CRÉDIT FONCIER Update to the 2014 Registration document
Transcription
CRÉDIT FONCIER Update to the 2014 Registration document
creditfoncier.com CRÉDIT FONCIER Update to the 2014 Registration document including the 2015 half-year financial report CONTENTS Company profile Key figures 4 5 1 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 7 The Group Commercial and financial activity 8 14 2 RISK MANAGEMENT 25 Introduction – General risks of groupe Crédit Foncier 2.1 General organisation & methodology 2.2 Risk factors 2.3 Pillar III 2.4 Capital and capital adequacy ratios 2.5 Credit and counterparty risk exposures 2.6 Analysis of delinquencies 2.7 Risk Mitigation Techniques 2.8 Recommendations of the Financial Stability Forum 2.9 Market risks 2.10 ALM risks 2.11 Operating risks 2.12 Brokerage risk 2.13 Non-compliance risk 26 26 26 26 27 31 40 41 43 48 49 53 56 56 3 FINANCIAL INFORMATION 57 Analysis of results Condensed consolidated financial statements at June 30, 2015 Statutory Auditors’ report on the financial information for the first half of 2015 4 OTHER INFORMATION 58 61 92 93 General information Persons responsible for the document and for auditing the financial statements Cross-reference table Cross-reference table between the interim financial report and the update to the Registration document Abbreviations used in this document: Thousands of euros: €k Millions of euros: €m Billions of euros: €bn 94 95 96 99 UPDATE OF THE 2014 REGISTRATION DOCUMENT including the 2015 half-year financial report This document is a free translation into English of Crédit Foncier’s update to the 2014 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 25, 2015 in accordance with Article 212-13 of its General Regulations under the number D.15-0163-A01. It supplements the Registration document filed with the AMF on March 18, 2015 in accordance with Article 212-13 of its General Regulations, under file no. D.15-0163. 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. This update to the Registration document is available at www.creditfoncier.com 2015 Half-Year financial report CRÉDIT FONCIER 3 COMPANY PROFILE ❯ PROFILE ■ MAKING ALL REAL ESTATE PROJECTS POSSIBLE Crédit Foncier is specialised in real estate financing and services in France. professionals, investors and local authorities. Crédit Foncier provides all these players with its innovation and creativity as well as the experience it has gained on the real estate market for over more than 160 years. 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 tailored answers to their real estate needs: individuals, Crédit Foncier focuses on five major business lines: real estate financing for individuals, financing real estate investors and professionals, financing public sector entities, real estate services and financial operations with funding. ❯ COMPANY PROFILE Founded: 1852 Industry: Banking, Real estate 7,000 business partners in the real estate sector (developers, single-family home builders, real estate brokers and property managers) Facts and figures: No. 1 lender to low-income households(2) 2,729 employees at Crédit Foncier (consolidated FTE staff in 2014) No. 1 issuer of covered bonds in the world(3) 253 points of sale ❯ BUSINESS LINES ■ FINANCING SOLUTIONS FOR INDIVIDUALS ■ REAL ESTATE SERVICES Crédit Foncier provides individuals with home ownership financing for both new and existing homes. It is particularly active in lending to lowincome first-time home buyers, a segment in which it held 40% market share as of June 15, 2015(2). Crédit Foncier is also active in the buy-tolet sector and in financing older customers with specialised products and services such as reverse mortgages (Prêt viager hypothécaire). This activity is carried out by Crédit Foncier Immobilier, a whollyowned subsidiary of Crédit Foncier, which offers two types of service: consultancy, research and valuation, and brokerage management. It targets institutional clients, investors, residential and commercial property groups and major landlords. Crédit Foncier Immobilier also produces real estate market studies and forecasts. These are eagerly awaited by professionals in the property sector, government entities and, more broadly, the media, which draw heavily on the findings. ■ FINANCING REAL ESTATE INVESTORS AND PROFESSIONALS Crédit Foncier helps property investors and professional customers complete their transactions. It also provides these partners with its expertise in the areas of financing arrangement and syndication. ■ FINANCING PUBLIC SECTOR ENTITIES Crédit Foncier lends to local authorities and entities in charge of social housing. Its teams define and support the financing of major infrastructure projects through complex deals such as Public-Private Partnerships (PPP). ■ FINANCIAL OPERATIONS This business line provides refinancing on loans granted by Crédit Foncier and Groupe BPCE’s other banking networks. Most of the business is handled by Compagnie de Financement Foncier, a whollyowned subsidiary of Crédit Foncier whose purpose is to fund mortgage and public-sector lending activities by issuing obligations foncières or through securitisation. (1) 2nd by market share for customer savings and customer lending (source: Banque de France Q3-2014 – all non-financial customers), 2nd in penetration rate among professional customers and entrepreneurs (source: Pépites CSA survey 2013-2014). (2) Source SGFGAS – Data at mid-June 2015 for PAS and data of first quarter 2015 for PTZ. (3) In terms of euro benchmark issuances, Natixis study, November 2014. 4 2015 Half-Year financial report CRÉDIT FONCIER KEY FIGURES ❯ Groupe Crédit Foncier activity (in €m) Loan production (management data) (1) First-half 2015 First-half 2014 4,800 4,340 Individuals 3,994 3,083 Corporates 806 1,257 Public sector 380 411 Private sector(2) 426 846 4,001 3,437 - 923 06/30/2015 12/31/2014 100,472 101,586 Individuals 50,795 50,996 Corporates 49,677 50,590 Public sector 41,774 42,485 Private sector 7,903 8,105 Receivables managed for third parties 4,216 4,111 06/30/2015 (Basel III) 12/31/2015 (Basel III) Issuances of obligations foncières(3) Securitisation (1) Including loans issued by Banco Primus totalling €34m at June 30, 2014 and €40m at June 30, 2015. (2) Including SOCFIM for an amount of €487m at June 30, 2014 and €349m at June 30, 2015. (3) Excluding non-recurring transactions (buy-back and intra-group issuances). (in €m) (1) Gross securities and receivables (1) Management data under IFRS 7. ❯ Consolidated financial data (in €m) CONSOLIDATED BALANCE SHEET Balance sheet total 135,251 141,070 Consolidated equity – Group share 2,908 2,900 Regulatory capital 3,282 3,607 o/w basic regulatory capital 3,228 3,363 3,032 3,139 Solvency ratio – Standard approach 9.5% 10.4% Tier-1 ratio (basic capital) 9.3% 9.6% Common Equity Tier-1 (CET1) ratio (core capital) 8.8% 9.0% (1) o/w regulatory core capital (2) (1) After deducting perpetual deeply subordinated notes. (2) Calculated on the basis of capital requirements, details of which are presented in the Risk Management report. 2015 Half-Year financial report CRÉDIT FONCIER 5 First-half 2015 First-half 2014 Net banking income(1) 427 336 Individuals (in €m) CONSOLIDATED RESULTS 350 282 Private corporate sector 44 46 Public corporate sector 45 23 International corporate sector -2 8 Holding companies -10 -23 Gross operating income 145 63 Income before tax -13 -1 Group share of net income -20 2 (1) The NBI breakdown by a business line is presented in the note 6 to the consolidated financial statements of the first-half 2015 and in the note 5 to the consolidated financial statements of the first-half 2014, “Segment reporting”. 6 2015 Half-Year financial report CRÉDIT FONCIER 1 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 THE GROUP Highlights of 2015 Functional organisational structure Administrative and executive bodies Positioning Ratings Share capital Capital transactions in the first half of 2015 8 8 9 10 11 12 12 13 COMMERCIAL AND FINANCIAL ACTIVITY Economic environment Commercial activity Individual customers Real estate investors and public sector entities Real estate services companies Financial operations 14 14 15 15 18 22 23 2015 Half-Year financial report CRÉDIT FONCIER 7 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 THE GROUP THE GROUP ❯ HIGHLIGHTS OF 2015 CREDIT FONCIER REINFORCES ITS VISIBILITY AMONG ITS CLIENTS AND PARTNERS January to June Continued renovation of points of sale network, with a design and layout meant to reflect its business logic. 11 points of sale in the new format were reopened. January and March Television and Internet advertising campaigns. Launch of a new corporate video. February Annual real estate markets conference in Paris at the Maison de la Mutualité conference centre – 800 participants. May Press conference on real estate loans in Europe (third annual event). June Launch of the “Saga de l’Eté” campaign in the 13 newly-created regions of France. SOCIETAL AND ENVIRONMENTAL COMMITMENT March As part of the Cube 2020 awards, Crédit Foncier receives the bronze medal. May European Sustainable Development Week: Climate change and energy. June Two conferences organised to raise awareness about people with disabilities focusing on the topic of: “Disabilities in the workplace: How can we work together?” CRÉDIT FONCIER RESEARCH PUBLISHED AT: WWW.CREDITFONCIER.COM January and May Results of the 1st and 2nd Crédit Foncier/CSA surveys on sentiment among real estate professionals. June Crédit Foncier: 2014 Factbook. Study – “The path to acquiring a principal residence: from dream to reality”. INNOVATION March Launch of the fifth annual BPCE Innovation Awards. REFINANCING January, February and June Benchmark issues by Compagnie de Financement Foncier in the first half of 2015: ❯ €1.0bn with a 10-year maturity in January; ❯ €1.0bn with a 5-year maturity in February; ❯ €1.5bn with a 3-year maturity in June. Total public issuances and private placements at June 30, 2015 stand at €4.0bn (excluding non-recurring transactions: buy-back and intra-group issuances). CRÉDIT FONCIER IMMOBILIER January All business lines are grouped under a single brand: Crédit Foncier Immobilier. March Press conference on Crédit Foncier Immobilier’s development strategy. 17th Barometer on financing the French real estate market, held together with Crédit Foncier Immobilier. June Publication of Issue No. 90 of the magazine L’Observateur de l’Immobilier. RUN-OFF OF THE INTERNATIONAL PORTFOLIO 8 May Resolution by the Board of Directors to accelerate the disposal programme for international positions in 2015. June Compagnie de Financement Foncier, a wholly-owned subsidiary of Crédit Foncier, sells its entire exposure to Heta Asset Resolution AG. The Group no longer has any exposure to Austria. 2015 Half-Year financial report CRÉDIT FONCIER CRÉDIT FONCIER IN THE FIRST HALF OF 2015 THE GROUP 1 ❯ FUNCTIONAL ORGANISATIONAL STRUCTURE ■ EXECUTIVE MANAGEMENT AND THE EXECUTIVE COMMITTEE (At June 30, 2015) Eric FILLIAT Chief of Financial Management Finance Division François PÉROL Chairman Mathieu LEPELTIER Chief Risk Officer Risk and Compliance Division Jean-Pierre POUGET Deputy Chief of Financial Management Finance Division Accounting and taxation Bruno DELETRÉ Chief Executive Officer Muriel COLLE Resources Division Corinne DECAUX Legal Affairs Division Patrick CHASTANT General Inspection Resources and Steering Division Benoît CATEL Deputy CEO Retail and Corporate Thierry DUFOUR Deputy CEO Finance and Operations Sandrine GUÉRIN Chief of Corporate and Investment Banking (CIB) Financial Operations Philippe DUPIN Corporate Operations François GUINCHARD Individual Operations Luc RONDOT Information Systems Isabelle SELLOS-MAHE Corporates Public & private Nordine DRIF Development Alain DAVID Development Marc TRESSON Individuals Anne-Marguerite GASCARD Real Estate Services Retail and Corporate Banking Division Finance and Operations Division Resources and Steering Division Member of the Executive Management Committee 2015 Half-Year financial report CRÉDIT FONCIER 9 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 THE GROUP ❯ ADMINISTRATIVE AND EXECUTIVE BODIES ■ EXECUTIVE MANAGEMENT ❯ Ms Anne-Claude PONT (since February 17, 2015) – Chairman of COMPOSITION OF EXECUTIVE MANAGEMENT ❯ BPCE, represented by Mr Daniel KARYOTIS – Chairman of the Audit (At June 30, 2015) Bruno DELETRÉ, Chief Executive Officer. Benoît CATEL, Deputy Chief Executive Officer in charge of Retail and Corporate Banking. Thierry DUFOUR, Deputy Chief Executive Officer in charge of Finance and Operations. The Executive Management Committee also includes: ❯ 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. the Risk Management Committee, member of the Audit Committee Committee, member of the Risk Management Committee NON-VOTING DIRECTORS ❯ Mr Jean-Marc CARCELÈS ❯ Mr Emmanuel POULIQUEN REPRESENTATIVES OF THE CENTRAL WORKS COUNCIL ❯ Mr Jean-Marc GILANT (management representative) ❯ Ms Valérie FIX (non-management representative) GOVERNMENT AUDITOR ❯ Mr Olivier BUQUEN CHANGES TO THE COMPOSITION OF THE BOARD OF DIRECTORS IN THE 1ST HALF OF 2015 CHANGES TO THE COMPOSITION OF EXECUTIVE MANAGEMENT IN THE 1ST HALF OF 2015 The Board of Directors’ meeting of February 17, 2015 co-opted Ms Anne-Claude PONT as Director. On April 9, 2015, the Board of Directors appointed Benoît CATEL to the position of Deputy Chief Executive Officer in charge of Retail and Corporate Banking effective April 13, 2015. On March 31, 2015, the Annual General Shareholders’ Meeting ratified the co-opting of: ■ BOARD OF DIRECTORS COMPOSITION OF THE BOARD OF DIRECTORS ❯ Mr Jean-Paul DUMORTIER as Director, replacing Mr Jean CLOCHET; ❯ Mr Nicolas PLANTROU as Director, replacing Mr Jean-Paul FOUCAULT; ❯ Ms Anne-Claude PONT as Director, replacing Mr Jean-Hervé LORENZI; (At June 30, 2015) ❯ Mr Emmanuel POULIQUEN as non-voting director, replacing BOARD OF DIRECTORS ❯ Mr François PÉROL – Chairman of the Board of Directors At its meeting of May 5, 2015, the Board of Directors accepted the resignation of Mr Michel SORBIER as non-voting director. Mr Jean-Paul DUMORTIER. ❯ Mr Gérard BARBOT – Chairman of the Remuneration and Selection Committee, Chairman of the Appointments Committee ❯ Ms Meka BRUNEL – Member of the Remuneration and Selection Committee, member of the Appointments Committee ❯ Ms Nathalie CHARLES – Member of the Remuneration and Selection Committee, member of the Appointments Committee ❯ Mr Pierre DESVERGNES ❯ Mr Bruno DUCHESNE ❯ Mr Jean-Paul DUMORTIER – Member of the Remuneration and Selection Committee, member of the Appointments Committee ❯ Ms Nicole ETCHEGOÏNBERRY – Member of the Audit Committee, member of the Risk Management Committee ❯ Ms Christine FABRESSE ❯ Mr Jean-Yves FOREL ❯ Mr Dominique GARNIER – Member of the Audit Committee, member of the Risk Management Committee ❯ Ms Catherine HALBERSTADT ❯ Mr Francis HENRY – Member of the Remuneration and Selection Committee, member of the Appointments Committee ❯ Ms Anne MERCIER-GALLAY ❯ Ms Stéphanie PAIX ❯ Mr Nicolas PLANTROU 10 2015 Half-Year financial report CRÉDIT FONCIER SEPARATION OF THE AUDIT AND RISKS COMMITTEE Pursuant to the decree of November 3, 2014, which enacted CRD IV into French law, on May 5, 2015, the Board of Directors voted to dissociate the Risk and Audit Committee into two separate committees, an Audit Committee and a separate Risk Committee, and to allocate the competencies. CRÉDIT FONCIER IN THE FIRST HALF OF 2015 THE GROUP 1 ❯ POSITIONING ❯ Organisational structure of Groupe BPCE at June 30, 2015 9 MILLION COOPERATIVE SHAREHOLDERS 100% 100% * 50% 50% BPCE CENTRAL INSTITUTION 100% 71% 29% * Indirectly through Local Savings Companies. FLOAT 2015 Half-Year financial report CRÉDIT FONCIER 11 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 THE GROUP ❯ RATINGS Standard & Poor’s Crédit Foncier Affiliated with BPCE CieFF(1) Locindus Moody’s Fitch Ratings ST LT Outlook ST LT Outlook ST LT Outlook A-2 A- Developing P-1 A2 Stable F1 A Stable A-1 A Negative P-1 F1 A Stable A-1+ AAA Stable AA Stable A- Developing A-2 VMG(2) AAA P-1 A2 Stable Aaa Stable A2 Stable Aaa Ratings updated when the update to the 2014 Registration document was filed. (1) CieFF: Compagnie de Financement Foncier. (2) VMG: Vauban Mobilisations Garanties. ■ MOODY’S On March 17, 2015, Moody’s Investors Service confirmed its A2 longterm rating of BPCE and Crédit Foncier and raised their outlooks from negative to stable. On July 8, 2015, it confirmed its Aaa long-term rating for Compagnie de Financement Foncier. ■ FITCH RATINGS On June 23, 2015, Fitch Ratings confirmed Crédit Foncier’s long-term and short-term ratings with a stable outlook. On December 16, 2014, it confirmed Compagnie de Financement Foncier’s AA rating. After a resolution passed by VMG’s Supervisory Board and consultation with VMG’s bondholders, a decision was taken to no longer seek a Fitch rating for VMG, a wholly-owned subsidiary of Crédit Foncier. ■ STANDARD & POOR’S On July 13, 2015, Standard & Poor’s confirmed its credit ratings for BPCE and Crédit Foncier. On June 10, 2015, it also confirmed its rating for Compagnie de Financement Foncier. ❯ SHARE CAPITAL ■ CHARACTERISTICS At December 31, 2015, Crédit Foncier’s share capital was €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 governing 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, bonds that can be exchanged or 12 2015 Half-Year financial report CRÉDIT FONCIER redeemed for equity instruments, warrants etc., or stock options for management and staff. ■ OWNERSHIP STRUCTURE Since August 5, 2010, the subsidiaries owned by the holding company CE Participations, including Crédit Foncier, have been incorporated into BPCE, which now owns 100% of the equity and voting rights of the Company, with the exception of the shares held by members of the Board of Directors. CRÉDIT FONCIER IN THE FIRST HALF OF 2015 THE GROUP 1 ❯ CAPITAL TRANSACTIONS IN THE FIRST HALF OF 2015 ■ RESTRUCTURING ■ TRANSACTIONS WITHIN GROUPE BPCE SWISS PUBLIC FINANCE SOLUTIONS FIDEPPP In May 2015, Crédit Foncier sold its entire 40% ownership stake in Swiss Public Finance Solutions to Banque Cantonale de Genève, which now owns 100% of its share capital. Crédit Foncier paid out: ■ DEVELOPING AND IMPROVING THE GROUP’S EXISTING STRUCTURES COFIMAB ❯ on February 24, 2015, €1,428,000.00 for the allocation of 1,428 B shares, bringing the paid-up portion of Crédit Foncier’s total commitment to 67.90%; ❯ on April 22, 2015, €658,000.00 for the allocation of 658 B shares, bringing the paid-up portion of Crédit Foncier’s total commitment to 70.25%. On May 22, 2015, Crédit Foncier advanced €8.57m to finance the purchase of a business/office building belonging to MURPEN. 2015 Half-Year financial report CRÉDIT FONCIER 13 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY COMMERCIAL AND FINANCIAL ACTIVITY ❯ ECONOMIC ENVIRONMENT ■ POSITIVE GLOBAL INDICATORS ■ ENCOURAGING PROSPECTS The improvement in international economic conditions is expected to continue in 2015, with GDP growth that is projected to reach 2.8% in 2015, compared to 2.6% in 2014(4). This improvement is expected to favour mature economies due to a confluence of positive factors, especially the sharp drop in oil prices that began in 2014 and the accommodative monetary policies of the major central banks. Nevertheless, some factors may negatively impact the performance of emerging countries, which will have to take steps such as dealing with the decline in income due to commodities prices. The global economy should continue to benefit from low energy prices in 2015. Furthermore, the monetary policies of the central banks are expected to remain accommodating, although the US Federal Reserve could start gradually raising its key interest rates between now and the end of the year if it believes that the economic recovery in the United States is sufficiently robust. As for developed economies, the recovery appears to be the strongest in the United States. The economic slump in the first quarter appears to be the result of a combination of unusual factors (harsh winter, disrupted port operations and lower investment in the energy sector), the effects of which are not expected to last through 2015. Furthermore, other indicators confirm the strong performance of the US economy, such as the dollar’s 15% appreciation between March 2014 and March 2015(4). The first downside risk stems from greater exchange rates volatility, especially against the dollar, primarily due to the combined impact of the decline in oil prices and the recovery of the US economy. Japan is expected to derive further benefit from the effects of reforms initiated in 2014 and from the worldwide decline in energy prices. Last, the economic recovery is also confirmed in eurozone, which is enjoying the benefits of lower oil prices and favourable financial conditions. The asset purchase programme launched by the ECB in 2014 will continue into 2015 with the same goals: reviving private investment and restoring inflation to a level in line with the ECB’s objectives of price stability(5). Meanwhile, France is also expected to fully benefit from low oil prices and the ECB’s monetary policy stance as well as the gradual implementation of economic reforms. As a result, the International Monetary Fund(5) and the Banque de France are forecasting 1.2% growth for 2015(6). (4) World Bank, Global economic prospects, June 2015. (5) International Monetary Fund, World Economic Outlook, April 2015. (6) Banque de France, Macroeconomic Projections for France, June 2015. 14 2015 Half-Year financial report CRÉDIT FONCIER ■ A FEW REMAINING DOWNSIDE RISKS The second downside risk is still linked to the geopolitical context and the various trouble spots, the most important of which is Greece, whose potential exit from the eurozone could have a serious impact on the markets. In July, under the agreement reached with its creditors, the Greek government received an additional €7bn in funding to allow it to meet its repayment obligations to the IMF and the European Central Bank. This agreement also resulted in the introduction of economic reforms that should reassure the financial markets. The last of the downside risks is posed by China, which has had to deal with an economic slowdown and severe turbulence on its financial markets, forcing the authorities to repeatedly intervene. CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY 1 ❯ COMMERCIAL ACTIVITY ■ INDIVIDUAL CUSTOMERS After a lacklustre 2014, the real estate environment looks more favourable in 2015, although a few worrisome signs persist, mainly in the new property segment. Interest rates on real estate loans remained low throughout the 1st half of the year. They set a new record low of 1.99% on average in June, all maturities included(7). Combined with price erosion, this decline in interest rates revived demand for real estate loans in the 1st half of 2015. This includes demand from new customers tempted to buy a home and mortgage holders seeking to refinance their current loans. Furthermore, government initiatives introduced on October 1, 2014, especially those focused on loans for low-income families, have encouraged first-time buyers. In this more positive context, the volume of real estate loan production for 2015 is expected to total €138bn compared to €120bn in 2014(8). FRENCH REAL ESTATE MARKETS RESIDENTIAL REAL ESTATE MARKET The new property segment Since the 2015 Budget Act and the introduction of various stimulus measures, the new property segment is gradually recovering. In the real estate development sector, the builders’ efforts with regard to selling prices have softened the impact of higher building costs associated with new building codes. As a result, new property transactions appear to be on the rise once more and developers are back in the black. At the end of March, year-on-year sales stood at 89,616 units, up 0.7% relative to 2014. This upswing in sales confirms the recovery that began in the autumn of 2014 and is reflected in a 4.3% decline in available-for-sale inventories over the first quarter of 2015(9). However, this improvement still has not been carried over into construction: the numbers of issued building permits and housing starts are still declining. Although both of these indicators remain in the red, the situation has somewhat improved over the past twelve months. At the end of May 2015, the total number of building permits issued over 12 months stands at 362,000, i.e. a drop of 6.1% relative to the end of May, 2014. Similarly, the number of housing starts fell by 3.4% to 346,800 units(10). Meanwhile, the prices are stable: in the first quarter of 2015, apartments were selling at €3,845 per square meter compared to €3,858 in the first quarter of 2014. The houses prices fell by 1.6% in one year(9). Existing property As for the existing property market, a recovery is long overdue. At the end of May 2015, the number of transactions completed over a rolling 12-month period was estimated at 711,000, down by 4% relative to May 2014. However, over the last three months a recovery has been noticeable, reflected in a 3% increase in transactions relative to January 2015(11). There has also been a recovery in existing property prices, which rose in the first quarter of 2015, increasing by 0.3% relative to the previous quarter(12). REAL ESTATE LENDING MARKET IN FRANCE 2015 got off to a dynamic start as the real estate markets were bolstered by the improvement in the macroeconomic picture and the ongoing decline in prices. Continuing low interest rates fuelled keener competition among the different market players, as well as increasing the number of loans being renegotiated. In line with the ongoing drop in 10-year French OAT yields, rates reached all-time lows during the year. The ideal financing conditions attracted a few segments of the population who had previously left the homebuyers’ market, particularly young couples. In May, however, tension arose on the bond market, caused primarily by concerns over Greece, and the benchmark 10-year OAT rate was pushed higher. As a result, a slight uptrend in real estate loan rates was seen in late May 2015. These rates are expected to keep increasing gradually until the end of the year. CRÉDIT FONCIER’S ACTIVITY IN THE FIRST HALF OF 2015 ORGANISATION The deployment of the revamped point of sale design, scheduled to take place over a five-year period, is continuing. In the 1st half of the year, 11 more points of sale were upgraded, bringing the total number of refurbished points of sale to around 60 since the launch of the programme. Twenty more points of sale are scheduled to be upgraded in 2015. By allowing the fast transmission of contacts via e-mail and text, the “Foncier IMMO” web app, which was designed for the bank’s partners, demonstrates the importance Crédit Foncier assigns to developing new technologies that make the customer experience simpler and smoother. The Foncier IMMO app update made changes and added features demanded by users. This resulted in an unquestionable increase in use: on June 30, 2015, 1,700 partners were regularly using Foncier IMMO, with 300 to 400 logins per week. (7) Observatoire Crédit Logement/CSA – June 2015. (8) Crédit Foncier, The housing market in mid-2015. (9) French Ministry of Ecology, Sustainable Development and Energy, Observation and Statistics department (Service de l’observation et des statistiques), No. 642 – May 2015. (10) Crédit Foncier Immobilier SOeS, Sit@del2, June 2015. (11) Notaires de France, Note de Conjoncture, N° 28 – July 2015. (12) Crédit Foncier Immobilier/Notaires IDF/Notaires de France – July 2015. 