Making use of Specialised Committees where necessary (see below), the Supervisory Board primarily sought to verify that: I the Executive Board’s strategic and investment decisions were appropriate. To this end, the Supervisory Board was kept regularly abreast of the development of new business activities and the creation of new structures; I the Company’s risk profile remained undistorted and that control mechanisms were functioning efficiently; I results were being obtained in line with the targets established at the start of the year; General responsibilities of the Supervisory Board
In the process of exercising these responsibilities, the Supervisory Board may decide to set up Specialised Committees from among its own members. These committees report to, and are assigned their remit by the Supervisory Board. In this respect, the Supervisory Board set up a Financial and Internal Control Committee, and a Remuneration Committee right at the outset of its activities.
Each year, the Supervisory Board is required to present a report to the Annual General Meeting of Shareholders that contains its observations on the report of the Executive Board and on the accounts for the previous financial year. It also submits a report to the Annual General Meeting of Shareholders concerning the preparation and organisation of its work, together with the internal control procedures implemented by the Company (see below). Lastly, it approves the so-called “regulated agreements” and establishes the list of agreements concerning ordinary operations and which were concluded under normal conditions.
(1) Pursuant to the final paragraph of article L.225-68 of the French Companies Act, this forms an integral part of the Chairman of the Supervisory Board’s report on the preparation and organisation of tasks undertaken by the Board and the Company’s internal control procedures.
(2) See pages 48 to 55 for the full list of mandates and functions exercised on various Company boards by the members of the Supervisory Board.
The Financial and Internal Control Committee convened on four occasions in 2003. The average attendance rate for Committee members was 91%.
Opinion of the Supervisory Board on the 2003 financial year The Supervisory Board does not have any comments to make on the Parent Company and Consolidated Financial Statements for the 2003 financial year, nor concerning the Management Report presented by the Executive Board. It therefore asks shareholders to approve the accounts for the year, together with the resolutions proposed by the Executive Board.
I The codes of good conduct published by professional associations, whenever these codes are recommended or imposed by the regulator (for example, the Financial Analysts’ Compliance Code/Code de déontologie des analystes financiers).
I As regards foreign branches: the regulations decreed by local market regulators (the Financial Services Authority in the UK, the Bundesanstalt für Finanzdienstleistungsaufsicht/BAFIN in Germany, the Financial Supervisory Authority in Japan), wherever activities exercised locally are subject to these regulations.
I IT systems are secure, I systems and procedures are capable of producing reliable and pertinent financial, accounting and managerial information.
From an overall standpoint, the objective is to provide shareholders and investors with reasonable assurance that CDC IXIS Capital Markets has set up an internal control mechanism comprising secure and optimised risk management, control and compliance processes, and which is suitable for achieving the financial and economic performance targets set as part of the strategy drawn up with its shareholders.
The internal control mechanisms in use at CDC IXIS Capital Markets and its subsidiary CDC IXIS Securities apply the following regulations and standards as references: External references (legal or professional) I As a credit institution licensed as a financial company under French law: the measures contained in France’s Monetary and Financial Code (code monétaire et financier, essentially comprising the measures included in France’s Banking Act/ loi bancaire of 24 January 1984 and the Financial Activities Modernisation Act/loi de modernisation des activités financières of 2 July 1996) and from a
(4) Pursuant to the final paragraph of article L.225-68 of the French Companies Act, this forms an integral part of the Chairman of the Supervisory Board’s report on the preparation and organisation of tasks undertaken by the Board and the Company’s internal control procedures.
Ensuring three levels of control are applied within CDC IXIS Capital Markets: I Permanent first-level controls are undertaken by hierarchical managers and complemented by monitoring and control functions that are independent of these hierarchies but integrated within operational activities, the aim being to monitor personnel as closely as possible. For example: - within trading rooms, risk managers independent of desk managers are responsible for ensuring front-office personnel respect individual limits and also for overseeing P/L production and validation, - within back offices, accounting cells exist to ensure the separation of trade processing/unwinding and accounting validation/reconciliation.
I Regular second-line controls are carried out by departments other than those initiating the transactions concerned, e.g. Legal and Fiscal, Accounting, IT Systems Security, P/L and Risk Control, Compliance and Investment Services Control, etc. As regards international branches, P/L and Risk Control is exercised with the help of local correspondents reporting to Paris either on a hierarchical basis or via a strong functional link.
I Periodic third-level controls independent of all others are carried out via the Internal Audit Department.
In order to ensure the independence of their assignments, the heads of P/L and Risk Control, Compliance and Internal Audit all report to the Chairman of the Executive Board.
Strong links also exist between these functions and the corresponding departments within CDC IXIS (Risks, General Inspection).
I The CDC IXIS Capital Markets Accounting Charter, which defines the responsibilities, roles and scope of action of the different members of the accounting function, and also describes the chain of controls implemented to ensure that both the information produced and the audit trail are exhaustive and exact.
Separating functions on a widespread basis by: I Maintaining strict separation (including physical)
between front-office personnel initiating financial commitments and back-office personnel processing transactions.
I the choice of intermediaries (the Brokers Committee), I the acceptance of credit risk (the CDC IXIS Capital
I the acceptance of market risk (each operator is subject to behavioural limits organised by activity and formalised via individual “road maps”).
Recording transactions: Transaction recording systems convey information concerning the underlying management intention with the transaction, based on a front-to-back accounting process that ensures the audit trail is both exhaustive and sound.
- The AMeRisC software tool calculates a MonteCarlo type VaR on a daily basis in order to assess potential losses related to counterparty risks.
In order to manage the full spectrum of risks linked to the Company’s activities, CDC IXIS Capital Markets’ internal control mechanism makes use of a tight-knit system of: I participants (intervening directly or via internal committees), I procedures (validation, authorisation, processing, control), I measuring and monitoring tools, I operational and management reports.
This mechanism functions in different areas: The launch of innovative activities and products: I A Transactions Committee, manned notably by the heads of the Capital Markets, Risk Control, Legal and Compliance Departments, issues: - hierarchical authorisations for large or particularly risky transactions, - authorisations in principle for innovative transactions (subject to approval by the New Products Committee).
I The New Products/New Activities Committee (preceded by technical pre-committees where necessary ) brings together all the relevant support functions concerned (including Risks and Compliance), in order to conduct a collegial, cross-departmental and concerted analysis prior to authorising launch.
I The “technical visa” procedure, which notably involves the Legal, Compliance and Back-Office functions, is more specific in purpose and focuses on the content of contractual documentation and ensures IT systems can process new products correctly.
Procedures exist to govern: I the opening of relations with the client (the
Ensuring compliance with rules of good conduct and professional standards: The Compliance Officer derives a set of standards from the regulations applicable to market intervention and brings these to the attention of operational personnel. This procedure involves: I Prior-event surveillance via the use of preapprovals issued by the Compliance Officer on a case-by-case basis,
I Post-event controls carried out by the Compliance Officer (personal compliance) or by Internal Audit.
In addition, the Company’s shareholders’ audit units (CDC Group Central Audit, Compagnie Financière EULIA Audit Department, CDC IXIS General Inspection) carry out their own audit assignments directly on the Company’s capital markets activities and its equity-broking subsidiary.
The branches are treated as part of the Paris business lines and their risks are therefore monitored according to the same rules.
Calculating profits: The process of calculating management profit is overseen by Risk Management. Management profit is verified by the P/L and Risk Control function, notably by: I validating front-office pricers, I controlling market data using independent sources, I reconciling management profit with accounting profit.
This process involves the Back-Office accounting cells and the Central Accounting function which has final responsibility for ensuring profits are exact.
IT systems security (ITSS): Given the importance of ITSS, the head of ITSS oversees: I the quality of the diverse components of the IT
I the application of a common methodology for developing IT projects.
Conclusion on CDC IXIS Capital Markets’ internal control mechanism: CDC IXIS Capital Markets has set up a tight-knit system designed to anticipate the essential issues related to the complexity of its activities and the risks they entail.
This mechanism needs to be constantly amended in response to developments in the Company’s activities and their innovative nature. CDC IXIS Capital Markets is currently focusing its efforts on the following areas: I standardising procedures for recording and processing complex transactions, I extending Monte-Carlo VaR market-risk measuring methods, I strengthening credit-risk monitoring processes, I enhancing client referencing procedures, I further improving IT channels to reinforce STP
I amending the disaster recovery plan in the light of new regulatory requirements.
