PDF - 3.50 MB
Transcription
PDF - 3.50 MB
BANQUE POPULAIRE GROUP 2004 annual report Published by Banque Fédérale des Banques Populaires/Département Communication fédérale - Direction Communication financière Groupe Design-production avant•garde - Tel: +33 (0) 1 45 74 61 61 Printing Comelli Photo credits M. Labelle/BFBP - F. Delauney/BFBP - L. Le Fur/BFBP - A. Dovifat/BFBP - F.Vallon/Natexis Banques Populaires -Y. Zedda/BFBP - Bananastock - Brand x pictures - Digitalvision - Getty Images - GraphicObsession - Image Bank - Imageshop - Photodisc - Photonica - Stockbyte - Stone - Stone + - Taxi - Zefa Cooperation and enterprise 2004 annual report BANQUE POPULAIRE GROUP Profile Interview with Philippe Dupont 2004 key figures n Corporate governance – The Board of Directors of Banque Fédérale des Banques Populaires – Chairman’s report on the conditions in which the work of the Board of Directors is prepared and organized – Corporate Governance rules for the Banque Populaire banks – Statutory Auditors – Internal financing mechanisms 1 2 4 n Group structure – Introduction – Simplified financial organization chart – The Group’s history – Key events in 2004 – Member-stakeholders – Banque Populaire banks – Banque Fédérale des Banques Populaires – Natexis Banques Populaires – The Group’s international offices 6 6 22 24 25 26 27 28 30 40 44 48 10 16 20 21 Contacts Banque Populaire Group Le Ponant de Paris 5, rue Leblanc, 75511 Paris Cedex 15 Tel: +33 (0) 1 40 39 60 00 – Fax: +33 (0) 1 40 39 60 01 Group Financial Communications Pierre Jacob Investor Relations Cécilia Matissart Press Relations Véronique Davet-Fournier Banque Fédérale des Banques Populaires Communications Maryvonne Monique Pollet Fanny Kerecki www.banquepopulaire.fr n n n Group business review 50 – Personal banking clients – Small business clients – Corporate clients – Institutional clients – Banks and financial institutions 52 56 60 66 68 2004 Financial information 84 – Management report – Financial information 85 107 Chairman’s report on internal control procedures – General organization – Risk monitoring and control procedures – Internal control procedures covering financial and accounting information 174 175 177 181 n Sustainable development – Banque Populaire Group’s commitment – Human resources – Environment and social responsability – Patronage – Sponsoring n Additional information – Person responsible for the AMF shelf-registration document – Statement by the person responsible for the AMF shelf-registration document – Financial communications – Dependence – Exceptional events, claims and litigation – Statement by the Statutory Auditors on the AMF shelf-registration document – Autorité des marchés financiers (AMF) checklist 70 72 75 80 82 83 Annual reports for Banque Populaire Group, Banque Fédérale des Banques Populaires and Natexis Banques Populaires can be downloaded under the heading: “LE GROUPE” 185 186 186 186 186 186 187 188 Printed by Comelli on printers carrying the Imprim’vert sustainable development label. Printed on paper produced in a ISO 9001 and ISO 14001 certified paper mill using vegetable inks with high biodegradability properties. Profile The Banque Populaire Group provides banking, financial and insurance services to a broad client base of individuals, craftsmen, shopkeepers, farmers, businesses and banking and financial services groups. It is set apart from other banking groups by its unique structure, its origins in the cooperative movement and a corporate governance structure that reflects its values. These three features have helped drive business development based on strong organic growth, targeted acquisitions and long-term partnerships. A three-dimensional organization n The 20 Banque Populaire regional banks, CASDEN Banque Populaire and Crédit Coopératif The Banque Populaire banks are cooperative organizations. They are the Group’s parent companies and shareholders of Banque Fédérale des Banques Populaires. They are autonomous banks, providing their customers with a local service and the full range of banking and insurance products and services. é COOPERATIVE DIMENSION n Banque Fédérale des Banques Populaires As the Banque Populaire Group’s central body and the holding company of Natexis Banques Populaires, Banque Fédérale des Banques Populaires is responsible for overseeing, coordinating and leading all Group activities. é FEDERAL DIMENSION n A corporate governance structure that reflects the Group’s values The Banque Populaire banks are the Group’s parent companies.Their Directors are responsible for control and supervision and setting the overall direction of their bank in accordance with the national strategy. Corporate governance in the Banque Populaire Group is based on cooperative principles.The Board of Directors of Banque Fédérale des Banques Populaires is the Group’s governing body, and its decisions are applied throughout the Group and its various entities. The Chairman represents the Group nationally and internationally and ensures the Group’s cohesion and identity. This governance structure benefits from an ever more involved stakeholder base. It is a key contributor to the success of the Banque Populaire Group and each of its member banks. It helps reinforce the founding values of the Group of proximity, long-term relationships and strong regional links. Natexis Banques Populaires Listed on the Paris Eurolist, Natexis Banques Populaires is the Group’s financing, investment banking and services bank. The 2002 acquisition of Coface has expanded the bank’s service offering for corporate clients, as well as extending its international reach. é LISTED COMPANY DIMENSION Cooperative and regional roots The Banque Populaire Group operates in the cooperative banking sector, which in Europe represents more than 100 million members and clients.The cooperative status of each Banque Populaire puts it in a unique relationship with its clients that is ideally suited to modern banking service needs.The 2,770,000 member-stakeholders guarantee the independence of their banks and provide the capital needed for their growth. The Group’s presence throughout France is provided both by the 20 Banque Populaire regional banks and by branches of other Group entities. The Directors of the Banque Populaire banks play an active part in the economic and community life of their regions, helping to improve understanding of the local economic fabric and the men and women who are playing a key role in its development. A strategy of winning new business and forming new alliances The Banque Populaire Group has a strong presence throughout France and plans to become a major player in the European bancassurance sector. This goal will be attained by winning new clients in each of its markets and by developing effective partnerships. The Group has regularly increased its presence in the personal customer segment, where its penetration rate is now over 8%. With one in three SMEs being clients of the Group, and a penetration rate of over 80% amongst major companies, the Banque Populaire Group has a leading position amongst business clients both small and large. The 2002 acquisition of Coface, now a wholly-owned subsidiary of Natexis Banques Populaires, has further strengthened this position. Similarly, Crédit Coopératif in the social economy sector and Crédit Maritime Mutuel in the fishing industry and coastal economies joined the Group in 2003, helping strengthen its position in markets where it was keen to expand. 1 Interview with Philippe Dupont Chairman of the Banque Populaire Group 2 BANQUE POPULAIRE GROUP In 2004, the Banque Populaire Group saw another sharp rise in earnings. To what would you attribute the quality and regularity of the Group’s performance? The financial year we are reporting on here did indeed bring another strong improvement in our financial performance. Net banking income rose 8% to €7.6 billion, and gross operating income was 12% higher at €2.5 billion. Our earnings capacity, which measures profits after tax generated during the year, was at a new record high, rising 15% to €1.2 billion. I would stress at this point that these figures came against an economic background which, whilst improving, was far from satisfactory. To my mind, there are three main factors behind our success. First, the commitment and involvement of all our staff in all parts of the Group, and in particular those who, day in, day out, are responsible directly for ensuring the satisfaction of our many customers. Next, the balance of our business portfolio also makes a vital contribution. Lastly, the continuity of our strategy and its embodiment of the fundamental values which shape our business have also been a key to our success. I would not want the fact that we have managed to generate growth year after year to lead us to take success for granted. These figures represent the fruits of the work of our 44,000 staff in France and abroad in a challenging environment.They also represent the consequences of many decisions taken, at all levels and in all areas by our managers. Collectively we can be proud of what we have achieved, and we can be confident in the quality of our fundamentals. But at the same time we must remain vigilant in a fast-moving world, question our ways of doing business when necessary and be prepared to adopt new ways of thinking. In short, we can’t afford to rest on our laurels, and must ensure that we remain responsive and flexible. Looking back at 2004, what points really stand out for you? I would answer that in very broad terms. For me what most stood out during 2004 was the ability of the Banque Populaire Group once again to combine very strong financial performance with a continued concern for the common good in all its forms. I would like to illustrate this point through three examples, each of which touches on an important economic and social theme, namely employment, new business creation and exports. In 2004, the Banque Populaire Group recruited 3,000 staff. Setting aside natural turnover, we created nearly 700 net new jobs.This takes the total new jobs we have created over the past five years to nearly 6,000, making the Group one of France’s major job creators in the private sector. Many of our new recruits are young people, and the age profile of our staff is well balanced. One in three of our employees is under 35.The second key area is in new business creation and support for SMEs. In 2004 our Group was once again the leading issuer of business start-up loans; we were the leading venture capital investor in SMEs and the leading bank in the area of micro-loans. These performances, coupled with the very strong positions we have built amongst small and medium-sized businesses, make us a leading player in the strengthening and renewal of our economic fabric and in regional employment. Here too, in helping create new businesses, we are helping create the new jobs of tomorrow. Turning to the question of exports, we can see the crucial role these now play in modern economies. In this field too we have leading positions. From the export support services offered by Natexis Pramex International to the complex credit guarantee structures created by Coface, we can offer exporters the widest range of services available on the market. No other banking group can offer such powerful and varied services in this field. By boosting exports we serve not only our clients, but also the common good. Our Group’s ability and desire to combine strong financial performances with social benefits is a source of collective pride. It is the fruit of our long history, our shared culture, beliefs and values. And it is also one of our key strengths for the future. How do you see the future of the Group in 2005? We are going into 2005 in a frame of mind that combines considerable confidence in the future with an awareness of the need to remain vigilant. Confidence based on our financial performances, our growth model and our financial ratios, but also on our fundamental business culture. But vigilance too. Our business environment changes quickly: new customer expectations, new requirements, changing technologies, the shifting balances between economic actors or changes in the regulatory framework in its broadest sense. As in the past, we know that to adapt to and thrive on these changes we will need to anticipate and innovate.We also know that we can not rely too much on an economic climate which, in the euro zone at least, remains uncertain. The Banque Populaire Group will pursue its policy of profitable growth throughout 2005. The main source of growth will be organic growth, which we always hope will be strong.We still have scope to expand in our national market. Our branch network is one of the most efficient in the market and we will strengthen it in certain areas where our market share has increased.We will continue to build on our success in attracting new personal customers. In the personal customer segment there is still considerable demand for financial services, and particularly, underlying it all, the issues of pensions and very long-term savings. That part of our business devolved to Natexis Banques Populaires will also continue to grow.The reorganization we have carried out began to bear fruit in 2004. Here too we are well placed, with leading positions in employee benefit plans and management of trade receivables. Growth will also be driven by targeted initiatives in our international expansion, which will remain a measured and gradual process, as demonstrated by developments in Eastern Europe with our German partner, DZ Bank and Austria’s Volksbanken cooperative banks, or in Algeria through our Natexis Alamana subsidiary. Naturally we are also ready to seize any acquisition opportunity that arises, where it offers clear industrial benefits and the creation of value and will be in keeping with the fundamental values on which our Group has been built. Our Group has already changed considerably over the past five years, but has always remained true to the cooperative values on which it was built. New and significant challenges lie ahead. The confidence of our memberstakeholders, the strength of our earnings and our balance sheet and the commitment and energy of our staff are the factors that will enable us to overcome them, and to build, together, one of France’s best banking groups. 3 2004 key figures at December 31, 2004 Profile 22 94 2,770,000 6,600,000 44,509 2,692 116 Banque Populaire banks(1) Mutual guarantee companies Member-stakeholders Clients Employees(2) Branches in France International offices (Natexis Banques Populaires and Coface) 4 Results in millions of euros 7,640 2,545 1,174 net banking income gross operating income earnings capacity(3) BANQUE POPULAIRE GROUP in billions of euros 17.2 9.1% 121.3 94.8 97.4 398 total regulatory capital Tier One ratio outstanding loans(4) customer deposits(4) customer savings(5) assets in custody (1) 20 Banque Populaire regional banks, CASDEN Banque Populaire and Crédit Coopératif (2) Active employees (3) Net income + charge to fund for general banking risk (4) Excluding repurchase agreements (5) Net assets of management funds, employee savings plans, life insurance and other investment products Continued growth in business, profitability and financial structure +8% +15% é 7,066 +10% é é 1,174 7,640 1,022 5,748 17.2 15.7 13.6 650 2002 2003 2004 2002 2003 2004 2002 2003 2004 NET BANKING INCOME EARNINGS CAPACITY TOTAL REGULATORY CAPITAL IN MILLIONS OF EUROS IN MILLIONS OF EUROS IN BILLIONS OF EUROS at December 31 +6% +8% é 8.2% 2002 8.9% 2003 9.1% 2004 83.1 2002 89.5 é 94.8 97.4 90.1 77.1 2003 2004 2002 2003 2004 TIER ONE RATIO CUSTOMER DEPOSITS CUSTOMER SAVINGS at December 31 IN BILLIONS OF EUROS at December 31 IN BILLIONS OF EUROS at December 31 5 +9% é +7% é 101.8 113.0 121.3 364 398 317 RATINGS Senior long-term debt BANQUE POPULAIRE GROUP 2002 2003 2004 2002 2003 2004 OUTSTANDING LOANS ASSETS IN CUSTODY IN BILLIONS OF EUROS at December 31 IN BILLIONS OF EUROS at December 31 MOODY’S STANDARD & POOR’S FITCH RATINGS Aa3 - A+ NATEXIS BANQUES POPULAIRES MOODY’S STANDARD & POOR’S FITCH RATINGS Aa3 A+ A+ Corporate 6 MEMBERS AT DECEMBER 31, 2004 PRINCIPAL FUNCTION IN THE COMPANY (1) FIRST APPOINTED/TERM END (2) CHAIRMAN AND CHIEF EXECUTIVE OFFICER Philippe Dupont Chairman of Banque Populaire Group July 8, 1999/May 2005 VICE CHAIRMEN René Clavaud Claude Cordel Richard Nalpas Chairman of Banque Populaire Centre Atlantique Chairman of Banque Populaire du Midi Chief Executive Officer of Banque Populaire Toulouse-Pyrénées July 5, 2000/May 2006 September 23, 1999/May 2005 July 5, 2000/May 2006 BOARD SECRETARY Francis Thibaud Chief Executive Officer of Banque Populaire du Sud-Ouest July 5, 2000/May 2006 BANQUE POPULAIRE GROUP DIRECTORS Christian Brevard Michel Castagné Jean Clochet Jean-François Comas Pierre Desvergnes Daniel Duquesne Stève Gentili Yvan de La Porte du Theil François Moutte(4) Pierre Noblet Jean-Louis Tourret Deputy Vice Chairman of Banque Populaire d’Alsace Deputy Vice Chairman of Banque Populaire Occitane Deputy Vice Chairman of Banque Populaire des Alpes(3) Chief Executive Officer of Banque Populaire Côte d’Azur Chairman of CASDEN Banque Populaire Chief Executive Officer of Banque Populaire Loire et Lyonnais Chairman of BRED Banque Populaire Chief Executive Officer of Banque Populaire Val de France Chief Executive Officer of Banque Populaire des Pyrénées-Orientales, de l’Aude et de l’Ariège(5) Vice Chairman of Banque Populaire Rives de Paris Chairman of Banque Populaire Provençale et Corse December 20, 2000/May 2006 May 27, 2004/May 2007 May 27, 2004/May 2007 May 31, 2001/May 2007 May 27, 2004/May 2007 May 31, 2001/May 2007 October 20, 1999/May 2005 May 22, 2002/May 2005 November 21, 2001/May 2005 May 27, 2004/May 2007 July 8, 1999/May 2006 Claude Cordel Philippe Dupont René Clavaud Richard Nalpas Jean-Louis Tourret Jean Clochet Christian Brevard François Moutte Michel Goudard Bruno Mettling The Board of Directors of Banque Fédérale des Banques Populaires Corporate governance François Ladam Jean-Claude Detilleux Pierre Noblet Michel Castagné Yvan de La Porte du Theil Stève Gentili Pierre Desvergnes Jean-François Comas Daniel Duquesne François Thibaud governance 7 NON-VOTING DIRECTORS François Ladam Jean-Claude Detilleux Chief Executive Officer of Natexis Banques Populaires Chairman and Chief Executive Officer of Crédit Coopératif MEMBERS IN A CONSULTATIVE CAPACITY Michel Goudard Bruno Mettling Deputy Chief Executive Officer of Banque Fédérale des Banques Populaires Deputy Chief Operating Officer of Banque Fédérale des Banques Populaires ALSO ATTENDING MEETINGS Olivier Haertig Patrick Delaval Pierre Ribuot General Secretary of Banque Fédérale des Banques Populaires Representative of Banque Fédérale des Banques Populaires Works Council Representative of Banque Fédérale des Banques Populaires Works Council (1) Company: Banque Fédérale des Banques Populaires (2) Date of the Shareholders’ Meeting held to approve accounts (3) On January 1, 2005, Jean Clochet was appointed Chairman of Banque Populaire des Alpes (4) Bernard Jeannin was co-opted as a Director to replace François Moutte at the meeting of the Board of Directors held on January 19, 2005. His appointment will be put before the Shareholders’ Meeting held to approve 2004 accounts for ratification (5) On January 1, 2005 François Moutte was also appointed Chief Executive Officer of Banque Populaire du Midi Other Directorships held by Directors PRINCIPAL FUNCTION EXERCISED OUTSIDE BANQUE FÉDÉRALE DES BANQUES POPULAIRES OTHER DIRECTORSHIPS Philippe Dupont CHAIRMAN, BANQUE POPULAIRE GROUP CHAIRMAN: Natexis Banques Populaires Natexis Assurances (to June 2004) Christian Brevard REPRESENTATIVE OF BANQUE FÉDÉRALE DES BANQUES POPULAIRES ON THE BOARD OF DIRECTORS: Claude Cordel Natexis Banques Populaires Banque Populaire du Midi CHAIRMAN: Jean Clochet Natexis Factorem CHAIRMAN CHAIRMAN: Banque Populaire des Alpes DEPUTY VICE CHAIRMAN Banque Populaire d’Alsace DIRECTOR: DIRECTOR: Banque Privée St Dominique Natexis Banques Populaires CHAIRMAN AND CHIEF EXECUTIVE: CHAIRMAN: Routin SA Brasseries des Cimes Natexis Bleichroeder SA DIRECTOR: Natexis Bleichroeder Inc CHAIRMAN OF THE MANAGEMENT BOARD: Bruker Biospin SA Michel Castagné CHAIRMAN OF THE BOARD: CHAIRMAN Routin America Inc CASDEN Banque Populaire JOINT LEGAL MANAGER: CHAIRMAN: Montania Maine Gestion LineBourse SA SCI C3 et Houille Blanche DIRECTOR: Jean-François Comas CHAIRMAN OF THE SUPERVISORY BOARD: CHIEF EXECUTIVE OFFICER DIRECTOR: Maaf Assurances PERMANENT REPRESENTATIVE OF MAAF SA ON THE SUPERVISORY BOARD OF: Maaf Vie ON THE BOARD OF DIRECTORS OF: Covea René Clavaud CHAIRMAN Banque Populaire Centre Atlantique CHAIRMAN: BANQUE POPULAIRE GROUP Natexis Lease DIRECTOR: Coface Limousin Participation SA Natexis Banques Populaires SAS Dupleix SNC Hydromons Pierre Desvergnes Banque Populaire Occitane Castagné SA DIRECTOR: Routin Nord Europe Banque Populaire Côte d’Azur Assurances BP IARD 8 SAS Holding Clobia SAS CPSL CHAIRMAN: DEPUTY VICE CHAIRMAN CHAIRMAN: CHAIRMAN Natexis Asset Management Parnasse Finance S.A. Parnasse MAIF S.A. DIRECTOR: PERMANENT REPRESENTATIVE Natexis Assurances Natexis Coficiné OF CASDEN BANQUE POPULAIRE PERMANENT REPRESENTATIVE OF BANQUE POPULAIRE CÔTE D’AZUR, AND CHAIRMAN: Foncière Victor Hugo Société Méditerranéenne d’investissement PERMANENT REPRESENTATIVE OF BANQUE POPULAIRE CÔTE D’AZUR ON THE BOARD OF: ON THE BOARD OF: Natexis Altaïr Parnasse Services Sicav Valorg Sicav Fructidor SCPI Parnasse Immo PERMANENT REPRESENTATIVE OF PARNASSE FINANCE ON THE BOARD OF: Parnassienne de Crédit i-BP PERMANENT REPRESENTATIVE PERMANENT REPRESENTATIVE OF BANQUE POPULAIRE CÔTE D’AZUR, DIRECTOR: OF CASDEN BANQUE POPULAIRE TO THE CHAIRMAN OF: SCI Domaine de l’Arenas SAS Finance SAS Parnasse Espace 1 SAS LFI2 PERMANENT REPRESENTATIVE OF NATEXIS PRIVATE BANKING LUXEMBOURG: LEGAL MANAGER Fructilux SARL Inter-promo SARL Cour des roches Corporate governance Daniel Duquesne DIRECTOR: Pierre Noblet CHIEF EXECUTIVE OFFICER Natexis Banques Populaires Coface DEPUTY VICE CHAIRMAN Banque Populaire Loire et Lyonnais DIRECTOR: Natexis Banques Populaires Natexis Asset Management SEPEL PERMANENT REPRESENTATIVE OF BANQUE POPULAIRE VAL DE FRANCE ON i-BP (Vice-Chairman) ON THE BOARD OF: i-BP CHAIRMAN: Garibaldi Capital Développement MEMBER OF THE SUPERVISORY BOARD OF: Volksbank CZ Stève Gentili DIRECTOR: CHIEF EXECUTIVE OFFICER Natexis Paiements Delattre Patoux Banque Populaire des Pyrénées-Orientales, de l’Aude et de l’Ariège ; Banque Populaire du Midi (since January 1, 2005) Banque Internationale de Commerce (BIC-BRED) Natexis Paiements DES PYRÉNÉES-ORIENTALES, Natexis Pramex International Socama du Roussillon Socami des Pyrénées-Or. BICEC Yvan de La Porte du Theil CHIEF EXECUTIVE OFFICER Banque Populaire Val de France CHAIRMAN OF THE SUPERVISORY BOARD: SBE DIRECTOR: Natexis Banques Populaires Socami Bordeaux Région Socama Sud-Ouest PERMANENT REPRESENTATIVE OF BANQUE POPULAIRE DU SUD-OUEST Richard Nalpas ON THE BOARD OF: CHIEF EXECUTIVE OFFICER i-BP Soprolib Sud-Ouest Banque Populaire Toulouse-Pyrénées Jean-Louis Tourret DIRECTOR: CHAIRMAN Natexis Banques Populaires Natexis Bleichroeder Inc Natexis Assurances Banque Populaire Provençale et Corse VICE CHAIRMAN: Natexis Interépargne Natexis Epargne Entreprise Tourret SAS Proclair SAS Natexis Bleichroeder SA PERMANENT REPRESENTATIVE OF BRED BANQUE POPULAIRE ON THE BOARD OF: Banque Populaire du Sud-Ouest OF BANQUE POPULAIRE DIRECTOR: Natexis Banques Populaires Coface BRED Cofilease COFIBRED LFI Bercy Gestion Finances + CHIEF EXECUTIVE OFFICER VICE CHAIRMAN: THE BOARD OF: BOARD: Francis Thibaud PERMANENT REPRESENTATIVE BRED Banque Populaire VICE CHAIRMAN OF THE SUPERVISORY VICE CHAIRMAN: François Moutte DE L’AUDE ET DE L’ARIÈGE ON BRED Gestion Natexis Pramex International Natexis Intertitres Sonodas SAS Natexis Lease CHAIRMAN CHAIRMAN: CHAIRMAN: THE BOARD OF: PERMANENT REPRESENTATIVE OF BANQUE POPULAIRE LOIRE ET LYONNAIS Banque Populaire Rives de Paris PERMANENT REPRESENTATIVE CHAIRMAN: OF BANQUE POPULAIRE TOULOUSE-PYRÉNÉES: DIRECTOR: Natexis Asset Management Immobilier i-BP Maison du Commerçant SA Multi-croissance SAS Socama 31 Irdi S.A. Natexis Banques Populaires Ciments Lafarge LEGAL MANAGER: Tourret Entreprises Tourret Electronique Proclair Provence Proclair Rhône Alpes 9 Chairman’s report on the conditions in which the work of the Board of Directors is prepared and organized This report forms an integral part of the Chairman’s full report on the conditions in which the work of the Board of Directors is prepared and organized and the internal control procedures in place within the company. It has been prepared in accordance with Art. L. 225-37 of the French Commercial Code (code de commerce) as modified by the French Financial Security Act of August 1, 2003. Role and organization of the Board of Directors anque Fédérale des Banques Populaires has been a joint stock company (société anonyme) under French law since May 31, 2001. Its Board of Directors exercises a certain number of legal functions, which include the responsibilities of Banque Fédérale des Banques Populaires as the central body of the Banques Populaires network. More generally the Board is responsible for supervision and definition of strategy for the Banque Populaire Group, in all its aspects such as expansion, profitability, security, internal structures, information systems and other matters. Each Director is considered as representing all shareholders and is expected in all circumstances to act in the shareholders’ best interests. individuals, and the majority of Directors must be either Chairman, Director or Chief Executive Officer of a Banque Populaire bank. Membership of the Board of Directors Election of the Chairman of the Board B BANQUE POPULAIRE GROUP 10 The Board of Directors of Banque Fédérale des Banques Populaires has sixteen members, all elected by the shareholders in General Meeting. All the Directors are Directors exercising one of these roles are selected from two lists of candidates put forward by the Chairmen and Chief Executive Officers of the Banque Populaire banks according to a selection process defined by the Board of Directors. Directors are elected for a three-year term and may stand for re-election.Their term expires at the close of the Annual Shareholders’ Meeting held to approve accounts for the previous year. Each Director is required to hold one Banque Fédérale des Banques Populaires share. Article 11 of the bylaws of Banque Fédérale des Banques Populaires states that the Chairman of the Board is elected by a simple majority for the duration of his or her term as Director. He or she may be re-elected. The bylaws also determine that a quorum of at least half the members of the Board is required to be present for the election to take place, with the chairman then elected by a majority of the votes cast by the Directors present (Article 12). The Chairman of the Board of Directors of Banque Fédérale des Banques Populaires has the title of Chairman of the Banque Populaire Group. Chief Executive Officer The Chairman of the Board of Directors of Banque Fédérale des Banques Populaires is also its Chief Executive Officer (Directeur Général). As such he has the fullest powers to act in the Company’s name, subject to compliance with the corporate purpose and except as regards those matters which, by law, are required to be submitted to Corporate governance the shareholders in General Meeting or to the Board of Directors, or which concern the Company’s role as central body of the Banques Populaires network and as such are required to be submitted to the Board of Directors under the Company’s internal rules. The Chief Executive Officer represents the Banque Fédérale des Banques Populaires in its dealings with third parties. If recommended by the Chairman, the Board of Directors may appoint up to five Deputy Chief Executive Officers to assist the Chairman in his role as Chief Executive Officer. Organization of the work of the Board of Directors The Board of Directors meets at least five times a year, on the dates decided at the beginning of the year.The Chairman may call additional meetings if circumstances so require. The Board of Directors met 11 times in 2004, with an average attendance rate of 98%. This is in keeping with internal rules which stipulate that Directors should make every effort to attend meetings of the Board and of any Committees of the Board of which they are members. Meetings last an average of 4 hours, allowing detailed consideration of the subjects on the agenda. In addition to the meetings held to approve financial statements for the first half of the year and the full year, and the meeting that follows the Annual Shareholders’ Meeting in May, whose agenda is exclusively devoted to renewing the Office of the Board, Board meetings are held to review operations of Banque Fédérale des Banques Populaires and the Banque Populaire Group and to discuss the main topical issues affecting the Banque Populaire Group. As well as approving the financial statements of Banque Fédérale des Banques Populaires and the Banque Populaire Group, the Board takes all decisions relating to the Group’s strategy. Any major strategic investments undertaken by other Group entities, such as Natexis Banques Populaires, are first submitted to the Board for approval. Four times a year the Board hears a detailed report on the work of the Group Risk Management Committee.Acting on the recommendations of the Committee the Board then takes any decisions it deems appropriate. Directors receive an agenda and full set of notes and additional information around eight days before each meeting.The Board places great importance on explaining clearly the decisions it takes. A summary of the decisions taken is distributed in the days following the Board meeting to all Directors and all Directors of the Banque Populaire Group (Chairmen and Chief Executive Officers of the Banque Populaire banks). Detailed minutes of Board Meetings are produced recording the discussions that took place for each agenda item.After approval by the Board of Directors a copy of these minutes is supplied to all Directors and all Directors of the Banque Populaire Group. It should be noted that eleven Directors sit on the Boards of Directors of both Banque Fédérale des Banques Populaires and Natexis Banques Populaires. Decisions of the Board of Directors The internal rules of Banque Fédérale des Banques Populaires stipulate that a formal ballot of Directors must be held for all decisions concerning the approval of financial statements, the budget, the resolutions to be tabled at Shareholders’ Meetings and all key strategic and policy issues submitted to the Board by the Chairman. Office of the Board The Office of the Board comprises the Chairman, three Vice-Chairmen – including two Chairmen of Banque Populaire banks and one Chief Executive Officer of a Banque Populaire bank – and a Secretary, who must also be a Chief Executive Officer of a Banque Populaire bank.The Office of the Board does not have decision-making powers but the Chairman may call meetings of its members to inform or consult them on matters falling within his authority. Independent Directors The concept of an Independent Director, as defined by the Bouton report, is not particularly well suited to Banque Fédérale des Banques Populaires. As the central body of a cooperative group, it is natural that the Board of Banque Fédérale des Banques Populaires should be composed of representatives of the Banque Populaire banks.These banks hold over 99% of the Company’s capital (as at December 31, 2004) in their capacity as lending establishments affiliated to Banque Fédérale des Banques Populaires by law. However, under internal rules, the seats on the Board are not held by the Banque Populaire banks, but by individuals. Despite being the Chairmen or Chief Executive Officers of Banque Populaire banks, Directors do not sit on the board as representatives of their respective banks, but as part of the corporate governance structure of the Banque Populaire Group, exercising the powers devolved to Banque Fédérale des Banques Populaires by law. 11 >>> Code of ethics Article 11 of the Company’s internal rules draws the Directors’ attention to legislation banning the use of insider information about the Group’s listed subsidiaries that the Directors may have access to in their capacity as Directors of Banque Fédérale des Banques Populaires. Independent internal audit function The Board of Directors is responsible for guaranteeing the independence of the internal audit function.The internal auditors have full authority to require the audited entities to provide them with all necessary documents and information to enable them to carry out their audit.They also have unrestricted access to all of the computer applications used by the Group. Assessment of the Board’s performance 12 The performance of the Board of Directors of Banque Fédérale des Banques Populaires is measured primarily by the frequency of its meetings, the wealth of information made available to Directors – who also sit on the Boards of Banque Populaire banks – and the openness of discussions on the various matters submitted to the Board. The representative nature of the Board and the manner in which its meetings are conducted ensure that the Board fulfils its stewardship role as the central governing body of the Banque Populaire Group, assuming full responsibility for determining group strategy and policies. BANQUE POPULAIRE GROUP Directors’ fees The fees awarded to the Board of Directors by shareholders in General Meetings are shared equally among the Directors(1), except that members of the Office of the Board and the Committees of the Board receive an additional share for each additional post held. Members of more than one Committee of the Board receive a separate share for each Committee of which they are a member. Main subjects adressed by the Board of Directors during 2004 During 2004 the Board of Directors approved a number of important transactions for the Banque Populaire Group and heard reports on operations within the Banque Populaire Group, with all items being fully discussed. It approved the acquisition of a 25% stake in Volksbank International, the holding company for stakes in banking subsidiaries of ÖVAG (the central body of Austria’s Volksbanken cooperative banks) in Central and Danubian Europe. It approved the creation of a retail banking activity in Algeria. It made decisions regarding significant aspects of the organization of the Banque Populaire Group, or relating to enhancement of its federal and cooperative structures. It approved closer regional links between Caisses de Crédit Maritime Mutuel and the appropriate local Banque Populaire bank. It approved the creation of Banque Populaire Rives de Paris through the merger of Banque Populaire BICS and Banque Populaire Nord de Paris. It launched an action plan to develop the member-stakeholder base of all the Banque Populaire banks and encourage stakeholder initiatives from its member clients. It also launched a sustainable development program, seeking to encourage the widespread use throughout the Banque Populaire Group of the successful initiatives of the Banque Populaire banks that have been most active in this field. In the area of technology, the Board carried out an in-depth review of progress and plans at i-BP (informatique-Banque Populaire), following the merger during 2004 of the regional processing centre into this single platform. It approved the electronic payment services agreement offered by Natexis Banques Populaires to the Banque Populaire banks and voted for the adoption by all Banque Populaire banks of additional systems for the internet. It heard detailed reviews of business activity and growth at Banque Populaire Group, which it debated. On two occasions (May 26 and November 17) it heard minutes of meetings of the Risk Management Committee of Banque Fédérale des Banques Populaires. The management report on internal control procedures at Banque Populaire Group was presented to the meeting of April 21, 2004. (1) Details of the amounts received by individual Directors are given in the section “Directors’ Fees”. Corporate governance Committees of the Board s part of the modernization of its organization inspired by the Viénot report of 1999, the Board of Directors of Banque Fédérale des Banques Populaires reviewed its corporate governance structures and decided to create two new specialist committees – The Audit Committee and the Remuneration Committee – alongside the Group Risk Management Committee. A Each of these Committees has four members (two Chairmen and two Chief Executive Officers of a Banque Populaire bank) nominated by the Chairman and elected by the Board of Directors of Banque Fédérale des Banques Populaires. Minutes of meetings of the Committees are drawn up and the Chairman of each Committee reports to the Board on the work of his Committee. As with the Group Risk Management Committee, these Committees serve to advise and assist the Board of Directors of Banque Fédérale des Banques Populaires. Group Risk Management Committee The Group Risk Management Committee took over from the Central Lending Committee which had been set up under the law of 1929.The Board of Directors’ meeting of June 20, 2001 decided that the composition of the new committee and its terms of reference would be unchanged compared with its predecessor, in accordance with the powers vested in Banque Fédérale des Banques Populaires as central body of the Group under Art. L. 511-31 of the Monetary and Financial Code. In November 2002, the Board of Directors of Banque Fédérale des Banques Populaires changed the terms of reference of the Group Risk Management Committee by creating a separate Risk Management Committee for Banque Fédérale des Banques Populaires Experts or line managers from any of the Group’s banks may be invited to attend to provide additional insight into the matters under review. The Group Risk Management Committee meets four times each year in plenary session to review reports dealing with the Banque Populaire Group’s risk assessment and monitoring system and internal control procedures, as required by French banking regulations. It independently monitors overall risk on an ex-ante and ex-post basis. Monitoring is based on regular standardized counterparty risk reports providing analyses of industry and country risks and a breakdown between interbank, sovereign and client risks, as well as on interest-rate and liquidity risk reports.The Committee is also charged with examining overall risk strategies, exposure limits and internal control systems. Following this review, the Committee makes recommendations to the Board of Directors regarding any risk management decision applicable to all Banque Populaire Group entities. Decisions in the plenary sessions are taken by a two-thirds majority. Minutes of the plenary sessions are presented to the Board of Directors of Banque Fédérale des Banques Populaires for consideration. The Group Risk Management Committee meets twice each year in plenary session to hear reports regarding risk assessment and monitoring and an appraisal of internal control systems of Banque Fédérale des Banques Populaires. Plenary sessions of this Committee are chaired by the Group Chairman.The Committee is made up of six Directors including the four members of the Office of the Board.They are also attended by the Chief Operating Officers and Deputy Chief Executive Officer of Banque Fédérale des Banques Populaires, the Chief Executive Officer of Natexis Banques Populaires and the head of Internal Audit. No Executive Directors attend meetings to review reports concerning Banque Fédérale des Banques Populaires. The Group Risk Management Committee holds a monthly meeting, with restricted attendance, to review the main counterparty risks at each Group bank on a consolidated basis or at the Banque Populaire Group as a whole, as well as any loans made to Directors of the Banque Populaire banks, thus helping prevent any conflicts of interest. The monthly meeting of Group Risk Management Committee is attended by three standing members and three substitute members appointed for one year by the Board of Directors of Banque Fédérale des Banques Populaires on the recommendation of the Chairman after the Annual Shareholders’ Meeting. The Chairman of the monthly Group Risk Management Committee meeting is chosen from among the Chairmen of the Banque Populaire banks who are members of the Office of the Board. His or her substitute does not have to be a member of the Office of the Board.The two Chief Executive Officers sitting on the monthly committee are selected from those Directors who are not members of the Office of the Board.Their substitutes may be members of the Office. Decisions are adopted by at least two votes to one. The Audit Committee The Audit Committee, independently of the Executive Directors of the Group 13 >>> entities, reviews the company and consolidated financial statements of Banque Fédérale des Banques Populaires prior to their submission to the Board of Directors and the consolidated financial statements of the Banque Populaire Group.The Committee is responsible for ensuring that accounting policies are appropriate and are applied consistently from one year to the next, and for assessing the reasonableness of the main assumptions used to prepare the financial statements. It also makes recommendations to the Board concerning the choice of Statutory Auditors, their audit program and the fee budget. It meets at least twice a year. Meetings are attended by the Statutory Auditors. The Committee may also request the presence of other individuals who in one way or another are involved in the production or supervision of financial statements, including members of the Finance and Internal Audit Departments. BANQUE POPULAIRE GROUP 14 Remuneration Committee The Remuneration Committee makes recommendations to the Board concerning the compensation, pension benefits and other benefits awarded to Executive Directors.The Directors concerned are not present at meetings at which their compensation and benefits are discussed. The Chairman of the Board may also ask the Committee to examine any issues relating to the overall compensation and benefits policy for Executive Directors of Banque Populaire Group entities, prior to bringing these matters before the full Board for consideration. During 2004 the Remuneration Committee of the Banque Populaire Group, chaired by Philippe Dupont, met to review the compensation of Group Executives, in accordance with its remit. All Committee members were present. After examining the effective compensation paid in 2003 to Executive Directors of the Banque Populaire regional banks and Banque Fédérale des Banques Populaires, the Committee put forward recommendations for 2004.These were relayed to the Executives of the regional banks in order to be approved by the regional Remuneration Committees. Two work sessions took place before these meetings, in which the Committee examined the criteria used to determine the fixed and variable components of compensation. The fixed component is determined according to three criteria: n net banking income, n career mobility, n seniority in the position. For 2004 as for 2003, the variable element is determined based on performance in three areas: n net banking income, n cost/income ratio, n return on equity. Corporate governance COMMITTEE CHAIRMAN MEMBERS ATTENDANCE NUMBER OF MEETINGS IN 2004 RATE Group Risk Management Committee Group Risk Management Committee Plenary Session 1st half 2004(1) 2nd half 2004(1) Philippe Dupont R. Clavaud, C. Hébrard, F. Thibaud, Y. de la Porte du Theil, F. Moutte, R. Nalpas (2) Philippe Dupont (1a) 98% 4 concerning the Group 2 concerning Banque Fédérale des Banques Populaires 89% 9 100% 2 100 % 2 R. Clavaud, C. Cordel, F. Moutte, Y. de la Porte du Theil, R. Nalpas, F. Thibaud (3) Group Risk Management Committee Monthly Session 1st half 2004 René Clavaud (2) Members(2) Y. de La Porte du Theil, F. Moutte Substitutes(2) J-F. Comas, R. Nalpas, J-L. Tourret 2nd half 2004 René Clavaud (3) Members(3) Y. de La Porte du Theil, F. Moutte Substitutes(3) J-F. Comas, R. Nalpas, J-L. Tourret Audit Committee 1st half 2004 Richard Nalpas (4) (4) C. Cordel, M. Devianne, F. Thibaud 2nd half 2004 Richard Nalpas (4) (4) P. Desvergnes, F. Thibaud, J-L. Tourret, Remuneration Committee 1st half 2004 Philippe Dupont (5a) (5) R. Clavaud, C. Hébrard, R. Nalpas, F. Thibaud, 2 half 2004 Philippe Dupont (5) R. Clavaud, C. Cordel, R. Nalpas, F. Thibaud, nd (1) (1a) (2) (3) (4) (5) (5a) (5a) 1st half 2004: appointed by the Board of Directors of Banque Fédérale des Banques Populaires meeting on June 18, 2003 2nd half 2004: appointed by the Board of Directors of Banque Fédérale des Banques Populaires meeting on May 27, 2004 When the Group Risk Management Committee considers issues relating to Banque Fédérale des Banques Populaires, it is chaired by René Clavaud Appointed until the Annual Shareholders’ Meeting held to approve financial statements for 2003 Appointed until the Annual Shareholders’ Meeting held to approve financial statements for 2004 Appointed for the term of their appointment as Directors of Banque Fédérale des Banques Populaires Appointed for the term of their appointment as members of the Office of the Board of Banque Fédérale des Banques Populaires When the Remuneration Committee considers issues relating to Banque Fédérale des Banques Populaires, it is chaired by René Clavaud 15 Corporate Governance rules for the Banque Populaire banks On November 20, 2002 the Board of Directors of Banque Fédérale des Banques Populaires approved a Corporate Governance Charter for the Banque Populaire banks and Framework Internal rules for their Boards of Directors. he charter establishes the corporate governance rules for the Banque Populaire banks as well as governing standards of behavior for their Directors. It sets out the responsibilities of the Board of Directors, Chairman, Chief Executive Officer and Consultative Committees of the Banque Populaire banks. T The Banque Populaire banks are cooperative banks, and their member-stakeholders play a central role in their organization. Boards of Directors are made up of member-stakeholders, who are clients like any others.The Group Risk Management Committee oversees lending decisions regarding these Directors, to avoid conflicts of interest. BANQUE POPULAIRE GROUP 16 Well before the new French corporate governance law came into effect on May 15, 2001, the Banque Populaire banks had already taken action to improve the effectiveness of their management structures by separating responsibility for overall strategy and control from that for the implementation of strategy and day-to-day running of the business, through the allocation of these responsibilities to the Chairman and Chief Executive Officer respectively. Populaire bank in question. The Directors derive their authority from the memberstakeholders, whether individuals or organizations, from amongst whom they are elected.The Annual General Meetings of memberstakeholders represent a high point in the life of a cooperative bank, allowing broad-based participation in its affairs, the free flow of information, transparency and an informed exchange of views. The Board of Directors collectively represent all member-stakeholders and are bound to act in all circumstances in the best interests of the member-stakeholders of the Banque Populaire cooperative bank. Directors have no individual powers of management, exercising their powers only collectively through the Board of Directors. Directors’ code of conduct Each Director must understand that he or she represents all member-stakeholders and behave accordingly in the fulfillment of his or her duties. Responsibilities of the Board of Directors Directors must allocate to their duties the time and care necessary.They must make all reasonable efforts to attend meetings of the Board of Directors and the General Meeting.Training events are offered to Directors as required. Members of Boards of Directors are drawn from key players in the local economy of the Banque Where Directors, in exercising their duties, gain access to information not yet in the public domain, they are bound by a duty of confidentiality and professional secrecy. Directors who sit on Consultative Committees are expected to meet the same standards as apply to all Directors, namely loyalty, diligence, competence, confidentiality and professional secrecy. Directors are expected to make a more general contribution to promoting the image of their Banque Populaire bank in the regional community and economy. They play an active part in encouraging and introducing new business. The organization of the Board of Directors The Directors elect from their number a Chairman for a renewable term of three years, providing that this does not exceed the term of his or her mandate as a Director or go beyond the date of his or her sixty-fifth birthday. Beyond this date, the Chairman’s mandate is for a term of one year, and may not exceed the statutory age limit set by the General Meeting held to approve accounts in the year of his or her sixty-eighth birthday. On the recommendation of the Chairman, the Board of Directors appoints a Chief Executive Officer, who may not be a member of the Board, for a renewable term of five years or until his or her sixtieth birthday. Beyond the date Corporate governance of his or her sixtieth birthday, the Chief Executive Officer’s mandate is for one year and may not exceed the statutory age limit set at the date of his or her sixty-fifth birthday. The Board of Directors adopts internal rules governing the organization and work of meetings of the Board and of its Consultative Committees. On the recommendation of the Chairman, the Board of Directors may set up and determine the membership of the following Consultative Committees: n A Risk Management Committee n An Audit Committee The Board of Directors may elect to combine the roles of these two committees in a single body to be known as Audit and Risk Management Committee. The purpose of these committees is to: 1/ review, on a company and consolidated basis, the main indicators from risk monitoring systems, findings of the internal control processes and the main conclusions of the Internal Auditors, in accordance with banking regulations; 2/ analyze financial statements and other financial documents produced by the bank following approval of accounts and to conduct further enquiries into particular areas before such documents are brought before the Board of Directors. In addition, the Board of Directors may elect to create two other committees: n A Remuneration Committee responsible for drawing up, in the absence of those concerned, any proposal concerning the employment terms of Executive Officers.The Committee’s proposals must be in accordance with Group policy regarding Executive remuneration. n A Member-Stakeholder Policy Committee, which, if set up, is responsible for bringing forward proposals to develop and promote the cooperative aspects of the company, through steady increases in the number of member-stakeholders, a balanced distribution of capital, publicity policy and involvement in local cooperative ventures amongst other things. The powers of the Board of Directors Strategy and operational structure The Board of Directors is responsible for setting the bank’s overall strategy and policy, in accordance with the strategy and policy of the Banque Populaire Group. It determines key strategic policies based on joint recommendations of the Chairman and Chief Executive Officer and makes periodic checks on their implementation in terms of the fundamental issues of growth, profitability, security and the adequacy of the resources employed. Risk control The board of directors is responsible for controlling the major risk exposures of the bank and ensuring the quality and reliability of internal control systems in accordance with banking regulations (CRBF97-02). It sets the overall direction of lending policy and sets exposure limits regarding the division and distribution of risk and its relationship with the bank’s capital. It determines the exposure thresholds above which it must be consulted, ensures compliance with the procedures relative to the powers of the Group Risk Management Committee of Banque Fédérale des Banques Populaires, and monitors exposure using overall information on the cases considered by the Group Risk Management Committee and on the portfolio as a whole. n It sets overall limits for other major areas of financial risk, with regard to the bank’s ability to bear potential losses, and n monitors the compliance with these limits and the level of risk using the regular information with which it is provided to this end. The Board of Directors also reviews the procedures for controlling operational risk, relating to information systems, accounting, fraud and embezzlement, procedures, and legal risks. n It sets targets regarding internal control and risk control having reviewed the reports submitted to it, and in particular following review of those reports required by law or regulation. n The results of any external checking carried out on the bank by Banque Fédérale des Banques Populaires or by the Banking Commission or other regulators are submitted to the Board of Directors for discussion. The Board is responsible for monitoring the implementation of any recommendations made as a result of such checks. The Board is required to take without delay, any measures or corrective steps necessary to protect the financial and economic balance of the bank and thus preserve its competitiveness. In more general terms, the Board of Directors is responsible for ensuring that the controls and checks in place are adequate for their purpose and for making such further controls and checks as it considers necessary. Capital remuneration policy The Board of Directors sets the rate of capital remuneration. This rate must be compatible with the creation of such provisions and reserves as may be required to ensure adequate cover of risk exposure, and with ensuring that the bank has sufficient resources to allow its growth. The rate is set within the legal maximum level for interest paid on shares in its capital. The Board of Direction sets the level of the transfer of reserves to capital funds, ensuring that the requirement that these be exceptional in nature is met. 17 >>> The Responsibilities of the Chairman of Directors and thus has the power to raise subjects for discussion. The Chairman is one of the two Directors with responsibility under the terms of the Monetary and Financial Code. As a result he or she is one of the two key contacts for the banking authorities and must, therefore, have a clear overall view of the bank’s operations in order to fulfill his or her duties. The Chairman ensures that the minutes of meetings of the Board of Directors give a full summary of the work of the Board. A copy of these minutes is supplied to Banque Fédérale des Banques Populaires following their approval by the Board of Directors. Due to the separation of functions the Chairman does not have responsibility for the Executive Management of the bank. He or she is not the legal representative of the bank and can not make undertakings on its behalf to third parties. Management of the Board of Directors The Chairman is responsible for managing the Board of Directors and is also the natural point of contact for the bank’s executives, member-stakeholders and third parties in their dealings with the Board. BANQUE POPULAIRE GROUP 18 The Chairman is responsible for the proper running of the management structure of the bank in the form of the Board of Directors, Executive Management and General Meetings, and for ensuring compliance with the legal requirements on the responsibilities of the Board: setting the remuneration of Executives, setting and distributing Directors’ fees, the maximum level of which is determined by the General Meeting, and informing the Board of regulated and non-regulated agreements. The Chairman organizes and directs the work of the Board and reports on this work to the General Meeting.To this end the management report to the General Meeting provides information regarding the work of the Board such as the number of meetings held during the year, the main topics discussed and the work of the Consultative Committees. The Chairman determines the agenda for meetings of the Board The Chairman will use the decisions of the Board of Directors of Banque Fédérale des Banques Populaires to guide the Board of Directors in the overall direction to follow and requirements that must be met. Relationships with the Chief Executive Officer and the Group The Chairman works with the Chief Executive Officer in preparing the strategic decisions to be submitted to the Board and for the implementation of which the Chief Executive Officer is responsible. As one of the two key points of contact for the Group, alongside the Chief Executive Officer, the Chairman ensures that the policies adopted by the Board of Directors are in keeping with those determined by the Group.The Chairman plays an active part in the federal life of the Group, participating in federal conferences and commissions, meetings of Chairmen of the Banque Populaire banks and so on. The Chairman represents his or her Banque Populaire bank at the General Meetings of Banque Fédérale des Banques Populaires. Should the Chairman be unable to attend, the bank will be represented either by a Director chosen by the Chairman or by the Chief Executive Officer. Through permanent contact with Executive Management, the Chairman ensures that the strategies and policies approved by the board are being implemented, and also remains informed about the overall conduct of the bank’s operations. The Chairman appends his or her signature to documents relating to the Group Risk Management Committee alongside that of the Chief Executive Officer and ensures that the decisions of this body are respected. Both the Chairman and Chief Executive Officer are systematically informed of the Group Risk Management Committee’s findings by Banque Fédérale des Banques Populaires. The Chairman receives Internal Audit reports from Banque Fédérale des Banques Populaires and reports from Banking Commission inspections and ensures that Board is fully informed of the findings of inspections carried out by the Banking Commission or other regulatory bodies.The Chairman also ensures that the minutes of the Board meeting at which the Banking Commission’s letter was discussed are provided to the Banking Commission. The responsibilities of the Chief Executive Officer Executive responsibility The Chief Executive Officer, as a responsible Director under the Monetary and Financial Code, works with the Chairman to propose choices of strategy to the Board of Directors and ensures that these are in keeping with the strategy and policies defined by the Group. Thus alongside the Chairman, the Chief Executive Officer is the bank’s representative and point of contact for Group bodies and supervisory and regulatory organizations.The Chief Executive Officer also participates in the federal life of the Group. The Chief Executive Officer is responsible for the implementation of strategies and policies approved by the Board of Directors. The Chief Executive Officer is appointed by the Board of Directors and answers to the Board on Corporate governance the proper execution of his or her functions. Periodically, on the request of the Chairman, the Chief Executive Officer reports to the Board of Directors on the implementation of policies adopted by the Board. The head of the bank and manager of its staff The Chief Executive Officer is the legal representative of the bank with regard to third parties and in law. He or she is vested with exhaustive powers and is the head of the Banque Populaire bank, responsible for the good operational management and day-to-day operations of the bank. The Chief Executive Officer is also responsible for the management of the bank’s staff. In agreement with the Chairman and in accordance with banking regulations, he or she informs the Board of Directors of the choice of the head of the Internal Audit function, whose independence is then protected by the Board. Risk control The Chief Executive Officer is jointly responsible with the Chairman for the implementation of an internal risk control system that guarantees the protection of the bank against the risks to which it is exposed, including credit and margin risks, interest rate risks, market risks, foreign currency risks, liquidity risks, operational risks and risks relating to subsidiaries. The Chief Executive Officer makes regular checks on the correct operation of these systems, ensures that adequate resources are provided to internal control given the nature of these risks, and supervises the process of reporting to the Board of Directors. The Chief Executive Officer is also responsible for the system of delegating decisions on commitments. He or she ensures that the staff authorized to make such commitments have the skills and training required. The Chief Executive Officer is responsible for ensuring constant control over risk and for promoting a strong risk-aware culture within the bank’s staff. The Chief Executive Officer is responsible for ensuring the existence of a policy for controlling legal risk with regard to operational risks and particularly legal risks which could threaten the bank’s image. 