2015 Half-Year financial report CRÉDIT FONCIER 15 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY PRODUCT RANGE Loan production breakdown in the first half of 2015: Crédit Foncier and GrDF (Gaz réseau Distribution France) have partnered to launch the DUO GrDF loan for new homes built with a natural gas heating system. ❯ By distribution channel DUO GrDF is a fixed-rate €10,000 loan at an attractive rate thanks to funding from GrDF. It is available only for the construction of singlefamily homes meeting the criteria imposed by Standard RT 2012. They must be intended for use as a primary residence and be located in continental France in areas served by a natural gas distribution network. 1% 3% Foncier Direct online Belgium 4% 2% Foncier Patrimoine Crédit Foncier Travaux 19% COMMUNICATION Exclusive agents Crédit Foncier launched a new three-week television campaign in January to support the momentum of loan production in 2015. The purpose of the campaign was to strongly reaffirm the bank’s specialist positioning as a provider of property financing and distinguish it from its rivals in the real estate market. It did so by communicating widely to the general public about how to make their property ownership dreams come true. A second advertising campaign took place from March 30 to May 4 on television and over the Internet, accompanied by a new advertising poster rolled out across the points of sale network. Crédit Foncier also improved its outreach to partners through the creation of a monthly newsletter. Published in the form of a short summary, this targeted communication is primarily based on a new socio-behavioural survey of Crédit Foncier customers that identified 17 home purchaser profiles over three market segments (first-time buyers, buyers with a property to sell and investors). 71% Points of sale ❯ By market 31% New property ownership 12% Rental investment - new construction 2% Renovation 17% INDIVIDUAL CUSTOMERS: LOAN PRODUCTION On June 30, 2015, the volume of loan production was well above the volume at June 30, 2014. Total new loans distributed were up 30% and amounted to €3,954m on June 30, 2015 compared to €3,048m on June 30, 2014. Despite keener competition, Crédit Foncier remains in the lead for the low-income segment, with 40% market share in loans to low-income families (PAS). Total new PAS loans distributed amounted to €1,430m, i.e. an increase of 22% relative to the same period in 2014(13). Interest-free loans were up by 14% to €83m, i.e. 25% market share in the first quarter of 2015(13). As for synergies with banks in the Groupe BPCE network, loan production continues to grow. The volume generated in the first half of the year was more than two times higher than that for the 1st half of 2014, with cumulative new loans distributed amounting to €163m on June 30, 2015, compared to €70m on June 30, 2014. Misc. Incl. Belgium 2% Rental investment existing property 36% Existing property ownership OUTLOOK FOR 2015 THE REAL ESTATE MARKET 2015 is expected to be a dynamic year, with brisk competition and sustained commercial pressure on interest rates. Consumer sentiment is at its highest since January 2010(14). But economic conditions and changes in the purchasing power of households are the warning signs undermining the recovery and preventing the market from fully taking off. The appreciation of 10-year OAT bonds marks the end of 18 months of virtually uninterrupted decline. The interest rate on real estate loans could rise over the next few months but no sharp increase is expected thanks to the European Central Bank’s asset purchase programme. Borrowers will not feel the effects of higher interest rates immediately, as they should rise only gradually. (13) Source SGFGAS – Data at mid-June 2015 for PAS and data of first quarter 2015 for PTZ. (14) INSEE, Monthly consumer confidence survey – April 28, 2015: The indicator has climbed to 94 and is improving for the third consecutive month. 16 2015 Half-Year financial report CRÉDIT FONCIER CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY In light of the low rates, most market participants have experienced a sharp increase in early repayments and requests for re-financing over the 1st half of 2015. This trend is expected to continue throughout the remainder of 2015. Crédit Foncier is being affected by this trend, especially for older generations of loans granted at higher interest rates. These conditions could restore some movement to the market. More housing starts are hoped for by the end of the year. The effects of support measures for housing under the Pinel Act should prevent new property sales from sliding as they did in 2014, and provide support for the mild recovery that began in the 1st quarter of 2015. There are signs of an improvement in the existing market as well. 1 Thanks to the synergies with the BPCE’s regional banks that began in 2012, cooperation should be maximised this year, supported by the structure set up jointly with the Groupe BPCE branches. SUMMARY ACTIVITY WITH INDIVIDUALS (in €m) Loan production* * First-half 2015 First-half 2014 3,994 3,083 Including Banco Primus : €34m as of June 30, 2014 and €40m as of June 30,2015. CRÉDIT FONCIER Between now and the end of the year, Crédit Foncier plans to seize the opportunities emerging from the economic environment to consolidate its loan production for individuals. Accordingly, Crédit Foncier has placed the emphasis on new ways of communicating with its clients and business partners, primarily digital and real time communication, to increase reliability and speed in order to maintain its high quality of service and the current turnaround time for loan applications. As the top specialised institution on the market, the bank must deliver solutions reflecting its expertise and setting it apart from its rivals. 06/30/2015 12/31/2014 Outstandings at end of period 50,795 50,996 Direct loans to individuals 50,629 50,794 166 202 (in €m) Residential mortgagebacked securities in Europe (outstanding) 2015 Half-Year financial report CRÉDIT FONCIER 17 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY ■ REAL ESTATE INVESTORS AND PUBLIC SECTOR ENTITIES In the first six months of 2015, the investment policies of economic stakeholders differed and were strongly correlated to the type of stakeholder: public or private. The property development market has seen a slight rebound but it remains weak due to the difficulties encountered with launching new programmes. It is mainly being buoyed by the rental investment market (Pinel Act): sales are up by 59.4% compared to the first quarter of 2014. The commercial real estate investment market is suffering due to the lack of high-quality supply. After a very dynamic first quarter, with €4.6bn in committed loans, activity in the second quarter stalled despite ample liquidity on the market and a real estate risk premium that is still competitive. As to the leasing market, it recovered in the second quarter without, however, making up for the weakness of the first quarter. As a result, the market is down INVESTMENTS IN PUBLIC SECTOR ENTITIES SOCIAL HOUSING The market in the first half of 2015 Housing production is an ongoing concern for public authorities. The long-term objective remains the construction of 150,000 social housing units per year. In 2014 and early 2015, public authorities took some measures to promote the construction of new social housing units and the renovation of the existing supply. These measures and resources include: ❯ a 25-year extension of the property tax exemption on constructed property (TFBF)(15); ❯ the maintenance of brick-and-mortar subsidies at a level appropriate by 22% compared to the same period last year. The gulf between the investment market and the rental market continues to widen. The project financing market is going through a transitional phase owing to legislative developments (European directives and the Ordinance on Public Procurement). Today’s market is concentrated on the projects of local authorities. Large government projects (high-speed railway lines, etc.), which once accounted for a significant share of the volume have now disappeared. This year, during which the 2015 Paris Climate Conference (COP 21) is being held, players in the social housing market are getting ready to play a full role in the energy transition. For the second consecutive year, investments by local authorities are expected to fall owing to the combined effects of reduced government subsidies and lower gross savings capacities. Crédit Foncier’s activity in the first half of 2015 Alongside the entities of Groupe BPCE, Crédit Foncier supports actors in the social housing segment. It intervenes directly by financing programmes promoting low-cost home ownership (PSLA(16)), intensive rehabilitation projects and portfolio buy-back transactions. Crédit Foncier continues to intervene in social housing rental programmes as a service provider to Groupe BPCE. The expertise of Crédit Foncier’s teams enables it to help its customers with managing their outstanding debt by providing them with solutions to take advantage of lower interest rates. LOAN PRODUCTION IN THE FIRST HALF OF 2015 ❯ by customer 11% to the needs of production: €400m for 2015(15); EPLs* ❯ impetus for a large-scale social housing renovation plan over a three-year period by extending the agreement pooling landlord resources for homebuilders and renovators until 2018 (agreement signed on August 22, 2014 between the State and the Union sociale pour l’habitat). Under this agreement, all social housing landlords will be required to contribute to a fund that will later redistribute the funds in the form of premiums to homebuilder and renovator associations each time a housing unit meeting specific criteria is built or renovated. In all, €750m will be used over three years(15); 4% Local authorities 85% Social housing landlords ❯ since January 1, 2015, the stiffer penalties under the Urban Solidarity and Renewal Act (SRU) are being enforced and prefects are authorised to issue building permits in communities that fail to honour their obligations; *EPL (Entreprises Publiques Locales): Public local companies ❯ mobilisation of institutional investors to finance the construction of middle-income housing (construction target of 25,000 units over the next five years); ❯ maintaining measures supporting the construction of “very low-cost social housing units”. (15) Ministry of Housing, Agenda 2015-2018 between the French State and the Union for Social Housing (Union sociale pour l’habitat). (16) Lease-to-own loans. 18 2015 Half-Year financial report CRÉDIT FONCIER CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY FRENCH LOCAL AUTHORITIES PROJECT AND INFRASTRUCTURE FINANCING The market in the first half of 2015 The market in the first half of 2015 2015 is another election year (departments and regions), and, of particular note, they are the first elections following the French territorial reforms announced in June. Above all, 2015 is a year of a further decline in transfers from the State to local authorities (down by €3.67bn). This drop was only partially offset by higher revenue thanks to the use of taxes, especially by local governments. This combination of factors has caused a reduction in gross savings by local governments for the fourth consecutive year (down 5.4%)(17). To create some leeway, local governments must cut their spending. The lack of elasticity in the structure of public accounts means that the investment line item will now become an adjustment variable. Overall, investments by local authorities are expected to decline by 7.3% in 2015 (a decrease of €3.9bn) and, for the first time since 2006, will slip below the threshold of €50bn(17). The project and infrastructure financing market can be divided into two segments: This reduction in investment will lead to a drop in the demand for loans. The volume of new loans, excluding re-financing, is expected to fall further to €19.7bn in 2015 (-2.1%)(17). Whether to take out new loans or to refinance existing ones, local governments have a favourable economic environment in which to act: ample liquidity, multiple lenders and low interest rates. Local governments are still seeking new ways to create some financial leeway. In this respect, managing the assets of local authorities is becoming more pressing since the start of 2015. Some local authorities have embarked on a programme to centralise the management of their assets. Crédit Foncier’s activity in the first half of 2015 In this environment of fewer public tenders, Crédit Foncier is putting all its expertise to work to help Groupe BPCE meet the needs of its customers. New loan production in the first half of 2015 reflects the changing demands and investment policies at the various levels of government. As a result, the percentage of departments seeking new loans fell from 33.0% in the first half of 2014 to 28.8% in the 1st half of 2015. Meanwhile, the percentage of new loans made to hospitals is marginal at best. LOAN PRODUCTION ❯ by type of customer 1% 2% Hospitals Other 40% EPCI* 28% Municipalities 1 ❯ the financing of projects sponsored or backed by public authorities; ❯ the financing of wholly private projects. For projects backed by public authorities, which means that the financial burden is ultimately borne by a local authority, 2015 was a year of transition. The market is currently undergoing substantial change, not only at the legislative level, but at the project category level. The enactment of three European directives into French law (the directive on Public Procurement in the Water, Energy and Transport Sectors, the directive on Public Procurement and the directive on the Award of Concession Contracts) as well as the Ordinance on Public Procurement are going to change the legislative framework for PublicPrivate Partnership agreements. These contracts will be either be refocused on the most legally and technically complex transactions, or arranged with project companies with which the local authorities have partnered. At the same time, the public service delegation in the form of a concession has its supporters, notably for distribution networks: water, electricity, heating/cooling and high speed Internet. With respect to project category, projects sponsored by the State have virtually disappeared, which has produced a consequent decline in market volume since each year one or two projects such as high-speed railway lines accounted for an important part of the volume. As for projects sponsored by local authorities and financed by Crédit Foncier, the decline has been held at about 30% compared to the “good years”, namely 2008-2010. In connection with the energy transition, new types of private projects are emerging. Crédit Foncier’s activity in the first half of 2015 Crédit Foncier’s activity in the first half of 2015 reflects the ongoing transition as demand for financing has increasingly less to do with traditional Public-Private Partnership arrangements and more to do with hybrid arrangements, such as semi-public companies possessing a single corporate purpose (SEMOP)(18) or Public Service Concession (DSP) agreements(19). Moreover, ensuing elections and the implementation of territorial reforms have contributed to delays in the completion of some projects. The expertise of Crédit Foncier’s teams is helping it to adapt to changing demands related to both legal arrangements and the types of projects. Consequently, Crédit Foncier has agreed to finance projects under arrangements involving a emphyteutic lease (BEA)(20), sponsored by an SPV(21) or a SEMOP. 29% Department *EPCI (Établissement Public de Coopération Intercommunale): Inter-municipal cooperative bodies (17) Sectoral Report: Local Finances, 2015 Trends – La Banque Postale – May 2015. (18) SEMOP (Société d’économie mixte à opération unique): Single transaction semi-public company. (19) DSP (Délégation de service public): Public service delegation contract. (20) BEA (Bail emphytéotique administratif): Administrative perpetual lease. (21) SPV: Special purpose vehicle. 2015 Half-Year financial report CRÉDIT FONCIER 19 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY REAL ESTATE INVESTORS AND PROFESSIONALS Commercial real estate investment market in the first half of 2015 After getting off to a good start in the first quarter with commitments amounting to €4.6bn, the market stalled in the second quarter. Overall, nearly €7bn was invested in the first quarter, translating into a 33% drop compared to the same period last year(22). The main features of the investment market in the first half of the year were: ❯ 77% of all investments were made in Ile-de-France(23); ❯ 66% in office space, 21% in retail space and 5% in logistical facilities(23); ❯ in Ile-de-France, a decline in transactions of more than €100m and the levelling off of the number of transactions in the range of €50m to €100m(22); ❯ 57% of all investments were made by French investors(22); ❯ continued domination by stakeholders with ample equity (insurance companies and mutual insurers, sovereign funds, SCPIs, and OPCIs for retail investors). Considering the volumes currently in the process of negotiation, the 2nd half of the year is expected to be particularly active; for Ile-deFrance, volume is projected to reach €15bn(22). It is also clear that, in order to address the scarcity of high-quality supply, unsecured transactions are taking place. To date, 15 transactions are in progress, all of which were initiated by institutional investors(22). The office space leasing market is still struggling. The first quarter was troubled and the recovery in sales during the second quarter was unable to offset the lag. There was a 22% decline year-on-year. As in 2014, the large-scale transactions segment (for properties >5,000 m2) was the hardest hit. Transactions on medium-sized properties (1,000 – 5,000 m2) also fell (down 7%). Only small properties performed well (up 10%). This segment represents 40% of the space sold in the first six months of the year(22). In terms of location, one out of every two square metres sold was in Paris. Relocation to central districts or established neighbourhoods was facilitated by the drop in prices. Commercial property, shopping centres, street level shops and retail parks continued to attract investors, most of them French. The first half of the year was marked by two landmark transactions: the sale of 50% of Qwartz (Villeneuve-La-Garenne) and the sale of Nicetoile. Pentup demand associated with the lack of high quality supply negatively impacted rates of return, which are less than 4% for core properties(24). (22) Source: JLL/Immostat. (23) Source: CFI July 2015. (24) BNP Paribas Real Estate: Let’s talk retail – June 2015. 20 2015 Half-Year financial report CRÉDIT FONCIER The logistical facilities market is following a trend somewhat opposite to that of office space, with a decline in investment of 23% over one year (nearly €500m invested) and a rise of 9% in leased square metres. The market was driven by grey market transactions put together on behalf of mass market retailers. The financing market is being impacted by the characteristics of the investment market: fewer transactions, the dominant position of equityrich stakeholders and high prices for core property. Today, an important share of all transactions is concluded without recourse to debt. This situation is increasing the competition between lenders to finance new transactions. Simultaneously, exceedingly low interest rates are prompting investors to restructure their long-term debt and lengthen the term of their loans. Crédit Foncier’s activity in the first half of 2015 Crédit Foncier’s activity in the first half of 2015 reflects changes in the market while being negatively impacted by the dual effects of the decline in recourse to bank loans by the most dynamic stakeholders and the lower number of transactions. As a result, few financing deals were signed but the number of transactions in the pipeline points to a substantial increase in new loan production in the third quarter. Crédit Foncier’s extensive experience on the commercial real estate investment market helps it support its customers, especially with their debt management strategy. Through its Locindus subsidiary, Crédit Foncier has been able offer financing solutions in the form of mortgages or long-term lease financing. SOCFIM is a Crédit Foncier subsidiary specialised in providing shortterm financing to real estate professionals. In 2015, SOCFIM benefited when the Pinel Act entered into effect, reviving sales. However, market operators are struggling to launch new programmes due to delays in obtaining government authorisations. The total volume of transactions recorded over the first six months of 2015 stands at €505m. After syndication operations, SOCFIM’s cumulative production stood at €349m on June 30, 2015. Outlook for 2015 Commercial real estate investment is expected to approach the volume achieved in 2014, namely €22bn. In fact, volume will continue to be fuelled by ample liquidity, an attractive real estate premium and the stability of the French market. Institutional investors, both French and foreign, will most likely remain the most active stakeholders. As for the rental market, the slowdown early in the year will be difficult to offset and the volume of rented space in Ile-de-France should amount to approximately 1.9 million m2, down relative to 2014. CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY SUMMARY First-half 2015 First-half 2014 Loan production 806 1,257 Public sector 380 411 French Local Authorities 203 301 Social housing 177 110 (in €m) o/w: Private sector* * 06/30/2015 12/31/2014 Outstanding at end of period 49,677 50,590 Public sector 41,774 42,485 18,442 18,833 8,142 8,194 15,190 15,458 7,903 8,105 (in €m) Business with real estate investors and public sector entities o/w: French Local Authorities Social housing 426 Including SOCFIM: €487m as of June 30, 2014 and €349m as of June 30, 2015. 846 1 International public and sovereign sector* Private sector (France and international) * Of which sovereign France. 