CDC IXIS Capital Markets’ Supervisory Board comprises nine members (2), all of whom own at least one share issued by the Company. Although CDC IXIS Capital Markets is a wholly-owned subsidiary of CDC IXIS, its Supervisory Board nevertheless includes two independent Board members.
IXIS Capital Markets (in French and English versions ). The purpose of this agreement, which was concluded for the period from 1 November 2003 to 23 January 2004 inclusive, is to enable CDC IXIS Capital Markets’ counterparties to benefit from CDC IXIS’s guarantee for balance-sheet transactions completed no later than 23 January 2017 and for off-balance sheet transactions irrespective of their completion date; I of a regulated agreement, termed “Joint and Several Guarantee”, between CDC IXIS and CDC IXIS Capital Markets (in French and English versions ). The purpose of this agreement, which was concluded for the period from 24 January 2004 to 23 January 2007 inclusive, is to enable CDC IXIS Capital Markets’ counterparties to benefit from CDC IXIS’s guarantee for balance sheet and off-balance sheet transactions completed no later than during its meeting of 19 December 2003, the signature: I of a regulated agreement, termed “Equity Swap
Agreement”, between CDC IXIS and CDC IXIS Capital Markets. This agreement, which has a maximum duration of 1 year, is related to Alstom’s financial restructuring programme; I of a regulated agreement, termed “Letter of Commitment ”, between CDC IXIS and CDC IXIS Capital Markets and which establishes the terms under which the Joint and Several Guarantee mentioned below takes effect (domain, form, duration, remuneration etc.); I of a regulated agreement termed “Joint and Several Guarantee” between CDC IXIS and CDC IXIS Capital Markets (in French and English versions). The purpose of this agreement, which was concluded for an indefinite period, is to enable CDC IXIS Capital Markets’ counterparties to benefit from CDC IXIS’s guarantee for transactions concluded as from 24 January 2004 and completed after 23 January 2017; I of a regulated agreement termed “Sub-Letting Agreement” between CDC IXIS Capital Markets and CDC IXIS Securities. The purpose of this agreement, which was concluded for a period of nine years, involves sub-letting to CDC IXIS Securities a part of the premises currently rented by CDC IXIS Capital Markets.
I financial information released by the Company, primarily in the form of annual and interim financial statements, was of good quality.
The Supervisory Board also examined the following matters more specifically: I progress with the 2002-05 business plan, I the plans to merge CDC IXIS Capital Markets into
CDC IXIS, I the IAS project, I the renewal of Supervisory Board and specialised committee members, I the updating of the Company’s statutes, I the transfer of Company headquarters within the same administrative department, I the remuneration of Executive Board members.
Lastly, as part of its special powers enshrined by law, the Supervisory Board approved: during its meeting of 26 May 2003, the signature: I of a regulated agreement, termed “Letter of Renouncement ”, according to which CDC IXIS Capital Markets pledges not to initiate any balance-sheet operations for completion after 23 January 2017 and which indirectly benefit from Caisse des dépôts et consignations’ guarantee; I of a regulated agreement, termed “Letter of Commitment ”, between CDC IXIS and CDC IXIS Capital Markets, and which establishes the terms under which the two Joint and Several Guarantees mentioned below take effect (domain, form, duration, remuneration etc.); I of a regulated agreement termed “Joint and Several Guarantee” between CDC IXIS and CDC
The Remuneration Committee The Remuneration Committee is a four-member committee chaired by a personality from outside the Group and which is responsible for issuing an opinion on the remuneration of the members of the Executive Board. The Committee met on one occasion during 2003, with all members present.
The Supervisory Board wishes to thank all personnel for the work accomplished over the past year and the quality of the information supplied to it.
Directors’ fees were paid to members of the Supervisory Board in proportion to their rate of attendance at meetings of the Board and the two Specialised Committees (3). However, in accordance with internal regulations, Supervisory Board members representing Caisse des dépôts et consignations Group do not receive directors’ fees for attending meetings in the exercise of their mandates within CDC IXIS Capital Markets.
The Financial and Internal Control Committee The Financial and Internal Control Committee is a three-member committee chaired by the ViceChairman of the Supervisory Board and which meets in the presence of the company’s Auditors. Each meeting gives rise to a report that is subsequently presented to the Supervisory Board at a meeting during the following fortnight, the intervening period being used by the Committee for preparation purposes.
The Financial and Internal Control Committee is responsible for assessing period-end financial reporting data and ensuring that internal control procedures are respected. It therefore fulfils a number of duties: I examining the interim and annual financial statements before they are presented to the Supervisory Board, ensuring in particular that the accounting methods used are both appropriate and consistent, as well as soliciting the opinion of the Auditors; I ensuring that internal control mechanisms are functioning properly and that the corresponding regulatory measures are being applied; I issuing an opinion on the appointment of the Auditors and their work programme; I monitoring exposure to the various types of risk (market, counterparty etc.) and the various mechanisms for tracking such risks.
Corporate governance more specific internal control standpoint, the specific provisions pertaining to banking activity in CRBF regulation n° 2001-01, which amended the previous regulation n° 97-02.
I As a provider of investment services: the measures dictated by France’s market regulator, the Autorité des marchés financiers (AMF), and particularly the rules of good conduct pertaining to market intervention and client relations.
Internal references CDC IXIS Capital Markets’ internal control system is organised according to several sets of internal rules: I The “general internal control principles” established by CDC IXIS for all Group entities. In view of the nature and increasing complexity of the Group’s activities, these principles are primarily focused on monitoring and managing risks via risk assessment or risk cartography models.
CDC IXIS Capital Markets’ internal control procedures are designed to ensure that at the operational level: I transactions are processed correctly and that the
Company’s activities and behaviour are consistent with the diverse regulations and internal and external professional standards applicable to it,
I new products, engineered solutions and activities are developed in a secure manner,
I The CDC Group’s Internal Audit Charter, which specifies the objectives, organisation and methods for audit assignments, as well as the rights and duties of the auditors and those audited.
The internal control mechanism is underpinned by various principles: Making operational managers accountable for ensuring rules are effectively applied and for setting up control procedures and methods so as to ensure activities are exercised in a secure manner. Decentralising operational methods to business lines, all of which are subject to specific risk limits and reporting obligations.
I Ensuring contractual documentation is prepared in a secure manner, by placing Legal Officers as close as possible to operational personnel in the front office while at the same time maintaining hierarchical links with the Legal Department.
I Applying the “double check” rule so as to ensure that two participants are always involved in operational processes (monitoring deadlines and timetables for complex products, entering/validating payments, sending valuations to clients, etc.).
Trade confirmation signatures and, more broadly, the legal and contractual documentation related to trading: CDC IXIS Capital Markets’ signature rules are based on strict front/back-office separation and are organised by business line and type of legal commitment, as well as being subject to hierarchical visas at different levels.
Measuring/monitoring risks: I Market risks - Risk Management carries out a daily control to verify road maps are being respected (markets, authorised products and classes of risk, stop-loss indicators, etc.).
- Behavioural limits are complemented with VaR limits calculated for the portfolios. P/L and Risk Control uses the Scenarisk tool on a daily basis to ensure VaR limits are being respected. These measures are rounded out with stress tests based on crisis scenarios.
I Counterparty risks - Exposure limits are monitored daily by the Counterparty Risk Department, which reports to CDC IXIS Capital Markets’ General Secretariat and to CDC IXIS’s Risk Department.
Trading on financial markets: Employees exercising trading functions and credit analysts are required to have professional registration cards.
Insurance cover: The risk-coverage mechanism is rounded out with professional civil liability insurance policies covering all of CDC IXIS Capital Markets’ activities.
Assessment of the internal control mechanism: Within the framework of a co-ordinated work programme approved by the shareholders’ own audit structures, CDC IXIS Capital Markets’ Internal Audit function periodically checks the quality of risk management, control and compliance procedures, via audit assignments or more specific controls based on a risk-oriented approach.
These measures also encompass the foreign branches, within which the Paris-based Internal Audit function has local correspondents that report regularly on the work undertaken. Similar measures are applied with the Internal Control arm of the Company’s equity-broking subsidiary.
I Operational risks - CDC IXIS Capital Markets has drawn up a Company-wide operational risk cartography. Risk indicators are also currently being developed under the supervision of the Operational Risk Steering Committee.
In addition, as part of projects to respond to user IT needs, systems are regularly adapted in order to enhance STP (straight-through-processing) capability.
I The compliance requirements relating to the entry into relations with clients.
(behavioural, VaR), I contractual guarantees (collateralisation), I the existence of master contracts with counterparties, and more generally, the conservation of legal documentation relating to transactions,
(straight-through-processing) capability, I developing further operational-risk indicators and automating certain recurrent controls so as to improve efficiency,
I Profits: daily P/L report by activity, weekly and monthly updates on the main variations,
I Management: ALM reports from the Asset-Liability Committee, reports to monitor risk limits for special -purpose vehicles,
CDC IXIS Capital Markets produces parent-company and consolidated financial statements each half year.