19 Statutory Auditors Names, addresses and dates of appointment The Statutory Auditors and Substitute Auditors are appointed in accordance with Art. 27 to 33 of Decree no. 84-709 of July 24, 1984 dealing with the activities and supervisions of credit institutions. The Statutory Auditors were appointed by the Conseil Syndical of the former Chambre Syndicale des Banques Populaires on September 20, 2000 for a six year term. The meeting of the Board of Directors of Banque Fédérale des Banques Populaires on June 23, 2004 noted the resignation of Cabinet PricewaterhouseCoopers as Statutory Auditors for the consolidated financial statements of the Banque Populaire Group, and appointed Salustro Reydel to replace them for the remainderof their mandate. SALUSTRO REYDEL 8, avenue Delcassé 75378 Paris Cedex 08 Represented by Michel Savioz Substitute Auditors Pascal Macioce Barbier Frinault & Autres Member of the Ernst & Young 41, rue Ybry 92576 Neuilly-sur-seine Cedex 4 Statutory Auditors Louis-Pierre Schneider BARBIER FRINAULT ET AUTRES Coopers & Lybrand Audit Member of PricewaterhouseCoopers 32, rue Guersant 75017 Paris Member of the Ernst & Young 41, rue Ybry 92576 Neuilly-sur-seine Cedex 4 Represented by Richard Olivier and Olivier Durand Fees paid to the Banque Populaire Group’s Statutory Auditors The following table shows fees paid in 2003 and 2004 by the Banque Populaire Group and its fully consolidated subsidiaries to the college of Statutory Auditors and members of their respective groups. DECEMBER 31, 2004 in € thousands Ernst & Young 20 Audit 1,121 - Independent audit, certification, review of parent company and consolidated financial statements(1) 4,170 - Ancillary assignments and other audit assignments(2) Sub-total 5,291 Other services - Legal, fiscal, employment-related - Information technology - Internal audit - Other Sub-total BANQUE POPULAIRE GROUP Total fees DECEMBER 31, 2003 Salustro Reydel (3) Ernst & Young % Pricewaterhouse Coopers(3) group % 2,006 41.3% 922 1,546 39.3% 32 55.5% 3,007 389 54.0% 2,038 96.8% 3,929 1,935 93.3% 0 0 0.0% 6 277 4.5% 0 48 191 239 0 0 0 0 0.6% 2.5% 3.2% 46 52 94 371 0.7% 1.5% 6.7% 5,530 2,038 100.0% 3,981 2,306 100.0% (1) Including audit fees in respect of fully consolidated companies: - Ernst & Young group: €971,000 in 2004 and €764,000 in 2003 - Salustro Reydel group: €1,472,000 in 2004 - PricewaterhouseCoopers group: €1,237,000 in 2003 (2) For the Ernst & Young group, this item includes fees for the Basel II reform project implemented at both Banque Fédérale des Banques Populaires and Natexis Banques Populaires. (3) At its meeting of June 23, 2004, the Board of Directors of Banque Fédérale des Banques Populaires was advised of the resignation of PricewaterhouseCoopers and appointed Salustro Reydel in its place. Corporate governance Internal financing mechanisms A number of group entities benefit from the guarantee system of the Banque Populaire network: on the one hand the Banque Populaire banks, the exclusive Mutual Guarantee Companies, and Banque Fédérale des Banques Populaires; on the other hand Crédit Maritime Mutuel by virtue of its legal affiliation to Banque Fédérale des Banques Populaires, under the terms of the Monetary and Financial Code. he system to guarantee the liquidity and capital adequacy of the Banque Populaire network has been organized under a framework decision by Banque Fédérale des Banques Populaires, in its capacity as central body in accordance with Art. L. 511-30, L. 511-31, L. 511-32 and L. 512-12 of the Monetary and Financial Code to which the bylaws of the Banque Populaire banks make explicit reference (Article 1). T The system works by pooling the capital of all banks in the network. Banque Fédérale des Banques Populaires is able to put the system into effect by calling upon the Banque Populaire banks to contribute capital, within the limits of their own resources.As a last resort Banque Fédérale des Banques Populaires will provide capital from its own resources to ensure the continued liquidity and capital adequacy of the Banque Populaire banks. The mechanism works in two stages.The first consists of the “federal solidarity fund” included in the fund for general banking risks created by Banque Fédérale des Banques Populaires.The second takes the form of the “regional solidarity funds” created by the Banque Populaire banks and included in their own funds for general banking risks. Each year, 10% of each Banque Populaire bank’s net income before transfers to the fund for general banking risks and tax is transferred to this fund, net of tax.Withdrawals from these funds by the Banque Populaire banks require the prior approval of Banque Fédérale des Banques Populaires. In addition, under a collective agreement, each Banque Populaire bank guarantees the liquidity and capital adequacy of the mutual guarantee companies whose corporate purpose is limited to guaranteeing the lending activities of the banks. The guarantee system of the Banque Populaire network also guarantees the liquidity and capital adequacy of Crédit Maritime Mutuel, for which Banque Fédérale des Banques Populaires is the central body under Art. L. 512-69 of the Monetary and Financial Code. This guarantee system comes into effect only after Crédit Maritime Mutuel’s own system. Lastly, the members of the network contribute, along with all French credit institutions, to the Fonds de Garantie des Dépôts (deposit guarantee fund) established by law. 21 22 Group structure 22 Banque Populaire banks n Banque Fédérale des Banques Populaires n Natexis Banques Populaires BANQUE POPULAIRE GROUP n Group structure 23 A successful model combining strong financial performance with a concern for the common good that remains faithful to cooperative values on which the Group has been built. Introduction The Banque Populaire Group is one of France’s largest retail banking networks, with 6,600,000 clients and nearly 2,700 branches. Rapid business development, driven by a combination of steady organic growth and targeted acquisitions, has given the Group leading positions in all its client segments: personal, small business, corporate and institutional clients. he Banque Populaire Group is a cooperative group whose parent companies are the 20 Banque Populaire regional banks, CASDEN Banque Populaire and Crédit Coopératif. The capital of these companies is wholly owned by their memberstakeholders.The Banque Populaire banks control Banque Fédérale des Banques Populaires, which acts as the central body of the Banque Populaire Group and the holding company for the group’s stake in Natexis Banques Populaires, which is listed on section A of Eurolist Paris. T 24 Banque Fédérale des Banques Populaires is the central body of the Banque Populaire Group. The other entities of the Banque Populaire Group are direct or indirect subsidiaries of Banque Fédérale des Banques Populaires; the largest such subsidiary is Natexis Banques Populaires. The term “Banque Populaire banks” In this AMF shelf-registration document all references to the “Banque Populaire banks” correspond to: the 20 Banque Populaire regional banks (as at December 31, 2004); BANQUE POPULAIRE GROUP n n CASDEN Banque Populaire, a national bank dedicated to serving the employees and employer institutions of the French national systems of education, research and culture; n Crédit Coopératif Banque Populaire or “Crédit Coopératif”, a major player in the social economy sector. It joined the other Banque Populaire banks on January 30, 2003 when it took on the status of société coopérative anonyme de banque populaire à capital variable. The term “network” Within the meaning of Art. L. 512-11 of the Monetary and Financial Code, the Banque Populaire network includes: n The Banque Populaire banks, all of which are cooperative banks. n The mutual guarantee companies whose sole corporate purpose is guaranteeing loans issued by Banque Populaire banks. n Banque Fédérale des Banques Populaires, a joint stock company (société anonyme) governed by company law. The Banque Populaire guarantee system has been extended to include Crédit Maritime Mutuel since its affiliation to Banque Fédérale des Banques Populaires in accordance with Art. 93 of the French Financial Security Act of August 1, 2003. Banque Fédérale des Banques Populaires thus became the central body for the establishments making up Crédit Maritime Mutuel. The French Financial Security Act of August 1, 2003 also resulted in the removal of the Caisse Centrale de Crédit Coopératif’s role as central body of Crédit Coopératif.This body was merged into Crédit Coopératif on June 30, 2003 and was wound up on October 17, 2003. In exchange for enjoying coverage from the Banque Populaire guarantee system, Crédit Maritime Mutuel will contribute to any financial measures in favor of other banks in the Banque Populaire network that may be decided by the Board of Directors of Banque Fédérale des Banques Populaires. Both Banque Fédérale des Banques Populaires and Natexis Banques Populaires registered an AMF shelfregistration document with the Autorité des Marchés Financiers in March 2005. Group structure Simplified financial organization chart(1) as of January 1, 2005 2,770,000 member-stakeholders 100% t SBE Bank 99,8% BICEC Bank in Cameroon 52,5% informatiqueBanque Populaire (i-BP) Group IT platform 20 Banque Populaire regional banks, Crédit Coopératif, CASDEN Banque Populaire 99.3% Crédit Maritime Mutuel t 100% Banque Fédérale des Banques Populaires Affiliate 75.6%(2) t Natexis Banques Populaires CORPORATE AND INSTITUTIONAL BANKING AND MARKETS 100% Natexis Lease PRIVATE EQUITY AND WEALTH MANAGEMENT 100% Lease financing 100% 100% Asset Management and Insurance 100% 87.8% Natexis Bleichroeder Inc. Investment company (New York) Natexis Private Banking Luxembourg S.A. International wealth management 100% 100% Natexis Assurances 100% Life, personal risk and non-life insurance 100% Banque Privée Saint Dominique Wealth management in France 100% Natexis Asset Management 100% 100% 94% 100% Coface Ort Business information Slib 100% Banking software IT facilities management Banking software OKV Coface Credit insurance Credit management (Austria) Natexis Paiements Samic Viscontea Coface Credit insurance Guarantees Credit management (Italy) Electronic banking 75.6% AK Coface Natexis Interépargne Banking, Financial and Technology Services 100% 25 Credit insurance Credit management (Germany) Employee savings Accounts keeping and marketing 100% Coface Scrl Business information Debt collection Fund management International network(3) (1) This organization chart only shows subsidiaries with over 100 full-time equivalent employees (FTEs) as of December 31, 2004 (2) Including 2.2% held by the Alizé Levier corporate mutual fund (3) See map of international network on pages 48 and 49 Coface S.A. Credit insurance Credit management Private Equity Natexis Bleichroeder S.A. Investment company (Paris) Natexis Private Equity RECEIVABLES MANAGEMENT SERVICES Coface North America Credit insurance Credit management 99.7% Natexis Factorem Factoring Credit insurance The Group’s history 1917 to 1929 March 13, 1917 July 27, 1999 Creation of the Banque Populaire banks Creation of Natexis Banques Populaires The Banque Populaire banks are established to help boost lending to small and medium-sized businesses. They are organized as cooperative companies entirely owned by their member-stakeholders. June 20, 1921 Creation of Caisse Centrale des Banques Populaires The 74 Banque Populaire banks, united by a common identity, decide to set up a central structure to organize a system of mutual financial support by centralizing, managing and investing their cash surpluses. May 23, 1929 Creation of Chambre Syndicale des Banques Populaires 26 A second central body is created to strengthen the system of mutual support. Its three roles are the exercise of control, the power to represent the banks and the establishment of a forum for dialogue and consultation. More recent milestones June 2, 1998 Friendly takeover bid for Natexis S.A. BANQUE POPULAIRE GROUP was 71.4%. Its interest was increased to 74.36% at the end of 1998. At the time, Natexis S.A. was the holding company of the Natexis group which had been formed through the 1996 merger of Crédit National and Banque Française du Commerce Extérieur. At the close of the offer period, Caisse Centrale des Banques Populaires owned 53.2% of Natexis S.A. and the Group’s total interest The businesses conducted by Caisse Centrale des Banques Populaires are transferred to Natexis S.A, which is renamed Natexis Banques Populaires. December 23, 1999 Caisse Centrale des Banques Populaires becomes Banque Fédérale des Banques Populaires The headquarters is moved to the Ponant de Paris building. By end-1999, the Group owns 88.06% of Natexis Banques Populaires. By year-end 2000 the figure has been reduced to 79.23% following the first public issue of new capital by Natexis Banques Populaires in its new configuration. May 31, 2001 Banque Fédérale des Banques Populaires adopts joint stock (société anonyme) status Under Art. 27 of the “NRE” Act (Act no. 2001-420 of May 15, 2001 concerning corporate governance) Chambre Syndicale des Banques Populaires is wound up and its assets, rights and obligations are transferred to Banque Fédérale des Banques Populaires together with the collective guarantee fund. August 2, 2002 and April 2004 Natexis Banques Populaires acquires Coface Following a simplified public tender offer in July 2002 and a squeeze-out bid followed by a mandatory delisting in April 2004, Natexis Banques Populaires becomes the sole owner of Coface, a credit insurance and credit management specialist. November 18, 2002 Memorandum of understanding between the Banque Populaire Group and Crédit Coopératif Crédit Coopératif is a leading player in the French social economy sector. January 10, 2003 Memorandum of understanding between the Banque Populaire Group and Crédit Maritime Mutuel Crédit Maritime Mutuel, a wellknown player in the economies of coastal regions, agrees the terms under which it will become affiliated to Banque Fédérale des Banques Populaires. January 30, 2003 Crédit Coopératif adopts “société anonyme coopérative de banque populaire" status Following approval by its Extraordinary General Meeting, Crédit Coopératif becomes a Banque Populaire bank and joins the Banque Populaire Group internal guarantee system. August 1, 2003 Banque Fédérale des Banques Populaires becomes the central body of the Crédit Maritime Mutuel banks Following changes in the law in the summer of 2003 (Art. 93 of the French Financial Security Act No. 2003-706) and in accordance with the agreement signed in January 2003 between the Banque Populaire Group and Crédit Maritime Mutuel, Banque Fédérale des Banques Populaires replaced Caisse Centrale du Crédit Coopératif as the central body of the Crédit Maritime Mutuel banks. Group structure Key events in 2004 i-BP convention Held on September 23, 2004, the i-BP 2004 Meeting marked the pinnacle of three years of work on major projects. In addition to the ten IT systems migrations completed, there were also three mergers and four migrationmergers, given the changes in the number of Banque Populaire banks over the period. The convention also marked the move into the second phase of the project, in the form of the Equinoxe project which will renew the suite of tools used to support multi-channel sales. Each account manager, in every branch in the Banque Populaire network will have on his or her workstation access to all client information.This will help boost the Group’s provision of local banking services.This major project involves not only members of the i-BP team, but also staff from the Banque Populaire regional banks and from Natexis Banques Populaires. It is one of the biggest industrial projects ever undertaken by the Group. Support for the Crédit Maritime Mutuel banks from the Banque Populaire banks On October 19, 2004, the Board of Directors of Société Centrale de Crédit Maritime Mutuel unanimously approved the provision of technical and operational support to the Crédit Maritime Mutuel banks by the Banque Populaire regional banks in coastal regions. The current legislative and regulatory structure of Crédit Maritime Mutuel will be maintained, and this decision will preserve the identity of the Crédit Maritime Mutuel regional banks whilst giving them access to the logistics resources of the Banque Populaire banks in their regions and thus developing synergy between the two networks. In order to strengthen the financial position of the Crédit Maritime Mutuel regional banks, the Banque Populaire regional banks involved will acquire stakes of at least 20% in each Crédit Maritime Mutuel regional bank. Creation of Banque Populaire Rives de Paris The member-stakeholders of Banque Populaire Nord de Paris and Banque Populaire BICS attended Extraordinary General Meetings respectively on November 9 and 10, 2004.These meetings approved the proposal to merge Banque Populaire Nord de Paris into Banque Populaire BICS. This agreement gave rise to the creation of Banque Populaire Rives de Paris, with retroactive effect to January 1, 2004. During 2004, Banque Populaire Rives de Paris continued the renovation and expansion of its branch network. Nine new branches were opened: two in Paris (the 15th and 18th arrondissements), and seven in its suburbs (Gennevilliers, Saint-Denis, Goussainville, Chevilly-la-Rue, Issy-les-Moulineaux, Orly and Mandres-les-Roses). Thirteen branches were modernized or moved: three in Paris and ten in its suburbs. Reorganization of core businesses at Natexis Banques Populaires At the presentation of first half figures in September 2004, and as part of the review process launched in 2003, François Ladam, Chief Executive Officer of Natexis Banques Populaires, set out the future direction of the company and its new organization. The new, more tightly structured organization aims to increase revenues from the existing client base and maximize the value created by Natexis Banques Populaires’ professional expertise in growing markets. It also includes a strengthening of the management control and risk control functions. Thus Natexis Banques Populaires is now divided into four core businesses: n Corporate and Institutional Banking and Markets, n Private Equity and Wealth Management, n Services, including asset management and insurance, and banking, financial and technology services, n Receivables Management. Creation of a joint banking platform to step up the Banque Populaire Group’s activities in Eastern Europe In December 2004, Banque Fédérale des Banques Populaires and the two central bodies of the German cooperative banking segment, DZ Bank and WGZ Bank, joined forces with ÖVAG in Volksbank International AG (VBI) to create a shared retail banking platform for Central and Eastern Europe.With 145 branches, the VBI network currently has over 400,000 clients, including 50,000 companies, most of which are local SMEs. VBI, which was previously a wholly-owned subsidiary of ÖVAG, will now be 51%-owned by ÖVAG, with Banque Fédérale des Banques Populaires holding 24.5% and the two German central bodies 24.5% jointly. It will be allocated the capital resources necessary to fulfill its function of control and management of its banking subsidiaries. 27 Member-stakeholders: moving forward together In today’s Europe, the Group’s cooperative status is a valuable strategic asset giving a real competitive advantage. The Banque Populaire Group draws on these strengths and energetically builds on the strong and lasting relationships it has built with its member-stakeholders. n 2001, the Banque Populaire Group adopted a vigorous policy to reinvigorate its member-stakeholder base. In 2002, the Board of Directors of Banque Fédérale des Banques Populaires reconfirmed the target of seeing half of all personal clients become member-stakeholders by the end of 2005. Over the past two years every Banque Populaire bank has enthusiastically backed this program. I This shared undertaking is now producing results.The 2,500,000 member-stakeholder milestone was reached in March 2004, with 1,500,000 of these memberstakeholders for the Banque Populaire regional banks alone. By the end of 2004, the 20 Banque 28 Populaire regional banks, CASDEN Banque Populaire, Crédit Coopératif and Crédit Maritime Mutuel had 2,770,000 member-stakeholders, a 14.5% increase on the end of 2003. As well as growing numbers, there has been an increasing number of varied and original initiatives that give concrete form to the cooperative spirit and encourage enterprise in the regions. These include Déclic Clubs, regional initiative awards, summer schools, business start-up meetings, memberstakeholder councils, and voluntary work awards. All these initiatives seek to harness creative energy to help serve local communities. At the end of 2004, four Banque Populaire banks had launched 160 Déclic Clubs, which will fund nearly 300 projects. Six Banque Populaire banks have organized regional initiative awards, whilst another has staged voluntary work awards for three years running.Welcome sessions are also held in branches, bringing together hundreds of new clients. This ability to act, to become involved, and to share is founded on a positive view of human nature and is an excellent illustration of the spirit of the Banque Populaire Group. It creates local and regional links between member-stakeholders and the staff in the Banque Populaire banks. By the end of 2004, all Banque Populaire banks had put forward action plans to strengthen action in this area or had had resolutions adopted by their Boards of Directors. BANQUE POPULAIRE GROUP In addition a working party consisting of nine Group Directors has been appointed by Group Chairman, Philippe Dupont, to produce a White Paper on memberstakeholders, to outline a new framework for the group’s cooperative dimension for the next decade.This working party has drawn heavily on the work carried out by the 34 Group Directors who took part in the seminar held in the first half of 2004 on the theme of “Banque Populaire Values and MemberStakeholders: a strategic challenge for the development of the Banque Populaire Group” (see inset). Banque Fédérale des Banques Populaires has produced tools and operating manuals, that have Group structure been warmly welcomed by the banks, to support the flow of information.These include an intranet service called Societatis, an enhanced dashboard, regular meetings of the working parties responsible for memberstakeholders, and an annual decentralized meeting of memberstakeholders, the minutes of which take the form of a DVD which is widely distributed to all those concerned with the memberstakeholder base whether on a policy or operational level. A cartoon version of high points in the life of the Banque Populaire Group will be distributed in 2005. A special issue of the France 2’s “On vous dit pourquoi” (We’ll tell you Why) TV program, presented by Jérôme Bonaldi et Eglantine Emeye, was recorded called “Banque et Populaire à la fois: On vous dit pourquoi” (“A Bank AND Popular: We’ll tell you Why). For the first time a bank – Banque Populaire – took the initiative of appearing in a TV studio to explain in easily accessible terms how the Banque Populaire Group differs from other banks. In the studio, memberstakeholders related their roles in the life of their local and regional communities. Innovative reports showed the scope of the Group’s action.The DVD version of this program will be widely distributed, throughout 2005 and 2006, to clients, member-stakeholders and staff. In 2005, the Banque Populaire banks will further expand their activities in this area and devote greater resources to it. They will strengthen the role of Directors as ambassadors for the Banque Populaire Group and key players in the renewal of its cooperative mission, at the National Directors’ Convention, christened “The heart of cooperation”, on June 22, 2005 in Paris. Entrepreneurship, Cooperation, Humanity: the Group’s values For decades the Banque Populaire Group has played an active role in the French economy at both regional and national level. Every day the Group demonstrates that it has retained its own distinctive style, that it has forged a strong personality. In the future, just as in the past, the Group will continue to be guided by three fundamental principles: Vision, Cooperation and Humanity. Entrepreneurship. Founded by entrepreneurs for entrepreneurs, the Banque Populaire Group encourages entrepreneurship. It seeks to liberate the creative energy of its clients and its staff. It respects bravery, tenacity and enthusiasm amongst people developing their professional or personal projects. The vision of the entrepreneur requires optimism. It is a source of constant progress. Cooperation. The Banque Populaire Group’s history, its way of doing business and its day-to-day experience shows its dedication to the cooperative spirit. Cooperation means working together for the common good, accepting one’s full responsibility to one’s partners and society. It implies mutual trust. It is meaningless unless it is for the long term. It withstands the pressures of short-termism. Humanity. The Banque Populaire Group is built on respect for the lifestyles, sensitivities, expectations and individuality of its clients and partners. Every person and every project is unique. To succeed they need to be listened to and informed in a clear and transparent way, to be understood. Putting the individual at the heart of the process gives shape and strength to the banking relationship. 29 Initiatives Déclic Clubs are groups of member-stakeholders involved in voluntary work – men or women from the same town or region – who draw on their initiative, skill and contacts to promote citizenship projects. Regional initiative awards provide annual recognition for voluntary projects that improve the facilities of a region. Whether on the initiative of an individual or an organization these projects cover the natural, architectural, cultural, professional and economic heritage of the regions of France. Welcome sessions provide new clients and new member-stakeholders of a branch with an opportunity to meet branch staff and members of the bank’s executive management. A presentation of the relationship of the Banque Populaire bank to the Banque Populaire Group is followed by a chance to meet and discuss and for clients to express their expectations of the bank. 30 Banque Populaire banks BANQUE POPULAIRE GROUP True to their cooperative values, the Banque Populaire banks foster close, lasting relationships with their member-stakeholders and clients. They are key players in their regional economy. €4,967 million Net banking income €838 million Earnings capacity 65.8% Cost/income ratio Group structure Banks with the cooperative spirit at their core Member-stakeholder clients at the heart of the organization The Banque Populaire banks draw their strength from the spirit that inspired their creation by a group of men and women aiming to take control of their own destiny.This is reflected in their cooperative status and the way in which they conduct their day-to-day business. The status of member-stakeholder clients is unlike any other.Their capital investment can not be speculative in nature and is not made with a view to generating a profit through large dividends. But if member-stakeholders are not traditional investors, nor are they traditional clients.They subscribe to the key cooperative value of loyalty.They are committed to a long-term relationship and have a natural tendency to introduce new clients, thus enlarging the mutual base. They are firmly rooted in the cooperative movement which places the individual – whether a client, member-stakeholder or employee – firmly at the center of their concerns. The Banque Populaire banks are incorporated as sociétés anonymes coopératives de banque populaire à capital variable(1).The banks represent the cooperative dimension of the Banque Populaire Group.At the end of 2004 there were 22 Banque Populaire banks: the 20 regional banks, CASDEN Banque Populaire and Crédit Coopératif. Under their cooperative status, clients of all of these banks can become member-stakeholders, providing that they meet the criteria set out in the bank’s membership policy.The remuneration of the capital invested may not exceed the average return on bonds issued by private sector companies. At end-2004 the Banque Populaire banks were owned by more than 2,770,000 member-stakeholders, embodying the cooperative spirit on a daily basis. The cooperative spirit ensures an emphasis on long-term growth at the Banque Populaire banks. Part of the very essence of a cooperative company is that it represents the freely elected association of individuals seeking to provide a long-term solution to their shared economic requirements. The importance of these shared cooperative values has allowed the Group to expand in recent years. In 2003, Crédit Coopératif decided to become a new Banque Populaire bank, whilst Crédit Maritime Mutuel has become a bank affiliated to Banque Fédérale des Banques Populaires. Cooperative status gives priority to collective investment over individual investment.The optimization of profits, a way of assessing the efficiency of any company, becomes an essential step towards fulfilling the cooperative company’s service to the common interest. Such a project is long-term in nature and requires the absence of conflicts of interest between member-stakeholders and clients. Reserves do not contribute to the value of the stakes in the company but are simply a collective asset of current and future member-stakeholders. Member-stakeholder clients contribute to the life of the bank: they understand its constraints, they support its ambitions and help drive them forward on a daily basis. Strong regional roots During 2004 the Banque Populaire banks proudly restated the features that set them apart. As cooperative regional banks, they demonstrate every day their closeness to clients in all the different senses of the term.This cooperative, human dimension has been adopted as a major pillar of future expansion. The Banque Populaire banks have retained and developed the regional focus which led to their creation. For them, being a regional bank goes much deeper than simply providing services in a particular geographical area. It means being fully involved in and committed to developing the regional economy and dedicated to serving the local community. Their 331 Directors, including 18 non-voting Directors (but not including Crédit Coopératif whose Directors are legal persons) include 176 business owners or senior executives, 28 tradespeople and independent retailers, 9 farmers and 27 self-employed professionals. All of them maintain close ties with local community and business organizations as well as local chambers of commerce, in many cases serving on their boards. This involvement of Directors in all areas of regional life gives the Banque Populaire banks an in-depth understanding and knowledge of their local economy.They thus cement particularly strong links with their regions and are key Closeness: a major factor in choosing, and staying with a bank Closeness in banking relationships has long been a feature of the Banque Populaire Group and is one of the main pillars of its growth plans. Closeness takes many forms: n geographical closeness achieved through a dense coverage of the country and a presence in other centers of influence (to provide continuity of service to French people moving house); n closeness to the situation so that we are there when a client has a project in mind; n local decision making; n and technical closeness through ever greater use of tools like the internet. (1) With the exception of BRED Banque Populaire, which is a société anonyme coopérative de banque populaire à capital fixe 31 A powerful distribution structure >>> players in regional development. They serve to reconcile the interests of their memberstakeholders, clients, staff, and local socio-economic environment. First-class regional players BANQUE POPULAIRE GROUP 32 With the European Union increasingly becoming a community of regions, several Banque Populaire banks have merged to create major regional players. By joining forces they not only strengthen their capital base, but also enhance their ability to support clients, sharpen their regional focus and pave the way for gains in market share. At the same time employees benefit from a wider range of career opportunities.Today’s new communications technologies provide an opportunity to redraw the maps and allocate resources more effectively, without ever losing sight of the overriding need to maintain close relations between the bank and its member-stakeholders, its clients and the many other players in the regional economy. The creation in 2004 of Banque Populaire Rives de Paris, from the merger of Banque Populaire Nord de Paris and Banque Populaire BICS, marks the latest step in what has been a growing trend for a number of years. Banque Populaire Rives de Paris is located in the heart of one of Europe’s most important economic regions, and covers seven departments in the Ile de France and Oise regions. The ambitions of the new bank, which had 400,000 customers and a penetration rate of 6.3% when it was created, will be backed by the expertise and dedication of its 2,700 staff. Close relationships with clients A local personalized service forms the cornerstone of the Banque Populaire Group’s client relationships.This closeness is made possible by highly skilled and motivated teams, and enables the identification of the best solutions for each client based on a global approach to their needs. Every member of staff at the Banque Populaire banks is aware that the aim is not to get clients to sign up immediately for this savings product or that loan, but to gain first an in-depth understanding of each client’s needs and expectations.This focus on client requirements, and on the way they change from one moment to the next, has helped shape a common approach throughout the Banque Populaire n Steady growth in the branch network - 106 new branches in 2004 (net increase of 86) n Successful multi-channel integration: - 61 million internet connections - The first bank to offer SMS account access - Consolidation of LineBourse as the Group’s on-line brokerage facility network. It is this same approach that allows client relationships to be built and developed over the long term. Each year the Banque Populaire Group expands its branch network. In 2004 a net 86 new branches were added, bringing the total to 2,692 by the year end (including Crédit Coopératif and Crédit Maritime Mutuel). This long-term program to improve coverage has led to an additional 640 outlets being opened over the last four years. For the Banque Populaire banks, local banking remains the main vector of growth thanks to the size, quality and stability of the client base and the long-term deposits they bring. In practice this local presence is backed up by close relations in all their other forms. Technological advances in remote banking channels have enabled subscribers to enjoy on-line access to all banking services, with 61 million connections in 2004.The same is true of the 80% of business clients for whom the Banque Populaire Group provides electronic transfer services. In order to meet client expectations the Banque Populaire banks have strengthened their resources in all areas, and particularly in asset management, project financing and insurance. Group structure Having set itself the target of becoming a major European name in the banking and insurance sectors, the Banque Populaire Group has also developed the strategic alliances necessary, drawing on networks such as the Socama mutual guarantee companies, Acef and CASDEN Banque Populaire (cooperative mutual bank serving the employees of the French national education, research and cultural systems) and their million member-stakeholders. Bylaws of the Banque Populaire banks The Banque Populaire banks are “sociétés anonymes coopératives de banque populaire” governed by Art. L. 512-2 et seq of the Monetary and Financial Code and the various legislative texts concerning the “Banques Populaires”, the Cooperative Movement Act of September 10, 1947,Art. I to IV of book II of the Commercial Code (Code de commerce), the first chapter of section I of book V and section III of the Monetary and Financial Code, the related enabling legislation and by their individual bylaws. Their bylaws were extensively amended to comply with the provisions of the Corporate Governance Act of May 15, 2001. To enable the production of consolidated financial statements for the Banque Populaire Group under the new IFRS accounting standards, including IAS 32 regarding debt and equity instruments, the Board of Directors of Banque Fédérale des Banques Populaires, meeting on December 15, 2004, requested the Banque Populaire banks with variable capital to make the changes to their bylaws needed in order to allow the shares in these banks to be recognized as capital instruments for accounting purposes. These changes to the bylaws will be submitted to memberstakeholders at the Combined General Meeting held to approve financial statements for 2004. The Banque Populaire banks are licensed to operate as credit institutions and are thus authorized to conduct the following transactions: n all banking transactions with trading and manufacturing companies, small businesses, agricultural ventures, selfemployed professionals, whether incorporated or unincorporated, as well as with any other grouping or legal entity, which may or may not be memberstakeholders.They may also provide services to personal banking clients, participate in any and all transactions guaranteed by the mutual guarantee companies, make loans to holders of CEL (Compte Epargne Logement) or PEL (Plan Epargne Logement) home-savings accounts for the acquisition of a residential property, and collect deposits from private individuals and companies; n all related transactions as defined in Art. L. 311-2 of the Monetary and Financial Code and all investment services governed by Art. L. 321-1 and L. 321-2 of the Monetary and Financial Code and all brokerage and insurance transactions; all real estate and securities investment transactions.They may purchase any and all marketable securities, for their own account, and acquire equity interests in any and all companies, associations and other unincorporated entities and more generally, carry out any transaction of any type related directly or indirectly to their corporate purpose and likely to facilitate the development or achievement of this purpose. n Any individual or company is eligible to become a memberstakeholder of a Banque Populaire bank, regardless of whether they are clients of the bank. To become a member-stakeholder they must be approved by the bank’s Board of Directors and be recognized as creditworthy. The bylaws of the Banque Populaire banks state that their Boards of Directors are not required to explain the reasons for rejecting any application to become a member-stakeholder. Member-stakeholders’ liability for any losses of a Banque Populaire bank is limited to the value of their shares in the bank. All member-stakeholders are entitled to attend General Meetings and vote on resolutions personally or by proxy, in accordance with the applicable law and regulations, irrespective of the number of shares they own. All member-stakeholders may vote by correspondence using a postal voting form addressed to the Banque Populaire bank in accordance with applicable law and regulations. As stipulated in Art. L. 512-5 of the Monetary and Financial Code, at General Shareholders’ Meetings no member-stakeholder may exercise a number of voting rights – including proxy votes and votes in respect of shares held indirectly – representing more than 0.25% of the total voting rights attached to shares of the Banque Populaire bank concerned. All shares of the Banque Populaire banks are issued in registered form.They may not be sold or transferred without the prior authorization of the Board of Directors.The capital stock of all of the Banque Populaire banks (except for BRED Banque Populaire) is variable.The capital is increased on issuance of shares to new member-stakeholders or to existing member-stakeholders, in both cases with the prior approval of the Board of Directors. The Board of Directors may set a ceiling on the number of shares that may be held by a single member-stakeholder. Different ceilings may be set for different categories of member-stakeholders. The capital may be reduced by buying back member-stakeholders’ shares. If the buybacks would have the effect of reducing the capital to less than three-quarters of the highest amount reached since the Banque Populaire bank was set up, the prior authorization of Banque Fédérale des Banques Populaires 33 >>> must be obtained before the capital may be reduced. In addition, under no circumstances may the capital be reduced to below the minimum capital required under banking regulations. The bylaws also stipulate that the dividends paid on shares, as decided each year by the Annual Shareholders’ Meeting, may not exceed the average corporate bond yield as published by the Ministry of the Economy (Art. 14 of the Cooperative Movement Act of 1947 and Art. L. 512-3 of the Monetary and Financial Code). Dividends on shares acquired or surrendered during the year are paid pro rata to the number of full months for which the shares were held.The price at which shares are bought back by a Banque Populaire bank may not exceed their par value. Buybacks are effected no later than the thirtieth day following the Annual Shareholders’ Meeting held to approve the accounts for the year in which the withdrawal of the member-stakeholder and the surrender of his or her shares was approved by the Board of Directors. In accordance with Art. 39 of the bylaws, dividends are paid no later than nine months after the end of the fiscal year. The details of dividend payments are determined by the General Meeting of Shareholders or, failing that, by the Board of Directors. Banque Fédérale des Banques Populaires may authorize the Banque Populaire banks to capitalize a portion of their reserves. In this case the related capital increase must be for double the amount concerned, with half being paid up by capitalizing reserves and half in cash. In addition, no more than half of the bank’s reserves may be so capitalized. In cases where reserves are capitalized on several occasions, the portion that may be capitalized on each occasion may not exceed one half of the amount by which reserves have increased since the previous capitalization (Art. I of the Cooperative Banking Act of August 18, 1942 (amended)). A trend towards the pooling of expertise 34 BANQUE POPULAIRE GROUP End-1999: 30 Banque Populaire regional banks End-2004: 20 Banque Populaire regional banks Mergers completed Merger feasibility studies Group structure Banque Populaire banks at January 1, 2005 12 5 17 5 2 9 17 14 20 3 4 10 8 6 1 18 13 19 5 Martinique 11 15 5 5 Guadeloupe 7 French Guyana 5 5 Mayotte Reunion 16 15 >>> 1 BANQUE POPULAIRE DES ALPES - 2 BANQUE POPULAIRE D’ALSACE - 3 BANQUE POPULAIRE ATLANTIQUE - 4 BANQUE POPULAIRE BOURGOGNE FRANCHE-COMTÉ - 5 BRED BANQUE POPULAIRE - 6 BANQUE POPULAIRE CENTRE ATLANTIQUE - 7 BANQUE POPULAIRE CÔTE D’AZUR - 8 BANQUE POPULAIRE LOIRE ET LYONNAIS - 9 BANQUE POPULAIRE LORRAINE CHAMPAGNE - 10 BANQUE POPULAIRE DU MASSIF CENTRAL - 11 BANQUE POPULAIRE DU MIDI - 12 BANQUE POPULAIRE DU NORD - 13 BANQUE POPULAIRE OCCITANE - 14 BANQUE POPULAIRE DE L’OUEST - 15 BANQUE POPULAIRE PROVENÇALE ET CORSE - 16 BANQUE POPULAIRE DES PYRÉNÉES-ORIENTALES, DE L’AUDE ET DE L’ARIÈGE - 17 BANQUE POPULAIRE RIVES DE PARIS - 18 BANQUE POPULAIRE DU SUD-OUEST - 19 BANQUE POPULAIRE TOULOUSE-PYRÉNÉES 20 BANQUE POPULAIRE VAL DE FRANCE - CASDEN BANQUE POPULAIRE* - CRÉDIT COOPÉRATIF* *Banque Populaire banks with national coverage End-2004 figures 1 BANQUE POPULAIRE DES ALPES 35 www.alpes.banquepopulaire.fr Jean Clochet Number of member-stakeholders CHAIRMAN Number of employees Alain Rogès Number of branches (1) 84,842 1,300 144 Regulatory capital €467 m Net banking income €220 m Net income €36 m CHIEF EXECUTIVE OFFICER 2 BANQUE POPULAIRE D’ALSACE www.alsace.banquepopulaire.fr Thierry Cahn Number of member-stakeholders CHAIRMAN Number of employees Dominique Didon Number of branches CHIEF EXECUTIVE OFFICER (1) 59,603 1,414 97 Regulatory capital €389 m Net banking income €182 m Net income €18 m 3 BANQUE POPULAIRE ATLANTIQUE www.atlantique.banquepopulaire.fr François Ferdinand Number of member-stakeholders CHAIRMAN Number of employees Yves Gevin Number of branches (1) 63,557 1,475 142 CHIEF EXECUTIVE OFFICER Regulatory capital(2) €494 m Net banking income(2) €225 m Net income(2) €31 m 4 BANQUE POPULAIRE BOURGOGNE FRANCHE-COMTÉ www.bpbfc.banquepopulaire.fr Jean-Philippe Girard Number of member-stakeholders 127,025 Regulatory capital €580 m CHAIRMAN Number of employees(1) Net banking income €297 m Bernard Jeannin Number of branches 1,668 170 CHIEF EXECUTIVE OFFICER Net income €48 m 5 BRED BANQUE POPULAIRE www.bred.banquepopulaire.fr Stève Gentili Number of member-stakeholders 102,761 Regulatory capital(2) CHAIRMAN Number of employees Net banking income €610 m Jean-Michel Laty Number of branches Net income(2) €117 m Regulatory capital €257 m Net banking income €139 m (1) 3,121 288 €1,002 m (2) CHIEF EXECUTIVE OFFICER 6 BANQUE POPULAIRE CENTRE ATLANTIQUE 36 www.centreatlantique.banquepopulaire.fr 64,562 René Clavaud Number of member-stakeholders CHAIRMAN Number of employees 944 Gérard Guignat Number of branches 98 (1) Net income CHIEF EXECUTIVE OFFICER €14 m 7 BANQUE POPULAIRE CÔTE D’AZUR BANQUE POPULAIRE GROUP www.cotedazur.banquepopulaire.fr Bernard Fleury Number of member-stakeholders CHAIRMAN Number of employees 949 Jean-François Comas Number of branches 86 CHIEF EXECUTIVE OFFICER (1) 34,096 Regulatory capital €198 m Net banking income €145 m Net income €16 m Group structure 8 BANQUE POPULAIRE LOIRE ET LYONNAIS www.loirelyonnais.banquepopulaire.fr Hervé Genty Number of member-stakeholders CHAIRMAN Number of employees(1) Daniel Duquesne Number of branches 51,947 1,157 88 Regulatory capital €360 m Net banking income €188 m Net income €33 m CHIEF EXECUTIVE OFFICER 9 BANQUE POPULAIRE LORRAINE CHAMPAGNE www.lorrainechampagne.banquepopulaire.fr Michel Hellenbrand Number of member-stakeholders 135,049 Regulatory capital €592 m CHAIRMAN Number of employees(1) Net banking income €272 m Jacques Hausler Number of branches 1,420 135 Net income €31 m CHIEF EXECUTIVE OFFICER 10 BANQUE POPULAIRE DU MASSIF CENTRAL www.massifcentral.banquepopulaire.fr Philippe Hospital Number of member-stakeholders CHAIRMAN Number of employees 843 Christian du Payrat Number of branches 84 (1) 50,036 Regulatory capital €252 m Net banking income €119 m Net income €15 m CHIEF EXECUTIVE OFFICER 11 BANQUE POPULAIRE DU MIDI 37 www.midi.banquepopulaire.fr 41,198 Claude Cordel Number of member-stakeholders CHAIRMAN Number of employees 601 François Moutte Number of branches 60 (1) Regulatory capital €254 m Net banking income €123 m Net income €27 m CHIEF EXECUTIVE OFFICER 12 BANQUE POPULAIRE DU NORD www.nord.banquepopulaire.fr Jacques Beauguerlange Number of member-stakeholders CHAIRMAN Number of employees Yves Breu Number of branches CHIEF EXECUTIVE OFFICER (1) 54,353 1,039 81 Regulatory capital €249 m Net banking income €141 m Net income €15 m 13 BANQUE POPULAIRE OCCITANE www.occitane.banquepopulaire.fr Jean-Paul Malrieu Number of member-stakeholders CHAIRMAN Number of employees(1) Alain Condaminas Number of branches 58,176 1,062 100 Regulatory capital €305 m Net banking income €163 m Net income €28 m CHIEF EXECUTIVE OFFICER 14 BANQUE POPULAIRE DE L’OUEST www.ouest.banquepopulaire.fr Pierre Delourmel Number of member-stakeholders CHAIRMAN Number of employees(1) Philippe Queuille Number of branches 56,477 1,374 122 Regulatory capital €401 m Net banking income €201 m Net income €24 m CHIEF EXECUTIVE OFFICER 15 BANQUE POPULAIRE PROVENÇALE ET CORSE www.provencecorse.banquepopulaire.fr Jean-Louis Tourret Number of member-stakeholders CHAIRMAN Number of employees 700 François-Xavier de Fornel Number of branches 76 (1) 33,668 Regulatory capital €204 m Net banking income €108 m Net income €16 m CHIEF EXECUTIVE OFFICER 16 BANQUE POPULAIRE DES PYRÉNÉES-ORIENTALES,DE L’AUDE ET DE L’ARIÈGE 38 www.pyreneesaudeariege.banquepopulaire.fr 96,390 Bernard Vergès Number of member-stakeholders CHAIRMAN Number of employees 948 François Moutte Number of branches 65 (1) Regulatory capital €259 m Net banking income €148 m Net income €27 m CHIEF EXECUTIVE OFFICER 17 BANQUE POPULAIRE RIVES DE PARIS BANQUE POPULAIRE GROUP www.rivesparis.banquepopulaire.fr Marc Jardin Number of member-stakeholders 278,646 Regulatory capital €731 m CHAIRMAN Number of employees Net banking income €425 m Jean Criton Number of branches CHIEF EXECUTIVE OFFICER (1) 2,612 186 Net income €53 m Group structure 18 BANQUE POPULAIRE DU SUD-OUEST www.sudouest.banquepopulaire.fr Jean-Louis d’Anglade Number of member-stakeholders CHAIRMAN Number of employees(1) Francis Thibaud Number of branches 52,367 831 94 Regulatory capital €216 m Net banking income €134 m Net income €21 m CHIEF EXECUTIVE OFFICER 19 BANQUE POPULAIRE TOULOUSE-PYRÉNÉES www.toulousepyrenees.banquepopulaire.fr Michel Doligé Number of member-stakeholders CHAIRMAN Number of employees(1) Richard Nalpas Number of branches 68,546 1,062 103 Regulatory capital €359 m Net banking income €179 m Net income €29 m CHIEF EXECUTIVE OFFICER 20 BANQUE POPULAIRE VAL DE FRANCE www.bpvf.banquepopulaire.fr Jean-Pierre Tremblay Number of member-stakeholders 103,654 Regulatory capital(2) CHAIRMAN Number of employees Net banking income Yvan de La Porte du Theil Number of branches (1) 2,111 193 €804 m (2) Net income(2) €334 m €54 m CHIEF EXECUTIVE OFFICER 39 CASDEN BANQUE POPULAIRE www.casden.banquepopulaire.fr Pierre Desvergnes Number of member-stakeholders 1,015,669 Regulatory capital(2) CHAIRMAN Number of employees Net banking income (1) Number of branches 423 1 €906 m (2) Net income(2) €204 m €46 m CRÉDIT COOPÉRATIF www.credit-cooperatif.coop (1) Active employees (2) Consolidated data Jean-Claude Detilleux Number of member-stakeholders CHAIRMAN AND CHIEF EXECUTIVE OFFICER Number of employees (1) Number of branches 35,389 Regulatory capital(2) 1,509 Net banking income 98 €558 m (2) Net income(2) €265 m €31 m 40 Banque Fédérale des Banques Populaires BANQUE POPULAIRE GROUP A bank with major responsibilities: promoting the Group’s development, developing strategy, and supervising, coordinating and managing the Group. Central body and guarantor Holding company of of the Group’s liquidity and capital adequacy Natexis Banques Populaires Group structure In 2004, Banque Fédérale des Banques Populaires strengthened its position in the performance of its tasks of federating the Group’s growth and acting as its central body and holding company. Representing the Group Banque Fédérale des Banques Populaires is the central body of the Banque Populaire Group. It combines the functions of the former Chambre Syndicale des Banques Populaires, namely internal supervision and control functions and the role of the central body within the meaning of French banking law, and of the former Caisse Centrale des Banques Populaires, which in 1999 refocused on the management of cash surpluses at the Banque Populaire banks and the role as holding company of Natexis Banques Populaires. A bank in its own right, subject to French banking law, Banque Fédérale des Banques Populaires plays a role that sets the Banque Populaire Group apart from other banking institutions. Banque Fédérale des Banques Populaires does not head the Banque Populaire Group, but rather operates at the heart of the organization. It is responsible for determining Group strategy, coordinating the network, managing the mutual guarantee mechanism and supervising subsidiaries, notably Natexis Banques Populaires, for which it is the holding company. Banque Fédérale des Banques Populaires’ decision-making body, the Board of Directors, consists of nine Chairmen and six Chief Executive Officers of Banque Populaire banks.The Board of Directors is the Group’s main corporate governance structure and its decisions apply to the Group as a whole, as well as to all of its component parts. In keeping with the Group’s cooperative values and its federal structure, the members of the Board are elected by their peers for a three year term. One third of Directors retire by rotation each year.The Board of Directors plays an essential role in the Group’s development and Directors devote one third of their time to Board matters, attending meetings of the Banque Fédérale des Banques Populaires Board, the Boards of subsidiaries and the Group Risk Management Committee. A cooperative organization The active involvement of all Group banks results in Banque Fédérale des Banques Populaires organizing regular working parties and discussions: the Federal Committee, which brings together members of the Boards of Directors, Commission Chairmen and senior managers; the Federal Conference, open to all Chairmen, Chief Executive Officers and other senior managers; and Federal Commissions, which consider various topics at the request of the Board of Directors and on the recommendation of the Chairman of the Group. The cross-Group Commissions contribute their views and their expert opinions in areas such as development, communication, technology and information systems, risk management and finance, human resources and development in Europe and internationally. Federating strategic projects Positioned at the heart of the Banque Populaire Group, Banque Fédérale des Banques Populaires continued in 2004 to initiate strategic decisions affecting the Group and support their implementation. Banque Fédérale des Banques Populaires takes the role of driving the Group’s thought processes, and is thus fully involved in identifying and preparing key decisions for the future of the Group. It acquires direct interests in other groups, such as the majority holdings in BICEC in Cameroon or in SBE, the Group’s direct banking arm, the minority 2% stake in DZ Bank, the central body of a network of nearly 1,400 German cooperative banks, and the stake in ÖVAG’s Central European subsidiaries. At the end of 2004, Banque Fédérale des Banques Populaires and two central banks of German cooperative bank networks, DZ Bank and WGZ Bank, joined forces with ÖVAG in Volksbank International AG (VBI), to create a joint retail banking platform in Central and Eastern Europe. Banque Fédérale des Banques Populaires had previously initiated the strategic decision to acquire Coface, a world-recognized and global specialist in credit insurance and credit management (via Natexis Banques Populaires, which now owns 100% of Coface’s capital). Banque Fédérale des Banques Populaires also prepared the entry of Crédit Coopératif as one of the Banque Populaire banks, as well as the affiliation of Crédit Maritime Mutuel. 41 At December 31, 2004, the Executive Committee of Banque Fédérale des Banques Populaires was as follows: BANQUE POPULAIRE GROUP 42 Philippe Dupont Michel Goudard Bruno Mettling Françoise Bourgeois Francis Crédot Tanguy du Chéné Chantal Fournel Bernard Gouraud Olivier Haertig Pierre Jacob Martine Lefebvre Patrick Maheut Chairman and Chief Executive Officer Deputy Chief Executive Officer Deputy Chief lainer Officer Senior Executive Vice President, Finance Senior Executive Vice President, Legal Affairs Senior Executive Vice President, Human Resources Senior Executive Vice President, Logistics and Organization Senior Executive Vice President, Technologies General Secretary Senior Executive Vice President, Group Financial Communication Senior Executive Vice President, Internal Audit and Risk Management Senior Executive Vice President, Development Olivier Haertig Chantal Fournel Francis Crédot Françoise Bourgeois Tanguy du Chéné Bruno Mettling Philippe Dupont Michel Goudard Martine Lefebvre Bernard Gouraud Patrick Maheut Pierre Jacob The Executive Committee Group structure Guaranteeing the liquidity and capital adequacy of the Banque Populaire Group Banque Fédérale des Banques Populaires meets the requirement of French banking law that mutual banks should have a central body responsible for guaranteeing their liquidity and capital adequacy and for supervising and controlling the activities of the Group. Banque Fédérale des Banques Populaires is thus also in a position to offer other banks and financial institutions seeking such a central body the opportunity to join the Banque Populaire Group. The guarantee system is backed by the capital of all the banks covered, through a mechanism of mutual support (see Internal Financing Mechanisms, page 21). All Banque Populaire banks, together with the mutual guarantee companies guaranteeing the loans of these banks, are covered by this mechanism. Through this system, Banque Fédérale des Banques Populaires can trigger the mutual support mechanism should any Banque Populaire bank be faced with a lack of liquidity or become undercapitalized, by calling on the other Banque Populaire banks to contribute capital within the limit of their own resources. As a last resort Banque Fédérale des Banques Populaires will also provide capital from its own resources.Thus the liquidity and capital adequacy of the Banque Populaire banks is guaranteed by two complementary systems of protection. The first is the “federal solidarity fund” included in the fund for general banking risks set aside by Banque Fédérale des Banques Populaires, which can call upon the Banque Populaire banks to help top up this fund should the need arise. The second is the “regional solidarity fund” set up by the Banque Populaire banks and included in their own funds for general banking risks. In addition, and in common with all French credit institutions, all members of the network contribute to the Fonds de Garantie des Dépôts (deposit guarantee fund) set up in application of the Depositors’ Protection Act. The holding company of Natexis Banques Populaires Listed in section A of Paris Eurolist, Natexis Banques Populaires is the Banque Populaire Group’s financing, investment banking and services bank. It is under the direct control of Banque Fédérale des Banques Populaires. At December 31, 2004, Banque Fédérale owned 75.6% of Natexis Banques Populaires, including 2.18% held by the Alizé Levier mutual fund. Strategic decisions concerning the Group’s investment in Natexis Banques Populaires are taken by the Board of Directors of Banque Fédérale des Banques Populaires. A credit institution in its own right As a credit institution licensed to conduct banking transactions, Banque Fédérale des Banques Populaires manages a cash pool for the Banque Populaire banks and also meets their refinancing needs. Banque Fédérale des Banques Populaires devolves the bulk of responsibility for these functions to Natexis Banques Populaires under a specific agreement. More generally, as the Banque Populaire Group’s central treasurer, Banque Fédérale des Banques Populaires is authorized to conduct all types of banking transactions and to provide any investment services designed to facilitate its performance of this function. Coordinating major Group projects The Directors of Banque Fédérale des Banques Populaires are also responsible for devising projects and checking their overall feasibility before handing them over to other Group structures for implementation. This responsibility concerns both new products and projects to structure Group operations more efficiently. In this field, 2004 saw continued work on a number of major projects such as preparations for the Mac Donough ratio and IFRS accounting standards and the migration to the i-BP IT platform. The i-BP project saw considerable progress, with six regional banks migrating to the shared platform. These successful migrations were completed with no interruption to normal business, ensuring that the same high level of service quality was maintained throughout. Banque Fédérale des Banques Populaires also oversaw the completion of the first phase of the “Informationnel” project. This project brings together Natexis Assurances, Natexis Asset Management, Natexis Paiements and i-BP, in a project designed to create a Group data warehouse based on a common architecture and pooled IT tools and resources. The data stored is available to facilitate decision-support requests requiring large volumes of detailed data. All production data, organized, audit-trailed, and collated, has now been made available to the Banque Populaire regional banks, in the form of a data warehouse and themed “data stores”. Thus the Banque Populaire banks can generate “dashboard” displays of key business indicators, which can be made available over intranets. 43 44 Natexis Banques Populaires BANQUE POPULAIRE GROUP Natexis Banques Populaires builds long-term partnerships, on both the national and international level, with a client base of large and medium-sized companies, institutional clients and the Banque Populaire network. More than 12,000 staff 150 offices including 116 outside France Group structure A major player in financing, investment banking and services, Natexis Banques Populaires, the Banque Populaire Group’s listed vehicle, works with nearly all major French companies. Through its subsidiary Coface, it is one of the world’s leading providers of credit insurance and credit management services. A stronger identity In 2004, Natexis Banques Populaires sought to strengthen its identity as a unique company, by highlighting its activities and its values. Reorganization into four core businesses To make itself even more customercentric, Natexis Banques Populaires reorganized its activities in 2004. It identified four core businesses: Corporate and Institutional Banking and Markets; Private Equity and Wealth Management; Services; and Receivables Management. This new organization will enhance the services offered to Natexis Banques Populaires’ own client base of large companies and institutions, as well as to the Banque Populaire regional banks for whom it develops products and marketing and advertising campaigns. management tools that are consistent and suited to its size, including financial accounting, cost accounting, internal control and risk management. Accounting control is now more fluid throughout the Natexis Banques Populaires group, because new structures and procedures have been adopted and new IT systems have been implemented. Transverse functions strengthened The Operational Risks department has implemented a common framework for managing operational risks throughout the group. It is based on a list of good operational risk practices, developed by the regulatory authorities ahead of implementation of the Basel II ratios. 2004 also saw the launch of a procurement optimization program.The procurement function will be enhanced in 2005 and ultimately become a crossfunctional department reporting to Executive Management, with authority to step in on any type of purchase. Better integration of subsidiaries Coface has been delisted. On several occasions, regulatory reform has moved its corporate governance rules closer to those of an ordinary company, with the French government maintaining the right to verify the quality of Coface’s public service obligations. The Chairman and Chief Executive Officer are now 45 Cross-functional strategic management While it was implementing this new organization, Natexis Banques Populaires was also defining a three-year plan, covering the 2005-07 period.The plan will emphasize business development and enable the bank to achieve a higher rate of growth. It provides a multi-year view of the bank’s future and includes three-year business plans for each activity. These served as the foundation for the 2005 budget. Concerning strategic management, Natexis Banques Populaires continued to study the enterprise systems development plan, which aims to give the bank a set of cross-functional strategic Natexis Banques Populaires chooses The Bank of New York as Global Custodian Natexis Banques Populaires has selected The Bank of New York, a world leader in securities services, as the Global Custodian for the Banque Populaire Group. The agreement will see The Bank of New York providing a full range of services relating to the custody of 8¤ 0 billion international securities held in 48 different countries. At the same time, Natexis Banques Populaires will become the local custodian for a large share of The Bank of New York’s French assets. This agreement will enable Natexis Banques Populaires to continue to develop its offering of high-quality custody services, whilst meeting the increasingly stringent requirements of clients. Natexis Banques Populaires and The Bank of New York are also discussing closer cooperation in the fields of off-shore fund administration, custody and transfer agent services. 2004 results mark another step forwards +10% 2,455 é2,708 +19% +54% é851 é 407 716 1,793 265 347 108 2002 2003 2004 2002 2003 2004 2002 2003 NET BANKING INCOME GROSS OPERATING INCOME NET INCOME € MILLIONS € MILLIONS € MILLIONS 2004 +8% 69.9 70.9 70.7 72.5 2002 2003 2004 2002 80.8 2003 é87.0 7.2% 2004 2002 8.1% 8.2% 2003 2004 AVERAGE OUTSTANDING LOANS ASSETS UNDER MANAGEMENT(1) TIER ONE RATIO € BILLIONS € BILLIONS at December 31 at December 31 (1) Including private banking BANQUE POPULAIRE GROUP 46 >>> named according to the rules of ordinary company law. Government representatives no longer sit on the Board of Directors and have veto power only over activities related to public procedures.These changes, together with the creation of the Receivables Management core business, will lead to greater integration of Coface within the bank, even while it maintains its public service role. At the end of 2004, Natexis Banques Populaires acquired all the shares of LineBourse held by the Banques Populaires regional banks. Natexis Banques Populaires will continue to maintain a high level of service and customer satisfaction by offering a high-quality, on-line brokerage product. Continued expansion abroad An International department has been created within the Corporate and Institutional Banking and Markets core business.This department supervises all business transacted outside France and all international sales and marketing activities. Naturally, Natexis Pramex International reports to this department.The objective is to accompany and encourage the bank’s business development, particularly in Europe, where a broader, transverse product range should boost the bank’s momentum. Improved strategic management of our information systems Natexis Banques Populaires overhauled its IT system governance in 2004, to improve management of these systems better and turn them into powerful tools in executing the bank’s strategy.The new rules will help improve the balance in the relationship between the three main forces within Natexis Banques Populaires – Executive Management, the core businesses and Information Systems & Logistics. Executive Management will be able to play a more active role, with more visibility on IT. The publication at the end of 2004 of an IT system governance charter, for implementation in 2005, marks a first step in this direction. Group structure Four core businesses to enhance commercial effectiveness Corporate and Institutional Banking and Markets Corporate and Institutional Banking and Markets is the new core business dedicated to corporate and institutional clients. In line with the bank’s guiding strategic principles, it has a customer-oriented organization structure. Two Sales departments, dedicated respectively to Corporate clients and Financial Institutions, have been created to coordinate and assist these sales forces. To provide solutions tailored to client needs, Global Relationship Managers and Senior Bankers work in close association with all other Natexis Banques Populaires’ business departments and notably Corporate France, International, Commodities, Global Debt and Derivatives Markets, Equity Group and Mergers & Acquisitions. Private Equity and Wealth Management Private Equity and Wealth Management comprises Natexis Private Equity, Banque Privée Saint Dominique and Natexis Private Banking Luxembourg S.A. Natexis Private Equity provides financing at each stage of a company’s development, from seed capital to mezzanine finance, finally bringing it to the point where it is ready to launch an IPO. It acquires minority or majority interests, generally in unlisted companies, which it holds for an average of five years. Banque Privée Saint Dominique, which specializes in private asset management, takes a customized approach to wealth management, combining diversified investment services with legal and tax advice. Natexis Private Banking Luxembourg S.A. specializes in international wealth management services. Services: Asset Management and Insurance, and Banking Financial and Technology Services Asset Management and Insurance Asset Management and Insurance comprises three main areas: insurance, fund management and employee savings plans. It provides Banque Populaire Group clients with a full range of savings, investment and insurance products and services. A total of 1,000 employees are divided between eight subsidiaries: Natexis Assurances, Natexis Asset Management, Natexis Asset Square, Natexis Axeltis Ltd, Natexis Asset Management Immobilier, Natexis Interépargne, Natexis Epargne Entreprise and Natexis Intertitres. The growing importance of Natexis Altaïr In 2004 Natexis Altaïr continued to play an increasingly important role within the Group, with major IT migrations such as that of Banque Populaire du Midi. By 2005, nearly all of the Banque Populaire regional banks will have joined the Group’s shared i-BP IT platform. All of the group’s major IT resources will then be hosted and operated by Natexis Altaïr. Banking, Financial and Technology Services The Banking, Financial and Technology Services Department manages the back office processing operations carried out by Natexis Banques Populaires and the Banque Populaire regional banks related to payments and stock market transactions. It also provides services to a wide range of clients outside the Banque Populaire Group, including retail banking networks, specialized banks with or without a branch network and financial institutions. Securities custody and transaction processing services are provided by the Financial Services Department. Electronic and standard payments are handled by the Banking Services Department.The Personal Banking Services Department is developing a multi-channel banking offer. Receivables Management Receivables Management comprises four business lines: credit insurance, factoring, business information and trade receivables management. Leveraging the resources and expertise provided by Coface and Natexis Factorem, it provides solutions to a need shared by all companies and financial institutions, namely managing, financing and protecting their business relationships with customers and suppliers. Natexis Banques Populaires is at the forefront of these four businesses in France and worldwide. Coface offers companies a broad spectrum of trade receivables management solutions through its own network, spanning 58 countries, and through its partners in the CreditAlliance network of banks and insurance companies. Natexis Factorem specializes in providing trade receivables management services through the Banque Populaire Group’s networks. 47 The Group’s international offices BANQUE POPULAIRE GROUP 48 ALICANTE AMSTERDAM BARCELONA BERLIN BIELEFELD BIELLA BIRMINGHAM BONN BRATISLAVA BREDA BRUSSELS BUCHAREST BUDAPEST COLOGNE DUBLIN DÜSSELDORF ESCHBORN FRANKFURT FREDERIKSBERG HAMBURG HANOVER ISTANBUL KARLSRUHE KIEV LA CORUÑA LAMPERTHEIM LAUSANNE LINZ LISBON LJUBLJANA LONDON LOUVAIN-LA-NEUVE LUXEMBOURG MADRID MAYENCE MILAN MONACO MOSCOW MUNICH NUREMBERG OSLO PRAGUE RIGA ROME SAINT-PETERSBURG SAN SEBASTIAN SEVILLE SOFIA STOCKHOLM STUTTGART TALLINN VALENCIA VIENNA VILNIUS WARSAW(1) WATFORD ZAGREB ZURICH BALTIMORE BOGOTA BUENOS-AIRES CARACAS CHICAGO EAST WINDSOR FAIRFIELD GLENDALE GREENWICH GUAYAQUIL HOUSTON LIMA LOS ANGELES MEXICO CITY MIAMI NEW HAVEN NEW YORK PANAMA PIERREFONDS QUITO SAN JOSE SANTIAGO SÃO PAULO Group structure ABIDJAN ALGIERS BAMAKO COTONOU DAKAR DOUALA(2) DUBAI JOHANNESBURG CAIRO LOME ORAN OUAGADOUGOU SETIF TEHRAN Natexis Banques Populaires Coface Joint network ALMATY BANGALORE BANGKOK BEIJING HANOI HO CHI MINH CITY HONG KONG JAKARTA KUALA LUMPUR LABUAN MUMBAI NEW DELHI OSAKA SECUNDERABAD SEOUL SHANGHAI SINGAPORE SYDNEY TAIPEI TOKYO YANGON To find out more, visit : www.banquepopulaire.fr (1) BISE: subsidiary of Crédit Coopératif - (2) BICEC: subsidiary of Banque Fédérale des Banques Populaires 49 50 BANQUE POPULAIRE GROUP Group business review €7,640 million of net banking income €1,174 million of earnings capacity* * Net income + net charge to fund for general banking risks during the period 9.1% Tier One ratio Group business review 51 The Banque Populaire Group has built up leading positions in a number of areas by providing its clients with a local personalized service, drawing on its extensive branch network and ability to stay attuned to market needs. 52 Personal banking clients BANQUE POPULAIRE GROUP 5.9 million personal banking clients +8% é €39 billion of customer deposits 9% penetration rate +13% é €46 billion of customer loans +9% é €24.5 billion of life insurance in force Group business review Strong market share gains he Banque Populaire Group’s personal customer base continued to expand strongly in 2004, growing to 5.9 million people. This growth helped the Group to improve its position in the personal banking market with a 9% penetration rate (source: IPSOS 2004).This performance was achieved in a flat market where clients are tending to reduce the number of banks they deal with.There was also notable growth in long-term savings, both pension products (PEP savings plans and traditional life insurance plans) and equity (PEA) savings plans. T The Banque Populaire Group commands strong customer loyalty.The Group is ranked second among French banks by the ratio of new accounts opened to accounts closed, with a figure of 2.5 (source: SOFRES survey of accounts opened and closed, March 2004). A very close relationship The closeness of the relationship between the Banque Populaire Group and its customers has intensified through a constant focus on the value of trust, which is one of the bases of the Group’s very existence. Each year, the net number of new branch openings rises. In 2004 the balance of branches opened and closed led to a net 86 branches being added. An expansion plan entitled Distribution 2010 aims both to strengthen the branch network and coordinate more closely the growth of the various channels of distribution, particularly distance selling. At the same time as enhancing geographic coverage by increasing the number of points of sale, the Banque Populaire Group has continued to invest heavily in new channels of distribution to offer its clients a real multi-channel service. The number of subscribers to the bank’s online services has increased by nearly 20%. There are now 862,000 personal customers who regularly use the Banque Populaire banks’ internet services, 27% of the customer base. Growing position in the savings and insurance markets The Group’s share of the savings market (deposits and savings) rose from 4.5% at the end of 2003 to 4.8% in November 2004, the fastest growth rate of the last few years. In the fast-growing life insurance market, the Banque Populaire Group has moved closer to its penetration rate in the personal customer market over the last few years. In pension savings, the Group has sold 53,226 PERPS (retirement savings plan) with the aim of playing an active role in the “commitment to distribution” suggested by the Fédération Bancaire Française, in keeping with the values cultivated in its customers’ minds. In non-life insurance, efforts to raise the penetration rate helped to increase new business by 11.38%, with 108,629 policies sold in 2004. The Group has successfully expanded accounts subject to tax, both by volume and market share, thanks to the launch of the Fidélis-Banque Populaire account at the beginning of 2004. Similarly, the launch of the Odéis fund (see inset on page 54), has increased the Group’s market share in guaranteed products from 4.15% at the end of 2003 to 4.29% at the end of 2004 (source: Europerformance). The Banque Populaire Group’s share of the long-term mutual funds market also increased over the same period. The lending business was strong Lending to personal customers was strong in 2004, with home loans growing 15% to €38.3 billion and consumer loans growing 7% by volume to €7.6 billion. In both segments of what are fast-growing markets, the Group gained market share. Revolving credit continued to expand, with sales of Aurore cards (see Focus on page 55), offered by Novacrédit, growing 27%. Improved sales coordination The Banque Populaire Group’s marketing network is one of the most extensive in the business. It involves all the Banque Populaire banks, which are expert in distributing products and advising clients, the expertise of Natexis Banques Populaires in its specialist business of designing and creating banking products and services, and the Banque Fédérale des Banques Populaires. In 2004 this network was given new tools, including in particular a new client database aimed at understanding customer expectations better. A statistical tool for measuring the sales performance of the Banque Populaire banks (called DIADEM) has been introduced. A powerful system for direct marketing operations has also been developed and reorganized under the aegis of the Banque Fédérale des Banques Populaires and 53 >>> in close collaboration with Natexis Banques Populaires. The purpose of this system is to offer a fuller range of services at lower cost to the Banque Populaire banks. Growth in specific client segments Both the Group’s overall development and its growth in specific client segments has been made possible by its product range to meet client needs, relationship of trust with all its personal banking clients and more effective sales organization. Structured approach to mass affluent clients Mass affluent clients(1) are particularly coveted by banks and specialist institutions (private banks, stock brokers, insurance companies, independent asset managers) and present a major commercial challenge for the Banque Populaire Group. At the end of 2004, clients with €50,000 or more in financial assets accounted for nearly 9% of the Group’s client base. Outstandings in this client segment accounted for more than 60% of all deposits. This position has been achieved by restructuring the range of money market, financial and insurancebased savings products.This work has been supported by targeted business development focused on professionals and business owners who are already Group clients through their businesses. A particularly effort was also made to take advantage of company buy-ins or buyouts to offer this specific group of clients a new “business succession deal”. Within the Banque Populaire Group, this client base is particularly responsive, especially to privatisations. In 2004, these clients helped the Group to perform excellently in placing shares in Snecma (9.4% of buy orders were given by its clients), Pages Jaunes (8.6%) and Société des Autoroutes Paris Rhin-Rhône (7.9%). The Group similarly has a very good position among mass affluent clients – particularly households with income of €3,000 to €6,000 per month, executives and independent professions – (source: OPERBAC, September 2004). 