In 2005, CIC won more than 160,000 new individual,

Transcription

1 2005 Annual Report

2 President s Statement 3 In 2005, CIC won more than 160,000 new individual, self-employed professional and corporate clients. New loan business continued apace, with growth of more than 23%. Home loans were particularly buoyant, with figures up 32% year-on-year and CIC currently accounting for 6% of new mortgages in France, as against 3% in Consumer loans were also strong, rising 13%, and investment and capital asset loans to self-employed professional and corporate customers soared by upwards of 30%. The group saw the fruit of its reorganization initiatives: the expansion of the network was instrumental in enabling it to increase net income desite the sale of the risks on its structured products portfolio. The growth also bears out the group s enduring commitment to employee training and technological progress as means of providing customers with the best products and services to match their needs. The major projects implemented on the back of privatization are now in the completion stages and also showing results. The regional banks, organized into five regional divisions, achieved economies of scale and renewed growth thanks to their first full year s access to the group-wide IT system. Other projects have gone forward: the CIC brand is now established throughout the group and shared resources have been streamlined; over the past six years 1,940 branches (over half the network), have been renovated and some 286 new branches have been opened. The global and cross-sectional businesses have been restructured in a similar vein to the segment-specific subsidiaries. This is already the case for private banking and private equity and the other businesses are due to come on board in the course of These sea changes have been backed up by a substantial employee training program, which equips staff for value-enhanced positions in a constantly changing professional environment. CIC s success in developing activities upstream and downstream of retail banking activities can be seen in its strong foothold in the private equity market a direct result of the sound reputation it has built up in the corporate world. While further changes remain to be implemented, the group is already in good working order. Its financial strength has been confirmed by the rating agencies, with its long-term rating maintained by Standard and Poor s (A+ with a positive outlook) and Moody s (A1). Fitch has upgraded its rating to AA-. Strengthened by the advances that have been made, CIC and its majority shareholder, Crédit Mutuel Centre Est Europe, are now ready to move ahead with all initiatives that will ensure the achievement of its strategic targets. Michel Lucas President of the Executive Board

3 CONTENTS 5 CIC group profile 6 Key consolidated figures 7 REVIEW OF OPERATIONS 8 CIC group simplified organization chart 10 Retail banking 20 Financing and capital markets 26 Private banking 30 Private equity 32 Regional and international directory 35 CORPORATE GOVERNANCE 36 Management team 38 Report of the Chairman of the Supervisory Board on the preparation and organization of the Board s work 39 Executive Board and Supervisory Board members 45 SUSTAINABLE DEVELOPMENT 46 Ethics and compliance 46 Internal control 46 Report of the Chairman of the Supervisory Board on internal control procedures 50 Risk management 58 Human resources 59 Technological capabilities 61 Client relations 62 Shareholder relations 63 FINANCIAL INFORMATION 64 Consolidated financial statements 118 Financial statements of the bank (extracts) 133 LEGAL INFORMATION 134 Shareholders Meeting of May 11, Additional information 150 General information 152 Person responsible for the registration document (document de référence) and Statutory Auditors 153 Cross-reference table

4 CIC group profile 5 CIC, the group holding company and network bank serving the Paris region, comprises eight regional banks and specialist entities covering all areas of finance both in France and abroad and insurance. 3,627,922 clients, including: 2,985,849 individuals 500,845 self-employed professionals 138,468 corporates 23,265 employees 1,940 agencies in France 3 foreign branches and 37 foreign representation offices CIC has been part of Crédit Mutuel since 1998 and together they have become France s: Fourth-largest banking group Second-largest retail bank Leader in bancassurance Number two player in electronic payment systems Figures as at December 31, 2005

5 6 Key consolidated figures Net banking income 3,265 3,374 Operating income Net income Cost/income ratio 77% 71.7%

6 7 Review of operations 8 CIC group simplified organization chart 10 Retail banking 20 Financing and capital markets 26 Private banking 30 Private equity 32 Regional and international directory

7 8 REVIEW OF OPERATIONS

8 CIC GROUP SIMPLIFIED ORGANIZATION CHART 9 The CIC group is made up of: CIC (Crédit Industriel et Commercial), the holding company and head of the CIC group s bank network. It is also the network s bank serving the Paris region and houses the group s investment, financing and capital markets activities; eight regional banks, each of which services a clearly-defined region; specialist entities and service companies that serve the whole group. On December 31, 2005, CIC s ownership structure was as follows: - BFCM (Banque Fédérative du Crédit Mutuel): 70.81% and Ventadour Investissement: 22.06%, representing a total interest of 92.87% for Crédit Mutuel Centre Est Europe; - Caisse Centrale de Crédit Mutuel: 0.99%; - Crédit Mutuel Nord Europe: 0.87%; - Compagnie Financière de Crédit Mutuel: 0.75%; - Crédit Mutuel Maine-Anjou, Basse-Normandie: 0.69%; - Crédit Mutuel Océan: 0.69%; - Crédit Mutuel Centre: 0.57%; - Crédit Mutuel Loire-Atlantique Centre-Ouest: 0.35%; - Crédit Mutuel de Normandie: 0.07%; - Employees: 0.58%. The remaining 1.56% of shares are held by the public.