From a general standpoint, production and control functions are disassociated, both as regards accounts processing and the calculation of management profit derived from operational activities.
Accounting information is organised by analytical centres that correspond to the elementary levels in the production of a balanced ledger.
Accounting sections are specialised according to the geographic location of activity (i.e. France or one of the three countries where the Company has branches).
Period-end reporting work is co-ordinated by the Central Accounting function, notably via an instruction note which covers the stages in the period-end process and the information expected from the various decentralised contributors.
In order to ensure the independence of the accounting function, accounts processing systems are organised so as to disassociate management applications and the accounting interpretation of events: I management applications, which are under Back-
Office responsibility, produce reports of events; I this information is interpreted by the Central
Work-in-progress is geared to consolidating the accounting information processing and production mechanism
Over the last few years, priority has been assigned to shortening period-end reporting timescales and industrialising the production and summary report process. Efforts have also been made to ensure the interpretation of accounting information is disassociated from management applications on a widespread basis.
The regular production of monthly accounts earmarked for 2004 will enhance the fluidity of the production and accounting information control processes.
Accounting control is carried out by a dedicated team housed within the Central Accounting function. The team’s responsibility also extends to sections that do not correspond to operational activities.
Management profit is produced by the Risk Management Department and is subsequently controlled by the P/L and Risk Control function (parameters and valuation models in particular).
P/L and Risk Control produces a period-end report for the Central Accounting Department.
Central Accounting Control exploits and analyses the justificative data and the reports produced by the Back Office or the P/L and Risk Control function.
Composition and organisation of the Executive Board CDC IXIS Capital Markets’ Executive Board comprised four members during 2003 (five since 14 January 2004) (6), each of whom held a four-year mandate.
To the Shareholders CDC IXIS Capital Markets 47, quai d’Austerlitz 75648 Paris cedex 13
Under the responsibility of the Supervisory Board, management is responsible for defining and implementing appropriate and effective internal control procedures. In his report, the Chairman of the Supervisory Board is required to describe the conditions under which the Supervisory Board prepares and organises its tasks and the internal control procedures implemented within the Company.
In accordance with prevailing professional doctrine in France, we have acquainted ourselves with the general objectives and organisation of the internal control mechanism, together with those internal control procedures relating to the production and processing of accounting and financial information presented in the Chairman’s report.
Based on our work, we have no observations to make on the description of the Company’s internal control procedures relating to the production and processing of accounting and financial information, as contained in the report of the Chairman of the Supervisory Board, established in accordance with the provisions of the final paragraph of L. 225-68 of the French Companies Act.
Activity of the Executive Board in 2003 CDC IXIS Capital Markets’ Executive Board convened on a weekly basis during the year (54 meetings). The average attendance rate for Board members was 84%.
Auditors PricewaterhouseCoopers Audit 32, rue Guersant AGM of 30/6/97 AGM voting represented by 75833 Paris Cedex 17 on 2004 Étienne Boris financial statements
Mazars & Guérard Tour le Vinci AGM of 11/6/96 AGM voting represented by 4, Allée de l’Arche on 2007 Guillaume Potel 92075 Paris La Défense financial statements
Mr Michel Rosse Tour le Vinci AGM of 15/5/97 AGM voting 4, Allée de l’Arche on 2007 92075 Paris La Défense financial statements
CDC IXIS CAPITAL MARKETS (PARIS) PricewaterhouseCoopers Audit Compulsory auditing of period–end accounts 275,000 286,373 Mazars & Guérard Other non-auditing services 2,392
CDC IXIS SECURITIES Ernst & Young Audit Compulsory auditing of period–end accounts 47,481 39,000
CDC MARCHÉS INFORMATIQUE Mazars & Guérard Compulsory auditing of period–end accounts 11,200
Over 2003 as a whole, the yield spread between US Tnotes and German bunds widened and thus reflected US bonds’ greater sensitivity to equitymarket trends. This underperformance by Tnotes was nevertheless restricted by massive purchases of US securities by Asian central banks and even US commercial banks.
Economic activity remained depressed in most of the developed world in the first half of 2003. US GDP growth was largely below potential and was hit by slowing consumer spending and the corporate sector’s reluctance to invest. Several eurozone countries were in recession, while in the UK, the Bank of England (the BOE) even feared the property bubble was about to burst.
The suspension of the Growth and Stability Pact (GSP), which acted as the prime guarantor of concerted budget policy within the Economic and Monetary Union (EMU) countries, was another key event in the second half in the eurozone. Ecofin’s decision not to fine France and Germany for failing to respect GSP rules triggered a degree of tension which amongst other effects, resulted in the failure of negotiations on the European constitution and
Stock-market volatility fell virtually continuously in 2003, with the VDAX volatility measure more than halving from 42% to 20%.
Foreign-exchange market The major event of the year was the continued decline in the dollar. Its effective exchange rate, as calculated by the BOE, fell by over 14%. The eurodollar broke through the 1.25 mark right at the end of the year and reached 1.2650 on 31 December. The dollar’s decline was logical, notably in view of the US administration’s de-facto abandoning of its strong-dollar policy. Despite the Bank of Japan (BOJ), ramping up its currency-market interventions, the dollar-yen retreated as far as 107. The Australian dollar (AUD), the South African rand (ZAR) and the New Zealand dollar (NZD) chalked up the best performances against the dollar and the euro in 2003, reflecting Australia and New Zealand’s heavy trade exposure with Asia, together with the three currencies’ sensitivity to raw material prices and in South Africa’s case, investors’ appetite for emerging markets. China resisted US pressure to revalue or float the yuan.
Business lines in 2003 26 Financial structure and regulatory ratios 34 Risk control 36 Internal control and compliance 43 Resources 45 Outlook for 2004 47 Legal elements (extracts) 48
In another highly competitive year in financial markets, net banking income amounted to €632.9 million in 2003, a 27% increase on 2002.
This growth was primarily driven by our fixedincome business, which posted a 47% increase in NBI for the year. Fixed-income derivatives had a record year in revenue terms, notably thanks to sustained demand and an active market encouraged by growth-friendly monetary policy.
2003 also reaped rewards from our expansion in high value-added market niches.
The equities business line put up strong resistance in the face of lower volumes and modest volatility. Our convertible bonds activity stood out with some very fine results for the year.
International operations continued to expand well, as witnessed by the 28% advance in profits from our three foreign branches.
The primary bond market Despite an increasingly competitive market, CDC IXIS Capital Markets managed to progress from 18th to 16th in the league table of lead-managed euro-deals in 2003, with more than 100 issues to its credit representing over €21 billion in overall volume.
We maintained our strong presence in collateralised bonds, ranking 1st in France in these markets and 6th in the European league table. We also stepped up our activities in the asset-backed securities (ABS) field by lead-managing eight transactions in 2003, and also obtaining the lead for the first tier-1 subordinated issue on behalf of Caisse Nationale des Caisses d’Epargne et de Prévoyance (CNCEP), which proved a big success with a large number of French and European investors. We continued to expand our EMTN (euro medium-term notes) business. CDC IXIS Capital Markets was nominated by MTNi magazine as one of the most innovative institutions for structure, notably for launching the first inflation-linked subordinated transaction.
Over-the-counter interest-rate and forex derivatives trading 2003 brought further improvements in traded volume and the profitability of interest-rate and hybrid (forex and credit) derivatives transactions executed from Paris, London, Frankfurt, New York and Tokyo.
CDC IXIS Capital Markets helped Axa Investment Managers with the Overture deal, the largest managed Collateralised Debt Obligation (CDO) issue to date.
Also in 2003, CDC IXIS Capital Markets leadmanaged the placement of three securitisation deals involving German assets. We plan to capitalise further on this promising market in 2004, by developing true-sale securitisation transactions, involving true sale and financing of all assets.
The secondary credit market Against an attractive backdrop of rate cuts and narrowing spreads, CDC IXIS Capital Markets had an excellent year in terms of profits and continued to strengthen its presence in the ABS and corporate segments. We also maintained our leadership in the repo credit market in volume terms in 2003.
The investments in past years continued to bear fruit in 2003.
This success positioned CDC IXIS Capital Markets attractively for further major transactions.
a dedicated asset-liability management (ALM) tool, capable of providing very fine analysis of interest spreads.
The work undertaken in this area also helped CDC IXIS Capital Markets obtain a place on the technical committee set up by EuroMTS to monitor the management of the MTS indices.
Results were also leveraged by robust growth in traded volume and portfolio rotation, especially via greater use of credit derivatives. In response to the continuous narrowing of credit spreads, the portfolio was reduced to €4 billion, while quality was further improved.
Strategy in 2003 was tilted towards relative value and arbitrage positions and proved well suited to the prevailing environment, with narrower spreads and modest volatility reducing the attractions of directional risk-taking.