This system is organised as follows at CDC IXIS Capital Markets: Reports submitted to the Executive Board Reports concerning the following aspects are compiled by control or management functions independent of the operational functions intervening in the markets: I New products/engineered solutions, I Risks: - reports on market risks (daily on VaR, weekly and monthly updates on the main variations), - reports on breaches of counterparty risk limits (daily monitoring of limits and weekly update), - reports on operational risks based on ad hoc indicators,
I The application of good conduct rules together with the list of stocks under surveillance, the aim being to prevent conflicts of interest,
Accounting and valuation rules are established in accordance with the CDC IXIS holding company and with CDC Group standards.
Half-yearly information is subject to an attested limited review while full-yearly information is subject to certification by the Auditors.
(net banking income) are recorded by the Back Office using application software or manual data entry,
I other transactions are recorded in a centralised manner by the Accounting Department.
(definition of user needs and maintenance of interpretation and production systems).
Note that the consolidated accounts include the subsidiary CDC IXIS Securities. They are produced by the CDC IXIS holding company from CDC IXIS Capital Markets’ and CDC IXIS Securities’ consolidation reports. CDC IXIS’s consolidation procedures ensure a high level of control and are complemented by the critical review carried out by CDC IXIS Capital Markets’ Central Accounting function.
The financial statements are compiled in accordance with prevailing legislation and regulations (the set of rules specific to financial institutions established by France’s Banking Commission/Commission Bancaire, and by the National Accounting Council’s Accounting Regulations Committee/Comité de la réglementation comptable du Conseil national de la comptabilité). These rules specify the information to be included in the reference document of the French financial market regulator, the AMF (Autorité des marchés financiers).
(5) Pursuant to the final paragraph of article L.225-68 of the French Companies Act, this forms an integral part of the Chairman of the Supervisory Board’s report on the preparation and organisation of tasks undertaken by the Board and the Company’s internal control procedures.
I results from complex transactions are accounted for by the Back Office using information rendered reliable and justified by the P/L and Risk Control function; I non-operational transactions are processed in an auxiliary system which feeds into the central accounting system on a daily basis; I manual entries are recorded by the Back Office or by the Central Accounting function in the central accounting system; I lastly, a summary report production system under the responsibility of the accounting function is used to produce the financial statements and appendices based on the ledger extracted from the accounting system.
Within the scope of the New Products Committee, the Accounting Department is involved in launching new or complex transactions identified by the P/L and Risk Control function. This notably requires it to establish the regulatory and account processing principles in conjunction with the Back Office and Tax Department.
The written analysis produced during this process is systematically transmitted to the Auditors.
This decentralised accounting production also entails a responsibility to produce an inventory to justify the general ledger corresponding to the accounting sections managed (including work to reconcile front-office stocks with general accounting balances). On completion of period-end work, the Back Office submits a report to the Central Accounting function.
Accounting function using the “règles du jeu” application, which produces accounting entries that are inputted to the central accounting system;
Elsewhere, a number of measures were identified and gradually implemented in 2003 with the aim of enabling accounting profit and management profit to be reconciled on a monthly basis.
Accounting profit from operational activities (net banking income) is rendered reliable by periodic reconciliation with management profit. This reconciliation is carried out by the Back Office and co-ordinated by the P/L and Risk Control function, the latter having responsibility for the application software that holds this information.
It also undertakes complementary classical controls (analysis of variations, etc.). Last of all, it produces a summary of its work, conclusions and recommendations, which are subsequently included in a formalised accounting control summary submitted to the Members of the Executive Board and transmitted to both the Auditors and Internal Audit.
It also draws up and presents the management report at the annual meeting of shareholders.
The Executive Board also has responsibility for ensuring the Employee Representative Council is suitably informed and consulted.
Report of the Auditors, established in accordance with the final paragraph of article L. 225-235 of the French Companies Act, and concerning the report of the Chairman of the CDC IXIS Capital Markets Supervisory Board describing the internal control procedures relating to the production and processing of accounting and financial information.
In our capacity of Auditors of CDC IXIS Capital Markets and in accordance with the provisions of the final paragraph of article L.225-235 of the French Companies Act, we hereby present our report on the report of the Chairman of the CDC IXIS Capital Markets Supervisory Board pursuant to the provisions of article L.225-68 of the French Companies Act, and concerning the financial year ended 31 December 2003.
It is our responsibility to inform you of our observations regarding the information and statements contained in the Chairman’s report concerning internal control procedures relating to the production and processing of accounting and financial information.
(6) See pages 48 to 55 for the full list of mandates and functions exercised on various Company boards by the members of the Executive Board.
Executive Board meetings systematically examined and commented on the regular spreadsheets detailing each business line’s activity and risk exposure during the previous week. They also assessed the risks to be assumed by the Company during the course of its activities, as well as approving all projects prior to implementation and taking the decisions needed to ensure the smooth-functioning and development of the Company. Minutes were drawn up after each meeting.
The Executive Board is organised in accordance with internal regulations that notably specify the methods by which it operates, its powers, the allocation of tasks between members and the signature delegation mechanism (which involves establishing a list of approved signatories).
Compulsory auditing of period–end accounts 275,000 286,373 Special accessory assignments (risk control) 5,023 216,915
CDC IXIS CAPITAL MARKETS LONDON BRANCH PricewaterhouseCoopers Compulsory auditing of period–end accounts 59,067 39,932
CDC IXIS CAPITAL MARKETS ZWEIGNIEDERLASSUNG DEUTSCHLAND PricewaterhouseCoopers Compulsory auditing of period–end accounts 60,000 63,060
Special assignment – trading room procedure 12,381 13,340 Tax services 11,272 20,053
(7) Fees are assigned to the financial year audited and stated on a tax-inclusive basis.
the postponement of Sweden and Denmark’s participation in Monetary Union (the failure of the Swedish referendum was partly due to the budget debate within the zone).
Fixed-income markets Although bond markets rose in the first half thanks to a combination of geopolitical uncertainties, further growth-friendly monetary policies in the major economies and fears of deflation, they turned down in June as growth expectations became more optimistic. The yield on German sovereign bonds (10year Bunds) ended the year where it had started, at 4.30%, while that on US sovereign bonds (10-year Tnotes) gained 20 basis points to 4.20%.
The spread between the swap rate and the yield on sovereign bonds (the swap spread), remained slender, notwithstanding a short-lived spike in the US in July when mortgage funds paid the swaps in order to shorten their duration.
The brevity of the Iraqi conflict helped dispel some of the geopolitical uncertainty. However, central banks continued to show concern over the risk of deflation and took further steps to loosen monetary policy, with the European Central Bank (the ECB) altering its inflation target and the US Central Bank (the Fed), considering adopting “non-conventional ” monetary policy measures (e.g. buying back US treasury notes, or Tnotes).
Spurred by exceptionally growth-friendly monetary and fiscal policies and by the fall in the dollar, the US economy finally bounced back spectacularly and even grew at an annualised rate of 8.2% in the third quarter. The US locomotive benefited European economies, while China had a similar effect on Japan. Confidence indices picked up everywhere and the BOE ended up increasing rates at the end of the year.
Two distinct halves to 2003: the first dominated by deflationary fears and the second by robust recovery in the US.
Equity markets The correlation between bond yields and equity prices remained very strong in the early part of 2003, before weakening and becoming temporarily negative in the third quarter. All the major equity indices made progress in 2003. However, the stocks that rallied the most were those that had previously fallen the most. In euro terms, the Nikkei gained the FTSE 100 5%.
site. At the same time, we stabilised our headcount pending an upturn in market conditions. The costincome ratio improved by over 9 points to 63.2% during the year.
Our corporate tax bill rose by 25%, in line with growth in pre-tax underlying profit.
Consolidated net profit reached €111.8 million, a 16.6% advance on the previous year. This was the Company’s best performance to date.
The 9.6% increase in operating expenses in 2003 stemmed primarily from the move to locate all of CDC IXIS Capital Markets’ personnel on one single
potential to rank among the leading global players in the sector.
The extensive experience of our trading teams and our high-quality Research unit helped us to carry out several high profile transactions in the simple and complex derivatives field, as well as in certain niches like interest-rate and forex hybrids, securitisation swaps or inflation-linked derivatives.