9 10 REVIEW OF OPERATIONS Retail banking Retail banking activities registered significant growth in 2005, and profits were up sharply. In France, demand for home loans gradually subsided over the year, while still remaining high. This relative decline was counterbalanced by rising demand for consumer loans and signs of an upturn in the financing needs of SMEs. Key figures Retail banking (in millions) Net banking income General operating expenses Operating income before provisions Provisions Income before tax Net income 2005 Change 2005/2004 2,685) + 3.0% (1,974) + 2.8% 711) + 3.5% (116) % 660) % 448) % In 2005, CIC passed a new milestone in terms of group-wide harmonization of pricing practices, which will facilitate sales efforts and the implementation of a nationwide multimedia plan. Retail banking operations were bolstered by continued expansion of the client base, particularly in personal banking (+5%), and by a new surge in home loans despite the slowdown in the market. CIC now accounts for about 6% of new home loans in France compared to 3% in Over this same period, the market grew by 172% (new loans excluding renegotiations). Other important developments were the increased take-up of risk insurance policies (new personal risk insurance was up 57%) and online banking; the success of Acti-trésorerie, the new automated cash management service for SMEs; and the strong demand in service contracts for individual customers (218,000 new Contrats Personnels signed), spurred by the popularity of the Starts Jeunes Actifs offering launched at the beginning of the summer. The significant increase in business linked to the growth in fees and a new drop in loss provisions resulted in an improvement in retail banking income. Network Network development 1,940 branches In 2005, 50 new branches were opened, bringing the total to 1,940. Through this ongoing extension of its local network, CIC continued to develop its capacity to serve retail customers, selfemployed professionals and businesses. 2,014 ATMs and 387 automatic deposit machines With the addition of 115 ATMs over the year, 2,014 units are now available to cardholders. New technological advances have been incorporated into the ATMs. These machines were originally limited to cash withdrawals alone but CIC clients can now use them for a variety of account management operations. In addition, non-banking services are now offered, such as reloading SFR prepaid telephone cards. In the same spirit of client service, ATMs in the Paris area can reload Navigo passes following an agreement signed with RATP, the Paris public transport agency. CIC also installed 387 automatic deposit machines which clients can use to deposit checks and cash without having to go to the bank counter. This is also possible with 40% of the CM-CIC ATMs. Source: 2005 consolidated financial statements: IFRS 2004: pro forma IFRS excluding IAS and IFRS 4

10 RETAIL BANKING 11 Filbanque connections soar Demand for online banking, offered through Filbanque Particuliers, Filbanque Professionnel and Filbanque Entreprises, surged, with more than 800,000 new subscribers (+17%) and nearly 63 million logins (+22%). On average, each subscriber made nearly 80 clicks per year to view account balances and carry out transactions. CIC continued to improve its tools by harmonizing configurations for transfers, tightening identification procedures, etc. Certain functions are now accessible on mobile phones through WAP and i-mode technologies. A new contract, Filibanque connexion, comprising all the management and pay-per-use functions, was launched to meet the needs of occasional users. Personal banking clients CIC won 145,000 new personal banking clients in 2005, bringing the total number of personal banking clients to 2,986,000 (+5%). This increase was attributable to: a vigorous client acquisition drive through real estate loans, savings products and property/casualty insurance; ongoing branch network expansion, with 50 new openings; a sustained focus on young people through the Starts Jeunes Actifs line geared to the market segment of the under-28 population entering working life, which won 30,000 subscribers. Growth in client deposits Demand deposits grew by 13% as a result of the policy of winning new clients and systematically offering bancassurance services. In addition, passbook savings accounts increased by 6.8% and the line of stepped-rate term deposits by 8.8%. Amounts in PEL home savings plan accounts stagnated, however, due to their reduced attractiveness as a result of regulatory changes. The rise in interest rates in the last quarter led to an appreciable increase in spreads. Managed savings Despite a strong performance in marketing guaranteed funds, FIP local investment funds and FCPI innovation funds, the total amount invested in CIC group mutual funds did not increase significantly. Life insurance sales, on the other hand, continued to grow, up 27.5% to 2.3 billion. HIGHLIGHTS: Number of clients: 3,627,922 (+5%) Demand deposits: 18,382 million (+8%) Property/casualty (comprehensive homeowner and automobile insurance policies): 478,582 (+34%) New home loans: 10,953 million (+32%)