Our activities in the money market and governmentdebt market were subject to intense competition during the year, especially in the first half, as a result of geopolitical uncertainties.
Against this backdrop, we extended the initiatives of the last few years, notably via the widespread roll-out of automatic transaction processing and electronic quotation and trading tools.
Enhanced offering In response to the desire for diversification manifested by our counterparties, we continued to broaden our offering, notably by marketing products based on still-scarcely used underlyings (inflation rate, shares in investment funds etc.). This diversification was undertaken with a constant concern for risk limitation and confirmed the Company’s position at the forefront of financial innovation.
Despite the total lack of IPOs in 2003, there were a number of major recapitalisations during the year, as companies sought to repair balance sheets that had been hard-hit during previous years.
More recently, CDC IXIS Capital Markets took part in Alstom’s refinancing, acting as underwriter for the capital increase and advisor to CDC IXIS on the issue of bonds redeemable in shares.
Profitability in equity finance also continued to improve, spurred by sharp volume growth as institutional investors gradually returned to the market and by the continued hedging needs generated by derivatives business. As is the case for arbitrage, this business is shortly to extend geographic coverage to North America.
Lastly, the Company also launched a recruitment drive in 2003 geared to bolstering our commercial presence. Thanks to these efforts, we can now offer clients full coverage of global markets and hence service their needs wherever they are located.
All in all, the main advances of 2003 concerned the increasingly innovative nature of our product offering and the geographic extension of our commercial reach. These advances ensured our structured products business remained highly profitable, despite fairly unhelpful economic conditions.
The benefits of integration 2003 brought a gradual, but solid, upturn in M&A activity in the US and a revival in convertible bond business. Against a backdrop of declining volatility, which was offset by tighter credit spreads, our trading team managed to identify highly profitable investment opportunities, while maintaining a conservative risk policy.
Business stable in France and mixed in international markets Amid taxing conditions for the third year on the trot, CDC IXIS Securities continued to increase its share of the domestic market, by holding broking income from French institutional clients virtually steady. Business with the networks grew by over 30%.
The Research unit also continued to analyse credit markets and regularly contributed to the monthly “Spread & Credits” publication, in conjunction with the credit analysis team.
Stringent quantitative analysis Quantitative analysis techniques (econometrics) are used to analyse and forecast trends in fixed-income and equity markets.
Studies of interest-rate markets were primarily focused on interest-rate term structures. Specific attention was paid to the factors determining yield spreads between sovereign bonds and private-sector bonds (agency, corporate, Pfandbriefe etc.). Yield spreads between sovereign bonds and swap rates were also monitored carefully; break-even inflation is studied as well.
Compiling investment strategies Our research activities focus on providing advice and analysis on investment and arbitrage strategy in interest-rate markets. To do this, we use economic and financial scenarios established by country specialists as well as relative value analysis.
Live research Our economists continued to provide daily analysis and comment on market conditions and economic indicators for Bloomberg TV France.
Client-driven expertise The macroeconomic and financial research team headed by Patrick Artus continued its client-driven analysis and evaluation of financial markets during the year. The range of publications is primarily distributed in hard-copy form to CDC IXIS Capital Markets’ domestic and international clients and can also be consulted on the Group’s website.
A diversified and evolving range of publications Economic monitoring and forecasting is carried out for the euro-zone countries (primarily Germany, France, Italy and Spain), the USA, Japan and non euro-zone European economies. All the results of this analysis are published in our “Monthly” note, which was updated both for content and layout in the first quarter of 2003.
These new indicators enhance the existing range of publications which includes: I “Flashes”: short notes providing in-depth themed analysis on economic or financial market trends. A total of 341 Flashes were published in 2003, a 10% increase on the previous year,
There was also a decline in lending operations and an increase in securities received under repo transactions.
The variation on the liability side essentially stemmed from a €12.7 billion increase in borrowing and debt securities at the expense of securities sold under repo transactions and securities issued.
Other liabilities concerning financial instruments varied in a symmetrical manner to other assets, and with the same items concerned.
The balance sheet total amounted to €134.2 billion, a €3.7 billion increase during the year, and included €16 billion (11.9%) for foreign branches.
Consolidated balance sheet Year-on-year change (Billions of euros) 2003 2002 amount %
ASSETS Loans and money market 18.1 24.7 (6.6) -26.7 Securities received under repo 43.7 38.0 5.7 15.0
As at 31 December 2003, the total of counterpartyweighted individual risks that exceeded 10% of equity amounted to €4.2 billion, as compared to an overall limit equivalent to eight times equity of €11 billion. Moreover, no individual counterpartyweighted risk exceeded the 25% limit.
This ratio is subject to a minimum requirement of 60% and stood at 285% at year-end 2003 versus 383% a year earlier.
The notional amount of instruments traded on organised markets amounted to €485 billion, a €245 billion increase on the year-end 2002 figure of €240 billion.
The growth in the notional amount stemmed primarily from the volume of interest-rate arbitraging activity (purchases and sales of options are recorded in absolute value terms).
The credit equivalent value (CEV) weighted for derivatives amounted to €5.3 billion at 31 December 2003, a 43% increase on the year-end 2002 figure of €3.7 billion.
Carlo-type method that takes into account the portfolio’s non-linear characteristics with respect to the different factors of risk.
I operational indicators are used to manage activity on an overall and/or by trader basis, by focusing on more directly observable criteria such as nominal size, sensitivity, stop-loss indicators, diversification indicators and degree of influence on the market, etc.). The limits derived from these operational indicators are used to complement VaR and stresstest limits. They are also set in accordance with the latter, especially when they apply to the front office. This is particularly the case for stop-loss indicators which trigger alerts on losing strategies to a very precise level of detail (e.g. limits per trader). These stop-loss indicators are permanently monitored and in the event they are exceeded, prompt a managerial decision on the position in question (e.g. close, hedge, retain, etc.).
Controlling market risks Market risks are controlled by comparing these various measures with the Group’s permanent risk limits, which are fixed annually by the Executive Board of CDC IXIS Capital Markets and revised during the course of the year when necessary. When based on VaR measures, these limits represent economic equity and are established on the basis of observed or targeted return/risk pairings. They incorporate a 99% confidence level, the assumption that positions are held for 10 days and a security multiplier of 2.71 (20 standard-deviation VaR).
I measuring credit/counterparty risks (note that the Credit Risks Department has responsibility for controlling and validating these measures),
During 2003, 1-day 99% VaR averaged €8.95 million for fixed-income and foreign exchange and €5.44 million for equities.
The credit risk portfolio is also subject to an annual review of counterparty limits, again in accordance with CRBF regulation n° 97-02. This monitoring process is then completed by regular revisions by country and economic sector.
Counterparty risks are managed at the operational level by CDC IXIS Capital Markets, and centrally by CDC IXIS, a daily report being submitted to CDC IXIS for this purpose.
Risk and credit-limit monitoring is facilitated by an internally-developed, dedicated software tool (Amerisc), which traders can access in real time. This tool calculates both “potential exposure” (i.e. a statistical assessment of CDC IXIS Capital Markets’ present and future commitments) and the economic equity and provisions needed to support credit risks. The process involves numerical simulations combining master netting agreements and market scenarios compiled in accordance with VaR techniques (referred to in this case as C-VaR or Credit-Value at Risk).
Overall risk management is carried out via a monthly review of portfolio exposure covering CDC IXIS Capital Markets’ 2,100 active counterparties, classified by credit rating, sector and country.
Credit risks (i.e. issuer and counterparty risks) are managed in accordance with the CDC IXIS Group’s general policy. Credit risk is defined in the strict sense as the risk of incurring a loss at a given point of time in the future, following default by a counterparty. Credit risk also incorporates the risk of a deterioration in the quality of the counterparty’s signature over the duration of transactions initiated by CDC IXIS Capital Markets for its own account. In other words, credit risk corresponds to the risk of a loss of value on a position following a decline in counterparty solvency. It therefore requires portfolio commitments to be monitored on a dynamic basis.
Major risks are managed via specific monitoring, involving a monthly review of the 50 largest counterparties with which we have the highest exposure, ranked in order of importance. Overall, major exposure essentially concerns G7 sovereign risks and leading eurozone financial institutions.
North America of marked-to-market (MtM) exposure concerned signatures rated AAA to A as at 31 December 2003.
The market risk generated by these instruments (underlying spread risk) is captured in the usual Value-at-Risk measures.
Exposure to credit risk (i.e. default risk) is measured using our AMeRisC internal credit-risk measurement tool, which authorises netting between credit derivatives and securities with similar characteristics (i.e. similar management intention, maturity, seniority, etc.), where necessary.
The associated counterparty risk is also measured via AMeRisC (off-balance sheet risk).