Thanks to greater commercial activity in both France and international markets, together with help from the Structuring arm, earnings made sustained progress in a context of tight risk control.
Our internet-based online offering was further enhanced in the transaction pricing and online trading areas, with an automated trading facility for standard derivatives in euros. This opened up new growth prospects and gives the business the
A third record year on the trot for revenues and profits from fixed-income trading, sales and structuring.
Primary bond market 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.
CDC IXIS Capital Markets successfully confirmed its presence in Europe’s still fast-growing securitisation market, with a more-than 25% increase in issues. In addition to asset deconsolidation, financing and access to liquidity are becoming key factors for vendors.
In alternative management fund structuring, CDC IXIS Capital Markets ranks in the world top five and bolstered its presence in Asia with eight public offerings in Japan and expansion in Hong Kong and Singapore.
We also continued to expand and develop our expertise in property structuring, notably via a panEuropean property outsourcing deal for Alstom.
Strong growth was achieved in Alternative Risk Transfer (ART), where we concluded several weather
CDC IXIS Capital Markets arranged the first catastrophe bond for a major European corporate.
Our short-term credit instrument arbitraging business, which we developed in 2002, was highly buoyant again in 2003, as was the case for all our interest-rate arbitraging activities.
Lastly, in eurozone government-debt trading, CDC IXIS Capital Markets carried out a sizeable study on the MTS indices which will pave the way for us to take an active role in launching a major innovation on the bond market in early 2004, namely tracker funds based on the MTS index.
Narrowing spreads meant that credit-market conditions were much more attractive in 2003, with the result that the portfolio registered one of its best-ever annual performances.
Markets to deliver an even more effective service to our clients and also improved our ability to position these products on our balance sheet.
At the same time, the development of front-office tools increased our reactivity in this area as well as our risk monitoring capability, both of which are essential in highly volatile market conditions.
CDC IXIS’s group cash management activities were reorganised so as to establish more seamless links with the Company’s capital markets businesses. Emphasis was also placed on developing refinancing tools backed by all types of securities collateral. These measures improved liquidity and positioned CDC IXIS Capital Markets as one of the major players in Europe’s tri-party repo market.
We also paid particular attention to further improving the quality of the refinancing services furnished to Caisses d’Epargne Group, in accordance with the agreements signed in 2001. One product of this in 2003 was the development and implementation of
The rally in global markets in 2003 was coupled with a steep decline in the volatility of underlying indices and equities. Although these conditions were theoretically unhelpful for derivatives, demand remained brisk and tended towards more complex products.
CDC IXIS Capital Markets acted as co-lead on the year’s landmark operation, France Telecom’s €15 billion capital increase, which was the largest transaction of this type ever launched in France.
Partnerships reinforced As part of the continued partnership with IMI Bank, CDC IXIS Capital Markets acted as one of the underwriters for Fiat’s €1.8 billion capital increase in June 2003.
In the convertible bond market, as part of our partnership with KBC Financial Products, we comanaged the issue launched by Pinault Printemps Redoute in May 2003.
Advisory business very brisk As in 2002, our advisory activities were again highly varied in 2003. Beneficiaries included: I Sagem, in an operation to simplify its capital structure in December 2003, I Compagnie des Alpes, as part of its ongoing privatisation, I Norcan, for its delisting, I C3D, with the extension of a remit to find an industrial partner for EGIS, I and Caisse Nationale des Caisses d’Epargne et de Prévoyance (CNCEP), for various assignments.
to be a real asset in this context, we plan to further enlarge it in 2004, by positioning dedicated arbitrage specialists in Asia.
At the same time, our efforts to strengthen local equity-derivatives teams ensured we took full advantage of the robust economic recovery in North America. This geographic diversification positioned CDC IXIS Capital Markets attractively to identify the best potential returns across the full spectrum of world financial markets and also enhanced the global nature of our product offering.
The rally in financial markets in the second half created plenty of opportunities for taking arbitrage positions, both in Europe and the US. Although the business line’s global coverage already proved
A high-powered marketing function The measures taken in previous years to respond to each client’s specific needs were further enhanced in 2003. In addition to reinforcing and further internationalising sales teams, CDC IXIS Securities stepped up its marketing thrust by organising some 360 marketing events during the year, a 16% increase on 2002. Half of these events were organised in conjunction with the companies it tracks. Clients are offered several roadshows every month in all the main European markets.
Revenues from international clients, excluding securities houses, dipped by 5%. The decline in broking income from US and German clients was only partly offset by revenue growth in the UK and Scandinavia.
CDC IXIS Securities is CDC IXIS Capital Markets’ equity-broking arm for European equities. The Company is headquartered in Paris and also has sales teams in New York and Frankfurt.
Recognised for its quality research CDC IXIS Securities registered further progress in the 2003 rankings published by the l’Agefi financial newspaper, climbing to 4th place among French equity research teams. With nine nominations, including three first places and three second places, CDC IXIS Securities confirmed its status for topquality research in all major sectors of activity.
This growing recognition was also evidenced by Extel Focus France’s June 2003 survey, which ranked CDC IXIS Securities third in France for sector research.
CDC IXIS Securities was ranked 4th among French equity research teams by the Agefi financial newspaper.
nomic data released during the week and the anticipated consequences for the markets,
I Special reports: providing rapid updates on current economic and market issues.
The results primarily concern money markets, government bonds, swaps and foreign exchange, the aim being to facilitate arbitrage and thereby enhance profitability (derivatives and structured products).
As for the structure of the balance sheet in terms of time-to-maturity, assets with less than one year to run and liabilities with less than one year to run represented 85% of assets and 90% of liabilities, respectively.
The increase was driven by growth in the business of our London and Frankfurt subsidiaries (balance sheet total up €5.9 billion, primarily stemming from derivatives and equities), whereas Paris’s balance sheet total dipped by almost €2 billion.
The Company is obliged to ensure its major risks comply with regulatory limits, namely that individual risks do not exceed the equivalent of 25% of equity and that the sum of individual risks does not exceed eight times equity.
These same indicators stood at €6.4 billion and €9.9 billion, respectively, at year-end 2002.
The notional amount of OTC-traded instruments remained fairly steady and totalled €1,576 billion versus €1,530 billion at year-end 2002.
The capital adequacy ratio worked out to 118% at year-end 2003 versus 116% a year earlier.
The regulatory liquidity ratio stood at 154% at yearend 2003 versus 174% a year earlier. It remained above the regulatory minimum of 100% throughout 2003.
I stress tests are also employed to measure the losses potentially sustained by portfolios in extreme market circumstances. These circumstances are developed from market scenarios based on historical studies (economic scenarios) and hypothetical scenarios, specific to each portfolio. All of these scenarios were reviewed in 2003.
CDC IXIS Capital Markets’ P/L and Risk Control function reports directly to the Chairman of the Executive Board and is totally independent from operational units. It is responsible for establishing the principles for measuring market and counterparty risk in accordance with Group standards, and develops its own tools for monitoring such risk (e.g. the Scénarisk model for market risks and the Amerisc model for counterparty risks). With the aim of managing activity, it also informs the various departments of their specific market risk limits.
Measuring market risks Different techniques are used for measuring market risks: I synthetic measures of Value at Risk (or VaR) are used to identify the potential losses that each activity may engender, based on pre-determined confidence intervals (e.g. 99%) and assumptions as to the length of time positions are held (e.g. 1 day). These measures are compiled and monitored on a daily basis for all the Group’s trading activities. To this end, a model is built based on a statistical analysis of the behaviour of all the market parameters affecting the value of the portfolios over a period of 365 days. Our Scénarisk software currently models more than 1,600 market risk factors. The fundamental indicator is a parametric VaR which breaks down overall risk into its different factors with respect to the positions held in portfolios. As regards options risk, the parametric VaR is progressively complemented by a VaR calculated using simulation techniques based on a Monte
In accordance with French banking regulation CRBF n° 95-02, CDC IXIS Capital Markets declares its overall risk provisioning ratio to France’s banking commission (Commission Bancaire). Since 1997, it has also been authorised to monitor market risks (general interest-rate/equity/forex risk and specific equity risk) via its own internal model, Scénarisk.