11 12 REVIEW OF OPERATIONS Lending New home loans reached 8.9 billion, bringing total outstandings to 23 billion (+29%). A tool for running mortgage loan simulations and preparing applications was launched on the cic.fr website. In the sphere of consumer loans, the Crédits Maîtrisés advertising campaigns were coupled with a sales drive, helping to take total outstandings to 2.8 billion (+8%). Thanks to the increase in outstanding loans, net interest income rose, despite increasing competition, particularly in real estate loans. Service contracts Marketing efforts were particularly directed at new accounts or those with little activity. The result was the signing of 147,000 new Contrats Personnels - an increase of more than 50%. Online banking 97,000 additional clients took up the Filbanque particuliers service, bringing the total number of subscribers to 674,000. The number of logins increased by 22%, with a ten-fold increase in WAP use in two years. Property/casualty and personal risk insurance With 163,000 new automobile and homeowner insurance policies, the total number of policies in each category increased by 30% and 20% respectively. Personal risk insurance has found its place as a natural component of the offering, with 85,000 new policies written, taking the total number of policies in force to 344,000. Telephony At the end of 2005, the marketing of mobile telephony in partnership with NRJ Mobile met with considerable success, particularly among young people. Over two months, sales totaled 15,000. Commissions and charges The increase in client take-up, combined with the vigor of financial markets, resulted in a nearly 14% increase in commissions from services. Self-employed professionals In 2005, the CIC group continued to pursue a two-pronged strategy with, on the one hand, a global approach to this market, providing clients with one-stop business and personal services through a network of more than 1,500 dedicated relationship managers and a program of promotional activities; and, on the other, a segment-based approach separately targeting selfemployed professionals, retailers, tradespeople, micro-businesses and even specific professions. The year saw the winning of new clients through targeted or hightech offerings and the take-up of services by existing clients thanks to structured marketing programs integrating the group s business centers. Services and commissions Of particular note was the deployment of the Contrat Professionnel, a comprehensive package of products, services and flat-rate commissions that yielded more than 18,000 signed contracts and 17,705 new clients. Online banking continued to develop with the signing of 15,738 new multimedia contracts integrating business and personal account management and transactions. CIC maintained its lead in electronic payment systems by incorporating into its line an electronic payment terminal using DSL connections and a specific offering for the restaurant and catering sector. The number of active payment terminals rose 5.5% to 107,000 by the end of the year, with net commissions from this activity up 9.7% Lending Investment loans climbed 30% to over 1.8 billion. Lease financing picked up in 2005 with 330 million in new business, in particular through a range of vehicle financing products including Autoconfort Pro, a finance lease with a built-in maintenance contract developed by CM-CIC Bail. The self-employed professionals market accounted for 1.9 billion in new home loans, i.e., 18% of total new home loans for the CIC group. Insurance In 2005 personal risk insurance took off with nearly 12,000 new policies written. Savings inflows Thanks in particular to the Epargne Evolutive campaign, new funds invested in life insurance and endowment policies topped 340 million.

12 RETAIL BANKING 13 Segment-based marketing In 2005 an agreement was signed with CSOEC, the French accounting regulatory body, clearing the way for CIC s remote transmission of clients bank statements to their accountants via the Jedeclare.com portal. Several promotional initiatives from previous years were repeated, such as taking part in the national convention of certified public accountants, as well as that of dentists, to promote a lease finance offering. CIC also took part in the convention organized by the French national bar association, highlighting its strong relationships with CARPAs (treasury and accounting organizations for French lawyers) - of which nearly one in three is a client of the group. Measures to increase penetration in the micro-business segment were also maintained. An offering aimed at business start-ups, CreaCIC, was launched along with the revamping of the Entrepreneur s Guide. For associations, 2005 saw the rollout of a dedicated offering and the establishment of further national partnerships. The agreement with private Catholic schools and Catholic education governing bodies was renewed and extended. An agreement was signed with UNEP, the French association of landscaping professionals, in conjunction with an employee savings plan agreement signed by CIC Epargne Salariale. Last but not least, marketing efforts targeting farmers were continued, with a dedicated product range and specialist sales force, that were represented for the first time at the agricultural equipment fair. Corporates The sales organization is closely attuned to companies needs. In each region, corporate clients benefit from all the skills and resources of the group s national and international business centers. In addition to the services of a dedicated relationship manager, they have access to experts in lease financing, cash management, international development, factoring, employment and retirement savings plans, and financial engineering. Winning new clients At the end of 2005, the corporate client base totaled 138,468, a 1.9% increase year on year. The bank s approach to business development focuses on qualified companies with growth potential, as demonstrated by its relationships with 30% of all A-rated French companies. Corporate treasury management Deposits rose 5.1% overall. Demand for the automated cash management tool CIC Actitrésorerie, which tracks companies surplus balances on a dayto-day basis, has increased sharply since 2004, with a 60% rise in the number of contracts in force compared to end-2003, while over the same period demand deposits grew 2%. The stepped-rate term deposit account is very popular with companies that are looking to earn a guaranteed and increasing return on sustained cash surpluses. Total amounts deposited in such accounts rose 62% in 2005.