Credit-derivatives positions are subject to specific fair-value adjustments designed to correct for uncertainties affecting certain illiquid or not-easilyhedgeable parameters (notably the recovery rate). The usual fair-value adjustment measures are also applied to counterparty risk (statistical risk, e.g. anticipated losses are subject to fair-value adjustment ).
In order to reduce credit-risk exposure, CDC IXIS Capital Markets has also set up master collateralisation agreements with its main counterparties so as to reduce bilateral risk via the use of margin calls. To this end, CDC IXIS Capital Markets concluded slightly over 200 Derivative Instrument Guarantee Agreements in 2003, the purpose of which is to cover risk on these instruments via the use of margin calls for its largest counterparties. As a result of these agreements, CDC IXIS Capital Markets collected €3.8 billion of margin compared with an overall MtM risk valuation for its derivatives portfolio of €10.47 billion (taking into account collateralisation).
I ultimately setting up operational risk indicators for alerting management to an imminent risk or for measuring the effectiveness of preventative action plans.
The last stage of the project is due for the first half of 2004, the Committee’s objective being to measure a first set of a dozen risk indicators during this period.
CDC IXIS Capital Markets has a Legal Department which reports to the General Secretariat and is responsible for the documentation and upstream legal validation of transactions executed by our trading rooms in Paris and in our London, Tokyo and Frankfurt branches. The Department also provides legal services to support functions and especially to the back office.
The Legal Department’s remit is to ensure the security of transactions. In this respect, it intervenes in the various internal committees and internal control procedures with the aim of assessing legal risk. It notably takes part in the New Product Committees where its role is to identify the legal consequences of new products for CDC IXIS Capital Markets and also chairs the “master agreements” committee where it verifies the progress with negotiations regarding such agreements.
A report on legal disputes is provided for the CDC IXIS Group as a whole. When required, a report on legal risk is periodically submitted to CDC IXIS Capital Markets’ Financial and Internal Control Committee.
Exceptional events and lawsuits There are currently no exceptional events or lawsuits, other than those described in the appendix to the 2003 financial statements, liable to have a significant effect on CDC IXIS Capital Markets’ revenues, profits or financial situation, or those of its Group.
Note, lastly, in a move that testifies to the importance we assign to controlling operational risks, CDC IXIS Capital Markets has appointed a full-time Operational Risk Administrator, as a complement to the P/L & Risk Control and Internal Control teams.
With insurance markets contracting and under pressure, CDC IXIS Capital Markets used its global insurance programme to maintain exhaustive risk coverage via policies with leading insurers possessing impeccable finances.
As a result, we were able to extend all of our existing insurance protection in 2003 under the same terms of guarantee.
After analysing risks and measures to prevent them, we subscribed to a number of insurance policies designed to remedy significant adverse potential impacts resulting from fraud, embezzlement or damage, or from cases entailing the liability of the Company or its employees.
These policies concern the following risks: I damage to premises and their contents, including
IT and telephone equipment. These assets are insured for their replacement value,
I professional civil liability and fraud. These risks are covered for the sum of €60 million, based on the best offers available on the market. Compensation covers financial losses sustained as a result of fraud or where our civil liability is entailed as a result of damage caused to third parties as a consequence of professional misconduct,
I Loss of activity, covering financial prejudice sustained through material loss or damage.
The Internal Control function reports directly to the Chairman of the Executive Board and ensures that the regulations pertaining to CDC IXIS Capital Markets’ status as a credit institution and its obligations as a provider of investment services are respected.
I to make regular checks on the state of progress concerning the implementation of issued recommendations and their concrete translation into working practices.
As part of these controls, OTC derivatives transactions (particularly the order confirmation and collateralisation processes) were analysed specifically from the standpoint of normalised processing, reinforcing control points and the fluidity of frontback office relations.
We also launched a project to define operational risk indicators capable of triggering alerts when business -line processes are executed under sub-professional standards.
Effective positioning The Compliance Department’s increasing degree of integration within the Company’s activities is the fruit of its efforts to sensitise all staff to the rules of good conduct. Thanks notably to the presence of compliance officers in trading rooms, to field-level training initiatives and to our role in new committees, the Department participated in the development of complex products and the launch of new cross-border activities in 2003.
In the anti-money-laundering field, the Department took over responsibility for the client-referencing team and oversaw the implementation of a system which triggers alerts on transactions involving unreferenced clients and which provides it with one of the best automated tools for fighting money laundering in the industry.
Alongside these initiatives, the Department enhanced standards with procedures tailored to each business line and continued with all of its recurrent assignments, notably those concerning monitoring personnel declarations and taking part in market-wide projects.
Managing market and credit risks Verifications concerned two activities in particular: I the recently-launched real-estate structuring activity, which was reviewed through a real-life transaction,
I the generic long-term interest-rate derivatives activity (vanilla and complex derivatives, interestrate /credit and interest-rate/forex hybrids), this being an important contributor to CDC IXIS Capital Markets’ profits. Analysis centred on the recognition of exotic instruments in systems and the development and validation of their pricers.
Specific verifications concerning both internal-control mechanisms and risk systems were also undertaken on a broader range of activities. The goal with these verifications was to ensure compliance with the requirements of appendix VII of French banking regulation CRBF n° 95-02 concerning the use of internal models for measuring market risks.
The main conclusions from audits and controls carried out during the year were periodically presented to the Financial and Internal Control Committee, the body responsible for supervising the quality of the internal control system and all of its components, and for reporting its findings to the Supervisory Board.
In 2004, controls are set to focus on: I monitoring credit risk, the results production/
reconciliation process, controlling risks associated with financial engineering solutions involving specific vehicles (cross-departmental/themed audits),
I primary-market transactions, the money market and government bond business, together with complex credit activities (business-line audits),
New activities and new products will continue to be monitored on a periodic basis.
At the same time, as part of the Company’s measures to ensure professional equality is maintained, a collective agreement was signed regarding payment for paternity leave.
As at 31 December 2003, CDC IXIS Capital Markets and its subsidiary CDC IXIS Securities employed 911 staff on permanent contracts, versus 933 a year earlier. This 2.4% reduction only concerned the Paris offices, whereas the number of employees in the branches held steady. In addition, the number of back-office personnel (employed by structures not included in the Company’s scope of consolidation) showed no increase and amounted to 199 employees on permanent contracts at the end of 2003.
The IT Department capitalised on CDC IXIS Capital Markets’ move to its new headquarters at 47 quai d’Austerlitz in Paris’s 13th arrondissement to continue optimising and enhancing the reliability of a large part of the Company’s technical architecture (cabling, servers, routers etc.). Users now have access to a highly efficient and secure network that is perfectly tailored to the technical demands of their activities. As regards work stations and systems, further progress was made with technical migrations (new versions of Windows, Kobra architecture, SUMMIT, E-toolkit, messaging, etc.) and all users are now equipped with flat screens, which save energy and space, while also enhancing visual comfort.
Modernisation work continued in the securities processing area and involved the implementation of the accounting phase on the back-office platform (SUMMIT Bonds B/O for bond processing). A secured tool for managing scanned signatures for trade confirmations was also introduced. This represented another significant advance for back-office IT systems, by automating processing and thereby eliminating manual intervention.
Lastly, numerous features were added to the front-office commercial database with a view to generalising its usage.
2004 will witness further efforts to align IT services with business-line strategy, notably via the completion of work on back-office securities processing, the launch of work on firm sales and lending-borrowing in the equity back-office channel, efforts to optimise databases (stocks, prices, third parties), together with an investigation into the implementation of a global confirmation management tool (workflow ) and a company directory.
The purpose of these changes – whether completed, ongoing or still to come – continues to be to rationalise and optimise business-line processes with a permanent view to controlling operational risks and reducing costs.
The “Markets” aspect of the Group’s IAS project is managed in decentralised fashion by CDC IXIS Capital Markets under the responsibility of the General Secretariat.
We will also further our commercial development, especially in international markets.
We will continue to offer clients the benefit of our balance sheet, both for market-making operations (bonds, interest-rate and equity derivatives) and warehousing operations, particularly in the ABS and CDO fields.
With equity-market conditions expected to improve in 2004, particular emphasis will be placed on developing business with corporate clients by exploiting synergies with Nexgen, CDC IXIS’s 40%-owned subsidiary specialising in complex corporate finance operations, a move in synch with the CDC IXIS Group’s own expansion in the corporate finance field.
We will continue to work on implementing Basle II rules and completing the switch to IAS by the end of the year. Support functions and the back office will also maintain their efforts to ensure that the ever-increasing volume and complexity of our business entails no loss of control over transactions.
Recruitment policy in 2004 will focus on the expertise and seniority of our personnel, the concern being to reorganise and optimise our structures on a permanent basis.
Lastly, one of CDC IXIS Capital Markets’ major challenges in 2004 will be to implement the tie-up with CNCEP, as provided for by the agreements between the Caisse des dépôts and Caisse d’Epargne Groups. To this end, support functions will work to ensure the new organisation is put into place successfully.
