CFCM - RG Gb07stat

Annual Report
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Annual Report
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Compagnie Financire du Crdit Mutuel

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Foreword
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Organization of Compagnie Financire du Crdit Mutuel within the Arka Group
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A unique identity and expertise at work
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Economic conditions during the year 2007
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Activities
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Risk management
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Risks
Compagnie Financire du Crdit Mutuel has chosen a dual theme of intersecting images to illustrate its Annual Report. The first series of images, by photographer Paul Maurer, portrays the Grand National Theatre of China, inaugurated in 2008. Paul Andreu, the buildings architect, charged Maurer with restoring the spirit, the essence of the building before it becomes inhabited, at the moment in which the architect withdraws. The second series of images portrays one of the most recent traditional Chinese art pageants, created by Divine Performing Arts, which invests this magnificent building as a counterpoint.
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Balance sheet and income statement
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Outlook for 2008
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List of offices held by directors and officers
National Grand Theatre, China: Paul Maurer - Architect: Paul Andreu Other pictures: Divine Performing Arts Thanks to Mr Tang, Mr Zhang, to Lumire dAsie Association and to The Epoch Times.
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Report of Chairman of the Board of Directors
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General information
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Annual Report // 2007 >>> Compagnie Financire du Crdit Mutuel
>>> Foreword
Satisfactory results, despite highly turbulent conditions in the financial markets

Compagnie Financire du Crdit Mutuel posted 66.3 million euros in consolidated net income in 2007. This noteworthy result, especially given the unprecedented crisis that will change the course of banking and finance history, was achieved by capitalizing on the effectiveness of the business model developed by Compagnie Financire. This model is built around a strategy of diversified business lines coupled with ongoing research into the greatest synergies achieved among our various subsidiaries attests to the Groups capacity for resistance in the face of downturns in the economy or the banking industry. Compagnie Financires capital markets activities were naturally affected by the crisis. Accordingly, as part of a proactive, stringent and conservative risk management policy adapted to the specificities of these activities, the impairment recognized on financial instruments and the large reserves set aside by the group increased its operating ratio to an unusually high 63.4%. This did not, however, change the groups goal of bringing that ratio down to its structural level of approximately 50% as early as 2008. It should be noted, however, that the groups financial fundamentals remain strong, and that its capital adequacy ratios remain much higher than required. It is also worth observing that Compagnie Financire was able to weather the liquidity crisis observed in the second half of 2007 thanks to the controlled diversification of its funding sources and the quality of its image with investors. All of Compagnie Financires other areas of expertise posted good results. The corporate banking, private wealth management, consumer credit, online brokerage and insurance subsidiaries all achieved remarkable performances in 2007 both in terms of growth and financial productivity. Lastly, Compagnie Financire spent 2007 optimizing the operating efficiency of its organization. The last months were spent integrating the activities of the ProCapital group acquired in 2006 and notably the founding of Fortuneo, which was generated by the merger of Fortuneo Direct Finance with Symphonis. Another highlight of 2007 was Compagnie Financires assumption of full control of Suravenir Assurances, the specialized non-life insurance subsidiary. Armed with a solid balance sheet, Compagnie Financire du Crdit Mutuel begins 2008 with confidence. With the help of its entire staff, it will focus on controlled, sustainable growth in order to consolidate its economic fundamentals under increasingly secure conditions. Compagnie Financires solid base, its talent for innovation, its aptitude for adaptation and change all help to fuel the Groups powerful ambitions.
Christian Touzalin
Chairman of the Board of Directors
Humbert de Fresnoye
Chief Executive Officer
Simon Cohen
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of Compagnie Financire du Crdit Mutuel >>> Organization within the Arka Group // as of December 31, 2007
Crdit Mutuel de Bretagne
228 Local banks
Crdit Mutuel du Sud-Ouest

81 Local banks
Crdit Mutuel Massif Central

30 Local banks
90.0%
6.8%
Caisse Interfdrale de Crdit Mutuel 100%
3.2%
Compagnie Financire du Crdit Mutuel *
Corporates
Banque Commerciale pour le March de lEntreprise (80%) Camfi-Banque (51%) Bail Entreprises (92%) Sobrepar (100%) Synergie Finance Gestion (85%) Synergie Finance (44.5%)
Real estate
Fdral Immo (100%) Europim (99.1%) Armorique Habitat (68.2%) Foncire Investissement (99.34%)
Insurance
Suravenir (85%) Suravenir Assurances (32.5%) Novlia (94%)
Other
Banque Prive Europenne (99.08%) Fortuneo (99.9%) Financo (73.54%) Federal Finance Banque (100%) Federal Finance Gestion (100%) ProCapital (99.95%) Acta Voyages (40%)
* Percentages of capital consolidated by the Compagnie Financire du Crdit Mutuel and its subsidiaries group
organization of Compagnie Financire >>> Internal du Crdit Mutuel //

as of December 31, 2007 Chief Executive Officer
Humbert de Fresnoye
Administration of Equity Investments
Lonce Cabon
Development and partnerships
Corporate secretary
Permanent controls
Financial markets and international
Real estate
Gilbert Richard
*Temporary basis
Alain Tarouilly
Christophe Lautrain
Humbert de Fresnoye*
Ren Gil
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>>> Organization
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1. Compagnie Financire du Crdit Mutuel, a unique identity and expertise at work for the Arka Group
Organization of Compagnie Financire du Crdit Mutuel
The Arka Group, of which Compagnie Financire du Crdit Mutuel (CFCM) is a member, comprises two legally distinct groups: The mutual savings bank group, comprising Caisse Interfdrale du Crdit Mutuel and its affiliates the Crdit Mutuel Federations of Bretagne, Sud-Ouest and Massif-Central, The group that includes Compagnie Financire du Crdit Mutuel and its subsidiaries, which is organized under ordinary corporate law. Compagnie Financire is the holding company for the Arka Groups subsidiaries and conducts the Groups capital markets and investment banking activities.
Through the subsidiaries whose growth it manages, Compagnie Financire du Crdit Mutuel covers the entire spectrum of banking, finance and insurance services, with special expertise in the areas of corporate lending and specialized finance, mutual fund management, wealth management, life and non-life insurance and online brokerage. Compagnie Financire du Crdit Mutuels scope of activity also extends to the real estate and travel industries. Compagnie Financire du Crdit Mutuel puts its widely recognized skills and expertise to work for the Arka Groups customers and partners, providing them with funding and investment management services. Compagnie Financire du Crdit Mutuel: A French corporation (socit anonyme) created October 20, 2000 Share capital: 715,000,000 euros Corporate headquarters: 1 rue Louis Lichou, 29480 Le Relecq-Kerhuon - France Twenty subsidiaries throughout France.
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>>> Organization
Governance of Compagnie Financire du Crdit Mutuel

Organization
Compagnie Financire du Crdit Mutuel, a French corporation subject to ordinary law for trading companies and all legislation applicable to banking and financial institutions, is administered by a Board of Directors. Since the Shareholders Meeting of May 2002, its corporate governance has been based on the principal of the segregation of duties of the Chairman and the Chief Executive Officer. Christian Touzalin and Albert Le Guyader are respectively Chairman and Vice-Chairman of Compagnie Financire. The Board of Directors currently comprises 15 directors elected from among the shareholders (fourteen men and one woman; average age: 59). All are directors of a local Crdit Mutuel savings bank and are, or were, businesspeople. Two employee representatives also participate in the meetings of the Board of Directors.
Humbert de Fresnoye is the Chief Executive Officer, responsible for all executive and operational matters. Various specific committees, charged with examining certain specific matters in detail, assist the Chief Executive Officer and the Board of Directors with the performance of their duties: Executive committee, Credit committee, Capital markets counterparty credit committee, Partner approval committee, Financial management committee, Permanent controls committee. Changes made to the governance structure of Compagnie Financire du Crdit Mutuel in 2007: Nomination by the Shareholders Meeting of Christian Pron as a director, to replace Amand Denieul, Nomination by the Shareholders Meeting of Marcel Favrot as a director, to replace Jean-Pierre Gudon, Nomination by the shareholders meeting of Michel Gourtay as a director, Renewal of the appointments of Christian Cadiou, Jean-Louis Chartier and Jean-Louis Dussouchaud as directors. Composition of the Board of Directors since May 3, 2007 Chairman Christian Touzalin Vice-Chairman Albert Le Guyader Directors Rmy Cabaret Christian Cadiou Joseph Carret Jean-Louis Chartier Jean-Pierre Corlay Jean-Franois Devaux Jean-Louis Dussouchaud Marcel Favrot Marcel Garnier Michel Gourtay Marie-Thrse Groussard Christian Pron Gilbert Tronel
Duties of the Board of Directors

In 2007, the Board of Directors held 12 meetings, each of which lasted an average of three hours. The directors posted an 82% average attendance rate. The duties of the Board of Directors in 2007 are described in detail in the report of the Chairman of the Board of Directors attached to this management report and submitted voluntarily to the independent auditors for their evaluation. This report summarizes the conditions under which the Board prepared and organized its work and describes the internal control procedures set in place by Compagnie Financire du Crdit Mutuel, especially as concerns accounting and financial information.
Compensation of members of the Board of Directors

The Shareholders Meeting of May 3, 2007 voted to cap the total amount of directors fees paid at 20,000 euros per year. Directors are paid fees only if they actually attend a meeting. In 2007, the amounts paid as directors fees totaled 13,906.50 euros, an average of 927.10 euros per director.
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>>> Economic conditions
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2. Economic conditions during the year 2007

Bank balance sheets deteriorated as a result of their subprime exposures, with a corresponding increase in their funding costs. The credit crisis was accompanied by a liquidity crisis and increased aversion to risk and volatility. The year was also marked by a further dollar weakness and rising commodity prices. In the services sector, however, activity levels closed the year at their lowest for two and a half years. The most dynamic economies saw their growth rates slow towards the year end. The Spanish economic boom, with GDP exceeding 3% over five consecutive years based largely on the construction sector, is threatened by the rise in lending costs. The U.K. economy also suffered from the downturn in the real estate market and the slowdown in financial services, activities that had contributed the most to sustaining growth over the previous three years. Growth also slowed materially in the last quarter of 2007 in the most dynamic regions (Northern Europe, Ireland and Greece).
The world economy grew at a sustained pace in 2007 (+5.3%) due to the dynamism of emerging economies. The economic cycle, however, turned in most major Western countries: the OECD region faced a series of shocks originating in the U.S. real estate crisis.
Europe: the economy held up

European economies held up well against the financial shocks of 2007. Growth in the eurozone was 2.6% (including 2.5% in Germany and 1.9% in France), 0.3% lower than in 2006. The German employment market posted its best performance since 1990.
United States: a clear slowdown

The quarterly profile of economic activity was badly hit in 2007, with an accumulation of indicators of a sharp downturn in the first half of 2008. The dramatic decline in building permit and new construction figures and the collapse of house prices are the main effects of the U.S. housing crisis.
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The bursting of the real estate bubble and the hardening of credit distribution conditions affect the confidence and spending power of U.S. households, especially as the unemployment rate climbed gradually to reach 5% of the active population from 4.4% at end-2006. The manufacturing sector nevertheless made the most of world growth, as seen in the high level of exports and the sound health and excellent profitability of businesses. Bank balance sheets however were massively hit by the subprime crisis; many major U.S. and European investment banks recognized significant asset impairment provisions in the third and fourth quarters, forcing them to rely on major capital injections by sovereign funds in oil-producing emerging countries.
Emerging countries: the engine of world growth