13 14 REVIEW OF OPERATIONS Lending Total outstanding loans rose 7% (+ 1,350 million). As part of the process of providing a comprehensive solution to companies need for financing throughout their operating cycle, Factocic, the group s specialized factoring subsidiary, has developed a range of innovative and high-performance tools that include imaged promissory notes, flash transfers and e-médiat transactions. As for investment financing, 3.9 billion (+33%) in capital asset loans were granted. New equipment lease financing amounted to 1 billion. In 2005, the corporates segment made a significantly larger contribution to the real estate lease financing activity of the CM-CIC Lease specialized business center, registering 19 transactions totaling 32.8 million compared to 18 transactions totaling 20.6 million (+59%). Cash management A variety of developments were introduced to meet clients needs for streamlining and simplifying cash management operations, while optimizing processing security. The CIC Cash offering was enhanced through the implementation of a single operating process for all banks and countries. New features that facilitate reporting and the transmission of cash management orders were incorporated into Filibanque Entreprises, CIC s online banking service. This enhancement also made it possible to exchange files through the website without having to install or use bank interchange software, which greatly contributed to the 6.8% increase in client subscribers, to 46,000. Card-based security solutions were also made available to clients for their online transactions, such as a personal keys card and a banking authentication card. Additional security features were added to the Vcom product (closed list management in particular) and it is now operational for euro transactions in Europe. In order to facilitate online payment, especially following the lowering of the sales threshold beyond which companies are required to file VAT returns online, an additional agreement was entered into with a second certification authority. The number of payment cards held by client companies rose 17% to reach 47,300. Employee savings plans and pension solutions A holistic approach to employee savings and pension benefits was implemented through the launch of the unique bilan salarial offering, developed with CIC Epargne Salariale and Assurances du Crédit Mutuel (ACM). CIC Epargne Salariale established 408 new relationships representing 36 million in new funds and ACM-CIC Assurances wrote 462 new statutory retirement bonus policies, which brought in 11 million in new funds. International operations Fifty-three per cent of CIC client companies do business abroad. Aidexport, the group s specialized subsidiary, offers services to assist companies with international development. The company has attracted extensive media attention, with favorable coverage that underscored CIC s commitment to supporting its clients in foreign markets.

14 RETAIL BANKING 15 Support services Insurance All CIC Assurances activities life insurance, personal insurance and property/casualty insurance grew in 2005, generating 188 million in commissions paid to CIC group banks. Life insurance Life premium income climbed 27.5% to 2,309 million, of which 53% was from non-unit-linked policies. In response to client demand, the line comprises two major products the non-unit-linked Livret Assurance Retraite policy and the unit-linked Plan Assur Horizons policy. The offering is rounded out by the PERP Plan Retraite Revenus pension savings vehicle and the Capital Croissance endowment policy. The highnet-worth client segment was offered a unit-linked product called Plan Patrimonio. An intensive drive to market pension solutions to self-employed professionals involved offering both the Plan Assur Horizons policy (which lies outside the scope of the Madelin Act), and its new version, Plan Assur Horizons Pro, which meets Madelin Act conditions. Personal insurance offerings The personal risk insurance product range was overhauled to make it more client-friendly. From bank account protection for the youngest clients to specific products for senior citizens, a full range of solutions is offered. The Plans Prévoyance policy, for example, can guarantee payment, depending on the client s needs, of a lump sum in case of death or total disability, daily benefits in case of unfitness for work and a pension in case of disability. Another new feature is a rente éducation educational annuity policy that can be taken out separately or to top up Plans Prévoyance guarantees. Personal risk insurance activity grew sharply in 2005, with over 85,000 new policies (up 53% compared to 2004) bringing the total number of policies in force to 344,400. In parallel, Sécurépargne strengthened the offer in banking risk insurance. This basic product offers a performance guarantee for most types of accrual savings vehicles, such as PEL home savings plans, PEA personal equity plans or life insurance. Three policies Santé CIC, Santé Senior and Santé Parcours J comprise the supplementary health insurance range. These products include high-quality customer service through their helpful call centers: TelSanté provides information on insurance coverage and benefits; TelSanté Conseils advises clients on their dental and eye care prescriptions, and provides contact information for a network of partner service providers offering preferential rates to CIC policyholders. Since 2005, policyholders using the Avance Santé payment card for healthcare expenses can avoid paying out of pocket for medication or doctor and dentist visits.