Amount of capital, shares issued The Parent Company has total capital of €457,500,000, divided into 30,000,000 shares each with a nominal value of €15.25, all of the same category.
The shares are registered and all transfers to third parties require approval by the Company.
YEAR Nature of Size of capital Total capital Total number Nominal operation increase of shares value
l Double voting rights: nil. l As far as the Company is aware, no shareholding pacts have been signed.
CAISSE NATIONALE DES CAISSES D’EPARGNE SA F Member of Executive Board; Head of Financial and Investment Banking ET DE PRÉVOYANCE (since 15 December 2003)
CDC FINANCE-CDC IXIS SA F Member of Executive Board; Chief Executive Officer; Head of Capital Markets and Financing SOGEPOSTE SA F Vice-Chairman of Supervisory Board
CDC IXIS FINANCIAL GUARANTY EUROPE SA F CDC IXIS Financial Guaranty’s permanent representative on the Supervisory Board (since 25 September 2003; previously Censor)
(since 17 July 2003) ECUREUIL GESTION FCP SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board
Remuneration and benefits received in 2003 in exchange for mandates and functions exercised within CDC IXIS Capital Markets: €184,100.75 2003 Mr Nicolas FOURT
Remuneration and benefits received in 2003 in exchange for mandates and functions exercised within CDC IXIS Capital Markets: €830,833.00.
CDC IXIS CAPITAL MARKETS SA F Member of Executive Board; Joint Head of Front Office CDC IXIS SECURITIES SA F Member of Executive Board (since 24 April 2003; previously Chairman of Executive Board) CDC IXIS LCF ROTHSCHILD MIDCAPS SA F CDC IXIS Securities’ permanent representative on the Supervisory Board
CDC FINANCE-CDC IXIS SA F Chairman of Executive Board (from 16 July to 14 January 2004; previously Compagnie financière Eulia’s permanent representative on the Supervisory Board)
CDC IXIS SECURITIES SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board (since 17 July 2003)
CDC IXIS NORTH AMERICA SA USA Chairman of Board of Directors (since 24 September 2003)
Officer, in charge of finance) CRÉDIT FONCIER DE FRANCE (listed) SA F Member of Supervisory Board (since 28 May 2003) EULIA CAUTION SA F Compagnie financière Eulia’s permanent representative on the Board of Directors
CDC FINANCE-CDC IXIS SA F Member of Executive Board; Chief Financial Officer (resigned 16 December 2003)
CDC IXIS FINANCIAL GUARANTY HOLDING SA F Chairman of Supervisory Board (from 25 September to 16 December 2003; previously Member of Supervisory Board)
MARTIGNAC FINANCE SA F Chairman of Supervisory Board (resigned 22 December 2003) CDC IXIS NORTH AMERICA USA Member of Board of Directors (resigned 16 December 2003)
CDC IXIS ASSET MANAGEMENT SA F Vice-Chairman of Supervisory Board (from 6 October to 16 December 2003) CDC IXIS PRIVATE CAPITAL MANAGEMENT SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board
(since 8 September 2003) CDC IXIS PRIVATE EQUITY SA F CDC Finance-CDC IXIS’s permanent representative on the Board of Directors
(since 17 July 2003) and Member of Board of Directors (resigned 16 October 2003) IXIS AEW EUROPE SA F Chairman of Board of Directors (from 2 October to 16 December 2003) MAGNANT SA F CDC Finance-CDC IXIS’s permanent representative on the Board of Directors
(mandate ended 17 August 2003 following dissolution of the company) PART’COM SA F Member of Board of Directors (resigned 16 December 2003) CDC IXIS AM US CORPORATION USA Member of Board of Directors (resigned 16 December 2003)
CNP ASSURANCES (listed) SA F Member of Executive Board; Chief Financial Officer (since 16 December 2003) SOCIÉTÉ FONCIÈRE MOGADOR SA F CDC’s permanent representative on the Board of Directors (mandate ended May 2003)
CAISSE NATIONALE DES CAISSES D’EPARGNE ET DE PRÉVOYANCE SA F Member of Supervisory Board
CDC IXIS FINANCIAL GUARANTY SA F Vice-Chairman of Supervisory Board CDC IXIS FINANCIAL GUARANTY NORTH AMERICA INC. USA Member of Board of Directors
BANCA CARIGE (listed) ITA CDC Finance-CDC IXIS’s permanent representative on the Board of Directors
Director’s fees received in 2003 in exchange for the mandate exercised within CDC IXIS Capital Markets: nil.
ATAG ASSET MANAGEMENT SA LUX Member of Board of Directors BCEEL LUX Chief Executive Officer; Chairman of Management Committee BCEEL-RE LUX Chairman of Board of Directors CARGOLUX LUX Member of Board of Directors COMPAGNIE LUXEMBOURGEOISE DE TÉLÉDIFFUSION LUX Member of Board of Directors EURO-ENVIRONNEMENT SA LUX Member of Board of Directors EURO-ENVIRONNEMENT S.C.A. S.C.A. LUX Member of Board of Directors LA LUXEMBOURGEOISE-ASSURANCE SA LUX Vice-Chairman of Board of Directors LA LUXEMBOURGEOISE-VIE SA LUX Vice-Chairman of Board of Directors LUXAIR LUX Vice-Chairman of Board of Directors MEDIATEL MANAGEMENT SA LUX Vice-Chairman of Board of Directors PAUL WURTH SA LUX Member of Board of Directors SES GLOBAL LUX Member of Board of Directors
SOCIÉTÉ DE LA BOURSE DE LUXEMBOURG LUX Member of Board of Directors SOCIÉTÉ DE GESTION DE CDC EURO OBLIGATIONS SA LUX Member of Board of Directors SOCIÉTÉS DES FOIRES INTERNATIONALES DE LUXEMBOURG SA LUX Vice-Chairman of Board of Directors
CDC IXIS CAPITAL MARKETS SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board (since 17 February 2003)
CDC IXIS ASSET MANAGEMENT SA F Member of Supervisory Board (from 6 October to 4 December 2003)
CAISSE DES DÉPÔTS DÉVELOPPEMENT C3D SA F Member of Board of Directors (resigned 11 December 2003) CDC HOLDING FINANCE (EX-SODEVE) SA F Chairman of Board of Directors (resigned 3 November 2003) CDC IXIS ITALIA HOLDING SA F CDC’s permanent representative on the Supervisory Board (mandate ended 13 March 2003) CNP ASSURANCES (listed) SA F Member of Supervisory Board COMPAGNIE FINANCIÈRE EULIA SA F CDC Holding Finance’s permanent representative on the Board of Directors
CAISSE NATIONALE DES CAISSES D’EPARGNE ET DE PRÉVOYANCE SA F Member of Supervisory Board (resigned 18 December 2003) SEGUR GESTION SA F CDC’s permanent representative on the Board of Directors (resigned 10 January 2003) GALAXY FUND LUX CDC’s permanent representative on the Management Board (resigned 11 December 2003)
CDC FINANCE – CDC IXIS SA F Member of Supervisory Board
ALLIANCE ENTREPRENDRE SAS F Ecureuil Participations’ permanent representative CAISSE D’EPARGNE FINANCEMENT SA F Member of Board of Directors CAISSE NATIONALE DES CAISSES D’EPARGNE ET DE PRÉVOYANCE SA F Member of Executive Board CRÉDIT FONCIER DE FRANCE (listed) SA F Vice-Chairman of Supervisory Board FINANCIÈRE OCÉOR SA F CNCEP’s permanent representative on the Supervisory Board ECUREUIL MONÉTAIRE SICAV F CNCEP’s permanent representative on the Board of Directors EFIDIS SA F Member of Board of Directors (since September 2003) GROUPEMENT D’ACHATS DES CE OD@CIA SA F CNCEP’s permanent representative on the Board of Directors HOLGEST SA F Chairman of Board of Directors LES ÉDITIONS DE L’ÉPARGNE SA F Member of Board of Directors REVENUS TRIMESTRIELS SICAV F CNCEP’s permanent representative on the Board of Directors SOPASSURE SA F Member of Board of Directors
CDC IXIS CAPITAL MARKETS SA F CNCEP’s permanent representative on the Supervisory Board (since 13 October 2003)
CDC IXIS ASSET MANAGEMENT SA F CNCEP’s permanent representative CDC IXIS PRIVATE CAPITAL MANAGEMENT SA F CNCEP’s permanent representative
CDC FINANCE-CDC IXIS SA F Member of Executive Board, Director of Client Relations and Commercial Development SOGEPOSTE SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board
CDC IXIS ASSET MANAGEMENT SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board (since 17 July 2003)
CDC IXIS PRIVATE CAPITAL MANAGEMENT SA F Vice-President of Supervisory Board (since 8 October 2003) IXIS AEW EUROPE SA F CDC Finance-CDC IXIS’s permanent representative on the Board of Directors
CDC IXIS ADMINISTRATION DE FONDS SA F CDC Finance-CDC IXIS’s permanent representative on the Board of Directors
CDC IXIS FINANCIAL GUARANTY HOLDING SA F Chairman of Supervisory Board (resigned 4 August 2003) CDC IXIS FINANCIAL GUARANTY NORTH AMERICA INC. USA Chairman (resigned 4 August 2003)
IXIS AEW EUROPE SA F Member of Board of Directors (resigned 4 August 2003) CDC IXIS PRIVATE CAPITAL MANAGEMENT SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board
CDC IXIS ITALIA HOLDING SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board (mandate ended 17 July 2003)
ACCOR (listed) SA F Member of Supervisory Board CAISSE NATIONALE DES CAISSES D’EPARGNE ET DE PRÉVOYANCE SA F CDC’s permanent representative on the Supervisory Board (mandate ended during 2003) COMPAGNIE DE SAINT-GOBAIN (listed) SA F Member of Board of Directors SAN PAOLO IMI (listed) ITA Member of Board of Directors (resigned 4 August 2003)