2015 Half-Year financial report CRÉDIT FONCIER 21 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY ■ REAL ESTATE SERVICES COMPANIES In March 2015, Crédit Foncier’s real estate subsidiary combined all of its brands under one banner, Crédit Foncier Immobilier. This simplification made it easier for both its external customers and internal Groupe BPCE customers to understand its range of products. It also demonstrated that Crédit Foncier Immobilier is one of the leaders in real estate consulting in France. Meanwhile, Crédit Foncier Immobilier’s business activity was satisfactory, with revenues of €20.5m before retrocessions in the 1st half of 2015, up by 21% compared to the same period in 2014. CONSULTING AND VALUATION VALUATION With revenues of €8.30m net of retrocessions, Crédit Foncier Immobilier – Expertise saw strong activity in the 1st half, up by 18% compared to the 1st half of 2014. Work carried out on behalf of Crédit Foncier mainly involved valuation services related to lending to individuals. Externally, Valuation ensured its relationships with major customers would last over the long term. It won major bids for multi-year valuation of OPCI, SPCI, insurers and investment companies. BROKERAGE INVESTMENT The real estate market in Ile-de-France finished the 1st half at €5.4bn, down by 38% compared to 2014. This decline in volumes will likely be offset in the 2nd half due to major transactions of more than €600m that will sustain activity. Nonetheless, the market is currently experiencing a shortage of mid-sized deals (between €20m and €50m), a segment on which Crédit Foncier Immobilier is positioned. The Investment department (Capital Markets) carried out 9 transactions of €1.20m net of retrocessions and projected revenues amounted to €1.96m given upcoming deals, up by 67% compared to projected revenues for the 1st half of 2014. OFFICE SPACE In a persistently sluggish market where demand for office space in Ilede-France dropped by 22% in the 1st half of 2015 compared to 2014, and where the available supply exceeded the symbolic threshold of 4 million m2 in available space (equivalent to more than two years’ worth of sales activity), the Office Leasing department was in line with the target set at the start of the year, with revenues of €220,000 net of retrocessions at the end of June and projected revenues of €281,000, up by 7% compared to June 2014. RESIDENTIAL ESTIMATES (SEREXIM) The specialist in residential appraisals changed its trade name in March 2015, now operating under the name Crédit Foncier Immobilier – Estimation. Beating its production record in March with 3,021 assignments completed, it achieved revenues of €4.67m net of retrocessions in the 1st half. Crédit Foncier Immobilier – Estimation benefited from the context of very low banking interest rates, which spurred the market for mortgage refinancing and debt restructuring, bolstering its development. Production on behalf of Crédit Foncier remained strong. CONSULTING AND AUDIT The Consulting & Audit department continued to develop with revenues of €1.27m and projected revenues(25) of €1.79m, up by 16% compared to the same period in 2014. Project management assistance represents a major share of revenues, but the number of fixed asset repositioning and even real estate master planning assignments is increasing rapidly. At the same time, the department made proposals on 85 assignments over the period, which suggests a high level of future activity. RESEARCH The activities of Crédit Foncier Immobilier’s Research department generated revenues of €402,000, net of retrocessions. The department is currently rolling out a new service providing residential property market prices for institutional investors, banks and local authorities. New real estate activity saw a sustained pace of reservations in the 1st half (254 reservations made), with a 14% increase compared to June 2014. At the same time, the rollout of this range of products in Groupe BPCE is beginning to bear fruit, accounting for 14% of overall reservations recorded in the 1st half of 2015. Meanwhile, the existing property business was characterised by promesses de vente being signed at a much faster pace than in 2014, with 181 deals signed in the first six months of 2015. The market is more dynamic in a context of continued low interest rates that are undeniably encouraging this recovery. Note that the successful launch of the Avenue de Messine in the 8th arrondissement of Paris, with 27% of units rented since it was launched in January 2015. For the both, new homes and existing property, the challenge is to replenish inventory, particularly of smaller units, which are in high demand. For new builds, revenues net of retrocessions were €970,000 in the 1st half of the year and €2.79m when taking signed promesses de vente into account. This is up by 9% compared to the 1st half of 2014. For existing property, this amounted to €965,000 (€2.13m projected) and, for Millesime, Crédit Foncier Immobilier’s high-end branch, it amounted to €362,000 (€453,000 projected), bringing revenues net of retrocessions for the entire department to €2.30m for the 1st half of 2015. PROPERTY MANAGEMENT At the end of June, the Leasing department leased 247 properties, or 40 leases per month, bringing in €244,000 in revenues net of retrocessions. The first open house for the Caisse des dépôts project located on Boulevard MacDonald in the 19th arrondissement of Paris (210 housing units leased) should show results in terms of fees by July. Once you add revenue from the lease management activity to the above items, the department generated €372,000 in revenues net of retrocessions in the 1st half. (25) Projected Revenues include orders, reservations and signed promesses de ventes (agreements to sell). 22 2015 Half-Year financial report CRÉDIT FONCIER CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY BANCO PRIMUS ACTIVITY Loans outstanding at June 30, 2015 break down as follows: Banco Primus distributes loans to individual customers in Portugal for the purchase of used cars and has managed its portfolios in run-off since the end of 2011 (mortgage loans in Portugal and Spain, car loans in Hungary). ❯ Active portfolio: Auto loan production in the first half of 2015 was €39.6m, up by 13% compared to the first half of 2014. Banco Primus’ share of the secondhand vehicle financing market in Portugal was 9.2% for the half-year. 1 €283m ❯ Run-off portfolio: €303m ❯ Total: €586m The active portfolio represents 48.3% of the total portfolio, versus 45.8% at June 30, 2014. The company had a Core Tier-1 ratio of 12.0% at June 30, 2015. Crédit Foncier owns 100% of Banco Primus equity and provides all of its refinancing. ❯ FINANCIAL OPERATIONS ■ MARKET CONTEXT In the first six months of the year, benchmark euro-denominated covered bond issuances reached €61bn, down by 11.6% compared to the same period in 2014(26). However, this level of supply remains in line with the €116.5bn projected for 2015 as a whole(27). The low supply is accentuated by the ECB’s continued intervention through its asset purchasing programme, the Covered Bond Purchase Programme (CBPP3), which began in October 2014 and is continuing in 2015. The overall amount of purchases under this programme at the end of June 2015 amounted to €95.0bn, of which €65bn was purchased in 2015 and 80% of which was purchased on the secondary market due to the limited supply on the primary market(28). ■ REVIEW OF TRANSACTIONS In this context, Compagnie de Financement Foncier raised €4.0bn in new funding, excluding non-recurring transactions, over the first half of 2015. This volume includes three benchmark issuances: a €1.0bn 10-year issuance carried out in January, a €1.0bn 5-year issuance carried out in February and a €1.5bn 3-year issuance made in June. In addition to this €4.0bn in funds raised, there were €0.6bn in issuances completed under bond buy-backs and €0.8bn in issuances subscribed for by Vauban Mobilisations Garanties under intra-group investment transactions. All transactions were carried out with favourable interest rates and subscription volumes, once again demonstrating Compagnie de Financement Foncier’s ability to tailor its offer to investor demand. The volume and conditions of issuances completed at June 30, 2015 are in line with the groupe Crédit Foncier financing plan. ❯ 2015 breakdown by geographic area* 9% 2% Other Benelux 2% 7% Switzerland Asia 6% 10% UK Scandinavia 4% €4.0bn Japan 34% 26% France Germany * Excluding non-recurring transactions (buy-back and intra-group issuances) ❯ 2015 breakdown by investor type* 4% 2% Insurance companies 2% Other Pension funds 19% Asset managers 48% Central banks €4.0bn 25% Banks * Excluding non-recurring transactions (buy-back and intra-group issuances) (26) Natixis Research, Covered Bond Weekly, June 2015. (27) Natixis Research, Covered Bond Outlook, November 2014. (28) European Central Bank data. 2015 Half-Year financial report CRÉDIT FONCIER 23 CRÉDIT FONCIER IN THE FIRST HALF OF 2015 COMMERCIAL AND FINANCIAL ACTIVITY ■ INTERNATIONAL PORTFOLIO IN RUN-OFF 24 In May 2015, the Board of Directors of Crédit Foncier decided to accelerate its programme to dispose of its international positions. Financement Foncier, was the reason for a €142m provision recorded on the Group accounts at March 31, 2015. Following the disposal, this provision was completely reversed and a loss of €103.7m was recorded. In this context, the disposal of international positions by groupe Crédit Foncier amounted to €1,300.5m in the 1st half of the year. The disposals of other international positions over the half-year (€1,040.5m), for their part, led to a recorded loss of €15.7m. This amount includes the June sale of its entire stake in Heta Asset Resolution AG. This position, which represented a nominal amount of €260m on the balance sheet of its subsidiary Compagnie de As of June 30, 2015, this portfolio no longer includes any exposure to Austria, Germany, Cyprus or Slovakia. 2015 Half-Year financial report CRÉDIT FONCIER 2 RISK MANAGEMENT INTRODUCTION – GENERAL RISKS OF GROUPE CRÉDIT FONCIER 2.8.1 2.8.3 2.8.4 2.8.5 CDOs and exposures to monoline insurers and other credit enhancers Exposures to Commercial Mortgage-Backed Securities (CMBS) Other subprime and Alt-A exposures (RMBS, loans, etc.) Special Purpose Entities (SPEs) Leveraged buyouts (LBOs) 2.9 MARKET RISKS 48 2.10 ALM RISKS 49 26 2.8.2 2.1 GENERAL ORGANISATION & METHODOLOGY 26 2.2 RISK FACTORS 26 2.3 PILLAR III 26 2.4 CAPITAL AND CAPITAL ADEQUACY RATIOS 2.4.1 2.4.2 2.4.3 2.4.4 Capital management Composition of prudential capital Capital requirements Solvency ratios 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES 27 27 27 28 30 2.10.1 2.10.2 2.10.3 2.10.4 2.10.5 2.11 2.5.1 2.5.2 Analysis of commitments Commitments by customer portfolio 31 31 36 2.6 ANALYSIS OF DELINQUENCIES 2.6.1 2.6.2 Delinquencies Cost of risk – Individuals and Corporates 40 2.7 RISK MITIGATION TECHNIQUES 2.7.1 2.7.2 2.7.3 2.7.4 Collateral valuation and management Main providers of credit protection Effect of credit risk mitigation techniques Off-balance sheet netting 2.8 RECOMMENDATIONS OF THE FINANCIAL STABILITY FORUM 43 40 40 2.11.1 2.11.2 2.11.3 2.11.4 2.11.5 2.11.6 2.11.7 2.11.8 41 41 41 42 42 Organisation and monitoring of ALM risks Methodology for assessing structural risks Liquidity risk monitoring Interest rate risk monitoring Foreign exchange risk monitoring OPERATING RISKS 43 45 46 46 46 49 49 50 51 52 53 General framework Governance Management environment Organisation of the Contingency and Business Continuity Plan (CBCP) IT risks Legal risks Insurance Other risks: caisse de retraite (Pension Fund) of Crédit Foncier for employees who joined the Group before March 1, 2000 53 53 53 53 54 54 55 55 2.12 BROKERAGE RISK 56 2.13 NON-COMPLIANCE RISK 56 2015 Half-Year financial report CRÉDIT FONCIER 25 RISK MANAGEMENT INTRODUCTION – GENERAL RISKS OF GROUPE CRÉDIT FONCIER INTRODUCTION – GENERAL RISKS OF GROUPE CRÉDIT FONCIER Groupe Crédit Foncier is potentially exposed to three types of risk: ❯ credit and counterparty risks: section 2.5; ❯ structural risks (liquidity risk, interest rate risk and foreign exchange risk): section 2.10; ❯ operating risks: section 2.11. The other risks to which groupe Crédit Foncier’s business lines are exposed are: ❯ brokerage risk: section 2.12; ❯ settlement and settlement-delivery risks: section 2.9; ❯ non-compliance risk: section 2.13. In contrast, groupe Crédit Foncier does not conduct any proprietary trading and therefore does not directly assume any market risk on its ordinary transactions other than ALM: section 2. 9 “Market risk”. 2.1 GENERAL ORGANISATION & METHODOLOGY The organisation of credit and counterparty risk management and the methods used to measure risk are described in detail in the 2014 Registration document (p. 101 to 107). 2.2 RISK FACTORS There has not been a material change in the risk factors of concern to groupe Crédit Foncier since the situation described in the 2014 Registration document (p. 108 to 111). 2.3 PILLAR III Regulatory supervision of capital is described in detail in the 2014 Registration document (p. 112). 26 2015 Half-Year financial report CRÉDIT FONCIER RISK MANAGEMENT 2.4 CAPITAL AND CAPITAL ADEQUACY RATIOS 2 2.4 CAPITAL AND CAPITAL ADEQUACY RATIOS ❯ 2.4.1 CAPITAL MANAGEMENT Capital management is described in detail in the 2014 Registration document (p. 113). ❯ 2.4.2 COMPOSITION OF PRUDENTIAL CAPITAL Prudential capital is determined in accordance with the European CRR Regulation, which is applicable as of January 1, 2014, in view of the national options specified by the French Prudential Supervisory and Resolution Authority (ACPR – Autorité de contrôle prudentiel et de résolution). It is broken down into three categories: Common Equity Tier One, Additional Tier One and Tier Two capital. 06/30/2015 12/31/2014 TOTAL PRUDENTIAL CAPITAL 3,282 3,607 Tier-1 capital 3,228 3,363 Common Equity Tier One (CET1) 3,032 3,139 Tier-1 capital instruments 1,732 1,732 Retained earnings 1,500 1,507 -324 -346 58 79 (in €m) Unrealised or deferred capital gains and losses Temporary adjustments related to minority interests Temporary adjustments related to prudential filters -35 -41 Goodwill receivables -43 -43 Other intangible assets -6 -6 Deferred tax assets dependent on future profits and resulting from temporary differences -1 -1 Deferred tax assets dependent on future profits and resulting from temporary differences (above 10% threshold) -758 -743 Other temporary adjustments to Common Equity Tier One capital 907 1,001 Additional Tier One capital (AT1) 196 224 Tier-2 capital (T2) 54 244 Tier-2 capital instruments (T2) 48 76 Collective provisions for credit risk 0 155 Other temporary adjustments to Tier-2 capital 6 13 2015 Half-Year financial report CRÉDIT FONCIER 27 RISK MANAGEMENT 2.4 CAPITAL AND CAPITAL ADEQUACY RATIOS ❯ 2.4.3 CAPITAL REQUIREMENTS Groupe Crédit Foncier calculates regulatory capital requirements for both credit risk and operating risk according to the standardised method under current regulations. Groupe Crédit Foncier is not subject to market risk disclosure rules. 06/30/2015 (in €m) Capital requirement RWA Capital requirement RWA 2,590 32,376 2,609 32,617 74 922 75 936 Requirements for credit risk (A) Public administrations Institutions 43 542 44 553 Regional administrations 458 5,731 463 5,793 Corporates 360 4,495 373 4,667 Retail customers 144 1,802 141 1,760 1,257 15,711 1,286 16,072 173 2,157 165 2,063 23 286 24 300 3 34 0 0 Securitisations 20 244 6 78 Other assets 36 451 32 394 0 0 0 0 Total requirements for operating risk (C) 82 1,023 82 1,023 Exposure related to LCH default fund (D) 2 28 0 0 Mortgage-backed exposures Exposures at default Equities High-risk exposures Market risk-weighted exposures (B) Credit value adjustment (E) CAPITAL REQUIREMENTS (A)+(B)+(C)+(D)+(E) Under COREP, calculated in accordance with CRR since January 1, 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 June 30, 2015, 45.5% of these capital requirements were linked to mortgage-backed exposures and 34.8% represented requirements on corporates, retail customers and regional administrations. 28 12/31/2014 2015 Half-Year financial report CRÉDIT FONCIER 90 1,121 97 1,213 2,764 34,548 2,788 34,854 The average credit risk weighting (excluding the “other assets” class) is 26.5%, reflecting the low level of risk of groupe Crédit Foncier’s portfolio of loans, with most loans backed by mortgages or sureties and financial guarantees. RISK MANAGEMENT 2.4 CAPITAL AND CAPITAL ADEQUACY RATIOS 2 ❯ Credit risk-weighted exposures with breakdown of VaR according to Basel III regulatory weightings (in €m) At 06/30/2015 Public administrations and central banks Institutions Regional MortgageadminisRetail backed trations Corporates customers(2) exposures Exposures High-risk Securitisaat default Equities exposures tions Total Net exposure(1) (on-and off-balance sheet) 19,788 17,817 31,655 6,001 2,411 40,304 2,110 279 23 143 120,530 Value at risk(3) 19,788 17,765 31,655 5,997 2,411 40,304 2,092 331 23 143 120,510 18 40,934 Weighted assets Weighting after taking into account the credit risk mitigation technique 0% 18,877 16,104 2% 178 5,927 9 - 178 4 52 4 10% - - 15% - - 26,438 5,288 34,709 12,148 6,194 3,097 5,461 4,096 5,795 5,795 7% 20% 52 418 677 23,884 1,433 12 34,697 198 806 1,683 877 2,544 0 105 3,468 2 198 35% 50% 75% 2,411 100% 150% 250% 26 52 33 3,050 12 1,964 246 128 296 23 0 350% 1,250% Other transactions Total value at risk 33 19,788 17,765 Total weighted value at risk 922 Average weighting 5% 352 528 296 741 - - 16 16 205 50 83 31 31,936 31,655 5,997 2,411 40,304 2,092 331 23 143 120,510 542 5,731 4,495 1,808 15,716 2,157 286 35 245 31,936 3% 18% 75% 75% 39% 103% 86% 150% 171% 27% Other non-credit obligation assets 451 Operating risk weighted exposure 1,023 Exposure related to LCH default fund Credit value adjustment TOTAL WEIGHTED EXPOSURE(4) 28 1,121 34,560 (1) Source: COREP, June 30, 2015, based on a presentation that is structured slightly differently than the presentation of overall credit risk exposure under IFRS 7. (2) The Basel “Retail customers” classification consists mainly of Individuals and Professionals (craftsmen, small retailers, self-employed professionals) and Associations. (3) Value at risk corresponds to on- and off-balance sheet items to which a credit conversion factor is applied. (4) Weighted exposure before applying the credit risk factor associated with SMEs. 2015 Half-Year financial report CRÉDIT FONCIER 29 RISK MANAGEMENT 2.4 CAPITAL AND CAPITAL ADEQUACY RATIOS ❯ 2.4.4 SOLVENCY RATIOS At June 30, 2015, the solvency ratio(1) was 9.5% and the Common Equity Tier One (CET1) ratio was 8.8% The Tier-1 ratio was 9.3%. (1) Basel II Regulation, standard approach, pillar 2. 30 2015 Half-Year financial report CRÉDIT FONCIER RISK MANAGEMENT 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES 2 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES Unless otherwise mentioned, the data shown in the tables and charts in this section are management figures matching accounting data, balance sheet commitments (excluding signed commitments and financial guarantees given) representing the overall exposure to credit risk under IFRS consolidated gross figures (performing and nonperforming). ❯ 2.5.1 ANALYSIS OF COMMITMENTS In the interest of clarity and consistency, since the closing of the 2008 exercise Crédit Foncier has chosen to unify the disclosures provided under IFRS 7, Pillar 3 of Basel III (European CRR Regulation). The risk management disclosures required under this framework and the capital disclosures required by amendment IAS 1 form an integral part of the financial statements reviewed by the Statutory Auditors (with the exception of disclosures indicated as “unaudited”). ■ 2.5.1.1 OVERALL CREDIT RISK EXPOSURE (IFRS 7 SUMMARY) OVERALL NET CREDIT RISK EXPOSURE The table below shows all of groupe Crédit Foncier’s exposures, including financial guarantees given and signed commitments, net of provisions for impairment. (in €m) Consolidated contribution (1) Overall net credit risk exposure 06/30/2015 12/31/2014 127,408 131,478 Central banks(2) 1,973 1,200 Financial assets at fair value through profit or loss (excl. variable-income securities) 2,896 2,967 Hedging derivatives(3) 7,913 8,366 Available-for-sale financial assets (excl. variable-income securities) 2,430 3,240 Interbank transactions 12,156 13,332 Customer transactions 92,582 94,226 136 136 Held-to-maturity financial assets Sub-total (excluding financial guarantees given and signed commitments) 120,086 123,467 Financial guarantees given 1,091 1,102 Signed commitments 6,231 6,909 See note 7.1.2 to the Consolidated financial statements at 12/31/2014 and note 4.7.3 to the Consolidated financial statements at 06/30/2015 (1) Net outstandings after impairment. (2) Exposure to demand deposits with central banks has been included in the credit risk financial statement since June 30, 2013. (3) Amounts offset under liabilities (see the consolidated financial statements). 2015 Half-Year financial report CRÉDIT FONCIER 31 RISK MANAGEMENT 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES OVERALL GROSS CREDIT RISK EXPOSURE The following table shows all of groupe Crédit Foncier’s IFRS exposures at June 30, 2015 and at December 31, 2014, before impairment, including financial guarantees given and signed commitments. 06/30/2015 12/31/2014 Change June 2015/Dec. 2014 OVERALL GROSS CREDIT RISK EXPOSURE 128,412 132,449 -3.0% of which excl. financial guarantees given and signed commitments(2) 121,063 124,411 -2.7% 100,472 101,586 -1.1% 50,795 50,996 -0.4% 50,629 50,794 -0.3% (in €m) (1) (2) Of which outstanding customer loans ❯ RETAIL(2) (a) of which outstanding direct loans (France and Europe) of which exposures backed by residential mortgage-backed securities (RMBS) in Europe(3) 166 202 -17.6% ❯ CORPORATES, PUBLIC AND PRIVATE SECTOR 49,677 50,590 -1.8% Public sector corporates(2) (b) 41,774 42,485 -1.7% of which direct loans to the French public sector of which French Local Authorities (FLA) of which social housing of which direct loans and commitments on International public sector and sovereigns of which French sovereigns 26,584 27,027 -1.6% 18,442 18,833 -2.1% 8,142 8,194 -0.6% 15,190 15,458 -1.7% 3,802 3,441 10.5% 11,388 12,017 -5.2% Private sector corporates 7,903 8,105 -2.5% of which direct loans and commitments 7,845 8,040 -2.4% 58 65 -11.0% 20,591 22,825 -9.8% of which International (2) (c) of which Commercial Mortgage-Backed Securities (CMBS) Of which banks and others(2) (d) (1) Gross outstandings before impairment, excluding reverse mortgages €682m. (2) Management figures adjusted to accounting data. (a), (b), (c), (d): The relative weight in percentage terms is illustrated on the following page. (3) Including exposures related to the Elise mutual fund and CFHL-1 2014. Under groupe Crédit Foncier’s strategic plan, the major strategies are the cessation of international activities and balance sheet deleveraging. Accordingly, exposures were down by 3% to €128.4bn during the 1st half of 2015, following a 10% decrease in 2014 to €132.4bn. The decrease is essentially due to the reduction in exposures to banks backed by guarantees from sovereign or quasi-sovereign institutions and related to disposal transactions during the half-year period through securities issued by German and Austrian Landesbanken. 32 2015 Half-Year financial report CRÉDIT FONCIER Furthermore, ongoing disposals as part of run-off activities resulted in a reduction in exposure (€0.2bn) to International Public Sector Financing (IPF). Exposure to French Local Authorities declined by -2.1% during the 1st half of 2015. The retail loan portfolio also underwent a slight decrease of 0.4%. RISK MANAGEMENT 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES For information, exposures to credit risk by Basel category as established by COREP are calculated on a global basis that includes off-balance sheet commitments (signed commitments and financial 2 guarantees given) to which a credit conversion factor is applied. These exposures are as follows: 06/30/2015 Amount As a % Public administrations 19,788 15% Institutions 17,817 14% Regional administrations 31,655 25% Corporates 6,001 5% Retail customers 2,411 2% 40,304 32% 2,110 2% 279 <0.5% 23 <0.5% (in €m) EXPOSURES TO CREDIT RISK BY CATEGORY Mortgage-backed exposures Exposures at default Equities High-risk exposure Securitisations 143 <0.5% 6,871 5% CREDIT RISK EXPOSURE 127.401 100.0% CREDIT RISK EXPOSURE AT DECEMBE 31, 2014 135,685 Other assets Under COREP, calculated in accordance with CRR since January 1, 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). The breakdown of groupe Crédit Foncier’s exposures by Basel category at June 30, 2015 shows a concentration in the Basel “Mortgage-backed exposures” segment (32%) and in the “Regional administrations” segment (25%). 41% Banks and others (d) 7% Retail (a) €124,411m 34% JUNE 30, 2015 Public sector corporates (b) 17% 42% Banks and others (d) Private sector corporates (c) 18% Private sector corporates (c) ❯ Exposures by Basel category 7% DECEMBER 31, 2014 Retail (a) €121,063m 34% Public sector corporates (b) 2015 Half-Year financial report CRÉDIT FONCIER 33 RISK MANAGEMENT 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES ■ 2.5.1.2 BREAKDOWN OF CREDIT RISK EXPOSURES 2.5.1.2.1 BREAKDOWN BY REGION The portfolio breakdown by region at the end of June 2015 shows little change compared to year-end 2014, and remains concentrated in the European Economic Area, especially in France. Commitments in the European Economic Area mainly include assets eligible for sociétés de crédit foncier. The other commitments in the Breakdown of exposures by region France As a reminder, commitments located in the United States consist only of loans to States or highly rated local authorities or loans guaranteed by the federal government and do not include any direct or indirect real estate exposures. 06/30/2015 12/31/2014 83% 83% Other European Economic Area countries 9% 10% ❯ of which Italy 4% 4% ❯ of which United Kingdom 1% 1% ❯ of which Belgium 1% 1% ❯ of which Spain 1% 1% ❯ of which Germany 1% 1% ❯ of which Portugal <0.5% <0.5% ❯ of which Poland <0.5% <0.5% ❯ of which Slovenia <0.5% <0.5% ❯ of which Ireland <0.5% <0.5% ❯ of which Netherlands <0.5% <0.5% ❯ of which Iceland <0.5% <0.5% ❯ of which Hungary <0.5% <0.5% ❯ of which Austria - <0.5% ❯ of which Cyprus - <0.5% ❯ of which Slovakia - <0.5% ❯ of which Czech Republic - - ❯ of which Greece - - Switzerland 2% 2% North America (US and Canada) 4% 4% Japan 2% 1% Others <0.5% <0.5% Balance sheet total BALANCE SHEET ASSETS (in €M) 34 European Economic Area are almost entirely made up of commitments with banks for cash management or derivatives transactions. 2015 Half-Year financial report CRÉDIT FONCIER 100% 100% 121,063 124,411 RISK MANAGEMENT 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES 2.5.1.2.2 BREAKDOWN BY BUSINESS SECTOR The breakdown of outstanding balance sheet loans by business sector covers loans to Corporate customers. It also includes exposures to RMBS in Europe, for which the risk is ultimately linked to individual customers. The five leading sectors account for 95% of these exposures. Groupe 2 Crédit Foncier financed the real estate sector (18%) and Public local authorities (40%). As for Finance-Insurance sector, it accounts for 30% of the total exposure, 18% of which is to Groupe BPCE. An exposure to Groupe BPCE is collateralised at 71%. Furthermore, other sectors that received financing, especially the pharma-health industry, mainly receive financing for real estate assets. Breakdown of credit risk exposures by business sector (excluding direct loans to individual customers) 06/30/2015 12/31/2014 Administration 40% 40% Finance-Insurance 30% 32% Property leasing 16% 14% Pharma-Health 7% 7% Real estate 2% 2% Services 1% 1% Utilities 1% 1% Others Balance sheet total BALANCE SHEET ASSETS (in €M) 3% 3% 100% 100% 70,434 73,618 2.5.1.2.3 BREAKDOWN OF EXPOSURES BY PRODUCT FAMILY The breakdown of groupe Crédit Foncier’s balance sheet commitments (loans, securities and financial transactions) by product family at June 30, 2015 shows a concentration on loans. Product family (breakdown as a %) 06/30/2015 12/31/2014 Loans 72% 71% Short-term credit facilities 11% 11% Bonds (Banking) 10% 11% <0.2% <0.1% 7% 7% Shares/Funds - - Other on-balance sheet products - - (1) Securitisation Derivatives (2) Bonds (Trading ) Balance sheet total BALANCE SHEET ASSETS (in €M) - - 100% 100% 121,063 124,411 (1) Customer loans excluding short-term credit facilities. (2) Groupe Crédit Foncier does not hold any trading securities. Bonds are held in connection with credit transactions or for hedging the ALM portfolio. 