The winding down of growth in OECD countries contrasted with the economic dynamism of emerging countries and the exceptionally robust growth of the Chinese (+11.5%), Indian (+8.5%) and Russian (+7.5%) economies. China, whose GDP has been growing at a rate of over 10% p.a. since 2003, edged Germany out as the worlds third-largest economy in 2007, thanks not only to a record trade surplus but also to strong domestic demand, which now contributes significantly to the countrys growth. Emerging countries built up enormous foreign exchange reserves in 2007 from their trade surpluses. Part of these reserves was recycled into Western countries by sovereign funds from, among others, Abu Dhabi, Singapore, China and Kuwait. During the second half of 2007 pressure on prices built up, although not to the same extent as the inflationary forces of the 1990s, due to rapid growth in domestic demand and significant imbalances in the economies of a number of countries. Sterling followed a similar pattern to the dollar. Its decline against the euro was sparked by the subprime crisis in August, as the U.K economy appeared vulnerable to any downturn in the real estate cycle. The yen experienced contrasting pressures in 2007. It weakened in the first half against the dollar and the euro, before recovering from August onwards against the backdrop of rising volatility and risk aversion. The yen benefited from mistrust of the dollar following the credit crisis and as carry trades (a strategy under which low interest-rate currencies are borrowed in order to invest in high interest-rate currencies) were unwound. Fixed income markets: liquidity crisis The Federal Reserve maintained the status quo in the first half, closely monitoring inflationary pressures, but reacted vigorously to the financial crisis by lowering the Fed Funds rate by 0.50% in September and then twice, by 0.25% on each occasion, in October and December. The European Central Bank raised its intervention rate by 0.25% in both March and June and persistently reaffirmed its vigilance concerning inflation. Eurozone inflation broke through the 3% mark, to an annual moving average of 3.1%, for the first time since 2001. Like the Fed, the ECB injected liquidity into the financial system between August and December to try and
The markets
Foreign exchange markets: dollar weakening The weakening of the dollar that started in 2006 intensified in 2007. Against the euro, the dollar moved from its January average of 1.30 to flirt with 1.50 in November 2007. Several factors prompted this rapid decline: The impact of the real estate crisis on U.S. growth, The Federal Reserves reaction in rapidly adopting a more accommodating monetary policy, The desire by Asian and oil-producing countries central banks to diversify their foreign exchange reserves.
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These regional contrasts were accompanied by sector variations. Banks successive announcements of their results and credit risk exposures were reflected in a collapse in banking and financial sector stock market indices. The financial sector component of the Standard & Poors 500 index shed 20.8% over the year and that of the Eurostoxx index fell back by 16.9%. In contrast, the energy, commodities and utilities sectors profited from the rise in prices worldwide and the new-found attraction to defensive stocks. In France, Arcelor-Mittal (+66%), EDF (+48%) and Alstom (+43%) were the best performers in the CAC 40, while bottom place went to Alcatel-Lucent (-54%), STMicro (-30%), Crdit Agricole (-26%) and Socit Gnrale (-23%). contain the liquidity crisis. Nevertheless, coordinated action by the central banks had only a limited impact on the interbank market, as mistrust soared between financial institutions. Long rates followed a clear upward path in the first half of the year, driven by the inflation theme, but eased significantly from July onwards. Sovereign bonds took on their safe-haven role in a hostile environment marked by risk aversion and expectations of a sharp downturn in growth. Equity markets: volatility and dispersion The trend of 2003-2006 continued in the first half of 2007, but equity markets experienced significant volatility during the subprime crisis. The CAC 40 held above 6000 in June-July, before dropping, in line with the major world indices, in August and November. In all, the Paris index gained just 1.31% over the year. The Dow Jones (+6.4%) and the Nasdaq (+9.8%) performed better, and the German DAX rose by an exceptional 22.3%. Again, it was the emerging markets that clearly outperformed those in the West, with gains of 96% in China, 47% in India, 44% in Brazil and 41% in Turkey. Commodity markets: soaring inflation Commodity - and especially energy prices soared in 2007. Oil prices brushed against 100 dollars in November compared with 60 dollars at the start of the year. OPECs firm stance on production quotas, declining U.S. oil inventories, strong demand in emerging economies (including China for one third), and asset reallocations by investors deserting the equity and fixed-income markets, all combined to force oil prices higher. These factors explain in part the almost uninterrupted rise in gold prices from mid-August onwards to its historical peak of 830 dollars per ounce in November. Gold is a safe haven at times of volatility in financial assets and during liquidity crises.
Outlook for 2008

Macroeconomic and financial uncertainties abound as we enter 2008. The burning question concerns the amplitude and duration of the slowdown in the U.S. economy and whether the worlds largest economy, accounting for nearly one quarter of world GDP, will go into recession. Through 2007, emerging economies maintained robust growth rates but they would have difficulties in maintaining such a pace if the risks of recession or stagflation turned into reality. The impact on the financial markets depends on the macroeconomic scenario and the ability of budgetary and monetary authorities to react (central bank intervention). Trends in oil prices, stock market performances and short- to medium -term interest rates will be largely conditioned by the resistance of developed economies to the subprime crisis and the extent to which shocks to the financial markets are transmitted to the real economy in terms of household consumption and employment, corporate profits and investment. As in the second half of 2007, volatility and sharp swings will probably characterize the equity, credit, fixed income, and currency and commodity markets.
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>>> Activities 2007
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3. Business review of Compagnie Financire du Crdit Mutuel and its subsidiaries in 2007
demanding backdrop to raising resources, Compagnie Financire du Crdit Mutuel successfully ensured the Groups funding by using, in particular, significant 6-month to 1-year CDN issues. The activities of the new Paris-based institutional and sales dealing desk, and the eligibility of Compagnie Financire du Crdit Mutuel CDNs for European Central Bank tender offers were decisive advantages. At end-2007, 41% of the capital raised through EMTN programs came from outside France, demonstrating the geographic diversification of Compagnie Financire du Crdit Mutuels funding. entered into transactions designed to limit their interest-rate risk. Lastly, the Compagnie Financire du Crdit Mutuel Front Office launched new structured investment products offering subscribers potential performances exceeding bond market rates.
Capital markets and investment banking

Capital markets
Funding: strong growth in medium- and long -term
The Front Office of Compagnie Financire du Crdit Mutuel was able to enhance the Groups funding position in the first part of 2007. In line with its strategy since 2001, Compagnie Financire du Crdit Mutuel continued its policy of raising medium- and long -term resources to reduce the Groups liquidity risk. This strategy was reflected in June 2007 by the 10-year 750 million euro public issue at Euribor +17 basis points. In all, a record 3.66 billion euros was issued over the year, and EMTN outstandings exceeded 7.8 billion euros at the year end. The second half of the year was marked by the serious liquidity crisis in major financial markets. Against this particularly
Unfavorable context for proprietary trading

The assets managed by Compagnie Financire du Crdit Mutuels Front Office are invested mainly on the credit market in asset swaps, securitisations and CDOs, the returns on which are related directly to market and credit risk trends. Market turbulence and the rise in credit spreads had a direct impact on the valuation of these investments. Consequently, in compliance with the applicable reguations, Compagnie Financire du Crdit Mutuel set aside the necessary provisions against its proprietary trading book. In this very difficult market environment, the other Front Office proprietary trading activities (interest rates, equities, convertible bonds, alternative management) continued to develop but were unable to offset such substantial unrealized capital losses. In total, proprietary trading activities posted a loss for the year as a whole. Nevertheless, given the quality of the loan portfolio, the provisions raised are expected to be written back gradually.
Robust sales and marketing activity

The Front Office sales and marketing activities remained robust in 2007. On the foreign exchange side, sharp swings in the euro/dollar exchange rate prompted the Groups corporate customers to take out hedges in order to optimize their costs and/or revenues. Likewise, in terms of debt management, borrowing companies
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>>> Activities 2007
Change in average monthly transaction volumes

5,000
International services
International trade transactions grew by 21% in 2007. Significant efforts were made throughout the year to ensure Compagnie Financire du Crdit Mutuels capability of processing transactions under the new SEPA (Single Euro Payments Area) environment, which sets a common regulatory framework for euro payments between the 31 countries using the single currency or that are signatories to the agreement. Flows within this framework are subject to identical, strict processing rules at both national and international levels. Documentary activities were determined by two key features in 2007: Application of the new International Chamber of Commerce regulations on documentary credits (Publication 600) effective from July 1, 2007. Implementation of a customer/bank/customer Internet transfer application dedicated to processing import documentary credit transactions. This application will enhance the effectiveness of the Arka Groups offering and services in this highly competitive environment, and will be rolled out in the first quarter of 2008. Against this backdrop, the documentary credits activity grew by more than 10% in terms of number of openings and by 22% in utilization volumes.
4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Compagnie Financire - Proprietary trading Compagnie Financire - Customers Suravenir Compagnie Financire - Subsidiaries Compagnie Financire - Total* Federal Finance Gestion
* The Compagnie Financire du Crdit Mutuel total includes transactions processed for proprietary trading, its subsidiaries and its customers.
In 2007, the Back Offices department processed 98,046 transactions, up by 11% relative to 2006, which itself saw comparable growth. This growth is due to the continued development of proprietary trading and customer activities by the Front Office and to the ever-increasing success of the unit-linked life insurance policies of Suravenir. The slight slowdown in growth since August 2007 is due mainly to the transfer of processing for Suravenirs external mutual funds to ProCapital in September 2007 to improve efficiencies. In 2007, the Back Offices department carried out or completed significant developments linked primarily to regulatory requirements and to securing its processes: Final integration of the accounting requirements under IAS-IFRS and implementation of new regulatory requirements concerning securities disclosures (RDT and Protide). Migration of the Back Offices department to a new regulations platform. Euroclear Settlement of Euronext-zone Securities (ESES). Continuation of preparatory work for implementation of the Target 2 system for managing euro-denominated interbank flows. Development of a system to secure processing and modeling of all processes and controls for its activities. Commencement of the Customer Activity project. Continuation of the study into development of a new IT system to reinforce the security of market transactions from 2008.
This work was carried out in particular thanks to the setting up within the department of a Development unit charged with steering projects, incident management, reviewing development requests and the functional administration of applications. At the same time, and in order to enhance the forward-looking management of Back Office human resources, a Back Office internship was set up to combine training in the theory of Back Office activities with practical work within the various units concerned.
Specialized financing
In a buoyant market during the first half year that turned especially troubled from the summer onwards, the Specialized Financing activity generated new lending of 104.7 million euros (net of early repayments) in 2007, resulting in a 30% rise in year-end outstandings to 506.9 million euros at December 31, 2007. Efforts to diversify the portfolio by both sector and by lending type continued, and by year end the 56 lines under management, averaging 9 million euros each, could be analyzed as follows: 37% in corporate syndicated loans, 10% in asset and project financing (Public-Private Partnerships) and investment fund holdings, 53% in LBO financing. Revenues rose by in excess of 3.55% year-on-year to 7.01 million euros, of which 58.6% in interest margins, 37.1% in fees and 4.3% from equity interests.
Back Office activities