54 Odéis: guaranteed funds are a success Despite signs of recovery, uncertainties still weigh on the stock market, so investors want to take advantage of potential upside in financial markets while preserving their capital. To meet this need, the Banque Populaire Group has intensified its efforts to produce guaranteed funds, particularly with the Odéis 2005 range. BANQUE POPULAIRE GROUP The Odéis 2005 range, designed by teams at Natexis Asset Management and Natexis Asset Square, offers the best fund management strategy at the best time. Banque Populaire specialists decide on three baskets of funds reflecting three fund management strategies. At maturity, only the best of them is used to calculate the final performance. The Odéis 2005 range of funds is based on a total investment period of eight years and may be bought as part of an equity savings plan (PEA) or a life insurance policy. (1) Consisting of all those with more than €45,000 in financial assets, which currently account for 26% of French households or 6 million families (source: DAFSA research, May 2004). An attractive banking service for civil servants For this client base, the Banque Populaire banks have developed an original approach based on referrals with the assistance of ACEF (Associations pour le Crédit et l’Epargne des Fonctionnaires – civil servants’ savings and loan association). In 2004, Banque Populaire banks acquired more than 28,000 clients in this way, taking their number to nearly 350,000. With more than a million member-stakeholders, CASDEN Banque Populaire now acts for nearly 50% of the civil servants in the Ministry of Education, Research and Culture. In 2004, nearly 40,000 new member-stakeholders joined CASDEN Banque Populaire as a result of the many actions undertaken with Banque Populaire regional banks, particularly among young trainee teachers at IUFM universities. The bank also continued to develop in close partnership with the Banque Populaire regional banks in 2004. This took a concrete form in improved opportunities to take out CASDEN Banque Populaire loans at the Banque Populaire banks’ branches, and a sharp increase in internet requests in particular. CASDEN Banque Populaire also reported particularly strong inflows into savings accounts in 2004. A younger client base Investment has been made since 2001 in marketing to attract young clients, and it continues to produce results. At the end of 2004, under 25 year olds accounted for 20% of the Banque Populaire Group’s personal customers.This substantial rejuvenation is the result of an active attempt to win customers: one third Group business review From the Aurore card to the Réserve Plus card 2004 was an energetic year in the distribution of the Aurore card, Banque Populaire’s revolving credit card. 29,0000 cards were distributed, taking the total to 180,000, with total loans of €96 million. This success led the Banque Populaire Group to design a card called Réserve Plus in 2004, for marketing in 2005, which will extend the revolving credit range. of new clients are currently under 25. Simple and attractive products, such as PassPop for 12 to 16 year olds and Equipage Horizon for 18 to 25 year olds, have been developed over the last few years and are useful tools for attracting this client group. These offers are built around basic banking services.They allow young clients to experience their bank on a daily basis on the same terms as other personal customers, with the advantage of prices suited to their circumstances. The CinéPop service, for customers aged 16 to 18, took off in 2004.This service includes the ability to order cinema seats at the best available price directly by telephone and pay for them remotely using a bank card. Crédit Coopératif and Crédit Maritime Mutuel help to diversify the client base These two new players have also helped expand and diversify the Group’s overall client base. 55 Like the Banque Populaire regional banks, through its 65 regional branches Crédit Coopératif offers its personal customers banking, investment and financing services. Its role as banking partner to social organizations means that the bank is also a market leader in social products. Crédit Maritime Mutuel’s client base of personal customers served by more than 140 branches represented about 100,000 accounts in 2004. 56 Small business clients BANQUE POPULAIRE GROUP N o. 1 in franchise financing N o. 1 bank in factoring for small businesses N o. 1 in small N o. 1 in loans to new business electronic business owners banking Group business review Number one in customer satisfaction mall businesses form a strategic client base because of the potential they represent.The Banque Populaire Group took a growing share of this market in 2004. S At a time when the trend to dealing with only one bank is becoming more pronounced each year, the client’s view of the quality of services provided by the bank is a particularly important indicator, both in personal relationships (72%) and in business relationships (84%). In this respect, the CSA Pépites 2003-2004 survey showed that Banque Populaire was given the best rating by its clients among all bank networks, both for business and personal relationships. This testimonial bears witness to the professionalism of the Banque Populaire regional banks’ sales teams. In practice, the Group’s search for new business in this strategic client base is based on approaching each type of market differently and developing the product range. Commerce: number one in franchise financing Efforts continued to penetrate all forms of the commerce market.The Group has developed a number of initiatives over many years to improve its performance in the particularly fast-growing franchise segment, with a view to adapting to changes in local trading patterns. In 2004, with its partner, the Fédération Française de la Franchise, the Group asked CSA to carry out the first annual franchise survey. Its conclusions confirmed the Group’s position as leader in this important retail sector.The Banque Populaire banks are the leading bank among franchisees and franchisors. Among franchisees, the Group has a penetration rate of 26% while among franchisors the rate is 35%.This makes the Banque Populaire Group the leading bank recommended by franchisors to candidates setting up in their chains. Special apprenticeship and business start-up offers have also been a real success in commerce.The Socama guarantee companies are progressively extending their scope of action to this sector, which continues to be a key element in promoting partnerships with Chambers of Commerce and Industry. Farming and fishing: strong roots With the advent of Crédit Maritime Mutuel, the Banque Populaire Group has further strengthened its position in the farming and fishing worlds. The Banque Populaire banks and Crédit Maritime Mutuel member-stakeholders share the values of mutual assistance and cooperation which have always been displayed by fishermen and farmers. In the farm sector, the Group now has more than 53,000 farmers in its client base (a 5.2% increase in clients in 2004) and has a penetration rate of 12% among farming businesses.The target penetration rate of 20% before 2010 is now within the Banque Populaire Group’s reach. To achieve this target, the Group continues to work on making sales and new business teams more professional by developing and expanding its range of specific products and services for this market. In particular, the Group has developed its range of agricultural insurance products and introduced a special policy for farmers. Over the last few years, agriculture has been a major growth area for rural branches of the Group, and even a reason for opening new branches. The trades: an effective policy of partnership Traditionally, the Banque Populaire Group has worked in partnership with small business organizations and has created joint product ranges with them. Local networks including chambers of commerce and chambers of trade have historically formed the first circle of partners to the Banque Populaire Group. This strategy was pursued in 2004, to accelerate the distribution of asset management and investment products to this client base. Special apprenticeship and business start-up products were developed in partnership with chambers of trade. Prêts Express Socama (express Socama loans), which require no personal guarantee thanks to support from the European Investment Fund, were also used to a great extent. The professions: focus on health In 2004, the Group decided to restructure its approach to the medical and accounting professions in order to build up its penetration rate quickly to levels more in line with its usual performance in the small business market. With this aim in mind, the Banque Populaire Group has created a range of products for the professions called Atout libéral and has carried out an initial advertising campaign in the healthcare trade press. This campaign was assisted by a partnership with UNAPL (national liberal professions union). In 2004, particular 57 >>> emphasis was placed on the Group’s electronic banking products for the healthcare industry, remote transmission for accountants and the Fructi SPL employee savings product to help win new clients. Products and marketing: reward for effort Major restructuring and promotion of products for small businesses have generated rewards in most product lines. Even more than other retail banking markets, the small business market has benefited from the increase in average size of Banque Populaire regional banks which has led to stronger teams of experts to support sales teams. Number one in loans for starting or acquiring a business 58 The Group’s commitment to those starting out in business or acquiring an existing business becomes stronger year by year. In this way, the Banque Populaire Group is confirming its civic role and continues actively to support entrepreneurs. Market share has been maintained in this very dynamic sector of the economy, with the bank acting for 60,000 companies in 2004. The Banque Populaire banks have improved their share of the business start-up loans market by 4 points, from 28% to 32% (source: BDPME). This performance has been achieved by the Banque Populaire regional banks building a tight network of relationships with all local business organizations supporting employment in mainland France and overseas departments. In particular, the regional banks have actively cooperated with a number of well-known networks including local enterprise groups, ADIE (economic enterprise association), France Active, Entreprendre, Boutiques de Gestion and all enterprise bodies created by local authorities. This marriage of skills, with the best professionals in screening and working with business creators, has helped the Banque Populaire Group to select the best opportunities. Working together in this way is a key guarantee that the companies will remain in business and therefore ensures good risk control. Loans without personal guarantees: the Banque Populaire Group’s commitment BANQUE POPULAIRE GROUP Eighteen months after signing an agreement with the European Investment Fund creating Prêts Express Socama (loans without personal guarantees), the Group has distributed more than 10,000 loans of this kind worth nearly €154 million and leading to an increase in total Socama activity in 2004. The Banque Populaire Group is now the only bank in France marketing these loans without personal guarantees in a serious manner. In doing this, the Banque Populaire Group is demonstrating its ability to meet the fundamental expectations of new business creators and their rightful concern to protect their personal assets. This is further proof of the Group’s commitment to sustainable development. The Banque Populaire banks have also developed real expertise in analysing risks related to this kind of business. This specific skill is constantly a key success factor in this market, which explains why the risk profile on these loans has been kept at satisfactory levels. Using public procedures such as business start-up loans or guarantee systems for such business loans also helps to manage Group exposure actively. Leading banking partner to ADIE By cooperating with all groups involved in assisting new business creation, the Banque Populaire Group has become the leading banking partner to ADIE. The professionalism demonstrated by ADIE in its relationships with both potential start-ups and credit risk managers has prompted legislators and the banking industry regulator to extend the body’s sphere of operation. ADIE now has authorisation to extend loans directly to unemployed people and those on benefits who start up new businesses. The association has turned to its banking partners for refinancing to help it cope with this decisive stage in its development. It is against this background that the Banque Populaire Group has become the leading lender to ADIE, with a total credit line of more than €5 million. In doing this, the bank has demonstrated its awareness of the need to have access to the best professionals to support the most economically fragile entrepreneurs. The Group is also the leading provider of projects for France Active, confirming its commitment to the local social economy across the country. Crédit Cooperatif has preserved and is developing its established expertise in this area. Group business review A comprehensive offering for franchisees In 2004, the Banque Populaire Group and the Fédération Française de la Franchise (FFF, French franchise federation) jointly created a range of products for franchisees. This range is not limited to the franchisee setting up. It also offers a package of services meeting the franchisee’s needs: starting a business, financing investment, service vouchers, daily account management, employee savings plans, products for apprentices, key man insurance and equipment insurance, personal risk insurance and pensions, and buy-in/buy-out capital. This package has been offered to some 35,000 operators and has been received favourably in the franchise world. In two years, the Group has become market leader among issuers of payment cards for small businesses, mainly Visa Business and Gold Business, but also Eurocard Business Card. new contracts. 2004 brought the creation of a full-service product offering receivables management for small businesses, Paxelance Pro, which includes customer intelligence, credit insurance and factoring. A factoring product for newlycreated businesses has also been marketed under the name Créance Primo. The Group has 218,000 cards in circulation, a 27% increase from 2003.At the same time, the Group has increased its market share in the use of electronic banking with 182,000 merchant contracts, a 6% increase on 2003. Strong positions in insurance and savings Leader in electronic banking for small businesses Leading bank in factoring for small businesses The Group remains the market leader in factoring for small businesses, consolidating its growth with a 15% increase in The Group is now the leading distributor of company savings plans for small businesses, with 12,945 Fructi Epargne contracts (Plan Epargne Entreprise or company savings plan) and 1,100 Fructi Epargne + contracts (PERCO or group pension savings plan). The Group is therefore in the best position to take advantage of growing French interest in capital-building pension savings products. After five years in business and having built up a portfolio of 17,600 policies, the joint Banque Populaire and MAAF Assurances subsidiary, Assurances Banque Populaire IARD, has exceeded its initial targets. The two partners now wish to build on this success and accelerate the pace of sales to the Banque Populaire Group’s small business client base. 59 60 Corporate clients No. 3 in world credit insurance No. 2 in French real estate lease financing 4th largest lender to corporates BANQUE POPULAIRE GROUP 80% penetration rate among major corporate clients(1) n n 34% penetration rate among SMEs (1) Sales of more than €3 billion (2) 10 to 1,000 employees (2) Group business review A leading player All-round expertise he Banque Populaire Group is a key player in this market with a 34% penetration rate among companies employing 10 to 1,000 people, and nearly 60,000 clients.The Group is the second-largest lender to corporations with sales of less than €15 million, and has nearly 11% market share.The Group works with one in three SMEs in France (source: SOFRES, July 2003) and virtually all of the largest French groups. The Group can call on the 133 Banque Populaire regional bank teams and branches (up nearly 100% in the four years since 2000, when there were 75), and the Natexis Banques Populaires business centres throughout the country to respond to client requests. The two networks act in complete synergy. T The Banque Populaire Group has leading positions in each of its businesses.The Group is market leader in employee savings plans and is one of the leading providers of development and investment capital.Through its subsidiary Coface, the Group is one of the world leaders in credit insurance and is French market leader in business information. The Group continued to expand throughout 2004, both in France and internationally, realizing the value of its roots in the corporate market by deploying the expertise developed by Natexis Banques Populaires and the Banque Populaire regional banks as well as Coface’s complementary expertise. The new structure for organizing businesses within Natexis Banques Populaires and mergers between the Banque Populaire banks have increased the Group’s overall efficiency and enabled it to offer a fuller and better-structured range of products to meet companies’ needs, whatever their profile, size or business sector. The Banque Populaire Group had 10.9% total market share by loans outstanding (including leasing and factoring) at June 30, 2004 (source: Bank of France central risk database), making it the fourth-largest lender to all French corporations. The Group is a major player in corporate financing. The relationship manager, who is the real pivotal point in the commercial relationship, can mobilize a network of expertise on behalf of his clients at these centres and at the Banque Populaire banks in areas as diverse as standard and specialised financing, cash flow and capital management, savings plans, international assistance or financial engineering in support of buy-ins or buy-outs. The Group aims to establish a close relationship with its clients, based on the concept of a comprehensive approach represented by a multi-business product offering. In the corporate market, Crédit Coopératif is developing a special presence among cooperative associations and businesses. Mutual guarantee companies lie at the heart of a partnership with organizations which represent these companies and which are member-stakeholders in the bank.The bank is represented among SMEs which have formed financial cooperatives, SCOPs (production cooperatives) with two mutual guarantee companies, and transport, trades and retailer cooperatives. Within Crédit Coopératif, Banque du Bâtiment et des Travaux Publics is developing acknowledged expertise in the construction industry in partnership with such federations. Lease financing: a full-service provider Through Natexis Lease, the Group has a central position as the second-largest operator in real estate lease financing (source:ASF – French association of finance companies) thanks to its position in the whole corporate sector, from SMEs to major corporations. In 2004, new real estate lease financing business increased 15% to €534 million. Natexis Lease managed to increase its business significantly in a growing real estate lease financing market, reporting €972 million of new business (a 7% increase on 2003). This performance was achieved by maintaining a good level of business with the Banque Populaire regional banks, a promising start to collaboration with Crédit Maritime Mutuel, wider distribution through the Natexis Banques Populaires network, and the development of commercial partnerships with suppliers. In Sofergie lease financing (financing for energy efficient investments) lease financing, Energéco confirmed its expertise in financing for renewable energy, particularly wind power, reporting €54 million of new lending. Finally, in its first year of lease financing, the Madrid subsidiary reported €50 million of new lending. Natexis Lease expects to set up in Italy and Algeria in 2005, and will strengthen its commercial ties with VR Leasing and ÖVAG (the central bank for Austrian Banque Populaire banks) in Germany and central European markets. Expertise in payments The Banque Populaire Group is the fourth-largest French bank in payments processing 61 >>> by number of clients, through its Mission Plus range. The Banque Populaire Group’s back office teams are constantly looking to meet customers’ needs by improving efficiency and adapting processing tools to changing regulatory requirements while taking advantage of new technology. The corollary to the development of corporate information systems is an acceleration in the use of new communication technology, and virtual and highly secure services. The Vircom service (transfers at due date) is offered with Natexis Banques Populaires’s expertise. Synergy among teams at the Banque Populaire banks, Natexis Banques Populaires and its subsidiaries, makes it possible to offer a high-performance and innovative range of services. A large number of experts in specific areas work in partnership on client projects to offer clients the speed, support, reliability and security which they expect. Areas of operation include payment media (payments in and out), payment systems (remote transmission and electronic signatures) and centralised treasury management. 62 Natexis Banques Populaires has also set up a separate business offering payment processing and systems solutions to meet the needs of its corporate clients more effectively.This business has a strong sales force and encourages improved synergy among the business teams and infrastructure. International development BANQUE POPULAIRE GROUP The Group is building up its contribution to its clients’ international trade and expansion in foreign markets with a structured and constantly enhanced product offering. The Banque Populaire Group has confirmed its role as a major player in trade finance, through its position as world number seven in the arrangement of syndicated loans outside Europe and North America (source: Dealogic Loanware). In 2004, against a background of improved international liquidity and falling margins, Natexis Banques Populaires maintained its position among banking clients in emerging markets, particularly Latin America (Brazil). The Miami sales team has been strengthened and the São Paulo team has expanded its area of operation to include local companies. In Asia, the Banque Populaire Group has taken full advantage of the increase in south-south international trade resulting from strong growth in the Chinese and Indian economies. In particular, the bank has developed trade flows between China and Iran, and Korea and the United Arab Emirates. Relationships with Chinese banks are mainly based on correspondent banking. Natexis Banques Populaires has arranged 13 syndicates for Turkish banks and 15 for Indian banks. In Africa and the Near East, the Banque Populaire Group has increased market share through a strategy of partnerships between Natexis Banques Populaires and local networks. The Group was awarded a mandate by the Reserve Bank of South Africa for a one billion dollar loan. In Algeria, business is currently focused on corporations but will be extended in 2005 to include retail banking, under a determined expansion plan based on the Banque Populaire Group’s strengths. Particularly strong efforts have been made to work with companies in foreign markets. In 2004, more than 400 companies, mainly Group clients, decided to trust Natexis Pramex International’s expertise.This is a Group subsidiary specialising in international development advice and offering companies assistance with all their projects in foreign markets (exports, imports, start-ups or search for partners). Continuing growth in commodities Over the last few years, the Group has confirmed its position as an arranger of structured deals.This strategy Export support charter The government decided to use the Banque Populaire Group’s expertise and networks to help in its policy of promoting French SMEs abroad. On March 24, 2004, François Loos, Vice-minister for foreign trade, and Philippe Dupont, Chairman of the Banque Populaire Group, signed an export support charter. This is the first partnership agreement between the Ministry of Foreign Trade and a banking group and is aimed at encouraging SMEs to expand in export markets. The first application of this charter came in the signing on the same day of a commercial partnership agreement between Ubifrance, the Banque Populaire Group and its export support subsidiary, Natexis Pramex International. This agreement covers the distribution by Banque Populaire regional banks of two services developed by French public bodies: the Volontariat International en Enterprise (VIE – international voluntary action agency) and international business development agencies at economic missions. Group business review was reconfirmed in 2004 against a background of increased competition, particularly because of high prices both for oil and all other commodities. Natexis Banques Populaires is now one of the world’s ten leading arrangers of structured finance in emerging markets (source: Dealogic Loanware).The bank structured and distributed more than thirty syndicated deals in 2004.Three deals in particular stood out during the year because of their size: syndicated pre-financing for Sonangol in Angola, Rusal in Russia and Cocobod in Ghana. The Group has decided to expand its client base among medium-sized specialist traders and in the North American market through the Commodities division of Natexis Banques Populaires.The product range has been expanded to include derivative products helping to structure financing deals, export credits and mining finance. Strong position in structured financing The Group’s structured finance business, which has been brought together in a specific Natexis Banques Populaires division, exceeded its targets in 2004. Some sectors were particularly strong, including aerospace finance (14 arranger mandates) and acquisition finance (joint-lead arranger and bookrunner for the Vivarte deal, the largest LBO delisting). Other businesses, including marine and land transport finance, real estate financing, Natexis Immo Développement and project financing, reported significant growth, strengthening their positions in their respective markets. The syndicated loan businesses continued to grow in a still competitive market.The number of mandates was up substantially and the process of expanding to include foreign clients has intensified. Natexis Banques Populaires is ranked fourth by number of mandates in France and fifteenth by number of mandates in the EMEA region of Europe, the Middle East and Africa (source: Dealogic Loanware). Bond origination confirms the bank’s position as a major operator among French corporate clients and consumer credit companies. Several companies used the bank for their first bond issue, including Cofidis, Socram, Banque Accord,TF1 and Imérys for its share swap offer. Finally, Natexis Banques Populaires was the fourth-largest arranger of French securitizations with €2.36 billion arranged in 2004 (source: Opérations Financières magazine). Natexis Banques Populaires is also continuing to expand in Europe, particularly Italy (where it is one of the leading non-resident banks, with mandates which include Findomestic, Cassa di Risparmio di Ferrara and Veneto Banca). The bank has also won mandates in Greece (EFG Hellas), Iceland (Landsbanki, Islandsbanki and Kauphting Bunardarbanki) and Germany (HSH Nordbank and IKB). In the capital markets, the Banque Populaire Group’s trading and sales businesses have international coverage, with Natexis Banques Populaires branches in London, Milan, Madrid, New York and Singapore. 2004 brought a significant increase in credit dealing volume, with the launch of a new credit derivative trading business in particular.The foreign exchange division made up for ever fiercer competition in simple products by expanding its range of options.Treasury continued to diversify sources of financing, both by market (American and British) and by type of investor. Trading and investment portfolios have been brought together in a single business.The role of this business is to improve the yield on portfolios and develop such solutions for Natexis Banques Populaires’ Corporate & Institutional Banking and Markets core business, and other bank entities.The securitized products asset class performed particularly well in 2004 thanks to a favourable market and effective asset allocation. Employee savings plans: market leader Natexis Banques Populaires restructured its sales and marketing structure in 2004 to promote products aimed at small companies and corporate clients, including employee savings plans, group life insurance, personal risk insurance and service vouchers.This new organization structure gives priority to a comprehensive approach, emphasising complementary solutions from the Banque Populaire Group.The development of commercial synergy between Natexis Interépargne, Natexis Assurances and Natexis Intertitres should help promote the Banque Populaire Group from the level of market leader in employee 63 >>> savings to market leader in employee benefit planning. Natexis Interépargne, which is the leading administrator of employee savings plans in France, managed more than 2 million employee accounts at December 31, 2004 on behalf of about 23,500 companies of all sizes. Natexis Épargne Entreprise had €11.5 billion of assets under management at December 31, 2004, making it the leading manager of employee savings in France, with 20.19% market share (source: Association Française de Gestion). Following the success of Fructi Epargne, a company savings plan (PEE) for small companies in particular, in September 2004 Natexis Interépargne created Fructi Epargne +, a combined PEE and PERCO (group pension savings plan), and Fructi Optimum for larger companies.These products include investment options suitable for pension savings and extend the range of products marketed by Natexis Assurances including “Madelin” tax-deductible plans and defined contribution pension savings. Good results in terms of net new money combined with a turn in the trend of long-term assets helped Natexis Asset Management to take 6.35% of the market, putting it in fourth position among French fund managers (source: Europerformance dated December 31, 2004 for mutual funds on the market). At the same time, Natexis Asset Management confirmed its position as market leader in the management of money market products, with more than 9% market share. Through Natexis Assurances, the Banque Populaire Group has a full product range meeting clients’ needs for guarantees and services. Natexis Assurances has renewed its property and casualty insurance range by launching two new products (Assur-BP Auto and Assur-BP Habitat). The company has also added a home product for young people (Assur-BP Horizon) and school insurance (Assur-BP Enfant). Meanwhile, Natexis Asset Management Immobilier is the fourth-largest REIT management company in France (source: Institut de l’Epargne Immobilière et Foncière – real estate savings institute) with 6% market share (source: ASPIM at December 31, 2004). A comprehensive approach to receivables management Finally, having launched the gift check in 2004, Natexis Intertitres makes Banque Populaire Group the only banking network to market service vouchers exempt from tax and social charges. Natexis Intertitres issued 38 million vouchers in 2004 (a 24% increase on 2003) and had 7.02% market share (source: Centre de Règlement des Titres – voucher settlement centre). 64 Comprehensive solution for managing receivables Paxelance was launched in 2004 to enhance the range of products offering comprehensive assistance with receivables management developed by the Banque Populaire Group. This is central to the work of corporate client advisers in identifying needs relating to receivables management. It is also innovative in offering corporate clients a diagnostic tool for their trade receivables. BANQUE POPULAIRE GROUP Full range of property and casualty insurance The Paxelance approach has enabled Banque Populaire regional banks to offer their clients a solution geared to their needs, whatever the need expressed or identified: n release of receivables (financing), n improvement of receivables processing (cash flow), n business information (commercial information), n unpaid receivables management (recovery), n unpaid receivables risk prevention (credit insurance), n full range of receivables management (factoring). Through Coface, the Banque Populaire Group offers a full range of solutions for managing receivables in its own networks and those of its partners in the international CreditAlliance network (insurance companies and banks). In 2004, the Banque Populaire Group launched a new range of credit insurance. Accrédia has grown out of collaboration between the Group’s Natexis Factorem and Coface subsidiaries, and meets the specific needs of small and very small companies in a simple and innovative manner. Paxélance offers a comprehensive approach to managing trade receivables.These two new products have been added to the Créodis range which offers business information and recovery, and was launched in 2003 through the network of Banque Populaire regional banks. Number 3 in factoring(1) Through Natexis Factorem, the Banque Populaire Group has renewed its range of factoring solutions, particularly with Créancexport for exports, with a view to meeting its clients’ needs better while differentiating itself more clearly from competitors. (1) Source : Association française des sociétés financières (French association of finance companies). Group business review Natexis Factorem has improved its internal organization to bring it closer to the Banque Populaire regional banks which form its main distribution network. Each Banque Populaire now has a dedicated operating team to manage and monitor contracts, as was already the case for sales. Natexis Factorem has also enhanced its sales presence at Natexis Banques Populaires. The integration of factoring in the Group’s range of products for its large corporate client base represents a strategic growth area. Finally, Natexis Factorem has signed distribution agreements with the main brokers specialising in trade receivables management. This new network is expected to develop into one of the most active new sources of growth over the next few years. In Germany the successful start-up of VR Factorem in a joint venture with VR Leasing, a subsidiary of DZ Bank, also offers growth prospects in a fast-growing market. VR Factorem started business at the beginning of the year. Its objective is to reproduce in Germany the business model which has been so successful in France.The target client base is therefore primarily small and very small companies from the Volksbank network, Germany’s second-largest bank network. Synergy has been sought across the Group in this case, with credit risk being outsourced to Coface in Germany. Number 1 in business information In 2004, Coface bought Reuters’ business information company, Ort.This is now called Coface Ort and, with the other business information subsidiary, Coface Scrl, is now market leader in France for business information with 45% market share (source: KPMG). In the company rating business, Coface also continued to invest in credit risk measurement and rating techniques, one of the areas of excellence as reflected in its @rating brand. Coface intends to be recognised as an approved rating agency (External Credit Assessment Institution) under the new Basel Committee regulations.The process has been started for the @rating scoring system to be approved in France by the French banking commission. Discussions are under way in several other countries about local national versions of the @rating scoring system. New buy-in/buy-out products Coface also continued to strengthen its international network in 2004. In particular, the company reached agreement with Nexi, the Japanese public export credit insurance company, under which the latter will adopt the @rating system worldwide to manage short-term risks. In Russia, the company has established an @rating rating system with the Russian banking association (ABR) to give Russian small companies easier access to bank loans. In terms of investment in companies, the Banque Populaire Group was the first in 1997 to develop an innovation mutual fund (Fonds Commun de Placement dans l’Innovation) then, in 2003, to offer a local investment fund (Fonds d’Investissement de Proximité). In 2004, marketing of these products, intended to finance companies by raising funds from individuals paying high tax rates, continued with the launch of the ninth issue of Banque Populaire Innovation and five new local investment funds. Market leader in Private Equity for SMEs Finally, the nationwide BP Transmission network means that corporate clients of Banque Populaire regional banks have access to both regional and national broking services when looking for counterparties (buyers or sellers). (by number of deals) In 2004, the Group’s efforts led to more effective merging of capital monitoring for client companies and asset management for ownermanagers.This strategy, intended in particular to meet requests for financing and buy-ins/buy-outs, is based on Natexis Banques Populaires’ Private Equity and Wealth Management core business. Natexis Private Equity’s investment business grew strongly in 2004, and the company now has €2.1 billion of capital under management, 11 subsidiaries and 123 professionals. At the end of the year, this subsidiary had invested €228 million in new companies, out of total investment of €312 million, and €132 million of gains. The growth of small and mediumsized business transfer deals involving an LBO (leveraged buy out) and the growth of OBO (owners buy out) deals gave the Banque Populaire Group an opportunity to reconfirm the depth of its roots in the business world and its mission to support that world as it develops. OBOs enable managers to capitalize on and secure their industrial assets while remaining involved in managing their company. 65 66 BANQUE POPULAIRE GROUP Institutional clients Group business review he institutional client market in which the Banque Populaire Group operates includes both institutions in the strictest sense, meaning insurance companies, mutuals and associations, and the local public sector including municipal, departmental, regional and intermunicipal authorities, their public or private law satellite organizations, and independent public bodies such as chambers of commerce. T The Banque Populaire Group has strong but quite different positions in this market by Group entity – Banque Populaire regional banks, Natexis Banques Populaires and Crédit Coopératif. Developments currently under way in the regulatory environment present an opportunity for the Group – reform of decentralisation, opening of local public services to the banking sector, reform and acceleration of mergers of mutuals and particularly mutual health funds. Crédit Coopératif has reinforced the Group’s position This is a huge market and the Banque Populaire Group has traditionally occupied a strong position in it through Natexis Banques Populaires and BRED Banque Populaire in particular. This position has been further strengthened by the addition in the Group of Crédit Coopératif. in 2004, the Group identified as priorities the local public sector, complementary mutual health funds and major public-interest associations. In the local public sector market, several of the Banque Populaire banks developed services in 2004 and sometimes have significant market share. Crédit Coopératif is also a benchmark provider of banking services for players in the social economy, including cooperatives, business consortia and their members, mutual organizations, and other major public-interest associations.The bank works in close partnership with the various movements that bring them together and make up its Board of Directors. The bank operates in a wide range of sectors, from retailing to health and social care, low-cost housing, sport, culture and helping long-term unemployed into work. In 2004, Crédit Coopératif strengthened its involvement in the low-cost housing sector, notably in partnership with the Fédération Nationale des Coopératives HLM, the French national federation of low-cost housing cooperatives.The bank is very active in the health and social care sector with publicinterest associations running hospitals, homes, retirement homes, centres for the handicapped and home help services. For more than 15 years, Crédit Coopératif has also been offering a full range of electronic data transmission and remote transmission services to help professional guardians fulfill their obligation to control and monitor the accounts of the people under their protection. The Banque Populaire Group is expanding its range of products In 2004, the Banque Populaire banks stepped up their drive for growth in the institutional market, drawing on a very broad product range.This offering includes a full range of banking products and services, asset management and insurance products, and employee savings products. For the local public sector market, the Group is continuing to develop banking services to meet the needs of the sector, including medium and long-term loans, bridging loans, specialist finance, electronic banking (Monéo and purchasing card), as well as products from Natexis Intertitres (restaurant vouchers and gift checks). 67 68 Banks and financial institutions he Banque Populaire Group is the industry benchmark in payments because of its expertise and the size of its business. It is the leading French issuer in the interbank clearing system (source: G-SIT), and is representative on the SIT interbank clearing system for some fifty banks. Populaires continued actions started in 2003: Cap 2005 restructuring plan for the vouchers business, migration to the new EMV (Europay, MasterCard,Visa) standard in electronic banking, and development of a multi-channel platform for personal customers. The results are in line with targets and confirm how well under control all businesses are. In 2004, the banking, financial and technology services department of Natexis Banques From 2005, a number of strategic actions launched in the second half of 2004 will also contribute Controlled growth €398 billion of assets in custody 13.5% of the French electronic banking market BANQUE POPULAIRE GROUP (source : GIE Cartes Bancaires) N o. 1 issuer in the SIT interbank clearing system (source : G-SIT) T Group business review to a significant reduction in operational risks, the modernization of processing and more efficient support for institutional clients. Banking services 2004 was mainly given over to final preparations for migration to EMV technology, the new international chip card standard in operation from January 2005. The volume of nearly 1.3 billion transactions equates to 13.5% of the French electronic banking market (source: GIE CB statistics at December 31, 2004). Natexis Banques Populaires is the only bank in France to process operations for several leading players in the electronic banking market, demonstrating the maturity of its systems. In 2004, the bank also completed the migration of a major leading player. The development of new architecture for national and international payment systems continued to integrate Natexis Banques Populaires’s applications into the Banque Populaire Group’s computing system, i-BP (informatique-BP). Through its subsidiary Natexis Paiements, Natexis Banques Populaires supported the growth of Banque Populaire regional banks in personal cards. The Banque Populaire Group had 7.02% market share in 2004. A 24% increase in the number of cards for small businesses and corporations has pushed the bank into first place by number of cards issued (source: SAS Carte Bleue). In 2004, Natexis Paiements also launched the e-bank card service which extends the range of methods of payment offered by the Banque Populaire Group to its personal customers.This service makes it possible to make purchases on the internet without revealing the card number. It benefited from the growth in e-commerce in France, posting a good performance. Since end October 2004, 12,000 clients of the Banque Populaire banks have opted to use the e-bank card service (source: electronic banking report). Financial services Natexis Banques Populaires’s financial services businesses continued to refocus on their core businesses – custody services for retail banks and institutional clients. Significant investment was initiated from the beginning of the year to modernize the securities business and will continue until 2007. Cap 2005, the restructuring and reorganization programme launched in 2003, continued. Refocusing on the custody business led to the dropping of businesses that were unprofitable or which brought risks that were not related to the back office. Redundant businesses were also reorganized in the most appropriate Natexis Banques Populaires departments in order to generate the greatest synergy and productivity.The issuers department also launched a business development plan based on Natexis Banques Populaires’s strong presence among French companies in terms of financing and employee savings plan services. The first results should become clear by end 2005. A number of major actions(1) that were initiated at the end of the year will have a significant impact in 2005. These form the basis of growth for the securities business over the next few years and are preparation for the creation of the Natexis Investor Servicing subsidiary in the first half of 2005.The purpose of this company is to provide the Banque Populaire Group fund management companies and external fund management clients (totalling around 1,100 mutual funds) a range of services covering fund administration, performance reporting and middle office functions. Personal banking services In 2004, the personal customer services team continued to develop LineBanque, a multi-channel bank for personal customers of Natexis Banques Populaires. New models were introduced and the central branch reorganized to improve use of this product by customers. This software platform will be rolled out at the beginning of 2005 by Société de Banque et d’Expansion (SBE), a Banque Populaire Group bank. Banking products will be distributed during the year by this channel to clients of mutuals, including MMA and MAAF, as part of the partnership strategy. A new online tool for stock market investing During the year, the various internet products for clients were brought together on a single technological platform. Clients now have access to a two-level online stock market product: the LineDefi channel for clients who are not very active and often own mutual funds, and the LineBourse channel for more experienced investors who are interested in using more sophisticated tools. A total of more than 60,000 clients are now on the new platform which processes nearly 80% of the Banque Populaire Group’s stock market orders. (1) Global custodian agreement with the Bank of New York as part of the rationalisation process linked to custody of foreign stocks and migration of custody for offshore funds to the Euroclear-Fundsettle platform. 69 70 BANQUE POPULAIRE GROUP Sustainable development No. 1 in micro-loans savings No. 1 in solidarity-based 9bestthin100thecompanies list of France’s (source: Finansol barometer) to work for (source : Journal du Management) Sustainable development 71 The Banque Populaire Group’s commitment to sustainable development stems from the values on which it was founded. It finds its expression both in the way the Group conducts its internal affairs and its external actions. Banque Populaire Group’s commitment The Banque Populaire Group’s cooperative values, particularly its corporate spirit, close relationships, respect for clients, member-stakeholders and staff and long-term approach form the foundations of its response to the challenges of sustainable development. or the Banque Populaire Group, social responsibility is founded on close relationships between the Banque Populaire regional banks and member-stakeholders, clients, staff, suppliers and key figures in their local communities. This sense of responsibility is reflected in the day-to-day dealings with all these different groups. For member-stakeholders it means transparent and easily accessible information about the performance of the bank. It also means support for memberstakeholders’ community and voluntary projects. For staff it means an employment policy based on respect for the individual, training and career development and an emphasis on job creation. In all areas, the Banque Populaire Group has increased its commitment to sustainable development over recent years. F 72 BANQUE POPULAIRE GROUP Improving human dignity through combating poverty and corruption and the protection of the environment are urgent issues in today’s world, and are the responsibility of all members of society, individuals and companies alike.Whilst sustainable development is the responsibility of all, it is also important that each individual is aware of the issues and also considers himself or herself as an independent agent in tackling them. This is what the Banque Populaire Group sought to emphasize when it signed the United Nations Global Compact on April 16, 2003. This voluntary agreement guarantees respect for ten guiding principles (see inset on page 74), contributing to sustainable development through the creation of a network of partnerships and the promotion of good practice to allow globalization for the benefit of all based on a market economy. Other Group entities, including Coface, BRED Banque Populaire and Banque Populaire Rives de Paris, are also signatories to the Global Compact. In 2004, the conclusions and recommendations of the Banque Populaire Group Federal Commission on Sustainable Development have begun to mark out the way for a global and structured commitment to sustainable development on the part of the entire Group. The Commission brought together a large number of Banque Populaire regional bank Chairmen and Chief Executive Officers who, over a period of nearly a year, carefully assessed the challenges, identified the current state of play and then set out the opportunities and the structures that would allow them to be taken. An organization dedicated to sustainable development The organizational framework proposed is based on four principles designed to facilitate a structured approach: n recognition at the highest levels of Group management of the concerns and challenges of sustainable development; n the creation and promotion of a network of sustainable development contacts in the Banque Populaire regional banks and other Group entities; n a regular supply of information to the Boards of Directors of the Banque Populaire regional banks on the actions carried out; n a proactive approach to sustainable development by bringing to market new products that reflect the social and environmental hopes and concerns of clients. As part of this commitment, the Banque Populaire Group has created a sustainable development steering committee of Directors from the Banque Populaire regional banks, Banque Fédérale des Banques Populaires and Natexis Banques Populaires.This committee will examine proposed initiatives and opportunities to ensure that the best ideas are implemented throughout the group. It will produce a report on the actions undertaken over the year. It will bring forward recommendations to the Board of Directors of Banque Fédérale des Banques Populaires, the Group’s central decision-making body, for new strategies, based on its observations of the existing situation. This commitment underpins the day-to-day actions of the Banque Populaire Group. It guarantees close links with the regions served and direct involvement in the Sustainable development development of regional economies.Thus Crédit Maritime Mutuel, the Group’s latest affiliate, has for a long time supported the independent fishing industry and the protection and enhancement of coastal environments through cooperative action.This approach preserves involvement in family businesses and maintains the economic fabric and balance in fishing ports. This type of action combats delocalization by helping root economies in their environment. In 2004, Crédit Maritime Mutuel created Sofipêche, a financial tool designed to encourage the financing of cooperatives that help young entrepreneurs starting up as independent fishermen. Support for development initiatives also has an international dimension in the form of Agence des Banques Populaires pour la Coopération et le Développement (ABPCD). This structure, in which all Banque Populaire banks are involved, aims to provide technical assistance and advice in all aspects of cooperative banking in emerging economies. Its work fits naturally with the aims of the United Nations Development Program. In December 2004, ABPCD signed an agreement with the Centre de Développement de l'Entreprise (CDE) to encourage partnerships between European companies and those in Africa, the Caribbean and the Pacific. A commitment driven by the Group’s values The Banque Populaire Group’s commitment to sustainable development fits well with the long-standing actions involving member-stakeholders, the Group’s active policy of career development and recruitment, environmental management and the Banque Populaire Group Foundation (see page 82).The Foundation is active in three different areas: it provides vital support to young musicians at the beginning of their careers; it assists in the creation and on-going operation of companies run by the disabled; and it supports projects carried out by groups seeking to protect and enhance marine and freshwater environments. In 2004, the Foundation funded 38 new projects in these three areas and renewed funding to 34 existing projects, which it backs over a period of three years. Natexis Banques Populaires fully involved These commitments are shared by Natexis Banques Populaires, the listed subsidiary of the Banque Populaire Group. In 2004, Natexis Banques Populaires introduced a structure which allowed it to organize and rationalize the large number of sustainable development initiatives planned or already under way. The project team created during 2004 brought together staff from Natexis Banques Populaires and its subsidiaries who specialize in social and environmental issues and in socially responsible investment management.The aim was to coordinate existing initiatives and to launch new ones. Natexis Banques Populaires defines sustainable development as strong and controlled economic growth that respects the environment, encourages social progress and contributes to civil society. The unifying strength and incentive to action inherent in the Banque Populaire Group’s values has inspired a major collective program at Natexis Banques Populaires and its subsidiaries. Driven by working groups involving over 100 employees, it has identified three corporate values: a sense of commitment, team spirit and an exacting approach.These values find their concrete expression in the group’s actions and management. Thus each manager’s job description precisely identifies in operational terms the role of the line manager in managing his or her work, running staff teams, communicating and developing skills. Commitment to all areas of sustainable development Through its commitment to sustainable development the Banque Populaire Group remains faithful to its roots and shapes its current and future practices. In 2003, the Banque Populaire Group underlined its desire to strengthen relationships with its member-stakeholders through increasing their number and their involvement, alongside the Banque Populaire regional banks, in the shared values of closeness and solidarity. Member-stakeholder numbers rose from 2,450,000 at December 31, 2003 to 2,770,000 at December 31, 2004. Memberstakeholders are both the vector and the target of the Banque Populaire Group’s commitment to its sustainable development program. Concrete action by the Banque Populaire banks The Banque Populaire banks have carried out a large number of projects focused particularly on assisting clients and member-stakeholders in working to the benefit of their local communities or their environment. For example, they ran 160 Déclic Clubs, with more than 300 projects in local areas. Déclic Clubs consist of men and women active in voluntary work in the same town or region who pool their ability to take the initiative, their skills and their contacts in local citizenship projects. Many Banque Populaire banks also ran Regional Initiative Awards. Each year these prizes recognize voluntary initiatives to protect and improve the natural, architectural, cultural, professional and economic heritage of the regions of France In its first Regional Initiative Awards, in 2004, Banque Populaire Loire et Lyonnais focused on three categories of eligible project. Awards for solidarity recognize projects contributing to improving 73 >>> the quality of life of the disadvantaged; regional heritage awards recognize projects that protect and enhance the heritage of the region (monuments, culture, arts and traditions); and youth awards recognize collective actions by young people in both areas. Candidate projects are reviewed by a committee of memberstakeholders, who draw up a shortlist that is then presented to all member-stakeholders. They vote for the winners using a distance voting system. a donation for every new Banque Populaire bank client introduced by an existing client. In 2004 the partnership saw the establishment of even closer links. In addition to the new customer scheme, several other projects took place, including mini-exhibitions on MSF’s work in some branches and a campaign appealing for donations in the summary financial statements.These activities helped increase client awareness of this unique charity’s commitment to support and solidarity. In all, ten Banque Populaire banks – Loire et Lyonnais, Massif Central, Midi, Occitane, Provençale et Corse, PyrénéesOrientales, Aude et Ariège, Sud-Ouest,Val de France, Centre Atlantique and Nord – run Regional Initiative Awards. Involvement in the international battle against corruption The partnership with Médecins Sans Frontières (MSF) launched in 2002 is another reflection of the Group’s values. Under the partnership, MSF receives The Banque Populaire Group ensures that all its entities conform to all legal requirements regarding the detection and prevention of money laundering and corruption, The ten principles of the United Nations Global Compact Human rights n 74 n Companies must support and respect the protection of international human rights. Companies must refuse to participate in or condone human rights abuses. Labor rights n n n n Companies must support the freedom of association and must recognize the right to collective bargaining. Companies must support the abolition of all forms of forced or compulsory labor. Companies must support the real and effective abolition of child labor. Companies must support the elimination of discrimination in employment and occupation. Environmental protection n n n Companies must implement a precautionary and effective program regarding environmental issues. Companies must take initiatives to promote greater environmental responsibility. Companies must encourage the development and distribution of environmentally friendly technologies. Anti-corruption (principle added on June 24, 2004) BANQUE POPULAIRE GROUP n Companies must promote and adopt initiatives to counter all forms of corruption including extortion and bribery. in accordance with the tenth principle of the Global Compact signed by the Group. Launched in 1999 at the Davos Economic Forum, this Global Compact is based on a partnership between the United Nations, Non-Governmental Organizations and the world of business. It aims to couple the power of the markets with the moral authority of universally held beliefs in an awareness of the social and environmental impact of globalization. In the areas of human rights, labor and the environment, it sets out the major principles enshrined in the Universal Declaration of Human Rights, in the International Labor Organization’s charter and in the resolutions of the Rio summit on the environment (1992) and the Copenhagen summit on social issues (1995). In 2004, the Banque Populaire Group’s commitment to the Global Compact was reflected in Natexis Banques Populaires’ decision to strengthen its team combating corruption and money-laundering and its central compliance team. The central compliance team is now supported by compliance officers in all Natexis Banques Populaires departments. More than 70% of the parent company’s staff have received moneylaundering awareness training. A software tool for managing lists of wanted persons has been introduced into the transactional platforms to help in the fight against terrorism. Sustainable development Human resources The Group’s Human Resources policy is based on an active approach to recruitment and valuing talent, on building skills, on training and on attractive remuneration packages. An attractive employer with an active recruitment policy espite depressed economic conditions, the Banque Populaire Group continued its active recruitment policy in France during 2004, with around 3,000 new staff joining the group on permanent contracts. D The Group is already preparing for the retirement of the baby-boom generation. It has taken advantage of this demographic trend to recruit more highly qualified staff, with new staff generally having two or three years’ higher education after their baccalaureate (51% of staff). Young people make up a substantial share of new recruits, with 68% of staff joining the company aged under 30. As in 2003, the bulk of new recruits already had some professional experience (56%, compared to 44% beginning their careers). Although 65% of new recruits were offered posts in the branch network (the markets and distribution business line), there was also strong demand for particular areas of expertise. This more aggressive policy of recruiting younger people resulted in a modification in the profile of the men and women who are in day-to-day contact with clients. More than half (51.8%) of employees have a degree requiring at least two years’ post-baccalaureate study (28% in 1993).The trend towards a more “youthful” workforce that has been in place since 1998 continued, with a growing number of employees aged under 25 and with fewer than 5 years’ service. At present one employee in three is aged under 35. In seeking out talented young people the Group has a year-round policy of ensuring its presence with students and recent graduates, whether through specialist exhibitions or forums involving the grandes écoles and universities. This resulted in the group taking part in around 450 events during the 2003/2004 academic year. On average the group’s recruitment website carries around 80 to 100 job advertisements. The Group continues to favor welcoming young people into the world of work through various part-time structures. Nearly 640 employees are employed on this basis, including 380 apprentices. Valuing talent The Group encourages the recruitment of men and women from a wide range of backgrounds and seeks to value and nurture the talents of all employees. Its approach forms part of a policy of professional mobility within the Group and all its entities. Emphasis is also placed on developing potential, identifying potential high-flyers and producing the managers of tomorrow to ensure seamless management succession. Career management with mobility at its heart In 2004, the Group continued to pursue its policy in this area through a number of programs designed to increase awareness amongst employees, of their responsibilities and opportunities to manage their own career, and in human resource teams, who are at the heart of the process of adapting and developing the group’s staff. Increased emphasis has been placed on mobility, with a “Mobility Guide” being distributed to employees. In order to meet demand from the Banque Populaire banks for particular skills, a “Group Skills Pool” has been created for use by human resources teams. Lastly, the first Professional Prospects gathering on July 2, 2004 gave 180 human resources staff a better picture of the professional tasks within the Group and the skills they require. In general terms staff mobility has continued to keep step with changes in the shape of the group. Producing exceptional managers Banque Fédérale des Banques Populaires sets great store in the training of future top level managers within the Group.The Group’s management training institute (Centre de Perfectionnement au Management) continued its work, with its 15th set of graduates completing their training in October 2004, taking the total number to 380. Bespoke training programs for managers seeking to expand their professional development 75 >>> also continued in 2004, with the “Executive’s” program. There are also major programs for Group Directors. In 2003, ten training sessions were held on topical themes.A total of 133 Chairmen, Chief Executive Officers and Directors took part. Of these, 25 also attended the itinerant seminar, which this year took place in China in October 2004. Banque Fédérale des Banques Populaires held its second Group Director summer school in Nantes this year, with 350 participants. It also relaunched the “Skills List” training for future Directors. Training to extend the skills base The Banque Populaire Group is constantly aware of the need to implement a policy allowing its staff to develop new skills in a way that meets both their needs and the requirements of the Group. BANQUE POPULAIRE GROUP 76 training, with 79% of employees involved in at least one training program. The Group continues to develop the skills of its sales teams in various markets in combination with its Annual Marketing Action Plan. In 2004, training focused on three key areas for the expansion of the Group’s client base: n “Selling to personal customers”; 220 employees received training in wealth management. In addition the distribution to banks of the “Reference Taking Kit for everyday use” was a considerable success.This updated and developed expert wealth management modules (wealth management approaches for SME Directors, self-employed professionals and Sociétés Civiles Immobilières property companies). “Selling to businesses”; some 1,200 employees have received training since the launch of “CIBLEntreprise”. Here too, new documentation to increase business account managers’ awareness of wealth management issues proved useful to both sales staff and their clients. n In 2004, following finalization of the federal classification of posts, Banque Fédérale des Banques Populaires and the Banque Populaire banks turned their attention to putting into practice the skills and training accord (“Emploi Formation: vers une Gestion Prospective des Compétences (GPC)”) signed in December 2003. A key development for the year was the distribution to all entities of a “joint skills base”, providing the foundations for a shared Group-wide understanding of cross-professional skills. At the same time Banque Fédérale des Banques Populaires provided active practical support to banks seeking to progress the implementation of GPC. Other programs sought to support Group marketing campaigns: training in “alternative multi-manager” products (357 employees from 15 Group banks had received training by the end of December 2004); and training in “Inheritance Solutions”, an important theme for the “key customers” group (kit being updated and distributed). A “Core Savings” training program is being prepared for 2005. The development of the professional skills of employees has continued.The Group devotes a substantial budget to staff training, exceeding the legal minimum requirements. In 2003 the Group devoted 5.8% of its total staff costs to With 141 new graduates from the Institut Technique de Banque banking institute in 2004, the Group was responsible for training 19.4% of those attaining this professional qualification. The Group continues to encourage employees to follow n “Selling to small businesses”; 937 employees have received training since the launch of the “CIBLE Professionnels” program. such vocational training courses as a means of extending their career opportunities. Motivating compensation policies The Group is committed to ensuring the motivation of its employees through attractive compensation packages, devised jointly by Human Resources executives and local managers. Salaries For the Group as a whole, average salary levels are comparable with market rates in the banking industry. As a general rule 92% of an employee’s compensation is fixed, the remainder is variable. Salary increases depend largely on the policy of the individual banks, which have full responsibility for determining how they reward individual and collective performance. Across-the-board pay settlements are negotiated at industry or Group level taking into account the economic situation, overall pay levels and the competitive environment. In June 2004 a new Group-level salary agreement was signed with four trade unions (CFDT, CFTC, FO and CGT), granting all employees at levels A to K of the banking industry collective employment agreement a permanent 1.6% pay rise, capped at €420, for salaries up to just over €26,000. As in the previous year, variable remuneration (profit sharing, profit-related bonuses, incentives and company top-up payments) represented a significant share of total employee compensation. This steady pattern is gradually strengthening the link between an element of total compensation and the attainment of individual or collective performance targets. In 2003, variable compensation elements accounted for an estimated average of 27.5 % of total pay (see table 4). Sustainable development Profit-related bonuses Nearly all of the Banque Populaire banks, Natexis Banques Populaires and most of its subsidiaries, and Banque Fédérale des Banques Populaires have profit-related bonus, profit sharing and company savings schemes agreements. All the profit-related bonus schemes allow for bonus payments based on the results of the entities concerned. In the vast majority of cases the calculation formula also takes into account gains in market share and growth in return on equity. Productivity, as measured by the improvement in the cost/income ratio, and the quality of new business, measured by the decrease in loan loss provisions and the number of client defaults, are also used in some cases. More than half of the schemes’ bonuses are paid only if a certain profitability target is reached.This trigger point may be expressed in terms of growth in gross operating income, growth in reserves, improvements in the return on equity and so on. The distribution of bonuses is generally in proportion to basic pay. Some Group companies offer flat-rate bonuses and many banks combine the two approaches in varying proportions (see table 5). Profit sharing Some Group companies apply profit sharing calculation formulae that are more generous than those prescribed by law. Some waive the 1/2 coefficient, whilst others reduce the amount deducted from the calculation base in respect of return on equity. Some Group companies use an altogether different formula, basing profit-shares directly on a percentage of taxable or book income. Company savings schemes Half of the Group’s employees are members of their company’s company savings scheme. The majority of these schemes have been set up by Group companies under agreements with employee representatives. For all the Banque Populaire banks, with the exception of Banque Populaire Loire et Lyonnais and Banque Populaire Centre Atlantique, the company’s top-up payments are limited to coverage of scheme management costs.Where companies make additional voluntary top-up payments these are generally made by matching a percentage of the employee’s contribution that varies according to the amount of this contribution. In some cases the entity fully matches contributions of less than €150 or €300. Employeremployee relations: a productive dialogue Employee relations are at the heart of the Group’s corporate life.They are managed at industry level, Group level and the level of each Group entity. n As an associate member of the French Banking Association (Association des Banques Françaises – AFB) the Banque Populaire Group takes part in all industry-level technical meetings and negotiations. It is actively involved in negotiations on employment conditions in the industry. It also contributes to national debates and discussions on legislative changes and in industrywide or inter-professional projects. During 2004 several significant industry-wide agreements were signed.These included an agreement on pay that allowed the revision of minimum pay levels, and an agreement on training. Negotiations in other areas, notably retirement benefits and training, are ongoing. n At Group level, employee relations take place against a background of a common purpose and a healthy, friendly and constructive dialogue. Changes in the shape of the Group represent a recurring and significant topic of discussion. Beyond this area, numerous meetings were held with employee representatives, resulting, in 2004, in the signature of several agreements on wages, measures to support employee mobility within the Group and on childcare. The Fillon pension reform Act required the creation of a training program for Human Resources Directors and members of their teams. The Group also provides on-site Human Resources advice at the request of Group entities. This support structure allows Group entities to carry out an audit of their employment and employee relations practices and then to set up high-quality tools and procedures. Those Banque Populaire Group companies operating outside the banking sector have adopted the same approach, of a rich dialogue with employee representatives.This has produced regular successful negotiations of local agreements, and helped maintain an amicable and healthy climate in employee relations. n The continued program of mergers between Banque Populaire regional banks has been achieved without job losses.The Group provides support to the entities involved, to help manage employee relations in this particular set of circumstances and thus allay any fears amongst the banks’ employees. The May 4, 2004 Modernization of Labor Relations Act introduced a new factor into negotiations, namely the requirement for majority agreements.This change is likely to lead to greater involvement of union bodies in negotiations, as any minority agreement will be exposed to a challenge from non-signatories, rendering the minority agreement invalid. At the industry level, where agreements have traditionally been signed by only one or two unions, the introduction of this rule has had the effect of blocking agreements.The minority agreements signed by the AFB n 77 >>> since the Act became law have seen the exercise of the right of challenge, thus annulling the agreement.This was the case for the July 13, 2004 agreement on retirement and the collective agreements for French Guyana and Martinique, which were signed in December 2004 after three years of negotiation. The same law also overturned the so-called “more favorable terms” principle, under which the parties to a collective agreement could not elect to opt out of more favorable terms available in law or under an agreement at higher level. Other than in areas where such opt-outs are specifically forbidden, the parties to collective agreements may now agree to less favorable terms. This change will increase the importance of local negotiations and could, over time, affect other levels of negotiation such as Group level, industry level or inter-company agreements. Employment: more jobs, better jobs In general terms the Banque Populaire Group places considerable importance on protecting employment. It seeks to guarantee and expand the number of jobs it offers and this is a central plank of the Group’s Human Resources policy. Recent examples such as mergers between Banque Populaire regional banks, or of data processing centers in the i-BP and the Cap 2005 action plan introduced at Natexis Banques Populaires two years ago, bear witness to the Group’s commitment to protecting jobs. In return every member of staff is under the full moral obligation to maintain their employability at the highest level possible (see table 1). The Banque Populaire Group continued to increase job numbers in 2004.The Group had 44,509 full-time equivalent active employees at December 31, 2004, a 3% increase from 43,224 a year earlier. In terms of employee numbers the most significant recent expansions of the group have been the affiliation of Crédit Maritime Mutuel in January 2003 (918 active employees at December 31, 2004) and Coface’s acquisition of Ort (428 employees). At December 31, 2004 there were 28,563 full-time equivalent active employees at the Banque Populaire regional banks, CASDEN Banque Populaire and Crédit Coopératif, an increase of 2% over the year. The significant increases came at BRED Banque Populaire, which 78 The Banque Populaire Group: good to work for BANQUE POPULAIRE GROUP 2004 saw the first publication of the “100 best employers” (“100 entreprises où il fait bon vivre” (1)), for which nearly 5,000 employees replied to an on-line survey run between May and July 2004, ranking their employers on 33 different criteria including working conditions, remuneration, working hours and human resources. In all, 485 companies were included in the rankings. The Banque Populaire Group was ranked ninth in the list of the top 100 employers. It received an overall rating of 3.02 out of 5, compared to the survey average of 2.58. The survey showed that “working atmosphere” was the Group’s strongest point. The survey put the Banque Populaire at the top of all French banks included. (1) Source : Journal du Management incorporated the subsidiaries of Association Française pour le Développement in the French overseas territories (Réunion, Guadeloupe, Martinique), adding nearly 185 active employees. In the retail banking sector, 2004 also brought another merger of Banque Populaire regional banks (BICS Banque Populaire and Banque Populaire Nord de Paris in November), taking the number of mergers to ten over the last five years, with the new banks having an average of 1,400 employees. In financing, investment banking and services, the number of employees at Natexis Banques Populaires and its subsidiaries reached 12,930 in 2004, a 5.7% increase on 2003 (see table 2). This rise came mainly at subsidiaries of Natexis Banques Populaires and from Coface’s acquisition of Ort during the year, which added 428 active employees, of whom 70 were employed outside France (see table 3). The number of employees outside France continued to grow. The Banque Populaire Group is represented in some fifty countries in all continents. In 2004 the continued expansion of its international representation came notably through growth at Coface. Of the 4,081 international employees, 58.9% work within the Coface network, 27.9% for Natexis Banques Populaires and the remaining 13.2% for BICEC. International employees now account for 9.2% of the total, compared to 1.7% in 1998. Sustainable development Table 1: Active employees(1) at the Banque Populaire Group 12/31/1998 12/31/1999 12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 22,760 22,760 400 23,167 23,167 390 24,079 24,079 404 25,218 25,218 430 25,725 1,425 27,150 443 26,528 1,486 28,014 959 453 27,504 1,509 28,563 918 463 5,780 - 6,140 - 6,935 - 7,589 - 7,681 3,765 8,151 4,076 8,311 4,619 5,780 790 612 6,140 803 691 6,935 810 781 7,589 807 767 11,446 759 780 12,227 761 810 12,930 770 865 30,342 31,191 33,009 34,811 40,578 43,224 44,509 Banque Populaire regional banks + CASDEN Banque Populaire Crédit Coopératif Total Banque Populaire banks Crédit Maritime Mutuel Banque Fédérale des Banques Populaires Natexis Banques Populaires and subsidiaries (excl. Coface) Coface Total Natexis Banques Populaires and subsidiaries IT platform(2) Other structures(3) Total Group (1) Active employee numbers show, in full-time equivalent terms, those employees on the register of employees at the end of each month on permanent or fixed-term contracts (including permanent retraining contracts and return-to-work contracts). Employees working part-time and those under fixed-term contracts are included pro rata to their hours worked during the month. (2) December 31, 2002: inclusion of employee figures for CTR Metz-Troyes in those for Banque Populaire Lorraine Champagne. (3) SBE, BICEC, CAR-IPBP, Guidéo, Click & Trust, seconded banking staff in subsidiaries: BRED, Cofilease, Sopromec, M+X subsidiary of Banque Fédérale des Banques Populaires. Table 2: Active employees at Natexis Banques Populaires 12/31/1998 12/31/1999 12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 Parent company French subsidiaries International Coface France Coface international 3,860 1,387 532 - 3,938 1,605 597 - 4,061 2,253 621 - 4,349 2,612 628 - 4,375 2,616 690 1,921 1,844 4,391 2,698 1,062 1,872 2,205 4,434 2,739 1,138 2,217 2,402 Total Natexis Banques Populaires 5,780 6,140 6,935 7,589 11,446 12,227 12,930 Table 3: Group employees outside France 12/31/2002 12/31/2003 12/31/2004 Africa Europe Asia North America South America 540 1,895 258 199 155 17.7% 62.2% 8.3% 6.5% 5.1% 668 2,105 371 552 110 17.5% 55.3% 9.7% 14.5% 3.0% 716 2,301 406 480 178 17.5% 56.4% 9.9% 11.8% 4.4% Total 3,047 100% 3,807 100% 4,081 100% Table 4: Additional pay elements in 2003 Amount (in € thousands) % of total pay Profit-related bonuses Profit sharing Bonuses Company top-up payments 98,595 72,849 116,097 15,536 8.9% 6.6% 10.5% 1.4% Total 303,077 27.5% Table 5: Profit-related bonus payments over the last five years In € thousands 1999 2000 2001 2002 2003 65,342 87,740 96,128 85,960 98,595 79 Environment and social responsibility In areas such as financing and support for projects to protect the environment and in the social economy, the Banque Populaire Group puts both its values and its expertise into action. y creating new banking solutions specifically designed to help protect the environment, the Banque Populaire Group has established itself as a major force in implementing public policies on sustainable development. B New banking tools for renewable energy BANQUE POPULAIRE GROUP 80 During 2004, the creativity and expertise of various group entities was harnessed to create new banking tools designed to encourage the use of renewable energy. Banque Populaire des Pyrénées-Orientales, de l’Aude et de l’Ariège and Banque Populaire d'Alsace signed a public/private partnership agreement with ADEME (Agence de l’environnement et de la maîtrise de l’énergie – agency for the environment and energy conservation) and regional authorities.This partnership supports the “Plan Soleil” program to promote the use of solar water heating. The aim of the plan is to provide individuals with all the information needed to fit solar water heating systems, and to provide subsidies to encourage uptake. In Alsace, the regional subsidy of €450 allowed the Banque Populaire bank to offer an interest-free loan, cover set-up costs and in some instances waive the first monthly repayments.This gave clients rapid access to the money needed to complete the solar heating project, whilst spreading its cost and benefiting from the new 40% tax credit on this type of equipment.The creation of these PREVair CESI 0% loans was a first in France for the financing of renewable energy equipment. Another new partnership created in 2004 was that between Crédit Coopératif and Fondation Energies pour le Monde. Under this agreement, the Agir Card gives clients all the usual services of a typical Carte Bleue Visa but allows Crédit Coopératif to donate €3 to Fondation Energies pour le Monde for each card issued, plus €0.06 for every ATM withdrawal, with no impact on the account. Fondation Energies pour le Monde promotes the use of renewable energy and develops access to electricity for the world’s most disadvantaged communities. Natexis Banques Populaires continued to demonstrate its status as a significant player in this area in 2004. Since its creation it has committed nearly €260 million to the renewable energy sector (hydro, biomass and wind).Within this sector, wind generation is seeing rapid growth. In 2004, Energeco, a subsidiary of Natexis Lease, financed 18 projects with a total capacity of 130MW. This gave Energeco a share of this market of around 30%, making it one of France’s leading companies in the arranging and financing of this type of transaction. One example of its work was the recent financing of the Haute Lys wind farm in the Pas-de-Calais region, which came on stream in October 2004 and is France’s largest wind power project to date. Internationally, Natexis Banques Populaires’ Project Financing Department was involved in the financing of 10 wind farms with total capacity of over 1,000MW, in Europe (mainly in Spain), the USA and Finansol approved n The Finansol stamp of approval helps identify solidarity-based savings and investment products. Launched in 1997, it guarantees that the products to which it is awarded are transparent, ethical and socially responsible. n Finansol approval is the responsibility of the Finansol Approval Committee (Comité du label Finansol) made up of independent members drawn from throughout society. They define the criteria for approval and make annual checks on the savings products they have approved. n These criteria cover the use of the funds invested and of the income on these funds and the transparency of their management. A share of the funds invested must be used to support social projects and savers must be kept informed of the projects supported by their savings. Sustainable development Morocco, confirming the strategic importance of this sector to the bank. Marketing and use of environmentally friendly technologies require a broad range of financial instruments, including traditional loans and guarantee structures such as FOGIME but also venture capital, which remains an underdeveloped segment in France.Within the framework of its European Agenda for Entrepreneurship and Innovation action plans, the European Commission is seeking to expand the European venture capital market.The Banque Populaire Group has established two initiatives which serve these goals. The first is the involvement of the Banque Populaire banks in FIDEME, a project created by ADEME to support the development of renewable energy and of companies active in this area. FIDEME made a number of new investments during 2004.The second involves Natexis Private Equity, a subsidiary of Natexis Banques Populaires, which has invested €3 million in the 3E – Emertec Energie Environnement venture capital fund, alongside Caisse des Dépôts et Consignations PME (€5m), CEA (€2.52m) and Institut Français du Pétrole (€1m). This is a seed capital fund seeking to invest in innovative companies with a strong technology content in the areas of energy and the environment. Protecting the environment Every day the average French person’s domestic energy consumption releases 1kg of carbon(1), equivalent to the average amount disposed of in household waste. In all, housing and tertiary sector buildings are responsible for around 19% of France’s total CO2 emissions. To encourage consumers to pay more attention to their environment and increase use of renewable energy and of environmentally friendly materials in building and renovation projects, the Banque Populaire Group, through Banque Populaire d'Alsace, has created a partnership with ADEME (Agence de l'environnement et de maîtrise de l'énergie) to launch the first jointlysubsidized eco-loans, christened PREVair ADEME.The idea is to offer a mortgage loan for projects that meet certain ecological criteria at the exceptionally low interest rate of 2%, fixed for 15 years. Experience gained in this project will enable the Banque Populaire Group to tender for the subsidized loan program included in the 2004 Climate Plan(2). ADEME is due to invite banks to tender to distribute lines of subsidized credit to individuals and companies to finance highly energy efficient building works. The leading French player in solidaritybased savings In 2004, the Banque Populaire Group was France’s leading player in the solidarity-based savings, with 53% of the market (source: Finansol barometer 2004). Some 54% of socially-responsible savers subscribe to a solidaritybased savings product through their employer.The remaining 46% do so through their bank or directly with a financial institution. The Banque Populaire Group’s performance in this area has come through three types of product: n Solidarity-based products from Crédit Coopératif, the leader in this field, with €108 million. n The Fructi ISR range of solidarity-based and sociallyresponsible investments from Natexis Interépargne as part of its Plan Epargne Retraite Collectif (PERCO) collective retirement plans. n The CODEVAIR deposit account from Banque Populaire d'Alsace, which held a total of €25 million in 2004. A unique product in the French banking market, this account helps finance loans to environmentally friendly sustainable development projects. In addition, the Banque Populaire Group is the leading lender to ADIE with a total credit line of over €5 million. ADIE (Association pour le droit à l’initiative économique) is a voluntary network providing support and assistance to projects developed by the economically excluded.The goal is to help disadvantaged people create their own small businesses. Such is the professional approach demonstrated by ADIE, both in its relationship with the projects it funds and in its management of lending, that the legal authorities and the banking supervision body have authorized it to make direct business start-up loans to the unemployed and recipients of social security payments. To help it make this major step forward,ADIE turned to its banking partners, including the Banque Populaire Group, to provide refinancing of its loans. (1) 1 kilo of carbon = 3.67 kilos of CO2 (source: MIES report). (2) A far-reaching action plan concerning all economic sectors and day-to-day life in France that aims to reduce CO2 emissions by the equivalent of 54 million tones by 2010. 81 Patronage The Banque Populaire Group Foundation aims to help young classical musicians at the beginning of their careers and young people with physical disabilities to achieve their professional goals. It also supports projects to protect France’s maritime and acquatic heritage. reated in 1992, the Foundation has helped nearly 130 musicians and 140 young people with disabilities. In 2004 the Foundation extended its terms of reference to include support for marine and aquatic stewardship projects run by associations or individuals. C The Foundation has an annual budget of €1.3 million and sees its role as providing long-term support, with grants given for up to three years. 82 Among past recipients a large number, including violinists Laurent Korcia and Renaud Capuçon, and pianists Nicholas Angelich and Cédric Tiberghien, are now establishing national and international reputations. Others, including cellist Emmanuelle Bertrand, oboist Alexei Ogrintchouk and guitarist Emmanuel Rossfelder, have won Révélation awards at the classical Victoires de la Musique ceremony, whilst pianist David Fray and violinist Amanda Favier both won Révélation awards from ADAMI. The Foundation has also helped many people with physical disabilities achieve major goals, helping them into the world of work and to lead ordinary lives: BANQUE POPULAIRE GROUP n New businesses; production of television reports, acquisition of an ambulance company, creation of a cyber café; n Support for further education or training to enable recipients to achieve professional goals. The work of the Foundation illustrates the Banque Populaire Group’s commitment to people with an entrepreneurial spirit and a driving enthusiasm for community or personal projects. exhibition of submarine archaeology, visiting seven museums in the west of France. A network of contacts provides very close links between the Banque Populaire banks and the foundation. More and more projects are being presented to it through the banks or by memberstakeholder clubs who work to encourage local initiatives. n A study by the Cistude Nature group in Haillan (Gironde), represented by Gabrielle Sauret, with a view to protecting the European freshwater turtle in the Aquitaine region and to preserving its habitat. In 2004 the new jury was presented for the first time with maritime and aquatic stewardship projects. A total of 14 projects were submitted, 7 coming from Banque Populaire banks, of which the jury selected 5: Restoration of four fountains in Silifiac (Morbihan) by the Ar Vinojenn Sklaër group, run by the local mayor Serge Moelo; n n Restoration of the Ilot des Poulains lighthouse at Belle-Ile-enMer.This project, run by Denis Bredin, local head of the Conservatoire du Littoral et des Rivages Lacustres, will allow the lighthouse to host a permanent exhibition on the preservation of coastal sites; n Construction of an exact replica of the Suzanne, an historically important steam-powered pleasure boat, originally built in 1882 by Schindler Frères.This project based at Chatou on the Ile des Impressionnistes, is run by the Sequana group, chaired by François Casalis. n The organization by the Buhez group, directed by Eric Morin, deputy curator of the Museum of Brittany in Renne, of a traveling The Music jury selected 15 young musicians.These instrumentalists will be able to continue to nurture their art through lessons and masterclasses with celebrated musicians, take part in major international competitions and record their first albums. In 2004, the ways in which young talent is developed were expanded through a partnership with the Rostropovich Foundation in Moscow, creating an exchange program for young French and Russian musicians allowing them to attend the Moscow Conservatory and lessons with some of Paris’ leading teachers respectively. Laureates from the two foundations gave a concert at the Salle Gaveau in Paris, which attracted a large number of personalities from the music world who were warm in their praise for the young performers’ talent . Sixteen young people with physical disabilities received grants to support a range of high-quality projects. Thanks to the vital support of the Foundation, they can now enter higher education, prepare for international disabled sports competitions, receive professional training or start new companies (examples included a website for young myopathy sufferers and a mobile art gallery). Sustainable development Sponsoring The Banque Populaire Group has been an enthusiastic supporter of sailing for more than fifteen years. It is now a major sponsor of this sport, which represents the Group’s values of performance, closeness and a human scale. The Group is proud to be one of the most active supporters of sailing, and to be known as “the Sailing Bank”. he Banque Populaire Group’s association with sailing began in 1989, with a multihull which took part in all the major ocean races for its class. In 2000 the Banque Populaire Group became an Official Partner of the French National Sailing Federation.The Group has continued to increase its involvement in the world of sailing ever since.This involvement now takes five main forms: T The Group Banque Populaire sponsors Banque Populaire, a trimaran skippered by Pascal Bidégorry, which competes in all the World Multihull Championship series races. n In 2004, the Group became involved in the Figaro Class circuit sponsoring the Banque Populaire Bénéteau Figaro, which will be skippered this season by Jeanne Grégoire. Through its support of these two ocean racing boats, the Group demonstrates its commitment to those who push their projects to their limits. n As an Official Partner of the French Sailing Federation the Banque Populaire Group supports sailing throughout France in a range of practical ways, from introductions to racing to the Athens Olympic Games. n As an Official Partner of Association Eric Tabarly since last year, the Banque Populaire Group has added a new page to its log-book, by becoming more involved in the history of sailing. It supports the maintenance of the legendary fleet of one of the world’s most famous sailors and is thus helping to prolong the history of ocean racing and protect France’s nautical heritage. n The Banque Populaire banks are also actively involved in supporting the sport in their regions and are represented on regional leagues, committees and clubs to help support their development. n The Banque Populaire Group can thus justly lay claim to its soubriquet,“the Sailing Bank”, as it builds on these lasting partnerships to offer its banking and insurance expertise to keen sailors of whatever level. The Banque Populaire Group’s involvement in sailing reflects the drive and team spirit of its 44,509 employees.The next few years will no doubt see new chapters being written in this remarkable human adventure. 83 2004 Financial information 84 Management report Group overview in 2004 85 Risk management 95 Directors’compensation 103 Recent developments and outlook 106 Financial information BANQUE POPULAIRE GROUP 85 107 Consolidated financial statements 110 Scope of consolidation and consolidation methods 114 Notes to the consolidated financial statements 140 Statutory Auditors’ report on the consolidated financial statements 173 Management report Management report Group overview in 2004 All parts of the Banque Populaire Group delivered an excellent performance amid an improved climate compared with 2003. Earnings reached a record high of €1,059 million, topping the one billion euro mark for the first time. Comparability of results Changes in Group structure The main changes in Group structure compared with 2003 were as follows: n Crédit Maritime Mutuel, which became an affiliate of Banque Fédérale des Banques Populaires on August 1, 2003 pursuant to article 93 of the French Financial Security Act (law no. 2003-706), was fully consolidated in 2004 compared with the second half only in 2003; n four credit institutions in the French overseas departments, acquired from Agence Française de Développement (AFD) in December 2003,were consolidated for the first time in 2004; the credit institutions that have signed an association agreement with Crédit Coopératif were consolidated for the first time in 2004; n n Ort was acquired by Coface in April 2004. In 2004, BICS and Banque Populaire Nord de Paris merged to form Banque Populaire Rives de Paris.The merger took place at book values and therefore had no impact on comparability of results for the period. As the impact of the newly-consolidated entities is not material, year-on-year comparisons in this management report are based on reported data for both periods, unless otherwise stated. Where year-on-year comparisons are given on a comparable structure basis, they have been calculated by restating 2003 figures to include the newlyconsolidated entities. Accounting standards The accounting standards used to prepare the financial statements for the year ended December 31, 2004 are identical to those used in 2003. Work on transition to international financial reporting standards (IFRS) is described on page 93. Business and results overview 12/31/2004 12/31/2003 % change % change on comparable structure 8 6 12 9 21 18 21 18 in millions of euros Net banking income Operating expenses, depreciation and amortization Gross operating income Provisions for loan losses Operating income Income from companies accounted for by the equity method Gains and losses on disposals of fixed assets Income before exceptional items and tax Exceptional items Corporate income tax Amortization of goodwill Net charge to fund for general banking risks (b) Minority interests 7,640 (5,095) 2,545 (480) 2,065 7 26 2,098 (30) (700) (33) (115) (161) 7,066 (4,796) 2,270 (565) 1,705 11 19 1,735 (23) (544) (17) (169) (129) Net income (a) 1,059 853 24 21 Earnings capacity (a) + (b) 1,174 1,022 15 12 85 Consolidated net banking income totaled €7,640 million in 2004, an increase of 8% over 2003. On a comparable structure basis, the increase was 6%. All Group businesses contributed to this growth. Local retail banking accounted for 65% of the consolidated total. Outstanding customer loans rose by 7% during the year to €121.3 billion.Total managed savings stood at €192.2 billion at December 31, 2004. The Group maintained its cost discipline. Operating costs increased by 3.9% on a comparable structure basis, to €5,095 million. This reflects tighter control by both Natexis Banques Populaires and local retail banking. The cost/income ratio improved by a further 1.2 points to 66.7%. Gross operating income rose by a strong 12% to €2,545 million. Provisions for loan losses totaled €480 million, a decrease of 15% compared with 2003 despite the expanded scope of consolidation.The charge for the year represented 34bp of risk-weighted loans 41bp for Banques Populaires local retail banking and 21bp for Natexis Banques Populaires) compared with 43bp in 2003.Total specific and general provisions carried in the balance sheet represented 69.1% of non-performing loans at December 31, 2004. Operating income rose by 21% to €2,065 million. The net charge to the fund for general banking risks was €115 million compared with ¤168 million in 2003. These improved results led to a sharp rise in the tax charge, to €700 million compared with €544 million in 2003. After deducting minority interests of €161 million, net income came to €1,059 million compared with €853 million in 2003, an increase of 24%. The Group’s after-tax earnings capacity – measured as net income plus the year’s net charge to the fund for general banking risks – amounted to €1,174 million, an increase of 15% or 12% on a comparable structure basis. Return on equity (ROE), calculated on the basis of earnings capacity, stood at 14.1%. The Group’s capital base expanded during the year. Total regulatory capital rose by 10% to €17.2 billion. Tier One capital also increased by 10% to €13.4 billion, giving a Tier One ratio of 9.1%. Analysis of income statements Contribution of business lines to net banking income 12/31/2004 12/31/2003 % change % change on comparable structure 4,967 2,668 5 7,640 4,625 2,408 33 7,066 7 11 4 9 8 6 in millions of euros Local retail banking Natexis Banques Populaires Federal activities Total 86 Local retail banking is principally conducted by the 20 Banque Populaire regional banks, Crédit Coopératif, CASDEN Banque Populaire, Crédit Maritime Mutuel, SBE and BICEC in Cameroon. n Services, which comprises Banking, Financial & Technology Services, together with Asset Management and Insurance; The contribution of Natexis Banques Populaires is analyzed according to its new organization structure,with the following four core businesses: The breakdown of net banking income within the Group remained relatively stable in 2004, with almost two thirds coming from local retail banking (65%) and one third from Natexis Banques Populaires. Corporate and Institutional Banking and Markets, which comprises Corporate France, International, Global Debt & Derivatives Markets, Equity Group, Commodities, and Mergers & Acquisitions; n Private Equity and Wealth Management, which comprises private equity, private banking and international estate planning; BANQUE POPULAIRE GROUP n n Receivables Management, which comprises Coface and Natexis Factorem. The contribution from federal activities, chiefly conducted by Banque Fédérale des Banques Populaires in its role as central body for the network and holding company of Natexis Banques Populaires, is not material. Management report Local retail banking – net banking income In the local retail banking business, 96% of net banking income is derived from retail banking activities on behalf of clients.The remaining 4% comes from interbank and money market operations, chiefly conducted by BRED Banque Populaire. Net interest income Net interest income grew by almost 10%, driven by a strong increase in volumes, despite a drop in the interest rate spread to 3.31 basis points. In a climate of falling interest rates and tough competition, the average margin on customer loans fell by 39 basis points to 5.2%, while the average margin on customer deposits fell by only 21 basis points to 1.9%, after refinancing the net borrowing position at T4M (average monthly money market rate). Overall, outstanding customer loans rose by 11% and deposits by 9%. Outstanding customer loans Outstanding customer loans rose by 11%, all segments combined, to €89 billion.The biggest increases were in equipment financing (up 10% to €31 billion) and home loans (up 14.5% to €38 billion). in millions of euros 12/31/2004 12/31/2003 % change 45,906 40,544 13.2 7,639 7,129 7.2 Home loans 38,267 33,415 14.5 Business loans 40,399 37,304 8.3 9,212 8,959 2.8 31,187 28,344 10.0 2,711 2,647 2.4 89,016 80,495 10.6 Personal loans Short-term loans Short-term loans Equipment financing (1) Other loans Total customer loans (2) (1) Including lease financing (2) Excluding resale agreements Loans to corporate and small business clients increased by 8.3%. In line with Group strategy, activity in the personal banking market was strong, with loans to personal clients rising by 13.2%. Customer deposits in millions of euros Personal deposits 87 12/31/2004 12/31/2003 % change 49,260 45,585 8.1 Demand deposits 10,321 9,612 7.4 Special savings accounts 36,984 34,205 8.1 Time deposits Business deposits Demand deposits Time deposits Retail certificates of deposit and savings bonds Total customer deposits (1) 1,956 1,768 10.6 23,858 22,438 6.3 19,758 19,068 3.6 4,100 3,370 21.7 7,260 5,449 33.2 80,379 73,472 9.4 (1) Excluding repurchase agreements Customer deposits for local retail banking rose by 9%, to €80 billion. Among this total, demand deposits amounted to €30 billion, unchanged at 37% of the total. Fee and commissions Net fee and commissions from client transactions rose by 8.2% and accounted for 35.3% of net banking income from client transactions, slightly lower than the previous year. in millions of euros Accounts and services % total Loan management % total Electronic payments % total Financial activities % total Total However, on a comparable structure basis, this percentage would have remained unchanged from 2003, at 35.8%. 12/31/2004 12/31/2003 % change 742 680 9 44% 44% 275 267 16% 17% 242 242 14% 16% 429 371 26% 23% 1,688 1,561 3 0 16 8.2 Fees and commissions on accounts and banking services (account operation, payment incidents, etc.) rose by 9%, accounting for 44% of the total, unchanged from the previous year. Fees and commissions on financial activities (securities trading, sales of life and non-life insurance) rose by a sharp 16% after two years of continuous decline, representing more than one quarter of the total. Fees and commissions on loan management rose by 3% to €275 million, representing 16% of the total. Other net banking income Fees and commissions on electronic payments remained steady at €242 million despite a €10 million adjustment relating to harmonization of accounting treatment for bank cards on a deferral basis. Excluding this adjustment, the increase would have been 5%. Other net banking income remained stable compared with the previous year, at €191 million. It essentially comprised capital markets and insurance revenues generated by BRED Banque Populaire. Natexis Banques Populaires – net banking income Contribution of core businesses to net banking income 88 in millions of euros 12/31/2004 12/31/2003 % change 1,157.4 1,092.2 6 Private Equity and Wealth Management 188.6 124.5 51 Services 608.7 561.7 8 Receivables Management 633.6 616.8 3 79.9 12.5 2,668.2 2,407.7 Corporate and Institutional Banking and Markets Other (1) Total 11 (1) Net banking income from non-core businesses and elimination of intragroup transactions between Natexis Banques Populaires and Banque Populaire banks. BANQUE POPULAIRE GROUP Corporate and Institutional Banking and Markets Corporate and Institutional Banking and Markets (CIBM) accounted for 45% of total net banking income generated by the core businesses. Its net banking income was up 6% over 2003, with contrasting performances according to business line. Equity Group was up €88 million compared with 2003, while Global Debt & Derivatives Markets remained flat in a particularly tough climate for fixed-income activities.This was offset by an erosion in Corporate France (down €9 million) due to a squeeze on margins, and a drop in International (also down €9 million) due to the dollar’s depreciation against the euro. Management report in millions of euros 12/31/2004 12/31/2003 % change Corporate France 402.3 411.4 -2 International 123.0 131.9 -7 Global Debt and Derivatives Markets 413.0 417.0 -1 Commodities 88.9 89.0 0 Equity Group 124.5 36.6 n.m. 5.8 6.4 -9 1,157.4 1,092.2 6 Mergers & Acquisitions Total CIBM Private Equity and Wealth Management Private Equity and Wealth Management contributed 7% of total net banking income generated by the core businesses. It delivered an excellent performance in 2004, with 51% growth in net banking income. Private Equity was the main in millions of euros Private Equity Wealth Management Total Private Equity and Wealth Management Services The Services core business comprises two business lines: Banking, Financial and Technology Services on the one hand and Asset Management and Insurance on the other. Total net banking income from the core business rose by 8% to €608.7 million. Within Banking, Financial and Technology contributor with an increase of €61.4 million compared with 2003. Despite significant profit-taking in 2004, the stock of unrealized capital gains remained high at the year end, totaling €148 million, down just €55 million compared with end-2003. 12/31/2004 12/31/2003 % change 145.4 84.0 73 43.2 40.5 7 188.6 124.5 51 Services, Banking Services delivered 16% growth compared with 2003, to €86.9 million, while net banking income from Financial Services was down 14%, chiefly due to discontinuation of Xeod Services’ “order flow” activities. Asset Management and Insurance delivered 17% growth in net banking income, while assets under management were up 7%. 89 in millions of euros 12/31/2004 12/31/2003 % change Banking, Financial & Technology Services 237.7 245.6 -3 Asset Management & Insurance 371.0 316.1 17 Total Services 608.7 561.7 8 Receivables Management Net banking income was up 3% compared with 2003, to €633.6 million, accounting for 24% of total net banking income generated by the core businesses. in millions of euros 12/31/2004 12/31/2003 % change Coface 531.4 518.9 2 Factoring 102.2 98.0 4 Total Receivables Management 633.6 616.8 3 Operating expenses and cost/income ratio Provisions for loan losses and operating income Operating expenses totaled €5,095 million, an increase of 6.2% or 3.9% on a comparable structure basis. Provisions for loan losses amounted to €480 million in 2004, a decrease of 15% on a reported basis and 15.6% on a comparable structure basis.This change reflects contrasting positions among the Group’s components, with a rise of 6.4% in local retail banking (5.3% on comparable structure) and a 51% decrease for Natexis Banques Populaires. The total breaks down into €2,999 million in payroll costs (59%) and €2,096 million in other operating expenses (41%). Employees The total number of full time equivalent employees (FTEs) rose by 3% in 2004, to 44,509 compared with 43,224 at December 31, 2003.The increase of 1,285 FTEs included 212 within the scope of Natexis Banques Populaires. Trends in operating expenses The local retail banking business saw controlled growth in operating expenses, in line with the Group’s policy of sustained development in this business. Operating expenses totaled €3,268 million, an increase of 6% or 3.3% on a comparable structure basis. This increase was driven by: ongoing investment in strengthening the network’s commercial capability, which included opening 106 new Banque Populaire branches (86 net) in 2004, bringing the total to 2,692 at the year end; n n continued efforts to rationalize information systems, through the informatique-Banque Populaire (i-BP) platform and information systems sharing between Banque Populaire banks. 90 At Natexis Banques Populaires, payroll costs rose by 6% in 2004, following an increase in the number of employees (average number of permanent and contract FTEs up by 179), together with a rise in salary costs due to improvement measures taken in 2004. Excluding bonuses, these measures cost about €30 million, representing a rise of 5.2% based on the number of employees at end December 2003. Consolidated payroll costs also incorporate the impact of pay rises agreed in June 2004 at Group level, as well as a significant increase in costs related to the incentive and profit-sharing plans and certain variable compensation components following the strong growth in earnings delivered by the consolidated entities. Lastly, some major regulatory projects such as the adoption of IFRS and the Basel II capital accord, together with further progress in information systems development projects, required additional recourse to outside consultancy and support. Cost/income ratio BANQUE POPULAIRE GROUP The Group’s cost/income ratio stood at 66.7% for 2004, an improvement of 1.2 percentage points over the previous year. Excluding Coface, the ratio was 65.4%. Local retail banking posted a cost/income ratio of 65.8%, an improvement of 0.9 percentage points, and one of the best in the French retail banking sector. In local retail banking, the change in loan loss provisions reflects a continued highly conservative provisioning policy, with provision coverage of non-performing loans rising to 70.2% at the year end, compared with 69% at end-2003. Loan loss provisions totaled €376 million, representing 0.41% of risk-weighted loans compared with 0.43% in 2003. For Natexis Banques Populaires, loan loss provisions were down 51% to ¤104 million, compared with €211 million in 2003.This figure comprises a net charge of €115.6 million in specific provisions (representing 62.8% coverage of nonperforming loans), offset by a net reversal of €11.4 million of general provisions.The stock of general provisions stood at €371 million compared with €392 million at end-2003. As a percentage of risk-weighted loans, loan loss provisions fell sharply to 34bp compared with 43bp at end-2003.Total risk-weighted asset coverage (fund for general banking risks plus provisions to total risk-weighted loans) came to 4.4% at December 31, 2004. Operating income totaled €2,065 million, an increase of 21% on a reported basis and 18% on comparable structure. Income before exceptional items and tax Income before exceptional items and tax totaled €2,098 million versus €1,735 million in 2003, an increase of 21% (18% on comparable structure). It includes: n €7 million in contribution from companies accounted for by the equity method; €26 million in net gains on disposals of fixed assets, versus €19 million in 2003. n Management report Breakdown of income before exceptional items and tax All Group businesses contributed strong growth to income before exceptional items and tax in 2004. in millions of euros 12/31/2004 12/31/2003 % change 1,343 1,189 13 Natexis Banques Populaires 768 522 47 Corporate & Institutional Banking and Markets 398 277 44 85 24 251 Services 185 155 20 Receivables Management 126 123 2 Other (1) (25) (57) Federal activities (12) 24 2,098 1,735 Local retail banking Private Equity and Wealth Management Total 21 (1) Net banking income from Natexis Banques Populaires’ non-core businesses and elimination of intragroup transactions between Natexis Banques Populaires and Banque Populaire banks Net income The tax charge increased by 28% to €700 million from €544 million in 2003. The increase, which included an exceptional charge of €25 million in respect of exit tax due on long-term capital gains reserves, reflects a rise in the taxable base as a result of earnings growth. Exceptional items amounted to €30 million versus €23 million in 2003, principally relating to mergers between Banque Populaire regional banks. The sum of €115 million was transferred to the fund for general banking risks, including €83 million in transfers to the regional and federal mutual guarantee funds set up under the Group's internal guarantee mechanism. Shareholders’ equity and capital adequacy Capital stock In 2004, the consolidating entity increased its capital stock by €147 million by issuing new members’ shares in the Banque Populaire banks and the mutual guarantee companies to member-stakeholders. Regulatory capital and international capital adequacy ratio At December 31, 2004, the Group’s total regulatory capital rose to €17.25 billion from €15.67 billion one year earlier. Amortization of goodwill amounted to €33 million,including an impairment charge of €37 million arising on the re-estimation of goodwill based on discounted cash flow for the Group’s subsidiaries Natexis Bleichroeder Inc (€34 million) and Samic (€3 million). Tier One capital totaled €13.42 billion,up from €12.22 billion the previous year. The increase was mainly due to the earnings capacity generated during the period, after taking account of dividends and interest payable on members’ shares. Minority interests came to €161 million compared with €129 million in 2003, corresponding mainly to minority interests in Natexis Banques Populaires, which is 75.59%owned by the Group. Tier Two, Tier Three and other regulatory capital rose to €3.83 billion from €3.45 billion at December 31, 2003, mainly due to the net positive balance between new redeemable subordinated notes issued and redeemed during the period. Net income came to €1,059 million, an increase of 24% over 2003 and 21% on a comparable structure basis. Earnings capacity – measured as net income plus the year’s net charge to the fund for general banking risks – amounted to €1,174 million, an increase of 15% or 12% on a comparable structure basis. Risk-weighted assets amounted to €140 billion, an increase of 7%, in line with growth in customer loans. Market risks were up 18% to €6.8 billion,representing 4.6% of total risks, which came to €146.9 billion. The international capital adequacy ratio stood at 11.7%, including a Tier One ratio of 9.1%, versus 11.5% and 8.9% respectively at December 31, 2003, reflecting a continued strengthening of the Group’s financial structure. 91 in millions of euros 12/31/2004 12/31/2003 % change Regulatory capital Tier One capital Total regulatory capital 13,421 17,248 12,217 15,666 10 10 Risk-weighted assets Credit risks Market risks Total consolidated risks 140,149 6,760 146,909 130,949 5,708 136,658 7 18 7.5 9.1% 11.7% 8.9% 11.5% 0.2 0.2 International capital adequacy ratio Tier One ratio Total ratio European capital adequacy ratio Since 1996, French financial institutions have been required to measure and comply with an overall capital adequacy ratio covering not only counterparty risks but also market risks such as interest rate and currency risks. It is defined as the ratio of available capital to the capital requirement for counterparty and market risks. It must be higher than 100%. At December 31, 2004, the Group’s ratio stood at 152% against 149% one year earlier. Trends in the consolidated balance sheet Total consolidated assets amounted to €250.4 billion at December 31, 2004 versus €237.2 billion one year earlier, an increase of 6%. Overall, the balance sheet structure changes very little from year to year, the main changes coming from growth in customer loans and deposits in the local retail banking business (see page 87). Assets Assets in billions of euros 92 12/31/2004 12/31/2003 Interbank and money-market assets (1) 27.8 24.5 Customer loans and lease financing (1) 121.4 113.0 Securities held under resale agreements 35.8 35.7 Securities 26.3 22.4 Insurance company investments 26.0 23.5 Accrued income, prepaid expenses and other assets 11.9 15.7 1.2 2.4 250.4 237.2 Investments in affiliates and other securities held for investment Total assets (1) Excluding resale agreements, which are identified separately n Interbank and money market assets rose by 13% to €27.8 billion, driven by a €3.3 billion increase in the portfolio of government securities held for trading by Natexis Banques Populaires (up €1.7 billion) and BRED Banque Populaire (up €1.2 billion). Customer loans and lease financing amounted to €121.4 billion, an increase of 7%. This growth was mainly attributable to local retail banking. Customer loans at Natexis Banques Populaires remained stable as the weaker dollar offset growth in the loan book. BANQUE POPULAIRE GROUP n Securities held under resale agreements – chiefly government securities – remained stable during the year, after growth in this business during the previous three n years at Natexis Banques Populaires. These assets are financed by securities delivered under repurchase agreements, recorded as liabilities. The securities portfolio increased by a significant 17% to €26.3 billion, mainly due to growth in fixed-income trading in the capital markets business. n n Insurance company investments, held mostly for the life insurance business, rose to €26.0 billion.This was matched by a corresponding increase on the liabilities side in insurance company technical reserves held to meet future obligations to policyholders, which rose to €25.7 billion. Management report n Other assets fell to €11.9 billion in connection with the non-renewal of reinsurance contracts, which led to a significant decrease in the reinsurers' share of technical reserves. n The €1.1 billion decrease in other securities held for investment reflects the unwinding of the Editis (formerly Vivendi Universal Publishing) carrying operation carried out by Natexis Banques Populaires for the Lagardère Group. Liabilities Liabilities in billions of euros 12/31/2004 12/31/2003 Interbank and money market liabilities (1) 17.0 17.8 Customer deposits (1) 94.8 89.3 Securities delivered under repo agreements 47.4 42.6 Debt securities and subordinated debt (2) 32.7 31.0 Insurance company technical reserves 25.7 23.7 Other liabilities and provisions 18.9 20.3 Shareholders’ equity and fund for general banking risks 13.9 12.5 250.4 237.2 Total liabilities (1) Including retail certificates of deposit, but excluding repurchase agreements, which are identified separately (2) Excluding retail certificates of deposit The increase in customer deposits came almost entirely from the local retail banking business. n n Refinancing of growth in assets was also reflected in a significant increase in debt securities, which rose to €32.7 billion from €31.0 billion the previous year, the issuance of money market securities and an increase in securities delivered under repurchase agreements, which rose to €47.4 billion. Off-balance sheet savings products Off-balance sheet savings managed by the Group rose by 8% to €97.5 billion. Off-balance sheet 93 12/31/2004 12/31/2003 % change Life insurance 24.5 22.5 9 Employee savings plans 11.5 11.7 -2 Mutual funds in billions of euros 54.8 50.0 10 Other 6.7 5.9 14 Total 97.5 90.1 8 Life insurance portfolios increased by 9% to €24.5 billion and mutual funds by 10% to €54.8 billion.The decrease in employee savings plans arising from the “Sarkozy law” allowing early withdrawal is estimated at €1.2 billion over the year. Transition to International Financial Reporting Standards (IFRS) Total managed savings A Group project Total savings managed by the Banque Populaire Group rose by 7% to €192.3 billion at December 31, 2004, comprising €94.8 billion in customer deposits and €97.5 billion in off-balance sheet savings. At its meeting on October 22, 2003, the Board of Directors of Banque Fédérale des Banques Populaires decided that the consolidated financial statements of the Banque Populaire Group would be presented in accordance with IFRS from January 1, 2005. As the Group is not listed on the stock exchange, it is under no obligation to adopt the new standards.This entirely voluntary decision was made in the interests of transparency and providing financial statements that are comparable with those of other European financial institutions. It represents a major departure for the Group and for everyone directly concerned by the Group’s financial reporting. Acutely aware of its importance, the Group launched its IFRS project in September 2002. Work continues in 2005, including preparing information systems specifications and parameter setting, drawing up procedures and training all those involved in the Group’s financial reporting functions. Following this work, the Group will be in a position to calculate the impact of first-time adoption of IFRS as of January 1, 2004. In addition, the project group has also been working on drawing up 2004 financial statements based on IFRS except for IAS 32 and IAS 39, as the Group has not elected for early adoption of these two standards. To comply with its usual year-end reporting schedule, the Group will publish its 2004 French GAAP financial statements before completing the work on first-time adoption of IFRS. The 2004 IFRS financial statements will therefore be published on April 21, 2005, after presentation to the Board of Directors of Banque Fédérale des Banques Populaires on April 20, 2005. Based on work completed to date, the main identified impacts on opening shareholders’ equity are: Fund for general banking risks: this type of general provision is not allowed under IFRS and the FGBR will therefore be reclassified in opening shareholders’ equity, with no impact on regulatory capital. n 94 n Loss equalization reserve: this provision relates to Coface’s insurance credit business. It is not allowed under IFRS as it is designed to cover a general risk (catastrophe risk). It will therefore be reclassified in opening shareholders’ equity. n Employee benefits: under IFRS, the Group is required to provide for all post-employment benefits in full. This involves measuring post-employment obligations at their fair value, by discounting future cash flows at the market rate, and supplementing the provisions made in this respect with a sum corresponding to the estimated liabilities arising in respect of taking over payment of future retirees’ mutual contributions. All resulting actuarial differences will be charged to opening shareholders’ equity. Impact of component accounting: this method applies mainly to buildings owned by the Group and the impact arises from identifying components with useful lives that are shorter than the depreciation periods currently used under French GAAP. As this method will be used in the French GAAP financial statements with effect from 2005, this difference in accounting treatment will become irrelevant. BANQUE POPULAIRE GROUP n Capitalization of development costs: IFRS requires software development costs to be capitalized whereas under French GAAP they are currently expensed during n the year of occurrence. Similar accounting treatment will be used in the French GAAP financial statements as of January 1, 2005. Goodwill: under IFRS, as is the case for French GAAP, goodwill will no longer be amortized but will be tested for impairment at least once a year, and an impairment loss recognized where necessary. Previously recognized negative goodwill will be derecognized by adjusting opening shareholders’ equity and negative goodwill arising in subsequent years will be taken immediately to income. Furthermore, intangible assets previously recognized under French GAAP upon business combinations and which do not satisfy the recognition criteria required by IFRS, will be reclassified as goodwill. n The impacts of adopting IAS 32 and IAS 39 will be reported upon publication of the 2005 half-yearly financial statements, after presentation to the Board of Directors on September 7, 2005. At this stage, and after taking account of prudential filters introduced by the supervisory authorities, the main impacts of IAS 32 and IAS 39 on regulatory capital are as follows: n The “amortised cost” method requires remuneration of loans and borrowings to be accounted for at the effective interest rate, that is including the impact of directly related revenues and expenses (principally fees and commissions) received or paid at inception of the transaction.This standard will decrease shareholders’ equity by the amount of fee and commission income recognized in the income statement prior to 2005, which will have to be deferred over the effective term of the transactions concerned. Recognition of provisions for home loans savings plans, designed to cover part of the risk of granting home loans at regulated rates that are lower than market rates, as well as the risk of having to extend the savings phase at interest rates higher than those paid on an equivalent savings product. n n Recognition of collective provisions for impairment of performing loans.This will have a material impact in the retail banking business, which does not recognize general provisions for credit risk under French GAAP. Macro-hedging operations will principally be accounted for as cash flow hedges, which should not have an impact on the Group’s Tier One ratio given the various prudential filters proposed by the supervisory authorities. Management report Risk management Risk management organization The Group is exposed to four main categories of risk: n credit risks arising from customer transactions; n market risks arising from capital markets transactions; n interest rate, currency and liquidity risks, arising from retail banking transactions; n operational risks. In accordance with standard CRBF 97-02, each bank has set up risk management and monitoring structures that are independent from operating units. All Group banks have also set up their own systems of exposure limits and decision-making procedures, complying with the rules established at Group level, as set out in the credit risk manual updated in June 2004 and the interest rate and liquidity risk manual updated in April 2004. Each bank's risk policy is determined by the bank's executive management and approved by its Board of Directors. The banks are also responsible for exercising continuous control over risks, in accordance with the rules laid down by the Board of Directors of Banque Fédérale des Banques Populaires – dealing in particular with the role of the Group Risk Management Committee – and by the banking regulator. The organization of risk monitoring and control procedures is described in the “Chairman's Report on Internal Control Procedures” included in this annual report. Portfolio analysis Listed companies, including banks, clearly benefited from economic recovery in the first half of 2004. Growth in the eurozone reached 2% on an annualized basis, led by a recovery in exports to non-eurozone countries, which partially explains the differences in growth rates from one country to another. Germany, for example, drew the benefit despite its persistently difficult domestic position, with further business failures expected in 2004. In the first half, France produced 3% annualized growth, well above the eurozone average, led by strong consumer spending. The second half saw a sharp spiral in oil prices, which is now the main uncertainty hanging over growth prospects today. A stable dollar helped contained the problem, but oil-dependent industries (chemicals, processing, transport, fishing, etc.) could suffer a significant deterioration in financial position and consumers might be encouraged to stop spending. The Banque Populaire Group is well-placed to avoid any serious repercussions of these uncertainties, thanks to its strong risk management culture and diversification in terms of both geographic and industry exposure. At the end of 2003, the Banque Populaire Group established comprehensive rating systems that comply with future prudential requirements. These systems are based on the use of homogeneous methods throughout the Group and centralized rating applications dedicated to the principal client segments. The Group's central body is responsible for assessing risk policies and management procedures according to standard principles and criteria. Risks are monitored at Group level, as follows: n Banque Populaire banks, on a consolidated basis; Banque Fédérale des Banques Populaires subsidiaries on a consolidated basis; n n Crédit Maritime Mutuel on a consolidated basis. In addition to this consolidated risk monitoring system, the Group Risk Management Committee performs monthly assessments of material individual exposures at Group level or at the level of individual banks. Responsibility for performing credit reviews and the credit rating process may be delegated to the Banque Fédérale des Banques Populaires Risk Management Department. All Group entities are informed of the decisions made by the Group Risk Management Committee. Risk diversification represents a fundamental risk management rule and is governed by external and internal guidelines. As required by the Group’s risk management manuals, each bank sets internal risk concentration limits based on its own specific characteristics, which are lower than the limits authorized under banking regulations. 95 Total risks in billions of euros 12/31/2004 12/31/2003 55.4 53.4 120.6 111.8 o/w customer overdrafts 7.5 9.4 o/w commercial loans 3.5 3.4 o/w factoring receivables 3.0 1.9 104.0 1.1 20.1 30.2 38.4 14.2 1.0 94.1 1.2 18.2 28.4 33.5 12.7 1.2 1.6 1.7 Interbank and money market assets Customer loans o/w other customer loans Export loans Short-term loans and consumer loans Equipment loans Home loans Other loans o/w accrued interest and suspense accounts o/w non-performing loans, net of provisions Total outstanding loans increased in 2004. Interbank loans grew at a slower rate than customer loans, particularly in the Group’s core strategic segments such as retail banking. in billions of euros 12/31/2004 12/31/2003 22.9 18.0 2.0 2.1 Guarantees given on behalf of customers 20.9 15.8 Financing commitments given 34.7 31.7 2.6 2.7 32.1 29.0 Guarantees given Guarantees given to credit institutions Financing commitments given to credit institutions Financing commitments given to customers Financing commitments given to customers increased slightly, while other commitments and guarantees declined, reflecting the overall drive to contain risks. 