2015 Half-Year financial report CRÉDIT FONCIER 35 RISK MANAGEMENT 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES ■ 2.5.1.3 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 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. Direct exposures to Sovereigns are concentrated (less than 10 counterparties) as only a few European States are concerned. ❯ Summary – Concentration of major counterparties (in €m and as a percentage at June 30, 2015) Exposures by Basel category French Local Authorities and Social Housing* Sovereigns International public sector Specialised financing Large Corporates Securitisation * Top 10 Top 20 Top 50 Top 100 3,503 5,424 9,104 12,639 [13%] [20%] [33%] [46%] 7,677 7,677 7,677 7,677 [100%] [100%] [100%] [100%] 4,431 6,023 7,527 7,613 [58%] [79%] [99%] [100%] 1,473 2,106 3,255 4,324 [25%] [35%] [54%] [72%] 1,498 1,984 2,699 3,273 [38%] [51%] [69%] [84%] 224 224 224 224 [100%] [100%] [100%] [100%] Total 27,314 7,677 7,613 6,006 3,908 224 Including general public administrations (8411Z). ❯ 2.5.2 COMMITMENTS BY CUSTOMER PORTFOLIO ■ 2.5.2.1 INDIVIDUAL CUSTOMERS LOAN RESTRUCTURING AND AUTO LOAN ACTIVITY (BANCO PRIMUS) 2.5.2.1.1 DIRECT LOANS Banco Primus, a Crédit Foncier subsidiary whose headquarters are situated in Lisbon, Portugal, distributes auto loans to individuals (for second-hand vehicles). It is also overseeing the run-off of a portfolio of mortgage loans located in Spain and Portugal and a portfolio of auto loans located in Hungary. DIRECT REAL ESTATE LOANS The vast majority of outstandings are backed by Basel III-eligible guarantees, with a high proportion of first-ranking mortgages. A portion of regulated loan production is also backed by a SGFGAS counterguarantee. 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. 586 of which auto loans (Portugal) 283 of which mortgages (Spain) 206 Outstanding loans to individuals in France and Europe were stable (-0.34%) and amount to €50.6bn, 74% of which are loans to firsttime home buyers (75% at December 31, 2014) and 44% are loans to low-income families (PAS/PTZ) (42% in 2014). The slight increase in outstandings occurred in a moribund real estate lending market. of which mortgages (Portugal) 86 of which auto loans (Hungary) 11 Fixed-rate loans represented a stable percentage of outstandings at 79%, compared to 78% at end-2014. At the same time, variable-rate loans recorded a steady decline. Solvency ratio (Core Tier-1) REAL ESTATE BRIDGING LOANS TO INDIVIDUALS Outstanding bridging loans have declined sharply and amount to €303m in the first half of 2015 compared to €336m at end-2014. New bridging loan production, which accounted for 0.6% of total outstanding loans to individuals, is still subject to enhanced vigilance, particularly with respect to the liquidity of the assets backing the bridging portion of the loan. 36 TOTAL OUTSTANDINGS AT JUNE 30, 2015 (in €M) 2015 Half-Year financial report CRÉDIT FONCIER Loans at risk (payment past due by 90 days or more) 24.4% Average LTV (mortgage business) 86.3% 12% With nearly €40m in financed auto loans (up 13% from the first half of 2014), activity in the 1st half of 2015 was strong and in line with the 2nd half of 2014. Banco Primus thus maintained its position as the fifth-largest player on the second-hand vehicle financing market. The delinquency rate of the Portuguese auto loan portfolio remained stable, with payments past due by 90 days or more accounting for less than 9.5%. RISK MANAGEMENT 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES In the run-off portfolio, particularly the Spanish mortgage portfolio, indicators continued to worsen despite a shift in the portfolio’s environment due to the marked slowdown in the decline in real estate values. 2.5.2.1.2 POSITIONS ON RESIDENTIAL MORTGAGEBACKED SECURITIES (RMBS) IN EUROPE Crédit Foncier’s exposure to this asset category is low as a result of the disposal of most of its external securitisation portfolio in 2014. At June 30, 2015, this exposure amounted to €166m, consisting of residual exposure to CFHL-1 2014, Elise and to a Spanish RMBS (Shipo 3, amounting to €59). The A3 tranche held in the Shipo 3 RMBS is rated B2/BB-/CCC by Moody’s/Standard & Poor’s/Fitch, but it is guaranteed by Royal Bank of Scotland, which is rated A3/BBB+/BBB+ by Moody’s/Standard & Poor’s/Fitch. As of June 30, 2015, no RMBS is on the Watch List. ■ 2.5.2.2 PUBLIC SECTOR PORTFOLIO 2.5.2.2.1 FRENCH PUBLIC SECTOR During the first half of 2015, outstanding direct loans to the French public sector, which includes French Local Authorities and social housing, decreased by 1.6% to €26.6bn at June 30, 2015. The doubtful loans ratio remained close to zero. 2 2.5.2.2.2.1 INTERNATIONAL PUBLIC SECTOR FINANCING (IPF) Outstandings in the IPF portfolio are essentially concentrated on the local authorities of eurozone countries (including Italian regions and the autonomous communities in Spain), the United States (states and counties) and Japan (prefectures). At June 30, 2015, outstandings in the IPF portfolio were €7.6 bn compared to €7.9bn six months earlier. Aside from amortisation, this change is due: ❯ primarily to the ongoing disposal of holdings as part of running off the IPF portfolio. Most notably, Crédit Foncier disposed of securities issued by local authorities in Spain during the half-year period; ❯ second, to the fact that the IFRS carrying amount of the outstandings is presented here. This amount does not take into account swaps and is shown at its equivalent value in euros. The change in outstandings may thus be due to fluctuations in the rate of the hedged component or in the exchange rate for securities in foreign currencies. Otherwise, the distribution of the portfolio’s holdings by internal rating would be stable. This is because the ratings on the portfolio’s positions are reviewed annually. This means that the internal ratings are the same as those produced by the review at end-2014. ❯ Exposures by internal rating for the International Public Sector Financing (IPF) portfolio 2.5.2.2.1.1 FRENCH LOCAL AUTHORITIES (FLA) Groupe Crédit Foncier acts as a partner to the Groupe BPCE networks in financing activities aimed at French Local Authorities and local institutions. FLA outstandings decreased (-2.1%) to €18.4bn. 2.5.2.2.1.2 SOCIAL HOUSING JUNE 30, 2015 8% 1% Not rated AAA 4% In collaboration with Groupe BPCE, this business line originates regulated loans (prêt locatif social/PLS, prêt locatif intermédiaire/PLI) and unregulated loans for providers of social housing. BB In the social housing sector, the majority of loans were granted as part of the distribution of the remainder of the PLS budget obtained in 2012. These transactions are backed by guarantees provided by local authorities or by mortgages. BBB 26% AA 26% €7,613m 35% A Outstandings remain stable at €8.1bn (-0.6%). 2.5.2.2.2 INTERNATIONAL PUBLIC SECTOR FINANCING (IPF) AND SOVEREIGNS Crédit Foncier’s IPF and Sovereigns portfolio was placed in run-off in the second half of 2011 and disposals continued in 2015. DECEMBER 31, 2014 7% This portfolio includes: Not rated ❯ financing of European sovereign states, either directly or via state 5% agencies. The credit analysis of these entities is conducted together with analysts from Groupe BPCE and Natixis; ❯ financing of international local authorities in European countries, the United States, Canada and Japan: federated states, districts and provinces (i.e. local authorities with real fiscal autonomy, depending on the jurisdiction), regions, departments, counties, prefectures and cities. In this activity, Crédit Foncier applies a proprietary methodology with an internal rating-based model. 1% AAA 24% BB AA 28% BBB €7,860m 35% A 2015 Half-Year financial report CRÉDIT FONCIER 37 RISK MANAGEMENT 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES It should be recalled that outstandings are expressed in their carrying amount under IFRS, without taking into account swaps, while securities in foreign currencies are also shown at their equivalent value in euros – this is notably the case for part of the exposure to Italy. Crédit Foncier uses Groupe BPCE’s internal rating-based system. ❯ Exposures to Sovereigns by internal rating* JUNE 30, 2015 2% <0.5% BBB to BBB- 42% A- to BBB+ Not rated 50% AAA to AA- €7,577m A+ to A DECEMBER 31, 2014 0% BB+ to BB 1% 3% BB- to B BBB to BBB- A- to BBB+ 45% €7,599m AAA to AA- 7% A+ to A * Basel II ratings after credit enhancement. 38 2015 Half-Year financial report CRÉDIT FONCIER 3,1 20 3,0 35 €3,775m 2,500 2,000 1,500 0 Czech Hungary Republic Cyprus Slovakia 23 7 16 6 500 Ireland Slovenia 40 1 41 4 1,000 Poland Italy ■ 2.5.2.3 EXPOSURE TO BANKS Given the structure of its activities and its funding needs, Crédit Foncier manages a significant volume of exposures to banking counterparties on an ongoing basis. Most of these exposures result from hedging requirements associated with the institution’s various activities. A portion of Crédit Foncier’s banking exposures (€0.7bn) also corresponds to long-term transactions carried out in connection with the International public sector financing portfolio: since the sale, during first-half 2015, of securities issued by German and Austrian Landesbanken, this sub-portfolio consists entirely of exposures to Swiss cantonal banks (including ZKB). Netting and collateralisation agreements have been largely renegotiated since 2008, including with top-rated banks, in order to reduce groupe Crédit Foncier’s exposure to banking counterparties. Since 2012, Crédit Foncier has been optimising its holdings in derivatives by reducing the number of outstanding contracts. Particular attention is being paid to the banking sector, for which the limits have been considerably lowered since 2010. In accordance with Groupe BPCE’s policy, Crédit Foncier limits its exposure for each banking group to 15% of its capital, which is more cautious than the regulatory requirement of 25%. Furthermore, since 2011, major risks associated with banking counterparties have been weighted at 100% (vs. 20% previously). 6% 43% €4,157m 3,000 June 2015 19 2 16 0 With regard to the exposure to Italian sovereign debt, no disposal of Italian securities took place during the period. Aside from the foreign exchange effect, the change in outstandings is attributable to the moderate impact of interest rates on the hedged component as well as the change in the security’s credit risk. December 2014 11 2 0 When restated for exposures to French sovereign debt, the outstandings of the Sovereign portfolio declined by nearly 9% over the period (see bar chart below). This change is primarily attributable to ongoing disposals as part of run-off activities: Crédit Foncier no longer has exposure to Cyprus or Hungary, and it has reduced its exposure to Slovenia and Ireland. Its exposure to Slovakia ended with the amortisation of securities that occurred within the first month of 2015. 3,500 57 0 At June 30 2015, the IFRS carrying amount of the Sovereign portfolio’s outstandings was substantially the same as the value at end-2014 (€7,577m compared to €7,599m six months earlier). The outstandings of the Sovereign portfolio excluding France are broken down as follows: 38 0 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 2nd half of 2011. 0 0 2.5.2.2.2.2 SOVEREIGNS Transactions with banks involve high gross volumes (nominal amounts) ultimately accounting for low net amounts due to valuations and the impact of netting (derivative transactions are accompanied by hedging mechanisms in the form of collateralisation). The charts below present the balance-sheet value of these transactions, which does not necessarily accurately detail the credit risk incurred on derivative transactions. RISK MANAGEMENT 2.5 CREDIT AND COUNTERPARTY RISK EXPOSURES ❯ Exposures to banks by internal rating JUNE 30, 2015 1% 3% Not rated AAA 4% 3% BBB €20,440m Outstanding direct loans to private sector corporates amounted to €7.9bn at June 30, 2015. The main exposures concern real estate development activities in France, long-term investors and corporates amounting to €5.2bn at June 30, 2015, slightly down by 5% compared with 2014. REAL ESTATE DEVELOPMENT AA All of groupe Crédit Foncier’s real estate development, housing development and, to a lesser extent, property vendor activities are carried out by its subsidiary Socfim. Outstandings from this sector have decreased to €797m (-9%). 89% The majority of financing was granted to major clients in the real estate development sector. Financed transactions for other clients had satisfactory ratings and a solid capital to pre-construction sales ratio. A 2 The monitoring of development activities continued, with periodic sector reviews and a system of limits that is regularly updated with assistance from BPCE’s Group Risk Management Division. Problematic cases relate to a stable and limited number of players. LONG-TERM INVESTORS AND SPECIALISED FINANCING DECEMBER 31, 2014 1% 3% Not rated AAA 4% 4% BBB Outstandings from this sector have decreased to €3,594m (-2%). Risk linked to long-term investors is reviewed periodically, particularly with respect to rental vacancies, rent trends and the valuation of mortgage guarantees. AA CORPORATES €22,679m 88% A 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. Outstandings from this sector have decreased to €891m (-7%). PUBLIC-PRIVATE PARTNERSHIPS Note: the breakdown of bank exposures is based on management amounts in the IT systems. 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. Outstandings remain stable at €1,513m. ■ 2.5.2.4 PRIVATE SECTOR PORTFOLIO The Private Corporates portfolio represents slightly more than €7.9bn on Crédit Foncier’s balance sheet, most of which is comprised of direct loans (over 99%), with the remainder being CMBS securitisations (less than 1%). Direct loans concern several types of activities: ❯ real estate development; ❯ long-term investments; ❯ Corporates; ❯ Public-Private Partnership (PPP) transactions. 2015 Half-Year financial report CRÉDIT FONCIER 39 RISK MANAGEMENT 2.6 ANALYSIS OF DELINQUENCIES 2.6 ANALYSIS OF DELINQUENCIES ❯ 2.6.1 DELINQUENCIES ❯ Groupe Crédit Foncier’s risk hedging Exposures (in €m) 30/06/2015 31/12/2014 Doubtful loan percentage (excl. Doubtful subsidised Balance loan sector) sheet percentage Doubtful loan percentage (excl. Doubtful subsidised Balance loan sector) sheet percentage Retail 50,795 5.25% 5.21% 50,996 5.01% 4.97% Direct loans (France and Europe) 50,629 5.26% 5.23% 50,794 5.03% 4.99% Exposures backing residential mortgage loans in Europe 166 - - 202 - - Public sector 41,774 <0.5% <0.5% 42,485 <0.5% <0.5% French public sector 26,584 <0.5% <0.5% 27,027 <0.5% <0.5% IPF and Sovereigns (direct loans and commitments) 15,190 - - 15,458 - - Securities backed by individual customer loans with government or institutional guarantees Private Corporates sector Exposure to banking sector and other TOTAL - - - 0 - - 7,903 6.46% 5.58% 8,105 6.26% 5.38% 20,591 - - 22,825 <0.5% <0.5% 121,063 2.67% 2.59% 124,411 2.50% 2.41% Retail doubtful loans covered by a mortgage or a lender’s preferential claim (PPD) amounted to €1.2bn at June 30, 2015 (excl. FGAS). These outstandings are covered by €310m in provisions (25%) and the value of the real estate guarantees covering these assets is worth €1.7bn. ❯ 2.6.2 COST OF RISK – INDIVIDUALS AND CORPORATES At the end of June 2015, the cost of risk amounted to €160m (up compared to June 2014). It includes the sale of securities issued by HETA Asset Resolution AG. Cost of risk on a consolidated basis (in €m) Excluding this transaction, the cost of risk was stable compared to June 2014. Losses on non-hedged FY 2014 Provisions Reversals receivables Interbank loans and receivables Customer loans and receivables (including signed commitments) Other financial assets -104 -109 H1 2015 -104 -185 133 -8 4 -56 -185 133 -112 4 -160 -1 Cost of risk – Individuals and Corporates (A) -110 of which individual cost of risk -166 -166 56 6 Overall credit risk exposure* (B) 131,478 127,408 COST OF RISK AS % OF TOTAL EXPOSURES (C=A/B) -0.08% -0.13% of which cost of risk on portfolio basis (collective provisions) * 40 Recovery on written-off loans and receivables Overall credit risk exposure: gross outstandings (performing and doubtful) including off-balance sheet commitments. 2015 Half-Year financial report CRÉDIT FONCIER RISK MANAGEMENT 2.7 RISK MITIGATION TECHNIQUES 2 2.7 RISK MITIGATION TECHNIQUES The portfolio of loans to non-public sector counterparties (Individuals, social housing, Corporates) is mostly covered by real estate mortgages or personal guarantees. ❯ 2.7.1 COLLATERAL VALUATION AND MANAGEMENT For the financing of professional assets or home loans of significant amounts, the real estate assets pledged as collateral are appraised by an expert (Foncier Expertise). The terms of these valuations were unchanged in the first half of 2015. Some loans guaranteed by a first-ranking mortgage or a lender’s preferential claim also benefit from an additional guarantee from a mutual guarantee company or local authority, which is also the predominant guarantee in the social housing market. Crédit Foncier annually updates the mortgage values of pledged collateral. These values may be updated automatically using real estate indices showing annual pricing trends or by an appraiser, depending on the type and/or amount of the collateral. ❯ 2.7.2 MAIN PROVIDERS OF CREDIT PROTECTION The main providers of personal guarantees to Individual customers are the SGFGAS, mutual guarantee companies such as CEGC (formerly SACCEF), and 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 loans to low-income first-time home buyers. These loans are governed by regulated loan agreements and guaranteed by firstrank collateral (mortgage or lender’s preferential claim). 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, sureties granted after this date are assigned a weight related to their mortgage guarantee that amounts to 50% of the outstanding amount, with the other half weighted at 0%. ❯ Crédit Logement is a financial institution, a subsidiary of most major French banking networks. Since the fourth quarter of 2014, exposures guaranteed by Crédit Logement are weighted at 35%, in compliance with BPCE’s standards. ❯ 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 ACPR authorised loans in the real estate loan portfolio guaranteed by CEGC (ex-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. ❯ Other organisations, such as Mutuelle générale des Postes, Télégraphes et Téléphones (MG PTT), Mutuelle du Trésor, Mutaris Caution, etc., can also provide sureties and financial guarantees. ❯ NHG is a guarantee provided by the Dutch government on mortgage loans acquired by groupe Crédit Foncier in 2007. This portfolio of loans guaranteed by NHG amounts to €65m. ❯ Other insurers are credit institutions, mainly providing intra-group guarantees (Caisses d’Épargne and BPCE), or public sector entities (mainly for Public-Private Partnership). Note: a financial guarantee of €2.5bn has been granted to Crédit Foncier by Caisse nationale des Caisses d’Épargne in connection with the acquisition of Ixis CIB’s French Local Authorities business. 2015 Half-Year financial report CRÉDIT FONCIER 41 RISK MANAGEMENT 2.7 RISK MITIGATION TECHNIQUES ❯ 2.7.3 EFFECT OF CREDIT RISK MITIGATION TECHNIQUES Crédit Foncier’s portfolio is predominantly covered by first-ranking mortgages or eligible personal guarantees. 4% ❯ Providers of credit protection Developer loans, bridging loans, others 8% Other sureties (including CEGC (ex-SACCEF) guarantees(2)) 20% First-rank mortgages and other protections(1) 24% First-rank mortgages only 26% €100bn Developer loans, bridging loans, others 8% 6% Other secured exposures 3% Other secured exposures JUNE 30, 2015 4% DECEMBER 31, 2014 Local authorities and French sovereign Other sureties (including CEGC (ex-SACCEF) guarantees(2)) 19% First-rank mortgages and other protections(1) 25% First-rank mortgages 29% €102bn Local authorities and French sovereign 12% International local authorities <0,1% Mortgage securitisation (RMBS) 12% International local authorities <0,1% (1) Outstandings that also benefit from the FGAS guarantee for an amount of €19bn. (2) Other sureties of which Crédit Logement for an amount of €3.1bn. Mortgage securitisation (RMBS) (1) Outstandings that also benefit from the FGAS guarantee for an amount of €20bn. (2) Other sureties of which Crédit Logement for an amount of €3.8bn. ❯ 2.7.4 OFF-BALANCE SHEET NETTING There has not been a material change in off-balance sheet netting since the situation described in the 2014 Registration document (p. 130). 42 2015 Half-Year financial report CRÉDIT FONCIER RISK MANAGEMENT 2.8 RECOMMENDATIONS OF THE FINANCIAL STABILITY FORUM 2 2.8 RECOMMENDATIONS OF THE FINANCIAL STABILITY FORUM In 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 rating 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 monoline insurers; ❯ 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 (LBOs). 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 drawn up to meet these five requirements. ❯ 2.8.1 CDOS AND EXPOSURES TO MONOLINE INSURERS AND OTHER CREDIT ENHANCERS ■ 2.8.1.1 COLLATERALISED DEBT OBLIGATIONS (CDO) (loans or securities) extended directly to a sovereign state or to a local authority or public institution. Groupe Crédit Foncier has no exposure to CDOs. 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). ■ 2.8.1.2 CREDIT ENHANCERS 2.8.1.2.1 ENHANCED ASSETS The carrying amount 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 insurer. These guarantees generally cover public sector financing transactions The breakdown of this monoline-insured portfolio is based on the nominal value of the investment holdings at June 30, 2015, according to the initial credit enhancer (without taking into account takeovers of certain companies by rival monoline insurers which have since taken place). 2015 Half-Year financial report CRÉDIT FONCIER 43 RISK MANAGEMENT 2.8 RECOMMENDATIONS OF THE FINANCIAL STABILITY FORUM ❯ Enhanced assets Fair value of Fair value Gross Gross enhancements of enhannotional notional cements Fair value net of hedges amount Fair value amount and before before of hedges of enhan- of hedged of hedged cements instruments instruments adjustments purchased adjustments 06/30/2015 (in €m) Fair value adjustments for Residual monoline credit risk exposure to (recognised counterparon the ty risk from monoline enhanceinsurers ment) Enhancements acquired from monoline insurers On CDOs (US residential market) with subprime underlyings On CDOs (US residential market) with non-subprime underlyings Counterparty risk on other transactions 1,637 1,637 2,066 TOTAL 06/30/2015 1,637 1,637 2,066 TOTAL 12/31/2014 1,562 1,562 2,008 The breakdown of underlying assets by intrinsic rating is shown below. 2.8.1.2.2 BREAKDOWN OF GROSS EXPOSURES BY UNDERLYING RATING (NOMINAL VALUE) The credit enhancer’s rating is the lowest of the two best ratings from Standard & Poor’s, Moody’s and Fitch Ratings at June 30, 2015. The intrinsic rating of the underlying asset is consistent with its preenhancement Basel II rating. In light of the restructuring of the monoline sector, the rating now used for securities initially enhanced by FSA is that of Assured Guaranty Municipal Corp. This credit enhancer was rated A2 (Moody’s) and AA (Standard & Poor’s) at June 30, 2015. Similarly, securities enhanced by MBIA are now assigned the rating of the National Public Finance Guarantee Corporation (A3 by Moody’s and AA- by Standard & Poor’s at June 30, 2015), 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. (in €m) 06/30/2015 Monoline Nominal Monoline rating AMBAC Not available CIFG Not available FGIC Not available A 120 1,018 MBIA A- 95 2015 Half-Year financial report CRÉDIT FONCIER Not Available 127 A % BBB 13 AGMC TOTAL 44 AA NonInvestment Grade Total % 13 1% 127 8% 120 7% 1,163 71% 119 214 13% 1,637 145 1,126 272 239 69% 17% 14% 100% RISK MANAGEMENT 2.8 RECOMMENDATIONS OF THE FINANCIAL STABILITY FORUM 2 ❯ 2.8.2 EXPOSURES TO COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS) ■ 2.8.2.1 TABLE OF AT-RISK CMBS EXPOSURES At June 30, 2015, no “at risk” CMBS position held by groupe Crédit Foncier was on the securitisation watch list. The gross carrying amount of these tranches was €58m. These are commercial real estate exposures. At present, no payment defaults have been recorded on the tranches held by Crédit Foncier. ■ 2.8.2.2 BREAKDOWN OF CMBS BY BUSINESS SECTOR Having refocused its business, groupe Crédit Foncier has been running off its CMBS portfolio since 2011. ❯ Breakdown of CMBS by business sector (in €m) “At risk” (on Watch List basis) 06/30/2015 IFRS carrying amount 0 12/31/2014 % IFRS carrying amount % 0% 0 0% Not at risk 58 100% 65 100% TOTAL 58 100% 65 100% ■ 2.8.2.3 BREAKDOWN OF CMBS BY REGION Crédit Foncier’s entire CMBS portfolio is located in Europe. The “Europe” category in the table below corresponds to pan-European CMBS (whose underlying assets are divided between several European countries). ❯ Breakdown of CMBS by region (in €m) 06/30/2015 IFRS carrying amount 12/31/2014 % IFRS carrying amount % Germany Europe 23 39% 25 39% France 9 16% 12 18% Italy United Kingdom 26 45% 28 43% TOTAL 58 100% 65 100% 2015 Half-Year financial report CRÉDIT FONCIER 45 RISK MANAGEMENT 2.8 RECOMMENDATIONS OF THE FINANCIAL STABILITY FORUM ■ 2.8.2.4 BREAKDOWN OF CMBS BY RATING All securities in the portfolio are rated by one or more rating agencies. At the end of the 1st half of 2015, the portfolio consists entirely of senior tranches rated category 1 (>A-). ❯ Breakdown of CMBS by rating 06/30/2015 (in €m) Basel II rating 12/31/2014 IFRS carrying amount % 25 44% 33 56% IFRS carrying amount % 12 18% 18 28% 28 43% 7 11% 65 100% AAA AA AAA ABBBCC OVERALL TOTAL 58 100% ❯ 2.8.3 OTHER SUBPRIME AND ALT-A EXPOSURES (RMBS, LOANS, ETC.) Groupe Crédit Foncier has no direct or indirect exposure to subprime or Alt-A assets. More generally, Crédit Foncier has no exposure to the US mortgage market. Groupe Crédit Foncier had no CMBS on the Watch List at June 30, 2015. ❯ 2.8.4 SPECIAL PURPOSE ENTITIES (SPEs) At June 30, 2015, groupe Crédit Foncier had no exposure to Special Purpose Entities (ABCP type or other). ❯ 2.8.5 LEVERAGED BUYOUTS (LBOs) Definition of an LBO: ❯ a structured credit transaction using leverage, i.e. bank borrowings, that is 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. 