Compagnie Financire du Crdit Mutuels Back Offices department processes, unwinds and accounts for transactions initiated by the Front Office. It also serves as custodian for the Arka Groups asset management companies and is responsible for the processing and unwinding of all specialized financing transactions.
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>>> Activities 2007
Subsidiaries
By promoting and coordinating the growth of its many subsidiaries, Compagnie Financire du Crdit Mutuel is able to offer a broad range of products and of services.
At end-2007, loan outstandings totaled 3,495 million euros, broken down as follows: Corporates: 2,635 million euros (+10%) Local authorities: 685 million euros (+13%) Real estate development: 175 million euros (+38%) Savings deposits declined slightly, by 8%, in 2007 to 975 million euros. Net income for the year was 15.5 million euros, up by 16.5%. Camfi-Banque in 2007 Camfi-Banque had an excellent year in 2007. Thanks to significant sales and marketing efforts to win new market share, it now has 1,016 corporate customers comprising 617 groups and including 71 new customer accounts. Internet-based collections increased 81% to 166 million euros and international payment business by 22% to 634 million euros. Loan outstandings maintained a robust growth pattern, rising 29% year-on-year to 512 million euros. Outstandings linked to real estate financing increase by nearly 51% over the year to reach 66.1 million euros. The banks resources rose to 165 million euros, driven by corporate term and demand deposits. Camfi-Banque reported 2.14 million euros in net income for the year, compared with 1.8 million euros in 2006.
Corporates
Holding company
Administration of equity investments
The net carrying amount of Compagnie Financire du Crdit Mutuels portfolio of equity interests rose by 2% (23 million euros) to 1,246 million euros at December 31, 2007. The rise was due to: Compagnie Financire adding to its majority holdings in subsidiaries by purchasing from Caisse de Bretagne de Crdit Agricole Mutuel (CBCAM) the shares it had held since their founding in Suravenir, Federal Finance Banque, Sobrepar and Financo, for over 18 million euros, An increase from 12.10% to 16.45% in Compagnie Financire du Crdit Mutuels equity interest in Sodrec, an inter-federation company providing project management services for equipment and installations held by local authorities, Lastly, Compagnie Financire du Crdit Mutuel sold its 0.72% minority interest in the capital of Groupe des Assurances de Crdit Mutuel and 11.5% of Financos capital to Laser Cofinoga, which had an existing interest in the capital of Compagnie Financire du Crdit Mutuels consumer credit subsidiary.
The corporate and investment banks Banque Commerciale pour le March de lEntreprise (BCME) and Camfi-Banque provide project assistance to corporates with revenues exceeding 4 million euros and real estate developers. Their services comprise financing, payment services and financial engineering as well as advisory services and appraisal. BCME also provides financing to local authorities. Banque Commerciale pour le March de lEntreprise in 2007 BCME increased new lending in its three markets (corporates, local authorities and real estate development) by 4% year-on-year, to 825 million euros. The well-established partnership with Federal Finance was added to with partnerships with BPE (BCME is its second-largest business provider), Bail Entreprises and with Caisse Interfdrale de Crdit Mutuel in the context of payment business - services requests for proposals. BCME and Camfi-Banque have also recently been retained to provide payment services to the largest provident institution in France. Regulatory changes brought about by the Markets in Financial Instruments Directive (MiFID) were finalized in 2007, and those relating to Basel II and the SEPA will be brought into operation in 2008. The customer portfolio increased by 6% over the year to total 4,650 accounts for 2,362 customers (+3%) by the year end.
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>>> Activities 2007
The real estate leasing company Bail Entreprises purchases or builds offices for professionals that it leases out over long periods with an option to buy at a predetermined price on maturity of the lease. It therefore has expertise in three areas: economic, real estate and taxation. Bail Entreprises in 2007 Bail Entreprises achieved a marked increase in new loan production in 2007, signing new agreements totaling 86 million euros compared with 36 million euros in 2006. This growth was driven by the pickup in corporate real estate investments but also by new signings carried over into 2007. At December 31, 2007 it had loan outstandings of 352 million euros and its portfolio comprised 520 buildings. Net income totaled 1.458 million euros, compared with 1.9 million euros in 2006.
The Development Capital division comprises two venture capital companies, Sobrepar and Synergie Finance, and a venture capital fund management company, Synergie Finance Gestion. They provide equity capital to companies in the development phase and facilitate buyouts in the event of a total or partial transfer of ownership by taking minority stakes. Development Capital division in 2007 Activity levels stabilized in 2007, with the two venture capital companies making investments totaling 5 million euros (including 4.8 million euros by Synergie Finance in 15 transactions) and 8 million euros invested by the Synergie Finance Gestion mutual fund. The net portfolio managed at December 31, 2007 totaled 88.3 million euros, of which 47.4 million euros was in the venture capital firms. Net income for the division was 8.69 million euros, including: Sobrepar: 3.394 million euros Synergie Finance: 4.7 million euros Synergie Finance Gestion: 0.598 million euros
Suravenir in 2007 A highlight of 2007 was the merger between Suravenir and Vie Plus (acquired in December 2005) and the consequent relaunch of the website and migration of personal unit-linked life insurance policies to a single application. Several actions were implemented rapidly in order to boost growth: Structural changes to meet the needs of the various product distribution lines. Improvements to policies with multiple investment options by reducing arbitrage delays, introducing daily valuations for euro-denominated funds and harmonizing management charges. Forging a new partnership with the brokerage firm Linxea to provide online marketing of life insurance policies. As with most other life insurance players, Suravenir experienced a slight downturn in 2007. Gross revenues (excluding provident insurance) declined 7% to 2,492 million euros. In 2007, 90,191 new life insurance policies (excluding Fourgous subscriptions) were taken out, bringing the portfolio to 1,208,669 policies at December 31, 2007. Total life insurance savings administered were 21,840 million euros at the year end. Provident insurance revenues (up 20 %) amounted to 158 million euros, of which 147 million euros correspond to credit insurance and 11 million euros to individual provident insurance policies. Suravenirs net income for the year was 92.7 million euros, compared with 62.4 million euros in 2006.
March de lassurance
Suravenir, a leading French life insurance player, is specialized in the design, structuring and management of life and provident insurance policies (personal and group life insurance, credit insurance and term life insurance). Suravenirs activities are exercised mainly through the Crdit Mutuel de Bretagne, Sud-Ouest and Massif Central regional banks and through partner networks.
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>>> Activities 2007
Suravenir Assurances specializes in non-life and personal insurance. It designs and manages a full range of products and services in the following fields: Household comprehensive cover Automobile cover Accident cover Supplemental health cover Dependency cover Europim works actively alongside the distribution networks in sales and marketing. Europim in 2007 The real estate sales activity was exceptionally robust in 2007, with fee income totaling 3.39 million euros on 413 reservations, compared with 2.64 million euros in 2006 on 386 reservations. Against the backdrop of a hardening real estate leasing market, Europim succeeded in maintaining its highly selective policy in terms of both its partners and its offering. Europim reported net income of 382,000 euros in 2007, compared with 225,000 euros in 2006.
Its offering is designed to meet the specific needs of individual and family customers. Suravenir Assurances in 2007 The Arka Group decided to take full control of Suravenir Assurances in 2007. Suravenir Assurances launched various new products during the year: A new and innovative auto and household comprehensive insurance product offering reduced tariffs, The Privilge loyalty-building program under which customers holding at least three major policies receive various benefits. At December 31, 2007, Suravenir Assurances managed 1,875,975 policies in all, of which 877,692 were major policies (+9% year-on-year). Revenues totaled 237.2 million euros, a year-on-year increase of 7%. Net income for the year was 20.975 million euros, compared with 16.2 million euros in 2006. Novlia, an insurance brokerage, is specialized in the following activities: Policies designed to meet the specific needs of corporate customers, Design and integration of customized solutions for major corporate accounts, Design of innovative retail policies, distributed through a national network comprising 1,300 insurance brokers and agents. Novlia in 2007 Gross revenues rose 5% in 2007 to 11.8 million euros, in line with the trend of steady growth seen in recent years. Novlia generated net income of 1.7 million euros, compared with 1.42 million euros in 2006.
Real estate
The owner of more than 4,500 residential rental units (over 55% of which are single-family homes) in 160 municipalities, Armorique Habitat is a public housing corporation with special expertise in: Regulated rental public housing, First-time buyers for new and existing housing, Property improvements. Armorique Habitat in 2007 In 2007, Armorique Habitat delivered 139 residential units and started work on a further 61 units. Its rental income reached 15.5 million euros. The companys net income in 2007 came to 2.2 million euros, compared with 1.6 million euros in 2006.
Europim provides real estate products to customers in the Arka Groups distribution networks and offers targeted products for investment in: New buildings, covering the full range of tax incentives, Paper real estate tax-based and high-yield real estate investment partnerships.
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>>> Activities 2007
Federal Finance in 2007 Federal Finance undertook a number of important developments in 2007, including: Foncire Investissement is a company specialized in real estate investment with the aim of diversifying Compagnie Financire du Crdit Mutuels assets. As the principal company for the Arka Groups real estate investments, it has an active asset-switching policy and coordinates monitoring of the Groups real estate management. Foncire Investissement in 2007 In 2007 the company focused on two acquisitions totaling 11.4 million euros (one in Brest and the other in Aix-en-Provence). Rental income in 2007 amounted to 6.9 million euros, up 18% year-on-year. Net income for the year came to 2.5 million euros, compared with 1.15 million euros in 2006. Compliance with the requirements of the MiFID, Implementation of a new Front Office and customer relationship management application, Switching responsibility for the custodianship of securities for mandated management customers from Gestitres to ProCapital, The transfer of old mandated management offers. Its mutual fund range was placed second in the Corbeilles dOr rankings for performances over one year in the best large network of more than 100 branches category. At end-2007, the Federal Finance group managed assets of 24,943 million euros, broken down into: Mutual funds: 6,064 million euros Employee savings: 254 million euros Private asset management: 459 million euros Institutional asset management: 18,166 million euros Mutual funds Mutual fund assets increased year-on-year by 8% to 6,064 million euros. Net collections during 2007 amounted to 265 million euros. Employee savings At end-2007, assets managed in employee savings plans totaled 254 million euros for 5,455 contracts. Collections during the year increased by 3% to 43 million euros.
Private asset management Net outflows of funds in this activity totaled 13 million euros in 2007. The net collections on new products came to 59 million euros due to the excellent dynamism of Banque Prive Europenne sales (Myrialis mandates, equity savings plans/CTO management mandates, Elegius mandates) but were insufficient to offset outflows of 71 million euros on older products. Enhancements are underway to the Excelsius range and the Previ Options mandate in particular to boost collections in 2008. Institutional asset management The Federal Finance group managed under mandate a total of 18,166 million euros at December 31, 2007, up by 12% year-on-year. Federal Finance groups net income in 2007 was 14.1 million euros, compared with 11.6 million euros in 2006. Net income in the two group companies, Federal Finance Banque and Federal Finance Gestion, increased very satisfactorily during the year: Federal Finance Banque: 8.5 million euros (4.6 million euros in 2006) Federal Finance Gestion: 11.9 million euros (9.6 million euros in 2006).
Other
Asset management
A specialist in third-party asset management, the Federal Finance group has four areas of expertise: mutual fund asset management, private asset management, institutional asset management and employee savings plans. In this respect, it offers a range of mutual investment funds, mandated asset management plans and employee savings plans. To ensure full compliance with requirements for separation of its two business lines, account holding and portfolio management, the Federal Finance group comprises two complementary but distinct legal entities: Federal Finance Banque. Federal Finance Gestion.
15
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>>> Activities 2007
Wealth management
Consumer credit
Online brokerage
Banque Prive Europenne (BPE) offers a full range of banking services (interest bearing checking accounts, savings products, loans and other services) for high-net-worth customers. Its innovative products and services include, in particular, multi-management services, leasing investment, hedging of stock-options and LBO support. Banque Prive Europenne in 2007 In 2007, Banque Prive Europenne concluded a wide range of projects, including: Consolidating the structure of its network, Securing and modernizing its existing applications (lending policy, Basel II implementation and compliance with the MiFID), Enhancing its product range: mandated management for standard securities accounts or equity savings plans is now available from 60,000 euros, the launch at end-2007 of the VIP range, aimed at young customers, Boosting its communication effort with, in particular, a new media unit and distribution of two information letters including one on wealth management. Net collections totaled 388 million euros and savings deposits totaled 2,414 million euros at December 31, 2007. Loan production increased 10% year-on-year to 488 million euros, broken down into: 467 million euros in real estate lending (+9%) 21 million euros of consumer credits (+28%) Following a slight 3% increase year-on-year, total loan outstandings stood at 2,478 million euros at December 31, 2007. BPEs net income for the year of BPE came to 10.465 million euros, compared with 9.3 million euros in 2006.
Financo specializes in the distribution of consumer credit and also has a unit dedicated to collections. To boost its presence in the revolving credit sector, it has forged a partnership with the Laser group (Cofinoga), which now holds 15% of Financos capital. Eole Finance (acquired in 2004 by Financo) markets revolving credit through Works Councils to employees holding employee savings plans. Consumer credit in 2007 Financo had a good year in 2007, with new lending rising by 7% year-on-year to 714 million euros (up 14% excluding loans extended to civil servants under the 2006 Crdit Social des Fonctionnaires agreement, which was not renewed in 2007), broken down as follows: 291 million euros in car-motorcycle-leisure loans. 146 million euros in home improvement loans. 54 million euros in home furnishing loans. 118 million euros in revolving credits. 26 million euros in P3F three-installment financing. 45 million euros in lease-to-own financing. 34 million euros in personal loans. Net loan outstandings increased 11% year-on-year, to 1,394 million euros. Financos net income for the year came to 4.7 million euros, compared with 5 million euros in 2006. Eole Finance, a Financo subsidiary specialized in advances on employee savings plans, generated 50 million euros in new loans in 2007, compared with 43 million euros in 2006. Outstandings totaled 115 million euros at end-2007. Eole Finances net income for the year came to 595 K euros, compared with 200 K euros in 2006.
Frances second-largest online broker, Fortuneo offers its customers a full range of market investment products (equities, bonds, warrants, certificates, mutual funds and life insurance). It also provides customers with technologically-advance analysis and information tools via its website that are comparable to those found in a dealing room, such as market information, securities data and real-time pricing. Fortuneo in 2007 The major development in 2007 was the regrouping of Fortuneo Direct Finance and Symphonis into a single legal entity, Fortuneo S.A. The priority was to maximize synergies, resulting notably in: The provision of a unique, joint offering to all customers. The implementation of shared applications. Convergence towards best practices. The optimization of suppliers financial terms and conditions.
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>>> Activities 2007
Other highlights of the year included: The launch in early 2007 by Fortuneo Direct Finance, with the support of ProCapital, of its Belgian stock market website Fortuneo.be, The marketing at end-2007 of an asset account offer, comprising an advance on an investment associated with a bank card, providing customers with liquidity without the need to touch their savings or cut back their stock market activities. The regrouped Fortuneo consolidated its market share (18.5% share) in the online brokerage segment in 2007 and confirmed its place as the leader in remote distribution of life insurance products with Symphonis Vie, which obtained six awards from the financial press in 2007. With growth of 9% year-on-year, 2,487,038 orders were executed in 2007, of which 4.6% were mutual fund orders. Net collections totaled 351 million euros, of which 86 million euros for mutual funds. Outstandings increased 10% to 2,307 million euros and 12,310 new accounts were opened in 2007 taking the total to 73,008 accounts.
In its first year, the Fortuneo.be website booked nearly 30,000 orders in 2007 and 2,156 securities accounts were opened for outstandings of nearly 50 million euros. In 2007, net life insurance collections reached 204 million euros and 6,778 new policies were taken out. Total life insurance savings at December 31, 2007 amounted to 1,210 million euros, including 940 million euros in Symphonis Vie policies. Fortuneos net income for the year came to 11.15 million euros, compared with 10.12 million euros in 2006.
Securities services
A subsidiary of Compagnie Financire du Crdit Mutuel since mid-2006, ProCapital is a leading securities services provider to financial institutions, asset management companies, private banks, bank networks and brokers, including Fortuneo. ProCapital is characterized by: Its complete mastery of the traditional features of financial market business lines, The use of cutting-edge technologies for processing market orders (transactional websites, real-time platforms, and multiple direct access to markets such as Euronext and Liffe). ProCapital in 2007 At December 31, 2007, ProCapital was the fourth largest French player in terms of orders executed. Its volumes of orders executed increased by 25% year-on-year to 4,345,000 and its mutual fund business doubled in 2007 to 448,000 orders. At December 31, 2007, the portfolio comprised 229,000 active accounts, with over 29,000 new accounts opened during the year. Assets held in custody amounted to 12,419 million euros. ProCapitals net income for the year was 7.7 million euros, compared with 5.2 million euros in 2006.
Travel
Acta Voyages is the leading travel agency network in Western France, specializing in three areas: Personal travel, Business travel, Group travel. Acta Voyages has 12 agencies operating in 6 French dpartements (Ctes dArmor, Finistre, Ille-et-Vilaine, and Morbihan in Brittany, and Loire-Atlantique and Maineet-Loire in the Loire region) and works through Caisse de Crdit Mutuel de Bretagne. Acta Voyages in 2007 In 2007, Acta Voyages generated revenue of 39.3 million euros of which : 20.5 million euros from ticketing business, 18.8 million euros from tourism activities.
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Subsidiary
Symphonis Symphonis Symphonis
2007 awards
Product
Securities accounts Symphonis-Vie in the life-insurance category Symphonis-Vie in the web-based multi-investment vehicle policy category Symphonis-Vie in the life insurance category Symphonis-Vie in the best service to policyholders category Securities accounts Prvi-Options, Myrialis (BPE product), Symphonis-Vie in the life insurance category PERP Prvi-Horizon in the PERP retirement savings plan category Prvi-Famille and Prvi-Obsques in the provident category Prvi-Options (PERP) in the life insurance category Myrialis in the life insurance category Accidental risk, dependency and comprehensive household policies in the non-life category Federal Selection Tonique in the investment funds category One-year performance of its investment fund range International equities range in the investment funds category PEE Eparialis in the employee savings category Management of work-related relocations Straigh though processing of dollar payment orders
Award
Label dExcellence Trophe dOr Palme dor
Awarded by
Les Dossiers de lEpargne Le Revenu Journal des Finances
Symphonis Symphonis Fortuneo Suravenir
Laurier dArgent Oscar Label dexcellence Label dExcellence
Investir Magazine Gestion de Fortune Les Dossiers de lEpargne Les Dossiers de lEpargne
Suravenir
Label dExcellence
Les Dossiers de lEpargne
Suravenir Suravenir Suravenir Suravenir Assurances
Label dExcellence Trophe dArgent Trophe de bronze Label dExcellence
Les Dossiers de lEpargne Le Revenu Le Revenu Les Dossiers de lEpargne
Groupe Federal Finance Groupe Federal Finance Groupe Federal Finance
Victoire des SICAV 2eme place des Corbeilles dOr Trophe de Bronze
La Tribune and Standard & Poors Mieux Vivre Votre Argent Le Revenu
Groupe Federal Finance Novlia Compagnie Financire du Crdit Mutuel
Label dExcellence Label Dveloppement Durable Award
Les Dossiers de lEpargne Rennes Mtrople JP Morgan Chase Bank
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>>> Risk management
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4. Risk management
Risk management in the Arka Group

