINANCIAL REPORT AT JUNE 30, 2014Update to the 2013
Registration document
Pages
STATEMENT FROM THE PERSON RESPONSIBLE FOR THE DOCUMENT 118
MANAGEMENT REPORT
• Main events during the first six months of the year 7-24/72-74
• Main risks and uncertainties 25-70
CONSOLIDATED FINANCIAL STATEMENTS
• Interim financial statements 76-114
• Statutory Auditors’ report on the interim financial statements 116
Production - Printing
Crédit Foncier de France: S.A. (French public limited company) with share capital of €1,331,400,718.80 - Paris Trade and Companies Register No. 542 029 848
Executive offices and postal address: 4, quai de Bercy - 94220 Charenton-le-Pont - Tel.: +33 1 57 44 80 00Head office: 19, rue des Capucines - 75001 Paris
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