2003 Mr Gérard BARBOT (no longer a director of CDC IXIS Capital Markets since 17 July 2003)
CDC IXIS FINANCIAL GUARANTY SERVICES INC. USA Member of Board of Directors (resigned 17 July 2003) CDC IXIS FINANCIAL GUARANTY NORTH AMERICA INC. USA Vice-Chairman of Board of Directors (resigned 17 July 2003)
(resigned 17 July 2003) CDC IXIS PRIVATE CAPITAL MANAGEMENT SA F Vice-Chairman of Supervisory Board (resigned 17 July 2003) VÉGA FINANCE SA F Chairman of Supervisory Board (resigned 17 July 2003)
CDC IXIS AM US CORPORATION USA Member of Board of Directors (resigned 17 July 2003) CDC IXIS AM US LLC USA Member of Board of Managers (resigned 17 July 2003)
CAISSE NATIONALE DES CAISSES D’EPARGNE ET DE PRÉVOYANCE SA F Member of Supervisory Board (resigned 9 April 2003) ECUREUIL GESTION SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board
CDC FINANCE-CDC IXIS SA F Chairman of Supervisory Board (resigned 9 January 2003)
CDC IXIS CAPITAL MARKETS SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board (mandate ended 17 February 2003)
CAISSE DES DÉPÔTS DÉVELOPPEMENT C3D SA F CDC’s permanent representative on the Board of Directors (mandate ended 16 January 2003) CNP ASSURANCES (listed) SA F CDC’s permanent representative on the Supervisory Board (mandate ended 16 January 2003)
CDC IXIS ASSET MANAGEMENT SA F CNCEP’s permanent representative on the Supervisory Board (mandate ended 6 October 2003)
ALLIANCE ENTREPRENDRE SA F Ecureuil Participations’ permanent representative on the Board of Directors (mandate ended 15 April 2003)
CNP ASSURANCES (listed) SA F Member of Supervisory Board (resigned 5 September 2003) COMPAGNIE FINANCIÈRE EULIA SA F Member of Board of Directors (mandate ended 11 September 2003)
Key to form of Company SA (Société Anonyme) = French limited company; SAS (Société Anonyme Simplifiée) = Simplified French limited company; SICAV = Mutual fund; SCA (Société en Commandite par Actions) = Limited partnership with shares; EPIC = Publicly-owned company; MUT = Mutual insurer.
dividend of €46,500,000 and the allocation of the remaining €142,541,479.49 of distributable profit to retained earnings; I authorise the issue of bonds up to a maximum overall amount of €12 billion; I allocate total director’s fees of €58,600 to the members of the Supervisory Board in respect of the 2003 financial year; I renew the mandates of those members of the Supervisory Board whose mandates are due to expire at the end of this Meeting, in accordance with article 27 of the statutes.
Fourth resolution The Ordinary Shareholders’ Meeting decides to allocate profit for the year as follows: Calculation of distributable profit Net profit for 2003 €87,841,485.36 5% to the legal reserve (€4,392,074.27)
The dividend per share amounts to €1.550, plus a €0.775 tax credit.
First resolution Having heard the presentation of the report of the Executive Board, and the reading of the reports of the Supervisory Board and the Auditors, together with the presentation of the report of the Chairman of the Supervisory Board concerning the preparation and organisation of the Board’s work and the internal control procedures implemented by the Company, as well as the reading of the Auditors’ report on the said report, the Ordinary Shareholders’ Meeting approves the parent company financial statements for the year ended 31 December 2003, as presented.
Second resolution Having heard the presentation of the report of the Executive Board, and the reading of the reports of the Supervisory Board and the Auditors, together with the presentation of the report of the Chairman of the Supervisory Board concerning the preparation and organisation of the Board’s work and the internal control procedures implemented by the Company, as well as the reading of the Auditors’ report on the said report, the Ordinary Shareholders’ Meeting approves the consolidated financial statements for the year ended 31 December 2003, as presented.
Resolutions submitted to the Annual General Meeting of Shareholders of CDC IXIS Capital Markets on 6 May 2004
fees allocated to the members of the Supervisory Board at €58,600 for financial year 2003.
I 2002: a dividend of €27,200,000, plus a tax credit of €13,600,000 (as approved by the Ordinary Shareholders’ Meeting of 17 May 2002, convened to vote on the accounts for the year ended 31 December 2001).
I 2003: no dividend distributed (as approved by the Ordinary Shareholders’ Meeting of 14 May 2003, convened to vote on the accounts for the year
Fifth resolution After having heard the report of the Executive Board, and in accordance with the provisions of article L.228-41 paragraph 1 of the French Companies Act, the Ordinary Shareholders’ Meeting authorises the Executive Board to use its sole discretion to issue bonds up to a maximum total amount of €12,000,000,000 (€12 billion), notably in the form of EMTMs (Euro Medium Term Notes), in one or several operations, in France or abroad, and to decide the terms of the said issue.
This authorisation is valid for a period of 5 (five) years as from this date. It replaces the authorisation issued on 23 May 2001.
Interbank market securities and negotiable debt instruments 10 9,323 12,392 10,737
+ Interest and equivalent income on transactions of which accrued interest on current account 13
- Interest and equivalent expenses on transactions with credit institutions 15 (1,911) (2,571) (3,178)
- Interest and equivalent expenses on customer transactions 16 (151) (76) (100)
DEPRECIATION, AMORTISATION AND PROVISIONS ON TANGIBLE AND INTANGIBLE ASSETS (16) (17) (16)
The premium and discount elements of forward currency transactions undertaken as hedging operations are recorded in the profit & loss statement on a straight-line basis over the residual term of the transaction.
3.3 Securities transactions Securities are valued in accordance with the regulations defined in regulation CRB 90-01, as amended by CRC regulation 2000-02.
Variable-income securities Variable income securities are stated at cost, excluding accrued interest. At period-end, the securities are valued at their closing price. Provision is made for unrealised losses, on a line-by-line basis.
Negotiable loan notes and other interbank instruments These securities and other instruments are recorded at nominal value. The difference between the nominal value and the purchase price is recorded in the profit & loss statement over the residual life of the securities, based on the yield-to-maturity method. Provision is made for any unrealised losses on a line-by-line basis.
Credit risk is provisioned according to contractual terms and market value, or, by default, the terms of CRC regulation 2002-03 (see 3.10 below).
Fixed-income and currency swaps In accordance with CRB regulation No. 90-15 (as amended by No. 92-04), fixed-income or currency swaps are classified as follows: I micro-hedging: the gain or loss is recorded on a symmetric basis to the gain or loss on the hedged item; I specialised management of a trading portfolio: these contracts are marked to market. In accordance with regulations, the value is adjusted to take into account counterparty risks and the discounted present value of future management costs. The adjusted marked-tomarket gain or loss is recorded in the profit & loss statement.
In the absence of a specific accounting text, credit derivatives have been accounted for by analogy with the transactions with which they share similar risk characteristics (options, swaps and securities) and based on management intention: I Transactions carried out for hedging purposes are valued in the same way as the hedged item.
3.10 Credit risk Since 1 January 2003 credit risk has been accounted for in accordance with CRC regulation n°2002-03 of 12 December 2002. The application of this regulation has had no impact on the financial statements.
Consolidated figures value of anticipated losses after taking account of guarantees already received, requested or likely to be so.
3.11 Long-term equity investments and subsidiaries Equity investments are recorded at book value. At the end of the period, they are valued individually at book value or going concern, whichever is lower. Provision for depreciation is made in the event of a permanent impairment of value.
3.12 Foreign branches The accounts of foreign offices are integrated into the head office accounts in local currency. The profit & loss statement is converted at the month-end spot exchange rate.
3.15 PENSION COMMITMENTS Pension commitments are estimated using the actuarial method and give rise to provisions; details are provided in the notes.