The organization and procedures of the risk management function within Compagnie Financire du Crdit Mutuel and its subsidiaries are established and monitored at Arka Group level. All procedures are then adapted where appropriate and implemented within each entity, while ensuring compliance with all directives set down by the supervisory authorities and Confdration Nationale du Crdit Mutuel, the central body with which Caisse Interfdrale du Crdit Mutuel, the parent company of the Arka Group, is affiliated. In 2005, the Group began adapting its procedures to incorporate the new provisions of French Banking and Financial Regulatory Committee (CRBF) Regulation 97-02, as amended, and it maintained these efforts in 2006 and 2007. Internal
controls are organized around a system that incorporates distinct periodic controls and permanent controls. Four committees and two Departments of Caisse Interfdrale du Crdit Mutuel are specifically responsible for these controls.
Audit committee
The committee is composed of five members appointed to three-year terms by the Board of Directors of Caisse Interfdrale du Crdit Mutuel, which also appoints the committee Chairman. The committee meets at least three times each year. It oversees the proper functioning of the companys management bodies, the control of all Arka Group entities, compliance with laws and regulations governing the industry, and the monitoring of all types of risk, including credit risk, market risk, overall interest rate risk, liquidity risk, operational risk, etc. The audit committee validates the annual periodic control plan and examines all work performed by the Internal Audit and Periodic Controls Department and the conclusions and recommendations of all independent audits. It reports on its activities to the Board of Directors of Caisse Interfdrale du Crdit Mutuel. The audit committee discusses all of the committees work and recommendations concerning entities within Compagnie Financire du Crdit Mutuels consolidation scope with the Board of Directors of the company. The audit committee met six times in 2007.
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>>> Risk management
Financial statements committee

The financial statements committee is composed of five directors of Caisse Interfdrale du Crdit Mutuel and/or Compagnie Financire du Crdit Mutuel appointed to three-year terms by the Board of Directors of Caisse Interfdrale du Crdit Mutuel, which also appoints the committee Chairman. The committee met five times in 2007. Its role is to help the Board of Directors of Caisse Interfdrale de Crdit Mutuel evaluate the financial information and verify its accuracy. It examines the financial statements of the Arka Group before they are presented to the Board, ensures that all financial information is accessible, examines the pertinence of the accounting choices made, analyzes the Groups earnings and verifies the annual report and all regulatory declarations to be filed with the supervisory authorities. It issues an opinion regarding the appointment of the independent
auditors and analyzes the findings of their audit. It reports its works and conclusions to the Board of Directors of Caisse Interfdrale de Crdit Mutuel. It informs the Board of Directors of Compagnie Financire du Crdit Mutuel of its work regarding entities within the Compagnie Financire du Crdit Mutuel consolidation scope. The committee examined Compagnie Financire du Crdit Mutuels 2007 annual and consolidated financial statements.
Risk Management Department

This Caisse Interfdrale du Crdit Mutuel Department provides continuous controls over compliance, security, and validation of transactions and ensures compliance with all measures related to the oversight of all types of risk throughout the entire Group. It develops and makes available the tools required to identify, prevent, monitor and reduce these risks. It has oversight over all employees responsible for permanent controls within the various operating entities. The Risk Management Department is also responsible for preparing the Arka Group to implement all of the provisions established by the Basel Committee.
Periodic controls committee

Under the chairmanship of the Chief Executive Officer of the Arka Group, this committee is responsible for evaluating the quality of all periodic controls, notably as concerns the accuracy of the systems for measuring, monitoring and managing the risks to which the Group is exposed at the consolidated level, and to propose all additional measures necessary. It participates in the establishment of the annual periodic control plan. It addresses of the findings of control and audit reports by the Internal Audit and Periodic Controls Department and by external bodies such as supervisory authorities and Confdration Nationale du Crdit Mutuel, validates the recommendations contained in those reports and monitors their implementation. The committee met five times in 2007.
Internal Audit and Periodic Controls Department

This Department, which reports directly to the Chief Executive Officer of the Arka Group, periodically checks the compliance of all transactions with regulations and procedures, the level of risk run, and the effectiveness and pertinence of all control procedures. The Department operates throughout the Arka Group. Its control plan is validated by the audit committee. The plan includes in particular annual audits of all major risks in the areas of credit, capital markets, accounting processes, information systems, and operations. One specific control plan is developed for the Crdit Mutuel local bank network, branches and subsidiaries and another for the various Group companies, including Compagnie Financire du Crdit Mutuel and subsidiaries central functions.
Permanent controls committee