96 Interbank risks Change in outstanding loans and utilized commitments to credit institutions (in € billions)* 30 25.2 25 22.9 22.2 20.6 20 Dec. 01 Dec. 02 Dec. 03 Dec. 04 BANQUE POPULAIRE GROUP * Management data Growth in outstanding loans and utilized commitments to credit institutions accelerated in 2004 to 10% from 3.1% in 2003. Management report Interbank counterparties by country (in %)* In % 60 n December 2002 50 n December 2003 40 n December 2004 30 20 10 0 France Western Europe North America Asia (excl. Japan and Oceania North Africa & Middle-East Latin America & Caribbean Japan SubSaharan Africa Supranational borrowers Central & Eastern Europe * Management data Counterparties include a large number of banking institutions in OECD countries.The weighting of Western European counterparties rose slightly from 31% to 35%. Loans and commitments to foreign banks involve the leading banks in each country, 84% of which are investment grade.The concentration of risks remains stable. Change in interbank commitments by credit rating (in %)* In % n December 2002 40 n December 2003 35 30 n December 2004 25 20 15 10 5 0 97 1 2-4 5-7 8 - 10 11 - 16 > 16 Not rated * Management data The global banking industry continued to improve in 2004. Banking counterparties rated AA or equivalent continued to represent the largest category. Sovereign risks Sovereign risk is the risk of a government (and/or central bank) being unable to honor its debts. Sovereign borrowers almost never default on their loans; instead, they initiate negotiations with lenders, frequently leading to the waiver of interest and/or of part of the outstanding principal. Sovereign risks by geographic area (in %) In % 100 83.8 80 n December 2002 89.2 76.2 n December 2003 n December 2004 60 40 14.5 20 3.6 3.4 2.8 2.2 1.9 2.4 6.2 3.0 0.9 0.9 0.9 3.3 1.6 3.2 0 Western Europe Africa Latin America & Caribbean Asia Central & Eastern Europe North America Nearly 77% of the Group's sovereign loans concern Western Europe. Exposure to Japan and North America has increased in line with the improved international climate. Africa now represents only 2.8% of the total, while Latin America – the most risky area – accounts for 2.4%, up slightly on the previous year due to its less troubled outlook. Change in sovereign loans by Coface credit rating A4: 2% C: 1% B: 2% 98 A2: 27% BANQUE POPULAIRE GROUP A1: 67% The quality of the Group’s sovereign exposures is measured by the Coface short-term @rating, which allows virtually all risks to be rated (less than 1% are not rated - NR). 96% of sovereign exposures are investment grade ranging from A1 to A4, including 67% which are A1 rated. Only 4% of sovereign borrowers are non-investment grade with a rating from B to D, including 1% which are D rated, reflecting the Group's marginal exposure to foreign sovereign risks. Management report Customer risks Breakdown by industry Industry Exposure 12/31/04 €m % Real estate Exposure 12/31/03 €m % % change 2004/2003 14,374 16.5 14,419 17.2 - 0.3 Finance & insurance 7,486 8.6 6,510 7.8 15.0 Retailing 7,215 8.3 6,647 7.9 8.6 Construction & public works 6,478 7.5 5,930 7.1 9.2 Services 6,140 7.1 5,641 6.7 8.9 Consumer goods 5,670 6.5 4,503 5.4 25.9 Food 4,885 5.6 4,879 5.8 0.1 Basic industries 4,324 5.0 5,188 6.2 - 16.7 Transport 4,279 4.9 3,595 4.3 19.0 Mechanical & electrical engineering 4,244 4.9 4,797 5.7 - 11.5 Pharmaceuticals & healthcare 3,520 4.1 2,867 3.4 22.8 Holding companies & diversified 3,420 3.9 3,462 4.1 - 1.2 Tourism, hotels & restaurants 3,307 3.8 2,774 3.3 19.2 Unallocated 2,740 3.2 3,066 3.7 - 10.6 Technology 2,401 2.8 2,621 3.1 - 8.4 Media 2,336 2.7 2,675 3.2 - 12.7 Government 1,741 2.0 2,106 2.5 - 17.3 Utilities 1,320 1.5 1,394 1.7 - 5.3 Energy 969 1.1 788 0.9 22.9 Source: Banque de France risk reports (reported exposure > €76,000) The real estate sector still comes top of the list. Exposure to this sector remains stable and half the loans concerned are to “SCI” non-trading real estate companies.The main changes are an increase in exposure to the retailing and consumer goods sectors, and a significant decrease in exposure to basic industries and mechanical & electrical engineering. 99 Concentration by borrower 2004 breakdown % Risk-weighted loans as a % of capital 2003 breakdown % % change 2004/2003 Largest borrower 1.7 8.3 1.7 8.5 Top 10 borrowers 11.5 54.3 10.9 9.3 Top 50 borrowers 25.7 121.9 25.3 5.3 Top 100 borrowers 30.6 144.9 31.3 1.2 Source: Banque de France risk reports (reported commitments > €76,000) Significant concentrations of credit risk have stabilized after a significant reduction in 2003.Their weighting relative to the Group’s capital has fallen compared with 2003.The Group’s top 100 largest exposures represented only 144.9% of capital versus 167.6% at December 31, 2003. High-risk industries in millions of euros 12/31/2004 12/31/2003 Telecommunications services 445 860 Aviation (airlines and structured financing) 826 933 Aerospace (manufacturers and equipment suppliers) 1,430 1,258 Tourism, hotels & restaurants 2,942 2,315 Luxury goods 1,272 1,435 Insurance 1,376 1,359 Source: Banque de France risk reports (reported commitments > €76,000) Total exposure to these sectors remained stable compared with 2003. However, within that total, there was a continued reduction in exposure to telecommunications and aviation, while exposure to tourism and, to a lesser extent, aerospace, rose significantly. Non-performing loans Provisions for loan losses totaled €480 million, a decrease of 15% on a comparable structure basis. The total breaks down into €376 million for local retail banking and €104 million for Natexis Banques Populaires.The relatively small in millions of euros Specific provision coverage of non-performing loans amounted to 68% at December 31, 2004, bearing witness to this conservative policy. 2004 Gross Provisions 100 decrease reflects an improvement in the economic climate coupled with a continued highly conservative provisioning policy. 2003 Net Provision coverage % Gross Provisions Net Provision coverage % Non-performing loans Interbank loans Customer loans Lease financing Securities portfolio and other 109 5,180 417 202 (59) (3,577) (242) (154) 50 1,602 175 47 54 69 58 76 117 5,293 415 207 (74) (3,556) (249) (129) 44 1,737 166 79 63 67 60 62 Total 5,907 (4,032) 1,875 68 6,033 (4,008) 2,025 66 Breakdown by client category At December 31, 2004 in % Customer loans and lease financing Sound loans Irrecoverable loans Other non-performing loans Provisions for irrecoverable loans Provisions for other non-performing loans BANQUE POPULAIRE GROUP Corporate borrowers account for the majority of nonperforming loans. In the local retail banking business, 99.7% of defaults concerned clients in France. For Natexis Banques Populaires, a breakdown of exposure and provisions by country shows little change in either Non-financial corporates Small businesses Personal clients Other 54.1 65.1 72.4 68.0 71.0 8.1 16.1 12.3 15.6 14.2 33.7 16.7 14.4 14.7 13.9 4.1 2.0 0.8 1.7 0.9 total exposure or total provisions compared with the previous year. However, within that total, there was an increase in exposure to Eastern Europe and a decrease in both exposure and provisions in Asia. Management report Geographic area France Specific Country risks credit risks (net basis) Total credit risks % change over 2003 Specific provisions Provisions Provisions for country for industry risks risks Total % change provisions over 2003 1,003 - 1,003 - 5.4 639 - 123 762 - 5.8 209 292 501 - 2.1 145 - 36 181 16.0 Eastern Europe 37 256 293 14.0 23 0 7 31 0.0 North America 131 - 131 - 16.6 65 - 58 123 5.1 Central & Latin America 133 600 733 5.5 76 43 12 130 - 7.8 Africa and Middle-East 106 661 767 5.1 59 73 5 138 7.0 0 - - - 0 - 0 0 - 57 1,061 1,119 - 8.4 33 10 4 47 - 35.6 7 - 7 - 46.2 7 - 0 7 - 46.2 1,683 2,871 4,554 - 2.0 1,047 126 245 1,418 - 3.5 Rest of western Europe Japan Asia and Oceania Unallocated Credit risks and provisions Breakdown of Natexis Banques Populaires exposure and provisions at December 31, 2004 Market risks Market risks primarily concern Natexis Banques Populaires, a subsidiary of Banque Fédérale des Banques Populaires. The market risk management system is described below. The improvement program launched by Natexis Banques Populaires in 2002 continued during 2004. Improvements concerned organization, procedures and risk measurement. Counterparty risk Counterparties in the capital markets business are mostly banks and financial institutions. Counterparty exposure is governed by limits which are set by an ad hoc committee and monitored by the bank’s risk management systems.Any violations of these limits are handled at specific monthly committee meetings. Market risk policy Natexis Banques Populaires trades in the capital markets through its Global Debt & Derivatives Markets and Equity Group departments.They trade both on behalf of clients of Natexis Banques Populaires (intermediation, brokerage, asset management) and on their own behalf. Proprietary trading activities can take different forms: n facilitation for Natexis Banques Populaires clients; n trading activities; n arbitrage activities; n structural interest rate risk management and maturity mismatch management through Natexis Banques Populaires’ treasury department. a three-tier control system comprising the middle office of each entity, internal control, and the risk management department, the latter two providing independent control over risks; n n a market risk measurement model designed to quantify the bank’s risk; n a system of limits set in accordance with the risk indicators set out in the internal risk measurement model. Limits apply to Natexis Banques Populaires and its subsidiaries. The market risk management system is based on a risk metrics model that measures the risk run by each Natexis Banques Populaires entity. The main standard metrics used are sensitivities to specific risks inherent in the various business activities (interest rate, exchange rate, equities, commodities, volatilities, counterparty, etc.). In addition to these standard metrics, Natexis Banques Populaires also uses the Value at Risk (VaR) method. It uses Riskmanager software developed by Riskmetrics to perform historical VaR calculations designed to quantify the risk of losses from capital markets activities. VaR calculations are based on one year's historical data, a one-day potential loss horizon and a 99% confidence level. At December 31, 2004,VaR amounted to €7.04 million, broken down as follows: in millions of euros VaR at December 31, 2004 Interest rate risk 4.98 Proprietary trading is conducted by the Global Debt & Derivatives Markets and Equity Group departments. Currency risk 0.25 Equities risk 5.94 Market risk management system Commodities risk 0.38 Natexis Banques Populaires’ market risk management system is based on three pillars: Diversification (4.51) Total 7.04 101 For the US subsidiary ABM Corp., which operates in the mortgage-backed securities market, stress tests are performed based on a uniform 100 bp distortion of the yield curve and its impact on the market (in the shape of early repayments, increased volatility, etc.). At December 31, 2004, the impact of the worst-case scenario would be a $16.9 million fall in the value of the portfolio. Interest rate risk Interest rate risk is measured primarily in terms of the impact of a 200 bp across-the-board rate shift. However, the Group also measures the impact of a non-parallel shift in the yield curve, in the form of a 100 bp increase in shortterm rates accompanied by a 1% decrease in long-term rates. Interest margin sensitivity The sensitivity of interest margins at the Banque Populaire regional banks and Crédit Maritime Mutuel banks remained largely unchanged in 2004 compared with the previous year. On a static balance sheet basis, sensitivity to a 200 bp across-the-board decline in market interest rates was -9% in 2004. Sensitivity to a 200 bp increase in market rates fell from -6% to -4%. On a dynamic balance sheet basis, risk increased slightly, with sensitivity to a 200 bp across-the-board decline in market interest rates rising to -13% from -11%. This is principally due to expected higher growth in loans than in deposits. Liquidity management Liquidity gap limits are set on a dynamic balance sheet basis, assuming both a normal growth and a liquidity crisis scenario measured over a horizon of four years and one year respectively. 102 Each bank is also required to monitor its maturity gap on a static balance sheet basis over a ten-year horizon, as well as the impact on its earnings capacity of a 50 bp increase in spread applied to the cost of the gap on a dynamic balance sheet basis. BANQUE POPULAIRE GROUP Liquidity needs have risen slightly in view of the Group’s ongoing active business development policy. All banks comply with the regulatory ratios. Operational risks The Group continued its work on operational risk management, first by strengthening the risk mapping process introduced in 2002 and secondly, by standardizing and upgrading its business recovery plans. The operational risk mapping system is based on a qualitative and quantitative approach that meets future developments in prudential requirements. These projects, which are overseen by the Banque Fédérale des Banques Populaires, involve all Group entities and aim to provide them with standardized manuals and business recovery plans that meet the highest market standards. Insurance and risk coverage Like other banking groups, the Banque Populaire Group insures its major risks through specific insurance coverage with insurers and reinsurers. The 2005 insurance program completes the system covering the Group’s material risks. It includes insurance for professional liability, directors’ and officers’ liability, liability for losses resulting from fraud and embezzlement, as well as the vast majority of Group information systems infrastructures and premises or major sites such as head offices and information systems centers. These policies also include business interruption and consequential loss cover for each Group entity. As in 2004, the entire program has been renewed for 2005 on generally better terms than the previous year. All cover has been taken out with leading international insurers that are recognized for their claims-paying ability. Legal risks The Group is currently involved in a limited number of liability claims. After review and based on the current status of claims pending, the Group does not believe these claims will have a material adverse impact on its results or financial position. Provisions have been booked in the financial statements at December 31, 2004 for all legal and tax risks that can be reasonably estimated. Management report Directors’ compensation The information below concerns the compensation paid to the executive directors of Banque Fédérale des Banques Populaires, the central body of the Banque Populaire Group. Compensation and benefits paid to executive directors in 2004 by Banque Fédérale des Banques Populaires and companies controlled by it n Total gross compensation paid to executive directors of Banque Fédérale des Banques Populaires includes both a fixed and a variable component, determined as follows: – the fixed component is based on: – the variable component is based on: - growth in net banking income, - the level of and improvement in the cost/income ratio, - the level of and increase in ROE. - the level of net banking income, The table below shows the compensation paid to executive directors and officers for 2003 and 2004. - the executive’s mobility, - the number of years in the position. in euros 2004 2003 B.F.B.P. Companies controlled by B.F.B.P. Fixed Variable Fixed Variable Total compensation B.F.B.P. Companies Total controlled by compensation B.F.B.P. Fixed Variable Fixed Variable Philippe Dupont 228,386 75,000 263,000 75,000 641,386 227,899 75,000 263,000 75,000 640,899 Michel Goudard 296,943 90,000 - - 386,943 294,380 90,000 - - 384,380 Jean-Paul Dubus* 250,598 60,000 - - 310,598 247,200 60,000 - - 307,200 * Jean-Paul Dubus has an employment contract n Allowances and benefits in kind awarded to executive directors of Banque Fédérale des Banques Populaires (2004 tax base). Philippe Dupont, Michel Goudard and Jean-Paul Dubus each have a car and an apartment paid for by the bank. in euros In addition, Philippe Dupont receives a standard allowance in his capacity as Chairman and Chief Executive Officer. The table below shows allowances and benefits in kind awarded to executive directors and officers for 2003 and 2004: 2004 B.F.B.P. 2003 Companies controlled by B.F.B.P. Total B.F.B.P. Companies controlled by B.F.B.P. Total Philippe Dupont 61,853 - 61,853 56,658 - 56,658 Michel Goudard 15,921 - 15,921 13,182 - 13,182 Jean-Paul Dubus 14,656 - 14,656 16,393 - 16,393 103 Directors’ fees Directors' fees paid to members of the Board of Directors of Banque Fédérale des Banques Populaires are determined on the basis of each member's attendance rate at Board meetings and Board Committee meetings, and are therefore entirely variable: n the fee per director and per Board Meeting was €994; Total directors' fees paid in 2004 in respect of 2003 amounted to €210,328. Amounts received per director are shown in the table below. The directors of Banque Fédérale des Banques Populaires are also paid fees in their capacity as directors of companies controlled by Banque Fédérale des Banques Populaires.Total fees paid in respect of 2004 amounted to €205,310. Amounts received per director are shown in the table below. n the fee per member and per Board Committee meeting was as follows: – Group Risk Management Committee: €1,524; – Audit Committee: €1,524; – Remuneration Committee: €762. in euros Directors 104 Philippe Dupont, Chairman Christian Hébrard Christian Brevard René Clavaud Jean-François Comas Claude Cordel Jean-Claude Detilleux Michel Devianne Daniel Duquesne Stève Gentili Alain Jacquier Marc Jardin Yvan de la Porte du Theil François Moutte Richard Nalpas Francis Thibaud Jean-Louis Tourret Total Directors’ fees paid in 2004* by B.F.B.P. Directors’ fees paid in 2004* by companies controlled by B.F.B.P. 10,934 12,458 10,934 15,506 10,934 13,982 9,940 13,982 12,458 10,934 10,934 10,934 12,458 13,982 15,506 14,512 9,940 210,328 10,065 5,897 14,185 25,668 17,325 13,725 13,725 22,665 8,205 17,435 18,195 13,695 24,525 205,310 * In accordance with the French corporate governance act of May 15, 2001 ("NRE" Act), this table only shows directors' fees paid during 2004. For Banque Fédérale des Banques Populaires, they correspond to fees for attending meetings of the Board of Directors and the Board Committees held during 2003. For the companies controlled by Banque Fédérale des Banques Populaires, they correspond to fees for attending Board meetings held during 2004. BANQUE POPULAIRE GROUP During 2004, Michel Goudard also received fees of €10,065 in his capacity as non-voting director of Natexis Banques Populaires. Management report Stock options granted to and exercised by executive directors No options have been granted on Banque Fédérale des Banques Populaires shares. However, executive directors of Banque Fédérale des Banques Populaires have been awarded options on Natexis Banques Populaires shares, as follows: Number of options granted Natexis Banques Populaires options granted to executive directors of B.F.B.P. Philippe Dupont Michel Goudard Jean-Paul Dubus Exercice price Exercise period As director of B.F.B.P. As director of companies controlled by B.F.B.P (1) in euros From To 10,000 5,500 6,000 6,000 6,000 4,200 4,200 5,000 4,000 2,800 2,800 3,000 10,000 5,500 6,000 6,500 - 94.30 72.47 83.25 89.10 94.30 72.47 83.25 89.10 94.30 72.47 83.25 89.10 09/19/05 09/11/06 09/10/07 11/17/08 09/19/05 09/11/06 09/10/07 11/17/08 09/19/05 09/11/06 09/10/07 11/17/08 09/19/08 09/11/09 09/10/10 11/17/11 09/19/08 09/11/09 09/10/10 11/17/11 09/19/08 09/11/09 09/10/10 11/17/11 Plan number No 9–BD 09/19/01 No 10–BD 11/20/02 No 11–BD 09/10/03 No 12–BD 11/17/04 No 9–BD 09/19/01 No 10–BD 11/20/02 No 11–BD 09/10/03 No 12–BD 11/17/04 No 9–BD 09/19/01 No 10–BD 11/20/02 No 11–BD 09/10/03 No 12–BD 11/17/04 No options were exercised by the executive directors from 2001 to 2004. BD: Board of Directors Loans and guarantees given to directors or officers None 105 Recent developments and outlook Banque Populaire regional banks n Merger of Banque Populaire Nord de Paris into Banque Populaire BICS The member-stakeholders of the two banks approved the merger of Banque Populaire Nord de Paris into Banque Populaire BICS at their extraordinary general meetings held respectively on November 9 and 10, 2004.The merger resulted in the creation of Banque Populaire Rives de Paris retrospectively as of January 1, 2004. The Board of Directors appointed Marc Jardin as Chairman of the new bank. Pierre Noblet was appointed Deputy Vice-Chairman and Jean Criton Chief Executive Officer. n Plan to merge Banque Populaire du Midi with Banque Populaire des Pyrénées-Orientales, de l’Aude et de l’Ariège On October 26, 2004, the Boards of the two banks unanimously decided to conduct a feasibility study with a view to merging their businesses. Their work councils were informed of the plan on October 27 and 28, 2004 respectively. The merger will create a financially stronger bank with improved capability and resources to capture its target market across the entire region of Languedoc Roussillon, Ariège and southern Ardèche in south east France. Natexis Banques Populaires 2007 Plan On February 25, 2005, upon publication of its 2004 results, Natexis Banques Populaires unveiled the broad outlines and projections(1) of its 2007 strategic plan. This medium-term business plan is designed to leverage earnings through sustained growth. The key goals of the plan are: n fully exploit business line growth potential, – strengthen positions with French corporate and institutional clients through greater cross- and up-selling; – develop synergies with Banque Populaire banks’ retail customers; – enhance the value of strong centers of business expertise such as employee benefit planning, commodities financing, structured financing, and receivables management; – step up expansion in the most buoyant continental European countries. n continue the drive for efficiency by investing in people and technology. However, expenses will not grow nearly as fast as revenues, n strengthen management and control functions. The plan is a middle-case scenario based on certain business assumptions, notably including loan loss provisions equal to 0.34% of risk-weighted assets in 2007 (against 0.21% in 2004).The key projections are: – core business net banking income: 9.4% compound annual growth over the plan period; International expansion in retail banking 106 On February 24, 2005, the Board of Directors of Banque Fédérale des Banques Populaires was advised of the successful outcome of negotiations with ÖVAG, DZ Bank and WGZ Bank to create a joint retail banking business in Central and Eastern Europe within Volksbank International AG (VBI), in accordance with its decisions of January 21 and June 22, 2004. VBI is an Austrian credit institution that controls a network of retail banks with a combined total of 145 branches to date. BANQUE POPULAIRE GROUP The Board of Directors has therefore authorized Banque Fédérale des Banques Populaires to subscribe to a new share issue to be made by VBI, which will give it a holding of about 25%. – core business gross operating income: 16% compound annual growth over the plan period; – ROE: 14% by 2007. Global custody agreement with Bank of New York On January 11, 2005, Natexis Banques Populaires unveiled the terms of its partnership with The Bank of New York, which has become the Banque Populaire Group’s global custodian.The Bank of New York will provide a comprehensive range of custody services for the Group’s €80 billion of international securities held in 48 countries. Natexis Banques Populaires will become local custodian for a large part of The Bank of New York’s French assets. (1) Disclaimer: these forward-looking statements are of necessity based on a number of general and specific assumptions, and are subject to risks and uncertainties that could cause the future results of Natexis Banques Populaires to differ materially from those expressed in such statements. Potential investors are advised to have due regard for these risks and uncertainties. Financial information Financial information Consolidated financial statements Consolidated balance sheet – Assets Consolidated balance sheet – Liabilities and shareholders’ equity Off-balance sheet items Consolidated statement of income Notes Scope of consolidation and consolidation methods Note 1 Consolidation methods and principles Note 2 Accounting policies and valuation methods Note 3 Changes in scope of consolidation Note 4 Other information Note 5 Companies included in the scope of consolidation Notes to the consolidated financial statements Notes to the consolidated balance sheet – Assets Note 1 Interbank and money-market assets Note 2 Government securities and equivalent Note 3 Interbank assets Note 4 Customer loans Note 5 Analysis of other customer loans Note 6 Lease financing Note 7 Securities portfolio Note 8 Bonds and other fixed income securities Note 9 Equities and other variable income securities Note 10 Investment securities Note 11 Transfers between portfolios Note 12 Insurance company investment portfolios Note 13 Investments in affiliates and other securities held for investment Note 14 Movements in investments in affiliates and other securities held for investment Note 15 Book and market values of investments in affiliates and other securities held for investment 107 Note 16 Property and equipment and intangible assets Note 17 Movements in operating and non-operating assets Note 18 Assets leased to third parties under operating leases Note 19 Goodwill Note 20 Accrued income, prepaid expenses and other assets Note 21 Other assets Note 22 Accrued income and prepaid expenses Note 23 Accrued income, prepaid expenses and other assets – insurance companies Notes to the consolidated balance sheet – Liabilities and shareholders’ equity 108 Note 24 Interbank and money-market liabilities Note 25 Analysis of interbank liabilities Note 26 Customer deposits Note 27 Analysis of customer deposits Note 28 Debt securities Note 29 Insurance company technical reserves Note 30 Deferred income, accrued charges and other liabilities Note 31 Other liabilities Note 32 Deferred income and accrued charges Note 33 Deferred income, accrued charges and other liabilities – insurance companies Note 34 Negative goodwill Note 35 Provisions Note 36 Provisions for contingencies and charges Note 37 Provisions for non-performing loans and other doubtful accounts Note 38 Long-term subordinated debt Note 39 Changes in subordinated debt Note 40 Shareholders’ equity Note 41 Fund for general banking risks BANQUE POPULAIRE GROUP Notes to consolidated off-balance sheet items Note 42 Financing commitments Note 43 Guarantees Note 44 Commitments on off-balance sheet financial instruments Note 45 Analysis by portfolio Note 46 Analysis of credit derivatives Note 47 Analysis of risk-weighted equivalents Financial information Notes to the consolidated statement of income Note 48 Interest income and expense Note 49 Income from variable income securities Note 50 Fees and commissions Note 51 Net gains on trading account securities Note 52 Net gains on securities held for sale Note 53 Other banking revenues and expenses Note 54 Gross margin on insurance operations Note 55 Other net income Note 56 General operating expenses Note 57 Number of employees Note 58 Provisions for loan losses Note 59 Net gains on disposals of fixed assets Note 60 Exceptional items Note 61 Tax proof Note 62 Deferred taxes Other information Note 63 Analysis of assets and liabilities by maturity Note 64 Analysis of outstanding loans and receivables by geographic area Note 65 Analysis of outstanding loans and receivables by client sector Note 66 Segment information Note 67 Companies accounted for by the equity method Note 68 Insurance results Note 69 Management accounts on a constant Group structure basis 109 Consolidated financial statements Consolidated balance sheet – Assets in millions of euros notes 12/31/2004 12/31/2003 12/31/2002 Interbank and money-market assets 1 to 3 55,463 53,438 49,442 Customer loans 4 to 5 120,584 111,800 98,880 Lease financing 6 8,890 8,072 7,384 7 to 11 26,256 22,397 24,834 12 26,044 23,451 20,927 Investments in affiliates and other securities held for investment 13 to 15 989 2,096 2,120 16 to 18 2,389 2,237 2,040 19 228 261 330 20 to 23 9,561 13,411 14,787 250,404 237,163 220,744 Bonds, equities and other fixed and variable income securities Insurance company investment portfolios Property and equipment and intangible assets Goodwill Accrued income, prepaid expenses and other assets Total assets BANQUE POPULAIRE GROUP 110 Financial information Consolidated balance sheet – Liabilities and shareholders’equity in millions of euros notes 12/31/2004 12/31/2003 12/31/2002 Interbank and money-market liabilities 24 to 25 46,972 39,682 48,935 Customer deposits 26 to 27 98,253 98,945 84,209 Debt securities 28 42,001 37,527 31,403 Insurance company technical reserves 29 25,725 23,660 21,312 30 to 33 16,861 18,212 18,068 34 142 290 229 Provisions for contingencies and charges 35 to 37 1,939 1,873 1,853 Long-term subordinated debt 38 to 39 4,675 4,431 3,927 Fund for general banking risks 40 to 41 2,192 2,077 1,891 Minority interests 40 2,068 1,962 1,706 Shareholders’ equity (excluding fund for general banking risks) 40 9,576 8,504 7,211 3,033 741 4,743 1,059 2,886 635 4,130 853 2,431 455 3,793 532 250,404 237,163 220,744 Deferred income, accrued charges and other liabilities Negative goodwill - Capital stock - Additional paid-in capital - Retained earnings - Net income for the year 111 Total liabilities and shareholders’ equity Consolidated financial statements Off-balance sheet items in millions of euros notes 12/31/2004 12/31/2003 12/31/2002 58,012 50,144 48,556 34,760 22,933 319 31,673 17,955 516 29,031 19,004 521 - - - 13,713 10,199 5,861 5,514 7,900 299 3,955 5,378 866 853 4,536 472 85 36 14 Commitments given Banking operations - Financing commitments - Guarantees - Commitments on securities 42 43 Insurance operations Commitments received Banking operations - Financing commitments - Guarantees - Commitments on securities Insurance operations BANQUE POPULAIRE GROUP 112 42 43 Financial information Consolidated statement of income in millions of euros notes 12/31/2004 12/31/2003 12/31/2002 Interest income 48 9,620 9,283 10,806 Interest expense 48 (6,100) (5,933) (7,699) Income from variable income securities 49 65 65 68 Net fee and commission income 50 2,321 2,172 1,866 Net gains on trading account securities 51 414 361 159 Net gains on securities held for sale 52 240 183 (21) Other banking revenues and expenses 53 74 32 78 Gross margin on insurance operations 54 810 722 383 Other net income 55 196 181 108 Net banking income General operating expenses 56 7,640 (4,788) 7,066 (4,491) 5,748 (3,896) (307) (305) (241) Depreciation, amortization and provisions for impairment of property and equipment and intangible assets Gross operating income Provisions for loan losses 58 2,545 (480) 2,270 (565) 1,611 (513) Operating income Income from companies accounted for by the equity method 67 2,065 7 1,705 11 1,098 3 Net gains on disposals of fixed assets 59 26 19 42 Income before exceptional items and tax Exceptional items 60 2,098 (30) 1,735 (23) 1,143 (45) Corporate income tax 61 (700) (544) (405) (33) (17) 47 Net charge to fund for general banking risks (115) (169) (118) Minority interests (161) (129) (90) 1,059 853 532 Goodwill amortization and negative goodwill written back to income Net income 113 Scope of consolidation and consolidation methods Note 1 – Consolidation methods and principles 1.1 – Structure of the Banque Populaire Group The Banque Populaire Group is a group of cooperative banks with an ownership structure in the form of an inverted pyramid. The capital of the Group’s central body, Banque Fédérale des Banques Populaires, is owned by the Banque Populaire regional banks, which are wholly-owned by their member-stakeholders. Banque Fédérale des Banques Populaires is also the holding company for Natexis Banques Populaires, which is the Group’s listed entity. As a cooperative banking group, the Banque Populaire Group is not required to publish consolidated financial statements, but has elected to do so in order to provide clear and transparent information about its operations. These consolidated financial statements are directly comparable with those of other banking groups and are audited. Due to its unusual ownership structure, the consolidated financial statements of the Banque Populaire Group have been prepared on the basis provided for in article 1001 of Comité de la Réglementation Comptable standard CRC 99-07, which allows banking networks with a central body to define a consolidating entity made up of a group of institutions directly or indirectly affiliated with the central body. The Banque Populaire Group’s consolidating entity is made up of: n the Banque Populaire banks, i.e. the 20 Banque Populaire regional banks, CASDEN Banque Populaire and Crédit Coopératif; n the mutual guarantee companies which are licensed jointly with the Banque Populaire banks; the Group’s central body – within the meaning of the law – Banque Fédérale des Banques Populaires. n Member-stakeholders Member-stakeholders Mutual guarantee companies Banque Populaire regional banks, CASDEN Banque Populaire and Crédit Coopératif Local subsidiaries 99% Banque Fédérale des Banques Populaires associates** Consolidating entity Affiliates* and 76% Natexis Banques Populaires Banque Populaire Group 114 * Pursuant to the French Financial Security Act of August 1, 2003 (law no. 2003-706), Crédit Maritime Mutuel became an ‘affiliate’ of Banque Fédérale des Banques Populaires in the second half of 2003; ** Credit institutions ‘associated’ with Crédit Coopératif via an association agreement have been consolidated as of the first half of 2004 (see Note 3.2 – Changes in scope of consolidation). The Banque Populaire Group includes the Crédit Maritime Mutuel group as a structure affiliated to the Group’s central body, Banque Fédérale des Banques Populaires, and, since the first half of 2004, those credit institutions that have signed an association agreement with Crédit Coopératif (see Note 3.2). BANQUE POPULAIRE GROUP The other Group companies, including Natexis Banques Populaires, are treated as subsidiaries of the consolidating entity. This definition of the consolidating entity means that the capital stock of the Banque Populaire Group corresponds to the sum of the capital stock of the 20 Banque Populaire regional banks, CASDEN Banque Populaire, Crédit Coopératif and the mutual guarantee companies, and is owned exclusively by the member-stakeholders. 1.2 – Liquidity and capital adequacy – Internal guarantee mechanisms The system to guarantee the liquidity and capital adequacy of the Banque Populaire network has been organized by Banque Fédérale des Banques Populaires in its capacity as central body, in accordance with articles L. 511-30, L. 511-31, L. 511-32 and L. 512-12 of the French Monetary and Financial Code. The system functions by pooling the capital of all the banks in the network. If any one bank is faced with a lack of liquidity or is undercapitalized, all the other banks will be called on to contribute capital, within the limit of their own resources. As a last resort, the Banque Fédérale des Banques Populaires will also provide capital from its own resources. Financial information The capital pool is organized in two tiers. The first tier consists of the “federal solidarity fund” included in the fund for general banking risks set aside by Banque Fédérale des Banques Populaires. The second tier pool is the “regional solidarity fund” set up by each Banque Populaire bank and included in their own funds for general banking risks. Each year, the Banque Populaire banks transfer an amount to this fund equal to 10% of their net income before transfers to the fund for general banking risks and tax, after deduction of tax on the amount of the transfer. Withdrawals from these funds by the Banque Populaire banks must be authorized by Banque Fédérale des Banques Populaires. A collective agreement has also been signed, whereby each Banque Populaire bank guarantees the liquidity and capital adequacy of the mutual guarantee companies whose corporate purpose is limited to guaranteeing the activities of the Banque Populaire banks. The guarantee system of the Banque Populaire network also guarantees the liquidity and capital adequacy of Crédit Maritime Mutuel, for which the Banque Fédérale des Banques Populaires is the central body, in accordance with Article L. 512-69 of the French Monetary and Financial Code.This guarantee system kicks in after Crédit Maritime Mutuel's own system. Jointly controlled subsidiaries are consolidated by the proportional method. Joint control is deemed to be exercised when the financial and operating policies of the subsidiary are decided jointly by a limited number of shareholders. Affiliates over which the consolidating entity exercises significant influence are accounted for by the equity method. Significant influence is deemed to be exercised when the consolidating entity holds at least 20% of the voting rights. 1.5 – Scope of consolidation The consolidated financial statements include the consolidating entity, as defined above, and the direct and indirect subsidiaries of Banque Fédérale des Banques Populaires.The majority of indirect subsidiaries are owned by Natexis Banques Populaires, which was 75.6%-owned by the Group at December 31, 2004. Subsidiaries that are not material in relation to the Group as a whole are not consolidated. Materiality is determined on the basis of the subsidiary’s qualitative contribution to the Group accounts without applying any threshold in terms of net assets or revenues. Lastly, the members of the network contribute, along with all French credit institutions, to the Fonds de Garantie des Dépôts (deposit guarantee fund) set up in application of the Depositors’ Protection Act. To maintain consistency between the consolidated financial statements of sub-groups and those of the Banque Populaire Group, all entities consolidated at the level of a sub-group are also consolidated at the next level, even if they are not considered material at Group level. 1.3 – Accounting principles The list of companies included in the scope of consolidation and the changes in scope that occurred during 2004 are presented in Notes 3 and 5. The consolidated financial statements of the Banque Populaire Group have been prepared in accordance with French generally accepted accounting principles and the standards formulated by the Comité de la Réglementation Comptable, including standard CRC 99-07 on consolidation methods and principles and standard CRC 2000-04 on the presentation of consolidated financial statements. There were no changes of accounting method during the period. 1.4 – Consolidation methods Companies controlled exclusively by the consolidating entity whose business represents an extension of the consolidating entity’s banking or financial services businesses are fully consolidated. This method is also applied to exclusively controlled companies engaged in related lines of business, such as insurance, as well as to real estate investment and development companies and IT services companies. Exclusive control is deemed to be exercised when the consolidating entity is in a position to manage the financial and operating policies of the subsidiary in order to benefit from the subsidiary’s business. This is the case where the consolidating entity holds the majority of the voting rights (and not just the majority of the shares) or exercises dominant influence by virtue of contractual rights or due to the dilution of the subsidiary’s capital, without holding the majority of voting rights. 1.6 – Presentation of the consolidated financial statements The consolidated financial statements are presented in millions of euros, with prior year comparatives covering two years. The consolidated financial statements have been prepared based on the financial statements of Group companies at December 31. Entities that do not have a December 31 year-end are consolidated based on audited interim financial statements prepared at that date. 1.7 – Business combinations Business combinations are accounted for by the purchase method, in accordance with standard CRC 99.07. Under this method, the net assets of newly-acquired subsidiaries are taken to the consolidated balance sheet at the date of acquisition after fair value adjustments to identifiable assets, liabilities and off-balance sheet items. The difference between the cost of shares in a newlyacquired subsidiary and the consolidating entity’s equity in the underlying net assets after fair value adjustments is recorded as goodwill. Goodwill is amortized and negative goodwill written back to the income statement by the straight-line method over 115 a period determined based on the objectives and nature of the acquisition, not to exceed 10 years. Goodwill representing less than €1 million is amortized over one year. The Banque Populaire Group, assisted by a firm of independent valuers, tests the value of any goodwill in excess of €4 million on an annual basis, using the discounted cash flow method, to determine whether the amortization schedule should be revised. In 2004, based on the results of this valuation, the Group recorded an additional amortization charge of €37.6 million on top of the standard charge for the year (see Note19). In the case of sale of part of the consolidating entity’s interest in the company concerned, a corresponding fraction of the unamortized goodwill or negative goodwill is written off or written back to the income statement. Real estate and equipment leased to clients under operating leases are included in “Property and equipment” and valued accordingly. 1.10 – Leasing transactions as lessee Operating assets leased under finance leases where the Group is lessee are recorded in the consolidated balance sheet under “Property and equipment”, except for assets whose unit cost is not material. 1.8 – Foreign currency translation Depreciation is calculated over the estimated useful lives of the assets. The annual depreciation charge is recorded in the consolidated income statement under “Depreciation, amortization and provisions for impairment of property and equipment and intangible assets”. The income statements of foreign subsidiaries and branches are translated at the average rate for the year.The difference between net income translated at the average rate and the year-end rate is also taken to consolidated shareholders’ equity. The exchange rates applied are the rates published by the Banque de France. 1.9 – Leasing transactions as lessor Finance leases where the Group is lessor – i.e. lease financing granted by the Group’s specialist leasing companies – are recorded in the consolidated balance sheet in an amount corresponding to the net investment in the lease and not the net book value in the individual company accounts. Lease payments are analyzed between amortization of the net investment and interest income. Deferred taxes are recorded on the total difference between accumulated book depreciation of the leased assets and the accumulated amortization of the net investment in the lease. The difference is recorded under shareholders’ equity net of deferred taxes. Lease financing on which any installments are more than three months past due (equipment leases) or six months past due (real estate leases) are classified as non-performing. Where a finance lease is classified as non-performing, all other amounts receivable from the client concerned are also classified as non-performing. BANQUE POPULAIRE GROUP In the case of finance leases concerning real estate, a provision for impairment in value is recorded where the book value of the property is higher than its estimated market value and there is a probable or certain risk of it remaining the property of the lessor when the lease expires. The Banque Populaire Group does not use the pooling of interests method – provided for in paragraph 215 of standard CRC 99-07 – to account for business combinations. The balance sheets and off-balance sheet items of foreign subsidiaries and branches are translated into euros at the year-end exchange rate with the exception of their capital stock or capital allocation and reserves, which are translated at the historical rate. Differences arising on translation are taken directly to consolidated shareholders’ equity. 116 interest income. Charges to provisions for losses on lease financing recorded under “Provisions for loan losses” correspond solely to the fraction of the provision covering the past due principal. Gains and losses on disposal of leased assets and movements in provisions for impairment in value of leased assets and temporarily unleased assets are included in net banking income. Lease termination penalties are recorded under 1.11 – Regulated reserves and provisions Regulated reserves and provisions recorded solely for tax purposes, including excess tax depreciation recorded in the accounts of subsidiaries, are eliminated in consolidation. 1.12 – Employee-related liabilities and retirement benefit obligations For the purpose of comparability between 2004 and previous years, the Group elected not to apply CNC recommendation 2003-R.01 of April 1, 2003 on accounting for employee benefits. The provisions of this recommendation will be applied in full when the Group adopts international financial reporting standards in 2005. After taking account of deferred taxes, application of IAS 19 would have had the effect of decreasing opening shareholders’ equity by ¤ 2 20 million, with no material impact on the income statement due to use of the ‘corridor’ method. n Provisions for employee-related benefits The employee-related liabilities of all Group entities are provided for in the consolidated balance sheet using consistent methods throughout. The main provisions for employee-related liabilities concern: - pension benefits payable by the Caisse Autonome de Retraites (CAR) pension scheme; - pension benefits payable by the Caisses de Natexis Banques Populaires pension plan; - long-service awards payable to employees on retirement and early-retirement benefits; - long-service awards payable to active employees. Financial information – The Banque Populaire Group “CAR” pension scheme was closed to new entrants as of December 31, 1993, pursuant to the banking industry agreement of September 13, 1993, the terms of which were applied to the Banque Populaire banks through an internal agreement dated January 7, 1994. This scheme also covered Natexis Banques Populaires employees previously employed by the former Caisse Centrale des Banques Populaires. The Group’s obligations towards active and retired employees concern supplementary pension benefits payable under the Banque Populaire Group plan and the fraction of benefits due under the banking industry scheme closed to new entrants on December 31, 1993 that is not covered by the Social Security system. Commitments are calculated each year based on updated individual employee data. The projected obligation is determined using appropriate mortality tables and a discount rate of 3.5% net of inflation. – Concerning the specific Natexis Banques Populaires pension plans, the assets of the former BFCE pension fund exceed the projected benefit obligation and those of the former Crédit National fund are equal to the projected benefit obligation. Consequently, no provision has been booked in the consolidated financial statements for these plans. – Long-service awards payable to employees on retirement are funded in part or in full under insured plans set up with Prospérité, a fully consolidated insurance subsidiary of the Group. In accordance with opinion no. 2001-G of the CNC Urgent Issues Task Force, the related mathematical reserves carried in the accounts of Prospérité are eliminated from the consolidated balance sheet and a provision for charges is recorded in the same amount. Unfunded obligations are provided for in full in the consolidated balance sheet by the projected unit credit method, based on employees’ vested rights on the reporting date and projected end-of-career salaries. The obligation is calculated by applying a discount rate of 3.5% and a staff turnover rate ranging from 0% to 7.5% – Obligations for the payment of long-service awards to active employees are also calculated by the projected unit credit method, in the same way as for long-service awards payable to employees on retirement. n Early retirement plan: On February 18, 2002, the Banque Populaire Group signed an agreement with employee representatives, providing for the implementation of a “CATS” early retirement plan in application of the A.F.B. industry-wide agreement dated January 15, 2001. On August 30, 2002, the Banque Populaire Group signed a “CATS” convention with the Ministry of Social Affairs, Employment and Solidarity, exempting early retirement payments from social security taxes. A provision of ¤18 million was r ecorded in the consolidated financial statements at December 31, 2004, covering the Group’s obligation towards employees eligible for early retirement under the plan.The estimated cost of the plan, determined on an actuarial basis, is being recognized over the remaining service lives of the employees concerned, up to the expiry date of the agreement on March 31, 2006. Obligations towards employees who had applied for early retirement as of December 31, 2004, are included in accrued expenses in the amount of 1¤ 9 million, corresponding to the benefits payable to these employees in the period until they reach the normal retirement age. 1.13 – Fund for general banking risks Funds for general banking risks are recorded by Group entities to cover general risks. Charges to these funds are not tax deductible and do not give rise to any deferred tax asset. Funds for general banking risks, which form an integral part of consolidated shareholders’ equity, include the Banque Fédérale des Banques Populaires guarantee fund, as well as the guarantee funds set aside by the Banque Populaire banks that are available to the Group under the internal guarantee mechanism (see Note 1.2), and the funds for general banking risks recorded in the accounts of individual Group banks. As allowed under article 300 of standard CRC 99.07, the funds for general banking risks recorded in the accounts of individual Group banks or the consolidated accounts of sub-groups are adjusted as required in the Banque Populaire Group’s consolidated financial statements, to a level in keeping with Group risks. In 2002, an adjustment was made for a portion of the gains realized on the sale of Natexis Asset Management (formerly BPAM) and Natexis Interépargne shares to Natexis Banques Populaires in the amount of €69 million. No adjustments were made in 2003 or 2004. 1.14 – Intercompany transactions Material intercompany receivables, payables and off-balance sheet commitments and intercompany income and expenses between fully consolidated companies are eliminated in full in consolidation. In the case of intercompany transactions with proportionally consolidated companies, eliminations are prorated to the Group’s interest in the company concerned. Intercompany dividends, provisions for impairment in value of investments in consolidated companies and gains on intercompany sales of assets are eliminated in full. 1.15 – Corporate income tax The corporate income tax charge recorded in the consolidated statement of income includes: n current taxes payable by the French entities, at the rate of 35.43%, and by foreign subsidiaries and branches at the local corporate tax rate; n deferred taxes arising from temporary differences between the book value of assets and liabilities and their tax basis. Deferred tax assets and liabilities are netted off at the level of each taxable entity. In the case of companies that have elected for group relief, deferred tax assets and liabilities 117 are netted off at the level of the tax group. Net deferred tax assets are recognized only where their future recovery is deemed probable. In accordance with this principle, net deferred tax assets are recognized at the level of each entity only when they do not correspond to tax loss carryforwards or when the taxable entity has not reported a tax loss in either of the preceding two years. Deferred taxes are determined by the liability method for all temporary differences.They are not discounted, whatever the year in which the temporary differences are expected to reverse. Pursuant to the 2005 Finance Act providing for the reduction and then abolition of the 3% surtax, deferred taxes are calculated at the rate of 34.94% for temporary differences reversing in 2005 and 34.44% for those reversing in 2006 and subsequent years. Deferred taxes of foreign subsidiaries are calculated using local tax rates. 1.16 – Insurance companies The accounts of Group insurance companies, prepared in accordance with the accounting standards described in Note 2.12, are not restated in consolidation based on Group policies. However, income and expenses are reclassified by nature, in accordance with bank accounting standards, rather than by destination. Balance sheet and off-balance sheet items are included in the corresponding captions of the financial statements presented in the banking format, with items that are specific to the insurance business reported separately. These items are “Insurance company investment portfolios” and “Insurance company technical reserves” in the balance sheet, and “Gross margin on insurance operations” in the income statement (see Note 54). 118 Insurance company investments in securities issued by other consolidated entities are qualified as intercompany receivables and are therefore eliminated in consolidation. Consequently, in the consolidated balance sheet, insurance company technical reserves are represented by assets recorded under either “insurance company investment portfolios” or under banking assets. BANQUE POPULAIRE GROUP In accordance with standard CRC 2000-05 on the consolidated financial statements of insurance companies, insurance company loss equalization reserves have been eliminated in consolidation. In addition, a portion of the capitalization reserve, net of deferred taxes, has been credited to policyholder surplus reserves, corresponding to the amount that is expected to be written back from the capitalization reserve in the case of a fall in value of qualifying investments, to cover distributions to policyholders. The loss equalization reserves recorded by the Coface group are included in technical reserves because they cover a macro-economic risk of a change in claims experience over several years (see Note 29). Note 2 – Accounting policies and valuation methods The consolidated financial statements have been prepared from the financial statements of Group companies presented according to the following accounting policies and valuation methods: 2.1 – Interbank and money market assets and customer transactions Interbank and money market assets include all receivables, including subordinated loans, due from credit institutions as part of the Group’s interbank activity,save for those evidenced by a certificate. They also include assets purchased under resale agreements, regardless of the underlying, and receivables relating to securities sold under repurchase agreements. Customer loans are analyzed between commercial loans, customer overdrafts and other customer loans. Loans are recorded in the balance sheet at face value,including low interest loans and restructured loans but excluding purchased customer loan portfolios which are stated at acquisition cost. Non-performing loans are identified and accounted for using the methods set out in standard CRC 2002-03 on credit risk, applied for the first time on January 1, 2003.This standard includes rules regarding the method of classifying non-performing loans, identifying irrecoverable loans and the accounting treatment of loans restructured at below market rates. In 2003, following work on identifying restructured loans affected by this standard, a discount of €11.4 million was recorded to take account of the difference between the new interest rate and the market rate at the time of restructuring. As these loans were restructured in prior years, the discount, totaling €7.4 million after tax, was set off against 2003 opening shareholders’ equity in the amount of €5.6 million, with the balance set off against minority interests. The deferred discount amounted to €8.5 million at December 31, 2004, after a release to income of €1.7 million recorded under interest income. Loans are classified as non-performing when one installment is more than three, six or nine months overdue, depending on the type of loan. All other loans to the same customer are also classified as non-performing, even in cases where no provision is booked for the outstanding principal based on an analysis of the recovery risk. In the case of non-performing loans where the debtor has resumed making regular payments in accordance with the original repayment schedule, the loan may be reclassified as sound. Non-performing loans that have been restructured are also reclassified as sound provided the restructuring terms are met. If a restructured loan reclassified as sound is at below market rates, it is recorded in a separate account at nominal value less a discount corresponding to the difference between Financial information the expected future cash flows calculated at a) the new interest rate and b) the lower of the original rate of interest and the market rate prevailing at the time of the restructuring. Discounts on restructured loans calculated as described above are deducted from the carrying value of the loan and amortized over the remaining life of the loan by the yield-to-maturity method. If any installments on a restructured loan are not paid, whatever the terms of the restructuring, the loan is permanently reclassified as irrecoverable. Irrecoverable loans include loans where an event of default has occurred, restructured loans where the borrower has once again defaulted and loans classified as non-performing for more than one year once a write-off has been envisaged, in accordance with the opinion issued by the CNC Urgent Issues Task Force on December 18, 2003. Provisions for non-performing loans are deducted from the value of the asset concerned to cover the estimated risk of non-recovery, after taking account of any collateral or other guarantees. Provisions are determined on a caseby-case basis and adjusted at quarterly intervals or more frequently where necessary, based on an analysis of the related risk and available collateral. Accrued interest on non-performing loans is recorded separately in the balance sheet and credited to the income statement. A provision is booked for the total amount accrued, together with all overdue interest. Charges to provisions for accrued interest are set off against the related revenue in the income statement.Accrued interest on irrecoverable loans is not booked to the income statement unless it is actually received. Provision movements, loan write-offs, recoveries on loans written off in prior years, and discounts calculated on restructured loans are reported in the consolidated income statement under “Provisions for loan losses”, except for movements in provisions relating to accrued interest on non-performing loans, which are recorded under “net banking income”.Amortization of discounts on restructured loans calculated in accordance with the yieldto-maturity method as well as interest thereon are also included in net banking income. Loans to real estate professionals are classified as nonperforming on a case-by-case basis taking account of the exit potential, the ability of the company’s shareholders to contribute fresh capital and their credit rating.A provision is booked for the total amount of accrued interest. A provision is booked for the outstanding principal based on guarantees received, future rental revenues, the projected exit price compared with market values and the credit rating of the parties concerned. 2.2 – Conversion of assets and liabilities in foreign currencies Assets, liabilities and off-balance sheet commitments denominated in foreign currencies are converted into euros at the year-end exchange rate. Realized and unrealized exchange gains and losses are taken to the income statement. Revenues and expenses denominated in foreign currencies are converted at the exchange rate ruling on the transaction date. Fixed assets and investments in affiliates denominated in foreign currencies but financed in euros are converted at the historical exchange rate. Hedged and unhedged forward purchases and sales of foreign currencies are converted at the exchange rate quoted for the remaining term. Exchange differences arising on conversion of borrowings for which the currency risk is guaranteed by the State or which relate to Natexis Banques Populaires’ institutional activities are recorded in an accruals account. 2.3 – Securities transactions Trading account securities, securities held for sale, investment securities and equity securities held for investment are valued in accordance with Comité de la Réglementation Bancaire et Financière standard CRBF 90-01 (revised). They are carried in the consolidated balance sheet under “government securities and equivalent” where the issuer is the State, or under “bonds and other fixed income securities” or “equities and other variable income securities” in other cases. Trading account securities Trading account securities are carried in the balance sheet at cost, including transaction expenses and accrued interest at the date of acquisition. At the period-end, they are marked to market and the resulting unrealized gain or loss is booked to the income statement under “Net gains on trading account securities”, together with realized gains and losses on trading account securities sold during the period. Trading account securities that are still in the portfolio six months from the date of acquisition are transferred to “Securities held for sale” at their market price on the transfer date. Securities held for sale Securities held for sale are stated at the lower of cost and market, determined on a case-by-case basis. The market price of listed securities is the price quoted on the market at the year-end and that of unlisted securities is their probable realizable value. Premiums and discounts, corresponding to the difference between the cost of fixed-income securities and their redemption price, are amortized to the income statement over the remaining life of the securities, by either the yieldto-maturity method or the straight-line method depending on the type of securities concerned. Where securities are hedged, the hedging gain or loss is taken into account to determine provisions for impairment in value. Dividend income from equities carried in the “held for sale” portfolio is recorded in the income statement under “Income from variable income securities”. 119 Movements in provisions for impairment in value and disposal gains and losses are recorded in the income statement under “Net gains on securities held for sale”. Investment securities Investment securities are fixed-income securities acquired with the intention of being held to maturity that are either match-funded (generally via refinancing agreements, subordinated debt and time deposits) or on which the interest rate risk has been hedged (mainly by means of swaps in which there is a liquid market). If the matchfunding or hedging relationship is broken, the securities are transferred to the “held for sale” portfolio. Premiums and discounts are amortized to the income statement over the remaining life of the securities. Interest income on bonds and other fixed-income securities is recognized on an accruals basis. In the case of sale of investment securities before maturity, the resulting gain or loss is recorded in the income statement under “Net gains on disposals of fixed assets”. In accordance with the disclosures required under article 1 of standard CRC 2004-16 dated November 23, 2004, the total unrealized loss on the investment securities portfolio amounted to €147 million at December 31, 2004. Equity securities held for investment These securities are acquired with the intention of being held in the medium to long-term in order to sell them at a profit. They are stated at the lower of cost, excluding transaction expenses, and fair value to the Group. Unrealized losses are not netted off against unrealized gains on the same line of securities. Movements in provisions for impairment in value and disposal gains and losses are taken to the income statement under “Net gains on securities held for sale”. 120 The bulk of the portfolio consists of investments made by the private equity subsidiaries of Natexis Banques Populaires. 2.4 – Investments in affiliates and other equity interests Investments in affiliates and other equity interests are stated at the lower of cost, excluding transaction expenses, and fair value to the Group. The criteria used to determine fair value include the average stock market price for listed companies, and adjusted net assets for unlisted companies. An impairment provision is taken for any unrealized losses. Unrealized gains are not recognized.Transaction expenses incurred at the time of purchase or sale are included in operating expense. BANQUE POPULAIRE GROUP Disposal gains and losses and movements in provisions for impairment in value are recorded in the income statement under “Net gains on disposals of fixed assets”. Dividends are recorded under “Income from variable income securities” when their payment has been approved at a Shareholders’ Meeting. 2.5 – Plant and equipment and intangible assets Standard CRC 2002-10 on asset depreciation, amortization and impairment is applicable from January 1, 2005. The Banque Populaire Group has not elected for early adoption of this standard. Article 15 of the standard contains transitional provisions applicable from January 1, 2003, supplemented by the provisions of opinion 2003-F issued by the CNC Urgent Issues Task Force, relating to expenses incurred under multi-year programs for major repairs or refits. At December 31, 2003 a provision of €2.7 million (€1.5 million after tax) was taken following the application of these transitional provisions, with €1.4 million set off against shareholders’ equity and the balance against minority interests. At December 31, 2004, a further provision of €0.5 million was taken. Assets used in the business Fixed assets of the former Crédit National purchased prior to December 31, 1976 are stated at fair value as determined at the time of the 1976 legal revaluation.Assets purchased since 1976 are stated at cost. Fixed assets of the former BFCE are carried in the Group’s consolidated balance sheet at their fair value as determined at the time of acquisition of BFCE by Crédit National. For all other Group entities, land and buildings are stated at cost or at fair value as determined at the time of legal revaluations. Property and equipment are depreciated over their estimated useful lives by the straight-line method or by the reducing balance method where the related depreciation charge is tax deductible. Non-operating assets Investment properties are stated at the lower of cost and estimated market value determined by capitalizing normalized rental income. In accordance with the terms of the letter dated October 21, 1997 from the Secretary General of the French Banking Commission (Commission Bancaire Française), provisions for impairment in value have been recorded for individual investment properties and other properties not used in the business, whose market value is less than their net book value. Unrealized losses are not netted off against unrealized gains on other properties for the purpose of determining the amount of the provisions. The cost of large-scale multi-year maintenance programs, which are intended solely to keep the assets concerned in good working order without extending their initial estimated useful life, is accrued on a straight-line basis over the period between each successive maintenance operation and booked under provisions for contingencies and charges. Intangible assets Leasehold rights and purchased goodwill are stated at cost. A provision is recorded in the consolidated financial statements if their fair value to the Group is lower than Financial information their net book value,after taking account of the amortization or provisions recorded in the individual accounts of the entity that owns the asset. Purchased software is amortized over a maximum of five years. Intangible assets include the value attributed to the networks of Coface. The Coface insurance network has been valued on the basis of 40% of premium income. The credit information and credit management network has been valued using a range of criteria, including discounted cash flows, P/E multiples and revenue multiples. The networks are not amortized but are tested for impairment at each year end. In 2004 the Banque Populaire Group, assisted by a firm of independent valuers, measured the residual value of these networks using the discounted cash flow method. The results of this operation led to no change in the valuation of the Coface group networks as recorded in the consolidated financial statements of the Banque Populaire Group. At December 31, 2004 the carrying value of the Coface networks was the same as the two previous years, i.e. €341.6 million, including €284.3 million for the insurance network and €57.3 million for the business information and credit management network. 