In accordance with the principles defined in CRC regulation 99-07, special purpose vehicles are included within the consolidation scope of CDC IXIS Capital Markets when CDC IXIS Capital Markets exercises de facto control of the vehicle.
Control is deemed to exist when the controlling company (CDC IXIS Capital Markets): I can make decisions or exercises managerial control; I enjoys the majority of the profit or shoulders the majority of the loss made by the vehicle; I is exposed to the majority of the risks incurred by the vehicle.
Note 2b Geographic breakdown of loans to credit institutions 31/12/03 31/12/02
Other loans to customers only concern France and do not include either doubtful loans or compromised doubtful loans.
Securities received under repurchase agreements 35,098.09 1,839.15 - - - 36,937.24
(2) Redemption value of €3,822.21 million as at 31/12/2003. (3) Including €75.75 million of investment securities on which the issuer exercised a redemption option. (4) Including €1,000.27 million of trading securities reclassified as marketable securities. (5) Notably including a provision for the risk of restructuring concerning an issuer of senior investment securities, HTR (Box Clever group).
The provision was calculated on the basis of the probable loss resulting from the issuer's operating forecasts.
Note 4b Breakdown of fixed-income marketable and investment securities by currency 31/12/03
Note 4c Breakdown of fixed-income marketable and investment securities by rating
Gross Accumulated Net Gross Accumulated Net value depreciation value value depreciation value
Including as at 31/12/2003: €1,791.25 million of repurchases on public securities and equivalents, €31,626.02 million of debts to CDC IXIS Group companies.
Negotiable loan notes, including accrued interest 9,322.86 12,392.09 - Non-euro currencies 5,029.70 9,174.14
(1) This item notably includes margin calls and guarantee deposits received from market counterparties. (2) Other debts on securities notably include securities received under repurchase agreements then sold.
CDC IXIS Capital Markets has the option to reimburse all or part of the loan, providing that prior agreement is received from the general secretary of France's Commission Bancaire.
(1) Including €12.2 million provisioned in 2002, notably for a demand for back-tax and for a demand for unpaid social security charges from URSSAF, received in 2002 and both contested.
(1) CDC IXIS Capital Markets' registered share capital totals €457,500,000, It comprises 30,000 shares with a nominal value of €15.25, all of the same category, and 100%-owned by CDC IXIS as at 31/12/2003.
Note 15 Income and expenses on transactions with credit institutions 31/12/03 31/12/02
Note 18 Interest and equivalent expenses on bonds and other fixed-income securities 31/12/03 31/12/02
Note 22 Gain or loss on marketable securities and equivalent portfolios 31/12/03 31/12/02
(1) See note 4 concerning securities transactions. Provision for restructuring risk concerning an issuer of senior securities in the investment portfolio.
Theoretical tax liability (a)*35.44% (57.48) Tax credits deducted 4.43 Other differences 2.66 -----------Actual tax liability (50.39)
<= > 3 months > 1 year > 5 years Total Millions of euros 3 months and <=1 year and <= 5 years
Euros to be received against non-euro currencies to be delivered - euros to be received 63,169 57,789 - non-euro currencies to be delivered 59,298 55,195
Non-euro currencies to be received against non-euro currencies to be delivered - non-euro currencies to be received 66,541 50,725 - non-euro currencies to be delivered 66,824 50,841
France Europe USA Asia Rest of Total Millions of euros excl. France the world
Commitments received from credit institutions 1,981.58 - - - - 1,981.58
Securities sold with a repurchase or transfer option - - - - - -
Securities acquired with a repurchase or transfer option - - - - -
Securities sold with a repurchase or transfer option - - - - -
CDC IXIS Capital Markets' risk management function reports directly to the Chairman of the Executive Board and independently defines the principles of risk measurement and develops the tools required to carry out its remit.
Risk measurement is performed on a daily basis using indicators that calculate the potential losses for each activity with a high degree of confidence (Value at Risk analysis). These indicators cover a wide range of risks: interest rates, foreign exchange, equity and volatility etc.
Counterparty risk on financial instruments, either interest rate or currency futures and options contracts, is analysed in accordance with the regulations governing credit-risk equivalent calculations in regulatory model 4801C (information on derivative instruments traded on assimilated and over the-counter markets, as provided for under order 96-06 of the French Banking Commission).
In accordance with these regulations, total counterparty risk is calculated by adding the following items: I the positive replacement value of the instruments caculated on the basis of their market value; I potential credit risk, this being measured based on add-ons according to the nature and residual life of the instrument, as defined by the French Banking Commission.
This equivalent gross credit risk is then reduced to reflect: I netting agreements entered into in accordance with market conventions allowing netting of positive and negative replacement values at counterparty level; I collateralisation guarantees received in the form of cash.
The resulting net credit risk is then weighted by category depending on the regulatory class of counterparty (governments, financial institutions or other, and using weightings of 0%, 20% or 50%, respectively), as set forth in regulation N°91-05 of the French Banking Regulation Committee and Appendix III of regulation No. 96-06 governing solvency ratio requirements.
(OECD governments (OECD financial weighted at 50% Millions of euros and central banks) institutions)
As at 31/12/2003, the equivalent weighted risk on forward transactions amounted to €5,315 million. The breakdown of risk before weighting was as follows: Type of counterparty
OECD governments and central banks 10.58% OECD financial institutions 57.85% Other counterparties 31.57%
AAA 0.57% AA 85.98% A 3.98% Other ratings 4.69% Non rated 4.78%
With the exception of provisioned investment securities, CDC IXIS Capital Markets' commitments do not include proven credit risk on identified counterparties. No specific provisions have been allocated in this respect. There have been no instances of defaults involving credit derivatives counterparties calling for specific provisions.
Note 30 Breakdown of consolidated balance sheet items by residual term 31/12/03
Net profit excluding provisions to FGBR 90.00 22.00 112.00 73.00 9.00 82.00
To the Shareholders, CDC IXIS Capital Markets, 47, quai d’Austerlitz 75648 Paris cedex 13
In accordance with the assignment entrusted to us by the Annual General Meeting of Shareholders, we hereby present our report for the financial year ended 31 December 2003, concerning our audit of the consolidated financial statements of CDC IXIS Capital Markets, prepared in euros and as attached to this report. The consolidated financial statements were prepared by the Executive Board. It is our responsibility to express an opinion on these financial statements, based on our audit.
I - Opinion on the consolidated financial statements We have conducted our audit in accordance with auditing standards applicable in France. These standards require that we perform such tests and procedures so as to obtain reasonable assurance that the consolidated financial statements are free from material mis-statement. An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the accounting policies used and the significant estimates made in preparing the financial statements, together with an evaluation of the overall adequacy of the presentation of these statements. We believe that our audit provides a reasonable basis for the opinion expressed below. We certify that the consolidated financial statements have been prepared in accordance with French generally accepted accounting principles. In our opinion they give a true and fair view of the assets, liabilities, financial position and results of the Company as at 31 December 2003. Without calling into question the opinion expressed above, we draw your attention to note 1 of the consolidated financial statements which describes the changes in accounting methods resulting from the application of
III - Specific verification We have also verified the information provided in the Group Management Report, in accordance with prevailing professional standards in France. We have no comment to make on the truth and fairness of the information contained in the report or its consistency with the consolidated financial statements.
+ Interest and equivalent income on customer transactions 208 160 214
GAIN OR LOSS ON MARKETABLE SECURITIES AND EQUIVALENT PORTFOLIOS (33) 950 722
The annual accounts have been drawn up in accordance with regulation 91-01 of the French Banking Regulation Committee (Comité de la Réglementation Bancaire – CRB), as amended by regulation 94-04 of the French Accounting Regulation Committee (Comité de la Réglementation Comptable - CRC).
The parent company financial statements have been prepared in accordance with the provisions of CRC regulation 2000-03.
2 – Accounting and valuation principles 2.1 Foreign-exchange transactions In accordance with regulation 89-01 of the French Banking Regulation Committee (Comité de la Réglementation Bancaire - CRB) concerning foreignexchange accounting, assets, liabilities and off-balance sheet commitments are translated at the spot rate on the last day of the accounting period.
2.3 Securities transactions Securities are valued in accordance with the regulations defined in regulation CRB 90-01, as amended by CRC regulation 2000-02.
The provisions of CRC regulation n° 2002-03 concerning the accounting treatment of credit risk (see 2.10 below), apply to fixed-income investment and marketable securities which notably entail a commitment by the issuer to pay a sum on a pre-determined maturity date.
Trading securities Trading securities, as defined by regulation 90-01, correspond to variable and fixed-income securities that are purchased or sold with the intention of being sold or repurchased in the short term. At the time of acquisition, the securities are recorded at acquisition price.
Securities are subsequently marked to market. Markedto -market gains and losses are recorded in the profit & loss statement.
Whenever CDC IXIS Capital Markets acts as market-maker and the security is traded in sufficient volumes, these securities may be held in the portfolio for longer than the six-month maximum period as stipulated by the regulations. This also applies to securities held as specialised hedges of instruments that are marked-to-market.