Under the chairmanship of the Chief Executive Officer of the Arka Group, this committee, whose members include notably Compagnie Financire du Crdit Mutuels Chief Executive Officer and Head of Periodic Controls, monitors all credit, market and operational risk. It ensures compliance with all regulations and procedures concerning risk exposures, checks all changes in total exposure levels, proposes exposure limits to Caisse Interfdrale du Crdit Mutuels Board of Directors and ensures that each Group structure complies with the prudential rules that have been established by implementing the most appropriate permanent control procedures.
Annual report on internal controls and the measurement and monitoring of risk within the Arka Group
The annual report on internal controls and the measurement and monitoring of major risks within the Group is prepared under the responsibility of the Chief Executive Officer of the Group. It specifies which areas are covered by permanent controls and which by periodic controls. It
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>>> Risk management
is presented to the audit committee and the Board of Directors of Caisse Interfdrale du Crdit Mutuel, and a copy is then provided to the supervisory authorities. Based on the application of Comit de la Rglementation Bancaire et Financire Regulation 97-02, as amended, risk management requires both effective internal controls that integrate the provisions of the Basel II agreement and the specific tracking of each type of risk.
The executive and decision-taking bodies of the Arka Group are the Board of Directors and The Executive Board of Caisse Interdrale de Crdit Mutuel, the entity that heads the Arka Group and that controls Compagnie Financire du Crdit Mutuel and its subsidiaries. Internal control comprises both permanent control and periodic control, and is under the direct responsibility of the Chief Executive Officer of Caisse Interfdrale de Crdit Mutuel, who is also Chief Executive Officer of the Arka Group.
Given this distinction, the organization of permanent control in the Arka Group is based on the following principles: The organization of permanent control covers all risks in all the Groups business lines, regardless of the legal structure of the activities generating the risks, The applicable executive body has final responsibility for compliance with regulatory requirements in terms of permanent control. Such responsibility within the Group is determined by legal entity, with each entity being responsible for the quality of its own permanent controls. Within each entity, responsibility is determined by management line, each of which has operational responsibility for the permanent control of its own activities, Each Group entity organizes its own permanent control structure and reports back to Caisse Interfdrale de Crdit Mutuel. For the subsidiaries, reports are drafted by the Permanent Control Department of Compagnie Financire du Crdit Mutuel.
Internal control in the Arka Group

The aim of internal control is to ensure the protection of the companys employees and assets, the legitimacy of transactions, the application of directives and the achievement of objectives, as well as the quality of information and the effectiveness of the companys operations. The organization of the internal control function within the Arka Group has been adapted in compliance with the provisions, as modified by the decree dated March 31, 2005, of CRBF Regulation 97-02 of February 21, 1997, relating to internal controls in credit institutions and investment firms. Internal controls are exercised within each entity and follow the principles adopted at end-2005 by the Boards of Directors of Caisse Interfdrale de Crdit Mutuel and Compagnie Financire du Crdit Mutuel. They are applicable by all components of the Arka Group. The Arka Group is overseen by the regulatory authorities on a consolidated basis and has organized its internal control systems in the following manner:
Decision-taking body
Permanent control
The organization of the permanent control of the compliance, security and validation of operations, as well as of compliance with other requirements related to risks of all types associated with operations (see Article 6.a of CRBF Regulation 97-02) is based on the distinction between first- and second-level permanent controls: First-level permanent control is exercised at the operational level, i.e. when the transaction is entered into or being processed, by either the operator himself or by a third party. Any control exercised until the completion of a process is deemed to be a first-level control. Second-level permanent control is exercised by a control function. It has no involvement in the process being controlled but is exercised on completion of the transaction concerned by a person independent of those responsible for the transaction itself.
The organization of permanent control is therefore based on the Groups pyramid structure, and is thus ultimately determined and monitored by Caisse Interfdrale de Crdit Mutuel. The aim of this structure is to enable Caisse Interfdrale de Crdit Mutuels management bodies to manage exposure to risk and to control the potential impact of such exposure with reasonable assurance. In practice, within this framework each operational Department adopts, organizes and implements the procedures and applications deemed necessary to exercise permanent control over its activities, under the responsibility of its management. In 2007, significant efforts were made in the field of operational risk to recast the management of second-level permanent control. Based on a mapping of the procedures applied, this consisted of identifying all risks that could affect the procedures and of setting out the applicable first-level permanent controls in order to review the existing or required second-level controls.
Board of Directors Audit committee
Control committees (Crdit Mutuel Federations in the Arka Group)

Executive body
Executive Board
Periodic control committee Permanent control committee
Periodic control
(=level 3 control)
Level 2 permanent control Level 1 permanent control

(= operational control) Internal control
Operations
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These control procedures are used to ensure the effective management of permanent control. Each permanent control manager applies the second-level controls applicable to his area of responsibility. The results of such controls are stored and may be accessed by risk type, organizational entity and process. They are reported to the permanent control manager in each entity and, via Compagnie Financire du Crdit Mutuel for its subsidiaries and central Departments, of Caisse Interfdrale de Crdit Mutuel. In parallel to its permanent control system, the Group has adopted an incident-reporting procedure designed to record all operational risk incidents, in the widest sense, having an adverse financial impact of 1,000 euros or more. The risks linked to such incidents are assessed twice each year, when the half-yearly and annual accounts are prepared.
Periodic control
Periodic control ensures the legitimacy of transactions, the level of risk effectively run, compliance with procedures, and the effectiveness and appropriateness of the permanent control system (Article 6 of Comit de la Rglementation Bancaire et Financire Regulation 97-02). In the Arka Group, all periodic controls are the responsibility solely of the Internal Audit and Periodic Control Department of Caisse Interfdrale de Crdit Mutuel. In addition to the periodic control of CICM itself, the Department has been authorized by each Group entity to exercise periodic control over that entity. With line responsibility to the Executive Board of Caisse Interfdrale de Crdit Mutuel, the Department reports to the periodic control committee and the audit committee. Caisse Interfdrale de Crdit Mutuels Head of Internal Audit and Periodic Control has been designated with the French Banking Commission as the periodic control manager for the Arka Group. Periodic control is carried out within the framework of an annual plan determined in accordance with the periodic control planning procedure applied in the Arka Group. The control program is established at least annually and reflects the control objectives of the Groups executive and decision-taking bodies. The control program and activities falling within the scope of the authorizations delegated to Caisse Interfdrale de Crdit Mutuel by all other Group companies are totally independent of the exercise of periodic controls on a consolidated basis over Caisse Interfdrale de Crdit Mutuel in its capacity as the central body of the Arka Group.
Persons involved in periodic control are independent of those involved in operations and the associated risks, and independent of those responsible for permanent control. They are provided with specific, proprietary applications in terms of methodology and information systems. Assignments are performed on site and/or remotely. Periodic control of operational risk is carried out through the audit of procedures, combined with the audit of permanent control procedures.
Compagnie Financire du Crdit Mutuels risk management system

The Compagnie Financire du Crdit Mutuel risk management system is part of the general framework of the Arka Group system described above. Being responsible for the Groups capital markets activities and the management of all its subsidiaries, Compagnie Financire du Crdit Mutuel has implemented a system that is well suited to its particular activities and risks. This approach associates: Segregation of duties, to prevent conflicts of interest, Intercompany committees, specialized by type of risk, The risk management and internal control functions, which are carried out in close collaboration with Caisse Interfdrale de Crdit Mutuel.
Segregation of duties
The organization adopted within Compagnie Financire du Crdit Mutuel and its subsidiaries guarantees a segregation of duties, firstly between all third-party management activities which are entrusted to the Federal Finance Gestion asset management company and the companys proprietary trading activities, which are carried out by Compagnie Financire du Crdit Mutuel. Only these two entities participate in the capital markets, and this, independently from one another, notably to guarantee the primacy of customers interests.
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>>> Risk management
This segregation of duties effective at the institutional level is also found at the operational level. Compagnie Financire du Crdit Mutuel is organized in the following manner: The Front Office: - trades financial instruments for the account of Compagnie Financire du Crdit Mutuel, - trades interest rate and foreign currency hedging instruments on behalf of corporate clients of the Groups banking networks and partners, within the framework of formal agreement, The Back Offices record the transactions and their unwinding in the accounting system, and act as custodians of proprietary and third-party assets, The Middle Office is responsible for day-to-day monitoring of operations and credit and counterparty risk linked to Compagnie Financire du Crdit Mutuels activities. To improve security over these activities, the duties are also segregated by having both the Back Offices and the Middle Office departments report to the Corporate Secretary of Compagnie Financire, while the Front Office reports to the Financial Markets and International Activities Department. Under this organization, each structure organizes and performs its own permanent first- and second-level controls.
Committees
Compagnie Financire du Crdit Mutuels committees were set up to prepare and monitor all operating and strategic decisions by uniting the expertise contained throughout Compagnie Financire, its subsidiaries and, if appropriate, the Arka Group, in a spirit of intercompany cooperation. The discussions that take place within these committees often involve insider information. All participants are, therefore, subject to the same rules as employees deemed to be concerned within the definition set by the French securities regulator, the Autorit des Marchs Financiers (AMF), in order to avoid any inappropriate spreading or illicit use (insider trading) of such information. These committees rely greatly on the analyses and monitoring provided by Compagnie Financire du Crdit Mutuels Middle Office department, and take their decisions in accordance with the limits that have been established by the Board of Directors. These committees are: Credit committee, to review all credit requests (specialized financing, syndicated loans, guarantees given, funds guaranteed, etc.), and for decisions to grant such requests, Credit risk monitoring committee, which monitors sensitive credit files and those placed on alert, Capital markets counterparty credit committee, for the selection of interbank counterparties, issuers and capital market intermediaries, Partner approval committee, for optimizing and ensuring the security of all purchases of financial products and services for the entire Group (notably for selection of the management companies and mutual funds marketed), Financial management committee, which is responsible for broad balance sheet equilibria, compliance with financial ratios and the financial management of Compagnie Financire
du Crdit Mutuel through its performances and its profitability, and the permanent controls committee, examined hereafter in greater detail.
Compagnie Financire du Crdit Mutuels internal control system