Other duties The P/L and Risk Control function also has the following duties: I validating management profits, I validating valuation models (pricers), I establishing securities fair-value adjustment policy
I responsibility for the New Product and New Activity Committees, whose remit is to validate the feasibility of new products and activities before they are effectively launched, and especially riskmeasurement methods, the corresponding limits and the full spectrum of internal control procedures (risks, compliance, back-office processes, legal, fiscal, accounting, etc.),
The following two charts show the results of this exercise carried out for fixed-income and foreign exchange, and for equities. They verify that the number of times daily results (shown on the inverse scale) exceeded potential losses (as defined by the VaR indicator), was effectively below the number of excursions permitted by the statistical limit (in this case, no more than 4 excursions beyond this limit are permitted for 250 data items).
In view of this situation, CDC IXIS Capital Markets’ counterparty risk service is responsible for selecting credit risks and co-ordinating limit requests emanating from the different capital-market business lines. Counterparty risk-limit allocations are decided by a Credit Committee established at the CDC IXIS Group level, which validates limits for all capital markets ’ business lines. In addition to this Committee, a specific delegation system exists for capital markets that has the power to authorise one-off transactions occurring between two Committee meetings.
An in-depth analysis is undertaken to assign an internal credit rating to the counterparty (using a similar scale to those of credit rating agencies). This rating is then used to set limits according to the type of activity (fixed-income, foreign exchange, equities), the type of transaction (balance sheet and offbalance sheet) and the transaction maturity (short or long-term). A formal credit analysis is conducted prior to each limit opening, during which the counterparty ’s economic and financial situation is studied from both quantitative and qualitative aspects in compliance with the group’s credit procedures.
As at 31 December 2003, the credit-derivatives portfolio represented an overall notional amount of €31.2 billion, comprising credit-default swaps, credit-linked notes and credit-linked loans. This overall notional amount broke down into €14 billion of credit-risk call positions and €17.2 billion of credit-risk put positions.
Notional amounts on the credit-derivatives portfolio as at 31 December 2003 (excluding intra-group transactions): Position\type of regulatory portfolio Banking Trading Total Euros
Risk control probability of an event occurring, the estimated potential losses, an exposure indicator and a weighting coefficient, this latter to be fixed by the Basle Committee after cross-checking the first results produced by this model with those for the rest of the profession,
By analysing production processes it has been possible to identify areas of fragility within the Company. The findings of this analysis were used by the Operational Risks Committeee to select the 10 action plans implemented in the second half of 2003, and which are monitored regularly by Internal Control.
The notion of operational risk applied by CDC IXIS Capital Markets is consistent with that defined in the Basle Committee’s proposed text of September 2001. Operational risks concern the adverse legal, regulatory or financial impacts resulting from deficiencies or breakdowns related to procedures, personnel, internal systems or external events.
Already 6 months of historic data in the Incidents Database CDC IXIS successfully introduced its Incidents Database to all of its business lines in the first half of 2003, thus ensuring that all the Operational Risks identified within CDC IXIS Capital Markets during the last six months of the year were effectively recorded. The statistics drawn from the Incident Database can be used to calculate the amount of equity to be allocated to operational risk, according to one of the following three methods: I by calculating an “operational risk VaR” for the most frequent incidents (via a loss distribution model), I by using an internal measurement model for the least frequent incidents; this model combines the
In order to comply with the demands of the Basle reform, and as part of a process underway within the CDC IXIS Group, CDC IXIS Capital Markets has been setting up systems for identifying, measuring and controlling operational risks for the last two years.
claims made against directors and which result from personal misconduct entailing their civil, personal or joint liability) and motor vehicles. The amount insured per operating civil liability claim exceeds
The legal department has developed a digital system for managing and archiving all of CDC IXIS Capital Markets’ legal commitments. This system, named Thémis, continued to be updated in 2003.
Internal Control is carried out by a multi-disciplinary team of capital markets specialists with a remit covering three objectives: I to assess the reliability of risk management, control and compliance processes for complex activities and structured products,
I to ensure new products are developed in a secure manner,
In recognition of the importance of the risks entailed, the Department fulfils this remit via a number of methods, some of which focus on reacting to changes in businesses, systems and regulations, while others rely on more fundamental analysis. Methods include: I in-depth assignments, more often than not involving a front-to-back accounting process, I targeted controls, periodically triggered by internal indicators and reports from support functions, and which notably ensure that the permanent controls exercised within each business line are functioning effectively,
I preventative action, which involves members of the Internal Control team attending certain internal committee meetings and providing the impetus needed to develop the system of internal controls.
Internal Control focused its efforts in 2003 on back-office control, preventing operational risks and managing market and credit risks.
Preventing operational risks Further to the efforts made to prepare a cartography of operational risks in 2002, the prevention of operational risks remained a priority in 2003.
Ongoing action plans were complemented with new ones and were checked to ensure they were being applied correctly.
The Department also undertook targeted controls concerning methods for managing IT access, relations with intermediaries, the content of reports and the respect of compliance standards (especially in terms of separating activities/Chinese Walls).
As regards the staff relocation to the new Paris offices, the Department worked actively to set up Chinese Walls and fine-tuned the rules for managing confidential information.
With a view to ensuring compliance officers are widely involved in the Company’s international activities, the Department organised a first seminar for compliance officers operating in the Company’s subsidiaries and branches. This event provided the arena for an in-depth exchange concerning the regulatory constraints in the countries in which the Company operates. Another project focused on the functioning of the network and will culminate in the publication of a Network Charter.
The fundamental initiatives carried out in 2003 were notably geared to ensuring credit analysts were complying with the new regulations pertaining to their profession, as well as continuing the fight against money laundering. Credit analysts, who are now required to possess professional registration cards, received specific training and advice to help them maintain good professional conduct.
The Compliance Department continued to integrate itself into decision-making processes and undertook new fundamental initiatives.
Lastly, a specific function for managing senior management and synergies was set up in October 2003. This function reports to the Chairman of the Executive Board and makes use of the Human Resources Department’s operational resources.
These figures reflect CDC IXIS Capital Markets’ vigilance on the recruitment front, whether to replace staff or create new positions. In Paris, for example, although there was a sizeable 12% reduction in the number of staff departures in 2003, recruitment was halved during the year. All in all, 43 recruitments were made in 2003, split equally between support functions and the front office.
On the collective-agreement front, employee-savings mechanisms were overhauled so as to optimise
The overhaul of the equity back-office IT channel for OTC trades was one of the year’s major IT projects and work should be completed in this area in 2004. As part of this initiative, SOPHIS front-office software will be extended to incorporate the back-office features required for this activity. Implementation will ensure straight-through-processing (STP) capability for trades in this channel and thereby help reduce operational risks.
The move to the new Paris Austerlitz headquarters was a major event for the Company in 2003.
As at the end of September 2003, the new 22,000 m2 building housed 1,246 staff and was equipped with 340 trading room positions.
The decision to group employees of CDC IXIS Capital Markets and subsidiary CDC IXIS Securities on the same leadingedge technology site has already started to bear fruit in terms of daily work efficiency.
Given that the CDC IXIS Group is not publicly listed, the common objective with Caisse d’Epargne Group is to publish financial information consistent with IAS/IFRS standards as from period-end 30 June 2006. The project is co-ordinated by CDC IXIS.
The phase of diagnosing and documenting the existing situation was completed in September 2003 using internal resources. Since then, CDC IXIS Capital Markets has called on specialised external assistance to steer the project and thereby free up resources to undertake detailed analysis.
This strategy is underpinned by regular and sizeable investments in the research field, spanning equity research, credit research, quantitative research for derivatives and economic research. It reflects our continuous desire to deliver customised solutions to clients by drawing on our extensive capacity to structure original solutions, thanks to a combination of an innovative culture and the ability to execute in fields as varied as guaranteed funds, sale-and-leaseback deals, property and weather derivatives.
l Authorised capital not yet issued: nil l Stock option programme: nil l Other securities providing access to capital: nil l Capital used as security or guarantee: nil
Creation Initial cash issue 5,000,000 francs - 5,000,000 francs 50,000 100 francs 29/06/90 Asset transfer 8,000,000 francs - 13,000,000 francs 130,000 100 francs 28/05/96 Cash issue 2,987,000,000 francs - 3,000,000,000 francs 30,000,000 100 francs 01/09/01 Conversion of capital 152,948.30 euros 457,500,000 euros 30,000,000 15.25 euros into euros and incorporation of reserve
Shareholders Situation as at 31/12/2003 Situation as at 31/12/2002 Situation as at 31/12/2001 Number % of % of voting Number % of % of voting Number % of % of voting of shares capital rights of shares capital rights of shares capital rights * CDC IXIS is the trading name of CDC Finance-CDC IXIS.