2.6 – Subordinated debt The majority of the Group’s subordinated debt is raised by Banque Fédérale des Banques Populaires and Natexis Banques Populaires. Should the issuer go into liquidation,fixed-term and perpetual subordinated debt is repaid only once all other creditors have been paid. Where perpetual subordinated loan notes are treated as equivalent to debt repayable in installments, each periodic payment is broken down between the repayment of principal, which is deducted from the outstanding debt, and interest, which is recorded in the income statement under banking expenses. In 1991 and 1992, a defeasance transaction was carried out and a put option was purchased on BFCE sovereign risks. The defeasance structure, Edval Investment Ltd, and the structure set up to hold the put option, Worledge Investment Ltd, were consolidated for the first time at December 31, 2002 (see Note 3.6 on special purpose entities). This accounting treatment is in accordance with paragraph 10052 of standard CRC 99-07, as amended by standard CRC 2004-04, on special purpose entities. It also complies with the joint Commission des Opérations de Bourse/Commission Bancaire guidelines published on November 6, 2002, providing an interpretation of the regulatory provisions governing special purpose entities and defeasance structures. Consolidation of these two entities led to an adjustment of provisions covering at-risk loans covered by the put option. On the assets side of the consolidated balance sheet, the net outstanding balance of the loans concerned by the put option is covered by zero-coupon bonds held by the two entities. The results of the two entities consist solely of annual accruals to recognize the value appreciation of the zero-coupon bonds up to their redemption value in 2014, when the bonds mature and the defeasance structure will be wound up. Over this period, the value appreciation exactly matches the provisions required to write down the full amount of the loans covered by the put option. Consequently, the operation has no impact on the income statement and the cash required to refinance the transactions is offset by a cash inflow. Accordingly, the €5.3 million profit arising in 2004 relating to these subsidiaries was offset in full by a charge to provisions for country risks. This accounting treatment is consistent with the principle of matching provision charges to the entities’ revenues. At December 31, 2004, the loans covered by the put option had a net book value of €62 million (€142 million gross less provisions of €80 million).The entire portfolio of loans covered by the defeasance operation has been sold on the secondary market. 2.7 – Provisions for contingencies and charges Provisions for country risks: Group loans exposed to country risks other than the sovereign risks referred to above are analyzed and provided for according to the method recommended by the regulatory authorities, based on the estimated value of the loans on the secondary country risk market. Country risks mainly concern loans granted by Natexis Banques Populaires. Provisions for contingencies and charges are intended to cover several types of risk: 2.8 – Financial futures and options Provisions for domestic counterparty risks: these include general provisions for loan losses and losses on irrevocable off-balance sheet commitments, recorded as liabilities. The Group’s exposure to risks on financial futures and options is constantly monitored by closely tracking results and positions and performing regular controls to check compliance with the exposure limits set by management. Provisions for industry and country risks: these provisions cover certain businesses of Natexis Banques Populaires and BRED Banque Populaire that carry potential future risks. These businesses and the level of the related provisions are affected by cyclical developments in each industry and country, and are expected to change over time. Interest rate instruments In the consolidated financial statements, subordinated debt issuance costs are expensed in the income statement in the year of issue. n n n These instruments are recorded off-balance sheet at their nominal value. In accordance with standards CRBF 90-15 and 92-04, interest rate swaps, FRAs, caps and floors are classified 121 based on the purpose for which they are acquired, as follows: n micro-hedging (hedging of specific transactions or positions); n macro-hedging (structural balance sheet management); n speculative position-taking; n specialized management of a trading portfolio. The first two categories are treated for income statement purposes as equivalent to lending/borrowing transactions and the amounts received or paid are taken to the income statement on an accruals basis. Income and expenses on instruments acquired as hedges of specific items or groups of items with similar characteristics are recorded on a symmetrical basis with the income and expenses arising on the hedged items.The income or expense arising on the hedging instrument is recorded under the same caption as the income or expense on the hedged item, under “Interest income” or “Interest expense”, except for income and expenses on hedges of trading securities which are included in “Net gains on trading account securities”. Income and expenses on financial futures acquired to hedge structural interest rate exposure are recorded in the income statement under “Interest income” or “Interest expense” on an accruals basis. Financial futures acquired for speculative position-taking purposes are stated at the lower of cost and market. Unrealized gains are not recognized. Instruments held in connection with the specialized management of trading portfolios are valued at replacement cost or by the yield-to-maturity method, net of a discount for counterparty risks and the discounted present value of future management costs. Changes in value during the period are taken to the income statement under “Net gains on trading account securities”. 122 Equalization payments made when interest rate swaps are terminated or assigned are recognized immediately in the income statement. Where the amounts involved are material they are recognized on an accruals basis over the residual term of the new contract where the swap is replaced or over the residual term of the old contract where the swap is not replaced. Internal contracts are accounted for in compliance with formal regulatory guarantees, without recognizing any material intercompany profits. Income and expenses on options acquired for hedging purposes are recognized on a symmetrical basis with the income and expenses on the hedged items. Currency instruments Spot currency transactions outstanding at the year end are valued at the year-end rate. Contangos and backwardations on currency futures acquired as hedges are recognized in the income statement on an accruals basis. Other forward foreign exchange contracts and currency futures are marked to market. Forward currency swaps are treated as a forward purchase of foreign currency combined with a forward sale of the same currency. Currency swaps are accounted for in accordance with standard CRBF 90-15 (revised). 2.9 – Natexis Banques Populaires institutional activities Commitments given to banks that grant export credits financed in foreign currencies in order to fix the exchange rate of their foreign currency borrowings are not included in published off-balance sheet commitments. Income and expenses arising on institutional activities (swaps and exchange rate guarantees) are charged to or paid to the French Treasury in accordance with agreed terms and conditions. 2.10 – Interest income and expense, fees and commissions Interest and fees treated as interest are recorded in the income statement on an accruals basis. Fees and commissions not treated as interest are accounted for as follows: Positive or negative margin changes on exchange-traded futures are recorded in the income statement. fees for non-recurring services are recorded in the income statement when the service is performed; Provision is made for unrealized losses on over-thecounter contracts, by way of a charge to the income statement, but unrealized gains are not recognized. n fees for ongoing services and services performed in several successive stages are recognized by the percentage of completion method. Options BANQUE POPULAIRE GROUP Premiums paid and received on interest rate, currency and equity options are recorded in a suspense account. At the year-end, exchange-traded options are marked to market and the unrealized gain or loss recorded in the income statement. In the case of over-the-counter options, a provision is booked for any unrealized losses but unrealized gains are not recognized. When the option is resold, repurchased, exercised or allowed to lapse, the premium is taken to the income statement immediately. Options or forward contracts acquired as hedges are accounted for separately from contracts acquired in connection with trading activities, based on the notional amount of the underlying instrument. n 2.11 – Exceptional items Exceptional income and expenses are items of income and expense that are unusual in terms of their amount and frequency. Financial information 2.12 – Summary of accounting principles applied by insurance companies Insurance company investment portfolios Premiums collected by insurance companies are invested in three categories of assets – marketable securities, including fixed and floating rate bonds, equities, real estate, loans and deposits. Bonds and other fixed-income securities are stated at cost. Premiums and discounts, corresponding to the difference between cost and redemption price, are amortized over the remaining life of the securities. A liquidity risk reserve is booked for other securities whose aggregate cost is greater than their aggregate realizable value at the year-end. Unlisted real estate investments are stated at cost, net of transaction expenses. The realizable value shown in the statement of investments is determined on the basis of five-yearly independent valuations which are updated annually. Investments in related companies are stated at cost. Assets held to cover linked liabilities are marked to market. Technical reserves Insurance companies are required to hold investments with a value at least equal to their commitments to policyholders. These commitments are evidenced by technical reserves, recorded as liabilities. The amount of technical reserves required is determined by statistical calculations of commitments towards policyholders. Unearned premium reserves correspond to the portion of premiums written during the year that corresponds to insurance cover to be provided the following year. Life reserves correspond to total premium income plus investment income attributable to policyholders less paid losses and benefits. A separate reserve is recorded to cover future management costs of life insurance policies. Loss reserves correspond to the capital sum payable following a claim. For credit insurance, loss reserves also include an amount to cover the estimated total cost of reported claims not settled at the period end. A reserve is also recorded for claims incurred but not reported, determined by reference to claims experience in prior underwriting years. In 2003, Coface harmonized the methods used by certain of its subsidiaries to calculate their loss reserves.This had no impact on net income after taking account of loss equalization reserves. Policyholder surplus reserves represent the portion of investment income attributable to policyholders but not yet distributed.The policyholders’ surplus must be paid out in dividends within eight years. Liquidity risk reserves are recorded where the total realizable value of non-amortizable securities held for sale is less than their carrying value. The amount charged to the reserve is the lower of a) one-third of the total unrealized loss at the year-end and b) the difference between the opening provision and the total unrealized loss at the year- end. Following the change in French insurance regulations on liquidity risk reserves (decree no. 2003-1236 of December 22, 2003 amending Article R 331-5-1 of the Insurance Code), the Banque Populaire Group reviewed these risks and decided that they were not covered by other provisions. A liquidity risk reserve was therefore booked in the consolidated balance sheet at December 31, 2003 covering the total risk, whereas in 2002 – with the approval of the insurance regulator (Commission de Contrôle des Assurances) – only part of the risk was provided for, reflecting the method applied in the accounts of the insurance subsidiaries.The switch from partial reserving to full reserving constituted a change of accounting method, the effects of which were charged against opening shareholders' equity at January 1, 2003 in the amount of €148.5 million before tax and €95.9 million after tax (of which €72.3 million attributable to the Group).This accounting treatment was in accordance with opinion 2004B issued by the CNC Urgent Issues Task Force on January 21, 2004. Following the improvement in stock market prices in 2003, no charge to the liquidity risk reserve was necessary at the year end and the additional reserve booked in the opening balance sheet (difference between full and partialreserving method) was written back to closing shareholders' equity. Standard CRC 2004-10, which has amended the provisions of standard 2000-05 on the treatment of liquidity risk reserves, no longer allows such reserves to be carried in the consolidated balance sheet. This change of accounting treatment had no impact on the 2004 consolidated financial statements as the risk of depreciation in insurance company investments is covered by the long-term impairment provision and no charge was made to liquidity risk reserves carried in the insurance companies’ individual accounts at the year end. Other technical reserves include loss equalization reserves, financial contingency reserves and reserves for deferred acquisition costs. 123 n The main changes in scope of consolidation in 2004 concerned: n Sofigard, financial cooperative for the French union of employers’ associations in the Gard department of south east France (Union des Syndicats Patronaux du Gard), which facilitates access to financing for its memberstakeholders by providing them with guarantees; 3.1 – Mergers of Banque Populaire banks In 2004, Banque Populaire Nord de Paris (Saint-Denis) and Banque Populaire BICS (Montrouge) merged to form Banque Populaire Rives de Paris, as approved by their memberstakeholders on November 9 and 10, 2004 respectively. As the merged banks were already part of the consolidating entity and the mergers were accounted for at net book values, they had no impact on the consolidated financial statements. 3.2 – Extension of scope of consolidation of Crédit Coopératif “Associated” credit institutions 124 Crédit Coopératif joined the Banque Populaire Group in 2003 and merged with Caisse Centrale du Crédit Coopératif (C.C.C.C.) on October 17, 2003, at which point C.C.C.C. ceased to be Crédit Coopératif’s central body within the meaning of the French Banking Act of January 24, 1984.The banking regulator accordingly required the credit institutions formerly affiliated to the C.C.C.C. to be “sponsored” by Crédit Coopératif with effect from the merger. By decision of the Comité des Etablissements de Crédits et des Entreprises d’Investissement (CECEI) on July 25, 2003, and following the October 17, 2003 merger, Crédit Coopératif continues to exercise first-line responsibility over its former “affiliates”, the terms of which are set out in association agreements between each of the credit institutions previously affiliated to the C.C.C.C and Crédit Coopératif, which now guarantees their liquidity and capital adequacy.These autonomous credit institutions have now become “associates” of Crédit Coopératif. These “associates” are involved in granting mutual guarantees, solidarity-based financing or loans to SMEs, with a specific industry or geographic focus.They comprise: Caisse Solidaire Nord Pas-de-Calais, a cooperative society that takes local deposits designed to finance citizenship projects; n CMGM, a cooperative mutual guarantee company that serves the French federation of mechanical engineering industries (Fédération des Industries Mécaniques); n Gedex Distribution SA, which grants loans to memberstakeholders of its parent company, Gedex, a cooperative comprising retailers of building materials and home improvement products; n n Nord Financement, a financial cooperative serving SMEs in the Nord Pas-de-Calais region of northern France; BANQUE POPULAIRE GROUP Socorec, guarantee company for the French federation of retailing cooperatives (Fédération des Coopératives des Commerçants); Note 3 – Changes in scope of consolidation Société financière de la NEF,an organization belonging to the NEF association (Nouvelle Économie Fraternelle), which provides financing for citizenship, environmental and cultural projects; n Sofindi, a financial cooperative that guarantees loans granted by Crédit Coopératif to SMEs in the PoitouCharentes and Gironde regions of western France, and to companies in the ‘image’ sector; n Sofirif, finance company of the Groupement Coopératif Régional Interentreprises du Val-d'Oise and GIE-SACV de Cergy-Pontoise; n Sofiscop, a finance company for production cooperatives, providing guarantees for its member-stakeholders to facilitate their access to financing, covering the whole of France except the south east; n n Sofiscop-Sud Est, a finance company for production cooperatives, providing guarantees for member-stakeholders in the Provence-Alpes-Côte d'Azur, Rhône-Alpes and Auvergne regions of France; n Somudimec, finance company of the departmental union of metallurgy, electrical engineering and similar industries (Union Départementale des Industries Métallurgiques, Électriques et Connexes) of the Isère department of central eastern France; n Somupaca, finance company that provides guarantees for industrial SMEs in the Provence-Alpes-Côte d'Azur region of south east France to facilitate their access to financing; La Banque EDEL (and its electronic payments subsidiary Moninfo), which provides a full range of banking services with “le mouvement Leclerc”. It is 34%-owned and at December 31, 2003 was accounted for by the equity method. Banque EDEL has since signed an association agreement with Crédit Coopératif and accordingly, along with its subsidiary Moninfo, was fully consolidated in the 2004 consolidated financial statements. n Other changes in the scope of consolidation of Crédit Coopératif In June 2004, SDR du Nord Pas-de-Calais, which is 29%owned by Crédit Coopératif Banque Populaire, sold 80% of its shares in Batinorest, a company that provides Crédit Coopératif with real estate lease financing for industrial and office buildings, to Crédit Coopératif. Both companies have been accounted for by the equity method since the second half of 2003 (Batinorest by SDR du Nord Pasde-Calais Group). As this transaction corresponds to a reclassification of investments, the capital gain on the transfer has been eliminated in consolidation. Concomitantly with the transfer, SDR du Nord Pas-deCalais transferred its lease financing outstandings to its former subsidiary Batinorest. This partial asset transfer was made at net book value and the merger gain was eliminated in consolidation. Financial information Following these transactions, SDR du Nord Pas-deCalais is still accounted for by the equity method while Batinorest is now fully consolidated. Impact on the consolidated financial statements The extension in scope of consolidation of Crédit Coopératif had the effect of increasing consolidated net banking income of the Banque Populaire Group by €41.4 million and net income by €2.8 million. 3.4 – Companies deconsolidated in 2004 The following companies were removed from the scope of consolidation in 2004: n C2C sold by CASDEN Banque Populaire to CAMIF during the first half; CODINF Services, a subsidiary of the Coface subgroup (accounted for by the equity method), sold during the first half of 2004; n n Crédit Coopératif Trésorerie Plus, a subsidiary of Crédit Coopératif, following derecognition of its assets and liabilities; 3.3 – Other companies consolidated for the first time in 2004 LFI2 a subsidiary of CASDEN Banque Populaire and BRED Banque Populaire, following derecognition of its assets and liabilities; n n Coface sub-group: – Coface Ort and its subsidiaries following the endMarch 2004 acquisition of the Ort sub-group, a specialist in online business and credit information; – Coface Collection North America, Coface Holding Latin America, Coface Holding do Brasil and Coface Servicios Argentine, specialists in business and credit information; – Coface Services Nederland and Coface Servicios Panama, specialists in credit information and management; Natexis Actions Avenir et Natexis Nouveaux Marchés,subsidiaries of the Natexis Banques Populaires, sub-group, following their liquidation; n Nine subsidiaries were deconsolidated as their contribution no longer met the materiality threshold: – Foncière Victor Hugo, SNC Azur Immo and SMI, three subsidiaries of Banque Populaire Côte d’Azur ; n – Amedis, a subsidiary of BRED Banque Populaire ; – London Bridge Finance Limited, a factoring company. – Cyberplus Market and Guidéo, subsidiaries of Banque Fédérale des Banques Populaires ; Immobilière Natexis, a subsidiary specializing in real estate investment, and Investima 6, a real estate holding company; – Sofinnova and Proxigma, subsidiaries of the Natexis Banques Populaires sub-group; n Natexis US Finance Corporation, a refinancing subsidiary for the New York branch; n Natexis Private Equity Opportunities, a private equity subsidiary; n n Paris Office Fund, a real estate trading company jointly and equally owned with the Axa Group; VR Factorem, a German factoring subsidiary, created in partnership with German group GENO. – Crédit Maritime Investissement, a subsidiary of Crédit Maritime Mutuel Group. At December 31, 2003, the respective contribution of these companies to consolidated net banking income and consolidated net income was as follows (in € millions): December 31, 2003 Net banking income Net income Amedis 1 0 C2C 0 0 Codinf Services - 0 Crédit Coopératif Trésorerie Plus 0 0 Company n The impact of these companies on 2004 consolidated net banking income and net income was as follows (in €millions): December 31, 2004 Company Crédit Maritime Investissement 0 0 Cyberplus Market 0 0 Net banking income Net income Foncière Victor Hugo 0 0 36 1 Guidéo 0 0 35 2 Coface sub-group of which Ort sub-group LFI2 8 5 Immobilière Natexis (formerly Villcomm) 0 (1) Natexis Actions Avenir 0 0 Investima 6 0 0 Natexis Nouveaux Marchés 0 0 Natexis Private Equity Opportunities 0 (1) Proxigma 1 0 Natexis US Finance Corporation 0 0 SMI 0 0 Paris Office Fund 1 1 SNC Azur Immo 0 0 VR Factorem 1 0 Sofinnova - 0 125 3.5 – Other transactions Other transactions carried out during the year were: n Merger of E-Market into Slib ; n Increase in Natexis Banques Populaires’ percentage holding in Coface SA (from 98% to 100%) following the squeeze-out in May 2004; Increase in Coface SA’s percentage holding in Unistrat Assurance (from 50% to 100%) following its buyout of the minority interests; n Merger into Banque Fédérale des Banques Populaires of SCI BP and SCI Javel, which own the head office of Banque Fédérale des Banques Populaires; n n Merger of Sodega (Guadeloupe), Sodema (Martinique) and Sofideg (French Guyana) into their holding company, SAS Antilles Guyane Participation, now renamed Sofiag (subsidiary of BRED Banque Populaire). 3.6 – Special purpose entities Special purpose entities over which the Group exercises control, in substance, without controlling their capital are consolidated. Paragraph 10052 of standard CRC 99-07, as amended by standard CRC 2004-04, sets out the three criteria to be applied to determine whether control is exercised. If only one of the three criteria is met, this is not sufficient evidence of control.The criteria are as follows: n the consolidating entity has the power to make decisions, with or without management powers,concerning the activities of the special purpose entity; n the consolidating entity has the right to all or the majority of the economic benefits of the special purpose entity; n the consolidating entity retains the majority of the ownership risks related to the special purpose entity. 126 Following the publication, on November 6, 2002, of joint guidelines issued by the Commission des Opérations de Bourse (predecessor of the Autorité des Marchés Financiers) and the Commission Bancaire providing an interpretation of the CRC standards, two subsidiaries of Natexis Banques Populaires set up in 1991 and 1992 – Edval C Investment Ltd and Worledge Investment Ltd – in connection with a defeasance transaction involving ex-BFCE sovereign loans (see Note 2.7) were consolidated for the first time at December 31, 2002. BANQUE POPULAIRE GROUP Based on a review of entities set up before December 31, 2002, none of the other special purpose entities set up by the Group fulfilled the criteria requiring them to be consolidated.These special purpose entities can be broken down into the following categories: 3.6.1 – Securitizations n Since 2000, Natexis Banques Populaires has carried out five synthetic asset securitizations on its own behalf for a total of €4,109 million. These transactions, implemented through the PARIS1, PARIS2, NATIX, IGLOO and IGLOO2 special purpose entities, have the effect of transferring a significant portion of counterparty risk relating to certain loan portfolios (collateralized loan obligations) or to bonds (collateralized bond obligations), using credit default swaps and credit linked notes.They consist of synthetic securitizations based on credit derivatives carried out jointly with third party banks and special purpose entities. In substance, the credit derivatives are equivalent to credit insurance protecting Natexis Banques Populaires against the risk of borrower default or debt rescheduling. As part of its active portfolio management policy and in agreement with the supervisory authorities, in the first half of 2004 Natexis Banques Populaires decided to wind up PARIS1 and PARIS2 prematurely. NATIX and IGLOO are not consolidated because their accounts only reflect the protection obtained by Natexis Banques Populaires and its coverage on the market. The remaining risk is assumed by the investors that acquire the securities issued by the special purpose entity. However, based on an analysis of the securitization transaction carried out through IGLOO2 in 2003, the Group decided to consolidate this special purpose entity as the Banque Populaire banks which acquired the securities issued by that entity are exposed to the majority of the risks. Financial information The details of these transactions are as follows: in millions of euros December 31, 2004 Entity IGLOO NATIX Currency Inception Maturity Gross amount securitized Weighted securitized risks Weighted retained risks Initial losses retained by the Group EUR 2000 2005 997 778 368 33 USD 2000 2008 190 190 34 3 2003 2008 1,678 1,377 444 110 2,865 2,345 846 146 (initial losses in EUR) IGLOO2 EUR n In 2002, Natexis Banques Populaires carried out a securitization on behalf of clients. The purpose of the transaction was to refinance these clients’ receivables portfolios on the commercial paper market. Natexis Banques Populaires acts as arranger, custodian, placing agent and liquidity provider and also guarantees the letter of credit. The transaction involves a multi-seller conduit named Elixir Funding. Of the three criteria applied to determine whether a special purpose entity should be consolidated, the criterion concerning the retention of the majority of ownership risks is the determining factor: during the period when the conduit’s asset pool is being built up, Natexis Banques Populaires aims to transfer the majority of risks to a banking syndicate within one year. Once the conduit is fully operational, over 50% of the liquidity lines and the letter of credit will be financed by a banking syndicate at all times. The special purpose entity has therefore not been consolidated. Liquidity lines have been opened on the commercial paper issued by this conduit, as well as a letter of credit: in millions of euros Amount authorized Amount drawn NBP liquidity line NBP letter of credit December 31, 2004 614.6 38.2 248.4 5.0 In March 2001, BRED Banque Populaire carried out a securitization through the Crystalys special purpose entity. Asset-backed securities issued by the SPE amounted to €681 million at December 31, 2004, included in securities held for sale.The SPE holds a portfolio of home loans with a roughly equivalent value. €238 million of these loans are guaranteed by CASDEN Banque Populaire. In the case of any sales or other transactions, detailed information about the related risks will be disclosed. Crystalys is not consolidated because it is an independent management company and BRED Banque Populaire does not have any decision-making or management powers. n In December 2004, CASDEN Banque Populaire and BRED Banque Populaire carried out a securitization through the Amaren II special purpose entity. The transaction benefited from the regulatory changes introduced in November 2004, and accordingly notes rather than shares in the SPE were issued in the sum of €1,750 million. The SPE’s assets comprise €1,026 million of real estate loans granted by CASDEN Banque Populaire and €769 million of real estate loans granted by BRED. €555 million of these loans are guaranteed by CASDEN Banque Populaire and BRED Banque Populaire’s mutual guarantee companies. CASDEN Banque Populaire and BRED Banque Populaire have retained the majority of the notes issued by the SPE and Amaren II is therefore consolidated by the Banque Populaire Group. n 3.6.2 – Tax structures Asset financing (aircraft, ships, hotels, technocenters, etc.) is provided to certain clients via look-through entities (GIEs, SCIs, SAs organized as a tax group), mostly set up by Natexis Banques Populaires either alone or in partnership with other banks. In these structures, Natexis Banques Populaires acts both as a lender and as a seller of tax positions. Natexis Banques Populaires has the power to make decisions concerning the activities of these look-through entities, in a fiduciary capacity on behalf of clients. As the activities represent in substance asset management activities and Natexis Banques Populaires does not control the lookthrough entities within the meaning of paragraph 10052 of standard CRC 99-07,as amended by standard CRC 2004-04, these structures are not consolidated. 3.6.3 – Real estate structures SCI non-trading real estate companies are set up to hold finance leases granted by the Group’s leasing subsidiaries to finance real estate acquisitions (car parks, offices, headquarters buildings, etc.). As in the case of tax structures, these subsidiaries act in a fiduciary capacity at the request of clients and do not exercise control over the real estate structures according to the criteria set out in paragraph 127 10052, standard CRC 99-07, as amended by standard CRC 2004-04. Note 4 – Other information 3.6.4 – Group employee stock ownership plan (“Alizé” operation) In 2002, Banque Fédérale des Banques Populaires issued a guarantee relating to the shares issued by Natexis Banques Populaires on the acquisition of Natexis Bleichroeder Inc. in December 2002. On May 31, 2001, Natexis Banques Populaires launched an employee share issue open to employees of the Banque Populaire Group. The issue was carried out in connection with the Group’s employee stock ownership plan governed by the Act of February 19, 2001. A corporate mutual fund – FCPE Alizé Levier – was set up to hold the shares acquired by the employees participating in the issue. Banque Fédérale des Banques Populaires entered into an agreement with the fund’s custodian, guaranteeing the net asset value of any units in the fund surrendered by employees. Based on the characteristics of the operation, the Group has consolidated the FCPE Alizé Levier mutual fund. 3.7 – Pro forma consolidated financial statements The impact of changes in the scope of consolidation on the income statement are presented in note 69 via the presentation of 2003 pro forma data. The pro forma financial statements are designed to provide comparable data by retrospectively including the main changes in scope of consolidation during 2004 or the second half of 2003: n first-time consolidation of Crédit Maritime Mutuel, which became affiliated to BFBP on August 1, 2003 and therefore only contributed to consolidated results in the second half of 2003; first-time consolidation of the Agence Française de Développement subsidiaries, which were acquired by BRED Banque Populaire at end 2003 and therefore made no contribution to 2003 consolidated results; n 128 n first-time consolidation of credit institutions that have signed an association agreement with Crédit Coopératif (not subsidiaries), which were fully consolidated as of January 1, 2004; n first-time consolidation of the Ort sub-group, which was acquired by Coface in April 2004. BANQUE POPULAIRE GROUP In order to eliminate the impact of changes in scope of consolidation on 2004 comparables, the 2003 figures have been adjusted to calculate changes on a constant Group structure using data that has not been audited by the Statutory Auditors. The acquisition of Natexis Bleichroeder Inc. (formerly Arnhold & Bleichroeder Inc) was paid for through the issuance of 1,401,082 new shares.The share issue, carried out on December 6, 2002, represented a capital increase of 3%. Arnhold & Bleichroeder Holdings, the former owner of Natexis Bleichroeder Inc., is committed to retaining at least 45% of these shares for a minimum of five years.The remaining 55% of the shares may be sold over a period of seven years, as follows: no more than 10% between six months and one year after the transaction date, a cumulative maximum of 35% in the period to the end of the second year, a cumulative maximum of 45% in the period to the end of the third year and a cumulative maximum of 55% in the period to the end of the seventh year. Arnhold & Bleichroeder Holdings and Banque Fédérale des Banques Populaires have also signed a value protection agreement stating that if the 55% of the shares referred to above are sold at a price below their value at the date of issue – i.e. €75.56 – Banque Fédérale des Banques Populaires will transfer additional Natexis Banques Populaires shares to Arnold & Bleichroeder Holdings without consideration. This value protection agreement will only apply if the shareholders of Arnold & Bleichroeder Holdings have refused an offer to purchase the Natexis Banques Populaires shares at a price previously proposed by Banque Fédérale des Banques Populaires. In that case the Natexis Banques Populaires shares may not be sold to a third party at a price lower than that offered by Banque Fédérale des Banques Populaires. Financial information Note 5 – Companies included in the scope of consolidation Banque Populaire Group Companies Company / Business line Country (a) December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) I) Consolidating entity Banque Populaire banks Banque Populaire Occitane Banque Populaire Bourgogne Franche-Comté - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire du Sud-Ouest - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire du Massif Central - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire des Alpes - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire du Nord - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire du Centre - FR Merged N Merged N 100.00% 100.00% Full Banque Populaire Centre Atlantique - FR 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire Loire et Lyonnais - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire Provençale et Corse - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire Lorraine Champagne - FR 100.00% 100.00% Full 100.00% 100.00% Full 100,00% 100,00% Full BICS - Banque Populaire - FR Merged N 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire du Haut-Rhin - FR Merged N Merged N 100.00% 100.00% Full Banque Populaire Atlantique - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire de la Côte d’azur - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire du Midi - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire Centre-Atlantique - FR Merged N Merged N 100.00% 100.00% Full Banque Populaire des Pyrénéesorientales, de l’Aude et de l’Ariège - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire de l’Ouest - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Banque Populaire Rives de Paris - FR 100.00% 100.00% Full Banque Populaire Nord de Paris - FR Merged N Banque Populaire de la Région Economique de Strasbourg - FR Merged N Banque Populaire d’Alsace - FR 100.00% 100.00% Full Banque Populaire Val de France - FR 100.00% 100.00% Full 100.00% 100.00% Full /// /// 100.00% 100.00% N /// /// /// /// N N Full 100.00% 100.00% Full Merged N 100.00% 100.00% Full 100.00% 100.00% Full /// /// 100.00% 100.00% N Full Banque Populaire Toulouse-Pyrénées - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full BRED - Banque Populaire - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full CASDEN Banque Populaire - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Crédit Coopératif - FR 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 N ACEF QUERCY AGENAIS - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full BICS HABITAT - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full BRED HABITAT - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Mutual guarantee companies FOREST. LORRAINE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full FOREST. MASSIF CENTRAL - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full FOREST. PYRENEES-ORIENTALES - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full FOREST. SEINE-ET-MARNE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full PROCOMI COTE-D’AZUR - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCACEF BAS-RHIN - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCACEF BRETAGNE-ATLANTIQUE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCACEF CENTRE-ATLANTIQUE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCACEF MASSIF CENTRAL - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full 129 Companies Company / Business line Country (a) BANQUE POPULAIRE GROUP 130 December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) SOCACEF NORD - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCACEF QUERCY-AGENAIS - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCACEF TARN ET AVEYRON - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Full SOCAMA ALPES-MARITIMES - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% SOCAMA ANJOU-VENDEE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA ARIEGE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA AUDE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA AVEYRON - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA BAS-RHIN - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA BICS - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA BOUCHES-DU-RHONE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA BOURGOGNE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA BRED-IDF - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA CHAMPAGNE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA CHARENTE-MARITIME - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA CORSE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA DAUPHINE-ALPES DU SUD - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA DEUX-SEVRES - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA DOUBS-HTE-SAONE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA HAUTE-GARONNE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA HAUTE-SAVOIE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA HAUT-RHIN - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA JURA-AIN - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA LOIRE-ATLANTIQUE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA LOIRE-Ht-VIVARAIS - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA LORRAINE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA LOT - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA LOT-ET-GARONNE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA LYON-ET-REGION - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA MASSIF CENTRAL - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA MIDI - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA MIDI-PYRENEES OUEST - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA MORBIHAN-FINISTERE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA NORD - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA Nord de Paris - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA OUEST - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA R.O.P. - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA REGIONALE L-C-D - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA REUNION - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA ROUSSILLON - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA SAVOIE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA SUD-OUEST - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA TARN - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA VAL-DE-FRANCE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA VAR - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMA VAUCLUSE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI ANJOU-VENDEE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI ATLANTIQUE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI AUDE-ARIEGE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Financial information Companies Company / Business line Country (a) December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) SOCAMI BAS-RHIN - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI BASSIN-ADOUR - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI BORDEAUX-ET-REGION - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI BOURGOGNE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI BRETAGNE-ATLANTIQUE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI CENTRE-OUEST - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI CHAMPAGNE - FR Merged N 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI COTE D’AZUR - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI DAUPHINE-ALPES DU SUD - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI FRANCHE-COMTE-M-A - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI HAUTE-SAVOIE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI HAUT-RHIN - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI HTE-GARONNE-HABITAT - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI LIMOUSIN - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI LOIRE ET LYONNAIS - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI LORRAINE - FR Merged N 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI LORRAINE CHAMPAGNE - FR 100.00% 100.00% Full SOCAMI MASSIF CENTRAL - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI MIDI - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full /// /// N /// /// N SOCAMI NORD - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI Nord de Paris - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI OUEST - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI PROVENCE ET CORSE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI PYRENEES-ORIENTALES - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI QUERCY-AGENAIS - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI R.O.P. - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI SAVOIE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI SUD OUEST - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI TARN ET AVEYRON - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMI VAL-DE-FRANCE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMMES - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAMUPROLOR - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOCAUPROMI - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOFRONTA - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOPROLIB COTE D’AZUR - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOPROLIB FRANCHE-COMTE-M-A - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOPROLIB LORRAINE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOPROLIB NORD - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOPROLIB OUEST - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOPROLIB SAVOIE-HTE-SAVOIE - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SOPROLIB SUD-OUEST - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full - FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Central bodies BANQUE FÉDÉRALE DES BANQUES POPULAIRES 131 Companies Company / Business line Country (a) December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) II – Affiliates and Associates (c) Affiliates CAISSE REGIONALE DE GUADELOUPE (12) FR 0.00% 100.00% Full 1.95% 100.00% Full Consolidated from 2003 N CAISSE REGIONALE DE MARTINIQUE (12) FR 0.00% 100.00% Full 0.00% 100.00% Full Consolidated from 2003 N CAISSE REGIONALE DE MEDITERRANEE (12) FR 0.00% 100.00% Full 0.00% 100.00% Full Consolidated from 2003 N CAISSE REGIONALE DE REUNION (12) FR 0.00% 100.00% Full 0.00% 100.00% Full Consolidated from 2003 N CAISSE REGIONALE DE VENDEE (12) FR 0.00% 100.00% Full 0.00% 100.00% Full Consolidated from 2003 N CAISSE REGIONALE DU FINISTERE (12) FR 0.00% 100.00% Full 0.00% 100.00% Full Consolidated from 2003 N CAISSE REGIONALE LITTORAL MANCHE (12) FR 0.00% 100.00% Full 0.00% 100.00% Full Consolidated from 2003 N CAISSE REGIONALE MORBIHAN / L.A (12) FR 0.00% 100.00% Full 0.00% 100.00% Full Consolidated from 2003 N CAISSE REGIONALE REGION NORD (12) FR 0.00% 100.00% Full 0.00% 100.00% Full Consolidated from 2003 N CAISSE REGIONALE SUD OUEST (12) FR 0.00% 100.00% Full 0.00% 100.00% Full Consolidated from 2003 N SOCIETE CENTRALE DU CREDIT MARITIME MUTUEL (12) FR 7.64% 100.00% Full 7.68% 10.00% Full Consolidated from 2003 N UNION DES CAISSES REGIONALES (12) FR 0.00% 100.00% Full 0.00% 100.00% Full Consolidated from 2003 N CMGM (10) FR 6.03% 100.00% Full EDEL (10) FR 33.94% 100.00% Full GEDEX DISTRIBUTION (10) FR 0.00% 100.00% Full MONINFO (10) FR 33.91% 100.00% Full NORD FINANCEMENT (10) FR 0.96% 100.00% SOCIETE FINANCIERE DE LA NEF (10) FR 6.95% SOCOREC (10) FR 0.00% SOFIGARD (10) FR 0.29% SOFINDI (10) FR 5.06% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N SOFIRIF (10) FR 4.29% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N SOFISCOP (10) FR 1.68% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N Associates 132 Consolidated from 2004 N Consolidated from 2004 N Equity Consolidated from 2003 N Consolidated from 2004 N Consolidated from 2004 N Consolidated from 2004 N Consolidated from 2004 N Full Consolidated from 2004 N Consolidated from 2004 N 100.00% Full Consolidated from 2004 N Consolidated from 2004 N 100.00% Full Consolidated from 2004 N Consolidated from 2004 N 100.00% Full Consolidated from 2004 N Consolidated from 2004 N 33.94% 33.94% SOFISCOP SUD EST (10) FR 3.92% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N SOMUDIMEC (10) FR 0.35% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N SOMUPACA (10) FR 1.74% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N ACHATPRO (9) FR 91.37% 91.37% Equity 39.58% AGRO AUDACES (4) FR 88.39% 91.82% Full 80.02% AMEDIS (9) GB Deconsolidated N 0.00% III – SUBSIDIARIES BANQUE POPULAIRE GROUP III.1 – Retail banking 39.58% Equity 37.44% 37.44% Equity 82.94% Full 79.72% 71.54% Full 96.00% Full 0.00% 96.00% Full Full ATLANTIQUE PLUS (6) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% BANKEO (2) FR 60.00% 60.00% Full 60.00% 60.00% Full Consolidated from 2003 N BANQUE MONETAIRE ET FINANCIERE (3) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full BATINOREST (10) FR 85.13% 80.00% Full Consolidated from 2004 N Consolidated from 2004 N BDG SCI (5) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full BERCY GESTION FINANCE (9) FR 99.96% Full 99.96% Full 99.96% 99.96% Full Full 99.96% 99.96% BFBP ACTIONS EUROPE (9) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% BGF+ (9) FR 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 BIC BRED (9) FR 99.95% 99.95% Full 99.94% 99.94% Full BICEC (2) CM 51.99% 52.48% Full 51.99% 52.48% Full BISE (10) PL 37.92% 37.91% Equity 28.55% 26.80% Equity B-PROCESS (9) FR 34.89% 34.89% Equity 26.56% 26.56% Equity N 99.94% 99.94% Full 51.95% 52.48% Full Consolidated from 2003 25.39% 25.39% N Equity Financial information Companies Company / Business line Country (a) December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) BRED COFILEASE (9) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full BRED GESTION (9) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full BTP BANQUE (10) FR 99.95% 99.95% Full 100.00% 100.00% Full Consolidated from 2003 N BTP CAPITAL INVESTISSEMENT (10) FR 79.42% 79.42% Full 79.41% 79.41% Full Consolidated from 2003 C.2.C (3) FR Deconsolidated N 48.99% 48.99% Equity CAISSE CENTRALE (10) FR 100.00% 100.00% Full 100.00% 100.00% CAISSE DE GARANTIE IMMOBILIERE DU BATIMENT (10) FR 33.40% 33.40% Equity CAISSE SOLIDAIRE (10) FR 11.40% 100.00% Full CAPI COURT TERME N°1 (3) FR 100.00% 100.00% Full CERIUS INVESTISSEMENTS (4) FR 99.85% Full CLICK AND TRUST (9) FR 100.00% 100.00% CLIVEO SNC (2) FR 100.00% 100.00% COFEG (9) FR 99.67% COFIBRED (9) FR COFICOR (9) FR COOPAMAT (10) CREDIT COOPERATIF TRESORERIE PLUS 48.99% 48.99% N Equity Full Consolidated from 2003 N Equity Consolidated from 2003 N Consolidated from 2004 N Consolidated from 2004 N 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Full 100.00% 100.00% Full 100.00% 100.00% Full Full 100.00% 100.00% Full 100.00% 100.00% Full Full 99.67% Full 99.67% Full 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full 99.76% 99.76% Full 99.76% 99.76% Full 99.80% Full FR 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 N (10) FR Deconsolidated N 100.00% 100.00% Full Consolidated from 2003 N CREDIT MARITIME INVESTISSEMENT (12) FR N CREDIT MARITIME VIE (12) FR CYBERPLUS MARKET (4) FR DE PORTZAMPARC (6) FR 72.16% ECOFI INVESTISSEMENT (10) FR 99.98% EFITEL (10) FR ESFIN (10) FCC AMAREN II (4) FINANCIERE VECTEUR (8) FR 99.85% 99.67% Deconsolidated 33.40% 33.40% 99.67% 99.67% 99.80% N 2.61% 100.00% Full Consolidated from 2003 Full 3.07% 100.00% Full Consolidated from 2003 N 100.00% 100.00% Full 74.53% Full 67.02% 67.02% Full 99.99% Full 99.98% 99.98% Full Consolidated from 2003 N 99.99% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 N FR 37.58% 37.58% Equity Equity Consolidated from 2003 N FR 100.00% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N 100.00% 100.00% Full 100.00% 100,00% Full 100.00% 100,00% Full 75.59% 100.00% Deconsolidated 37.58% 37.58% N 91.77% 99.68% Full 65.97% 65.98% Full FONCIERE VICTOR HUGO (7) FR Deconsolidated N 100.00% 100.00% Full 100.00% 100.00% Full GC2I INVESTISSEMENT (4) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full GIE CARSO MATERIEL (4) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full GIE LIVE ACHATS (4) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full GIE PARNASSE INVEST. (3) FR Deconsolidated N Deconsolidated N 100.00% 100.00% Full GIE USC (10) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full GROUPEMENT DE FAIT (10) FR 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 N GUIDEO (2) FR Deconsolidated N 100.00% 100.00% Full 100.00% 100.00% Full IMMOBICS SA Merged N Merged N 100.00% 100.00% Full (5) FR INFORMATIQUE BANQUES POPULAIRES (4) FR Full 99.75% 100.00% Full INTER PROMO (3) FR Deconsolidated N Deconsolidated N 100.00% 100.00% Full INTERCOOP (10) FR 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 N 99.76% 99.76% Full 99.75% 99.75% LFI (9) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full LFI2 (4) FR Deconsolidated N 99.01% 99.01% Full 99.01% 99.01% Full LFI4 (9) FR 98.04% 98.04% Full 98.04% 98.04% Full 90.00% 100.00% Full 98.04% 98.04% Full LUX EQUIP BAIL (9) LU 90.00% 90.00% Full 90.00% 90.00% Full MONE+CC2 (10) FR 100.00% 100.00% Full 100.00% 100.00% Full NOVACREDIT (4) FR 65.77% 65.77% Full 66.00% 66.00% Full OUEST CROISSANCE SCR (4) FR 97.58% 99.22% Full 96.62% 99.23% PARNASSE FINANCES (3) FR 100.00% 100.00% Full 100.00% 100.00% PARNASSIENNE DE CREDIT (3) FR 91.95% 92.44% Full 91.95% 92.44% Consolidated from 2003 N 66.00% 66.00% Full Full 96.35% 99.23% Full Full 100.00% 100.00% Full Full 91.90% Full 92.44% 133 Companies Company / Business line Country (a) December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) PREPAR COURTAGE (9) FR 99.20% 99.20% Full 99.30% 99.30% Full 99.20% 99.20% Full PREPAR-IARD (9) FR 99.99% 99.99% Full 99.98% 99.98% Full 99.98% 99.98% Full PREPAR-VIE (9) FR 99.78% 99.78% Full 99.77% 99.77% Full 99.77% 99.77% Full PROMEPAR (9) FR 99.96% 99.97% Full 99.96% 99.91% Full 99.91% 99.91% Full SBE (2) FR 99.78% 99.78% Full 99.77% 99.77% Full 99.71% 99.71% Full SCI du CREDIT COOPERATIF (10) FR 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 N SCI L’ARENAS (7) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SCI SAINT-DENIS (10) FR 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 N SDR Nord Pas de Calais (10) FR 28.92% Equity Consolidated from 2003 SGTI (3) FR 100.00% 100.00% Full SICOMI COOP (10) FR 50.35% Full 49.96% 49.96% Full Consolidated from 2003 N SMI (7) FR Deconsolidated N 100.00% 100.00% Full 100.00% 100.00% Full SNC AZUR IMMO (7) FR Deconsolidated N 100.00% 100.00% Full 100.00% 100.00% Full SNC M+X (4) FR 99.67% 100.00% Full 99.65% 100.00% Full 99.62% 100.00% Full SOCIEP (8) FR 99.99% 99.99% Full 99.99% 100.00% Full 99.99% 100.00% Full SODEGA (9) FR Merged N 100.00% 100.00% Full 37.44% 37.44% Equity SODEMA (9) FR Merged N 100.00% 100.00% Full 37.44% 37.44% Equity 28.92% 50.35% Equity 28.92% 28.92% 100.00% 100.00% Full 37.44% 37.44% N Equity SOFIAG (ex Antilles Guyane Participations) (9) FR 100.00% 100.00% Full 100.00% 100.00% Full SOFIDEG (9) FR Merged N 100.00% 100.00% Full 37.44% 37.44% Equity SOFIDER (9) FR Full 100.00% 100.00% Full 37.44% 37.44% Equity 100.00% 99.49% Consolidated from 2003 N SOFINCIL (3) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SPIG (9) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full TRANSIMAT (10) FR Deconsolidated N 100.00% 100.00% Full Consolidated from 2003 N TRANSIMMO (10) FR 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 TRUST AND PAY (9) FR 59.35% 44.00% Prop. 55.69% 44.00% Full 62.70% 50.00% Full VECTEUR GESTION (8) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full VIALINK (9) FR 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 N Full 75.34% 75.34% Full 72.85% N III.2 – Natexis Banques Populaires and its subsidiaries (d) NATEXIS BANQUES POPULAIRES - FR 75.59% 75.59% 72.85% Full 134 BANQUE POPULAIRE GROUP Corporate & Institutional Banking and Markets BAIL EXPANSION (1) FR 75.50% 99.88% Full 75.25% 99.88% Full 72.76% 99.88% Full DOMIMUR (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full DUPONT DENANT CONTREPARTIE (1) FR 37.79% 50.00% Full 37.67% 50.00% Full 36.42% 50.00% Full ECRINVEST 6 (1) FR 75.54% 99.94% Full 75.29% 99.93% Full 72.79% 99.93% Full ENERGECO (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full FINANCIERE CLADEL (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full FRUCTIBAIL (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full FRUCTICOMI (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full INVESTIMA 6 (1) FR 75.59% 100.00% Full NATEXIS ALGERIE (1) DZ 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS ABM CORP (1) US 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS ARBITRAGE (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS BAIL (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS BLEICHROEDER Inc (1) US 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS BLEICHROEDER SA (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS BLEICHROEDER UK (1) GB 75.59% 100.00% Full 75.34% 100.00% Full NATEXIS COFICINE (1) FR 69.92% 92.50% Full 69.68% 92.50% Full 67.38% 92.50% Full NATEXIS FINANCE (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full Consolidated from 2004 N Consolidated from 2004 Consolidated from 2003 N N Financial information Companies Company / Business line Country (a) December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) NATEXIS FUNDING (1) FR 75.59% 99.99% Full 75.33% 99.99% Full 72.84% 99.99% Full NATEXIS IMMO DEVELOPPEMENT (1) FR 75.58% 99.99% Full 75.33% 99.99% Full 72.85% 99.99% Full NATEXIS INVESTMENT CORP. (1) US 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS LEASE (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS LUXEMBOURG (1) LU 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS METALS (1) GB 75.59% 100.00% Full 75.34% 80.00% Full 58.28% 80.00% Full NATEXIS MOSCOW (1) RU 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS PRAMEX INTERNATIONAL (1) FR 74.90% 99.08% Full 74.65% 99.08% Full 72.19% 99.10% Full NATEXIS PRIVATE EQUITY ASIA (1) HK N 72.85% 100.00% Full NATEXIS US FINANCE CORPORATION (1) US 75.59% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N PARIS OFFICE FUND (1) FR 37.79% 50.00% Prop. Consolidated from 2004 N Consolidated from 2004 N SBFI (1) FR 75.58% 99.99% Full 75.33% 99.99% Full 72.84% 99.99% Full VAL A (SAS) (1) FR 74.14% 98.09% Full 73.90% 98.09% Full 71.46% 98.09% Full Deconsolidated N Deconsolidated Private Equity and Wealth Management BANQUE PRIVÉE ST DOMINIQUE (1) FR 75.59% 100.00% Full 75.34% 100,00% Full 72.85% 100,00% Full BP DEVELOPPEMENT GLOBALE (4) FR 85.26% 93.91% Full 90.84% 97.73% Full 84.43% 93.43% Full BPSD GESTION (1) FR 75.58% 99.99% Full 75.33% 99.99% Full 72.84% 99.99% Full FCPR NATEXIS INDUSTRIE (1) FR 67.88% 89.80% Full 75.34% 100.00% Full Consolidated from 2003 N FIN. NATEXIS SINGAPOUR (1) SG 75.59% 100.00% Full 75.34% 100.00% Full Consolidated from 2003 N FINATEM (1) DE 68.03% 100.00% Full 67.80% 90.00% Full Consolidated from 2003 N FNS2 (1) SG 75.59% 100.00% Full Consolidated from 2004 N Consolidated from 2004 IDF NORD CROISSANCE (1) FR N Merged N Merged INITIATIVE ET FINANCE INVESTISSEMENT (1) FR 69.78% 91.81% Full 57.68% 92.36% Full MERCOSUL (1) GB 75.59% 100.00% Full 75.34% 100.00% Full N 90.96% 100.00% Full 54.85% 92.33% Full Consolidated from 2003 NATEXIS INVESTISSEMENT (1) FR 75.17% 99.45% Full 69.62% 99.27% Full NATEXIS INVEST ASIA (1) HK 75.59% 100.00% Full 75.34% 100.00% Full NATEXIS ACTIONS AVENIR (1) FR N 61.90% 81.25% Full NATEXIS CAPE (1) LU 75.59% 100.00% Full 75.34% 98.71% Full Consolidated from 2003 NATEXIS CAPITAL STRUCTURANT (1) FR 50.80% 50.80% Full 61.12% 73.71% Full Consolidated from 2003 NATEXIS INDUSTRIE (1) FR 75.46% 99.83% Full 75.34% 99.85% Full NATEXIS INVERSIONES (1) SP 75.59% 100.00% Full 75.34% 100.00% Full NATEXIS NOUVEAUX MARCHES (1) FR N 68.90% 91.53% Full 66.95% NATEXIS PRIVATE BANKING Luxembourg (1) LU 66.37% 87.80% Full 66.15% 87.80% Full NATEXIS PRIVATE EQUITY (1) FR 75.59% 100.00% Full 75.34% 100,00% Full NATEXIS PRIVATE EQUITY INTERNATIONAL (1) FR 75.59% 100.00% Full 75.34% 100.00% Full NATEXIS PRIVATE EQUITY OPPORTUNITIES (1) FR 75.59% 100.00% Full NATEXIS VENTURE SELECTION (1) FR 75.58% 100.00% Full NEM2 (1) FR 75.46% 99.82% Full NPEIS (1) SG 75.59% 100.00% Full SOFINNOVA (1) FR SOPRANE ASSURANCES (1) FR 75.41% 99.76% Full 75.16% SOPROMEC (1) FR 85.26% 100.00% Full 78.95% SPEF DEVELOPPEMENT (1) FR 75.59% 99.99% Full 75.33% 99.98% SPEF LBO (1) FR 75.58% 99.99% Full 75.33% 99.99% Full 72.85% 99.99% Full SPEF VENTURE (1) FR 75.57% 99.98% Full 75.32% 99.97% Full 72.83% 99.97% Full SUD EST CROISSANCE (1) FR N 93.34% 100.00% Full Liquidated Liquidated Deconsolidated Merged N N Consolidated from 2004 67.88% 99.23% N Consolidated from 2003 62.24% 65.61% 84.73% 99.85% Consolidated from 2003 Full N Full N N Full N 91.61% Full 63.96% 87.80% Full 72.85% 100,00% Full 72.85% 100.00% Full N Consolidated from 2004 N 75.16% 99.76% Full Consolidated from 2003 N 75.34% 88.07% Full Consolidated from 2004 18.37% 24.38% N 64.00% 88.03% Consolidated from 2004 Full N Equity 17.48% 24.38% Equity 99.76% Full 72.67% 99.76% Full 97.13% Full 76.58% 76.58% Full Full 72.84% 99.98% Full Merged 135 Companies Company / Business line Country (a) December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) Services ABP PREVOYANCE (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full ABP VIE (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full ADIR (1) LB 25.70% 33.99% Equity 25.61% 33.99% Equity ASSURANCES BP IARD (1) FR 37.74% 49.99% Equity 37.68% 49.99% Equity 36.43% 49.99% Equity AXELTIS Ltd (1) GB 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full BANCASSURANCE POPOLARI (1) IT 38.55% 51.00% Prop. 38.42% 51.00% Full 37.15% 51.00% Full E-MARKET (1) FR N 75.34% 100.00% Full LA PROSPERITE (1) FR LINEBOURSE (1) FR Merged Merged 75.59% 100.00% N Full Merged 84.46% 96.94% Consolidated from 2003 Consolidated from 2003 N N N 77.70% 100.00% Full Full 72.85% 100.00% Full NATEXIS ASSET MANAGEMENT (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS ASSET SQUARE (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS ASSURANCES (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full 72.85% 100.00% Full NATEXIS EPARGNE ENTREPRISE (1) FR 75.59% 100.00% Full 75.33% 100.00% Full NATEXIS INTEREPARGNE (1) FR 75.59% 100.00% Full 75.34% 99.99% Full Deconsolidated Consolidated from 2003 N NATEXIS INTERTITRES (1) FR 75.55% 99.93% Full 75.28% 99.92% Full NATEXIS LIFE (1) LU 72.45% 100.00% Full 72.21% 100.00% Full 69.83% 100.00% Full N NATEXIS PAIEMENTS (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS ASSET MANAGEMENT IMMOBILIER (1) FR 75.32% 99.67% Full 75.10% 99.68% Full 72.62% 99.68% Full NXBP1 (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full OFIVM (1) FR 25.70% 34.00% Equity 25.62% 34.00% Equity 24.77% 34.00% Equity PROXIGMA (1) FR N 75.34% 99.99% Full 72.84% 99.99% Full SAMIC (1) MC Full 56.96% 75.60% Full 50.70% 69.60% Full SLIB (1) SOCECA (1) VITALIA VIE (1) COFACE ADG COFACE ALLGEMEINE DEBITOREN AK COFACE FINANZ ALLGEMEINE KREDIT COFACE Deconsolidated 57.15% 75.60% FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full FR 18.87% 24.97% Equity 18.81% 24.97% Equity 18.19% 24.97% Equity FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full (1) FR 75.59% 100.00% Full 73.84% 98.01% Full 71.40% 98.01% Full (11) DE 56.69% 75.00% Full 55.38% 75.00% Full 71.40% 98.01% Full (11) DE 75.59% 100.00% Full 73.84% 100.00% Full 53.55% 100.00% Full 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full 71.40% 100.00% Full Receivables Management BANQUE POPULAIRE GROUP 136 (11) DE ALLGEMEINE KREDIT COFACE INFORMATIONS (11) DE 75.59% 100.00% Full 73.84% 100.00% Full ASSURCREDIT (11) FR 30.24% 40.00% Prop. 29.54% 40.00% Prop. Consolidated from 2003 N Consolidated from 2004 CENTRE D’ETUDES FINANCIERES (11) FR 75.59% 100.00% Full CIMCO SYSTEMS LIMITED (11) GB 75.59% 100.00% Full 73.84% N 100.00% Full 71.40% 100.00% Full CODINF Services (11) FR N 22.15% 30.00% Equity 71.40% 100.00% Full COFACE AK HOLDING (11) DE 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE COLLECTION NORTH AMERICA (11) US 75.59% 100.00% Full COFACE CREDIT MANAGEMENT NORTH AMERICA (11) US 75.59% 100.00% Full COFACE DEBT PURCHASE (11) GB 75.59% 100.00% COFACE EXPERT (11) FR 75.59% 100.00% COFACE HOLDING AMERICA LATINA (11) MX 75.59% 100.00% Full COFACE HOLDING NORTH AMERICA (11) US 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE INTERCREDIT BULGARIA BU 56.68% 100.00% Full 55.37% 100.00% Full 34.80% 65.00% Full (11) Divested Consolidated from 2004 N Consolidated from 2004 73.84% 100.00% Full 73.84% 100.00% Full 73.84% 100.00% Consolidated from 2004 N Full Consolidated from 2004 N 21.42% 30.00% Equity Full 71.40% 100.00% Full Full 71.40% 100.00% Full N Consolidated from 2004 N Financial information Companies Company / Business line Country (a) December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) COFACE INTERCREDIT CZECH REPUBLIC (11) CZ 56.68% 100.00% Full 53.71% 97.00% Full 51.94% 97.00% Full COFACE INTERCREDIT HRATSKA (CROATIA) (11) HR 56.68% 100.00% Full 55.37% 100.00% Full 53.54% 100.00% Full COFACE INTERCREDIT HUNGARY (11) HU 56.68% 100.00% Full 55.37% 100.00% Full 51.94% 97.00% Full COFACE INTERCREDIT POLAND (11) PL 54.98% 97.00% Full 53.71% 97.00% Full 32.12% 60.00% Full COFACE INTERCREDIT ROMANIA (11) RO 56.68% 100.00% Full 33.22% 60.00% Full 53.54% 100.00% Full COFACE INTERCREDIT SLOVAKIA (11) SK 56.68% 100.00% Full 55.37% 100.00% Full 32.12% 60.00% Full COFACE INTERCREDIT SLOVENIA (11) SI 56.68% 100.00% Full 33.22% 60.00% Full 53.54% 100.00% Full COFACE ITALIA (11) IT 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE MOPE (11) PT 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE NORTH AMERICA (11) US 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE NORTH AMERICA INSURANCE (11) US 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE ORT 75.59% 100.00% Full Consolidated from 2004 N N Merged N 71.40% 100.00% Full (11) FR COFACE RECEIVABLE MANAGEMENT (11) BR COFACE SCRL (11) FR 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE SERVICE (11) IT 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE SERVICE ECUADOR (11) EC 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE SERVICES COLOMBIA (11) CO 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE SERVICES NETHERLANDS (11) NL 75.59% 100.00% Full COFACE SERVICES NORTH AMERICA GROUP (11) US 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE SERVICES PERU (11) PE 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE SERVICES VENEZUELA (11) VE 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE SERVICIOS (11) CL 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE SERVICIOS ARGENTINA (11) AR 75.59% 100.00% Full Consolidated from 2004 Consolidated from 2004 Merged Consolidated from 2004 N N Consolidated from 2004 Consolidated from 2004 N N Consolidated from 2004 N COFACE SERVICIOS DO BRAZIL (11) BR 75.59% 100.00% Full N Consolidated from 2004 N COFACE SERVICIOS ESPANA,SL (11) ES 75.59% 100.00% Full 73.84% 100.00% Full Consolidated from 2003 N COFACE SERVICIOS MEXICO SA DE CV (11) MX 75.59% 100.00% Full 73.84% 100.00% Full COFACE SERVICIOS PANAMA (11) PA 75.59% 100.00% Full Consolidated from 2004 N 71.40% 100.00% Consolidated from 2004 Full N COFACE UK HOLDING (ex LBF Group) (11) GB 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACE UK SERVICES LIMITED (11) GB 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACERATING HOLDING (11) DE 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACERATING.AT (11) AT N 67.12% 100.00% Full COFACERATING.COM (11) FR Full 71.40% 100.00% Full COFACERATING.DE (11) DE 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACERATING.FR (11) FR 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACERATING.IT (11) IT 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COFACERATING.US (11) US N 71.40% 100.00% Full COFACREDIT (11) FR Equity 71.40% 100.00% Full Deconsolidated 75.59% 100.00% Deconsolidated 27.21% 36.00% N Full N Equity Deconsolidated 73.84% 100.00% Deconsolidated 26.58% 36.00% COFINPAR (11) FR 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COGERI (11) FR 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full COGESTIMO (11) FR N 71.40% 100.00% Full CREDICO LIMITED (11) GB 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full CREDITORS GROUP HOLDINGS LTD (11) GB 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full EIOS (11) FR 22.50% 29.76% Equity FIMIPAR (11) FR 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full GRAYDON HOLDING (11) NL 20.79% 27.50% Equity 20.31% 27.50% Equity 19.64% 27.50% Equity Deconsolidated N Deconsolidated Consolidated from 2004 N Consolidated from 2004 N 137 Companies Company / Business line Country (a) 138 December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) 56.68% 55.37% GROUPE COFACE INTERCREDIT HOLDING AG (11) AT JI INTERNATIONAL (11) US KOMPASS BILGI (11) TK 52.84% 69.91% Full 51.62% 69.91% Full Consolidated from 2003 N KOMPASS CZECH REPUBLIC (11) CZ 70.30% 93.00% Full 68.67% 93.00% Full Consolidated from 2003 N KOMPASS HOLDING (11) FR 75.59% 100.00% Full 73.84% 100.00% Full Consolidated from 2003 N KOMPASS INTERNATIONAL NEUENSCHWANDER (11) FR 75.59% 100.00% Full 73.84% 100.00% Full Consolidated from 2003 N KOMPASS JAPAN (11) JP 75.55% 99.95% Full 73.80% 99.95% Full Consolidated from 2003 N KOMPASS POLAND (11) PL 75.59% 100.00% Full 73.84% 100.00% Full Consolidated from 2003 N KOMPASS SOUTH EAST ASIA (11) SG 75.59% 100.00% Full 73.84% 100.00% Full Consolidated from 2003 N KOMPASS UNITED STATES (11) US 75.59% 100.00% Full 73.84% 100.00% Full Consolidated from 2003 N LIBRAIRIE ELECTRONIQUE (11) FR 75.59% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N LONGDON BRIDGE FINANCE LIMITED (11) FR 75.59% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N N.V. COFACE EURO DB (11) FR 75.59% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N ÕESTERREICHISCHE KREDITVERSICHERUNGS COFACE (11) AT 71.05% 94.00% Full 73.84% 94.00% Full 71.40% 100.00% Full ÖKV KREDITINFORMATIONS (11) AT 75.59% 100.00% Full 73.84% 100.00% Full 67.12% 94.00% Full OR INFORMATIQUE (11) FR 75.59% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N ORCHID TELEMATICS LIMITED (11) FR 75.59% 100.00% Full Consolidated from 2004 N Consolidated from 2004 N REACOMEX (11) LU THE CREDITORS GROUP LIMITED (11) GB 75.59% 100.00% Full THE CREDITORS INFORMATION CO LTD (11) IT 75.59% 100.00% Full UNISTRAT ASSURANCES (11) FR 75.59% 100.00% Full UNISTRAT COFACE (11) FR 75.59% 100.00% Full Consolidated from 2004 N VERITAS BUSINESS INFORMATION (11) US Merged N Merged N 71.40% 100.00% Full VERITAS CARIBBEAN CORPORATION (11) US Merged N Merged N 71.40% 100.00% Full VERITAS CREDIT CORPORATION (11) US Merged N Merged N 71.40% 100.00% Full VERITAS DE CENTRO AMERICA (11) CR 75.59% 100.00% Full 73.84% Full 71.40% 100.00% Full VERITAS PUERTO RICO CORP. (11) US 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full VERITAS SA ARGENTINA (11) AR 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full VISCONTEA COFACE (11) IT 75.59% 100.00% Full 73.84% 100.00% Full 71.40% 100.00% Full N 95.48% 95.48% Full Full 72.85% 100.00% Full 74.99% Merged Deconsolidated Merged Full N N CREDIFRANCE-FACTOR (2) FR NATEXIS FACTOREM (1) FR 75.33% 99.66% Full N VR FACTOREM (1) DE 38.42% 51.00% Prop. (1) FR 75.59% 100.00% Full 74.99% Merged Deconsolidated 73.84% 100.00% Consolidated from 2004 50.00% 50.00% 100.00% Merged 75.08% 99.66% Consolidated from 2004 Full 53.54% 74.99% Full N 71.40% 100.00% Full N 71.40% 100.00% Full Full 35.70% 100.00% Full N Full N Consolidated from 2004 71.40% 100.00% Consolidated from 2004 Consolidated from 2004 N Full N N Other activities BANQUE POPULAIRE GROUP AUXILIAIRE ANTIN 75.34% 100.00% Full 72.85% 100.00% Full CIE FONCIERE NATEXIS (1) FR 75.58% 100.00% Full 75.33% 100.00% Full 72.84% 100.00% Full CO ASSUR (1) FR 75.44% 99.80% Full 75.17% 99.80% Full 72.67% 99,76% Full CRISTAL NÉGOCIATIONS (1) FR 75.55% 99.96% Full 75.31% 96.96% Full 72.82% 96.96% Full EDVAL C INVESTMENTS Ltd (1) GB 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full FONCIERE KUPKA (1) FR 75.58% 100.00% Full 75.33% 99.99% Full IFCIC (1) FR 15.43% 20.42% Equity 15.38% 20.42% Equity IMMOBILIERE NATEXIS (1) FR 75.59% 100.00% Full INTERFINANCE NATEXIS NV (1) NL 75.58% 99.99% Full Consolidated from 2004 N Merged 14.87% 20.42% Consolidated from 2004 75.33% 99.99% Full 72.84% 99.99% N Equity N Full NATEXIS ALTAIR (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS AMBS (1) US 0.00% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NATEXIS IMMO EXPLOITATION (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full NBP INVEST (1) FR 75.59% 75.59% Full 75.34% 100.00% Full 72.85% 100.00% Full NBP PREFERRED CAPITAL I, LLC (1) US 0.00% 100.00% Full 0.00% 100.00% Full 0.00% 100.00% Full Financial information Companies Company / Business line Country (a) December 31, 2004 December 31, 2003 December 31, 2002 % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) % % voting Consolidation interest rights method (b) 100.00% 100.00% NBP PREFERRED CAPITAL II, LLC (1) US Full 100.00% 75.34% Full NBP PREFERRED CAPITAL III, LLC (1) US 0.00% 100.00% Full 0.00% 100.00% Full SAGP (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 100.00% 72.85% Consolidated from 2003 Full N 72.85% 100.00% Full SAS MONTMARTRE 1 (1) FR Deconsolidated N Deconsolidated N 72.85% 100.00% Full SAS SBE (2) FR 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full SCI ALTAIR 1 (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 80.99% 100.00% Full SCI ALTAIR 2 (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 80.99% 100.00% Full SCI VALMY COUPOLE (1) FR 75.46% 100.00% Full 75.21% 100.00% Full 72.85% 100.00% Full SEGEX (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full SEPIA (1) FR 75.58% 99.99% Full 75.33% 99.99% Full 72.84% 99.99% Full SIBP (2) FR 99.06% 100.00% Full 99.05% 100.00% Full 98.99% 100.00% Full SODETO (1) FR 75.58% 99.99% Full 75.33% 99.99% Full 72.84% 99.99% Full SOGAFI (1) FR 75.58% 99.99% Full 75.33% 99.99% Full 72.84% 99.99% Full SPAFICA (1) FR 75.58% 99.99% Full 75.33% 99.99% Full 72.84% 99.99% Full SPV IGLOO2 (2) IE 100.00% 100.00% Full 100.00% 99.99% Full STÉ FINANCIÈRE BFCE (1) FR 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full WORLEDGE A INVESTMENTS Ltd EUR (1) GB 75.59% 100.00% Full 75.34% 100.00% Full 72.85% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 Full III.3 – Other subsidiaries MAINE SERVICES (2) FR SAS VALMY (2) FR Deconsolidated N Deconsolidated N 100.00% 100.00% Full FCP ALIZE (4) FR 100.00% 100.00% Full 100.00% 100.00% Full Consolidated from 2003 N SCI BP (2) FR Merged N 99.00% 99.00% Full 99.00% 99.00% SCI JAVEL (2) FR Merged N 99.00% 99.00% Full 99.00% 99.00% Full Full SCI PONANT+ (2) FR 100.00% 100.00% Full 99.90% 100.00% Full 99.00% 99.00% Full Comments: (a) Subsidiaries of: 1 Natexis Banques Populaires 2 Banque Fédérale des Banques Populaires 3 CASDEN Banque Populaire 4 Joint subsidiaries of Banque Populaire banks 5 Banque Populaire Rives de Paris 6 Banque Populaire Bretagne Atlantique Banque Populaire de la Côte d’Azur 7 Banque Populaire Val de France 8 BRED Banque Populaire 9 10 Crédit Coopératif 11 Coface 12 Crédit Maritime Mutuel (b) Consolidation method Full consolidation Full Equity Accounted for by the equity method Prop. Consolidated by the proportional method N. Not consolidated (c) - In compliance with article 93 of the French Financial Security Act of August 1, 2003 (Law no. 2003-706), Banque Fédérale des Banques Populaires has become the central body of the Crédit Maritime Mutuel network. - Crédit Coopératif joined the Banque Populaire Group in 2003 and merged with Caisse Centrale du Crédit Coopératif (C.C.C.C.) on October 17, 2003, at which point C.C.C.C. ceased to be Crédit Coopératif’s central body within the meaning of the French Banking Act of January 24, 1984. By decision of the Comité des Etablissements de Crédits et des Entreprises d’Investissement (CECEI) on July 25, 2003, and following the October 17, 2003 merger, Crédit Coopératif continues to exercise first-line responsibility over its former “affiliates”, the terms of which are set out in association agreements between each of the credit institutions previously affiliated to the C.C.C.C and Crédit Coopératif, which now guarantees their liquidity and solvency.These credit institutions are now known as “associates” (rather than "affiliates") of Crédit Coopératif. (d) Subsidiaries of Natexis Banques Populaires are broken down according to the new structure comprising four core businesses (see note 66). 