15 16 REVIEW OF OPERATIONS Property/casualty offerings More than 163,000 new automobile and home insurance policies were written, bringing the total number of policies in force to 440,600. A complete marketing package was rolled out to support the network during the busy autumn insurance period. For two months, in addition to posters, mail shots and other standard media, a video raising awareness of the offering was posted on the website. CIC Assurances also sponsored the weather report, and call center employees phoned clients to remind them to renew their coverage. Two new options rounded out automobile insurance coverage - Automobile Club and Assistance Tracking. Targeting high-end vehicles, Assistance Tracking provides a system for locating the vehicle in the event of theft as well as specific assistance services. These guarantees will be maintained in the new policy to be launched in spring 2006 at the same time as a new home insurance policy. Investment funds In 2005 CM-CIC AM won recognition as one of the major French asset managers. The new company, the result of the merger of Crédit Mutuel Finance and CIC Asset Management, boasts a team of 183 including 60 managers and management assistants. It ranks sixth by managed assets, with 49,149 million invested in nearly 850 funds. These assets include 3,637 million in employee savings funds and 7,603 million in mutual funds for which bookkeeping has been subcontracted to CM-CIC AM. The 44,792 million in public and dedicated mutual funds are split between the following fund categories: equity and diversified funds: 7,283 million; guaranteed funds: 2,292 million; money market funds: 30,023 million; bond funds: 2,391 million; dedicated funds: 2,803 million. As in 2004, net new money taken in excluding employee savings plans mainly went into money market funds (nearly 1,500 million) and structured funds ( 300 million). Despite the recovery in stock market indexes, the public s lack of interest in traditional equity mutual funds persisted. CM-CIC AM accordingly focused its efforts on products that come to grips with savers low appetite for risk: guaranteed funds indexed to stock exchanges (CIC Optimum Monde); these straightforward products that varied little from one campaign to the next were regularly promoted without excluding market conditions permitting more opportunistic and sophisticated products such as CIC Tonus avril 2011 intended for more knowledgeable clients; this expanded offering served to recycle structured funds that had come to maturity and build market share in this asset class; for high-net-worth individuals, the absolute performance fund Union Réactif Valorisation, which doubled its assets thanks in part to highly respectable results; its features (4%-6% annual return regardless of market conditions, controlled volatility) clearly provided many investors with the risk/return combination they were seeking. To win back savers who had come in for rough treatment during previous stock market bubbles, a new line of funds, Stratigestion (dynamic, balanced, moderate) was rolled out. These profiled funds are intended to provide clients with services tailored to their needs, including the detailed reporting they expect. In 2005, the CM-CIC AM teams once again received market recognition by winning for the third straight year the Lauriers d or FCP award from Investir magazine for top-quality investment funds and by the excellent ranking in the Edhec Alpha League, thus confirming CM-CIC AM s ability to generate steady and significant added value through its management activity.

16 RETAIL BANKING 17 Employee savings management After the migration in 2004 to a new accounting software system, a second major improvement was launched in 2005: electronic document management. This innovation optimizes processing procedures with greater speed and security while increasing the reliability of transactions. For the time being, it is used in notifications of fund allocation options and should be extended to withdrawals in The imaging of documents naturally meets the Afnor Z standard which certifies that the digital document corresponds to the original. Marketing efforts met with success as witnessed by the 51 million in new money and 2,620 new client companies such as Sylis, Rexel, UNEP, Heppner and Nature et Découverte. This sales growth will be reinforced through the interfacing of employee savings management tools with the IT systems of the regional banks. Data and performance analysis tools will thus be fully integrated into employee savings management, strengthening branch teams knowledge of savings products and their ability to sell them. The PEE savings plan kit and the PERCOI intercorporate collective pension savings plan kit (launched in September 2004) have already benefited from these advances; the kit for SMEs should also be positively impacted in These three kits were awarded Dossiers de l épargne magazine s Label of Excellence for the quality of information provided to clients as well as for their competitiveness. The year also brought with it the bilan salarial tool which is exclusive to CIC Epargne Salariale and highlights the potential payroll tax savings. The company can thus clearly and immediately see the effects of proposed solutions as part of a medium- to long-term remuneration policy. In 2005, the Breton Act, which aims to promote and clarify certain employee savings provisions, extended the benefits of employee profit-sharing to company owners and their spouses. Measures to promote employee stock ownership plans in non-listed companies have also been adopted. Factoring In a high-growth market, Factocic reached a volume of 6.9 billion in receivables purchased in 2005, up 10.4% compared to With an 11% rise in the number of active clients, Factocic now works with over one in ten companies using factoring services. The factoring offering for international transactions both import and export was bolstered and met with clear success, as evidenced by the 63% expansion in Factexport s business volumes. The Orféo product, which provides tailored receivables financing and management solutions to medium- and largesized companies, also saw sharp 28% volume growth. Factocic has established itself as a strategic center of expertise for CIC and offers the group s corporate and self-employed professional clients a complete range of factoring solutions. The sales push, coupled with the expansion of Crédit Mutuel Factor s business with the Crédit Mutuel networks, delivered 1.85 billion in revenues from new contracts during The year also saw the operational rollout of highly competitive products for the imaging of invoices and payments and the enhancement of the Internet service offering. Satisfaction surveys carried out with clients and business referral partners confirmed that service quality is deemed to be very high. Despite pressure on margins, the factoring business generated operating revenues of 58 million in Net income rose 3.3% to 14.1 million.