CIFG NORTH AMERICA INC. USA Member of Board of Directors CIFG SERVICES INC. USA Member of Board of Directors
CDC IXIS CAPITAL MARKETS SA F Chairman of Executive Board; Director of Central Functions CDC IXIS LCF ROTHSCHILD MIDCAPS SA F Vice-Chairman of Supervisory Board
CDC IXIS SECURITIES SA F Chairman of Supervisory Board CDC COMMERCIAL PAPER CORP. USA Chairman of Board of Directors CDC DERIVATIVES INC. USA Chairman of Board of Directors CDC FINANCIAL PRODUCTS INC. USA Chairman of Board of Directors CDC FUNDING CORP. USA Chairman of Board of Directors CDC IXIS CAPITAL MARKETS NORTH AMERICA USA Chairman of Board of Directors CDC IXIS NORTH AMERICA USA Member of Board of Directors CDC MORTGAGE CAPITAL INC USA Chairman of Board of Directors CDC MUNICIPAL PRODUCTS INC. USA Chairman of Board of Directors CDC SECURITIES INC. USA Member of Board of Directors NEXGEN FINANCIAL HOLDING LIMITED IRL Chairman of Board of Directors NEXGEN RE LIMITED IRL Chairman of Board of Directors
CDC IXIS ASSET MANAGEMENT SA F Member of Supervisory Board CDC IXIS PRIVATE CAPITAL MANAGEMENT SA F Member of Supervisory Board CDC IXIS AM US CORPORATION USA Member of Board of Directors (since 6 November 2003) CDC IXIS AM US LLC USA Member of Board of Managers (since 6 November 2003)
CNP ASSURANCES (listed) SA F Member of Supervisory Board (from 9 September to 18 December 2003) CDC SP SICAV LUX Chairman of Board of Directors
Remuneration and benefits received in 2003 in exchange for mandates and functions exercised within CDC IXIS Capital Markets: €81,664.71.
CDC IXIS CAPITAL MARKETS SA F Member of Executive Board; Chief Executive Officer; General Secretary CICM INNOV SAS F Chairman (since 22 April 2003) LILLEREAU SA F Liquidator (mandate ended 28 February 2003) ARAMIS MANAGEMENT SA LUX Member of Board of Directors CDC IXIS CAPITAL MARKETS NORTH AMERICA USA Member of Board of Directors ICMOS LUXEMBOURG SA LUX Member of Board of Directors (since 20 June 2003)
CDC IXIS CAPITAL MARKETS SA F Member of Executive Board; Joint Head of Front Office CDC IXIS SECURITIES SA F CDC IXIS Capital Markets’ permanent representative on the Supervisory Board CDC IXIS LCF ROTHSCHILD MIDCAPS SA F Member of Supervisory Board CDC SP LUX Member of Board of Directors MARTIGNAC FINANCE SA F Member of Supervisory Board CDC FINANCIAL PRODUCTS INC. USA Member of Board of Directors CDC IXIS CAPITAL MARKETS NORTH AMERICA USA Member of Board of Directors CDC MORTGAGE CAPITAL INC. USA Member of Board of Directors CDC SECURITIES INC. USA Member of Board of Directors ICMOS IRELAND LTD IRL Director ICMOS PANGAEA GLOBAL HEDGE FUND PLC IRL Director ICMOS UK LTD GB Member of Board of Directors NEXGEN FINANCIAL HOLDING LIMITED IRL Alternate Director NEXGEN RE LIMITED IRL Alternate Director
Remuneration and benefits received in 2003 in exchange for mandates and functions exercised within CDC IXIS Capital Markets and CDC IXIS Securities: €830,833.00.
CDC IXIS FINANCIAL GUARANTY HOLDING SA F CDC’s permanent representative on the Supervisory Board
CDC IXIS CAPITAL MARKETS SA F Chairman of Supervisory Board (since 17 October 2003; previously Member of Supervisory Board)
CDC IXIS ASSET MANAGEMENT SA F Chairman of Supervisory Board (since 6 October 2003; previously Member of Supervisory Board)
CDC IXIS PRIVATE EQUITY SA F Member of Board of Directors CDC IXIS AM US CORPORATION USA Member of Board of Directors (since 6 November 2003)
CAISSE DES DÉPÔTS DEVELOPPEMENT C3D SA F Member of Board of Directors (resigned 19 December 2003) CDC IXIS ITALIA HOLDING SA F Chairman of Supervisory Board CNP ASSURANCES (listed) SA F Member of Supervisory Board (resigned 19 December 2003) COMPAGNIE FINANCIÈRE EULIA SA F Member of Board of Directors (since 11 September 2003; previously Deputy Chief Executive
CDC IXIS FINANCIAL GUARANTY SA F Chairman of Supervisory Board (resigned 16 December 2003) CDC IXIS FINANCIAL GUARANTY EUROPE SA F Chairman of Supervisory Board (resigned 16 December 2003) CDC IXIS FINANCIAL GUARANTY SERVICES INC. USA Member of Board of Directors (resigned 16 December 2003) CDC IXIS FINANCIAL GUARANTY NORTH AMERICA INC. USA Member of Board of Directors (resigned 16 December 2003)
CDC IXIS CAPITAL MARKETS SA F Vice-Chairman of Supervisory Board (since 17 October 2003; previously Member of Supervisory Board)
NORD-SUD DÉVELOPPEMENT SICAV F Chairman and Chief Executive Officer GALAXY FUND LUX Chairman of Management Board
DIRECT FUNDING SA F Member of Board of Directors (resigned 16 October 2003) EUROTITRISATION SA F Honorary Chairman (since 17 June 2003; previously Chairman of Board of Directors) GIMAR FINANCE SCA F Censor M 3C (GAPSET) SA F Member of Board of Directors (resigned in 2003) SOCIÉTÉ DES MANUSCRITS DES ASSUREURS FRANCAIS SA F Member of Board of Directors VALEUR CAPITAL SA SA F Chairman of Board of Directors
CDC IXIS CAPITAL MARKETS SA F BCEEL’s permanent representative on the Supervisory Board
Director’s fees received in 2003 in exchange for the mandate exercised within CDC IXIS Capital Markets: €6,400.
CDC FINANCE-CDC IXIS SA F Chairman of Supervisory Board (since 21 January 2003)
CAISSE DES DÉPÔTS DÉVELOPPEMENT C3D SA F CDC’s permanent representative on the Board of Directors (since 16 January 2003) CDC HOLDING FINANCE SA F Member of Board of Directors (since 5 March 2003) CNP ASSURANCES (listed) SA F CDC’s permanent representative on the Supervisory Board (since 28 January 2003) COMPAGNIE FINANCIERE EULIA SA F Vice-Chairman of Board of Directors and Deputy Chief Executive Officer (since 15 January 2003)
VEOLIA ENVIRONNEMENT (listed) SA F Member of Board of Directors (since 30 April 2003) DEXIA (listed) BEL Member of Board of Directors (since 20 November 2003)
CDC FINANCE-CDC IXIS SA F CDC’s permanent representative on the Supervisory Board (mandate ended 8 December 2003) SOGEPOSTE SA F Member of Supervisory Board (resigned 25 June 2003)
CDC IXIS CAPITAL MARKETS SA F Member of Supervisory Board (resigned 17 October 2003)
(mandate ended 12 November 2003) FINANCIÈRE LILLE SA F Censor (from 22 September to 3 November 2003) ICADE (EX-SCIC) SA F Member of Board of Directors (resigned 2 October 2003) TRANSDEV SA F Member of Board of Directors (resigned 12 March 2003) CDC DI GMBH GER Chairman (resigned 1 December 2003)
A3C SAS F CNCEP’s permanent representative on the Board of Directors ARESE (currently being merged into VIGEO) SA F Member of Board of Directors CNP ASSURANCES SA F Member of Supervisory Board COMPAGNIE FINANCIÈRE EULIA SA F Member of Board of Directors INGEPAR SA F CNCEP’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: €11,200.