Compagnie Financire du Crdit Mutuel has organized its permanent and periodic internal control system in compliance with the framework system adopted by the Arka Group to meet the requirements of the new Comit de la Rglementation Bancaire et Financire Regulation 97-02. Permanent control The organization adopted by Compagnie Financire du Crdit Mutuel is reflected notably in the deployment of the Permanent Control Department formed in 2005 and strengthened in 2007. This Departments assignments are intended to: Check the compliance of banking and insurance activities, Check the compliance of investment services, Monitor risk controls in respect of market and counterparty risk on the one hand, and credit risk on the other, Ensure the effectiveness of procedures in the fight against money laundering and the financing of terrorism.
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It is responsible for monitoring that permanent control procedures and actions are complied with and conducted in accordance with the permanent control system adopted by Compagnie Financire du Crdit Mutuel. Within the framework of this system, Compagnie Financire du Crdit Mutuels Permanent Control Department assumes responsibility for the permanent control of compliance. Moreover, in accordance with the procedures applicable to all companies in the Arka Group, the Financial Markets and International Activities Department and the Corporate Secretariat have each appointed a permanent controller with line responsibility to the department head.
Their responsibilities, within each of the two departments, are to: Adapt each Departments permanent systems to the risks generated by their activities. Establish the annual permanent control plan. Ensure that first- and second-level controls are implemented by the various Compagnie Financire du Crdit Mutuel entities. Undertake additional controls where required. Management of the permanent controllers function is provided, within its sphere of activities, by Compagnie Financire du Crdit Mutuels Permanent Control Department in liaison with Caisse Interfdrale de Crdit Mutuels Risk Management Department. Concerning the various governance bodies, the Board of Directors of Compagnie Financire du Crdit Mutuel, its decision-taking body, examines the internal control reviews presented to it. The Executive Board, the executive body, chairs Compagnie
Financire du Crdit Mutuels permanent control committee, which also comprises the heads of each central entity within Compagnie Financire. The committee meets quarterly and is charged in particular with monitoring the deployment of applications and the progress of work in respect of controls, and with assessing the quality and effectiveness of the permanent control systems. Periodic control Even before the changes to Comit de la Rglementation Bancaire et Financire Regulation 97-02, implementation of periodic controls within CFCM was the responsibility, as in most Arka Group entities, of the General Inspection and Internal Audit Department, which reported to The Executive Board of Caisse Interfdrale de Crdit Mutuel. This structure, which already complied with the requirements for independence of periodic and permanent controls as set out in the reform of Comit de la Rglementation Bancaire et Financire Regulation 97-02, has been confirmed. In this context, the Compagnie Financire du Crdit Mutuel Board of Directors has delegated the exercise of periodic control within Compagnie Financire du Crdit Mutuel to the Internal Audit and Periodic Control Department (formerly the General Inspection and Audit Department).
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5. Risks
Non-performing loans fell to 4.48% of total loans in 2007, from 5.01% in 2006. The coverage ratio on non-performing loans was relatively stable, at 59.04% at December 31, 2007 compared with 58.95% the previous year. There were 242.2 million euros of provisions on non-performing loans at December 31, 2007, compared with 248.2 million euros the previous year.
Breakdown of non-performing loans by counterparty
13% Self employed 39% Individuals 6% Municipalities
Credit risk on customers

Gross customer outstandings of Compagnie Financire and its subsidiaries amounted to 9.15 billion euros at end-2007, up by 9% year-on-year.
Breakdown of outstandings by type
30% Professionnals 28% Housing loans
Credit risk on capital markets counterparties

Compagnie Financire du Crdit Mutuel and its subsidiaries manage their counterparty credit risk by adhering to internal procedures that are compliant with all current regulations. A system of counterparty credit limits has been set in place to limit the credit exposure on these companies capital markets activities. At the suggestion of the risk committee, the Board of Directors of Caisse Interfdrale du Crdit Mutuel approves an overall credit limit matrix that takes into account both counterparties internal credit ratings and the shareholders equity of the Arka Group. Compagnie Financire du Crdit Mutuel establishes individual limits within the framework defined by these overall limits, defining both amounts and terms, based primarily on the shareholders equity of the Arka Group and the counterpartys fundamentals (shareholders equity, debt and credit ratings). As required by the rules determining the new Basel II ratio, the internal credit ratings, the heart of the counterparty credit decision-making process, are used to establish a lending limit for each counterparty.
18% Consumer credits
18% Cash 48% Non-financial companies
Breakdown of outstandings by counterparty

6% Self employed 32% Individuals
55% Non-financial companies
6% Public sector 1% Other
Impairment losses on customer loans of 21.6 million euros at December 31, 2007 compared with 32.8 million euros in 2006. This decline was particularly noticeable in BCME (down 8.7 million euros) and Camfi-Banque (down 1.2 million euros), the subsidiaries specialized in lending to corporates.
Breakdown of non-performing loans by subsidiary
BPE 20% 0.5% Bail Entreprises CEOI 11% CFCM 2.3% Camfi-Banque 2.2% 27.1% BCME 2.1% Eole 0.1% Other 34.7% Financo
Compagnie Financire du Crdit Mutuel Group had total non-performing loans (including leases) of 410.3 million euros in 2007, a decline of 2.56% compared with the 421.1 million euros reported in 2006.
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>>> Risks
The Board of Directors of Compagnie Financire du Crdit Mutuel is responsible for setting credit limits, based on suggestions made by the Compagnie Financire du Crdit Mutuel capital markets counterparty credit committee. The committee meets each quarter. The Middle Office of Compagnie Financire du Crdit Mutuel is responsible for analyzing, monitoring and providing first-level controls over all credit risks within Compagnie Financire du Crdit Mutuel and its subsidiaries. The department is made up of a team of credit analysts who prepare documented opinions on the credit quality of the counterparties of Compagnie Financire du Crdit Mutuel and its subsidiaries. Compagnie Financire du Crdit Mutuels Permanent Controls Department carries out second-level controls. Furthermore, Caisse Interfdrale du Crdit Mutuel is responsible for consolidating the Arka Groups exposures, as well as controlling them. This system of limits and controls is applied to each structure within Compagnie Financire du Crdit Mutuel and its subsidiaries that operates on the capital markets, whether in a proprietary trading role (Compagnie Financire du Crdit Mutuel) or on behalf of a third party (Suravenir and Federal Finance Gestion). The total bond and money market portfolio of the Compagnie Financire du Crdit Mutuel Group amounted to 24.8 billion euros on December 31, 2007, which may be broken down in the following manner:
Suravenir 14.2 billion euros (57.2%) Federal Finance Gestion 2.6 billion euros (10.5%)
The internal rating of the portfolio of Compagnie Financire du Crdit Mutuel and its subsidiaries is stable, at B+, as a result of the decreased weighting of less well-ranked counterparties. At December 31, 2007, Compagnie Financire du Crdit Mutuel and its subsidiaries had no holdings with a speculative rating (D+, D- or E+) other than in specialized finance.
Breakdown by internal rating
From a geographical standpoint, most counterparties are located in Western Europe (88% of total outstandings), and especially so in France (51%). The Compagnie Financire du Crdit Mutuel Group invests above all in the banking sector (55% of outstandings), where the average internal credit rating in the portfolio is stable at B+. The average internal rating of the corporates portfolio comes in slightly lower, at B- (12% of the total portfolio).
Breakdown by region
10% US/Canada 2% Rest of world
A- 37.3% A+ 33.2%
37% Western Europe C- 0.1% C+ 1.9% B- 9.1%
B+ 18.4%
The concentration of exposure to the best credit risks reflects the Groups desire to remain conservative and to actively manage its risk, with 70.5% of its exposures to issuers rated A+ or A-. Overall, at December 31, 2007, the portfolio presents a satisfactory degree of risk diversification by internal rating category.
Breakdown by external rating
AA- 27% A+ 10% AA 13% AA+ 2% AAA 31% A 6% A- 5% (BBB+ BBB-) 4% nn 2%
51% France
Breakdown by type of counterparty

14% Sovereigns 5% Public sector 2% Insurance
12% Corporates
12% Guaranteed bonds and debt securitization funds
55% Banks
CFCM 8 billion euros (32.3%) of which 1.6 billion euros in less than 1 month
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>>> Risks
Intermediary risk
Every year, the Compagnie Financire du Crdit Mutuel capital markets counterparty credit committee establishes a list of intermediaries with which Group companies are authorized to enter into financial market transactions. This list is submitted to the Board of Directors of Compagnie Financire du Crdit Mutuel for approval. The Middle Office department performs periodic controls and has set in place an internal rating system to assess the quality of all intermediaries on the basis of financial and qualitative criteria.
Limits applicable to activities, distinguishing between: Funding, Asset management for Compagnie Financire du Crdit Mutuels proprietary trading: balance sheet (fixed income, credits and equities), derivatives and foreign exchange, Customers, Asset management for Compagnie Financire du Crdit Mutuels subsidiaries proprietary trading. Limits applicable to transactions, distinguishing between: Authorized transactions, Sensitivity risk limits, Loss risk limits, Limits on the use of shareholders equity. In order to strengthen controls and to secure its capital markets activities, Compagnie Financire has undertaken a detailed analysis of the compliance of capital markets transactions. This resulted in the adoption of a Compagnie Financire du Crdit Mutuel capital markets activities charter and a review of the compliance of proprietary trading and funding activities. At the same time, against the backdrop of sharp swings on the financial markets, trends in Group exposures and management decisions were made subject to detailed disclosure to the Boards of Directors of both Caisse Interfdrale de Crdit Mutuel and Compagnie Financire du Crdit Mutuel. In addition, given the major upheavals in the international financial situation, a crisis monitoring committee was formed and the capital markets activities prudential procedures were adapted to be more effective in 2008. The capital markets activities risk monitoring control functions within Compagnie Financire du Crdit Mutuel are mainly under the responsibility of the Middle Office and the Permanent Control Department. Reporting to the Compagnie Financire du Crdit Mutuel Corporate Secretarys team, the Middle Office, which is independent of the Front Office (which reports to the Head of Financial Markets and International Activities), values Compagnie Financire du
Crdit Mutuels capital markets positions and verifies compliance with limits. Daily position reports, managed by the Front Office, are sent to the executive bodies of Compagnie Financire du Crdit Mutuel and the Arka Group. First-level permanent controls are performed by operational staff, with second-level controls exercised by both the permanent controllers in each operational department and the Compagnie Financire du Crdit Mutuel Permanent Control Department. In Caisse Interfdrale de Crdit Mutuel, the Risk Management Department consolidates the Groups market risk, analyses it, validates the main monitoring methodologies used, and calculates the shareholders equity required by capital markets activities (Capital Adequacy Directive (CAD) and Value-at-Risk (VaR)). In addition, the Internal Audit and Periodic Control Department of Caisse Interfdrale de Crdit Mutuel carries out targeted audit assignments defined in the context of the periodic control annual plan. The capital requirements in respect of signature and market risk for the proprietary trading activities of Compagnie Financire du Crdit Mutuel and its subsidiaries are assessed using the standard method set out in the Basel I regulations. At December 31, 2007, these shareholders equity requirements amounted to 259.2 million euros and, as in 2006, mainly constitute 240 million euros of capital required for credit risks. The capital required for general risks amounted to 19.2 million euros, of which 15.5 million euros for fixed income instruments.
Market risk
Capital markets activities are conducted within a regulatory framework that is strictly defined by the Comit de la Rglementation Bancaire et Financire, which subsequently became the Consultative Committee on Financial Legislation and Regulation (Comit Consultatif de Lgislation et de Rglementation Financire - CCLRF) and by the French securities regulator, the Autorit des Marchs Financiers (AMF). In accordance with the regulatory framework, the capital markets activities of Compagnie Financire du Crdit Mutuel and its subsidiaries are carried out within a system of limits defined by the Board of Directors of Compagnie Financire at least annually in order to reflect changes in such activities. The market risk control system is continuously adjusted in order to improve controls and to ensure its independence from operational structures. In this context, and based on the overall limits set by the Caisse Interfdrale de Crdit Mutuel Board of Directors, the Board of Directors of Compagnie Financire, on the proposal of the Chief Executive Officer following a meeting of the permanent control committee, sets trading limits by type of activity (fixed income, credits, foreign exchange and equities) and defines the main choices in terms of market risk. This capital markets activities trading limits system for Compagnie Financire covers mainly:
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>>> Risks
CAD (in millions of euros)
300.0 250.0 200.0 150.0 100.0 50.0 0.0
May-07 Dec-06 Aug-07 Sep-07 Oct-07 Jan-07 Nov-07 June-07 Julyl-07 Mar-07 Dec-07 Dec-07 Feb-07 Apr-07
CAD shareholders equity requirements (in millions of euros) 2007 2006 259.2 228.5 Signature risk 240.0 211.3 General interest rate risk 15.5 16.3 General equities risk 3.7 0.9 Foreign exchange risk 0.0 0.0
Market risk
Signature risk
A broader measure of sensitivity, which incorporates notably spread risk, gives the following potential effects on earnings and shareholders equity. Sensivity analysis Interest rate risk Equity risk* Currency risk Spread risk
(in millions of euros)
Uniform rise of 57bp over one month Price drop of 15.5% over one month Unfavorable change of 6.6% over one month Rise of 54bp in spreads on euro financials and 174bp in spreads on US financials over six months Rise of 114bp in corporate spreads over six months Drop of 30% in mark to market of financial CDOs and of 5% in mark to market of corporate CDOs over six months
2007 - 6.3 million euros - 28.9 million euros - 0.2 million euros -59.9 million euros - 1.7 million euros - 26.2 million euros
* Including derivatives, expressed in equity equivalents
The above scenarios derive from an historical analysis of changes in representative risk factors for the Groups proprietary trading positions. The historical time period selected depends on the risk factors concerned and includes at least one major crisis period. The forward time horizon takes into account liquidity on the markets concerned. The calculations are based on a 99% confidence interval. The report below is based on estimates established for the T3 regulatory report prepared for Suravenir at December 31, 2007. The first part of the table shows the sensitivity of bond portfolios and other fixed income products based on hypothetical rate trends on 10-year government bond rates (from base value - 300 basis points to base value + 400 basis points). The second part of the table shows the effects of changes in the market value of portfolios composed of stocks and other comparable assets. These projections take into account the proportional share of deferred income (95.43%). Sensivity analysis Insurance activity Change in fixed income assets (in thousands of euros)
Deferred income Shareholders equity Earnings E(TEC10)-300 bps 2,318,241 144,640 0 E(TEC10)-200 bps 1,577,935 98,378 0 E(TEC10)-100 bps 896,382 55,948 0 E(TEC10) 273,636 17,103 0 E(TEC10)+200 bps - 814,894 - 51,047 0 E(TEC10)+400 bps - 106,038 0
Change in diversification assets (in thousands of euros)