17 18 REVIEW OF OPERATIONS Receivables purchasing CM-CIC Laviolette Financement, the group s specialized center of expertise for purchasing of assigned business receivables, continued its expansion in 2005 and passed the symbolic 1 billion mark in sales processed. In addition, four new partnerships were begun with CIC Banque CIO, the Fédérations du Crédit Mutuel Centre-Est Europe and Savoie-Mont Blanc and Banque Commerciale du Marché Nord Europe. The year s achievements are reflected in: a 12% increase in assignments, with the processing of 208,000 invoices representing inflows of 1,051 million; a 15% increase in banking income before payments to the regional banks, to 16.2 million; 8% growth in overall profitability to 8 million before payment of fees to partner banks; a 27 % rise in fees paid to partner banks to 6.6 million, i.e., 82% of overall profitability. Net income was 0.9 million compared to 0.6 million in 2004.

18 RETAIL BANKING 19 Real estate financing CM-CIC real estate interests Working with real estate developers through the acquisition of interests in SCI (non-trading real estate company) consortia for the financing of residential real estate, in 2005 CM-CIC Soparim invested 4.3 million in 19 new projects (roughly 1,150 housing units), with a market value for the SCIs of 213 million. Net income was 1.6 million. CM-CIC realty CM-CIC Afedim, which is licensed to do business as a realtor under the Hoguet Act, sells new residential properties on behalf of the Crédit Mutuel and CIC networks. Its primary targets are investors who are clients of the regional banks, but it also sells to first-time buyers. The programs put on the market are approved in advance by a committee composed of representatives of the banks lending, asset management and sales teams. In 2005, 3,070 homes were sold, representing a total of 483 million and generating 20 million in fees before taxes. CM-CIC Lease For the third year in a row, total new real estate lease financing in France exceeded 4 billion, with a total of 4.6 billion in officially recorded contracts. CM-CIC Lease is one of the five largest players in the sector and handles transactions averaging 1.5 million. In 2005, its business volume grew 10% to reach 344 million in new real estate lease financing ( 328 million in signed contracts). During the year, CM-CIC Lease fully integrated into its management platform all of the contracts resulting from the mergers at the end of 2004 (Lorbail, Solybail, Sofebail and CIAL Finance). The volume of outstanding real estate lease financing doubled in less than a year and overheads were reduced. In November, the migration to a single IT platform for the CM-CIC group enabled the company to act fully as the group s specialist real estate financing arm and greatly facilitated daily management of the contracts. The composition of the leasing portfolio is quite stable, consisting of 55% industrial premises and warehouses, 23% retail premises, 12% offices and 10% miscellaneous properties. Shareholders equity stands at 84.8 million. Equipment leasing After two years marked by far-reaching changes IT migrations to bring the management of all operations onto the same software and the merger of the group s various lease financing structures 2005 was devoted to consolidating and organizing CM-CIC Bail, as well as developing new tools, improving productivity and embarking on the strategies provided for in the medium-term plan. Due to increasing demand, two new staff members were taken on to strengthen the team in charge of equipment manufacturer relations. In addition, to support marketing efforts, experts in leasing techniques now work with the sales team in putting together complex deals, and they also contribute to the creation of new tools and test and put in place new offerings and new distribution channels. Bail marine, a new boat financing offering which is managed and distributed from the Nantes office, was made available to the networks. It was promoted during nautical shows in La Rochellle and Paris. CM-CIC Bail won 41,000 new leasing contracts amounting to 1.7 billion, a 16% increase in a market that grew 7.6% (over the 12-month period ending September 30). The fleet of vehicles managed in connection with Auto confort increased by 50% and an additional staff member was taken on to handle the extra work. Thanks to the increase in new leasing and productivity gains, a total of 30 million was paid out to the business referral networks. Lastly, CM-CIC Bail received approval to market its services in Luxembourg and has applied for authorization in Belgium.