Transferable securities Securities are valued at cost, excluding accrued interest. At period-end, the difference between the cost and redemption value of the securities is amortised using the straight-line method over the residual life of the security.
Loaned and borrowed securities Loaned securities are valued according to the same method as that of the portfolio in which they were first recorded.
2.4 Futures and options CDC IXIS Capital Markets performs transactions using the entire spectrum of financial futures instruments on fixed income, foreign exchange and equity markets, in order to: I hedge transactions, I or employ specialised trading portfolio management techniques.
In order to reflect more accurately each transaction's true economic impact, non-liquid instruments are also marked to market on a hypothetical basis (see paragraph 2.5).
Wherever instruments are valued on the basis of financial models, such models incorporate parameters that affect the valuation of these instruments, in particular the low liquidity of the markets in question, and take into account the relevant risk assessment.
In the absence of a specific accounting text, credit derivatives have been accounted for by analogy with the
I The results of isolated open position transactions which are executed in the context of a long-term holding, are valued on a time-apportioned basis with provision for possible unrealised losses. In the case of operations deemed equivalent to options, possible provisions for unrealised losses are determined with respect to the non-apportioned premium amount.
I Transactions executed for trading purposes are marked to market taking into consideration future management and counterparty risk costs wherever the liquidity of the derivatives market is guaranteed. Otherwise, valuation is carried out by applying the appropriate methodology to transactions involving credit derivatives: - at historic cost; - applying a provision for depreciation where appropriate.
2.10 Credit risk Since 1 January 2003 credit risk has been accounted for in accordance with CRC regulation n°2002-03 of 12 December 2002. The application of this regulation has had no impact on the financial statements.
For a given counterparty, credit risk is defined as the existence of a potential loss linked to the possibility of the counterparty defaulting on the commitments undertaken.
Credit risk is deemed to be proven once it is probable that the Company will receive either none or only part of the sums due in respect of commitments undertaken by the counterparty and specified in the initial contract.
The principal and interest receivable from a counterparty are re-classified as doubtful once credit risk is proven on the counterparty. Doubtful receivables are provisioned on the basis of their market value or the current value of anticipated losses after taking account of guarantees already received, requested or likely to be so.
The provisions set aside are deducted from the amount of the corresponding doubtful receivables. They are recorded as liabilities in the balance sheet where they concern off-balance sheet commitments or futures and options. The provisions are booked under “Operating provisions” in the profit & loss statement.
2.12 Foreign branches The accounts of foreign offices are integrated into the head office accounts in local currency. The profit & loss statement is converted at the month-end spot exchange rate.
2.13 Fixed assets Fixed assets are recorded in the balance sheet at acquisition cost.
As part of an ongoing tax inspection, a demand for back-tax received in 2002 and relating to the first financial year inspected gave rise to a provision. In addition, in view of the reasons for the demand for back-tax, an estimate has also been made of potential liability for the following financial years and a provision has been made for the appropriate sum.
As at 31 December 2003, no risks susceptible to give rise to additional provisions had been identified.
Book Advances Provisions Total Previous Previous % value of year’s year’s sharesecurities shareholders’ profit holding Millions of euros equity
Additional information 1. General information on the issuer 1.1. Corporate name and registered office: CDC IXIS Capital Markets Registered office: 47, Quai d’Austerlitz – 75648 Paris CEDEX 13 1.2. Legal form Société anonyme (French limited corporation) with Executive and Supervisory Boards in accordance with article L210-1 and subsequent articles of the French Companies Act. The Company has the status of credit institution licensed as a financial company, in accordance with book V of France’s Monetary and Financial Code.
1.5. French company registration number (RCS) RCS: Paris 340 706 407 Code APE: 671 E
Distributable profit is composed of net profit for the financial year, less any previous losses and sums assigned to the reserve in accordance with the law, plus any profit carried forward from previous periods.
By virtue of these agreements, the amount of contractual profit-sharing depends on two criteria, namely the net profit of the Company and the degree to which employees have participated in professional training sessions.
In addition, a Group regulatory profit-sharing agreement was signed on 30 October 2002, in respect of which €1.34 million was paid out to CDC IXIS Capital Markets’ employees in respect of financial year 2001 and €2.508 million in respect of financial year 2002.
In our capacity as auditors of CDC IXIS Capital Markets, pursuant to COB regulation 98-01 and in accordance with the professional standards applicable in France, we have verified the information on the financial position and the historic accounts presented in this document.
In addition, in accordance with article L. 225-235 of the French Companies Act concerning the justification of our assessments and which came into force for the 2003 financial year, we drew your attention in our general report and our report on the consolidated accounts to the following points: The valuation of financial instruments is an area that entails significant accounting estimates. Your Company uses internal models to value its positions on financial instruments not traded on organised markets (see note 1 of the consolidated financial statements). In the course of assessing these estimates, we examined the control mechanism used to verify these models and determine the parameters used. Your Company set aside a provision on 31 December 2003 in order to cover credit risk on investment securities (see notes 25 and 4a of the consolidated financial statements ). In the course of assessing the estimates made for this purpose, we were obliged to rely on analyses prepared by the Company that are notably based on forecasts of cash flow for the issuer of the securities concerned and which were produced by an independent expert mandated by the creditor banks. The ensuing assessments made regarding these elements form part of our overall audit approach covering the annual and consolidated financial statements as a whole and contribute to the opinion expressed in the first part of our general report and our report on the consolidated accounts.
On the basis of the tasks performed, and taking into account the observations stated above, we have no comment to make on the good faith with which the information relating to the financial position or the financial statements as presented in this reference document has been prepared.
In accordance with the provisions of the final paragraph of article L.225-235 of the French Companies Act, page 20 of this document contains the report of the Auditors on the Chairman of the Supervisory Board’s report on internal control procedures, as provided for by article L.225-68 of the French Companies Act.
STATEMENT BY PERSONS RESPONSIBLE - Statement by persons responsible for the reference document p 98 - Statement by the Auditors p 85 & 99 - Information policy p 99 GENERAL INFORMATION - The issuer p 96-97 - Specific details p 48 - Authorised capital not yet issued p 48 - Potential capital p 48 - Changes in capital over past 5 years p 48 & 95 - Market for the issuer’s shares - Table of prices and volumes over past 18 months NA
CAPITAL AND VOTING RIGHTS - Current ownership of capital and voting rights p 48 - Changes in share ownership p 2 & 48 - Shareholder pacts p 48 GROUP ACTIVITY - Group organisation
(relation between parent companies and subsidiaries, information on subsidiaries) p 1-2, 32, 70 & 93 - Group key figures Inside cover - Sector data (activity, geographic region and/or country) p 83 - The issuer’s markets and competitive positioning NA - Investment policy p 27-33 and 45-47 - Performance indicators (value creation for the Company, etc.) Inside cover ANALYSIS OF THE GROUP’S RISKS - Risk factors - Market risks (liquidity, interest-rate, currency, equity portfolio) p 36-40 - Specific business-related risks (including reliance on suppliers, customers, subcontractors, contracts, manufacturing processes, etc.) p 41-42 - Legal risks (specific legislation, concessions, patents, licences, significant lawsuits, exceptional events, etc.) p 42 - Industrial and environmental risks NA
- Insurance and risk coverage p 42 ASSETS & LIABILITIES, FINANCIAL POSITION AND PROFITS - Consolidated financial statements and notes p 58-85 - Off-balance sheet commitments p 62, 77-79 & 88 - Fees paid to the Auditors and members of their network p 21 - Pro forma financial information NA - Regulatory ratios p 34-35 - Parent company financial statements and notes (extracts) p 86-95 CORPORATE GOVERNANCE - Chairman of the Supervisory Board’s report, pursuant to the final paragraph of article L.225-108 of the French Companies Act, concerning the preparation and organisation of the tasks undertaken by the Board and the Company’s internal control procedures. p 8-19 - Report of the Auditors, pursuant to article L.225-235 of the French Companies Act, concerning the Chaiman of the Supervisory Board’s report on internal control procedures, as stipulated in article L.225-68 of the French Companies Act. p 20 - Composition and functioning of managerial and supervisory bodies p 8-21 - Composition and functioning of committees p 8 & 11 - Company directors (remuneration and benefits, options granted and exercised, equity warrants and BSPCEs) p 8, 20-21 & 48-55 - Regulated agreements p 10 RECENT EVENTS AND OUTLOOK - Recent events p 2
(1) net of minority interests and excluding the Fund for General Banking Risks (FGBR).
Standard & Poor’s AAA (Debt guaranteed by CDC IXIS, itself guaranteed by CDC)
Moody’s Aaa (Debt guaranteed by CDC IXIS, itself guaranteed by CDC) (1)
Fitch AAA (Debt guaranteed by CDC IXIS, itself guaranteed by CDC)