139 Notes to the consolidated financial statements Note 1 – Interbank and money-market assets in millions of euros Notes 2004 2003 2002 3,354 1,767 2,034 12,483 9,396 11,231 39,626 42,275 36,177 2,863 36,339 50 115 259 3,123 38,577 44 234 297 3,851 31,603 36 134 553 55,463 53,438 49,442 - - - – loans restructured at below market rates 32 35 37 – net discount (7) (9) (10) Cash, central banks and post office banks Government securities and equivalent 2 Interbank assets – demand deposits – time deposits – doubtful accounts, net of provisions – provisions for country risks – suspense accounts – accrued interest 3 3 Total Including : – loans restructured at market rates Note 2 – Government securities and equivalent in millions of euros 2004 2003 2002 Trading securities Securities held for sale Investment securities (Note 10) Total Trading securities Securities held for sale Investment securities Total Total 6,806 2,857 2,655 12,318 3,851 2,863 2,500 9,214 11,005 Provisions (5) - (5) - (8) (1) (9) (10) Accrued interest 95 75 170 - 117 74 191 235 2,947 2,730 12,483 3,851 2,971 2,574 9,396 11,231 At cost 140 Total 6,806 Note 3 – Interbank assets in millions of euros Deposits and advances 2004 2002 Demand Time Total Demand Time Total Total 2,863 7,759 10,622 3,123 8,748 11,872 11,462 Loans 640 640 - 756 756 853 Assets purchased under resale agreements 174 174 - 212 212 155 27,473 27,473 - 28,716 28,716 22,879 287 287 - 139 139 39 5 5 - 5 5 67 36,339 39,202 3,123 38,577 41,700 35,454 Securities purchased under resale agreements Subordinated loans with fixed maturities Perpetual subordinated loans BANQUE POPULAIRE GROUP 2003 Total 2,863 Financial information Note 4 – Customer loans in millions of euros Note 2004 2003 2002 Customer overdrafts 7,513 9,417 7,885 Commercial loans 3,513 3,424 3,118 Factoring receivables 2,974 1,936 1,858 103,978 94,079 83,539 Accrued interest and suspense accounts 1,003 1,206 1,029 Non-performing loans, net of provisions 1,604 1,739 1,451 (1) (2) (2) 120,584 111,800 98,880 380 23 (2) 349 17 (1) 332 14 (1) 2004 2003 2002 Other customer loans 5 Provisions for country risks Total Including: – loans restructured at market rates – loans restructured at below market rates – net discount Note 5 – Analysis of other customer loans in millions of euros Export loans 1,147 1,267 1,497 Short-term loans and consumer loans 20,125 18,247 18,559 Equipment loans 30,199 28,385 23,931 Home loans 38,367 33,519 28,223 5,741 5,583 6,607 48 21 30 8,095 6,821 4,428 256 235 263 103,978 94,079 83,539 Other customer loans Assets purchased under resale agreements Securities purchased under resale agreements Subordinated loans Total 141 Note 6 – Lease financing in millions of euros Leasing receivables 2004 2003 2002 Real estate Equipment Leases with purchase option Total Real estate Equipment Leases with purchase option Total Total 4,284 3,254 1,097 8,635 3,797 2,956 1,080 7,833 7,174 Unleased assets 30 18 - 48 28 17 - 46 23 Provisions (14) (34) (4) (52) (13) (19) (4) (36) (34) Non-performing lease financing, net of provisions 102 69 8 179 92 55 9 156 121 Accrued interest Total 70 9 1 80 67 5 1 74 99 4,472 3,316 1,102 8,890 3,971 3,014 1,087 8,072 7,384 Note 7 – Securities portfolio in millions of euros 2004 2003 Trading securities Securities held for sale Investment securities (Note 10) 9,043 6,087 - Equity (1) securities held for investment 2002 Securities Investment held for securities sale Total Trading securities 7,199 22,329 4,399 5,974 8,572 (53) (104) (157) - (57) (82) 9,043 6,034 7,095 22 ,172 4,399 5,917 8,489 827 2,269 - 1,342 4,438 632 2,026 - - (87) - (267) (354) - (148) - 827 2,182 - 1,075 4,084 632 1,877 - 9,870 8,216 7,095 1,075 26,256 5,031 7,794 8,489 Equity (1) securities held for investment Total Total Bonds and other fixed income securities At cost Provisions Net book value (Note 8) - 18,945 21,599 - (139) (155) - 18,805 21,444 Equities and other variable income securities At cost Provisions Net book value (Note 9) Total 1,321 3,979 (239) 3,813 (387) (423) 1,082 3,592 3,390 1,082 22,397 24,834 (1) Equity securities held for investment correspond primarily to the Group’s private equity portfolios. Note 8 – Bonds and other fixed income securities in millions of euros 2004 Trading securities 142 At cost Listed securities – public sector issuers – other issuers Unlisted securities – public sector issuers – other issuers Loaned securities Borrowed securities Doubtful accounts Accrued interest Total, at cost including subordinated notes Total provisions Provisions for doubtful accounts Provisions for impairment in value Provisions for country risks Total provisions BANQUE POPULAIRE GROUP Total net book value 2003 Securities Investment held for securities sale (Note 10) 2002 Total Trading securities Securities held for sale Investment securities Total Total 711 4,026 164 1,421 57 3,840 932 9,288 260 2,480 177 2,202 83 4,679 600 520 9,361 12,647 1,965 217 2,124 - 14 4,415 36 37 3,064 143 104 14 9,443 217 2,124 179 140 1,128 89 443 - 3,530 39 27 25 3,536 148 100 25 8,194 89 443 187 128 9,043 - 6,087 35 7,199 22 22,329 57 4,399 - 5,974 77 8,572 18,945 21,599 11 88 139 - (33) (20) - (104) - (137) (20) - - (29) (28) - (82) - (112) (28) - (126) (29) - - (53) (104) (157) - (57) (82) (139) (155) 9,043 6,034 7,095 22,172 4,399 5,917 585 6,037 281 1,121 174 154 8,489 18,805 21,444 Financial information Note 9 – Equities and other variable income securities in millions of euros 2004 2003 2002 Trading securities Securities held for sale Equity securities held for investment Total Trading securities Securities held for sale Equity securities held for investment Total Total 1 40 245 755 139 227 33 755 179 505 17 53 245 410 219 281 40 426 272 566 337 307 897 26 150 365 - 176 771 195 0 1,309 - 202 921 1,869 0 10 144 164 - 192 637 279 0 1,281 - 202 781 1,725 0 202 443 1,620 0 At cost Listed securities – Capital accumulation funds – Other mutual funds – Other variable income securities Unlisted securities – Capital accumulation funds – Other mutual funds – Other variable income securities Treasury stock Accrued interest - 6 - 6 - 7 - 7 6 827 2,269 1,342 4,438 632 2,026 1,321 3,979 3,813 Provisions for impairment in value Listed securities - (78) (8) (86) - (83) (9) (92) (151) Unlisted securities - (9) (259) (268) - (66) (229) (295) (272) Treasury stock - - - - - - - - - (87) (267) (354) - (149) (238) (387) (423) 827 2,182 1,075 4,084 632 1,877 1,082 3,592 3,390 Unrealized gains and losses Unrealized losses – based on stock market prices – values determined by other methods (87) / / (267) (8) (259) (149) / / (238) (9) (229) Unrealized gains – based on stock market prices – values determined by other methods 163 / / 414 25 389 133 / / 507 24 483 Total, at cost Total provisions Total - 143 Note 10 – Investment securities in millions of euros 2002 2003 Purchases 3,139 2,500 368 (14) (170) (1) (9) 9,647 8,572 6,156 (1,559) (5,665) (184) (7) Sales Redemp- Translation Premium / tions adjustments discount Transfers Changes in Other 2004 scope of movements (1) consolidation Government securities and equivalent At cost 1 (21) 2,655 43 (83) 7,199 Gains and losses on sales Bonds and other fixed income securities At cost Gains and losses on sales (1) Arising on changes in intercompany eliminations. (1) (73) Note 11 – Transfers between portfolios in millions of euros 2004 2003 Trading Securities securities held for sale Investment securities 2002 Trading Securities securities held for sale Investment securities Trading Securities securities held for sale Investment securities Government securities and equivalent At cost - - - - - - - - - Provisions for impairment in value - - - - - - - - - At cost - 83 (83) (8) (125) 134 - (215) 215 Provisions for impairment in value - (1) 1 - - - - - - (56) 56 - - - - - - - - - - - - - - - - Bonds and other fixed income securities Equities and other variable income securities At cost Provisions for impairment in value Transfers between portfolios in 2004 were not material. Note 12 – Insurance company investment portfolios in millions of euros 2004 2003 2002 Land and buildings 585 581 678 Other investments 21,166 18,850 16,801 4,292 4,020 3,448 26,044 23,451 20,927 Insurance company assets Assets held to cover linked liabilities Total 144 Insurance company investments corresponding to securities issued by other consolidated entities are qualified as intercompany receivables and are therefore eliminated in consolidation. Note 13 – Investments in affiliates and other securities held for investment in millions of euros Notes 2004 2003 2002 Investments in affiliates and other securities held for investment, at cost Provisions for impairment in value 14/15 14/15 1,049 (161) 965 (162) 965 (150) 888 90 (1) 5 6 804 101 6 1,186 815 44 (9) 1,270 989 2,096 2,120 Investments in affiliates and other securities held for investment, net Investments accounted for by the equity method Translation adjustments Accrued revenues and other (2) BANQUE POPULAIRE GROUP Total 67 (1) The decrease in the value of investments accounted for by the equity method in 2004 was principally due to the change of consolidation method for Banque Edel, which was fully consolidated in 2004. (2) Including a shareholders’ loan of ¤1,165 million and ¤1,250 million in 2003 and 2002, respectively, to Ecrinvest4, made in connection with the acquisition of Vivendi Universal Publishing by Natexis Banques Populaires on behalf of the Lagardère Group.This deal was closed out in the first half of 2004. Financial information Note 14 – Movements in investments in affiliates and other securities held for investment in millions of euros 2002 2003 Increases Investments in affiliates and other securities held for investment 773 802 76 (55) (1) 30 (35) 817 Investments in related companies 126 128 32 (18) 4 16 31 193 66 34 - - - - 4 39 965 965 108 (73) 3 46 (135) (142) (12) 20 1 - 4 (128) (11) (16) (1) 4 - (6) (8) (27) (4) (4) - 2 - - (4) (6) (150) (162) (14) 26 1 (6) (8) (161) 815 804 94 (47) 4 41 (8) 888 Decreases Translation adjustments Changes in Other scope of movements consolidation 2004 At cost Investments in non-trading real estate companies Sub-total - 1,049 Provisions for impairment in value Investments in affiliates and other securities held for investment Investments in related companies Investments in non-trading real estate companies Sub-total Investments in affiliates and other securities held for investment, net Note 15 – Book and market values of investments in affiliates and other securities held for investment in millions of euros Listed companies At cost Provisions Unlisted companies At cost Provisions Total net book value Estimated value Stock Other market methods value 2004 Investments in affiliates and other securities held for investment Credit institutions 34 - 151 (3) 181 45 321 8 (1) 43 (9) 47 8 42 Other companies 43 - 403 (62) 384 78 348 Other securities held for investment 66 (38) 64 (15) 77 33 64 150 (39) 661 (89) 689 164 775 Other finance companies Total Net book value 111 572 2003 Investments in affiliates and other securities held for investment Credit institutions 33 - 141 (4) 170 45 130 3 (1) 87 (5) 85 3 115 Other companies 41 (1) 374 (71) 342 78 419 Other securities held for investment 60 (41) 63 (19) 63 11 65 136 (43) 666 (98) 661 138 728 Other finance companies Total Net book value 93 567 145 Note 16 – Property and equipment and intangible assets in millions of euros Notes At cost Assets used in the business 2003 2004 Depr./ Amort. Provisions Net book value At cost Depr./ Amort. 2002 Pro- Net book Net book visions value value 17 Intangible assets 1,005 (380) (51) 574 930 (320) (53) 558 525 Property and equipment 3,369 (1,733) (3) 1,632 3,144 (1,596) (24) 1,524 1,337 4,374 (2,113) (54) 2,206 4,074 (1,916) (76) 2,081 1,862 Total Investment properties 17 148 (34) (17) 97 78 (24) (1) 53 55 Assets leased to third parties under operating leases 18 219 (125) (9) 86 230 (118) (10) 102 122 4,741 (2,272) (80) 2,389 4,383 (2,059) (87) 2,237 2,040 Other 2004 TotaI Note 17 – Movements in operating and non-operating assets 146 in millions of euros 2002 2003 Increases At cost Intangible assets used in the business Leasehold rights and purchased goodwill (1) Software Other 481 299 36 492 363 76 12 73 35 (2) (30) (21) (1) - 4 10 2 6 15 (28) 512 430 63 816 Property and equipment used in the business Land 188 Buildings 919 Shares in non-trading real estate companies 46 Other 1,607 930 121 (53) (1) 16 (7) 1,005 199 1,041 62 1,842 2 31 19 348 (4) (119) (2) (1) (3) (2) (57) 9 4 198 1,011 91 2,070 2,760 77 3,144 78 401 11 (123) (5) (2) - (4) (1) (46) 64 3,369 148 (46) (229) (17) (59) (295) (18) (13) (65) (3) 26 5 1 - (6) - (4) (1) 2 (76) (341) (13) (291) (373) (81) 31 1 (6) (3) (431) (10) (10) (420) (480) (993) (1,130) (44) (184) 2 78 1 2 (1) 7 15 6 (3) (504) (1,229) (1,423) (1,620) (22) (25) (228) (4) 81 2 1 1 28 (23) (1,737) (51) Investment properties Depreciation, amortization and provisions Intangible assets used in the business Leasehold rights and purchased goodwill Software Other Decreases Translation adjustments Changes in scope of consolidation Property and equipment used in the business Land Buildings Other Investment properties BANQUE POPULAIRE GROUP (1) In 2003 and 2004, the Group measured its material intangible assets, assisted by a firm of independent valuers. See Note 2 – Accounting policies and valuation methods, paragraph 2.5. Financial information Note 18 – Assets leased to third parties under operating leases in millions of euros 2004 2003 2002 At cost 198 204 203 Depreciation (125) (118) (98) (6) (8) (7) Provisions for impairment in value Net book value Doubtful accounts, net of provisions 67 78 98 19 24 24 - 1 1 86 102 122 Accrued interest Total assets leased to third parties under operating leases Note 19 – Goodwill in millions of euros 2002 2003 Gross 377 366 (9) 24 (6) 375 Natexis Bleichroeder Inc 107 90 - - (6) 84 Coface group 69 67 - 36 - 103 Natexis Assurances 60 60 - - - 60 Natexis Banques Populaires 51 51 - 3 - 54 Natexis Bail 18 18 - - - 18 Samic 16 17 - (17) - 0 Coficiné 15 15 - - - 15 9 13 - - - 13 Natexis Factorem Amortized goodwill Movements for the year Translation adjustments Banque du Dôme (taken over in 2003 by Natexis Factorem) 4 - - - - Banque Privée Saint Dominique 6 6 (6) - - Natexis Intertitres - 6 - - - 2004 6 Other 23 23 (3) 3 - 23 Amortization (1) (48) (105) 9 (56) 5 (148) Goodwill, net 330 261 (33) (1) 228 (1) In accordance with the recommendations of the Autorité des Marchés Financiers and the Commission Bancaire, the Group measured all its material goodwill, which led to an exceptional write-down of €37.6 million (€34.4 million for Natexis Bleichroeder Inc and €3.2 million for Samic). See Note 1 – Consolidation methods and principles, paragraph 1.7. Note 20 – Accrued income, prepaid expenses and other assets Notes 2004 2003 2002 Other assets 21 4,791 4,911 7,204 Accrued income and prepaid expenses 22 3,910 5,506 4,566 Accrued income, prepaid expenses and other assets – insurance companies 23 860 2,994 3,017 9,561 13,411 14,787 in millions of euros Total 147 Note 21 – Other assets in millions of euros Purchased options 2004 2003 2002 1,625 1,067 2,187 Securities settlement accounts 335 575 1,131 Deferred tax assets 573 471 437 Real estate development transactions Other assets Other receivables Doubtful accounts, net of provisions Accrued interest Total 74 39 35 146 540 27 2,023 2,206 3,372 5 3 3 10 9 11 4,791 4,911 7,204 Note 22 – Accrued income and prepaid expenses in millions of euros 2004 2003 2002 Collection accounts 597 1,055 1,125 Adjustment accounts 406 360 371 Suspense accounts 5 7 4 Unrealized losses on outstanding hedging positions 1 3 1 Unrealized losses on settled hedging positions 5 7 4 109 130 155 1,037 1,184 936 41 42 54 9 3 4 Other accruals and adjustment accounts 1,699 2,715 1,913 Total 3,910 5,506 4,566 Prepaid expenses Accrued income Deferred issue premiums Other deferred charges 148 Note 23 – Accrued income, prepaid expenses and other assets – insurance companies in millions of euros 2004 2003 2002 Reinsurers’ share of technical reserves (1) 263 2,584 2,643 Insurance receivables 393 233 231 Reinsurance receivables 49 52 39 Accrued premium income 129 105 90 Deferred acquisition costs 19 12 7 6 8 7 860 2,994 3,017 Other receivables Total BANQUE POPULAIRE GROUP (1) The significant decrease in reinsurers' share of technical reserves is due to the expiration on December 31, 2003 of the proportional reinsurance treaty entered into in 1998 for an initial term of five years. Financial information Note 24 – Interbank and money-market liabilities in millions of euros 2004 2003 2002 29 32 3 5,446 40,823 6,104 32,712 12,091 36,064 Other 396 645 382 Accrued interest 277 189 395 46,971 39,682 48,935 Notes Central banks and post office banks Interbank liabilities - demand deposits - time deposits 25 25 Total Note 25 – Analysis of interbank liabilities in millions of euros 2004 Demand Time 2003 Total Demand Time 2002 Total Total Interbank deposits 2,561 - 2,561 3,268 - 3,268 7,034 Interbank borrowings 2,633 9,724 12,357 2,631 10,095 12,726 16,422 17 1,546 1,563 205 777 982 1,520 234 29,553 29,788 - 21,840 21,840 23,178 5,446 40,823 46,269 6,104 32,712 38,816 48,155 Assets sold under repurchase agreements Securities sold under repurchase agreements Total Note 26 – Customer deposits in millions of euros Notes 2004 2003 2002 27 27 57,817 38,788 53,616 43,768 41,827 40,949 Security deposits 224 200 135 Other 425 380 364 Accrued interest 999 979 934 98,253 98,945 84,209 Deposits - demand deposits - time deposits Total 149 Note 27 – Analysis of customer deposits in millions of euros 2004 2003 2002 Demand Time Total Demand Time Special savings accounts 17,836 18,415 36,251 15,591 17,897 33,488 28,673 Other customer deposits 33,752 7,890 41,643 34,578 6,118 40,696 34,662 116 513 629 105 1,909 2,014 2,484 67 - 67 5 13 18 12 5,731 11,654 17,385 3,030 17,541 20,570 16,411 314 315 630 306 292 598 534 57,817 38,788 96,605 53,616 43,768 97,384 82,776 Borrowings from financial sector customers Assets sold under repurchase agreements Securities sold under repurchase agreements Factoring liabilities Total Total Total Note 28 – Debt securities in millions of euros 2004 2003 2002 Retail certificates of deposit and savings bonds 177 187 192 Interbank market instruments - - 2 35,650 21,705 3,985 9,960 29,424 18,403 2,702 8,319 24,300 9,051 1,558 13,691 4,962 6,797 5,813 Other debt securities 921 782 699 Accrued interest 291 337 399 42,001 37,527 31,403 Money market instruments Including: - Instruments issued to credit institutions - Instruments issued to financial sector customers - Instruments issued to other customers Bonds Total BANQUE POPULAIRE GROUP 150 Financial information Note 29 – Insurance company technical reserves in millions of euros 2004 2003 2002 24,399 19,860 176 4,363 22,493 18,265 162 4,065 20,150 16,517 131 3,502 Loss reserves 934 830 861 Loss equalization reserves (1) 187 135 83 Mathematical reserves Including: - Life business - Non-life business - Unit-linked business Other technical reserves Policyholders’ surplus reserves Capitalization reserves Total 33 34 115 172 168 103 - - - 25,725 23,660 21,312 (1) The loss equalization reserves of the Coface group are included in technical reserves because they cover a macro-economic risk of a change in claims experience over several years. See Note 1 – Consolidation methods and principles, paragraph 1.16. Note 30 – Deferred income, accrued charges and other liabilities in millions of euros Other liabilities Deferred income and accrued charges Deferred income, accrued charges and other liabilities – insurance companies Total Notes 2004 2003 2002 31 32 10,855 5,809 8,646 7,066 9,367 6,253 33 196 2,500 2,448 16,861 18,212 18,068 Note 31 – Other liabilities 2004 2003 2002 1,446 1,045 2,450 Securities settlement accounts 344 462 573 Deferred tax liabilities 421 399 388 4,541 3,140 2,859 166 164 160 3,588 3,101 2,644 in millions of euros Sold options Amounts due on securities Amounts outstanding on unpaid up securities Sundry payables Investment grants 160 98 73 Allocated public funds 114 129 105 75 110 116 10,855 8,646 9,367 Accrued interest Total 151 Note 32 – Deferred income and accrued charges in millions of euros Collection accounts Adjustment accounts Suspense accounts Unrealized gains on outstanding hedging positions 2004 2003 2002 747 791 623 1,058 697 569 6 6 8 - 1 - 14 5 2 Deferred income 873 2,004 (1) 2,043 Accrued charges 1,372 1,490 1,206 Other accruals and adjustment accounts 1,738 2,072 1,801 Total 5,809 7,066 6,253 Unrealized gains on settled hedging positions (1) Including deferred income in connection with the acquisition of Vivendi Universal Publishing by Natexis Banques Populaires on behalf of the Lagardère Group (€1,165 million in 2003 and €1,250 million in 2002).The deal was closed out in the first half of 2004. Note 33 – Deferred income, accrued charges and other liabilities – insurance companies in millions of euros 2004 2003 2002 Insurance payables 101 96 71 Reinsurance payables 76 97 57 Cash deposits received from reinsurers (1) 14 2,304 2,319 4 2 1 196 2,500 2,448 Other liabilities Total (1) The significant decrease in cash deposits is due to the expiration on December 31, 2003 of the proportional reinsurance treaty entered into in 1998 for an initial term of five years. Note 34 – Negative goodwill 152 in millions of euros 2002 2003 Gross 433 510 Natexis Banques Populaires 388 388 - 388 46 123 (107) (1) 16 Amortization (204) (220) (40) (260) Negative goodwill, net 229 290 (147) 142 Others Movements for the year (107) 2004 403 BANQUE POPULAIRE GROUP (1) Including €117 million in negative goodwill (after tax) arising on the acquisition of Agence Française de Développement subsidiaries at end 2003, which was allocated to loan loss provisions - see notes 35 and 62. Financial information Note 35 – Provisions in millions of euros Notes 2002 2003 3,388 3,967 1,255 (1,364) (21) 187 (2) (44) 3,980 718 714 221 (285) (2) 2 26 675 2 2 - - - - - 2 4,108 4,683 1,475 (1,649) (24) 189 (19) 4,657 Increases Decreases Translation adjustments Changes in scope of consolidation Other 2004 Provisions deducted from assets Provisions for non-performing loans and other doubtful accounts Provisions for impairment in value Provisions for country risks Total provisions deducted from assets Provisions recorded under liabilities Provisions for counterparty risks 36 770 859 164 (178) (10) 4 15 854 Provisions for losses 36 72 62 16 (40) - 9 - 47 Provisions for operating expenses 36 995 944 187 (109) (1) 3 7 1,031 Exceptional provisions 36 16 9 9 (10) - - (1) 7 1,853 1,873 376 (337) (10) 16 21 1,939 5,961 6,557 1,851 (1,986) Net charge for the year: 135 (34) 205 (2) 6,597 Total provisions recorded under liabilities Total provisions Impact on the income statement (1) Charges Reversals Net impact Net banking income (304) 553 249 General operating expenses (112) 56 (56) Gross operating income (416) 609 193 (1,345) 1,304 (41) (21) 43 22 (1,782) 1,955 174 (9) 10 1 (60) 20 (40) (1,851) 1,986 135 Provisions for loan losses Net gains (losses) on disposals of fixed assets Income before exceptional items and tax Exceptional items Corporate income tax Net income before minority interests (1) Provision movements are included on several different lines of the income statement, based on their substance.The above note shows the impact of provision movements on the main income statement captions. (2) Including €180 million (€117 million after tax) in loan loss provisions after reallocation of the negative goodwill arising on the acquisition of Agence Française de Développement subsidiaries at end 2003 - see notes 34 and 62. 153 Note 36 – Provisions for contingencies and charges in millions of euros 2002 2003 Provisions for off-balance sheet commitments 103 129 67 Provisions for country risks (1) 290 263 28 Provisions for industry risks (1) 139 269 8 Provisions for customer claims 52 89 45 187 108 770 On portfolio securities and forward financial instruments On long-term investments Changes in scope of consolidation Other 2004 - 4 5 138 (29) (7) - - 255 (22) (2) - - 252 (26) - - 18 126 17 (34) - - (8) 82 859 164 (178) (10) 4 15 854 29 17 9 (15) - - 4 15 16 19 2 (10) - - - 11 6 5 1 (1) - - (4) 1 21 22 4 (14) - 9 - 21 72 62 16 (40) - 9 - 47 Retirement benefit obligations – active employees 204 232 45 (7) - (1) 3 270 Retirement benefit obligations – retired employees 545 553 17 (15) - - (1) 554 Provisions for taxes 177 100 60 (33) - - 4 130 Increases Decreases Translation adjustments Provisions for counterparty risks Other customer-related provisions (66) Provisions for losses On real estate development transactions On other assets Provisions for future operating expenses Other 69 59 65 (53) - 4 1 77 995 944 187 (109) (1) 3 7 1,031 Provisions for information systems restructuring costs - - - - - - - Provisions for restructuring costs 12 9 5 (6) - (3) 5 Exceptional provisions Other exceptional provisions 5 - 4 (4) - 2 2 16 9 9 (10) - (1) 7 1,853 1,873 377 (337) 16 21 1,939 154 Total (10) BANQUE POPULAIRE GROUP (1) Provisions for country risks and industry risks mainly relate to the business of Natexis Banques Populaires.These risks and the level of the related provisions are affected by cyclical developments in each industry and country, and are expected to change over time. Financial information Note 37 – Provisions for non-performing loans and other doubtful accounts in millions of euros 2004 Gross Interbank loans – Non-performing – Irrecoverable Customer loans and lease financing – Non-performing – Irrecoverable Securities portfolio and other receivables – Non-performing – Irrecoverable Total non-performing loans and other doubtful accounts (1) – Non-performing – Irrecoverable 109 79 30 2003 Pro- Net book visions value Provision coverage Net book value Provision coverage (74) (1) (73) 44 4 40 62.9 % 36 23 13 65.2% 5,708 (3,805) 1,539 (805) 4,169 (3,000) 1,903 734 1,169 66.7 % 1,562 849 712 67.3% (129) (42) (87) 79 40 39 62.0 % 74 40 34 65.0% 6,033 (4,008) 1,626 (848) 4,407 (3,160) 2,025 778 1,247 66.4% 52.2 % 71.7 % 1,672 912 759 67.2% 57.1% 74.4% Gross 117 4 113 (59) (33) (26) 50 46 4 54.2% 5,596 (3,819) 2,442 (1,252) 3,154 (2,567) 1,778 1,191 587 68.2% (154) (65) (89) 47 23 25 76.5% 5,907 (4,032) 2,610 (1,350) 3,298 (2,682) 1,875 1,259 616 68.3% 51.7% 81.3% 202 88 114 Net book value Provision coverage 207 82 126 Provisions 2002 (1) The above provision coverage rates are based solely on provisions for identified risks (non-performing loans and doubtful accounts).They do not take into account general provisions for industry and country risks recorded under liabilities and presented in note 36. Note 38 – Long-term subordinated debt in millions of euros Subordinated debt with fixed maturities Perpetual subordinated debt Mutual guarantee deposits Accrued interest Notes 2004 2003 2002 39 39 4,398 163 19 95 4,049 266 23 92 3,705 136 8 77 4,675 4,431 3,927 Total Note 39 – Changes in subordinated debt in millions of euros 155 2002 2003 Issues 3,580 125 4,043 6 671 30 (309) (30) (18) - - - 10 4,397 (5) 1 3,705 4,049 701 (339) (18) - - 4 4,398 82 55 211 55 - (27) - (87) 1 - 9 1 133 30 136 266 - (28) - (85) - 9 163 3,842 4,316 702 (367) (18) (85) Redemp- Translation Changes in tions adjustscope of (1) ments consolidation ReclasOther sification movements (2) 2004 Subordinated debt with fixed maturities Subordinated notes Other subordinated debt Perpetual subordinated debt Subordinated notes Other subordinated debt Total 14 4,561 (1) In 2004, Banque Fédérale des Banques Populaires issued subordinated notes in June (€81 million, maturing in 2014), October (€77 million, maturing in 2010), and December (€45 million, maturing in 2015). Crédit Coopératif issued subordinated notes in December 2004 (€30 million, maturing in 2014). Natexis Banques Populaires issued subordinated notes in November 2004 (€450 million, maturing in 2016). (2) Other movements correspond primarily to changes in eliminations of subordinated debt issued to other Group entities, representing intercompany transactions. Note 40 – Shareholders' equity in millions of euros Consolidated shareholders’ equity at December 31, 2002 before income appropriation 2002 net income Dividends Consolidated shareholders’ equity at December 31, 2002 after income appropriation Capital stock Additional paid-in capital Reserves and retained earnings (1) Shareholders’ equity excl. FGBR Fund for general banking risks Shareholders' equity 2,431 455 3,793 6,679 1,891 8,570 1,616 - - 532 (81) 532 (81) - 532 (81) 90 (76) 2,431 455 4,244 7,130 1,891 9,021 1,630 114 (2) - (148) (74) (7) 253 (74) (7) - 253 (74) (7) (93) (2) 66 113 348 9 357 6 - 1 1 8 169 - 8 169 1 204 87 - 2,886 635 4,129 7,651 2,077 9,727 1,833 - - 853 (86) 853 (86) - 853 (86) 129 (86) 2,886 635 4,896 8,418 2,077 10,494 1,876 (7) (106) (37) - 147 (37) - - 147 (37) - (42) 62 (8) 10 Issuance of shares 286 Translation adjustments Changes of method (3) First-time consolidation of Crédit Coopératif (4) 169 First-time consolidation of Crédit Maritime Mutuel (5) Other changes in scope of consolidation (6) Net charge to fund for general banking risks Other movements Consolidated shareholders’ equity at December 31, 2003 before income appropriation 2003 net income Dividends Consolidated shareholders’ equity at December 31, 2003 after income appropriation Issuance of shares 147 Translation adjustments Changes of method Other changes in scope of consolidation Net charge to fund for general banking risks Other movements (9) 156 Consolidated shareholders’ equity at December 31, 2004 before income appropriation 2004 net income Consolidated shareholders’ equity at December 31, 2004 after income appropriation 106 (2) - - - - - Minority interests - (10) (10) 115 - 115 (10) 3,033 741 4,743 8,517 2,192 10,709 1,906 - - 1,059 1,059 - 1,059 162 3,033 741 5,802 9,576 2,192 11,768 2,068 (10) (1) Reserves,consolidation adjustments,revaluation reserves,cumulative translation adjustment and consolidated net income attributable to the Group. (2) In connection with the mergers of Banque Populaire regional banks, the retained earnings of the merged bank are transferred to additional paid-in capital in the accounts of the surviving Banque Populaire bank. BANQUE POPULAIRE GROUP 2003: (3) Changes of accounting method: See Note 1 – Consolidation methods and principles paragraph 1.3 – Standard CRC 2002-03 relating to the classification of non-performing loans and the accounting treatment of restructured loans at below market rates was adopted on January 1, 2003. For the restructured loans identified as concerned by this standard, the future interest differential between the rate charged and the market rate at the time of the restructuring gave rise to a discount. As these loans were restructured in prior years, the discount, totaling €7.4 million after tax, has been set off against shareholders’ equity in the amount of €5.6 million, with the balance set off against minority interests. – Standard CRC 2002-10 relating to depreciation, amortization and impairment of assets, is applicable from January 1, 2005. The Banque Populaire Group has not opted for early application of this standard.The standard contains transitional provisions applicable from January 1, 2003 relating to expense incurred under multi-year programs for major repairs or refits. At December 31, 2003 a provision of €1.5 million after tax was recorded due to the application of this new standard, with €1.4 million deducted from shareholders’ equity and the balance deducted from minority interests. – Following the change in French insurance regulations concerning liquidity risk reserves (decree no. 2003-1236 of December 22, 2003 amending Article R331-5-1 of the Insurance Code), the Banque Populaire Group reviewed these risks and decided that they were not Financial information covered by other reserves.A liquidity risk reserve was therefore booked in the consolidated balance sheet at December 31, 2003 covering the total risk, whereas in 2002 – with the approval of the insurance regulator (Commission de Contrôle des Assurances) – only part of the risk was reserved for, reflecting the method applied in the accounts of the insurance subsidiaries. This accounting treatment was in accordance with recommendation no. 2004-B dated January 21, 2004 issued by the CNC Urgent Issues Task Force. • The switch from partial reserving to full reserving constituted a change of accounting method, the effects of which were charged against opening shareholders' equity at January 1, 2003 in the amount of €148.5 million before tax and €95.9 million after tax (of which €72.3 million attributable to the Group). • Following the improvement in stock market prices in 2003, no charge to the liquidity risk reserve was necessary at December 31, 2003 and the additional reserve booked in the opening balance sheet (difference between full and partial-reserving method) was released by crediting shareholders' equity. • Consequently, the change of method had no impact on either consolidated net income or shareholders' equity. (4) On January 30, 2003 Crédit Coopératif joined the Banque Populaire Group and took on the status of société coopérative de Banque Populaire à capital variable, by decision of its member-stakeholders at the Extraordinary Meeting held on January 30, 2003. Following this change of status, Crédit Coopératif became a Banque Populaire bank and joined the ranks of the parent companies.The subsidiaries that it held directly or indirectly were consolidated for the first time in 2003 in the Banque Populaire Group’s financial statements. See Note 3 – Changes in scope of consolidation, paragraph 3.2. (5) On August 1, 2003, in application of article 93 of the French Financial Security Act (Law no. 2003-706), Banque Fédérale des Banques Populaires became the central body of the Crédit Maritime Mutuel network. In view of its “affiliated” status, its reserves are recorded under “Minority interests”. See Note 3 – Changes in scope of consolidation, paragraph 3.3. (6) This item primarily includes: – €178 million following the first-time consolidation of Natexis Banques Populaires Capital III, a subsidiary of Natexis Banques Populaires, set up for the issue of a fourth tranche of preference shares. – €(90) million gross impact arising on consolidation of the Alizé Levier corporate mutual fund, which holds 2.25% of Natexis Banques Populaires' capital.This fund was set up in connection with the Banque Populaire Group employee savings plan. – €(1) million arising on other changes in scope of consolidation. (7) Minority interests relating to the issuance of preference shares total €597 million. 2004: (8) This item primarily includes: – €80 million arising on first-time consolidation of credit establishments (not subsidiaries) that have signed an association agreement with Crédit Coopératif. In view of their “associated” status, their reserves are recorded under “Minority interests”; – €(15) million arising on the squeeze-out made by Natexis Banques Populaires for the remaining Coface shares; – €(13) million arising on Coface's buyout of the minority interests in Unistrat; – €7 million in dilution arising on Natexis Banques Populaires' acquisition of BP Développement shares from the Banque Populaire banks, – €1 million arising on other changes in scope of consolidation. (9) On December 23, 2004, Natexis Assurances acquired the 435,000 Crédit Maritime Vie shares previously held by the Crédit Maritime Group. As this is an internal restructuring operation, the capital gains have been eliminated. The change in minority interests resulting from the reclassification of these shares is mirrored in a change in consolidated reserves, with no impact on the income statement. (10) Minority interests relating to the issuance of preference shares total €571 million at December 31, 2004. Note 41 – Fund for general banking risks in millions of euros 2002 Federal Guarantee Fund (1) Regional Guarantee Funds (1) 157 Changes in Other scope of consolidation(2) 2003 - - - 431 - - 1 343 - 17 (1) 1,302 - 17 Decreases Translation adjustments Changes in scope of consolidation Other 2004 7 - - - - 438 343 78 - - - 5 427 Fund for general banking risks 1,302 89 (59) - - (5) 1,327 Total 2,077 174 (59) - - - 2,192 Increases Decreases 426 5 - 269 73 - Fund for general banking risks 1,196 98 (8) Total 1,891 177 (8) in millions of euros 2003 Increases Federal Guarantee Fund (1) 431 Regional Guarantee Funds (1) Translation adjustments 2,077 (1) The Federal Guarantee Fund and Regional Guarantee Funds have been set up in connection with the mutual guarantee mechanism operating within the Banque Populaire banks network. See Note 1 – Consolidation methods and principles, paragraphs 1.1 and 1.13. (2) Impact in 2003 of first-time consolidation of Crédit Coopératif and the Crédit Maritime Mutuel network. Note 42 – Financing commitments in millions of euros 2004 2003 2002 Financing commitments given To credit institutions 2,681 2,681 3,709 To customers – Documentary credits – Other confirmed lines of credit – Other commitments 32,079 1,157 28,581 2,341 28,992 947 25,726 2,320 25,322 853 21,055 3,414 Total financing commitments given 34,760 31,673 29,031 From credit institutions 5,514 3,955 853 Total financing commitments received 5,514 3,955 853 2004 2003 2002 2,042 981 1,061 2,080 656 1,424 2,028 908 1,120 To customers – Real estate guarantees – Tax and other bonds – Other endorsements – Other guarantees 20,891 1,127 1,831 6,929 11,004 15,875 1,057 1,912 2,528 10,378 16,976 1,067 1,714 1,912 12,282 Total guarantees given 22,933 17,955 19,004 7,900 5,378 4,536 Financing commitments received Note 43 – Guarantees in millions of euros Guarantees given To credit institutions – Confirmed documentary credits – Other guarantees Guarantees received from credit institutions BANQUE POPULAIRE GROUP 158 Financial information Note 44 – Commitments on off-balance sheet financial instruments in millions of euros 2004 2003 2002 Hedging instruments Other Total Hedging instruments Other Total Total 12 7 43,145 28,209 43,157 28,216 46 10 75,664 28,560 75,710 28,570 45,946 21,385 19 71,354 71,373 56 104,225 104,280 67,331 4,353 190,363 31 70,836 332,475 793 75,189 522,838 824 17,269 198,577 24 260,038 122,042 168 277,307 320,619 192 214,453 333,542 171 194,747 404,104 598,851 215,870 382,248 598,118 548,166 49 358 55,405 1,560 1,519 50,918 56,924 55,154 54,562 2,791 7,916 57,944 62,479 51,589 43,643 Currency swaps – to be received – to be delivered 2,273 3,971 4,666 4,458 6,939 8,429 1,517 1,507 408 474 1,926 1,980 2,789 2,822 Other forward foreign exchange contracts – to be received – to be delivered 4,254 517 835 2,026 5,088 2,543 1,763 776 859 1,912 2,622 2,688 3,238 2,598 115,778 15,064 130,842 115,278 14,360 129,639 106,679 310,544 490,522 801,066 331,204 500,833 832,037 722,176 Interest rate options – Purchased options – Sold options - 7,468 1,470 7,468 1,470 - 4,343 4,424 4,343 4,424 4,461 4,181 Currency options – Purchased options – Sold options - - - - 1 1 1 1 - Other options – Purchased options – Sold options 1 1 6,575 5,874 6,576 5,875 1 1 9,329 9,091 9,329 9,093 6,556 6,870 2 21,387 21,389 2 27,188 27,191 22,067 Interest rate options – Purchased options – Sold options 9,362 1,798 22,693 32,449 32,055 34,247 3,080 1,819 15,950 25,871 19,030 27,689 19,005 22,877 Currency options – Purchased options – Sold options 58,942 58,170 12 9 58,954 58,179 35,285 40,005 4 - 35,290 40,005 39,772 43,660 Other options – Purchased options – Sold options 58 1 9,295 7,741 9,354 7,742 3,954 18 9,569 8,281 13,523 8,299 12,843 10,998 128,331 72,200 200,531 84,161 59,674 143,836 149,156 128,334 93,586 221,920 84,164 86,863 171,026 171,223 584,108 1,022,985 415,367 587,696 1,003,063 893,399 Futures and forward contracts Transactions on organized markets Interest rate instruments Currency instruments Financial assets Over-the-counter transactions FRAs Interest rate swaps Other Forward foreign exchange contracts Forward currency swaps – to be received – to be delivered Total futures and forward contracts Options Transactions on organized markets 159 Over-the-counter transactions Total options Total commitments on off-balance sheet financial instruments 438,877 The notional amounts presented above represent only an indication of the volume of transactions in financial futures and options carried out by the Banque Populaire Group. Risk-weighted equivalent values are presented in Note 47. Pursuant to article 2 of standard CRC 2004-16 on disclosing the fair value of financial instruments, the aggregate market value of futures and forwards is estimated at €1,124 million and the aggregate market value of options is estimated at €(37) million. Note 45 – Analysis by portfolio in millions of euros 2004 2003 2002 Micro hedges Macro hedges Speculative position taking Trading portfolio management Total Micro hedges Macro hedges Spec- Trading ulative portfolio position managetaking ment Total Total 4,188 166 - 70,836 75,189 17,031 238 177 259,860 277,307 214,453 160,324 30,038 6,208 37 859 8,265 15,369 141,783 56,794 3,014 9 10,268 111,775 320,619 882 - 3,906 333,542 5,611 83 195 546 - 824 156 18 17 - 192 171 170,803 30,436 11,345 371,635 602,024 553,777 6,710 2,652 Futures and forward contracts FRAs Interest rate swaps Cross-currency swaps Other 1,285 331,190 522,838 2,689 410,291 614,220 161,985 57,059 Options Purchased interest rate options Written interest rate options Total 1 22,692 32,055 1,108 1,973 - 15,950 19,030 19,005 485 1,313 1 32,448 34,247 678 1,141 2 25,869 27,689 22,877 7,195 3,965 2 55,140 66,302 1,785 3,114 2 41,819 46,720 41,883 177,998 34,401 11,346 413,454 648,743 595,660 2,691 465,432 680,522 163,770 60,173 Note 46 – Analysis of credit derivatives in millions of euros 2004 Helding transactions 2003 Other Helding transactions Other Credit Default swap Sales of hedging instruments 14 268 26 22 4,902 280 5,169 135 Sales of hedging instruments - 4 2 18 Purchases of hedging instruments - 0 79 133 Purchases of hedging instruments Other credit derivatives 160 Note 47 – Analysis of risk-weighted equivalents BANQUE POPULAIRE GROUP in millions of euros 2004 2003 2002 Total Total Government securities and equivalent OECD credit institutions Other counterparties Total Government securities and equivalent OECD credit institutions Other counterparties Unweighted credit risks before netting 198 10,206 754 11,159 84 10,094 593 10,770 13,161 Effect of netting and collateralization (72) (7,365) (100) (7,537) (17) (7,238) (5) (7,259) (5,267) Unweighted credit risks after netting 126 2,841 655 3,622 67 2,856 588 Weighting 0% 20% 50% / 0% 20% 50% / / 0 568 327 896 0 571 294 865 1,687 Risk-weighted equivalents 3,511 7,894 Risk-weighted equivalents express derivative instruments as credit equivalents, in accordance with the rules applied to calculate international capital adequacy ratios (Cooke ratio). Netting agreements and collateralization techniques are used to reduce counterparty risk. Financial information Note 48 – Interest income and expense in millions of euros 2004 Expense 2003 Income Net Expense 2002 Income Net Net Interbank assets and liabilities (1,571) 1,410 (161) (1,398) 1,323 (75) (268) Customer loans and deposits (1,729) 5,535 3,806 (1,715) 5,172 3,458 3,280 (24) 456 432 (21) 463 442 438 (2,272) 1,716 (556) (2,189) 1,638 (551) (421) (504) 503 (1) (610) 687 77 77 (6,100) 9,620 3,520 (5,933) 9,283 3,350 3,107 Lease financing Bonds and other fixed income securities Macro-hedging transactions Total (1) (1) In 2002 and 2003, interest income and expense on macro-hedging transactions was booked under interest income and expense on interbank assets and liabilities.The 2002 and 2003 figures have therefore been restated accordingly. Note 49 – Income from variable income securities in millions of euros 2004 2003 2002 Dividends on securities held for sale 14 12 16 Dividends on equity securities held for investment 27 21 21 Dividends on investments in affiliates 24 32 31 Total 65 65 68 Note 50 – Fees and commissions in millions of euros 2004 Expenses Treasury and interbank transactions Income 2003 Net Expenses 2002 Income Net Net (59) 38 (22) (45) 28 (17) (14) Payment media processing (340) 690 350 (297) 634 337 293 Customer transactions (117) 1,352 1,235 (100) 1,329 1,229 1,022 Securities transactions (33) 280 246 (45) 269 224 438 Currency transactions (2) 10 8 (1) 11 10 10 Off-balance sheet commitments (17) 131 115 (14) 111 97 238 Financial services (121) 493 372 (123) 399 276 (138) Advisory services - 16 16 - 16 16 17 (688) 3,009 2,321 (625) 2,797 2,172 1,866 Total Note 51 – Net gains on trading account securities in millions of euros 2004 2003 2002 Net gains (losses) on trading securities 537 241 127 Net gains on currency instruments Net gains (losses) on forward financial instruments Movements in provisions for contingencies and charges Total 76 15 59 (204) 91 (8) 5 14 (20) 414 361 159 161 Note 52 – Net gains on securities held for sale in millions of euros 2004 Securities held for sale 2003 Equity securities held for investment Total Securities held for sale Equity securities held for investment 2002 Total Total Charges to provisions (108) (85) (193) (143) (98) (241) (326) Reversals of provisions 172 60 232 209 84 293 157 Realized losses (60) (25) (85) (64) (25) (89) (108) Realized gains 117 173 290 119 103 222 259 Other (1) (3) (4) (1) (1) (2) (4) Total 120 120 240 120 63 183 (21) Note 53 – Other banking revenues and expenses in millions of euros 2004 Expenses Income 2003 Total Expenses Income 2002 Total Total Lease financing transactions – finance leases Gains and losses on sales of leased assets Provisions for impairment in value of leased assets Other income and expenses (21) 4 (17) (25) 4 (21) (7) (36) (275) 37 285 1 10 (31) (224) 28 242 (3) 18 (14) 7 (332) 326 (6) (280) 274 (6) (14) (4) (16) 4 6 22 4 2 6 (1) (4) (15) 1 5 21 1 6 1 9 3 (20) 32 12 (20) 27 7 14 (20) (18) (67) 11 9 152 (9) (9) 85 (15) (28) (79) 4 10 139 (11) (18) 60 (4) (7) 91 (105) 172 67 (122) 153 31 79 (457) 531 74 (422) 454 32 78 Lease financing transactions – operating leases Gains and losses on sales of leased assets Provisions for impairment in value of leased assets Other income and expenses Other banking revenues and expenses 162 Joint-venture income and losses Recharged banking revenues and expenses Other income and expenses Total Note 54 – Gross margin on insurance operations in millions of euros 2004 2003 2002 2,844 2,641 2,396 Personal risk insurance premium income 107 90 75 Credit insurance premium income 698 621 267 BANQUE POPULAIRE GROUP Life insurance premium income Net investment income 1,159 1,102 145 Paid benefits and claims (2,769) (2,519) (2,278) Change in technical reserves (1) (1,305) (1,298) (267) Other non-underwriting income 76 85 44 810 722 383 Total (1) Including net charges to the Coface group's loss equalization reserves (€48 million in 2003 and €52 million in 2004). Financial information Note 55 – Other net income in millions of euros 2004 2003 2002 9 5 14 2 1 6 6 6 14 17 18 IT development and other services Credit management services (1) Other activities 43 120 19 68 85 11 46 41 3 Total 196 181 108 Real estate management Real estate development Real estate dealing Total income from real estate activities (1) Corresponding to sales of credit information services, marketing information services and receivables collection services provided by Coface subsidiaries. Note 56 – General operating expenses in millions of euros 2004 2003 2002 (1,779) (283) (566) (135) (82) (154) (1,660) (272) (524) (116) (76) (146) (1,412) (243) (437) (92) (71) (125) (2,999) (2,794) (2,379) (148) (1,641) (165) (1,532) (164) (1,353) (1,789) (1,697) (1,517) (4,788) (4,491) (3,896) Payroll costs Wages and salaries Pension costs Other payroll taxes Incentive bonuses Employee profit-sharing Payroll-based taxes Total payroll costs Other general operating expenses Taxes other than on income Other general operating expenses Total other general operating expenses Total 163 Note 57 – Number of employees Number (1) 2004 2003 2002 (2) Employees 44,509 43,224 39,223 Domestic network 40,428 39,417 36,176 4,081 3,807 3,047 International network (1) Number of full-time equivalent employees (FTEs) at year-end. (2) The increase in 2003 was mainly related to local retail banking activities consolidated for the first time during the year: – Crédit Coopératif group (1,486 FTEs) – Crédit Maritime Mutuel group (959 FTEs) Note 58 – Provisions for loan losses in millions of euros 2004 Charges Net reversals 2003 WriteRecooffs not veries of bad covered debts by provisions written off Net Charges Net reversals 2002 WriteRecooffs not veries covered of bad by prodebts visions written off Net Net Specific provisions Interbank loans (4) 11 (1) Customer loans (1,129) 695 (49) (47) (10) (3) (1,180) 696 (54) (66) 66 - - Securities and other receivables 6 (11) 8 (1) (4) (16) 34 (449) - (1,036) 588 (35) 28 (455) (455) (51) (49) 5 (22) 26 (40) (71) 44 (494) (1,096) 601 (58) 54 (499) (542) - (51) 38 - 9 - Provisions for contingencies and charges Off-balance sheet commitments (7) (70) 83 - - 13 (211) 154 - - (57) 7 Provisions for country risks (29) 30 - - 1 (18) 22 - - 4 29 (165) 179 - - 14 (279) 213 - - (66) 29 (1,345) 875 (54) 44 (480) (1,375) 814 (58) 54 (565) (513) including: – Reversals of surplus provisions – Utilizations 875 429 814 320 Total reversals 1,304 1,134 – Losses covered by provisions Net reversals (429) (320) 875 814 Note 59 – Net gains on disposals of fixed assets in millions of euros 2004 Investments in affiliates and equivalents BANQUE POPULAIRE GROUP (13) General provisions Total provisions for loan losses and country risks 164 - Investment securities 2003 Property & equipment and intangible assets Total Investments in affiliates and equivalents Investment securities 2002 Property & equipment and intangible assets Total Total Charges to provisions (18) (3) - (21) (30) (1) - (31) (44) Reversals of provisions 36 7 - 43 36 12 - 48 34 Realized losses (26) (10) (11) (47) (27) (18) (5) (50) (67) Realized gains 31 9 11 51 39 4 9 52 119 Total 23 3 - 26 19 (4) 4 19 42 Financial information Note 60 – Exceptional items in millions of euros 2004 Exceptional income and expenses (net of provisions) Including: Merger costs (1) Other restructuring costs Contribution to Deposit Guarantee Fund Impact of changes in scope of consolidation during the period Other Charges to provisions Including: Information systems convergence Provisions for merger costs (1) Other restructuring provisions Other Total 2003 2002 (31) (17) (27) (17) (4) (11) (2) (22) (5) 10 (3) (21) (20) (4) 1 (6) (18) 1 - (5) (1) (30) (23) 18 (4) (4) (8) (4) (6) (45) (1) Costs related to the mergers of Banque Populaire regional banks. (2) Including expenses relating to Coface Group stock option plans: €(7.8) million. (3) Including €(10) million relating to the consolidation of the E-market special purpose entities and the new Coface subsidiaries (Kompass and Cofacerating), and €24 million relating to reductions in VAT and payroll taxes. (4) Including €6 million in income recognized on first-time consolidation of the Edval C Investment Ltd and Worledge Investment Ltd special purpose entities by Natexis Banques Populaires, offset by a €6 million provision for country risks on loans covered by the put option. Note 61 – Tax proof in millions of euros 2004 2003 2002 + + + +/- Net income for the year (before minority interests) Corporate income tax Allocation to fund for general banking risks Other permanent differences (1) Income from companies accounted for by the equity method 1,221 700 115 (235) (7) 982 544 168 (284) (12) 621 405 118 (107) (3) = Consolidated taxable income 1,794 1,397 1,034 x Standard tax rate 33.33% 33.33% 33.33% = + + + + + + + + + Tax at standard rate Avoir fiscal tax credits Group relief Surtaxes Items taxed at reduced rates Tax reassessments Differences in foreign tax rates Change in recognized deferred tax assets Exit tax on long-term capital gains reserves (2) Other (598) 8 13 (30) (7) (44) (7) (12) (25) 2 466 8 11 (29) (33) (42) (5) 6 6 (345) 12 13 (28) (37) (3) 1 (24) 5 = Corporate income tax for the year (700) (544) (405) including: (721) 21 (567) 23 (457) 52 - Current taxes - Deferred taxes (1) Including tax base for items taxed at reduced rates and income of subsidiaries that have issued preferred stock, for which dividends are qualified as interest for tax purposes. (2) Tax recognized pursuant to opinion 2005-A issued by the CNC's Urgent Issues Task Force on February 2, 2005 on the accounting treatment of the 2.5% exceptional tax on special long-term capital gains reserves, following the new tax provisions introduced under article 39 of the final 2004 Finance Act. 165 Note 62 – Deferred taxes in millions of euros 2004 2003 2002 Flow-through entities Leasing reserve Provisions for employee-related liabilities Other non-deductible provisions Unrealized gains on mutual fund units Ordinary and evergreen tax loss carryforwards Other temporary differences (450) (618) 624 900 70 310 (47) (524) (593) 615 720 52 329 (2) (548) (495) 638 700 30 365 (122) Total sources of deferred taxes, gross 789 597 568 Unrecognized sources of deferred tax assets (414) (451) (508) Total sources of deferred taxes, net 375 146 60 Recognized deferred taxes Deferred taxes at standard rate Deferred taxes – surtaxes Deferred taxes at reduced rate 150 8 (6) 84 5 (17) 67 4 (21) Total recognized deferred taxes 152 72 49 including: - Deferred tax assets (2) dont - Deferred tax liabilities 573 (421) 471 (399) 437 (388) Main sources of deferred taxes (1) (1) Positive amounts correspond to sources of deferred tax assets and negative amounts to sources of deferred tax liabilities. (2) Including €63 million in deferred tax assets recognized following the reallocation to loan loss provisions of the negative goodwill arising on acquisition of Agence Française de Développement subsidiaries at end 2003 - see notes 34 and 35. BANQUE POPULAIRE GROUP 166 Financial information Note 63 – Analysis of assets and liabilities by maturity in millions of euros 2004 Less than 3 months 1 to 5 More than No fixed 3 months to 1 year years 5 years maturity Total Interbank loans (1) 11,132 11,934 18,965 6,539 87 48,657 Customer loans 17,937 12,782 38,298 35,395 5 104,417 Lease financing 561 1,502 4,749 1,666 157 8,635 Bonds and other fixed income securities 10,890 2,118 5,471 3,320 211 22,009 Total assets 40,520 28,336 67,482 46,921 460 183,719 Interbank borrowings 12,051 14,297 12,494 1,980 0 40,823 Customer deposits 22,701 3,890 8,317 3,837 43 38,788 Debt securities 20,945 7,858 10,988 1,828 91 41,710 11 325 1,366 2,696 163 4,561 55,708 26,370 33,166 10,341 298 125,883 Less than 3 months 1 to 5 More than No fixed Total 3 months to 1 year years 5 years maturity 7,717 24,223 10,001 5,796 54 47,791 18,657 11,643 35,530 30,214 18 96,062 Assets Liabilities Other subordinated debt Total liabilities (1) Including government securities and equivalent. in millions of euros 2003 Assets Interbank loans (1) Customer loans Lease financing Bonds and other fixed income securities Total assets 482 1,371 4,240 1,628 112 7,833 5,016 2,392 6,683 4,522 17 18,630 31,872 39,629 56,454 42,160 201 170,316 167 Liabilities Interbank borrowings 5,870 20,445 4,716 1,681 0 32,712 Customer deposits 27,815 4,316 7,941 3,544 152 43,768 Debt securities 17,311 8,540 9,101 2,142 96 37,190 128 272 1,197 2,456 263 4,316 51,124 33,573 22,955 9,823 511 117,986 Other subordinated debt Total liabilities (1) Including government securities and equivalent. Note 64 – Analysis of outstanding loans and receivables by geographic area in millions of euros Interbank transactions Customer and lease financing transactions Securities transactions (1) 2004 France Western Europe Eastern Europe North America Latin and Africa and Central Middle America East Asia Not Pacific analyzed 26,824 8,635 284 310 376 713 2,420 64 39,626 67% 22% 1% 1% 1% 2% 6% 0% 100% 109,840 12,110 791 2,733 868 1,572 871 688 129,474 84% 9% 1% 2% 1% 1% 1% 1% 100% 10,020 3,944 6 5,141 73 43 453 67 19,747 52% 20% 0% 26% 0% 0% 2% 0% 100% Asia Not Pacific analyzed Total Total (1) Excluding lending and borrowing of securities. in millions of euros Interbank transactions Customer and lease financing transactions Securities transactions (1) 2003 France Western Europe Eastern Europe North America 29,189 8,941 201 403 431 699 1,986 425 42,275 69% 21% 0% 1% 1% 2% 5% 1% 100% 103,088 4,328 664 7,986 934 1,424 899 549 119,872 86% 4% 1% 7% 1% 1% 1% 0% 100% 8,351 2,971 9 5,516 182 43 573 628 18,273 46% 16% 0% 30% 1% 0% 3% 3% 100% (1) Excluding lending and borrowing of securities. BANQUE POPULAIRE GROUP 168 Latin and Africa and Central Middle East America Financial information Note 65 – Analysis of outstanding loans and receivables by client sector in millions of euros 2004 Credit Institutions Non financial companies Individual business owners Individuals Private administrations Public administrations and social security organizations Other Total 39,626 / / / / / / 39,626 / / / / 73,783 72,677 2,058 1,757 10,073 9,801 506 303 40,295 39,932 524 354 1,580 1,548 56 17 1,922 1,921 3 1 / (1,811) (368) (347) (34) (2) (5) (2,567) / (898) (169) (167) (8) (1) (7) (1,250) Securities transactions (1) 6,155 - Receivables related to fixedincome securities 6,153 - Irrecoverable receivables related to securities 2 - Doubtful receivables related to securities - Provisions for irrecoverable receivables related to securities (1) - Provisions for doubtful receivables related to securities 4,944 8 3,075 5,567 19,747 4,926 8 3,071 5,550 19,708 20 41 73 3 77 (25) (54) (2) (57) Interbank transactions Customer and lease financing transactions - Sound receivables - Irrecoverable receivables - Doubtful receivables - Provisions for irrecoverable receivables - Provisions for doubtful receivables 10 74 (12) (16) (55) 1,821 129,473 1,817 127,695 7 3,154 8 2,441 (1) Excluding lending and borrowing of securities. in millions of euros 2003 Credit institutions Non financial companies Individual business owners Individuals Private administrations Public administrations and social security organizations Other Total 42,275 / / / / / / 42,275 / / / / 67,252 65,933 3,011 1,051 9,230 8,988 528 210 36,204 35,894 576 259 1,502 1,479 36 9 2,661 2,661 1 1 / / (2,198) (545) (376) (120) (395) (130) (19) (3) (1) (1) (11) (6) (3,000) (805) Securities transactions (1) 4,823 - Receivables related to fixedincome securities 4,828 - Irrecoverable receivables 2 related to securities - Doubtful receivables related to securities - Provisions for irrecoverable (2) receivables related to securities - Provisions for doubtful receivables related to securities (5) 3,733 17 3,312 6,388 18,273 3,696 17 3,311 6,347 18,199 55 2 54 113 45 2 27 74 (40) (2) (34) (78) (23) (1) (6) (35) Interbank transactions Customer and lease financing transactions - Sound receivables - Irrecoverable receivables - Doubtful receivables - Provisions for irrecoverable receivables - Provisions for doubtful receivables (1) Excluding lending and borrowing of securities. 3,023 119,872 3,016 117,971 16 4,168 8 1,538 169 Note 66 – Segment information in millions of euros Year ended December 31, 2004 Financing, investment and services bank Local retail banking (1) Private Corporate & Equity Institutional & Wealth Banking & ManageMarkets ment (3) Services (5) Receivables Management Other Total (7) Banque Fédérale and other Group Total (2) (6) (4) 4,967 4% 1,157 6% 189 51% 609 8% 634 3% 80 ns 2,668 9% 5 ns 7,640 8% (3,269) 3% (656) 6% (89) 9% (408) 2% (503) 2% (155) ns (1,811) 5% (15) ns (5,095) 6% Change 2004 / 2003 1,698 7% 501 6% 100 127% 201 24% 131 4% (76) ns 857 19% (10) ns 2,545 12% Income / (loss) before exceptional items and tax Change 2004 / 2003 1,343 9% 398 44% 84 251% 185 20% 126 2% (25) ns 768 48% (12) ns 2,098 21% Net banking income Change 2004 / 2003 General operating expenses Change 2004 / 2003 Gross operating income /(loss) 170 The above table analyzes the Banque Populaire Group’s results based on a three-tier organization structure, reflecting the wide range of businesses conducted by the Group. The retail banking business (1) is conducted by the Banque Populaire regional banks, CASDEN Banque Populaire, Crédit Coopératif, Crédit Maritime Mutuel, the mutual guarantee companies and their direct subsidiaries, as well as the direct subsidiaries of Banque Fédérale des Banques Populaires (excluding Natexis Banques Populaires). Banque Fédérale des Banques Populaires (2) is the Group’s central body and the holding company for Natexis Banques Populaires. It is responsible for guaranteeing the liquidity and capital adequacy of the Banque Populaire banks. Natexis Banques Populaires is the Group’s financing, investment and services bank. Its business activities were restructured into four core businesses during the first half of 2004: n Corporate and Institutional Banking & Markets (3) comprises Corporate France (including lease financing), International, Global Debt & Derivatives Markets, Commodities, Equity Group, and Mergers & Acquisitions. These activities are principally conducted by Natexis Banques Populaires, Natexis Lease and Natexis Bleichroeder. n Private Equity and Wealth Management (4) comprises the private equity business of Natexis Private Equity and the wealth management business conducted by Banque Privée Saint Dominique and Natexis Private Banking Luxembourg. n Services (5) includes Banking, Financial and Technology Services together with Asset Management and Insurance (excluding Wealth Management). The Banking, Financial and Technology Services business line develops and markets a wide range of banking and financial services for banks and other institutions, including outsourcing services.Asset Management and Insurance is principally conducted by Natexis Asset Management (fund management), Natexis Assurances (insurance) and Natexis Interépargne (employee benefit plans). n Receivables Management (6) comprises the credit insurance and credit management services activities conducted by Coface together with Natexis Factorem's factoring business. n Other businesses (7) correspond to activities conducted by Natexis Banques Populaires which are not businesses in the true sense of the term, including its activities as holding company of direct subsidiaries. Net banking income from this segment includes income from treasury transactions, real estate revenues and revenues from institutional activities conducted on behalf of the State. General operating expenses correspond to headquarters expenses not allocated to the core businesses.“Other businesses” also includes certain consolidation adjustments that cannot be allocated to the core businesses. Changes are stated on a constant Group structure basis. 