CAISSE NATIONALE DES CAISSES D’EPARGNE ET DE PRÉVOYANCE SA F Member of Executive Board
COMPAGNIE FINANCIÈRE EULIA SA F Member of Board of Directors CRÉDIT FONCIER DE FRANCE SA F Member of Supervisory Board VEGA FINANCE SA F Chairman of Supervisory Board (co-opted 30 October 2003)
ARESE SA F Chairman of Board of Directors - Chief Executive Officer ECUREUIL GESTION SA F Chairman of Supervisory Board ECUREUIL VIE SA F Chairman of Board of Directors CEFI SA F Member of Board of Directors (since 9 December 2003) VIGEO SAS F Member of Board of Directors MUTUELLE DU MANS VIE MUT F CNCEP’s permanent representative MUTUELLE DU MANS IARD MUT F CNCEP’s permanent representative
CDC IXIS CAPITAL MARKETS SA F Member of Supervisory Board (since 17 October 2003)
(since 30 September 2003) VÉGA FINANCE SA F Member of Supervisory Board (since 30 October 2003)
2003 Ms Isabelle BOUILLOT (no longer a director of CDC IXIS Capital Markets since 4 August 2003)
CDC FINANCE-CDC IXIS SA F Chairman of Executive Board; Director of Central Functions (resigned 16 July 2003)
CDC IXIS CAPITAL MARKETS SA F Chairman of Supervisory Board (resigned 4 August 2003) CDC IXIS SECURITIES SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board
(mandate ended 17 July 2003) CDC IXIS NORTH AMERICA USA Chairman (resigned 4 August 2003)
CDC IXIS ASSET MANAGEMENT SA F Vice-Chairman of Supervisory Board and CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board (mandate ended 17 July 2003)
(mandate ended 4 August 2003) CDC IXIS PRIVATE EQUITY SA F CDC Finance-CDC IXIS’s permanent representative on the Board of Directors
(mandate ended 3 February 2003 following dissolution of the company) CDC IXIS AM US CORPORATION USA Member of Board of Directors (resigned 4 August 2003)
CNP ASSURANCES (listed) SA F Member of Supervisory Board (resigned 16 July 2003) COMPAGNIE FINANCIÈRE EULIA SA F Member of Board of Directors (resigned 4 August 2003) SOCIÉTÉ DE GESTION DE CDC EURO OBLIGATIONS LUX Chairman of Board of Directors, CDC’s permanent representative (resigned 4 August 2003)
CDC FINANCE-CDC IXIS SA F Member of Executive Board; Chief Executive Officer; Director of Support Functions and Steering (resigned 16 July 2003)
SOGEPOSTE SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board (from 15 January to 17 July 2003 – resignation date; previously Member of Supervisory Board)
CDC IXIS FINANCIAL GUARANTY HOLDING SA F CDC Finance-CDC IXIS’s permanent representative on the Supervisory Board (mandate ended on 17 July 2003)
CDC IXIS FINANCIAL GUARANTY SA F CDC IXIS Financial Guaranty Holding’s permanent representative on the Supervisory Board (mandate ended 17 July 2003)
CDC IXIS FINANCIAL GUARANTY EUROPE SA F CDC IXIS Financial Guaranty’s permanent representative on the Supervisory Board (mandate ended 17 July 2003)
CDC IXIS CAPITAL MARKETS SA F Vice-Chairman of Supervisory Board (resigned 17 July 2003) CDC IXIS NORTH AMERICA USA Member of Board of Directors (resigned 17 July 2003)
CDC IXIS ASSET MANAGEMENT SA F Chairman of Supervisory Board (resigned 17 July 2003) IXIS AEW EUROPE SA F CDC Finance-CDC IXIS’s permanent representative on the Board of Directors
CNP ASSURANCES (listed) SA F Member of Supervisory Board (resigned 16 July 2003) CDC INVESTMENT FUND LUX Member of Board of Directors CDC ARBITRAGE FUND LUX Member of Board of Directors
2003 Mr Daniel LEBÈGUE (no longer a director of CDC IXIS Capital Markets since 17 February 2003)
CDC FINANCE-CDC IXIS SA F Member of Supervisory Board (resigned 3 September 2003)
CDC IXIS CAPITAL MARKETS SA F CNCEP’s permanent representative on the Supervisory Board (mandate ended 5 September 2003)
CDC IXIS PRIVATE CAPITAL MANAGEMENT SA F CNCEP’s permanent representative on the Supervisory Board (mandate ended 12 March 2003)
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; Chief Executive Officer (resigned 5 September 2003) CRÉDIT FONCIER DE FRANCE (listed) SA F Vice-Chairman of Supervisory Board (resigned 5 September 2003) HOLASSURE SA F Chairman and Chief Executive Officer (resigned 10 September 2003) LA MUTUELLE DU MANS ASSURANCES IARD (MMA IARD) MUT F CNCEP’s permanent representative on the Board of Directors
(mandate ended 11 September 2003) LA MUTUELLE DU MANS ASSURANCES VIE MUT F CNCEP’s permanent representative on the Board of Directors
(mandate ended 11 September 2003) SOPASSURE SA F Chairman and Chief Executive Officer (resigned 5 May 2003)
Director’s fees received in 2003 in exchange for the mandate exercised within CDC IXIS Capital Markets: €3,200.
Third resolution Having heard the Auditors’ special report on agreements governed by article L.225-86 of the French Companies Act, and after ensuring that the quorum is greater than a quarter of the shares with voting rights for the agreement submitted for approval, the Ordinary Shareholders’ Meeting approves the said agreement in accordance with the conditions of article L.225-88 of the French Companies Act.
During the last three years, the following dividends have been paid: The Executive Board requests that shareholders present at the Annual General Meeting of Shareholders: I approve the parent company and consolidated accounts for the 2003 financial year, these having been certified without qualification by the Auditors; I approve the regulated agreements concluded during the course of 2003, which have previously been authorised by the Supervisory Board and which are presented in the Auditors’ special report; I approve the proposed allocation of earnings, which after taking into account the 5% to be assigned to the legal reserve, provides for payment of a
Seventh resolution In accordance with article 27 of the statutes, the Ordinary Shareholders’ Meeting renews for a period of six years (i.e. until the end of the Shareholders’ Meeting convened to approve the accounts for the year ending 31 December 2009), the mandates of the following members of the Supervisory Board: I Mr Pierre SERVANT, residing 10, avenue Villemain – 75014 Paris; I Mr Antoine LISSOWSKI, residing 5 ter, rue de la Paix – 78420 Carrières-sur-Seine; I CDC Finance – CDC IXIS, registered under French law as a limited company with Executive and Supervisory Boards with capital of €5,103,563,868, headquartered at 26-28 rue Neuve Tolbiac, 75658 Paris cedex 13, and registered in Paris under RCS number 335 128 898; represented by Mr Francis MAYER, residing 27 rue du Faubourg Saint-Jacques – 75014 Paris.
I Caisse Nationale des Caisses d’Epargne et de Prévoyance, registered under French law as a limited company with Executive and Supervisory Boards with capital of €2,905,079,234.75, headquartered at 5 rue Masseran, 75007 Paris and registered in Paris under RCS number 383 680 220; represented by Mr Bruno METTLING, residing 3 villa Jean Godard – 75012 Paris.
I Banque et Caisse d’Epargne de l’État Luxembourg BCEEL, Company registered under Luxembourg law, headquartered at 1 place de Metz, Luxembourg and represented by Mr Jean-Claude FINCK, residing 3 rue du Soleil, L-3899 Foetz – Luxembourg; I Mr Jean-Jacques BONNAUD, residing 17, rue Parmentier – 92200 Neuilly-sur-Seine; I Mr Jean-Pierre MENANTEAU, residing 50, rue de Berri – 75008 Paris; I Mr Nicolas MERINDOL, residing 10, rue Guizot – 78220 Viroflay; I Mr Laurent VIEILLEVIGNE, residing 19, rue de Lisbonne – 75008 Paris.
Eighth resolution The Ordinary Shareholders’ Meeting gives all powers to the bearer of a copy or extract of the minutes of the Meeting to carry out all filing and publication formalities, as required by law.
I 2001: - a dividend of FF364,800,000, plus a tax credit of FF182,400,000 (as approved by the Ordinary Shareholders’ Meeting of 23 May 2001, convened to vote on the accounts for the year ended 31 December 2000); - an interim dividend of €94,000,000, plus a tax credit of €47,000,000 (as recommended by the Executive Board meeting of 18 December 2001).