19 20 REVIEW OF OPERATIONS Large corporates and institutional investors Financing and capital markets One of the main events of 2005 was CIC s sale of risks on its structured equities portfolio (see page 21). At the same time, CIC remained focused on pursuing a strategy of sector diversification and selectivity, particularly with regard to large risks, and support for its clients international operations. Key figures Financing and capital markets (in millions) Net banking income General operating expenses Operating income/(loss) before provisions Provisions Income/(loss) before tax Net income/(loss) 2005 Change 2005/ ) n.m. (273) n.m. (256) n.m. 24) n.m. (232) n.m. (148) n.m. In 2005, lackluster business conditions led many companies to rebuild their cash position and limit their use of credit. Total CIC commitments to large corporates and institutional investors averaged 16 billion over the year, including 3.7 billion in balance sheet loans (down slightly from 2004) and 12.3 billion in off balance sheet commitments in the form of undrawn credit lines, guarantees and other signature commitments (up slightly from 2004). These commitments tended to increase towards the end of the year, reaching 16.7 billion in December, including 4.2 billion in balance sheet loans and 12.5 billion in off balance sheet commitments, providing a tangible sign of a slight upturn in overall economic conditions. Commitments remained spread across a wide range of sectors, as shown by the breakdown at December 31, 2005: construction/ services to local government: 14.2%; transport/construction materials: 10.1%; retail/apparel: 9.3%; automobile/auto parts: 8.9%; IT/mechanical engineering: 7.2%; institutional: 6.5%; aerospace: 6%; energy/engineering: 5.6%; luxury goods/healthcare: 4.6%; steel/chemical: 4.4%; media: 4.2%; telecommunications: 3.6%; hotel management/tourism: 2.6%; other: 12.8%. Selectivity remained CIC s watchword, making counterparty quality a central concern. All borrowers are given an internal credit rating between A+ and E. At December 31, 2005, counterparties rated from A+ to C- accounted for 90.5% of total commitments (A+: 2.5%; A-: 8.5%; B+: 28%; B-: 21.6%; C+: 12%; C-: 17.9%). This approach made it possible to further reduce the amount of provisions booked in 2005 compared to the previous year. New provisions were below reversals, yielding a net balance of 8 million. Provisions on commitments to large corporates and institutional investors had already been reduced to 0.1% of commitments in Because of the vast amounts of liquidity available in the various markets, pressure on margins remained high, and in some cases increased. As a result, net banking income (excluding crossselling) declined to million from million in 2004 and operating income before provisions decreased to 82 million from 97.3 million. The bank bolstered its presence in corporate loan syndications, participating in 77 major deals during the year (up from 68 in 2004 and 39 in 2003), as a mandated lead arranger in 18 of those cases. The dedicated technical and sales team of the cash management services business worked on 26 large-scale calls for tender and won seven of its bids. Two CMS products, Vcom and swiftnet, were set up as part of partnership agreements with clients. A number of prestigious French and non-french groups were added to the high-quality client roster in 2005, further contributing to its richness and diversity, including AEM spa, KLM, Whirlpool, Böhler Uddeholm, Voith, RAG, Trader Classified Media, neuf cegetel, EDF-Energies Nouvelles, Fondation Foch and Hôpital Foch, Magenta Participation, Sofiproteol and La Chaîne Française d Information Internationale. Source: 2005 consolidated financial statements: IFRS 2004: pro forma IFRS excluding IAS and IFRS 4

20 FINANCING AND CAPITAL MARKETS 21 Capital markets There two main developments in 2005 for capital markets operations: a large-scale restructuring of trading room operations and processes, including the sale of risks related to the structured equity derivatives portfolio, which resulted in the posting of an after-tax loss of 320 million for the full year; setting up a single trading room for the Crédit Mutuel Centre- Est Europe - CIC group, by bringing together into a single operating department the trading room teams of CIC, CIC Banque CIAL and BFCM. The new entity, called CM-CIC Marchés, will serve both as a vehicle for group refinancing of its own business development and as a trading room serving the various client segments, including large corporates, other companies, local governments, as well as private banking and institutional clients interested in the innovative capital markets products developed by CIC proprietary trading teams. Business development The trading room markets its products to French and European clients through a 70-strong sales force. The domestic sales teams are based in Paris and in regional centers, while European sales are conducted from Frankfurt and London as well as Paris. Networks In close cooperation with relationship managers at the group s regional banks, the sales platforms of Paris, Lyon, Lille, Strasbourg, Nancy, Bordeaux and Nantes market interest-rate and forex hedging products as well as investment offerings. Large corporates The trading room plays a leading role in intermediation for domestic and European money market securities. The sales team for Europe was particularly active in 2005 in supporting group corporate banking teams working with German, Swiss and Scandinavian clients. Bond origination On the primary market, CM-CIC Origination, the group business in charge of bond origination and syndication for CMCEE-CIC, developed advisory services and responded to calls for tender from large corporates, branches, local government bodies and financial institutions. The group was involved in about fifteen major transactions on senior and junior debt. CM-CIC Origination was on two occasions appointed joint lead manager by Caisse de Refinancement de l Habitat (AAA/AAA), and was named senior co-lead manager for the Tier II issue of Crédit Logement (AA2/ AA) the French leader in mortgage loan guarantees and was also co-lead for a government-guaranteed issue by Unedic, the French unemployment insurance agency, in addition to handling the debt issues of several major corporate clients among them Bouygues, LVMH, Cap Gemini, Daimler, Alstom and Valeo. Refinancing CIC treasury teams are now fully integrated with BFCM staff within the refinancing business, which handles funding for the entire CMCEE-CIC group. The Treasury department continued to diversify its sources of financing, both by market and by type of investor. Proprietary trading Proprietary operations were thoroughly revamped in 2005 to harmonize operating procedures between CIC Banque CIAL and CIC trading teams, the aim being to implement an effective strategy, within a strict risk control framework, using the best available knowhow and making it serve the needs of group clients. Traders have been divided into the ten specific areas of index arbitrage, event-driven trading, long-short equities, hybrid arbitrage, fixed-income arbitrage, credit arbitrage, asset-backed securities arbitrage, correlation arbitrage, global macro and short-term trends, and proprietary distribution. Performance and risks are carefully monitored for each area. The proprietary distribution business aims to develop, throughout the CMCEE-CIC group, a range of alternative and structured investment products, as CIC Banque CIAL did over the past few years with its Libre Arbitre range. It is worth noting that, with the exception of the structured equity products portfolio, on which all associated risks were sold during the year, the business posted good results in 2005 and that this bodes well for the future of the new organization currently being established. Net banking income for the year ended December 31, 2005 from operations other than structured equities was 211 million. The overall net banking result for capital market operations over the period was a net loss of 273 million, down from net banking income of 126 million for the year ended December 31, The 2005 net loss was due to the one-time charge of 484 million recognized in the financial statements for the six months ended June 30, 2005, corresponding to the sale of all risks related to the structured equities portfolio. The structured products business had recorded a net banking loss of 156 million for the year ended December 31, 2004 (see management report, p. 67).