2003 figures have therefore been restated on the basis of the Group's structure as of December 31, 2004: – in local retail banking, adjusted for the first-time consolidation of Agence Française de Développpement subsidiaries consolidated at end 2003, the impact of the Crédit Maritime Mutuel group, consolidated since July 1, 2003, and the impact of the credit institutions associated with the Crédit Coopératif Group, consolidated since January 1, 2004; – in Natexis Banques Populaires, to reflect the new organization structure and adjusted for the consolidation of Ort (Coface subsidiary consolidated since April 1, 2004. Note 67 – Companies accounted for by the equity method in millions of euros 2004 BANQUE POPULAIRE GROUP Equity in net assets 2003 Equity in net income 2002 Equity in net assets Equity in net income Equity in net assets Equity in net income Financial sector companies (1) Other companies 42 47 (1) 8 58 43 3 8 13 31 1 2 Total 90 7 101 11 44 3 (1) The increase concerning financial sector companies in 2003 was primarily due to Crédit Coopératif subsidiaries, which joined the Group in 2003.The decrease in the value of investments accounted for by the equity method in 2004 is primarily due to a change of consolidation method for Banque Edel, which was fully consolidated in 2004. Financial information Note 68 – Insurance results in millions of euros 2004 Banking format General operating expenses Gross operating income Exceptional Corporate income items tax Subconsolidation adjustments Insurance format Net banking income Net income Premium income 3,650 3,650 3,650 3,650 Investment income 1,232 1,232 1,232 1,232 228 228 228 228 6 6 6 6 Loss expenses (2,010) (2,005) (2,010) (2,010) Change in technical reserves INDIVIDUAL COMPANY ACCOUNTS OR SUB-GROUP ACCOUNTS Mark-to-market gains on assets held to cover linked liabilities Other underwriting income (5) (1,324) (1,324) (1,324) (1,324) Policyholder dividends (764) (764) (764) (764) Acquisition and administration costs (636) (287) (349) (636) (636) Investment expenses (4) (287) (287) (16) (16) 53 53 (2) (2) 131 131 (6) (6) (287) (283) Mark-to-market losses on assets held to cover linked liabilities (16) (16) Other underwriting expenses 53 70 Investment income transferred out of the technical account (2) (2) 131 506 (6) (6) Other non-underwriting income 275 275 Other non-underwriting expenses (192) (50) Underwriting result Investment income transferred from the technical account Income from companies accounted for by the equity method 4 Exceptional items (7) Employee profit-sharing (1) Income tax (17) (375) (142) 275 275 (192) (192) 4 (7) (7) (1) 4 (1) (1) (75) (75) (75) Amortization of goodwill (7) (7) (7) Minority interests (1) (1) (1) (4) 121 121 Net income including : - interest margin - fees and commissions - insurance margin - credit management - other net operating income 725 (518) 207 (7) (75) (18) (187) 810 120 1 This table reconciles the amounts recorded in the individual accounts of the insurance companies or the consolidated accounts of sub-groups and the amounts reported in the Banque Populaire Group consolidated financial statements presented in the banking format. The main reclassifications concern general operating expenses which are analyzed by destination in the insurance format financial statements and by nature in the banking format. At the level of net banking income, insurance income and expenses that are similar to banking income and expenses (mainly interest, fees and commissions) are reclassified under the related captions in the banking format, in the interests of consistency. Movements on technical reserves and loss expenses are deducted from net banking income and not recorded under provisions for loan losses. Reclassifications made in the balance sheet are not material.The main insurance-specific balance sheet captions are reported under “Insurance company investment portfolios” on the assets side and “Insurance company technical reserves” on the liabilities side. Accrued interest, which is reported on a separate line in the insurance format, is included on the same line as the item to which it relates in the banking format. 171 Note 69 – Management accounts on a constant Group structure basis For the purposes of comparison, the following table sets out the main income statement captions, fully including the following for 2003 and 2004: n Crédit Maritime Mutuel, which became an affiliate of BFBP on August 1, 2003 and therefore only contributed to results in the second half of 2003; n the Agence Française de Développement subsidiaries, which were acquired by BRED Banque Populaire at end 2003 and accordingly did not contribute to consolidated results in 2003; n the credit institutions that have an association agreement with Crédit Coopératif (not subsidiaries), which are fully consolidated as of January 1, 2004; n Ort, which was acquired by Coface in April 2004. For comparability purposes, the 2003 figures have been restated on a pro forma basis using management data that has not been audited by the Group's Auditors. in millions of euros 12/31/2004 12/31/2003 reported BANQUE POPULAIRE GROUP 172 Impact of changes in scope of consolidation 12/31/2003 pro forma Net banking income General operating expenses 7,640 (5,095) 7,066 (4,796) 162 (107) 7,228 (4,903) Gross operating income Provisions for loan losses 2,545 (480) 2,270 (565) 55 (4) 2,325 (569) Operating income Income from companies accounted for by the equity method Net gains on disposals of fixed assets 2,065 1,705 51 1,756 7 26 11 19 (1) 0 10 19 Income before exceptional items and tax Exceptional items Corporate income tax Goodwill amortization and negative goodwill written back to income Net charge to fund for general banking risks Minority interests 2,098 (30) (700) 1,735 (23) (544) 50 1 (19) 1,785 (22) (563) (33) (115) (161) (17) (169) (129) (3) (9) (17) (172) (138) Net income 1,059 853 20 873 Financial information Statutory Auditors’ report on the consolidated financial statements Banque Populaire Group Year ended December 31, 2004 This is a free translation into English of the Statutory Auditors’ report issued in the French language and is provided solely for the convenience of English speaking readers.The Statutory Auditors’ report includes information specifically required by French law in all audit reports, whether qualified or not, and this is presented below in the opinion on the consolidated financial statements.This information includes an explanatory paragraph discussing the Auditors’ assessments of certain significant accounting and auditing matters.These assessments were considered for the purpose of issuing an audit opinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the consolidated financial statements. This report, together with the Statutory Auditors’ report addressing financial and accounting information in the Chairman’s report on internal control, should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. In compliance with the assignment entrusted to us by the Conseil Syndical de la Chambre Syndicale des Banques Populaires on September 20, 2000 and by the Board of Directors of Banque Fédérale des Banques Populaires on June 23, 2004, we have audited the accompanying consolidated financial statements of the Banque Populaire Group for the year ended December 31, 2004. The consolidated financial statements have been approved by the Board of Directors of Banque Fédérale des Banques Populaires. Our role is to express an opinion on these financial statements based on our audit. 1 – Opinion on the consolidated financial statements We conducted our audit in accordance with the professional standards applicable in France.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statements presentation.We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the financial position, assets and liabilities of the Banque Populaire Group at December 31, 2004 and of its results of operations for the year then ended in accordance with French accounting principles and regulations. 2 – Justification of our assessments In accordance with the requirements of Art. L. 225-235 of the French Commercial Code (Code de commerce) relating to the justification of our assessments,introduced by the French Financial Security Act of August 1,2003 and which came into effect for the first time this year, we draw your attention to the following matters: - The Banque Populaire Group records provisions to cover the credit risks inherent in its business. As part of our assessment of the significant estimates used to prepare the consolidated financial statements, we examined the control procedures applicable for monitoring credit risks, assessing the risks of non-recovery and determining the related specific as well as general provisions for industry and country risks. - As described in note 19 to the consolidated financial statements, the Banque Populaire Group measured its material intangible assets and goodwill recorded in the consolidated balance sheet, assisted by a firm of independent valuers. As part of our assessment of the significant estimates used for preparing the consolidated financial statements, we obtained an understanding of the conclusions provided by the firm of independent valuers and verified that they had been taken into consideration in preparing the consolidated balance sheet at December 31, 2004. The assessments were made in the context of our audit of the consolidated financial statements, taken as a whole, and therefore contributed to the formation of the unqualified opinion expressed in the first part of this report. 3 – Specific verification In accordance with professional standards applicable in France, we have also verified the information given in the Group management report.We have no matters to report regarding its fair presentation and consistency with the consolidated financial statements. Neuilly-sur-Seine and Paris, March 23, 2005 The Statutory Auditors BARBIER FRINAULT & AUTRES ERNST & YOUNG SALUSTRO REYDEL Richard Olivier – Olivier Durand Michel Savioz 173 Chairman’s report on internal control procedures 174 This report forms an integral part of the full Chairman’s report on the conditions in which the work of the Board of Directors is prepared and organized and the internal control procedures within the Company. It is prepared in accordance with article L. 225-37 of the French Commercial Code (code de commerce) as amended by the French Financial Security Act of 1 August 2003. BANQUE POPULAIRE GROUP Internal control procedures 175 General organization 175 Risk monitoring and control procedures 177 Internal control procedures covering financial and accounting information 181 Chairman’s report on internal control procedures Chairman’s report on internal control procedures General Organization The Banque Populaire Group internal control system complies with French banking and financial services regulations. These require, in addition to general organizational systems, a system of external monitoring by the Banking Commission and the Financial Markets Authority (Commission Bancaire and Autorité des Marchés Financiers). It also complies with the corporate governance principles of the Banque Populaire Group. These principles were defined by the Board of Directors of Banque Fédérale des Banques Populaires, the Group’s central body, and are set out in a corporate governance charter and an internal control charter for the Banque Populaire Group. They are supplemented by procedures designed to ensure that for each family of risk – financial and operational – the level of control is appropriate and consistent across the entire Group. A review process is already under way concerning changes to these systems to meet changes in internal control regulations, which are expected to be announced in the first half of 2005. In addition, the process of implementing new capital adequacy standards under the Basel II framework, being coordinated at the Group level, presents an opportunity to update and enhance existing procedures. Risk monitoring and management systems within the Banque Populaire Group and the organization of internal control information systems reflect the decentralized organization structure and are organized on two levels: at the level of each bank, on a consolidated basis where applicable, and at that of the Banque Fédérale des Banques Populaires. Organization of internal control at the level of the consolidated entities On November 20, 2002, the Board of Directors of Banque Fédérale des Banques Populaires approved the corporate governance charter and internal rules framework applicable to the Boards of Directors of the individual Banque Populaire banks. This charter establishes the rules of corporate governance and codes of conduct to be followed by all the Banque Populaire banks. It sets out the responsibilities of each bank’s Board of Directors, Chairman, Chief Executive Officer and Consultative Committees. All Group banks are required to have a Risk Management Committee (with the option of also creating an Audit Committee) and a Remuneration Committee. They may also choose to set up other committees, such as a Member-Stakeholder Committee. Well before the May 15, 2001 Corporate Governance Act entered the statute books, the Banque Populaire banks had already decided to optimize the effectiveness of its executive and management structures by separating the roles of Chairman and Chief Executive Officer, thus separating responsibility for strategic decisions and control from the implementation of these decisions and the management of the business. In addition, on January 21, 2004 the Board of Directors of Banque Fédérale des Banques Populaires approved the internal control charter for the Banque Populaire Group. This establishes the central principle that each and every member of an organization has responsibility for its internal control system. In each material Group entity, internal controls are organized from the lowest to the highest level. The organizational structure is defined by the Chief Executive Officer with the approval of the Chairman. Responsibilities and resources are allocated as efficiently as possible, in line with the guidance issued by the Board of Directors, to ensure the coverage, exhaustive identification and management of risks. Internal involvement in control Three levels of control are used: First tier:each member of staff is responsible for performing preliminary or simultaneous checks of each operation that they carry out in performing their professional duties and functions and supervisors are responsible for checking the transactions performed by those reporting to them.These first-tier controls provide the foundations of the internal control system. They are described in written procedures and must be formally evidenced. n Second tier: continuous checks are undertaken to ensure compliance with internal and external rules and regulations as well as to verify the existence, implementation and effectiveness of first-tier controls. Second-tier controls cover functional areas such as accounting, commitments and risks. Regulatory controls apply to this second tier. Control at this level is performed by the Compliance Officer, the Investment Services Department Control Officer, the Information Systems Security Officer, the TRACFIN correspondent and any other officers with responsibility for specific controls required by the applicable regulations. n n Third tier: consisting of periodic audits and investigations carried out by the Internal Audit department.The internal auditors have free access to all information they require to 175 conduct their audit, including confidential and privileged information. A manager oversees all such audit work. The Internal Control Officer is responsible for ensuring the consistency and effectiveness of this three-tier system, reporting to senior management – who have ultimate responsibility for internal control, the Risk Management Committee and the Board of Directors. The role of the Board of Directors The Board of Directors oversees control of the main risks incurred by the bank, as well as the quality and reliability of the internal control system in accordance with banking regulations. The Risk Management Committee – one of the Committees of the Board – is responsible for organizing reporting systems covering company-level and consolidated risk data, the results of internal control procedures and the main findings of internal auditors, in accordance with banking regulations.The Committee assesses the quality of internal control, including risk measurement, monitoring and management systems.It is also responsible for recommending additional measures where appropriate. Organization of internal control at the level of Banque Fédérale des Banques Populaires 176 In its role as the Banque Populaire Group’s central body, as defined in the Monetary and Financial Code, Banque Fédérale des Banques Populaires oversees the cohesiveness of the Banque Populaire network and takes all necessary measures to guarantee the liquidity and solvency of each Banque Populaire bank as well as of the network as a whole, through the Group Risk Management Committee. More generally it supervises and controls all establishments making up the Banque Populaire Group, particularly its subsidiaries. Internal control structures The Group Risk Management Committee exercises its oversight role by drawing on the resources of the Banque Fédérale des Banques Populaires Risk Control and Audit Department. The work of the Internal Audit and Risk Management Department is organized around three sub-departments: The Risk Management Department – which has no involvement in commercial decisions – is responsible for ensuring that the same rules are applied throughout the group, deploying appropriate risk control and continuously monitoring the risks governed by standard CRBF 97-02 (credit/counterparty risk, interest rate risk, liquidity risk and operational risk) across the entire Group. n The Internal Control Procedures Department is responsible for providing methodological and technical support to the Group entities and promoting the adoption by all entities of best practices identified within the Group. In 2004 the Department’s work concentrated mainly on the BANQUE POPULAIRE GROUP n production of Group-wide audit methodologies and the creation of manuals for control systems in investment services. Annual internal control assessments are performed and the results presented to the Group Risk Management Committee, for the purpose of preparing the Group’s CRBF 97-02 report. n The Internal Audit Department, and its information systems audit unit, perform periodical audits of Banque Populaire Group entities in accordance with the internal audit charter approved by the Board of Directors of Banque Fédérale des Banques Populaires. These tasks are carried out in accordance with an annual plan based on priorities established by the Risk Management and Internal Control Departments, with recurring audits of all Group departments and entities carried out on a rolling program spanning several years. Each audit includes quantitative and qualitative risk analyses and assessments of the quality of information systems and internal control systems. The internal auditors also assess the overall efficiency of the audited entities.The head of Internal Audit reports to the Group Chairman and Chief Executive Officer and these reports are submitted to the Board of Directors. In addition, reports are submitted to the Group Risk Management Committee describing the action taken to implement the internal auditors’ recommendations. Role of the Board of Directors of Banque Fédérale des Banques Populaires The Board of Directors of Banque Fédérale des Banques Populaires ensures that the Group’s main risk exposures are properly managed and monitors the quality and reliability of the system of internal control. In 2004, the Board of Directors of Banque Fédérale des Banques Populaires, assisted by the Group Risk Management Committee, continued to keep a close watch over the system of internal control employed within Banque Fédérale des Banques Populaires and the Banque Populaire Group as a whole in order to manage all risks arising in the course of the Group’s business, whatever their origin. Decisions of the Board concerning internal control During 2003, the Board of Directors of Banque Fédérale des Banques Populaires made a number of decisions concerning internal control in addition to those made by the Group Risk Management Committee. The matters addressed were: n January: – Approval and introduction throughout the Banque Populaire Group of an internal control system charter; – Analysis of the first results of the introduction of corporate and retail rating systems and approval of the Group Risk Management Committee recommendations. n April: – Review of Group balance sheet risks and approval of updates to Group procedural manuals; – Approval of Chairman’s report on internal control procedures in the Banque Populaire Group during 2003. Chairman’s report on internal control procedures n n May: – Consideration of annual internal control reports regarding Banque Fédérale des Banques Populaires and the Banque Populaire Group; – Approval of the updates to Group credit risk procedure manuals; – Introduction of a Group action plan designed to improve the system for control of operational risks. November: – Review of Group counterparty risks; – Approval of Group action plan for controlling credit risk in 2005; – Review of changes in internal control regulations and the resulting adjustments needed in the internal control system; – Approval of an action plan for conformity with AMF rules and concerning prevention of money laundering. Issues dealt with in meetings of the Group Risk Management Committee During 2004, there were six full meetings of the Group Risk Management Committee: n four to deal with matters concerning Banque Populaire Group: – in January, to: n n n review progress on the Basel II project concerning credit risk; consider draft charters for internal control systems at Banque Populaire Group and for the safety of people and property; review the impact that changes in rule CRBF 97-02 governing internal control for Banque Populaire Group entities will have on projects, with a particular focus on the demands of Basel II regarding compliance risk; – in March, to examine balance sheet risks for Banque Populaire Group, update the procedure manuals for these risks (overall interest rate and liquidity risk) and consider a draft of the Chairman’s report on internal control procedures; – in May, to review the annual report on Group internal control procedures, to approve changes to the procedures for credit risk and to consider the report on the audit of a new network affiliated to Banque Fédérale des Banques Populaires; – in October, to analyze the annual report on Group counterparty risk and to review the situation regarding non-compliance risk at Banque Populaire Group and changes in the internal control system. n two meetings to deal with issues concerning Banque Fédérale des Banques Populaires: – in May, to analyse the annual report on internal control and an audit report; – in October, to review the risk assessment at June 30 at Banque Fédérale des Banques Populaires and to consider further data on an audit report. Risk monitoring and control procedures Risk management organization In the course of its business, the Group is exposed to four main categories of risks: n credit risks arising from customer transactions, n market risks arising from capital market transactions, n interest rate, currency and liquidity risks, arising from retail banking transactions, n operational risks. In accordance with standard CRBF 97-02, each bank has set up risk management and monitoring systems that are independent from operating units. All Group banks have also set up their own systems of exposure limits and decision-making procedures, complying with the rules established at Group level, as set out in the credit risk manual, updated in June 2004, and the interest rate and liquidity risk manual, updated in April 2004. Credit risks Credit risk management in the banks based on Banque Populaire Group standards Each bank’s risk policy is determined by executive management with the approval of the bank’s Board of Directors. Executive management is responsible for continuously monitoring risk exposures in compliance with the rules set by the Board of Directors of Banque Fédérale des Banques Populaires – which relate in particular to the role of the Group Risk Management Committee – and by the regulator. The risk policy defines: business development strategies and objectives, particularly regarding the type, quality and monetary value of risk exposures; n n the rules governing the organization and control of risk exposure; internal exposure limits, which are lower than regulatory limits. n During 2004, a review process began to examine risk control in lending activities in the individual banks and the Banque Popular Group as a whole, to ensure that it takes full advantage of the upgraded risk measurement and management tools developed as part of the Basel II project. This review will be expanded to take account of changes in the CRBF 97-02 standard. Decisions and delegations Lending decisions are based on formal procedures and approval circuits and are made by reference to an assessment of the related cost and the potential benefits for the bank. Clear limits are set on discretionary lending authority 177 at each level, based on credit ratings and monetary amounts. In accordance with CRBF 97-02 (Art. 21), lending decisions are either counter-signed or made in exercise of formal delegations of authority. Where appropriate, decisionmakers take advice from the Group’s specialized entities or other experts on legal, financial, international or other matters. Credit risk measurement and monitoring – commitments surveillance All business portfolios are monitored according to risk criteria and by client category. A preventative risk detection system, tailored for the specific features of each client category, allows clients to be contacted and problems to be addressed before an incident occurs. In addition, several independent structures perform non-overlapping supervisory controls. Risk monitoring systems are designed to provide each senior management and the Board of Directors of each bank and of the Banque Populaire Group with quantitative and qualitative risk data, covering both outstanding commitments and transaction flows.These systems include regular reviews of at-risk commitments covering both exposures and related commitments. Information systems include applications to generate management information schedules analyzing the level of activity and qualitative and quantitative changes in risk, for both individual and aggregate exposures. Managing non-performing and irrecoverable loans n For loans to companies,the system is based on quantitative and qualitative assessments of the counterparty’s solvency and draws on the expertise of the commercial team and risk managers, with the latter having the last word. The counterparty rating scale has sixteen levels, excluding default. n For small business and personal clients, the systems use statistical techniques and take account of two main parameters: the rating of the counterparty and the loss rate on the transaction.The rating scale has ten levels excluding default. n Interbank transactions are conducted exclusively with counterparties on the Banque Fédérale des Banques Populaires’ “approved” list, which are selected based on the credit ratings awarded by external credit agencies. Risk diversification Risk diversification represents a fundamental risk management rule and is governed by internal and external guidelines. Under the Group’s procedural manual each bank sets, according to its specific requirements, internal risk concentration limits which are lower than the limits authorized under banking regulations. Credit risk reporting and control structures at Banque Populaire Group The Group’s central body is responsible for assessing risk policies and management procedures according to standard principles and criteria. Risks are monitored at Group level as follows: n 178 In addition to this consolidated risk monitoring system, the Group Risk Management Committee makes monthly assessments of material individual exposures of the Banque Populaire Group or for individual banks. Responsibility for file reviews and the credit rating process may be delegated to the Banque Fédérale des Banques Populaires’ Risk Management Department. Centralization of risks with a single counterparty or group All Group entities are informed of the decisions made by the Group Risk Management Committee. Data on exposures with banking counterparties are automatically aggregated. The banks have access to the Banque Fédérale des Banques Populaires risk database containing information about the largest exposures as well as to the analyses produced by Natexis Banques Populaires and the Group Risk Management Committee, which are regularly updated. Client credit ratings BANQUE POPULAIRE GROUP Banques Populaires banks, on a consolidated basis; Non-performing and irrecoverable loans are monitored separately in the banks, notably to ensure that the Banque Populaire Group’s conservative provisioning policy is followed in all cases. Each bank has a committee which meets regularly in order to review the most significant troubled loans and commitments and determine appropriate levels of related provisions. In addition to these provisions against specific loans the banks may also record general provisions or reserves, to protect themselves against a probable escalation of risks in a given industry or country. At the end of 2003, the Banque Populaire Group introduced an internal credit rating system to comply with future regulatory requirements. This is based on uniform methodologies throughout the Banque Populaire Group and centralized credit rating programs for the main client categories. subsidiaries of Banque Fédérale des Banques Populaires on a consolidated basis; n n Crédit Maritime Mutuel on a consolidated basis. For interbank risks, Banque Fédérale des Banques Populaires collates details of the limits set by each bank and outstanding commitments by counterparty. Its Risk Management Department monitors aggregate exposures by counterparty, based on limits that take into account the counterparty’s financial characteristics and the weighting of the Group’s commitments in relation to the counterparty’s total financing facilities.Any difference in assessment of the level of the Group’s exposure or that of a Group bank are referred to the monthly meeting of the Group Risk Management Committee for consideration. As part of the Basel II project the Risk Management Department of Banque Fédérale des Banques Populaires is developing an information system covering the Group’s exposures in their entirety. Chairman’s report on internal control procedures Market risks The Group’s exposure to market risks primarily concerns Natexis Banques Populaires, a subsidiary of Banque Fédérale des Banques Populaires. Natexis Banques Populaires’ market risk monitoring system is described below. Counterparty risk Exposure limits have been set for commitments to capital market counterparties,most of which are banking institutions. These limits are set by an ad hoc committee and are monitored by the bank’s risk monitoring system. Any limit overruns are reviewed at special monthly committee meetings. Market risk policy Natexis Banques Populaires is active in capital markets through the Global Debt & Derivatives Markets and Equity Group Departments. Activities include intermediation, brokerage and asset management for clients and proprietary transactions. Proprietary transactions fall into several categories: n transactions to facilitate client transactions, n trading transactions, n arbitrage transactions, n treasury transactions to manage overall interest rate and mismatch risks. The entities carrying proprietary risks are the Global Debt & Derivatives Markets and Equity Group Departments. Market risk management system The permanent system for control of market risk at Natexis Banques Populaires comprises 3 pillars: n a three-tier control architecture in the form of each entity’s middle office, the Internal Control Department and the Risk Deparment, these last two providing independent monitoring of risks; a market risk measurement methodology to quantify the bank’s risk exposure; n a system of exposure limits based on the risk indicators defined using the internal risk measurement methodology and applied to both Natexis Banques Populaires and its subsidiaries. n Control over market risks is based on a risk measurement methodology that assesses market risk faced by all entities of the Banque Populaire Group. The current methodology uses standard indicators and Natexis Banques Populaires is developing an internal Value-atRisk (VaR) model. The main standard indicators used include sensitivity to the various market risks including interest rate, currency, equity, commodity, volatility and issuer risks. Alongside these standard indicators, Natexis Banques Populaires performs VaR calculations.The Natexis Banques Populaires Group uses a historic VaR approach.This serves to quantify the potential losses on capital market activities using capital adequacy assumptions. The heads of all capital markets businesses are assigned exposure limits defined by reference to risk management indicators. Delegations of authority are decided at monthly meetings of the Market Risks Committee. Market risk exposures are measured on a daily basis by middle offices using data from front office systems or specially developed tools. Compliance with exposure limits is also checked on a daily basis by middle offices, which report any overrun to the relevant operational management team, the Internal Control Department and the Risks Department. For each overrun, a decision on whether to temporarily allow the overrun or to bring exposure back within limits immediately, is taken jointly by the business line, the middle office and the Risks Department. Aggregate interest rate and liquidity risks Interest rate risk corresponds to the risk of losses or an erosion of interest margins due to an unfavourable change in interest rates, and is analyzed as a margin risk. Liquidity risk is the immediate risk of being unable to honor the bank’s debts or to finance assets. A specific policy for each bank Each bank is responsible for managing its own interest rate and liquidity risks in compliance with the methods and rules set out in the Group procedure manual as updated in April 2004. The executive management of each bank determines the bank’s financial risk policy, subject to approval from the Board of Directors, with the aim of defining the best strategy to increase interest margins while also reducing the related risks: striking an appropriate balance between business growth and interest rate and liquidity risk, reducing exposure to interest rate risk through appropriate hedging programs, validating the rules governing the organization and control of balance sheet risk lines and defining and periodically monitoring internal exposure limits. Working with the Banque Populaire Group finance executives, Banque Fédérale des Banques Populaires has produced an interest rate and liquidity risk procedure manual comprising management rules, measurement standards (methodologies and scenarios) and procedures dealing with exposure limits. Interest rate risks: exposure limits are expressed as a percentage of expected interest margin, on a ‘rolling’ basis that takes account of predicted increases in commitments and of earnings capacity on a ‘fixed basis’ using the balance sheet at the previous year end, over a four-year time frame and according to pre-defined scenarios. Liquidity risks:mismatch limits are expressed as a percentage of assets, taking account of forecast increases in commitments, based on normal and crisis scenarios over timeframes of up to four years. 179 As part of the Basel II project, work will continue to ensure an overview of risk exposure in the Group as a whole. Interest rate and liquidity reporting structures for the Banque Populaire Group Banque Fédérale des Banques Populaires sets the assumptions to be used for the various scenarios and ensures that the sensitivity of profits at the Banque Populaire banks to changes in interest rates is compatible with the earnings capacity at each bank. Banque Fédérale des Banques Populaires’ Risk Management Department has set up an information system to report details of interest rate and liquidity risk exposures of all Banque Populaire banks on a standard basis. This reporting data provides the Group Risk Management Committee with a comprehensive overview of risks on which to base recommendations to the Board of Directors concerning capital adequacy decisions. Operational risks Managing operational risks The management of operational risks is based primarily on internal control systems organized at the level of each individual bank in accordance with the requirements of CRBF 97-02. The Group’s approach is based on a risk management manual, currently being revised, a detailed inventory of the activities covered and a reporting system. The definition of operational risk used is that provided by the regulator: the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. A mapping of such risks, based on this definition, has been undertaken by the Banque Populaire Group, classifying risks into four main categories: systems and processes, fraud and external risks, legal and compliance risks and strategic risks. 180 The work undertaken in the risk mapping exercise of the Basel II project will ultimately provide the Group Audit and Risks Committee with a centralized overview of the magnitude of operational risks. In addition work was carried out in the third quarter of 2004, under the supervision of Banque Fédérale des Banques Populaires, with a view to establishing a common methodology throughout all entities in the Banque Populaire Group, based on harmonized manuals for the review of activities and information systems and a guide for the creation of business continuity plans. Based on best practice within the group, this will allow the entities to build on existing practice to develop, during 2005, updated business continuity plans that meet the requirements of the regulator.Tests of the two major crisis scenarios (unavailability of IT systems and inaccessibility of premises) will be organized during the first half of 2005. BANQUE POPULAIRE GROUP Insurance and risk coverage In common with other banking groups, Banque Populaire Group insures its major risks through policies with insurance and re-insurance companies. The policies taken out for 2005 complete the creation of a structure covering substantial and significant risks for the Banque Populaire Group. Policies cover corporate and management liability, fraud and embezzlement risks, the bulk of the Group’s IT infrastructure and buildings and significant sites such as the central offices and data centres.The policies cover business interruption and consequential loss at each entity. As in 2004, the entire program has been renewed for 2005 on generally better terms than previously available. All cover is provided by leading international insurers of recognized and unquestionable standing. Future developments Preparations for a new international banking solvency ratio, the so-called Basel II ratio, is a major strategic project for the Banque Populaire Group. Launched in 2000, and overseen by the Group’s most senior management, this major project covers all business lines, involves all banks and data centers and has mobilized teams throughout the Group. The project has been based on standardized methodologies and systems selected by the Board of Directors of Banque Fédérale des Banques Populaires. It had been widely and successfully implemented for major asset classes by the end of 2003. This has been followed by the introduction of standardized management tools and, for operational risks, the updating and group-wide introduction of risk mapping and measurement tools. Combating money laundering and promoting the highest ethical standards Combating money laundering Programs to prevent the laundering of the proceeds of crime have been in place since the beginning of the 1990s and, following the events of September 11, 2001, they were extended to include measures to combat the financing of terrorism. In these two complementary areas, Banque Fédérale des Banques Populaires has been committed to defining preventative procedures and providing training tools for employees of Banque Populaire Group banks. Increased detection resources Banque Fédérale des Banques Populaires has issued a framework set of anti-money-laundering guidelines and distributed an updated version in 2004.This system applies to all financial establishments in the Banque Populaire Group. This framework will be incorporated in the operating procedures of each bank. It includes a catalogue of data query procedures designed to comply with the legal and regulatory standards of vigilance. To increase the automation of the system, Banque Fédérale des Banques Populaires has selected a software system for Chairman’s report on internal control procedures the management of lists of terrorists published by the authorities for all Banque Populaire Group establishments (decision of the Board of Directors on January 22, 2003). Linked with a system for updating lists, the structure adopted is based on centralized monitoring of transactions carried out by Natexis Banques Populaires and decentralized supervision of local client accounts. Internal control procedures covering financial and accounting information A group-wide training program Preparation of the consolidated financial statements Throughout 2004, considerable attention continued to be paid to increasing staff awareness and training in antimoney-laundering procedures.This process was supported by the use of a system developed by the Fédération des Banques Françaises. Ethics and compliance The Banque Populaire Group considers the application of the highest ethical standards to be a critical factor in sustainable development, and to this end increased the resources devoted to the ethics program in 2004. A single regulatory framework for the entire Banque Populaire Group Within the Banque Populaire Group, the Code of Ethics produced by Chambre Syndicale des Banques Populaires (now Banque Fédérale des Banques Populaires) has served as the blueprint for the internal ethical rules drawn up for each Group entity. The central purpose of these rules is to protect clients’ interests at all times. Within the framework of applicable laws, regulations and conventions, they require all employees to adhere to the highest standards of diligence, loyalty, neutrality and discretion. A Compliance Officer in each bank A Compliance Officer has been appointed at each Banque Populaire bank. At Natexis Banques Populaires, to comply with the spirit of the guidelines issued by the French securities regulator (Conseil des Marchés Financiers, now renamed AMF), this function, which was segregated from the internal audit and control function in 2002, has benefited from a steady increase in resources and structures during 2003 and 2004, with a significant increase in staff numbers and a deployment of resources in all business lines. The Central Compliance Team is responsible for coordinating the ethical compliance structures at Natexis Banques Populaires and its subsidiaries, for monitoring people in sensitive positions at Natexis Banques Populaires, supervision lists, monitoring and managing multi-department projects, supervising the Compliance Officers dedicated to each business line and working with the Heads of these business lines. Even though Banque Fédérale des Banques Populaires does not provide investment services,it has appointed a Compliance Officer. It plays a key role in guiding and promoting ethical practice throughout the Banque Populaire Group. In particular it is responsible for distributing and commenting on all documents published relating to the area of ethics. The consolidated financial statements of Banque Fédérale des Banques Populaires and the Banque Populaire Group are prepared by Banque Fédérale des Banques Populaires in its capacity as central body of the Banque Populaire banks and holding company of the Natexis Banques Populaires sub-group. The Banque Fédérale des Banques Populaires Finance Department has drawn up and deployed a consolidation manual designed to guarantee the reliability of the process. It is based on the following core principles: definition and communication of accounting principles for the Banque Populaire Group including the analysis and interpretation of new texts issued during the period, both for French and International (IFRS) accounting standards; n use of the direct consolidation method, to permit detailed examination of the consolidation packages of consolidated entities according to a formal review process; n use of a single consolidation system for all consolidations and sub-consolidations conducted within the Banque Populaire Group in order to guarantee the internal consistency of the scope of consolidations, definitions, standards, charts of accounts, processing sequences and analyses; n checking of data reported by consolidated entities through the distribution of application interfaces and the use of more than 5,800 accuracy and consistency tests which must be completed for the data to be transmitted; n n item by item analysis of all entries that impact on consolidated shareholders’ equity and production of a tax proof for each consolidated entity enabling, respectively, to provide full evidence of consolidated shareholders’ equity and individual justification of deferred taxes. During 2004, this individualized checking was extended to all entities in the Coface consolidation sub-group; n an audit trail system to trace the accounting data published in the financial statements and the notes back to the accounts of each consolidated entity and the consolidation adjustments; n archiving and security procedures including the twice-daily back-up of the unified consolidation database and regular data recovery testing; n regular training of accounting teams at the consolidated entities and action to promote the use of best practice throughout the Banque Populaire Group. During 2004 the Banque Populaire Group undertook a quarterly consolidation process. Quarterly figures are not published but represent a significant advance in internal control systems, notably in improving anticipation of transactions for the year, increasing reliability of forecasting consolidated figures and more frequent reconciliation of intra-Group transactions. 181 Preparation for conversion of Group consolidated financial statements to IFRS The program to convert Group consolidated financial statements to International Financial Reporting Standards (IFRS) was launched in June 2002. It is managed by Banque Fédérale des Banques Populaires’ Finance Department. The first stage, analysis of the relevant documents, was followed by a second stage of defining operational solutions. Deployment of the IT developments required for the conversion began in 2004 and will continue into 2005 in keeping with the original timetable, which has been met so far. As part of this program, Banque Fédérale des Banques Populaires’ Finance Department has designed and distributed a new consolidation package, allowing the identification and checking of all information additional to that required under French accounting standards to enable a transition to IFRS.This solution, with more than 3,250 tests, provides a full audit trail between consolidated financial statements prepared under French standards and those prepared under IFRS. The deployment of this solution, which has been operational since June 2004, was supported by a massive training programme for accounting and financial staff in each of the consolidated entities in the Banque Populaire Group. Consolidated financial statements for 2004, prepared under IFRS (without application of IAS 32 or IAS 39) will be presented to the Board of Directors of Banque Fédérale des Banques Populaires on April 20, 2005. Control process 182 Internal control processes at the level of the consolidated entities Reflecting the decentralized nature of the Banque Populaire Group, internal control procedures are tailored to the organization of each of the consolidated entities. In all cases, the process includes several layers of controls: basic permanent controls are included in processing programs at the operational level; n n second-tier independent checks of processing operations performed by Finance and Accounting Departments, to ensure the accuracy and completeness of accounting data; BANQUE POPULAIRE GROUP n third-tier controls by internal auditors, corresponding to controls of controls; n fourth-tier controls by the Audit or Risk Management Committees set up by the main entities covered by the scope of consolidation of the Banque Populaire Group. Their purpose is to analyze individual and consolidated accounts of the entities concerned and to ensure the appropriateness and consistent application of accounting methods and reviews of the main assumptions used to prepare the financial statements. These continuous and periodic controls, performed in the different accounting system environments within the Banque Populaire Group, include reviews of account analyses produced by various departments, checks to ensure that suspense items are cleared and errors corrected on a timely basis and monitoring of indicators for ‘sensitive’ accounts. Top level controls In addition to the self-checking and external checking procedures performed at the level of the local entities responsible for preparing individual or consolidated accounts, the quality of accounting controls is verified by: n Banque Fédérale des Banques Populaires, which reviews the regulatory reporting schedules prepared by the Banque Populaire banks (BAFI 4000 schedules and supplementary schedules) in its capacity as the network’s central body. To enhance the effectiveness of these controls the Banque Fédérale des Banques Populaires Finance Department has elected to review these schedules on a monthly basis, thus going beyond the requirements of the French banking regulator (Commission Bancaire) for quarterly reviews; n the group’s external auditors, who work in collegiate fashion and whose opinions are based in part on the conclusions of the external auditors of each of the consolidated entities, particularly as regards compliance with the standards of the Banque Populaire Group, as laid down by Banque Fédérale des Banques Populaires, and the effectiveness of local internal control procedures; n periodic internal audits by the Banque Fédérale des Banques Populaires Internal Audit Department at various entities within the Banque Populaire Group and at the Banque Fédérale des Banques Populaires. Role of the Audit Committee The Audit Committee of Banque Fédérale des Banques Populaires, whose role is described on page 13, met twice in the presence of the external auditors, on September 3, 2004 and February 21, 2005 to review consolidated accounts for Banque Fédérale des Banques Populaires and the Banque Populaire Group to June 30 and December 31, 2004 respectively, prior to their presentation to the full Board of Directors. n n Under the framework established by the Commission Bancaire (CRBF 97-02) for supervision of credit institutions, the Internal Audit and Risk Management Department of Banque Fédérale des Banques Populaires submits to the Group Risk Management Committee and to the Board of Directors an annual report on internal control in the Banque Populaire Group. This report is based on a detailed questionnaire which allows the assessment of internal control procedures, particularly as they concern accounting and financial information from consolidated entities, and includes consolidated information where appropriate. Chairman’s report on internal control procedures Outlook In 2005, as in 2004, the Banque Populaire Group will pursue strategies to optimize its data processing and control systems and to adapt these systems to keep pace with business development and with changes in the regulatory framework, such as Basel II, IFRS standards and banking regulations. The efforts undertaken to rationalize the resources and working methods of the teams responsible for producing, checking and monitoring accounting and financial reporting schedules will also be pursued. Concerning financial and accounting internal control, the Banque Populaire Group has launched a number of shortterm and medium-term projects. These concern, in particular, the continued migration of the Banque Populaire banks to the i-BP accounting system, the full integration of the Coface sub-group in the Group’s direct consolidation system, as part of a change of software due in mid-2006, and a reduction in closing times for accounts within the Group. The emphasis will now shift to the gradual integration of the IFRS manual in the accounting processing chain for all entities, so as to produce dual-standard accounting for any given single event. 183 Statutory auditors’ report on the Chairman’s report on internal control procedures Prepared in accordance with the final paragraph of Art. L. 225-235 of the French Commercial Code (Code de Commerce) on the report prepared by the Chairman of the Board of Directors of the Banque Populaire Group on the internal control procedures relating to the preparation and processing of financial information. Banque Populaire Group Year ended December 31, 2004 This is a free translation into English of the Statutory Auditors’ report issued in the French language and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. In our capacity as Statutory Auditors of the Banque Populaire Group and in accordance with the final paragraph of Art. L. 225-235 of the French Commercial Code (Code de commerce), we report to you on the report prepared by the Chairman of the Board of Directors of the Banque Populaire Group in accordance with Art. L. 225-37 of the French Commercial Code for the year ended December 31, 2004. Under the responsibility of the Board of Directors, management must define and implement appropriate and effective internal control procedures. In his report, the Chairman of the Board of Directors is required to give an account of the conditions in which the work of the Board of Directors is prepared and organized and the internal control procedures in place within the Group. It is our responsibility to report to you our observations on the information set out in the Chairman’s report on the internal control procedures relating to the preparation and processing of financial and accounting information. We performed our procedures in accordance with professional guidelines applicable in France.These require us to perform procedures to assess the fairness of the information set out in the Chairman’s report on the internal control procedures relating to the preparation and processing of financial and accounting information. These procedures notably consisted of: 184 – obtaining an understanding of the objectives and general organization of internal control, as well as the internal control procedures relating to the preparation and processing of financial and accounting information, as set out in the Chairman’s report; – obtaining an understanding of the work performed to support the information given in this report. On the basis of these procedures, we have no matters to report in connection with the information given on the internal control procedures relating to the preparation and processing of financial and accounting information, contained in the Chairman of the Board’s report, prepared in accordance with the final paragraph of Art. L. 225-37 of the French Commercial Code. Paris and Neuilly-sur-Seine, March 23, 2005 BANQUE POPULAIRE GROUP The Statutory Auditors BARBIER FRINAULT & AUTRES ERNST & YOUNG SALUSTRO REYDEL Richard Olivier – Olivier Durand Michel Savioz Additional information 185 Person responsible for the AMF shelf-registration document 186 Statement by the person responsible for the AMF shelf-registration document 186 Financial Communications 186 Dependence 186 Exceptional events, claims and litigation 186 Statement by the Statutory Auditors on the AMF shelf-registration document 187 Autorité des marchés financiers (AMF) checklist 188 Person responsible for the AMF shelf-registration document Philippe Dupont, Chairman of the Banque Populaire Group and Chairman and Chief Executive of Banque Fédérale des Banques Populaires. Financial Communications Financial calendar n Publication of 2004 results of the Banque Populaire Group and Natexis Banques Populaires. n Statement by the person responsible for the AMF shelf-registration document “To the best of my knowledge, the information in this shelf-registration document is correct and includes all the information required by investors to form an opinion about the assets and liabilities, business, financial position, results and outlook of the Group. No information has been omitted that would be likely to alter an investor’s opinion.” February 25, 2005 April 21, 2005 Press release (IFRS) n May 19, 2005 Annual shareholders’ meeting of Banque Fédérale des Banques Populaires (morning) and Natexis Banques Populaires (afternoon) n September 8, 2005 Publication of 2005 first-half results of the Banque Populaire Group and of Natexis Banques Populaires under IFRS Information Officer Pierre Jacob Head of Investor Relations Banque Fédérale des Banques Populaires Tel: +33 (0) 1 40 39 68 79 / Fax: +33 (0) 1 40 39 63 40 pierre.jacob@bfbp.banquepopulaire.fr The Chairman Philippe Dupont Dependance The Banque Populaire Group is not dependent on any patents, licences, or industrial, sales or financial contracts for the conduct of its business. 186 Exceptional events, claims and litigation BANQUE POPULAIRE GROUP No exceptional events have occurred or are in progress and no claims or litigation are pending or in progress that would be likely to have a material impact on the business, results or financial position of the Banque Populaire Group. Additonal information Statement by the Statutory Auditors on the AMF shelf-registration document Banque Populaire Group Year ended December 31, 2004 This is a free translation into English of the Statutory Auditors’statement issued in the French language and is provided solely for the convenience of English speaking readers.This statement should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. In our capacity as Statutory Auditors of the Banque Populaire Group and as required by Art. 211-5-2 of the General Regulations of the AMF, we have examined, in accordance with French professional standards, the information about the financial position and the historical accounts included in the shelf-registration document. The shelf-registration document is the responsibility of Philippe Dupont, Chairman of the Banque Populaire Group and Chairman and Chief Executive of Banque Fédérale des Banques Populaires. Our responsibility is to express an opinion on the fairness of the information about the financial position and accounts contained in the shelf-registration document. Our procedures, which were performed in accordance with French professional standards, consisted of assessing the fairness of the information about the financial position and the accounts and verifying that this information agrees with the audited financial statements, reading the other information contained in the shelf-registration document in order to identify any material inconsistencies with the information about the financial position and the accounts, and reporting any manifestly incorrect information that came to our attention, based on our knowledge of the Group as acquired during our audit.The shelf-registration document does not contain any forward-looking information determined according to a structured process. The consolidated financial statements for the year ended December 31, 2002, as approved by the Board of Directors of Banque Fédérale des Banques Populaires, were audited by Barbier Frinault & Autres and PricewaterhouseCoopers Audit, according to generally accepted French auditing standards.They expressed an unreserved opinion on these financial statements.Their report included the following observation,“Note 40 to the consolidated financial statements describes a change of method arising from the adoption effective from January 1, 2002, of standard CRC 2000-06 dealing with liabilities ". The consolidated financial statements for the year ended December 31, 2003, as approved by the Board of Directors of Banque Fédérale des Banques Populaires, were audited by Barbier Frinault & Autres and PricewaterhouseCoopers Audit, according to generally accepted French auditing standards.They expressed an unreserved opinion on these financial statements.Their report included the following observation,“Note 1.3 to the consolidated financial statements describes a change of accounting method arising from the first-time adoption of standard CRC 2002-03 dealing with the accounting treatment of credit risks in companies governed by the Comité de la réglementation bancaire et financière and of standard CRC 2002-10 relating to the depreciation, amortization and impairment of assets ". We audited the consolidated financial statements for the year ended December 31, 2004, as approved by the Board of Directors of Banque Fédérale des Banques Populaires.Our audit was performed in accordance with generally accepted French auditing standards. Our report on these statements did not include any qualification or observation. Based on the procedures described above, we have nothing to report with respect to the fairness of the information about the financial position and the historical accounts contained in this shelf-registration document. Neuilly-sur-Seine and Paris, March 24, 2005 The Statutory Auditors BARBIER FRINAULT & AUTRES ERNST & YOUNG SALUSTRO REYDEL Richard Olivier – Olivier Durand Michel Savioz The shelf-registration document also includes: n The Statutory Auditors’ report on the consolidated financial statements for the year ended December 31, 2004 (included in the section “2004 Financial Information” of the shelf-registration document), including the justification of the Statutory Auditors’ assessments in accordance with Art. L. 225-235 of the French Commercial Code (Code de commerce); The Statutory Auditors’ report (included in the section “Chairman’s report on internal control procedures” of this shelf-registration document), drawn up in accordance with the final paragraph of Art. L. 225-235 of the French Commercial Code (Code de commerce), on the report of the Chairman of the Board of Directors of Banque Fédérale des Banques Populaires describing the internal control procedures relating to the preparation and processing of financial and accounting information. n 187 Autorité des marchés financiers checklist The Annual report plus the sections listed below represent the shelf-registration document registered with the Autorité des marchés financiers. Statements by the persons responsible for the shelfregistration document and the Statutory Auditors Pro forma financial information Statement by the person responsible for the shelf-registration document p. 186 Financial statements of the bank and notes Not applicable Statement by the Statutory Auditors p. 187 Interim financial statements Not applicable Information policy p. 186 Regulatory capital adequacy ratios General information about the issuer Not applicable Capital and voting rights Not applicable Information about the Group and its business Organization Key figures Segment information Markets and competition Investment policy Performance indicators p. 22 p. 4 p. 170 p. 52 to 69 p. 90 Not applicable Analysis of Group risks Risk factors n Market risks p. 101 n Specific risks p. 96 n Legal risks n Industrial and environmental risks Insurance and hedging 188 p. 102 Not applicable p. 102 Assets and liabilities, financial position and results of operations Consolidated financial statements and notes Off-balance sheet commitments Fees paid to auditors and members of their networks p. 172 p. 110 and 140 p. 112 p. 20 p. 91 Corporate governance Membership and role of management and supervisory bodies p. 10 Membership and role of Board Committees p. 13 Executive Directors’ compensation, options granted and exercised and stock option plans p. 103 Ten highest paid employees other than Executive Directors Not applicable Regulated agreements Not applicable Recent developments and prospects p. 106 Report of the Chairman on the conditions in which the work of the Board of Directors is prepared and organized, and the internal control procedures in place within the Company, in accordance with Art. L. 225-37 of the French Commercial Code (Code de commerce) p. 10 and 174 Statutory Auditors’ report, prepared in accordance with the final paragraph of Art. L. 225-235 of the French Commercial Code (Code de commerce) on the report prepared by the Chairman of the Board of Directors of the Banque Populaire Group on the internal control procedures relating to the preparation and processing of financial and accounting information p. 184 The original French language version of this shelf-registration document was registered with the Autorité des marchés financiers on March 25, 2005 in compliance with Article 211-6 of the General Regulations of the Autorité des marchés financiers. It may be used in connection with a financial transaction only if completed by an Information Notice duly registered with the Autorité des marchés financiers. The shelf-registration document was drawn up by the Banque Populaire Group and is the responsibility of its signatories. BANQUE POPULAIRE GROUP The English language version of this report is a free translation from the original French. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation, views or opinion expressed therein the original language version of the document in French takes precedence over the translation. Copies of this shelf-registration document are available on request, free of charge, from Banque Fédérale des Banques Populaires, Le Ponant de Paris, 5 rue Leblanc, 75511 Paris Cedex 15 Profile Interview with Philippe Dupont 2004 key figures n Corporate governance – The Board of Directors of Banque Fédérale des Banques Populaires – Chairman’s report on the conditions in which the work of the Board of Directors is prepared and organized – Corporate Governance rules for the Banque Populaire banks – Statutory Auditors – Internal financing mechanisms 1 2 4 n Group structure – Introduction – Simplified financial organization chart – The Group’s history – Key events in 2004 – Member-stakeholders – Banque Populaire banks – Banque Fédérale des Banques Populaires – Natexis Banques Populaires – The Group’s international offices 6 6 22 24 25 26 27 28 30 40 44 48 10 16 20 21 Contacts Banque Populaire Group Le Ponant de Paris 5, rue Leblanc, 75511 Paris Cedex 15 Tel: +33 (0) 1 40 39 60 00 – Fax: +33 (0) 1 40 39 60 01 Group Financial Communications Pierre Jacob Investor Relations Cécilia Matissart Press Relations Véronique Davet-Fournier Banque Fédérale des Banques Populaires Communications Maryvonne Monique Pollet Fanny Kerecki www.banquepopulaire.fr n n n Group business review 50 – Personal banking clients – Small business clients – Corporate clients – Institutional clients – Banks and financial institutions 52 56 60 66 68 2004 Financial information 84 – Management report – Financial information 85 107 Chairman’s report on internal control procedures – General organization – Risk monitoring and control procedures – Internal control procedures covering financial and accounting information 174 175 177 181 n Sustainable development – Banque Populaire Group’s commitment – Human resources – Environment and social responsability – Patronage – Sponsoring n Additional information – Person responsible for the AMF shelf-registration document – Statement by the person responsible for the AMF shelf-registration document – Financial communications – Dependence – Exceptional events, claims and litigation – Statement by the Statutory Auditors on the AMF shelf-registration document – Autorité des marchés financiers (AMF) checklist 70 72 75 80 82 83 Annual reports for Banque Populaire Group, Banque Fédérale des Banques Populaires and Natexis Banques Populaires can be downloaded under the heading: “LE GROUPE” 185 186 186 186 186 186 187 188 Printed by Comelli on printers carrying the Imprim’vert sustainable development label. Printed on paper produced in a ISO 9001 and ISO 14001 certified paper mill using vegetable inks with high biodegradability properties. BANQUE POPULAIRE GROUP 2004 annual report Published by Banque Fédérale des Banques Populaires/Département Communication fédérale - Direction Communication financière Groupe Design-production avant•garde - Tel: +33 (0) 1 45 74 61 61 Printing Comelli Photo credits M. Labelle/BFBP - F. Delauney/BFBP - L. Le Fur/BFBP - A. Dovifat/BFBP - F.Vallon/Natexis Banques Populaires -Y. Zedda/BFBP - Bananastock - Brand x pictures - Digitalvision - Getty Images - GraphicObsession - Image Bank - Imageshop - Photodisc - Photonica - Stockbyte - Stone - Stone + - Taxi - Zefa Cooperation and enterprise 2004 annual report BANQUE POPULAIRE GROUP
Similar documents
Groupe Banque Populaire Annual Report
CASDEN Banque Populaire serves employees of the French education, research and culture systems, Crédit Coopératif operates in the social and subsidized economy, ACEF caters to civil
More informationbanque populaire group
A unique characteristic of the Banque Populaire Group is its longstanding commitment to economic and social development. It created over 3,000 net new jobs in 2006. It is the No. 1 provider of busi...
More information