This authorisation does not apply to bonds concerned by articles L.225-150 (bonds with attached equity warrants), L.225-161 (bonds convertible into shares) and L.225-169 (bonds exchangeable into shares) of the French Companies Act, issue of which can only be authorised by an Extraordinary Shareholders’ Meeting.
In accordance with article L.228-41 paragraph 2 of the French Companies Act, the Executive Board may delegate the powers it receives from the Shareholders’ Meeting in respect of the current resolution, to its Chairman or to any member of the Executive Board.
+ Interest and equivalent income on bonds and other fixed-income securities 17 472 542 485
- Interest and equivalent expenses on bonds and other fixed-income securities 18 (342) (324) (412)
2 - Consolidation scope and methods CDC IXIS Capital Markets’ scope of consolidation changed during the first half of 2003. The change concerned GIE Informatique CMI which was de-consolidated and then merged into Informatique CDC (ICDC) on 1 January 2003 along with the various other economicinterest entities serving the IT needs of the branches and business lines. ICDC’s shareholders are now CDC, CDC IXIS and CNP.
CDC IXIS Capital Markets is organised as follows: The subsidiary CDC IXIS Securities is consolidated using the full-consolidation method.
In addition, in accordance with paragraph 101 of regulation CRC 99-07, two special purpose vehicles were excluded from CDC IXIS Capital Markets’ scope of consolidation, in view of the fact that shares or securities issued by these entities are in the process of being marketed: I Finaltaïr (€19.7 million still to be placed out of a total of €127.5 million) I CDC SP1 (€16.9 million still to be placed out of a total of €169 million).
3 - Accounting and valuation principles 3.1 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.
At the end of each period, the securities sold under repurchase agreements are valued in accordance with the rules applicable to the type of securities portfolio in which they were originally held.
Negotiable loan notes and other interbank instruments These securities and other stocks are recorded at nominal value and the difference between the purchase price and the nominal value is amortised based on the yield-
Consolidated figures to-maturity method over the residual life of the security. At period-end, any unrealised losses do not automatically trigger a provision for depreciation, unless the issuer of the security is at risk of default.
Borrowed securities are recorded as an asset in the trading securities category at their market price on the date on which they are borrowed and as a debt on the liability side of the balance sheet. These securities are marked to market at the end of the period.
Security loans and borrowings secured by cash deposits are treated for accounting purposes in the same way as repurchase and resale agreements.
3.4 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 3.5).
3.6 Securities issued Accrued interest expenses are credited to an accrued debt account and debited to the profit & loss statement.
Issue and redemption premiums are amortised on either a straight-line or a financial basis over the life of the securities in question.
3.7 Complex transactions Complex transactions involve combinations of instruments (of identical or different type, nature and valuation methods), that are recorded in a single batch or as a transaction whose accounting treatment is not subject to specific regulations.
3.8 Credit derivatives Credit derivatives are instruments designed to transfer the existing credit risk on assets from one counterparty to another, generally in exchange for the payment of a premium settled at the origin or time-apportioned. In the event of a default (i.e. “credit events”) that is predefined in the credit derivative contract, the seller of the protection is called upon to pay the cost of the default as defined in the contract.
3.9 Treatment of income and expenses Interest and related commissions are recorded on a time-apportioned basis.
The regulation concerns all transactions generating credit risk (loans, securities and commitments).
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
3.13 Fixed assets Fixed assets are recorded in the balance sheet at acquisition cost.
Including as at 31/12/2003: €1,311.57 million of repurchases on public securities and equivalents.
Including as at 31/12/2003: €216.06 million of repurchases on public securities and equivalents, €2,722.36 million of loans to CDC IXIS Group companies.
Millions of euros 31/12/03 France Europe USA Asia Rest of Total
SIGHT LOANS TO CREDIT INSTITUTIONS 11,178.18 1,037.68 - - - 12,215.86
Trading Marketable Investment TOTAL Trading Marketable Investment TOTAL Millions of euros securities securities securities securities securities securities
(1) Market value of €9,773.36 million as at 31/12/2003; marketable securities are included in portfolios when they are associated with fixed-income instruments and provisions are calculated in accordance with the principles set out in note 1 section 3.3.
Euro US UK Other Total Millions of euros Dollar Sterling currencies
TOTAL BONDS AND OTHER FIXED-INCOME SECURITIES 7,326.14 2,793.47 457.39 589.35 11,166.35
Accrued income and marked-to-market adjustments of futures and options 3,237.22 3,864.39
(1) This item notably includes margin calls and guarantee deposits paid to market counterparties or clearing houses. (2) Including €28.80 million of deferred taxes.
Bonds, including accrued interest 670.47 1,230.48 - Non-euro currencies 7.93 265.15
(1) The perpetual subordinated loan was granted to CDC IXIS Capital Markets by Caisse des dépôts et consignations on 1/9/1996 (CDC IXIS then replaced CDC retroactively on 1 January 2000).
In the event that CDC IXIS Capital Markets is liquidated, the outstanding principal and interest on the loan will only be reimbursed after amounts due to all creditors, whether preferred or unsecured, have been settled in full.
(2) The redemption date of fixed-term subordinated securities is 2/8/2010. CDC IXIS Capital Markets classifies these issues as "other equity capital", in accordance with French Banking Committee regulation 90-02.
Fund for Reserves Profit Equity Capital (1) Share Consolidated Profit Equity Total general attribuable attribuable attribuable premium reserves attribuable (excl. FGBR) consolidated banking to minority to minority to minority account (excl. FGBR) to group equity risks interests interests interests (incl. FGBR)
(1) Including €15.8 million of interest on subordinated securities as at 31/12/03.
Note 17 Income on bonds and other fixed-income securities 31/12/03 31/12/02
Note 20 Commission income and expenses 31/12/03 31/12/02 Income Expenses Income Expenses
Note 21 Gain or loss on trading portfolio transactions 31/12/03 31/12/02
(1) The members of the Executive Board received compensation of €1,927,000 during 2003 in exchange for the responsibilities and functions carried out within CDC IXIS Capital Markets. The members of the Supervisory Board received compensation of €21,000 during 2003 in exchange for the responsibilities and functions carried out within CDC IXIS Capital Markets.
Gain or loss on divestment of tangible and intangible fixed assets 0.01 1.50
Non-euro currencies to be received against euros to be delivered - non-euro currencies to be received 63,823 58,310 - euros to be delivered 66,883 61,091
Premium/discount on forward transactions to be received 414 445 to be delivered 387 478
Commitments granted to credit institutions 13,101.18 0.03 - - - 13,101.21
Securities acquired with a repurchase or transfer option - - - - - -
Commitments received from credit institutions 9,686.46 4,928.13 - - - 14,614.58
<= 3 months > 3 months > 1 year and > 5 years Total Millions of euros and <= 1 year and <= 5 years
Risks are controlled by comparing them to market limits which must be respected at all times. Daily and monthly reports are then produced for the Executive Board of CDC IXIS Capital Markets and the Chairman of the Supervisory Board.
Counterparty risk measurement consists of analysing the probable loss that CDC IXIS Capital Markets would suffer in the event of counterparty default.
Off-balance sheet transactions carried out on organised markets are obviously excluded from this measurement of counterparty risk.
USA and Canada 15.42% France 30.13% Other euro-zone countries 28.63% Other countries 25.82%
The breakdown aims to reflect the performance of the main branches of capital markets activity in the most relevant manner possible.
The branches are broken down as follows: I Fixed-income and foreign-exchange business, covering the traditional activities in these areas; I Equity business, covering all equity-related activities, as well as the group's equity-broking arm.
The assumptions underlying the breakdown of the main profit & loss line items are as follows: I Net banking income represents the direct contribution from each business, including the proceeds from investing that portion of the equity allocated to the business; I General expenses include the direct expenses of each branch of activity including analytical rebilling of support functions; I The tax charge allocated to each branch of activity is calculated by applying a normative rate on the basis of taxation territoriality; the differences between normative and real tax, including the balance of deferred taxes, are broken down by branch of activity.
Fixed Equities Total Fixed Equities Total Millions of euros income Group income Group
The geographic breakdown distinguishes profit from activity carried out in France from that generated by the three foreign branches.