46 2015 Half-Year financial report CRÉDIT FONCIER The presence of a financial sponsor and a holding company is what qualifies this type of transaction as an LBO. RISK MANAGEMENT 2.8 RECOMMENDATIONS OF THE FINANCIAL STABILITY FORUM 2 ■ 2.8.5.1 EXPOSURE TO LEVERAGED BUYOUTS At June 30, 2015, groupe Crédit Foncier identified five leveraged buyout deals amounting to €102m, which are stable compared with the end of 2014. 06/30/2015 12/31/2014 5 5 102 102 102 102 06/30/2015 12/31/2014 Total (gross) 102 102 Provisions -37 -37 TOTAL (NET OF PROVISIONS) 65 65 of which final shares 65 65 - - (in €m) FINAL SHARES Number of deals Commitments SHARES FOR SALE Number of deals Commitments TOTAL ■ 2.8.5.2 CHANGE IN EXPOSURE TO LEVERAGED BUYOUTS LBO exposures (in €m) of which shares for sale Crédit Foncier’s LBO exposures were stable compared to December 31, 2014. ■ 2.8.5.3 BREAKDOWN OF LBO FINAL SHARES BY BUSINESS SECTOR AND REGION 49% of LBO outstandings are related to target companies in the service sector and 51% are in the real estate sector. All the target companies acquired through leveraged buyout deals are based in France. 2015 Half-Year financial report CRÉDIT FONCIER 47 RISK MANAGEMENT 2.9 MARKET RISKS 2.9 MARKET RISKS Owing to the nature of its activity, groupe Crédit Foncier is not prudentially exposed to market risk, as defined under CRR: it does not carry out short-term transactions in order to take advantage of price fluctuations. However, although it holds a foreign exchange position, this position is significantly lower than the regulatory threshold and therefore cannot be considered as a market risk. Transactions carried out by Crédit Foncier and recorded in the balance sheet are compartmentalised according to their management strategy as soon as they are implemented, in accordance with Crédit Foncier’s Financial Charter. Under the law on the separation and regulation of banking activities of July 26, 2013, Groupe BPCE has implemented a new standard segmentation of the operations on the balance sheet and the associated governance, which applies in full to all Groupe BPCE entities. This standard is being deployed at the groupe Crédit Foncier level. 48 2015 Half-Year financial report CRÉDIT FONCIER Thus, pursuant to the provisions of the law N° 2013-672 on the separation and regulation of banking activities, Crédit Foncier has created in accordance with the provisions of Groupe BPCE, an internal treasury unit in the beginning of first half of 2015. This unit is not engaged in market activities as defined in the above-mentionned law. Indeed, its activities fit into the exemption category “sound and prudent management of the Group’s treasury”. Note that Groupe BPCE’s Risk Management Division has monitored the bond portfolio held by groupe Crédit Foncier since the second half of 2014. This includes controls on Compagnie de Financement Foncier’s bond portfolio that are based on a stress threshold. RISK MANAGEMENT 2.10 ALM RISKS 2 2.10 ALM RISKS ❯ 2.10.1 ORGANISATION AND MONITORING OF ALM RISKS The organisation and monitoring of ALM risks are described in detail in the 2014 Registration document (p. 138). ❯ 2.10.2 METHODOLOGY FOR ASSESSING STRUCTURAL RISKS ■ 2.10.2.1 DEFINITION OF LIQUIDITY, INTEREST RATE AND FOREIGN EXCHANGE RISKS For further information, refer to the 2014 R egistration document (p. 139). ■ 2.10.2.2 MEASUREMENT OF LIQUIDITY, INTEREST RATE AND EXCHANGE RATE RISKS For further information, refer to the 2014 R egistration document (p. 139). ■ 2.10.2.3 MANAGEMENT GUIDELINES Since 2014, hedges are mainly carried out through Crédit Foncier, including for the issuances and asset acquisitions of Compagnie de Financement Foncier. In practice, external hedging swaps carried out by Crédit Foncier result in an intra-group mirror swap between Crédit Foncier/Compagnie de Financement Foncier. Through this strategy, the Crédit Foncier parent company becomes groupe Crédit Foncier’s main counterparty with outside participants for asset- and liability-side interest rate swaps, making netting transactions possible while reducing Crédit Foncier’s net exposure. In addition, it reduces the outstanding swaps of Compagnie de Financement Foncier. In general, this strategy does not apply to cross-currency swaps for hedging foreign-currency issues or swaps structured to hedge private issues, for which Compagnie de Financement Foncier continues to hedge itself directly on the market. ❯ Liquidity ❯ Foreign exchange Crédit Foncier’s refinancing is mainly carried out through the issuance of obligations foncières by Compagnie de Financement Foncier. Additional funding needs are met through BPCE. Groupe Crédit Foncier does not have any open foreign exchange positions, and its policy is based on not assuming any foreign exchange risk. Consequently, all assets and liabilities in non-euro currencies are systematically micro-hedged upon their recognition in the balance sheet. Funding is carried out under the terms of the financing plan proposed by the Financial Management Division and validated with the Liquidity Steering Committee. This financing plan is included in Groupe BPCE’s funding budgets, as presented and decided upon with the Group ALM Committee. Groupe Crédit Foncier also has a significant portfolio of securities and collateral that can be assigned instantly as repos with the ECB or the market. ❯ Interest rates The general principle is the systematic backing of operations either by micro-hedging (for lending a unit amount of over €5m, or for any derivatives sales to customers) or by macro-hedging (fair value hedge coverage). Hedging may be realised through foreign exchange swaps, term loans or currency swaps. Residual mismatches may appear (transactions of very small amounts that are difficult to hedge, mismatches between received and paid cash flows, impairment of loans in foreign currencies, etc.). These mismatches, which must be kept within allowed limits, are monitored by the Financial Risk Division within Risk and Compliance. This department is responsible for reporting overruns or open positions and for asking the operating division that created the situation to resolve it. It is also in charge of reporting to the ALM Committee and the Executive Risk Committee. The financial instruments used to hedge interest rate risk are primarily interest rate swaps and cap purchases, intended primarily to cover the rate caps sold to customers and incorporated into certain products. 2015 Half-Year financial report CRÉDIT FONCIER 49 RISK MANAGEMENT 2.10 ALM RISKS ❯ 2.10.3 LIQUIDITY RISK MONITORING ■ 2.10.3.1 FUNDING OF GROUPE CRÉDIT FONCIER Groupe Crédit Foncier’s funding is derived mainly from medium- and long-term issuances carried out by Compagnie de Financement Foncier (the AAA/Aaa/AA rated société de crédit foncier and subsidiary of groupe Crédit Foncier). Short-term financing is mainly provided by funding from BPCE, the parent company. During the first half of 2015, groupe Crédit Foncier (or Compagnie de Financement Foncier) issued €5.4bn in obligations foncières, including non-recurrent operations. Groupe Crédit Foncier also has a pool of eligible liquid assets. Assets falling within the ECB’s funding eligibility criteria represent a gross amount of €42.7bn (nominal amount before haircut if pledged, and without recognising the regulatory overcollateralisation ratio of Compagnie de Financement Foncier), including €31.3bn in residential receivables in respect of the temporary ECB mechanism of February 2012. The majority of these assets are held by Compagnie de Financement Foncier, for a gross total of €36.5bn. Compagnie de Financement Foncier can use these eligible assets up to an estimated net amount of €15bn after any haircut, based on the ECB’s current rules, while respecting applicable regulatory constraints. At June 30, 2015, groupe Crédit Foncier no longer had funding from the ECB. ■ 2.10.3.2 COMPLIANCE WITH LIMITS In addition to the regulatory liquidity ratio that applies on a per-company basis, groupe Crédit Foncier monitors three main liquidity indicators: ❯ the overnight limit of €2bn, which must be covered by a similar outstanding (net value after haircut) that can be pledged in a comprehensive collateral management pool; 2.10.3.2.1 REGULATORY ONE-MONTH LIQUIDITY RATIO At June 30, 2015, Crédit Foncier’s liquidity ratio (on an individual basis) was 148.5%. Compagnie de Financement Foncier’s liquidity ratio was 8,833%. It must also have a one-year cash surplus available at all times. 2.10.3.2.2 OVERNIGHT BORROWER LIMIT Over the 1st half of 2015, Crédit Foncier made neither systematic nor occasional use of very short-term (overnight-weekly) funding, which is subject to a defined limit by BPCE; therefore, no observations on this matter are required. 2.10.3.2.3 CASH PROJECTIONS AND LIQUIDITY STRESS TESTS On each of its balance sheets (Crédit Foncier and Compagnie de Financement Foncier), Crédit Foncier makes liquidity projections under its central scenario over one year and in stressed situations: ❯ a “catastrophic” three-month stress scenario with no new issuances and no renewal of financing; ❯ a severe three-month stress scenario (maintaining a proportion of new loan production and some refinancing facilities) subject to limits. At June 30, 2015, it was verified that assets eligible for ECB refinancing are sufficient to cover the post-stress cash flow requirements. 2.10.3.2.4 LIMIT ASSOCIATED WITH THE ASSET/ LIABILITY RATIO The asset/liability ratio is supervised by means of a limit and a reference level. The latter ensures forward-looking liquidity management: ❯ 12-month liquidity according to the central scenario (funding plan) and a three-month liquidity projection under stressed conditions at the levels of Crédit Foncier as a parent company and Compagnie de Financement Foncier, applying a catastrophic scenario (closure of markets and end of groupe Crédit Foncier’s funding); ❯ a limit associated with the asset/liability ratio (observed over a 10year horizon in annual stages). The aim of this analysis is to ensure that medium-term liquidity management does not create high concentrations of liquidity needs over certain periods; ❯ the short term liquidity ratio (LCR) is superior to the regulatory limit in force since the October 1, 2015. 50 2015 Half-Year financial report CRÉDIT FONCIER 0 to 3 years 3 to 6 years 6 to 10 years Limit 85% 70% 55% Reference level 90% 75% 60% RISK MANAGEMENT 2.10 ALM RISKS 2 ❯ Asset/liability ratio at end-June 2015 120 Asset/liability ratio at June 30, 2015 Observation threshold 110 Regulatory Limit 100 90 80 70 60 50 40 d d jun d jun d jun jun d jun d jun d d jun d jun jun d jun jun e-1 ec-1 e-1 ec-1 e-1 ec-1 e-2 ec-2 e-2 ec-2 e-2 ec-2 e-2 ec-2 e-2 e-2 ec-2 e-1 ec-1 e-1 ec-1 6 7 9 8 0 1 2 3 4 5 8 6 9 0 1 2 4 5 3 7 5 ❯ 2.10.4 INTEREST RATE RISK MONITORING ■ 2.10.4.1 COMPLIANCE WITH LIMITS 2.10.4.1.1 STATIC GAP LIMIT Groupe BPCE requires its subsidiaries to observe three key limits to manage interest rate risk: The static gap increased during the 1st half of 2015, mainly because the level of early repayments on home loans was actually higher than the estimated one initially used to cover the risk. As a result of this evolution, the static gap limit was breached for August 2017 term. The gap for this maturity reached €3.6bn for a limit set at €3.0bn. ❯ the first aims to manage groupe Crédit Foncier’s static interest rate gap over 10 years using a diminishing proportion of capital (from 95% in year 1 to 50% in year 10); ❯ the Net Present Value (NPV) of capital (standard Basel II indicator); ❯ the sensitivity of net interest margin to interest rate fluctuations under four scenarios that are sent each quarter by the central institution. The risk was hedged in early July 2015 with a €1.1bn swap neutralizing the negative effect generated by the difference between early repayments on home loans and the estimate initially used for hedging. As a result, this operation should bring the gap back within limits. 2015 Half-Year financial report CRÉDIT FONCIER 51 RISK MANAGEMENT 2.10 ALM RISKS Assets Liabilities ❯ Static gap limit at June 30, 2015 (in €bn) 4.5 Fixed-rate gap June 2015 4.0 Entity limits 30/06/2015 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 -3.5 -4.0 -4.5 d d d d d d d d d june dec ju ju ju ju ju ju ju ju june ju -15 ne-16 ec-16 ne-17 ec-17 ne-18 ec-18 ne-19 ec-19 ne-20 ec-20 ne-21 ec-21 ne-22 ec-22 ne-23 ec-23 ne-24 ec-24 -15 -25 2.10.4.1.2 NET PRESENT VALUE (NPV) OF CAPITAL The 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 amounted to 3.12% at June 30, 2015. 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). At June 30, 2015, the “worst case” scenarios for the net interest margin were as follows: 2.10.4.1.3 SENSITIVITY OF NET INTEREST MARGIN After applying four yield curve deformation scenarios, the net interest margin sensitivity should be lower than +/-5% in year N+1 and +/-9% in N+2 (year-on-year). NIM sensitivity limits “Worst case” sensitivity limits Year 1 Year 2 +/-5% +/-9% -0.55% -4.41% ❯ 2.10.5 FOREIGN EXCHANGE RISK MONITORING Foreign exchange risk exists when the euro value of foreign currencydenominated assets or liabilities on groupe Crédit Foncier’s balance sheet are liable to be negatively affected by foreign exchange rate changes. Consequently, all assets and liabilities in non-euro currencies are subject to swaps upon their recognition in the balance sheet. This hedging may be realised through a currency swap, a foreign exchange swap or a term loan. They are monitored by Crédit Foncier’s Risk Management Division, which centralises foreign currency positions at month-end by individual currency and by aggregated currencies. In regard to foreign exchange risk, BPCE ALM standards specify that the spot foreign exchange position by currency is limited to 5% of total balance sheet assets in that currency. This limit only applies if the outstandings in the foreign currency in question exceed the euro equivalent of €1m. In addition to BPCE’s foreign exchange limit, groupe Crédit Foncier has reinforced monitoring of its exposure based on: ❯ internal foreign exchange limits for spot contracts calibrated in view of the observed positions; ❯ in consolidated view, €5m by currency and €8m for the position across all currencies, ❯ for Compagnie de Financement Foncier and Crédit Foncier, €3m by currency and €5m for the position across all currencies; ❯ dynamic measurement of future positions related to the run-off of foreign currency transactions by corporate entity. This measurement of the foreign exchange position is limited at the groupe Crédit Foncier level to €8m across all currencies. On a quarterly basis, information is provided to the ALM Committee regarding compliance with these observed limits. The limit was adhered to over the 1st half of 2015. 52 2015 Half-Year financial report CRÉDIT FONCIER RISK MANAGEMENT 2.11 OPERATING RISKS 2 2.11 OPERATING RISKS No major changes were observed for the first half of 2015 except for the definition of the action plans as the fourth pillar of the operating risk strategy. ❯ 2.11.1 GENERAL FRAMEWORK The general framework is described in detail in the 2014 Registration document (p. 144). ❯ 2.11.2 GOVERNANCE Governance is described in detail in the 2014 Registration document (p. 144). ❯ 2.11.3 MANAGEMENT ENVIRONMENT ■ 2.11.3.1 MANAGEMENT NETWORK The management network is described in detail in the 2014 Registration document (p. 145). ■ 2.11.3.2 METHODS AND TOOLS No major changes were observed for the first half of 2015 except for the establishment of certain action plans as the fourth pillar of the operating risk strategy. These action plans cover serious incidents, incidents whose recurrence should be avoided, the most significant risks and KRIs (Key Risk Indicators) in persistent breach of a critical threshold. Methods and tools are described in detail in the 2014 Registration document (p. 145). ❯ 2.11.4 ORGANISATION OF THE CONTINGENCY AND BUSINESS CONTINUITY PLAN (CBCP) In the first half of 2015, the network of business continuity officers and their deputies was updated following the internal restructuring. The business line managers in charge of critical activities were informed of their duties and areas of responsibility, the crisis management manual and the control programme for continued activities. Additionally, at the request of Executive Management, the CBCP was streamlined to better meet the Company’s current needs. Implementation efforts are underway and should be finalised in time for the switch to the new information system in 2015. Initial technical testing of the new system will be conducted during the final quarter of 2015 and will be supplemented with user testing starting early 2016. 2015 Half-Year financial report CRÉDIT FONCIER 53 RISK MANAGEMENT 2.11 OPERATING RISKS ❯ 2.11.5 IT RISKS The organisation of IT risks is described in detail in the 2014 Registration document (p. 146). was operationally launched in late 2012, with a switch to the new information system planned for mid-November 2015. Further to the decision to pool Crédit Foncier’s information systems on the Caisse d’Épargne MYSYS platform developed by the IT-CE Economic Interest Grouping (“EIG”), a migration programme (“MUT SI”) To this date, the deadlines have been met and the budget remains within the overall amount allocated to this project. ❯ 2.11.6 LEGAL RISKS New developments in regard to legal disputes since the publishing of the 2014 Registration document are as follows: launched a third set of arbitration proceedings seeking to block the implementation of a pledged account. ■ 2.11.6.1 EXCEPTIONAL EVENTS AND LITIGATION The sharp increase in interest rates in 2007 and 2008 led some borrowers holding variable-rate loans (with a payment calculation clause based on a technical rate, called the Payment Calculation Maximum Rate, which is different from the interest rate) to dispute the meaning and scope of this contractual provision. Due to financial difficulties experienced by a developer that can no longer meet the delivery schedule for properties sold off-plan (VEFA sales), some projects were halted. A solution to complete the properties was found for the transactions benefiting from an intrinsic completion guarantee, and delivery is nearly complete. Only one residence remains under construction. The number of cases still outstanding is very low. Crédit Foncier draws on the numerous legal decisions made in its favour to counter the claims launched against it. For transactions benefiting from a financial completion guarantee, the guarantors performed their contractual duties, thus enabling investors to gradually take ownership of their lots. *** Certain investors initiated legal proceedings to cancel the sale and loan. The improvement of the overall situation has led an increasing number of these investors to withdraw from proceedings and others, who had received a ruling cancelling the sale and loan, to turn down the ruling in their favour and instead take delivery of their asset. *** 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 held. The borrower then filed a counter-claim against Crédit Foncier for improper breach of loan, whereas the guarantor contested the validity of its undertaking. An initial arbitral ruling on July 31, 2012 validated Crédit Foncier’s claim in respect of the loan. This sentence is now definitive following the decision of the Cour de Cassation (French appeal justice court) on June 24, 2015 rejecting the borrower’s appeal. A second arbitral procedure concerning the guarantee pledged to Crédit Foncier led to two other rulings, dated November 15, 2012 and August 9, 2013, which validated the guarantee and the amount due by the guarantor. On September 9, 2014, the Paris Court of Appeal rejected the claim to cancel the guarantee contrary to the ruling of November 15, 2012. The guarantor has appealed to the French supreme court and the case is still pending. A decree dated April 10, 2014 confirmed the rejection of another claim made by the guarantor against the ruling dated August 9, 2013. The guarantor nonetheless filed a further appeal against the ruling of August 9, 2013, and the procedure is ongoing before the Paris Court of Appeal. The protective and enforcement measures that were taken are being maintained. In view of the situation, the borrower and guarantor 54 2015 Half-Year financial report CRÉDIT FONCIER However, other investors have now decided to invoke the responsibility of the various parties involved in the tax reduction transactions (builder, notary, legal agent, lenders) to attempt to obtain a joint ruling to pay damages. *** Some local authorities whose loans were initially at preferential rates before moving onto a structured rate formula based on the exchange rate movements of certain currencies were concerned about the trend of some of these currencies. Six local authorities submitted the matter to the court. In three cases, an amicable solution was reached, ending the procedure. However, in the remaining cases, an amicable solution was not reached and the procedures are therefore ongoing. The lender’s position is supported by the provisions of law 2014-844 of July 29, 2014 relating to the securitisation of structured lending agreements taken out by legal entities governed by public law, as well as those relating to the Support Fund (fonds de soutien) created by the 2015 Budget Act. ■ 2.11.6.2 MATERIAL CONTRACTS Crédit Foncier is not bound by any contracts that may confer a right or an obligation on an entity of the Group likely to significantly affect its ability to meet its obligations, relating to securities issued, towards the owners of such securities. RISK MANAGEMENT 2.11 OPERATING RISKS 2 ❯ 2.11.7 INSURANCE Insurance coverage is described in detail in the 2014 Registration document (p. 148). ❯ 2.11.8 OTHER RISKS: CAISSE DE RETRAITE (PENSION FUND) OF CRÉDIT FONCIER FOR EMPLOYEES WHO JOINED THE GROUP BEFORE MARCH 1, 2000 Other risks are described in detail in the 2014 Registration document (p. 149). 2015 Half-Year financial report CRÉDIT FONCIER 55 RISK MANAGEMENT 2.12 BROKERAGE RISK 2.12 BROKERAGE RISK There has not been a material change in brokerage risk since the situation described in the 2014 Registration document (p. 150). 2.13 NON-COMPLIANCE RISK There has not been a material change in non-compliance risk since the situation described in the 2014 Registration document (p. 151-153). 56 2015 Half-Year financial report CRÉDIT FONCIER 3 FINANCIAL INFORMATION ANALYSIS OF RESULTS Consolidated results Consolidated balance sheet CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 3.1. 3.2. 3.3. 3.4. 3.5. 3.6. 