Deffered income Shareholders equity Earnings - 40% - 759,728 - 36,382 - 34,441 - 30% - 569,796 - 27,287 - 25,831 - 20% - 379,864 - 18,191 - 17,220 - 10% - 189,932 - 9,096 - 9,610
By way of indication, general market risk is subject to a second measurement made using an internal analytical model which has not been audited by the Statutory Auditor - with a 99% confidence interval and 10-business day time horizon.
Capital markets VAR: 10d-99%

Value at risk
Interest rate risk Equity risk Currency risk Diversification benefit
2007 2006 9.9 5.3 10.9 5.3 6.2 4.6 0.0 0.0 - 7.2 - 4.6
12 11 10 9 8 7 6 5 4 3 2 1 0
May-07 Dec-06 Jan-07 Apr-07 July-07 Aug-07 Feb-07 June-07 Mar-07
Overall Interest rate Equities Currency
Sep-07
Oct-07
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Nov-07
>>> Risks
The increase in VaR in 2007 is due mainly to the significant rise in interest rate volatility from the second quarter onward. These current risk assessment tools are rounded out with crisis scenarios on interest rate, equity, foreign exchange and spread risks. Shocks to the main risk factors have been selected based on observations of past crises, and their effects in terms of unrealized capital gains are shown in the table below. This calculation covers the proprietary capital markets activities of Compagnie Financire de Crdit Mutuel.
banking activity is exposed to interest rate risk on proprietary trading whereas the life insurance activitys exposure is essentially from third-party asset management. For banking intermediation, interest rate maturity profiles for assets and liabilities are analyzed each quarter using both standard and stress scenarios. In this area, Compagnie Financire is exposed essentially in the short term to an increase in interest rates. For life insurance activities, interest rate exposure potentially covers both increases and decreases in rates:
Crisis scenarios Interest rate risk Equity risk* Currency risk Credit risks
Uniform rise of 100bp Price drop of 40% Unfavorable change of 20% Rise of 70bp in credit spreads on euro financials and of 240bp in credit spreads on US financials Rise of 150 bp in credit spreads on corporates Drop of 40% in mark to market of financial CDOs and of 8% in mark to market of corporate CDOs
2007 - 11 million euros - 74.6 million euros - 0.7 million euros - 78.4 million euros - 2.3 million euros - 38.3 million euros
When rates rise sharply, large-scale redemptions may result in capital losses being realized on fixed-rate bond investments, When rates fall, asset yields may be insufficient to cover the minimum rates guaranteed to customers. Simulations of a sharp rise in interest rates show that the characteristics of commitments in euros, the financial management policy and provisions cover this risk fully. If interest rates fall, the minimum rates guaranteed on liabilities are largely covered by the yields on assets.
* Including derivatives, expressed in equity equivalents
The crisis scenario calculations for interest rates, equities and credits apply to the overall scope of the trading desks activities. The assumptions used were updated in 2007 to take into account the financial crisis in the credit markets.
Compagnie Financire du Crdit Mutuels liquidity risk

The liquidity risk management policy defined annually by the Caisse Interfdrale de Crdit Mutuel Board of Directors for the Arka Group is applied to the scope of activities of Compagnie Financire du Crdit Mutuel. The policy is based essentially on liquidity blockages. Market trading volumes, in terms of both investment and funding, are also subject to strict limits. Each quarter, asset and liability maturity profiles are analyzed under both standard and stress scenarios. Objectives are defined in terms of hedging rates by maturity for both sources and applications of liquidity.
Compagnie Financire du Crdit Mutuels interest rate risk

The interest rate risk management policy is also defined by the Caisse Interfdrale de Crdit Mutuel Board of Directors for the Arka Group, and is based on simulations of the impact of 1% and + and 2% changes in interest rates. Limits and management rules are based on sensitivity indicators of net banking income to interest rate changes. Interest rate risk for Compagnie Financire is analyzed and managed separately for its banking and life insurance activities and is not consolidated given the different nature of the risks concerned. The
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>>> Balance sheet and income statement
>>>
6. Balance sheet and income statement of Compagnie Financire du Crdit Mutuel and its subsidiaries
Off-balance sheet
Compagnie Financire du Crdit Mutuels off-balance sheet items consist essentially of transactions in forward financial instruments totaling 33.4 billion euros, including 25.8 billion euros in interest rate swaps. required on Leveraged Buy Outs (LBOs) were reversed. A pre-tax loss on ordinary activities of 24.8 million euros was made, compared with current income of 65.3 million euros in 2006. It included provision writebacks and capital gains on disposals from the equity interests portfolio of 33 million euros, compared with 1.1 million euros in 2006. Net income for the year totaled 4,094,964.61 euros and is stated after the reallocation to Compagnie Financire du Crdit Mutuel by Caisse Interfdrale de Crdit Mutuel of a 29.1 million euro loss carry-back.
Company financial statement at December 31, 2007

Balance sheet
Compagnie Financire du Crdit Mutuel had total assets of 22.5 billion euros at December 31, 2007, consisting essentially of capital markets transactions. Funding transactions for Caisse Interfdrale de Crdit Mutuel, subsidiaries and other Crdit Mutuel federations represented 13.5 billion euros (up 4.6 billion euros year-on-year due to the increased requirements of subsidiaries and the mutual networks) and Front Office proprietary trading transactions accounted for 7.5 billion euros. Compagnie Financire du Crdit Mutuel had shareholders equity of 864 million euros excluding the Reserve for General Banking Risk and 857 million euros of subordinated debt, including 250 million euros of super subordinated debt. The company acts as the market operator for the Arka Group and as a holding company. Its portfolio of equity interests and similar holdings totaled 1.2 billion euros, virtually unchanged year-on-year.
Income statement
Following a first half-year marked by rising short rates and the erosion of credit margins, the last five months of 2007 were hit hard by a severe financial crisis resulting from the contagion of European banks by the U.S. subprime crisis. In this context, net banking income dropped to 43.5 million euros from 89.9 million euros in 2006. The fall in value of financial assets prompted the recognition of significant capital losses and, for reasons of caution, the constitution of additional provisions against proprietary trading CDOs. This reduction in net banking income was partially offset by the receipt of interim dividends and the realization of capital gains on sales of securities. Compagnie Financire du Crdit Mutuels overhead expense totaled 21.5 million euros, an increase of 1.5 million euros (7.7%) from 2006 as a result of the development of activities and participation in strategic projects. A gross operating loss of 65 million euros was posted, compared with gross operating income of 69.9 million euros in 2006. Net risk provisions resulted in a credit to the income statement of 7.2 million euros compared with an expense of 5.7 million euros in 2006, as provisions no longer
Company net income

(in millions of euros) 60 50 40 30 20 10 0
2003 2004 2005 2006 2007
Including retained earnings of 7,712,797.43 euros, distributable earnings in respect of fiscal 2007 amounted to 11,807,762.04 euros. The proposed appropriation of distributable earnings submitted to the Shareholders Meeting is as follows: To legal reserve 204,748.23 euros To retained earnings 11,603,013.81 euros
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Consolidated financial statements at December 31, 2007

Consolidated balance sheet
Compagnie Financire du Crdit Mutuel had total assets of 47.9 billion euros at December 31, 2007, up 16% from the previous year. On the assets side, amounts due from credit institutions rose by 3.6 billion euros to 7.7 billion euros, mainly as a result of the increased requirements of the mutual networks and the replacement of liquidity raised in the last quarter of 2007, in line with the Arka Groups liquidity management policy. Financial assets at fair value through the income statement, comprising mainly unit-linked investments (other than euro-denominated funds) on behalf of life insurance policyholders, rose by 39% to 8.7 billion euros as a result of the higher level of life insurance outstandings. Lastly, customer loans by Compagnie Financire and its subsidiaries (BCME, Banque Prive Europenne, Financo, and Camfi-Banque) totaled 8.9 billion euros, up by 9.9% year-on-year. On the liabilities side, as the counterpart to changes in investments on the asset side of the balance sheet, growth in the number of policies and customer outstandings at Suravenir triggered a 1.4 billion euro rise in life insurance technical provisions, to 22.2 billion euros. Resources raised through the 2007 EMTN program, which have an average maturity of seven years, and the strong growth in negotiable certificates of deposit brought total debt securities to 15.6 billion euros, up by 3.3 billion euros year-on-year. At end-2007, 41% of the capital raised through EMTN programs was from countries other than France, demonstrating the geographic diversification of Compagnie Financire du Crdit Mutuels funding. Shareholders equity
net of minority interests totaled 1.3 billion euros, down by 7.8% from the previous year and represented 2.7% of total liabilities at December 31, 2007. This decline was a direct result of the financial crisis and attributable to two causes: the reduction in Compagnie Financire du Crdit Mutuels consolidated net income for the year, and the negative impact directly through shareholders equity of the unrealized losses on asset swap and securitization portfolios managed by the Front Office for Compagnie Financire du Crdit Mutuels proprietary trading activities. These portfolios have been temporarily penalized by the widening of credit spreads but the quality of their assets remains high.
increased by over 24% under the combined effect of the strong performances by insurance activities (up by nearly 23%) and by retail banking, which posted an 18.3% rise in net banking and insurance income.
Overhead expense
314 270 213.2
2005
2006
2007
Consolidated income statement