21 22 REVIEW OF OPERATIONS Brokerage Acting as a broker-dealer, clearing agent and custodian, CM-CIC Securities meets all the needs of institutional investors, private asset management companies and issuers. Its net banking income for the year ended December 31, 2005 was 66.1 million and its income before tax came to 3.6 million. As a member of ESN LLP, a multi-local network of 11 brokers operating in European equity markets (Germany, Netherlands, Belgium, United Kingdom, Ireland, Italy, Spain, Finland, Portugal, Greece and France), CM-CIC Securities is able to trade on the German, Dutch, Italian and Spanish cash markets from its Paris dealing room. Organized into 29 sectors and covering 800 European companies, the research team comprises 130 analysts and strategists, 25 of whom are based in Paris. The equity sales force consists of 137 salespeople, including 49 in Paris and four in New York (employed by ESN North America Inc, a 65% subsidiary of CM-CIC Securities). The Paris sales force is split into three teams: European large caps, European mid-caps and generalist. Development of value research and SRI (socially responsible investment) continued during the year, leading CM-CIC Securities to obtain the label of Mid-cap Specialist, recently created by Euronext. CM-CIC Securities is a non-clearing member of Euronext Liffe SA, a direct clearing member of Eurex and a broker-dealer and clearing member of Monep SA. Its index and equity derivatives sales team is composed of nine persons. In traditional and convertible bonds, the marketing team comprises eight salespeople and dealers. CM-CIC Securities organizes over 250 events a year, including company presentations, roadshows and seminars in France and abroad. The most widely attended are: Perspective, at which the research team presents its selection of the best investment ideas for the coming year; La Bourse rencontre l informatique, which focuses on IT and software companies; European Small & Mid Cap in London, bringing together twice a year ESN s selection of 40 quality mid-cap companies from 11 European countries. CM-CIC Securities also promotes the Horizon Stratégie, Horizon Value, Horizon Ethique and Horizon Emetteur discussion fora, at which experts debate issues of topical interest. As custodian, CM-CIC Securities serves 80 asset management companies, including six new mandates won in It administers approximately 40,000 personal investor accounts and 155 mutual funds. In 2005, CM-CIC Securities finalized its structuring of CM-CIC Emetteur, a dedicated unit for listed clients and companies contemplating IPOs, that offers a fully integrated range of services that includes financial administration services, securities middle-office services, primary market transactions (IPO and subsequent), liquidity contracts and financial communications. Financial transactions The CM-CIC group enhanced its competitiveness and performance in the field of financial transactions by leveraging synergies among its various entities specialized in equity financing (CIC Banque de Vizille, CIC Finance, IPO) and brokerage (CM-CIC Securities) and adding to the strength of its branch network. CM-CIC was instrumental in the successful privatizations of Sanef, GDF and EDF as co-lead manager for placement to individual investors, thanks to strong support from the branch network and, through CM-CIC Securities, as co-manager for placement to institutional investors throughout Europe using the multi-local ESN network. CM-CIC Securities was also a listing sponsor for Sidetrade on Alternext, making a private placement that was one of the very first IPOs for this new segment of the French market. In addition, CM-CIC Securities carried out Capelli s transfer onto Eurolist and launched Atland s takeover bid for Tanneries de France.