3.7. Consolidated balance sheet – assets Consolidated balance sheet – liabilities and shareholders’ equity Consolidated income statement Comprehensive income Statement of changes in equity Consolidated cash flow statement (indirect method) Summary of the notes to the consolidated financial statements 58 58 59 STATUTORY AUDITORS’ REPORT ON THE FINANCIAL INFORMATION FOR THE FIRST HALF OF 2015 92 61 61 62 63 64 65 66 67 2015 Half-Year financial report CRÉDIT FONCIER 57 FINANCIAL INFORMATION ANALYSIS OF RESULTS ANALYSIS OF RESULTS ❯ CONSOLIDATED RESULTS The group share of net income in the first half of 2015 was -€20m. Net banking income: €427m Crédit Foncier’s main consolidated financial indicators at June 30, 2015 were as follows: Group share of net income: -€20m Origination: €4.8bn Outstandings (end of period): €100bn (in €m) Net banking income Management expenses Gross operating income Cost of risk Total assets: €135bn Consolidated equity (group share): €2.9bn Consolidated European capital adequacy ratio: 9.5% of which Common Equity Tier One (CET1): 8.8% 06/30/2015 Income before tax 427 336 +27.1% -273 +3.3% 145 63 +130.2% -160 -64 +150.0% 1 NS 2 -1 NS -13 -1 NS Income tax -7 4 NS Non-controlling interests -1 -1 NS Group share of net income C/I ratio* * -20 2 NS 66.0% 81.3% -15.3 pts C/I ratio (operating expenses/NBI). Net banking income amounted to €427m, up by 27.1% compared to the 1st half of 2014, that was impacted by the carrying cost of the RMBS portfolio sold to BPCE at the end of September 2014. Overheads, depreciation and amortisation amounting to €282m, up slightly compared to the first half of 2014. This increase is explained by two factors. The first is the impact of the new IFRIC 21 standard, which results in the majority of some taxes being recognised in the first half, rather than spread out evenly over the financial year. The second is the fact of taking into account the contribution to the single Resolution Fund. Adjusted for these items, operating expenses continued to decline in accordance with the strategic plan. 58 Change -282 Income from holdings consolidated by the equity method Gains or losses on other assets 06/30/2014 2015 Half-Year financial report CRÉDIT FONCIER Cost of risk resulted in a net provision of €160m, significantly up compared to the same period in 2014. It includes €104m in losses recorded for Austrian counterparty Heta Asset Resolution AG, whose securities were sold in June 2015. All exposures to Austria have been sold as well as other international exposures as part of the balance sheet deleveraging carried out since 2011. The group share of net income consequently amounted to -€20m for the first half of 2015. The prudential ratios have therefore been met, with a Common Equity Tier 1 ratio (Basel III CET1) of 8.8%. FINANCIAL INFORMATION ANALYSIS OF RESULTS 3 ❯ CONSOLIDATED BALANCE SHEET ■ ASSETS (in €m) Cash and amounts due from central banks 06/30/2015 12/31/2014 1,973 1,200 Financial assets at fair value through profit or loss 2,896 2,967 Hedging derivatives 7,913 8,366 Available-for-sale financial assets 2,660 3,469 Loans and receivables due from credit institutions 12,156 13,332 Loans and receivables due from customers 92,582 94,226 6,054 7,631 136 136 Revaluation adjustment on interest rate risk-hedged portfolio Held-to-maturity financial assets Current tax assets 16 310 Deferred tax assets 1,209 1,205 Accrued income and other assets 7,509 8,077 Investments in companies accounted for by the equity method 58 58 Investment property 22 26 Property, plant and equipment 48 48 Intangible assets 6 6 13 13 135,251 141,070 06/30/2015 12/31/2014 4,094 4,279 Hedging derivatives 10,056 11,298 Amounts due to credit institutions 33,790 34,601 809 346 76,463 80,509 3 2 6,198 6,204 250 251 Goodwill TOTAL ■ EQUITY AND LIABILITIES (in €m) Financial liabilities at fair value through profit or loss Amounts due to customers Debt securities Revaluation adjustment on interest rate risk-hedged portfolio Current tax liabilities Deferred tax liabilities Accrued expenses and other liabilities Provisions Subordinated debt Group share of consolidated equity o/w net income for the period Non-controlling (minority) interests TOTAL 582 581 2,908 2,900 -20 15 98 99 135,251 141,070 2015 Half-Year financial report CRÉDIT FONCIER 59 FINANCIAL INFORMATION ANALYSIS OF RESULTS The IFRS consolidated balance sheet total at June 30, 2015 amounted to €135.3bn, representing a decrease of 4.1% compared to December 31, 2014. Working cash balances, placed with Banque de France, amounted to €2.0bn. Loans and receivables due from credit institutions fell by €1.2bn, or 8.8%, mainly due to a €1bn decrease in securities classified as loans and receivables. Loans and receivables due from customers declined by €1.6bn, or 1.7%, mainly due to a €0.6bn decrease in loans to customers, a €0.4bn drop in short-term credit facilities, a €0.4bn decline in securities classified as loans and receivables and a €0.2bn decrease in other loans. Accrued income and other assets decreased by €0.6bn, or 7.0%, due to restructuring of derivatives during the financial year. 60 2015 Half-Year financial report CRÉDIT FONCIER Amounts due to credit institutions fell by €0.8bn, mainly due to the €0.8bn decline in term borrowings. Debt securities amounted to €76.5bn compared to €80.5bn as of December 31, 2014. This decline primarily results from the €2.7bn decrease in debt financing and a €1.3bn decrease in Medium-Term Notes (MTNs) and certificates of deposit. The group share of consolidated equity was stable compared to December 31, 2014, at €2.9bn. OUTLOOK Crédit Foncier is not aware of any deterioration affecting the Group’s outlook since the date of its half-year financial statements. FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 3 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 ❯ 3.1. CONSOLIDATED BALANCE SHEET – ASSETS (in €m) Notes Cash and amounts due from central banks Financial assets at fair value through profit or loss 3.1.1 Hedging derivatives 06/30/2015 12/31/2014 1,973 1,200 2,896 2,967 7,913 8,366 3.2 2,660 3,469 Loans and receivables due from credit institutions 3.4.1 12,156 13,332 Loans and receivables due from customers 3.4.2 92,582 94,226 6,054 7,631 136 136 Available-for-sale financial assets Revaluation adjustment on interest rate risk-hedged portfolio Held-to-maturity financial assets 3.5 Current tax assets 16 310 Deferred tax assets 1,209 1,205 Accrued income and other assets 7,509 8,077 Investments in associates 58 58 Investment property 22 26 Property, plant and equipment 48 48 6 6 Intangible assets Goodwill TOTAL ASSETS 3.7 13 13 135,251 141,070 2015 Half-Year financial report CRÉDIT FONCIER 61 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 ❯ 3.2. CONSOLIDATED BALANCE SHEET – LIABILITIES AND SHAREHOLDERS’ EQUITY (in €m) Financial liabilities at fair value through profit or loss Notes 06/30/2015 12/31/2014 3.1.2 4,094 4,279 10,056 11,298 Hedging derivatives Amounts due to credit institutions 3.8.1 33,790 34,601 Amounts due to customers 3.8.2 809 346 3.9 76,463 80,509 3 2 6,198 6,204 71 65 Debt securities Revaluation adjustment on interest rate risk-hedged portfolio Current tax liabilities Deferred tax liabilities Accrued expenses and other liabilities Insurance companies’ underwriting reserves Provisions 3.10 179 186 Subordinated debt 3.11 582 581 Shareholders’ equity 3,006 2,999 ❯ Consolidated equity (group share) 2,908 2,900 Share capital and additional paid-in capital 1,731 1,731 Consolidated retained earnings 1,521 1,500 -324 -346 Gains or losses recognised directly in other comprehensive income Net income for the period ❯ Non-controlling interests TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 62 2015 Half-Year financial report CRÉDIT FONCIER -20 15 98 99 135,251 141,070 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 ❯ 3.3. 3 CONSOLIDATED INCOME STATEMENT Notes H1 2015 H1 2014 Interest and similar income 4.1 2,650 2,987 Interest and similar expenses 4.1 -2,372 -2,759 Fee and commission income 4.2 137 107 (in €m) Fee and commission expenses 4.2 -15 -6 Net gains or losses on financial instruments at fair value through profit or loss 4.3 8 -41 Net gains or losses on available-for-sale financial assets 4.4 -13 9 Income from other activities 4.5 56 69 Expenses from other activities 4.5 NET BANKING INCOME Operating expenses 4.6 Depreciation and amortisation of property, plant, equipment and intangible assets GROSS OPERATING INCOME Cost of risk 4.7 OPERATING INCOME Share in net income of associates 5 Gains or losses on other assets INCOME BEFORE TAX Income tax NET INCOME Non-controlling interests GROUP SHARE OF NET INCOME 4.8 -24 -30 427 336 -278 -268 -4 -5 145 63 -160 -64 -15 -1 0 1 2 -1 -13 -1 -7 4 -20 3 -1 -1 -20 2 2015 Half-Year financial report CRÉDIT FONCIER 63 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 ❯ 3.4. COMPREHENSIVE INCOME (in €m) NET INCOME Notes H1 2015 H1 2014 -20 3 Revaluation adjustments on defined-benefit plans Tax impact of revaluation adjustments on defined-benefit plans Share of gains and losses recognised directly in the equity of associates that cannot be reclassified in income ITEMS NOT RECYCLABLE TO INCOME Foreign exchange rate adjustments -1 Change in value of available-for-sale financial assets 23 Change in value of hedging derivatives Income taxes 83 12 -12 -29 ITEMS RECYCLABLE TO INCOME 22 54 GAINS AND LOSSES RECOGNISED DIRECTLY IN EQUITY (AFTER TAX) Share of gains and losses recognised directly in the equity of associates that can be reclassified in income 64 22 54 COMPREHENSIVE INCOME 3 57 Attributable to equity holders of the parent 2 56 Non-controlling interests 1 1 2015 Half-Year financial report CRÉDIT FONCIER FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 ❯ 3.5. 3 STATEMENT OF CHANGES IN EQUITY Share capital and additional paid-in capital Gains and losses recognised directly in equity Change in fair value of financial instruments (in €m) Consolidated equity at January 1, 2014 Additional Share paid-in capital capital 1,331 400 Revaluation adjustment on Consolida- employeerelated ted retained liabilities earnings 2,129 2 Availablefor-sale financial Hedging assets derivatives Group share of net income -272 Total group share of consolidated equity Equity attributable to noncontrolling interests Total consolidated equity 3,590 99 3,689 -3 -3 -3 -3 Dividends paid Capital increase Total activity arising from relations with shareholders Impact of acquisitions and disposals on non-controlling interests Gains or losses recognised directly in other comprehensive income 54 54 Total for the period Comprehensive income 54 54 2 2 1 3 2 56 1 57 Other changes Consolidated equity at June 30, 2014 1,331 400 2,129 2 -218 0 2 3,646 98 3,744 Consolidated equity at December 31, 2014 1,331 400 1,500 -5 -195 -146 15 2,900 99 2,999 Appropriation of 2014 income 15 Impact of IFRIC 21 application Consolidated equity at January 1, 2015 -15 6 1,331 400 1,521 6 -5 -195 -146 2,906 Dividends paid 6 99 3,005 -2 -2 -2 -2 Capital increase Total activity arising from relations with shareholders Impact of acquisitions and disposals on non-controlling interests Gains or losses recognised directly in other comprehensive income 15 7 Income for the period Comprehensive income 22 22 -20 -20 1 -19 15 7 -20 2 1 3 -180 -139 -20 2,908 98 3,006 Other changes Consolidated equity at June 30, 2015 1,331 400 1,521 -5 2015 Half-Year financial report CRÉDIT FONCIER 65 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 ❯ 3.6. CONSOLIDATED 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 that are neither investment activities nor financing activities. They include transactions related to obligations foncières and other long-term non-subordinated resources. “Investment activities” refers to acquisitions and disposals of long-term assets, and to investments that are not included in cash equivalents. “Financing activities” refers to activities that have an impact on capital (both its amount and its composition), cash dividends paid and the entity’s subordinated loans. (in €m) Income before tax Net depreciation and amortisation of property, plant and equipment and intangible assets Net change to provisions and provisions for impairment (incl. insurance companies’ underwriting reserves) Share in net income of associates Net cash flows generated by investment activities H1 2015 H1 2014 -12 -1 4 5 29 -12 0 -1 -23 -14 Income/expense from financing activities Other changes 288 -1,406 Total non-monetary items included in net income before tax 298 -1,428 Net increase or decrease arising from transactions with credit institutions Net increase or decrease arising from transactions with customers Net increase or decrease from transactions involving financial assets and liabilities 338 4,471 1,913 243 -2,826 -2,312 Net increase or decrease from transactions involving non-financial assets and liabilities 785 -1,281 Income taxes paid 269 192 Net increase or decrease in assets and liabilities arising from operating activities 479 1,313 Net cash flows generated by operating activities (A) 765 -116 19 27 4 11 Net increase or decrease related to financial assets and equity interests Net increase or decrease related to investment property Net increase or decrease related to property, plant & equipment and intangible assets -1 -5 Net cash flows generated by investing activities (B) 22 33 Net increase or decrease arising from transactions with shareholders -3 -2 Net increase or decrease generated by financing activities 3 15 Net cash flows generated by financing activities (C) 0 13 Impact of changes in exchange rates (D) TOTAL NET CASH FLOWS (A+B+C+D) 787 -70 Cash and amounts due from central banks 1,200 7,400 572 -1,444 800 548 -128 -192 -100 -1,800 Opening cash and cash equivalents 1,772 5,956 Cash and amounts due from central banks 1,973 5,343 1,973 5,343 586 543 733 626 Demand transactions with credit institutions Current accounts with overdrafts Demand accounts in credit Other amounts payable Deposits and loans at overnight rates Cash and amounts due from central banks (assets) Net balance of demand transactions with credit institutions Current accounts with overdrafts Demand accounts in credit Deposits and loans at overnight rates Closing cash and cash equivalents NET CHANGE IN CASH AND CASH EQUIVALENTS 66 2015 Half-Year financial report CRÉDIT FONCIER -147 -83 2,559 5,886 787 -70 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 ❯ 3.7. Note 1 1.1 1.2 1.3 1.4 Note 2 2.1 2.2 2.3 2.4 Note 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 Note 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 3 SUMMARY OF THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Legal and financial framework – Significant events during the period and events subsequent to June 30, 2015 Legal framework Guarantee mechanism Significant events during the first half of 2015 Post-balance sheet events Note 5 68 68 68 68 68 Accounting principles and comparability Regulatory framework Accounting standards Use of estimates Presentation of the consolidated financial statements and balance sheet date 69 69 69 69 Notes to the balance sheet Financial assets and liabilities at fair value through profit or loss Available-for-sale financial assets Fair value of financial assets and liabilities Loans and receivables Held-to-maturity financial assets Reclassification of financial assets Goodwill Amounts due to credit institutions and customers Debt securities Provisions Subordinated debt Share capital and equity instruments issued 71 Notes to the income statement Interest and similar income and expenses Fee and commission income and expenses Net gains or losses on financial instruments at fair value through profit or loss Net gains or losses on available-for-sale financial assets Income and expenses from other activities Operating expenses Cost of risk Income tax 70 71 72 73 76 77 77 78 78 79 79 79 80 5.1 5.2 Partnerships and associates Investments in associates Share in net income of associates 86 86 86 Note 6 Segment reporting 87 Note 7 Commitments Financing and guarantee commitments Commitments on securities 88 88 88 7.1 7.2 Note 8 8.1 8.2 Note 9 9.1 9.2 Financial assets pledged as collateral and assets received as collateral that can be sold or repledged Financial assets pledged as collateral Financial assets received as collateral that can be sold or repledged Offsetting financial assets and liabilities Financial assets Financial liabilities Note 10 Scope of consolidation 10.1 10.2 89 89 89 90 90 90 91 Changes in the scope of consolidation during the first half of 2015 Scope of consolidation at June 30, 2015 91 91 81 81 81 82 82 83 83 83 85 2015 Half-Year financial report CRÉDIT FONCIER 67 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 NOTE 1 LEGAL AND FINANCIAL FRAMEWORK – SIGNIFICANT EVENTS DURING THE PERIOD AND EVENTS SUBSEQUENT TO JUNE 30, 2015 1.1 LEGAL FRAMEWORK 1.3.4 MARKET PRICE VALUATION METHODS Crédit Foncier, a subsidiary of BPCE, is a specialist in real estate and public sector financing. It operates on the individual customers’ market (real estate financing, valuation and services), the private corporate market and the public sector market. Subsequent to the changes made in 2014 affecting the valuation of derivatives without equivalents in the items hedged, the income statement for the first half of the year was impacted positively by: ❯ +€25.4m due to the impact of the “bi-curve” method, compared to -€15.1m in the first half of 2014s; 1.2 GUARANTEE MECHANISM ❯ +€1.2m due to the change in CVA/DVA on derivatives, compared to +€0.6m in the first half of 2014. Crédit Foncier is a direct subsidiary of BPCE. As such, it is covered by its parent company guarantee and the 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’Épargne default. 1.3.5 VALUATION OF ISSUER SPREADS 1.3 SIGNIFICANT EVENTS DURING THE FIRST HALF OF 2015 1.3.6 CHANGE IN COST OF RISK 1.3.1 DISPOSAL OF EXPOSURE TO HETA ASSET RESOLUTION At December 31, 2014, Compagnie de Financement Foncier, a whollyowned subsidiary of Crédit Foncier, held €260m in securities issued by HETA (formerly Hypo Alpe Adria Bank). In the first quarter, after a moratorium was imposed on the institution’s debt on March 1, 2015, groupe Crédit Foncier set aside a provision for this exposure in the amount of 50% of its par value, in accordance with the recommendations of the ECB. A provision in the amount of -€141.9m was also set aside for all of the accrued interest and positive revaluations of fixed-income components. In the second quarter, acting in accordance with its risk management policy, Compagnie de Financement Foncier sold its entire exposure to HETA. The securities have thus been sold for a higher price than provisioned at March 31, 2015. The overall impact of this disposure over the period was reduced to a net impairment under cost of risk in the amount of -€103.7m. The recognition of the change in credit spreads on structured issuances designated at fair value had a negative impact of -€11.4m before tax, compared to -€23.4m in the first half of 2014. The first half of 2015 recorded a negative cost of risk of -€160m compared to -€64m in 2014. Adjusted for the -€103.7m loss from the sale of HETA securities, the cost of risk amounts to -€56.3m. 1.3.7 RECLASSIFICATION OF FINANCIAL ASSETS No reclassifications were carried out by the Group during the period. 1.3.8 CLEARING At June 30, 2015, the clearing house held 105 Crédit Foncier swaps for a total notional amount of €9.9bn. These swaps can be broken down as follows: ❯ 56 positions (€6.5bn) were transferred to the clearing house as soon as they were initiated; ❯ 49 positions (€3.4bn) were novated. Hedging relationships comply fully with the “Novation of Derivatives and Continuation of Hedge Accounting” amendment to IAS 39, applicable as of January 1, 2014. 1.3.2 MARKET DISPOSALS The Group continued to dispose of securities (mostly recognised under “loans and receivables”) in the first half of the year, acting in accordance with its 2011 strategic plan and the Board of Directors decision of May 5th, 2015. Crédit Foncier no longer holds any exposures to Austria at June 30, 2015. In total, €1.04bn (excluding HETA securities) in assets were sold. These disposals, along with the termination of swaps, resulted in net capital losses (before tax) of -€15.7m. 1.3.3 IMPAIRMENT OF CASH-GENERATING UNITS (CGUS) As there was no evidence of impairment in the first half of 2015, the Group did not record any additional impairment losses. 68 2015 Half-Year financial report CRÉDIT FONCIER 1.4 POST-BALANCE SHEET EVENTS No other event that is likely to have a material impact on the financial statements at June 30, 2015 occurred between the closing date and July 28, 2015, the date of the Board of Directors’ meeting that examined the financial statements. FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 NOTE 2 3 ACCOUNTING PRINCIPLES AND COMPARABILITY 2.1 REGULATORY FRAMEWORK In accordance with EU Regulation 1606/2002 of July 19, 2002 relating to the application of international accounting standards, groupe Crédit Foncier has prepared its consolidated financial statements for the half year ended June 30, 2015 in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the European Union and applicable at that date, thereby excluding certain provisions of IAS 39 relating to hedge accounting(30). These half-year consolidated financial statements at June 30, 2015 were prepared in accordance with IAS 34, “Interim Financial Reporting”. As such, the notes presented cover the most important items for the half-year period, and should be read in conjunction with the Group’s consolidated financial statements at December 31, 2014. “Provisions, Contingent Liabilities and Contingent Assets” clarifies the conditions for recognising debt related to levies by public authorities. On the date of the first application (January 1, 2014), the impacts of the IFRIC 21 interpretation are recognised retroactively as follows: ❯ the change in method related to the social solidarity tax (contribution sociale de solidarité des sociétés - C3S), which previously had been recognised for the year in which the revenues were earned and is now recognised on January 1 of the following year, had an impact on the opening balance sheet at January 1, 2014: cancellation of the provision recognised at December 31, 2013 against equity; ❯ as a result, the change in method related to the social solidarity tax had an impact on net income for the 2014 fiscal year; ❯ the change in method related to the recognition at January 1, 2014 of taxes that had previously been recognised progressively (namely the TSB, or Tax on Systemic Banks, the tax for ACPR supervisory fees and the property tax) had an impact on the interim earnings for the 2014 fiscal year. 2.2 ACCOUNTING STANDARDS The accounting standards and interpretations applied and described in groupe Crédit Foncier’s annual financial statements at December 31, 2014 were complemented by standards, amendments and interpretations whose application is mandatory for reporting periods starting from January 1, 2015. As of January 1, 2015, groupe Crédit Foncier applies IFRIC 21 “Levies” retroactively to January 1, 2014. This interpretation of IAS 37 The impacts of the IFRIC 21 interpretation on the consolidated balance sheet at December 31, 2014 primarily concern consolidated equity (group share) and amount to +€6m, net of deferred taxes, recognised against accrued liabilities and deferred tax assets. The impacts of the IFRIC 21 interpretation on the consolidated income statement for the first half of 2014 are presented in the table below: Impacted posts in the financial statements H1 2014 Impact on H1 2014 Restated amounts H1 2014 H1 2015 Operating expenses -273 -15 -288 -282 (of which taxes)* (-20) (-15) (-35) (-43) Income tax 4 6 10 -12 Group share of net income 2 -9 -7 -20 * The increase under “Taxes other than on income” between the first half 2014 (restated) and the first half of 2015 is primarily the result of the new contribution to the Single Resolution Fund that partially offsets the decrease of the rate applicable to the tax for systemic risks, for an -€5.5m impact, net of charges. Given the non-materiality of the impact of this change in method, the comparative periods presented in the financial statements have not been adjusted. In the specific case of the financial year ended June 30, 2015, accounting estimates involving assumptions were mainly used for the following assessments: The other standards, amendments and interpretations adopted by the European Union did not have a material impact on the Group’s financial statements. ❯ fair value of financial instruments assessed using valuation 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. These estimates are based on the judgement of the individuals preparing these financial statements and the information available at the balance sheet date. Actual future results may differ from these estimates. techniques (note 2.3.1); ❯ the amount of impairment of financial assets, and more specifically permanent impairment losses on available-for-sale assets and impairment losses applicable to loans and receivables on an individual basis or calculated on the basis of portfolios; ❯ provisions recorded under liabilities and provisions relating to reverse mortgage loans; ❯ assessment of expenses related to pension schemes and future employee benefits; ❯ deferred taxes; ❯ goodwill impairment testing. (30) These standards can be found on the European Commission website at the following address: http://ec.europa.eu/internal_market/accounting/ias_fr.htm. 2015 Half-Year financial report CRÉDIT FONCIER 69 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 2.3.1 DETERMINATION OF FAIR VALUE Instruments valued by specific models or using non-observable inputs more specifically include: GENERAL PRINCIPLES ❯ unlisted shares, generally in the form of equities: Crédit Logement; 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. Groupe Crédit Foncier assesses the fair value of assets and liabilities 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 own credit risk (DVA – Debit Valuation Adjustment). As of September 30, 2014, they are evaluated based on market parameters. The valuation of derivatives for which the counterparty is a member of the Groupe BPCE solidarity mechanism (see note 1.2) is not subject to CVA or DVA calculation in the Group accounts. At June 30, 2015, the impacts of the CVA and DVA on the income statement are -€5.1m and +€6.4m, respectively. ❯ certain UCITS, when the net asset value is an indicative value (in the event of illiquidity, liquidation, etc.) and there is no price that supports the said value; ❯ FCPRs (venture capital mutual funds): the net asset value is frequently an indicative value because it is often not possible to exit; ❯ multi-asset structured products, hybrid rate products, securitisation swaps and fixed-income options products; ❯ structured loans for which some valuation parameters are not observable (credit spread, etc.); ❯ securitisation tranches for which there is no price quoted on an active market. These instruments are frequently valued based on contributor prices (structurers for example). TRANSFERS BETWEEN FAIR-VALUE LEVELS 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 establish fair value. SPECIFIC INSTANCES Fair value of financial instruments booked at amortised cost An active market is a market on which transactions for assets or liabilities occur with sufficient frequency and volume. Fair value calculations for financial instruments that are not at fair value on the balance sheet are provided for information only and should be interpreted with caution. Level 2 fair value In fact, for most cases, the values provided are not intended to be produced and in practice they normally cannot be. 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 preferring observable market valuation methods (“level 2 fair value”). “Level 2” valuations are based on observable data and models recognised as industry standards (discounted cash flow method, interpolation technique, 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. Over-the-counter instruments valued using uncommon models or models that use a significant portion of non-observable data (level 3) When the valuations are not obtained using observable data or models recognised as industry standards, the valuation is considered nonobservable. 70 The Group carried out no transfers between fair value levels during the first six months of the financial year. 2015 Half-Year financial report CRÉDIT FONCIER 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 bank activities, for which the management model is the collection of contractual cash flows. Consequently, when assessing the fair value of these instruments, the following assumptions have been made for the sake of simplicity. 