France International Total France International Total Millions of euros Group Group
Note 32 Results from the main transactions with the parent company 31/12/03 31/12/02
The transactions summarised in the table above represent CDC IXIS Capital Markets' main relations with its parent company. Derivatives transactions concluded with the parent company primarily result from the mirror operations undertaken when CDC IXIS Capital Markets was created and for which CDC continues to act as an interface with the original clients. Insofar as similar relations are being gradually established with CDC IXIS, the above figures also take into account the profit from transactions with CDC IXIS as from 2000 (competitive-market activities organised into a separate subsidiary).
II - Justification of our assessments 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 draw your attention 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. We carried out an assessment as to the reasonable nature of these estimates. The assessments made regarding these elements form part of our overall audit approach covering the consolidated financial statements as a whole and contribute to the opinion expressed in the first part of this report.
Auditors’ report on the 2003 consolidated financial statements Financial year ended 31 December 2003
Interbank market securities and negotiable debt instruments 8,148 11 041 10,737
This chapter contains the most significant extracts from CDC IXIS Capital Markets’ 2003 parent company financial statements. The full 2003 parent company financial statements have been certified without qualification by the Company’s auditors and may be obtained on request from the headquarters of the Company.
Parent company figures (extracts)Parent company profit & loss statement 31/12/03 31/12/02 31/12/01
+ Interest and equivalent income on transactions with credit institutions 1,071 1,624 1,951 of which accrued interest on current account 13
+ Interest and equivalent income on bonds and other fixed-income securities 472 542 485
- Interest and equivalent expenses on transactions with credit institutions (1,909) (2,514) (3,176)
- Interest and equivalent expenses on customer transactions (192) (76) (100)
- Interest and equivalent expenses on bonds and other fixed-income securities (299) (378) (412)
(1) Amount restated relative to presentation in the 2002 annual report.
Loans and borrowings Loans and borrowings are stated at their nominal value. Corresponding interest amounts are recorded in the profit & loss statement on a time-apportioned basis.
The revenues and expenses on repurchase and resale agreements are recorded on a time-apportioned basis in the profit & loss statement.
In the event of proven credit risk, these securities are classified for accounting purposes as doubtful and the probable loss is recognised by a provision.
In the event of proven credit risk, the probable loss not reflected in market value is recognised by a provision.
Investment securities The investment portfolio includes bonds and other fixed-income securities which have been acquired with the intention of being held long-term, in principle until their maturity. The valuation method varies depending on whether or not the securities are transferable.
Negotiable loan notes and other interbank instruments These securities and other stocks are recorded at nominal value and the difference between the purchase price and the nominal value is amortised based on the yieldto -maturity method over the residual life of the security.
At period-end, any unrealised losses do not automatically trigger a provision for depreciation, unless the issuer of the security is at risk of default.
Interest on loaned and borrowed securities is recorded in the profit & loss statement on a time-apportioned basis.
Credit risk is provisioned according to contractual terms and market value, or, by default, the terms of CRC regulation 2002-03 (see 2.10 below).
Transactions that are not performed as hedges are marked to market. Any resulting unrealised gains or losses on unwound positions at the end of the period are recorded in the profit & loss statement.
These apply one or more of the following methods: price confirmation from brokers or external counterparties, comparison with real transactions and the detailed examination of issuer or instrument category.
2.6 Securities issued Accrued interest expenses are credited to an accrued debt account and debited to the profit & loss statement. Issue and redemption premiums are amortised on either a straight-line or a financial basis over the life of the securities in question.
Each component of the transaction is recorded in accordance with the legal status of the underlying products.
Gains or losses are considered globally so as to reflect the economic nature of the transactions. Management intentions will dictate treatment of the overall result: I Results of transactions carried out for hedging purposes are apportioned on a straight-line basis over the relevant period. In the case of an overall negative market value of a complex transaction with its hedging component, a provision is booked.
I Results of transactions carried out for trading portfolio management purposes or whose results are deemed to be equivalent to a financial engineering commission are recorded at the origin. A discount is applied to take into account the future management expenses and any possible counterparty risks.
2.8 Credit derivatives Credit derivatives are instruments designed to transfer the existing credit risk on assets from one counterparty to another, generally in exchange for the payment of a premium settled at the origin or time-apportioned. In the event of a default (i.e. “credit events”) that is predefined in the credit derivative contract, the seller of the protection is called upon to pay the cost of the default as defined in the contract.
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.
2.9 Treatment of income and expenses Interest and related commissions are recorded on a time-apportioned basis.
2.11 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.
Research and development on identified, technically feasible IT projects is booked under intangible assets.
Depreciation is calculated over the estimated life of the tangible asset using the straight-line or diminishing-balance method.
2.14 Subordinated debts This section includes all debt materialised by perpetual loans, whose redemption in the event of liquidation of the debtor is only possible after the other creditors’ claims have been settled.
2.15 Pension commitments Pension commitments are estimated using the actuarial method and give rise to provisions; details are provided in the notes.
2.16 Corporate tax This line item includes current tax for the fiscal year after deduction of any tax credits which may be offset against the amount due, together with deferred tax.
Companies in which CDC IXIS Capital Markets holds a net investment exceeding €15.24m: Other companies: Informatique CDC - 26.31 - 26.31 NS NS NS Others 2.41 - (0.46) 1.95 NS NS NS
(1) CDC IXIS Capital Markets' registered share capital totals €457,500,000. It comprises 30,000,000 shares with a nominal value of €15.25, all of the same category, and 100%-owned by CDC IXIS as at 31/12/2003.
Parent company figures (extracts)Table of results for the last five years
Meetings are chaired by the Chairman of the Supervisory Board or by another Board member designated by the Chairman.
Extracts and copies of the subjects for discussion are certified and delivered by the Chairman or the secretary of the meeting.
Contractual profit-sharing During the last five years, CDC IXIS Capital Markets has concluded two contractual profit-sharing agreements: - a first agreement signed on 25 June 1999 and covering the 1999, 2000 and 2001 financial years - a second agreement signed on 14 June 2002 and covering the 2002, 2003 and 2004 financial years
The amounts of profit-sharing allocated in respect of the last five financial years (and paid in the following financial years), are as follows: Regulatory profit-sharing CDC IXIS Capital Markets concluded a voluntary fixedterm regulatory profit-sharing agreement on 20 December 2001, in respect of the 2000 financial year. This agreement provides for the application of the common law formula for calculating the special reserve for regulatory profit-sharing. The Company paid out the sum of €6.09 million in 2001 in respect of regulatory profit-sharing for the 2000 financial year. In an endorsement to this agreement, CDC IXIS Capital Markets paid out the remaining €1.052 million available for regulatory profit-sharing in 2002.
3. Responsibility for the reference document and the audit of the financial statements 3.1. Person responsible for the reference document Anthony Orsatelli Chairman of the Executive Board 3.2. Statement by the person responsible for the reference document The information contained in this reference document is accurate to the best of my knowledge. It includes all the information required by investors to allow them to make their own judgements on the assets and liabilities, business, financial situation, results and outlook of the Company; there are no omissions liable to have any material bearing on the scope of the information provided.
This document was prepared under the responsibility of the Chairman of the Executive Board. The role with which we have been assigned is to issue an opinion on the faithfulness of the information contained herein on the financial situation and the accounts.
We conducted our audit in accordance with the professional standards applicable in France. These standards require us to plan and perform the audit so as to obtain reasonable assurance that the financial statements are free from material mis-statement, and that they are consistent with the accounts on which the report has been based. We also read other information contained in the reference document to identify any material inconsistencies in the information relating to the financial position and statements and to highlight any manifestly erroneous information which we might detect based on the knowledge of the Company that we require in the course of the audit. This reference document does not contain any isolated forecast resulting from a structured forecasting process.
We have audited the annual and consolidated financial statements for the financial year ended 31 December 2003 as prepared by the Executive Board, according to the professional standards applying in France and certified them without qualification with the observation contained in our general report and our report on the consolidated accounts relating to note 1 of the consolidated financial statements and which describes the changes in accounting methods resulting from the application of CRC regulation n°2002-03 concerning the accounting treatment of credit risk.
We audited the annual and consolidated financial statements for the years 2002 and 2001 as prepared by the Executive Board, according to the professional standards applying in France and certified them without qualification.
The original French version of this Annual Report was filed with the “Autorité des Marchés Financiers” (the French Securities and Exchange Commission) on 27 April 2004 in compliance with regulation 98-01 of the said Commission (AMF registration number: D.04-0590).
(1) Debt guaranteed by CDC IXIS and not by CDC is currently being rated by Moody’s.
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