2.4 PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AND BALANCE SHEET DATE The IFRS imposes no model for summary financial statements. The financial statements’ presentation is compliant with the Recommendation No. 2013-04 of the French National Accounting Board, dated November 7, 2013. The consolidated financial statements are drawn up on the basis of the financial statements of the companies within groupe Crédit Foncier’s scope of consolidation at June 30, 2015. The Group’s consolidated financial statements at June 30, 2015 were approved by the Board of Directors on July 28, 2015. FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 NOTE 3 3 NOTES TO THE BALANCE SHEET 3.1 FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS assets, and structured issuances from Compagnie de Financement Foncier are posted as liabilities. These assets and liabilities mainly comprise certain assets and liabilities that the Group has chosen to recognise at fair value, at their date of acquisition or issuance, using the fair value option available under IAS 39, i.e.: structured loans granted by the Group are posted as Derivative assets and liabilities in the trading book are contracted to hedge the structured transactions described above. 3.1.1 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 06/30/2015 (in €m) Trading FV option 12/31/2014 Total Trading 16 23 FV option Total Treasury bills and equivalent Bonds and other fixed-income securities 16 23 Fixed-income securities Equities and other variable-income securities Loans to credit institutions Loans to customers 2,218 2,218 2,167 2,167 Loans 2,218 2,218 2,167 2,167 Repurchase agreements* Trading derivatives* 662 TOTAL FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS 678 * 2,218 662 777 2,896 800 777 2,167 2,967 The information is presented taking into account netting effects, in accordance with IAS 32 (see note 9). 3.1.2 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (in €m) 06/30/2015 12/31/2014 1,089 934 Financial liabilities held for trading Trading derivatives* Debt securities 3,005 3,345 Financial liabilities designated at fair value through profit or loss 3,005 3,345 TOTAL FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 4,094 4,279 * The information is presented taking into account netting effects, in accordance with IAS 32 (see note 9). 2015 Half-Year financial report CRÉDIT FONCIER 71 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 3.2 AVAILABLE-FOR-SALE FINANCIAL ASSETS These are non-derivative financial assets that could not be classified in any other category (“Financial assets at fair value”, “Held-to-maturity financial assets”, or “Loans and receivables”). (in €m) Treasury bills and equivalent Bonds and other fixed-income securities Impaired securities Fixed-income securities Investments in associates 06/30/2015 12/31/2014 2,240 2,461 161 752 1 1 2,402 3,214 221 224 Other variable-income securities Impaired securities Equities and other variable-income securities 12 236 Loans to customers 28 27 Loans 28 27 2,668 3,477 -1 -1 Available-for-sale financial assets, Gross Impairment of fixed-income securities and loans Permanent impairment of equities and other variable-income securities TOTAL AVAILABLE-FOR-SALE FINANCIAL ASSETS Gains and losses recognised directly in equity on available-for-sale financial assets (before tax) Available-for-sale assets are impaired on the basis of impairment indicators when the Group believes that its investment will not be fully recovered. For listed variable-income securities, the impairment indicator is a decline of more than 50% over the historic cost or for a period longer than 36 months. 72 17 238 2015 Half-Year financial report CRÉDIT FONCIER -7 -7 2,660 3,469 -214 -233 At June 30, 2015, the gains and losses recognised directly in equity include, more specifically, the revaluation of the credit component on sovereign securities. FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 3 3.3 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 3.3.1 FAIR-VALUE HIERARCHY OF FINANCIAL ASSETS AND LIABILITIES The following statement provides a breakdown of financial instruments by type of price and valuation model: (in €m) FINANCIAL ASSETS Price quoted on active market (level 1) 2,299 MeasuMeasurement rement techniques techniques using using nonobservable observable data data (level 3) (level 2) 8,606 Securities Derivatives MeasureMeasurement techment techPrice quoted on niques using niques using Total at non-obserobservable Total at an active vable data December 31, data market June 30, 2014 (level 3) (level 2) (level 1) 2015 2,564 13,469 16 16 2,522 9,652 2,628 14,802 23 23 622 622 777 777 Interest-rate derivatives 540 540 681 681 Foreign-exchange derivatives 122 122 96 96 16 678 777 Other financial assets 2,218 Financial assets designated at fair value through profit or loss 2,218 Other financial assets Financial assets held for trading 662 23 800 2,218 2,168 2,168 2,218 2,168 2,168 Securities Interest-rate derivatives 5,462 5,462 6,724 6,724 Foreign-exchange derivatives 2,451 2,451 1,642 1,642 Others Hedging derivatives 7,913 Investments in associates Fixed-income securities 23 2,299 Other financial assets Available-for-sale financial assets 2,299 7,913 8,366 207 230 22 206 228 479 212 3,213 8 19 27 509 437 3,468 103 2,402 8 20 28 31 330 2,660 2,522 2,522 8,366 2015 Half-Year financial report CRÉDIT FONCIER 73 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 (in €m) FINANCIAL LIABILITIES Price quoted on an active market (level 1) MeasuMeasurement rement techniques techniques using using nonobservable observable data data (level 3) (level 2) Price quoted on Total at an active market June 30, (level 1) 2015 MeasuMeasurement rement techniques techniques using using nonTotal at observable observable data December 31, data (level 3) 2014 (level 2) 14,149 14,149 15,578 15,578 1,088 1,088 935 935 1,000 1,000 864 864 88 88 71 71 Financial liabilities held for trading 1,088 1,088 935 935 Securities 3,005 3,005 3,345 3,345 3,005 3,005 3,345 3,345 Interest-rate derivatives 7,379 7,379 8,955 8,955 Foreign-exchange derivatives 2,677 2,677 2,343 2,343 10,056 10,056 11,298 11,298 Derivatives Interest-rate derivatives Foreign-exchange derivatives Others Other financial liabilities Financial liabilities designated at fair value through profit or loss Credit derivatives Equity derivatives Others Hedging derivatives 74 2015 Half-Year financial report CRÉDIT FONCIER FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 3 3.3.2 ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES UNDER LEVEL 3 OF FAIR VALUE HIERARCHY Gains and losses recognised during Transactions carried the period out during the period Transfers of the period in the income statement (in €m) FINANCIAL ASSETS On transactions in progress at the reporting date 12/31/2014 On transactions eliminated from the balance sheet at the reporting date Purchases/ Disposals/ Is- RedempIn equity suances tions 106 -270 to and from another accounting to and from Other category levels 1 and 2 changes 06/30/2015 2,627 101 2,564 23 -7 16 23 -7 16 Other financial assets 2,168 108 -58 2,218 Financial assets designated at fair value through profit or loss 2,168 108 -58 2,218 Securities Fixed-income securities Variable-income securities Derivatives Other financial assets Financial assets held for trading Securities Fixed-income securities Variable-income securities Hedging derivatives Investments in associates 206 -1 2 Other AFS securities 211 1 103 Other financial assets 19 1 436 106 Available-for-sale financial assets 207 -212 103 20 -212 330 FINANCIAL LIABILITIES Securities Derivatives Financial liabilities held for trading Hedging derivatives Securities Financial liabilities designated at fair value through profit or loss At June 30, 2015, financial instruments valued by a technique that uses non-observable data include structured loans to local authorities designated at fair value and equities and advances to unconsolidated subsidiaries. During the first half of 2015, -€101m in losses were recorded for level 3 financial assets that were still part of the portfolio at June 30, 2015. During the first half of 2015, no gains and losses were recognised directly in equity for level 3 financial assets that were still part of the portfolio at June 30, 2015. 2015 Half-Year financial report CRÉDIT FONCIER 75 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 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, as adopted by the European Union on October 15, 2008. State-subsidised mortgage loans benefit from French government guarantees for both credit and interest-rate risk. These are loans granted in the period between 1950 and 1995, when Crédit Foncier had a near monopoly on the distribution of state-subsidised loans within the scope of a policy to promote construction. Their amounts were €280m at June 30, 2015 and €319m at December 31, 2014. 3.4.1 LOANS AND RECEIVABLES DUE FROM CREDIT INSTITUTIONS 06/30/2015 (in €m) (1) 12/31/2014 Loans and receivables due from credit institutions 12,156 13,332 TOTAL LOANS AND RECEIVABLES DUE FROM CREDIT INSTITUTIONS 12,156 13,332 (1) Of which €9,087m of loans to BPCE with guarantees received amounting to €8,867m. Amounts due from transactions with the network amounted to €344m at June 30, 2015 (€383m at December 31, 2014). The fair value of loans and receivables due from credit institutions was €12,124m at June 30, 2015 (€13,248m at December 31, 2014). ❯ Breakdown of gross loans and receivables due from credit institutions (in €m) Current accounts with overdrafts 06/30/2015 12/31/2014 733 801 11,193 11,310 Repurchase agreements Loans and advances Finance leases Subordinated and participating loans Securities classified as loans and receivables 24 23 206 1,198 12,156 13,332 06/30/2015 12/31/2014 93,559 95,169 -828 -788 Other loans and receivables due from credit institutions Impaired loans and receivables TOTAL LOANS AND RECEIVABLES DUE FROM CREDIT INSTITUTIONS, GROSS 3.4.2 LOANS AND RECEIVABLES DUE FROM CUSTOMERS (in €m) Loans and receivables due from customers Specific impairment Impairment on a portfolio basis TOTAL LOANS AND RECEIVABLES DUE FROM CUSTOMERS -149 -155 92,582 94,226 The fair value of loans and receivables due from customers was €96,235m at June 30, 2015 (€96,827m at December 31, 2014). 76 2015 Half-Year financial report CRÉDIT FONCIER FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 3 ❯ Breakdown of gross loans and receivables due from customers (in €m) 06/30/2015 12/31/2014 1 2 Current accounts with overdrafts Loans to financial sector customers 2 2 1,884 2,311 Equipment loans 18,661 18,796 Home loans 56,909 57,458 561 582 Short-term credit facilities Export loans Finance leases Other loans Other facilities granted to customers Securities classified as loans and receivables 2,831 3,037 80,848 82,186 9,472 9,874 3,238 3,107 93,559 95,169 Other loans and receivables due from customers Impaired loans and receivables TOTAL GROSS LOANS AND RECEIVABLES DUE FROM CUSTOMERS 3.5 HELD-TO-MATURITY FINANCIAL ASSETS These are non-derivative financial assets with fixed or determinable payments and fixed maturities that Crédit Foncier has the intention and ability to hold until maturity. 06/30/2015 12/31/2014 Bonds and other fixed-income securities 136 136 Gross amount of held-to-maturity financial assets 136 136 TOTAL HELD-TO-MATURITY FINANCIAL ASSETS 136 136 (in €m) The fair value of held-to-maturity financial assets was €136m at June 30, 2015 (€135m at December 31, 2014). 3.6 RECLASSIFICATION OF FINANCIAL ASSETS In compliance with the amendments to IAS 39 and IFRS 7 “Reclassification of Financial Assets”, in 2008 the Group reclassified certain availablefor-sale financial assets to “Loans and receivables”. The table below shows the book value and fair value of these assets: (in €m) Amortised cost (nominal +/- premium/ discount) 12/31/2014 06/30/2015 o/w principal o/w change repayments/ in value due disposals to exchange rate over the period differences Change o/w change o/w amortisain value tion of credit component due to interest rate at reclassification date differences 6,833 6,196 -637 -916 279 N/A N/A 84 92 8 N/A NS NS N/A 1,893 1,264 -629 N/A 42 -671 N/A -74 -71 3 N/A N/A N/A 3 0 0 0 N/A N/A N/A N/A Carrying amount 8,735 7,481 -1,254 -916 321 -671 3 FAIR VALUE 7,711 7,021 -690 Accrued interest Valuation of interest rate component (hedged) Valuation of credit component (unhedged) Impairment N/A: Not applicable. NS: Not significant. 2015 Half-Year financial report CRÉDIT FONCIER 77 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 Fair value hedges were contracted for all 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 recognised in 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. The amortisation of both items is registered at the same pace. 3.7 GOODWILL If these financial assets had not been reclassified, equity to be reclassified to the income statement would have included a posttax loss of -€302m at June 30, 2015, an increase of +€369m since December 31, 2014. As the interest rate and the exchange rate components of these assets were hedged, the impact on the income statement is limited to interest for the period. (in €m) 3.7.1 GOODWILL This item comprises unallocated goodwill. Goodwill arising from transactions carried out during the period is detailed in note 10 “Scope of consolidation”. 06/30/2015 12/31/2014 CFI 13 13 TOTAL GOODWILL 13 13 06/30/2015 12/31/2014 Opening net value 13 13 Closing net value 13 13 (in €m) 3.8 AMOUNTS DUE TO CREDIT INSTITUTIONS AND CUSTOMERS Amounts due that are not classified as financial liabilities at fair value through profit or loss are accounted for at amortised cost and posted to the balance sheet under “Amounts due to credit institutions” or “Amounts due to customers”. 3.8.1 AMOUNTS DUE TO CREDIT INSTITUTIONS (in €m) Demand deposits 06/30/2015 12/31/2014 220 249 4 4 Accrued interest Amounts due to credit institutions – repayable on demand Term deposits and loans 224 253 33,503 34,290 Repurchase agreements 63 58 Amounts due to credit institutions – repayable at agreed maturity dates Accrued interest 33,566 34,348 TOTAL AMOUNTS DUE TO CREDIT INSTITUTIONS 33,790 34,601 The fair value of amounts due to credit institutions was €33,792m at June 30, 2015 (€34,603m at December 31, 2014). Amounts due from transactions with the network amounted to €61m at June 30, 2015 (€59m at December 31, 2014). 3.8.2 AMOUNTS DUE TO CUSTOMERS (in €m) Current accounts in credit 06/30/2015 12/31/2014 181 194 129 70 Regulated savings accounts Demand deposits and loans Term deposits and loans 499 82 Other amounts due to customers 628 152 TOTAL AMOUNTS DUE TO CUSTOMERS 809 346 The fair value of amounts due to customers was €809m at June 30, 2015 (€350m at December 31, 2014). 78 2015 Half-Year financial report CRÉDIT FONCIER FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 3 3.9 DEBT SECURITIES Debt securities are broken down by type, except subordinated and deeply subordinated notes, which are shown under “Subordinated debt”. (in €m) 06/30/2015 12/31/2014 Bonds 75,428 77,458 81 1,356 75,509 78,814 Interbank market instruments and negotiable debt securities Total Accrued interest TOTAL DEBT SECURITIES 954 1,695 76,463 80,509 The fair value of debt securities was €79,786m at June 30, 2015 (€83,013m at December 31, 2014). 3.10 PROVISIONS 12/31/2014 Additions Provisions for end-of-career benefits 24 1 Provisions for other long-term benefits 27 (in €m) Provisions for long-service awards 3 Provisions for post-employment benefits 1 06/30/2015 25 3 55 1 27 1 Provisions for litigation, fines and penalties relating to operating expenses 14 Provisions for litigation, fines and penalties relating to banking activities 33 Provisions for litigation Other provisions for liabilities and charges relating to operating activities Other provisions for liabilities and charges relating to unconsolidated equity investments 1 -1 55 28 -1 -1 1 -1 -1 2 34 47 1 -2 -2 2 46 32 6 -2 -10 Other provisions for liabilities and charges relating to banking activities 17 Other provisions 50 * Other changes* -1 Provisions for off-balance sheet commitments Total provisions Unused reversals 27 Provisions for employee benefit commitments Provision for restructuring costs Use 12 26 1 -1 16 6 -3 -10 10 -5 -13 43 7 186 7 1 179 Including changes in consolidation scope and exchange rates. 3.11 SUBORDINATED DEBT This item includes subordinated debt and deeply subordinated notes. Subordinated debt is classified separately from debts and issued 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 groupe Crédit Foncier have the following terms and conditions: ❯ newly issued notes are pari passu to each other as well as to all other deeply subordinated securities of the issuer; ❯ interest must be paid when net income is reported for the year, regardless of whether that income is paid out in the form of dividends or not. Therefore, 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. 2015 Half-Year financial report CRÉDIT FONCIER 79 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 06/30/2015 12/31/2014 Term subordinated debt 290 290 Perpetual deeply subordinated debt 280 280 Total 570 570 4 2 (in €m) Accrued interest Revaluation of hedged items TOTAL SUBORDINATED DEBT The fair value of subordinated debt was €583m at June 30, 2015 (€582m at December 31, 2014). The perpetual deeply subordinated debt corresponds to a €280m debt issued by Crédit Foncier and fully purchased by BPCE. 8 9 582 581 in case of changes in tax regulation or regulatory measures. In this case, the early redemption will be submitted to the preliminary approval of the French Prudential Supervisory Authority (Autorité de contrôle prudentiel et de résolution - ACPR). Subordination conditions: Early repayment terms: On July 30, 2014, a call option on this bond could have been exercised in full at the issuer’s will. The issuer didn’t use this option, so the issuance was extended under new financial conditions: the issuance rate was changed from a 5.48% fixed-rate to a Euribor 3-months +1.89% rate. The issuer will also be able to call for an early redemption In the event of liquidation of the borrower, the debt shall be repaid after all other preferential or unsecured creditors and ordinary holders of subordinated debt have been paid, and after reimbursement of any participating loans granted to the borrower or securities. 3.12 SHARE CAPITAL AND EQUITY INSTRUMENTS ISSUED 06/30/2015 (in €m) 12/31/2014 Number of shares Nominal (in €) Capital (in €m) Number of shares Nominal (in €) Capital (in €m) 369,833,533 3.60 1,331 369,833,533 3.60 1,331 369,833,533 3.60 1,331 369,833,533 3.60 1,331 Ordinary shares Value at opening Decrease in capital VALUE AT CLOSING There are no special shares in the Group’s share capital. 80 2015 Half-Year financial report CRÉDIT FONCIER FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 NOTE 4 3 NOTES TO THE INCOME STATEMENT 4.1 INTEREST AND SIMILAR INCOME AND EXPENSES This line 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 transactions, held-to-maturity assets, debt securities and subordinated debt. It also includes interest receivable on fixed-income securities classified as available-for-sale financial assets and hedging derivatives, with the understanding that accrued interest on cash flow hedging derivatives is taken to income in the same manner and period as the accrued interest on the hedged item. H1 2015 H1 2014 Income Expenses Net Income Expenses Net 1,548 -180 1,368 1,532 -2 1,530 Credit institution loans and receivables 52 -136 -84 56 -256 -200 Finance leases 11 11 12 (in €m) Customers loans and receivables Debt securities and subordinated debt Hedging derivatives 991 Available-for-sale financial assets 47 Held-to-maturity financial assets 1 Other interest income and expenses TOTAL INTEREST INCOME AND EXPENSES 2,650 -1,088 -1,088 -956 35 1,334 47 52 1 1 -12 -12 -2,372 278 2,987 -1,303 -1,303 -1,191 143 52 1 -7 -7 -2,759 228 This line mainly includes fees and commissions for recurring services (payment processing, securities deposit fees, etc.) and occasional services (fund transfers, payment penalties, etc.), as well as fees and commissions on the execution of major transactions. 4.2 FEE AND COMMISSION INCOME AND EXPENSES Fees and commissions are recorded based on the type of service rendered and on the method of accounting for the financial instruments to which the service relates. However, fees or commissions that form an integral part of the effective yield of a contract are recorded under “Interest margin”. H1 2015 (in €m) 12 Income H1 2014 Expenses Net Income Expenses Net Cash and interbank transactions Customer transactions 60 -2 58 36 -1 35 Financial services rendered 4 -11 -7 4 -3 1 Sale of insurance products 63 63 61 1 1 Payment services Securities transactions -1 -1 61 -2 -2 Trust management services 4 4 2 2 Transactions on financial instruments and derivatives 3 3 2 2 Other fees and commissions 2 -1 1 2 2 137 -15 122 107 TOTAL FEE AND COMMISSION INCOME AND EXPENSES -6 101 2015 Half-Year financial report CRÉDIT FONCIER 81 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 4.3 NET GAINS OR LOSSES ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS This item includes gains and losses (including the related interest) on financial assets and liabilities held for trading or those designated at fair value through profit or loss under the fair value option. “Gains or losses on hedging transactions” includes gains and losses arising from the revaluation of derivatives used as fair value hedges, as well as gains and losses arising from the symmetrical revaluation at fair value of the hedged item, as well as the revaluation at fair value of the macro-hedged portfolio and the ineffective portion of cash flow hedges. H1 2015 (in €m) Gains or losses on financial instruments held for trading Gains or losses on financial instruments designated at fair value through profit or loss H1 2014 -141 15 141 -45 Gains or losses on hedging transactions 7 -12 ❯ Ineffective portion of fair value hedges 7 -12 ❯ Fair value adjustment on hedging instruments 719 -1,186 -712 1,174 Gains or losses on foreign exchange transactions 1 1 TOTAL NET GAINS OR LOSSES ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS 8 -41 ❯ Fair value adjustment on hedged items attributable to the hedged risks ❯ Ineffective portion of cash flow hedges ❯ Ineffective portion of hedges of net investment in foreign currency For the first half of 2015, the item “Gains or losses on hedging transactions” includes the valuation of structured loans for -€7m in June 2015 (in June 2014 the impact is non-material), the fair value adjustment of derivatives impacted for some -€5m by the change in Credit Value Adjustment (CVA), and impacted for some +€6m by the change in Debit Valuation Adjustment (DVA). The introduction of the “bicurve effect” in the valuation of unstructured derivatives has a +€25m impact on the interim financial statements. The item “Gains or losses on financial instruments designated at fair value through profit or loss” especially includes the valuation of issuer spread on issuances classified as financial instruments designated at fair value through profit or loss, which had a negative impact of -€11m on the result before tax in June 2015 compared to -€23m in June 2014. 4.4 NET GAINS OR LOSSES ON AVAILABLE-FORSALE FINANCIAL ASSETS This item includes: ❯ variable-income securities; ❯ gains and losses on the sale of available-for-sale financial assets and other financial instruments not valued at fair value and similar securities; ❯ losses recognised on variable-income securities due to a permanent impairment. (in €m) Net gains or losses on disposals* Dividends received H1 2015 H1 2014 -16 2 3 7 -13 9 Permanent impairment of variable-income securities TOTAL NET GAINS OR LOSSES ON AVAILABLE-FOR-SALE FINANCIAL ASSETS * Corresponds to losses on disposals of international securities. The automatic application of indicators of losses in value on listed securities presented in paragraph 2.3 did not result in any new material impairment in the first half of 2015. 82 2015 Half-Year financial report CRÉDIT FONCIER FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 4.5 INCOME AND EXPENSES FROM OTHER ACTIVITIES gains and losses on disposals, depreciation, amortisation and impairment losses) and income and expenses relating to operating leases. This item mainly comprises income and expenses linked to the insurance activity, investment property (rental income and expenses, H1 2015 (in €m) H1 2014 Income Expenses Net Income Expenses Net 32 -12 20 33 -13 20 2 -1 1 5 -1 4 -1 -1 -13 13 Income and expenses from insurance activities 3 Income and expenses from real estate activities Income and expenses from leasing activities Income and expenses from investment property 2 -1 1 Share of joint ventures Transfers of income and expenses Other operating income and expenses 22 -11 11 26 3 -1 2 Other banking income and expenses 22 -11 11 29 -15 14 TOTAL INCOME AND EXPENSES FROM OTHER ACTIVITIES 56 -24 32 69 -30 39 Additions to and reversals from provisions to other operating income and expenses 4.6 OPERATING EXPENSES Operating expenses include mainly payroll costs such as wages and salaries net of rebilled amounts, social security taxes and employee benefit expenses. (in €m) Payroll costs This line also includes all administrative expenses and external services costs. H1 2015 H1 2014 -142 -143 Taxes other than on income -43 -20 External services and other general operating expenses -93 -105 Other administrative costs -136 -125 TOTAL OPERATING EXPENSES -278 -268 4.7 COST OF RISK 4.7.1 COST OF RISK This item records the net impairment expenses attributable to credit risk, including impairment calculated on both an individual and collective basis for a portfolio of similar receivables. It applies to loans and receivables and fixed-income securities with a known counterparty risk. Losses on other types of instruments (derivatives or securities designated at fair value) arising following the insolvency of credit institutions are also included under this item. ❯ Cost of risk for the period (in €m) Net charge to provisions and provisions for impairment Recovery on loans and receivables written-off H1 2015 H1 2014 -52 -59 5 4 Irrecoverable loans not covered by provisions for impairment* -113 -9 TOTAL COST OF RISK -160 -64 * See note 1.3.1 “Significant events during the first half of 2015”. 2015 Half-Year financial report CRÉDIT FONCIER 83 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 ❯ Cost of risk by asset type H1 2015 (in €m) Interbank transactions* -104 Customer transactions -56 H1 2014 -63 Other financial assets -1 TOTAL COST OF RISK * -160 -64 See note 1.3.1 “Significant events during the first half of 2015”. 4.7.2 IMPAIRMENT AND PROVISIONS FOR CREDIT RISK (in €m) 12/31/2014 Available-for-sale financial assets Additions Reversals Other changes 06/30/2015 1 1 Interbank transactions* Customer transactions 943 184 -153 2 976 Held-to-maturity financial assets Other financial assets Impairment losses recognised in assets Provisions for off-balance sheet commitments TOTAL IMPAIRMENT AND PROVISIONS FOR CREDIT RISK * 1 945 184 27 1 972 185 -153 2 978 28 -153 2 1,006 Changes related to the HETA provision of March 31 are not posted in this item given that the default and disposal occurred within the same half-year period. 4.7.3 TOTAL EXPOSURE TO CREDIT RISK AND COUNTERPARTY RISK The total exposure of all of groupe Crédit Foncier’s financial assets to credit risk is shown in the table below. This exposure is calculated on the basis of the carrying amount of the financial assets without taking into account the impact of any unrecognised netting or collateral agreements. (in €m) 06/30/2015 12/31/2014 Amounts due from central banks 1,973 1,200 Financial assets at fair value through profit or loss (excl. variable-income securities) 2,896 2,967 Hedging derivatives 7,913 8,366 Available-for-sale financial assets (excl. variable-income securities) 2,430 3,240 Loans and receivables due from credit institutions 12,156 13,332 Loans and receivables due from customers 92,582 94,226 136 136 Held-to-maturity financial assets Net exposure to balance sheet commitments 120,086 123,467 Financial guarantees given 1,091 1,102 Signed commitments 6,259 6,936 -28 -27 Provisions for signed commitments Net exposure to off-balance sheet commitments TOTAL NET EXPOSURE TO CREDIT RISK AND COUNTERPARTY RISK 84 1 2015 Half-Year financial report CRÉDIT FONCIER 7,322 8,011 127,408 131,478 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 3 4.8 INCOME TAX H1 2015 H1 2014 -26 -8 Deferred tax assets and liabilities 19 12 INCOME TAX -7 4 0 0 (in €m) Current income tax expense* * O/w provisions for claims, litigation, fines and penalties. ❯ Reconciliation between the tax charge in the financial statements and the theoretical tax charge H1 2015 H1 2014 Net income before tax and change in the value of goodwill (A) -13 -1 Net income attributable to equity holders of the parent -20 2 (in €m) Share of non-controlling interests in consolidated companies 1 1 Share in net income of associates 0 1 -7 4 38.00% 38.00% 5 0 -9 5 Taxes on previous periods, tax credits and other taxes -2 6 Variable carryforward impact -1 -7 Income tax Standard income tax rate in France (B) Theoretical income tax expense (income) at the tax rate applicable in France (AxB) Impact of permanent differences Reduced tax rates and tax exempt activities Difference in tax rates on income taxed outside France Other items Income tax EFFECTIVE TAX RATE (INCOME TAX EXPENSES DIVIDED BY TAXABLE INCOME) -7 4 -53.84% -574.00% 2015 Half-Year financial report CRÉDIT FONCIER 85 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 NOTE 5 PARTNERSHIPS AND ASSOCIATES 5.1 INVESTMENTS IN ASSOCIATES 5.1.1 INVESTMENTS IN ASSOCIATES The Group’s main investments in associates involve the following joint ventures and associates: (in €m) 06/30/2015 12/31/2014 56 56 Non-financial companies Maisons France Confort PI GCE Foncier Coinvest TOTAL INVESTMENTS IN ASSOCIATES 2 2 58 58 H1 2015 H1 2014 5.2 SHARE IN NET INCOME OF ASSOCIATES (in €m) Non-financial companies Maisons France Confort PI 1 GCE Foncier Coinvest Euroscribe SHARE IN NET INCOME OF ASSOCIATES 86 2015 Half-Year financial report CRÉDIT FONCIER 0 1 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 NOTE 6 3 SEGMENT REPORTING Affiliated with BPCE, groupe Crédit Foncier is the leading financial institution specialising in real estate financing services in France. It provides 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 in France. Pursuant to IFRS 8 and given the considerable size of groupe Crédit Foncier’s businesses, the Group’s internal organisation and management structures are based on five main business lines within the framework of the Group’s governing and decision-making bodies. INDIVIDUAL CUSTOMERS SECTOR corporations and Public-Private Partnership): ❯ 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). This sector involves four 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; ❯ management of assets for third parties; ❯ 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, RUN-OFF ACTIVITIES SECTOR In this sector, Crédit Foncier provides international financing services in run-off mode. HOLDING STRUCTURE Indirect income and expenses from support activities are reallocated to the businesses. Certain items that are considered as non-business line are shown separately in this division, which includes the valuation impact of issuer spread, CVA/DVA and the contribution to the Single Resolution Fund. The income tax expense is the difference between income tax expenses paid by the business lines at a normative rate and the total income tax expense. Individuals Private sector Public sector Run-off activities Holding structure 06/30/2015 Net banking income 350 44 45 -2 -10 427 Operating expenses -221 -20 -22 -5 -14 -282 Gross operating income 129 24 23 -7 -24 145 63.1% 45.5% 48.9% N/A N/A 66.0% -56 1 -1 -104 (in €m) C/I ratio Cost of risk -160 Net income of associates Gains and losses on other assets 2 2 Income before tax 75 25 22 -111 -24 -13 Current and deferred taxes -28 -9 -9 42 -3 -7 Non-controlling interests -1 GROUP SHARE OF NET INCOME 47 16 13 -69 -27 -20 Individuals Private sector Public sector Run-off activities Holding structure 06/30/2015 50,629 7,858 26,584 11,600 3,802 100,473 50,629 7,858 26,584 11,600 (in €m) Financial assets* -1 Other TOTAL BALANCE SHEET ASSETS * 34,778 34,778 38,580 135,251 The breakdown of assets by sector is based on the distribution of commitments presented in the Risk Management report (overall gross exposure to credit risk, IFRS 7). 2015 Half-Year financial report CRÉDIT FONCIER 87 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 NOTE 7 COMMITMENTS The amounts disclosed are the nominal values of the commitments given. 7.1 FINANCING AND GUARANTEE COMMITMENTS FINANCING COMMITMENTS (in €m) Financing commitments given ❯ to credit institutions ❯ to customers ❯ Credit facilities granted ❯ Other commitments 06/30/2015 12/31/2014 6,258 6,936 16 4 6,242 6,932 6,064 5,906 178 1,026 Financing commitments received 5,178 4,931 ❯ from credit institutions 5,178 4,931 06/30/2015 12/31/2014 1,093 1,102 6 5 GUARANTEE COMMITMENTS (in €m) Guarantee commitments given ❯ to credit institutions ❯ to customers 1,087 1,097 Guarantee commitments received 70,020 71,449 ❯ from credit institutions 11,526 10,855 ❯ from customers 58,494 60,594 06/30/2015 12/31/2014 Commitments on securities (securities to deliver) 8 10 Commitments on securities (securities to receive) 65 13 Guarantee commitments are signed commitments. “Assets pledged as collateral” are presented in note 8 “Financial assets pledged as collateral”. 7.2 COMMITMENTS ON SECURITIES (in €m) 88 2015 Half-Year financial report CRÉDIT FONCIER FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 NOTE 8 3 FINANCIAL ASSETS PLEDGED AS COLLATERAL AND ASSETS RECEIVED AS COLLATERAL THAT CAN BE SOLD OR REPLEDGED 8.1 FINANCIAL ASSETS PLEDGED AS COLLATERAL 06/30/2015 Outright securities Repurchase lending agreements (in €m) Carrying amount Carrying amount Assets sold or pledged as collateral Carrying amount Securitisations Carrying amount Fair value Total Carrying amount Financial assets pledged as collateral Financial assets held for trading Financial assets designated at fair value through profit or loss 208 Available-for-sale financial assets Loans and receivables 208 59 59 13,979 13,979 14,246 14,246 Held-to-maturity assets TOTAL FINANCIAL ASSETS PLEDGED AS COLLATERAL 12/31/2014 Outright securities Repurchase lending agreements (in €m) Carrying amount Carrying amount Assets sold or pledged as collateral Carrying amount Securitisations Carrying amount Fair value Total Carrying amount Financial assets pledged as collateral Financial assets held for trading Financial assets designated at fair value through profit or loss Available-for-sale financial assets Loans and receivables 214 214 24 24 13,831 13,831 14,069 14,069 Held-to-maturity assets TOTAL FINANCIAL ASSETS PLEDGED AS COLLATERAL Consistent with the French legal framework, intrinsic guarantees attached to covered bond issuances are not recorded in guarantee commitments given. Covered bonds issued by Compagnie de Financement Foncier benefit from a preferential claim consisting of eligible assets. 8.2 FINANCIAL ASSETS RECEIVED AS COLLATERAL THAT CAN BE SOLD OR REPLEDGED To date, Crédit Foncier has not carried out any material re-use transactions. 2015 Half-Year financial report CRÉDIT FONCIER 89 FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 NOTE 9 OFFSETTING FINANCIAL ASSETS AND LIABILITIES The Group does not offset financial assets and liabilities in the balance sheet under IAS 32 netting rules. and financial instruments pledged as collateral” columns include: ❯ for repurchase agreements: 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 for derivatives or repurchase agreements subject to master agreements under which the net settlement criteria or the simultaneous settlement of the asset and liability cannot be demonstrated or for which the offsetting right can only be exercised in the event of default, insolvency or bankruptcy by one of the parties to the agreement. ❯ 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. For these instruments, the “Associated financial assets and financial instruments received as collateral” and “Associated financial liabilities Margin calls received or paid in cash are included in the “Margin calls received (cash collateral)” and “Margin calls paid (cash collateral)” columns. 9.1 FINANCIAL ASSETS Financial assets under netting agreements not offset in the balance sheet 06/30/2015 (in €m) 12/31/2014 Net Associated financial amount of liabilities financial Margin and assets calls financial disclosed in the instruments received (cash balance received as collateral collateral) sheet Net Associated financial amount of liabilities financial Margin and assets calls financial disclosed in the instruments received (cash balance received as Net collateral collateral) sheet exposure Net exposure Derivatives 8,536 4,386 3,651 499 9,092 5,061 3,613 419 TOTAL FINANCIAL ASSETS 8,536 4,386 3,651 499 9,092 5,061 3,613 419 9.2 FINANCIAL LIABILITIES Financial liabilities under netting agreements not offset in the balance sheet 06/30/2015 (in €m) Derivatives 12/31/2014 Net amount of Associated financial financial liabilities assets and Margin financial disclosed in the instruments calls paid (cash balance pledged as collateral collateral) sheet Net amount of Associated financial financial liabilities assets and Margin financial disclosed in the instruments calls paid (cash balance pledged as Net collateral collateral) sheet exposure Net exposure 11,140 4,386 5,522 1,232 12,207 5,061 6,262 884 11,140 4,386 5,522 1,232 12,207 5,061 6,262 884 Repurchase agreements TOTAL FINANCIAL LIABILITIES 90 2015 Half-Year financial report CRÉDIT FONCIER FINANCIAL INFORMATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2015 3 NOTE 10 SCOPE OF CONSOLIDATION 10.1 CHANGES IN THE SCOPE OF CONSOLIDATION DURING THE FIRST HALF OF 2015 The main change in the scope of consolidation that occurred in the first half of 2015 was: ❯ liquidation of the Environnement Titrisation special purpose vehicle in April 2015. determined according to the increasing materiality method. Under this principle, any entity included in a sub-consolidation scope is included in higher levels of consolidation, even if it is not material at these levels. Control and interest percentages are indicated for each entity in the scope of consolidation. The interest percentage represents the Group’s ownership stake, either direct or indirect, in the companies within the scope of consolidation. The interest percentage is used to determine the Group’s share of the company’s net assets. 10.2 SCOPE OF CONSOLIDATION AT JUNE 30, 2015 Entities whose contribution to the consolidated financial statements is not material are not included in the scope of consolidation. Materiality is Consolidated companies Consolidation method % control % interest SA Full 100.00 100.00 SCA Full 95.00 5.00 Legal form Financial institutions Compagnie de Financement Foncier SCA Ecufoncier Comptoir Financier de Garantie (CFG) SA Full 100.00 100.00 Locindus SA Full 74.55 74.55 SOCFIM SA Full 99.99 99.99 Banco Primus SA Full 100.00 100.00 SNC Full 99.99 99.99 Non-financial companies Cofimab Crédit Foncier Immobilier SA Full 100.00 100.00 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 SAS Full 100.00 100.00 SA Full 100.00 99.99 SNC Full 100.00 99.99 Gramat Balard SEREXIM Foncière d’Évreux SOCFIM Participations Immobilières Crédit Foncier Expertise SA Full 100.00 100.00 Oxiane SAS Full 100.00 74.55 Scribe Bail SAS Full 100.00 74.55 Scribe Bail Activ SAS Full 100.00 74.55 Scribe Bail Com SAS Full 100.00 74.55 Scribe Bail Hôtel SAS Full 100.00 74.55 Scribe Bail Logis SAS Full 100.00 74.55 Scribeuro SAS Full 100.00 74.55 Euroscribe SAS Equity method 50.00 37.27 GCE Foncier Coinvest SAS Equity method 49.00 49.00 Maison France Confort P-I SAS Equity method 49.00 24.01 Securitisation Mutual Funds The Environnement Titrisation special purpose vehicle was liquidated in April 2015. As the funds it represented have been liquidated, only the impact on the income statement for the first half of 2015 remains. The five internal securitisation mutual funds were run off, including 4 that were run off in advance on April 28, 2015. The outstanding receivables on the Mutual Securitisation Funds were taken on by Crédit Foncier. Now that these internal securitisation mutual funds have been run off, groupe Crédit Foncier no longer holds their units as of June 30, 2015. 2015 Half-Year financial report CRÉDIT FONCIER 91 FINANCIAL INFORMATION STATUTORY AUDITORS’ REPORT ON THE FINANCIAL INFORMATION FOR THE FIRST HALF OF 2015 STATUTORY AUDITORS’ REPORT ON THE FINANCIAL INFORMATION FOR THE FIRST HALF OF 2015 This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of Englishspeaking readers. This report should be read in conjunction with, and is construed in accordance with, French law and professional auditing standards applicable in France. Period from January 1, 2015 to June 30, 2015 ■ 2. SPECIFIC VERIFICATION CRÉDIT FONCIER DE FRANCE SA 19, rue des Capucines 75001 Paris 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. To the Shareholders, We have no observations to make regarding its fair presentation and consistency with the condensed interim consolidated financial statements. 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 SA for the period from January 1 to June 30, 2015; ❯ 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. ■ 1. 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 a full audit carried out in accordance with the professional standards applicable in France. As a result, there is a moderate assurance that the financial statements, taken as a whole, do not contain significant misstatements. 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. Without prejudice to an opinion stated above, we draw your attention to the note 2.2 to the annex to the consolidated financial statements entitled “Accounting principles and comparability”, which explains the effects of the first application of IFRIC 21 “Levies” interpretation. 92 2015 Half-Year financial report CRÉDIT FONCIER Paris La Défense and Neuilly-sur-Seine, August 25, 2015 The Statutory Auditors: KPMG Audit A department of KPMG SA Jean-François Dandé Partner PricewaterhouseCoopers Audit Anik Chaumartin Partner 4 OTHER INFORMATION GENERAL INFORMATION Crédit Foncier’s outlook 94 94 PERSONS RESPONSIBLE FOR THE DOCUMENT AND FOR AUDITING THE FINANCIAL STATEMENTS 95 CROSS-REFERENCE TABLE 96 Listing of debt security issuances and derivatives with a nominal value of less than €100,000 CROSS-REFERENCE TABLE BETWEEN THE INTERIM FINANCIAL REPORT AND THE UPDATE TO THE REGISTRATION DOCUMENT In 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 99 99 96 2015 Half-Year financial report CRÉDIT FONCIER 93 OTHER INFORMATION GENERAL INFORMATION GENERAL INFORMATION ❯ CRÉDIT FONCIER’S OUTLOOK ■ RECENT EVENTS ■ CONTROL The Company has not recorded any significant recent event that would affect the assessment of its solvency. To the Company’s knowledge, there are no agreements whose implementation could result in a future change in control. ■ TRENDS ■ SIGNIFICANT CHANGE Since the date of its most recently released audited financial statements, there has been no significant damage affecting the Company’s outlook. No significant change in the Company’s financial or commercial situation has occurred between July 28th, 2015 the date the Board of Directors approved the financial statements, and the date on which the Update of the Registration document was filed. There are no known trends, uncertainties or requests or any commitments or events that would reasonably influence the Company’s outlook. 94 2015 Half-Year financial report CRÉDIT FONCIER OTHER INFORMATION PERSONS RESPONSIBLE FOR THE DOCUMENT AND FOR AUDITING THE FINANCIAL STATEMENTS 4 PERSONS RESPONSIBLE FOR THE DOCUMENT AND FOR AUDITING THE FINANCIAL STATEMENTS PERSON RESPONSIBLE FOR UPDATING THE REGISTRATION DOCUMENT AND THE INTERIM FINANCIAL REPORT PERSON RESPONSIBLE FOR THE FINANCIAL INFORMATION Mr Bruno DELETRÉ, Chief Executive Officer of Crédit Foncier Ms Sandrine GUÉRIN, Deputy Chief Executive Officer – Financial Operations STATEMENT FROM THE PERSON RESPONSIBLE FOR THE REGISTRATION DOCUMENT PERSONS RESPONSIBLE FOR AUDITING THE FINANCIAL STATEMENTS 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. PERMANENT STATUTORY AUDITORS KPMG Audit Member of the Compagnie régionale des Commissaires aux comptes de Versailles (Regional Association of Statutory Auditors of Versailles) 2, avenue Gambetta - 92066 Paris La Défense Represented by Jean-François DANDÉ Start of first term: April 26, 2010 Length of term: 6 years Expiry 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 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. PricewaterhouseCoopers Audit The historical financial information presented in the present update to the Registration document is subject to the Statutory Auditors’ report, which includes an observation presented on the page 92. Represented by Anik CHAUMARTIN Paris, August 25, 2015 Chief Executive Officer, Bruno DELETRÉ Member of the Compagnie régionale des Commissaires aux comptes de Versailles (Regional Association of Statutory Auditors of Versailles) 63, rue de Villiers – 92200 Neuilly-sur-Seine Length of term: 6 years Date term was renewed: May 10, 2012 Expiry 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 McLARTY Member of the Compagnie régionale des Commissaires aux comptes de Versailles (Regional Association of Statutory Auditors of Versailles) 2, avenue Gambetta – 92066 Paris La Défense Start of first term: April 26, 2010 Length of term: 6 years Expiry 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 BORIS Member of the Compagnie régionale des Commissaires aux comptes de Versailles (Regional Association of Statutory Auditors of Versailles) 63, rue de Villiers – 92200 Neuilly-sur-Seine Length of term: 6 years Date term was renewed: May 10, 2012 Expiry 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 2015 Half-Year financial report CRÉDIT FONCIER 95 OTHER INFORMATION CROSS-REFERENCE TABLE CROSS-REFERENCE TABLE ❯ LISTING OF DEBT SECURITY ISSUANCES AND DERIVATIVES WITH A NOMINAL VALUE OF LESS THAN €100,000 ■ ANNEX IV OF REGULATION EC NO. 809/2004 Items 96 Update to the 2014 Registration document filed with the AMF on August 25, 2015 2014 Registration document filed with the AMF on March 18, 2015 Pages Pages 1. PERSONS RESPONSIBLE 1.1. Persons responsible for information 95 277 1.2. Statement by persons responsible 95 277 2. STATUTORY AUDITORS 2.1. Identification of Statutory Auditors 95 277 2.2. Statutory Auditors for the period covered by the historical financial disclosures 95 277 3. SELECTED FINANCIAL INFORMATION 3.1. Financial information 5-6 3 3.2. Historic financial information for interim periods 5-6 n/a 4. RISK FACTORS 25-56 99-153 5. INFORMATION ABOUT THE ISSUER 5.1. History and development of the Company 5.1.1. Legal and commercial name of the issuer 272 5.1.2. Place of registration of the issuer and its registration number 272 5.1.3. Date of incorporation and term of the issuer 272 5.1.4. Registered office and legal form of the issuer 272 5.1.5. Recent events affecting the issuer that have a material impact on the evaluation of the issuer’s solvency 5.2. Investments 5.2.1. Description of the main investments carried out since date of last financial statements 5.2.2. Information on main forthcoming investments for which the Executive Bodies have already made significant commitments 5.2.3. Information on the expected sources of financing needed to honour the commitments referred to in 5.2.2. 4; 259 94 274 13 16 n.a. n.a. n.a. n.a. 6. BUSINESS OVERVIEW 6.1. Principal activities 6.1.1. Main categories of services provided 6.1.2. New product sold or new activity 15-16 21 6.2. Main markets 15-24 20-33 6.3. Competitive positioning 4; 16 4-6; 12; 15; 19; 22; 78 2015 Half-Year financial report CRÉDIT FONCIER 15-24 18-33 4 4-6; 18 OTHER INFORMATION CROSS-REFERENCE TABLE 7. ORGANISATIONAL STRUCTURE 7.1. Description of the Group and the Company’s position within the Group 7.2. Dependence on other entities in the Group 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 8.2. Events reasonably likely to have a material effect on the issuer’s outlook 9. PROFIT FORECASTS AND ESTIMATES 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 10.2. Conflicts of interest statement 11. FUNCTIONING OF THE ADMINISTRATIVE AND EXECUTIVE BODIES 11.1. Information on the Audit Committee. Name of members and summary of terms 10 36-68 11.2. Corporate Governance 10 36-75 12. MAJOR SHAREHOLDERS 12.1. Ownership, control 11-12 14 n.a. n.a. 11 12 11; 91 12/19/219/260-261 94 274 94 274 N.A. N.A. 9-10 39-56 56 12.2. Known arrangements liable to result in a change in control 13. FINANCIAL INFORMATION CONCERNING THE COMPANY’S ASSETS & LIABILITIES, FINANCIAL POSITION AND PROFIT AND LOSSES 13.1. Historic financial information 13.2. Annual Financial Statements 61-91 a) Balance sheet 160-161 162 c) Cash flow statement 165 167-222 Auditing of annual historical financial information 13.3.1. Statutory Auditors’ report 223 13.3.2. Other information from the registration document audited by the Statutory Auditors 66-75/77-96/ 224-263 13.3.3. Financial information contained within the registration document not obtained from the audited financial statements 13.4. b) Income Statement c) Consolidated cash flow statement d) Accounting methods and explanatory notes 13.7. 2014 Registration document* 2013 Registration document Interim and other financial information a) Balance sheet 13.6. n.a. Date of latest financial information 13.4.1. Last year for which financial information has been audited 13.5. 160-222 b) Income Statement d) Accounting methods and explanatory notes 13.3. 61-62 n.a. 63 n.a. 66 n.a. 68-91 n.a. e) Statutory auditors’ report 92 n.a. Legal and arbitration proceedings 54 146-148 Significant change in the financial or sales position 94 274 ❯ Statement 94 274 14. ADDITIONAL INFORMATION 14.1. Share capital 12 14 14.1.1. Total subscribed capital 12 14 14.2. Memorandum and by-laws 14.2.1. Register and corporate purpose 15. 4 272-273 272 MATERIAL CONTRACTS ❯ Related-party agreements 265-269 2015 Half-Year financial report CRÉDIT FONCIER 97 OTHER INFORMATION CROSS-REFERENCE TABLE 16. 17. THIRD-PARTY INFORMATION, STATEMENTS BY EXPERTS AND DECLARATIONS OF INTEREST DOCUMENTS AVAILABLE TO THE PUBLIC Location where documents may be viewed during the dates that the registration document is valid * 98 N.A. 273 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, 2014 and the related Statuary Auditors’ report, presented on pages 160 to 223 of Registration document No. D.15-0163 filed with the AMF on March 18, 2015. 2015 Half-Year financial report CRÉDIT FONCIER OTHER INFORMATION CROSS-REFERENCE TABLE BETWEEN THE INTERIM FINANCIAL REPORT AND THE UPDATE TO THE REGISTRATION DOCUMENT 4 CROSS-REFERENCE TABLE BETWEEN THE INTERIM FINANCIAL REPORT AND THE UPDATE TO THE REGISTRATION DOCUMENT ❯ IN 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, 2015 Update to the 2014 Registration document Pages STATEMENT FROM THE PERSON RESPONSIBLE FOR THE DOCUMENT 95 MANAGEMENT REPORT ❯ Main events during the first six months of the year ❯ Main risks and uncertainties 7-24/58-60 25-56 CONSOLIDATED FINANCIAL STATEMENTS ❯ Interim financial statements ❯ Statutory Auditors’ report on the interim financial statements 61-91 92 2015 Half-Year financial report CRÉDIT FONCIER 99 OTHER INFORMATION 100 2015 Half-Year financial report CRÉDIT FONCIER Crédit Foncier de France - S.A. (French public limited company) with share capital of 1,331,400,718.80 euros Paris Trade and Companies Register No. 542 029 848 Executive offices and postal address: 4, quai de Bercy - 94224 Charenton Cedex - Tel.: +33 (0)1 57 44 80 00 Head office: 19 rue des Capucines – 75001 Paris creditfoncier.com