Net banking and insurance income
535.3 456.3 495
2005
2006
2007
Overhead expense consists mainly of personnel expense, other administrative charges and amortization of provisions, and reached 314 million euros in 2007, up by 43.9 million euros (16.2%) from 2006. The first-time consolidation of Eole Finance and the full-year consolidation of the ProCapital group (consolidated for five months in 2006) accounted for 90% of the increase in Compagnie Financire du Crdit Mutuels consolidated overheads. Excluding changes in consolidation scope, 2007 was characterized by satisfactory control over overheads, which rose by 4.6 million euros (1.8%). On the same basis, personnel expense increased by 2.7 million euros (2.6%) in accordance with the terms of collective bargaining agreements. Other administrative charges increased by 1.9 million euros (1.3%) at constant consolidation scope, which represents virtual stability in the context of the continued development of the Arka Groups subsidiaries activities. Compagnie Financire and its subsidiaries had an average headcount of 1,642 in 2007, compared with 1,622 the previous year. The operating ratio was atypical in 2007, at 63.4% compared with 50.5% in 2006. It was hard hit by the impact of impairment provisions recognized in banking and insurance net income from capital markets activities.
Net banking and insurance income declined by 7.5% to 495 million euros, as a direct result of the financial markets crisis and its significant impact on the trading desks proprietary trading activities, particularly in CDOs. Impairment provisions recognized in 2007 reflect the reduced value of portfolios that were hard hit by global changes in the credit market and widening spreads, and decisions taken at the year end, notably to provide fully against investments exposed to subprime risk. Such investments account for only a marginal share of the Arka Groups capital markets activities, as its portfolio consists essentially of asset swaps and securitizations, the quality of which remains high. After restatement of the capital markets activities, net banking and insurance income would have
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Gross operating income

265.2 243.1 181.1
2005
2006
2007
Compagnie Financire du Crdit Mutuels consolidated gross operating income in 2007 declined by 31.7% to 181.1 million euros. A provision of 21.8 million euros, compared with 32.8 million euros in 2006, was raised to cover the Groups credit risks.
Consolidated net income

138.3 122.1
Prudential ratios
66.3
Liquidity ratio
In terms of monitoring short-term liquidity, the regulatory one-month liquidity ratio for the Arka Group was 163% at December 31, 2007, compared with the required minimum of 100%.
Capital adequacy ratio

At December 31, 2007, the Arka Groups shareholders equity requirement was covered 133%. Tier One capital accounted for 81% of this coverage.
2005
2006
2007
Compagnie Financire du Crdit Mutuels consolidated net income in 2007 declined by 52% year-on-year to 66.3 million euros. After restatement of the capital markets activities, it would have increased by 22.3%.
Major risks control ratio

Compagnie Financire du Crdit Mutuel and its subsidiaries complied with the major risks control ratio. No risk exceeded 10% of net shareholders equity.
Shareholders equity and long-term resources ratio

This long-term ratio measures the extent to which assets longer than five years are covered by resources longer than five years. At December 31, 2007, the ratio for the Arka Group was 70%, compared with a regulatory minimum of 60%. The surplus long-term resources of Compagnie Financire du Crdit Mutuel are used to finance the long-term assets of Caisse Interfdrale de Crdit Mutuel and of Group subsidiaries.
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>>> Les perspectives 2008
>>>
7. Outlook for 2008
In 2008, the mid-point of the 2005-2010 medium-term plan, Compagnie Financire du Crdit Mutuel will focus its actions on two major strategic themes: Strong, appropriate and diversified growth, notably through promoting synergies between Arka Group entities and by exporting expertise, Controlled and sustainable growth to consolidate the Groups economic fundamentals in a more secure environment and enhanced flexibility of the risk control system. At the same time, Compagnie Financire du Crdit Mutuel will participate actively in building the Arka Horizon 2015 development project.
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>>> List of offices held by directors and officers
>>>
Chairman Christian Touzalin Vice-Chairman Albert Le Guyader
8. List of offices held by directors and officers
Date term first began Date term will expire
1996-2009
1996-2008
Directors Rmy Cabaret Christian Cadiou Joseph Carret Jean-Louis Chartier Jean-Pierre Corlay Jean-Franois Devaux Jean-Louis Dussouchaud Marcel Favrot Marcel Garnier Michel Gourtay Marie-Thrse Groussard Christian Pron Gilbert Tronel
1997-2009 1998-2010 2005-2008 2006-2010 1991-2009 2003-2009 2001-2010 2007-2009 2000-2008 2007-2010 2005-2008 2007-2010 2006-2009
Christian Touzalin, Chairman Chairman of Fdration du Crdit Mutuel du Sud-Ouest Chairman of Caisse Rgionale du Crdit Mutuel du Sud-Ouest Director of Caisse de Crdit Mutuel dAngoulme Ma Campagne Vice Chairman of Caisse Interfdrale du Crdit Mutuel Director of Suravenir Assurances Holding Director of Suravenir Assurances Director of Confdration Nationale du Crdit Mutuel Chairman of the Control and Audit Commission of Crdit Mutuel du Sud-Ouest Member of the Supervisory Board of Infolis Chief Executive Officer of STGA (Socit de Transport du Grand Angoulme) Member of the Supervisory Board of Synergie Transport Director of SLEC (Socit dExploitation du Cble du Grand Angoulme)
Albert Le Guyader, Vice Chairman Chairman of the Supervisory Board of SAS Foncire Investissement Vice Chairman of the Supervisory Board of Banque Commerciale pour le March de lEntreprise Director of Caisse de Crdit Mutuel de Lorient Porte des Indes Member of the Supervisory Board of Camfi-Banque Member of the audit committee
Rmy Cabaret, Director Vice Chairman of Caisse de Crdit Mutuel de Erquy-Plneuf Director of Armorique Habitat Member of the Supervisory Board of SAS Foncire Investissement Director of Acta Voyages Member of Association de Gestion du Fonds dEntraide
Christian Cadiou, Director Chairman of the Supervisory Board of Federal Finance Banque Chairman of the Supervisory Board of Federal Finance Gestion Vice Chairman of Caisse de Crdit Mutuel de Brest Bellevue-Quizac Member of the Supervisory Board of ProCapital
34
Joseph Carret, Director Chairman of Caisse de Crdit Mutuel de Plougastel-Daoulas Chairman of the Negotiation Commission of U.E.S Arkade Vice Chairman of the Supervisory Board of Federal Finance Gestion Member of the Supervisory Board of Federal Finance Banque Director of Fdration du Crdit Mutuel de Bretagne Member of the Finistre Departmental Control Commission of Crdit Mutuel de Bretagne
Marcel Garnier, Director Chairman of the Supervisory Board of Banque Commerciale pour le March de lEntreprise Vice Chairman of Caisse de Crdit Mutuel de LoudacPlouguenast Director of Synergie Finance Member of the Supervisory Board of Camfi-Banque Director of Socit Condi Plus Chairman and Chief Executive Officer of SAS Transports Garnier
Jean-Louis Chartier, Director Vice Chairman of Caisse de Crdit Mutuel de Pontivy Director of Banque Prive Europenne Member of Association Cravenir Bretagne
Michel Gourtay, Director Director of Caisse de Crdit Mutuel du Relecq-Kerhuon Member of the Supervisory Board of Banque Commerciale pour le March de lEntreprise
Jean-Pierre Corlay, Director Vice Chairman of Caisse de Crdit Mutuel de Quimper Centre Chairman of the Supervisory Board of Suravenir Director of Novlia Member of the Supervisory Board of Fortuneo
Marie-Thrse Groussard, Director Vice Chairman of Caisse de Crdit Mutuel de Fougres Director of Financo
Jean-Franois Devaux, Director Chairman of Banque Prive Europenne Chairman of Fdration du Crdit Mutuel Massif Central Vice Chairman of Caisse Interfdrale de Crdit Mutuel Director of Caisse de Crdit Mutuel de Clermont-Galaxie Director of Caisse Rgionale de Crdit Mutuel Massif Central Director of Confdration Nationale du Crdit Mutuel Non-voting member of the Board of Suravenir Assurances Holding Member of the Control and Audit Commission of Crdit Mutuel Massif Central Director of Suravenir Assurances Director of APCAS (Association de Prvoyance Collective et Assurance Sant) Director of Socit Clermontoise de Tlvision
Christian Pron, Director Chairman of Crdit Mutuel Agricole et Rural Chairman of Caisse de Bretagne de Crdit Agricole Mutuel Chairman of Caisse de Crdit Mutuel de Bannalec Member of the Supervisory Board of Suravenir Member of the Supervisory Board of Banque Commerciale pour le March de lEntreprise
Gilbert Tronel, Director Vice Chairman of Caisse de Crdit Mutuel de Langueux-Trgueux Representative of Caisse Interfdrale de Crdit Mutuel to Socit Civile Immobilire Interfdrale Member of the Supervisory Board of Suravenir
Jean-Louis Dussouchaud, Director Vice Chairman of Fdration du Crdit Mutuel du Sud-Ouest Director of Caisse Rgionale du Crdit Mutuel du Sud-Ouest Chairman of Caisse de Crdit Mutuel de Pessac-Centre Director of Caisse Interfdrale de Crdit Mutuel Director of Novlia Member of the Real Estate Investment and Cooperative Action Commission of Crdit Mutuel du Sud-Ouest Director of the Le Teste de Buch semipublic company (SEM) Member of the financial statements committee
Marcel Favrot, Director Director of Caisse de Crdit Mutuel de Fougres
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List of offices held by members of the Compagnie Financire du Crdit Mutuel Executive Board in 2007
Primary function Humbert de Fresnoye Chief Executive Officer Offices held Chairman of the Supervisory Board of ProCapital Chairman of Novlia Chairman of Financo Chairman of Eole Finance Vice Chairman of the Supervisory Board of Eurobretagne 12 Director of Suravenir Assurances Holding Director of Suravenir Assurances Member of the Executive Board of Suravenir (to 01/11/07) Member of the Supervisory Board of Infolis Member of the Supervisory Board of Camfi-Banque Director of Banque Prive Europenne Chief Executive Officer of Fdral Immo Director of Europim Chairman and Chief Executive Officer of Foncire Investissement (to 28/09/07)
Gilbert Richard
EVP Development and partnerships
Chairman of the Executive Board of Banque Commerciale pour le March de lEntreprise Chairman of the Executive Board of Camfi-Banque Director of Synergie Finance (representing Compagnie Financire du Crdit Mutuel) Director of Bail Entreprises (representing Murs II) Director of Sobrepar Director of Soderec
Jean Chausse
EVP Financial markets and international activities

(to 07/11/07)
Chairman of the Supervisory Board of Eurobretagne 12 Vice Chairman of the Supervisory Board of ProCapital Director of Banque des Marchs et dArbitrage (representing CFCM) Director of Synergie Finance (representing Sobrepar)
Alain Tarouilly
Corporate Secretary
Member of the Supervisory Board of Eurobretagne 12
Ren Gil
EVP Real estate division
Director of Eurobretagne Chairman and Chief Executive Officer of Foncire Investissement
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>>> Report of the Chairman of the Board of Directors
>>>
Report of the Chairman of the Board of Directors
To the shareholders,
Pursuant to the Arka Groups corporate governance and internal control principles, I am pleased to inform you of the conditions in which your Board of Directors prepared and organized its work as well as the internal control procedures implemented by Compagnie Financire du Crdit Mutuel for the financial year ended December 31, 2007. This report is attached to the Board of Directors Management Report presented to the annual Shareholders Meeting. This report is very similar to the previous years report, since in 2007 we sought to carry on the work begun or implemented in 2006 with respect to the organization of corporate governance and internal control.
As you know, Compagnie Financire applies the procedures and policies adopted by Caisse Interfdrale de Crdit Mutuel (CICM), the consolidating company of the Arka Group, by replicating and adapting them to suit the specific needs of the companys businesses. In this regard, the procedures used to prepare this report are based on the concerted initiatives of the Corporate Secretarys team and the Permanent Control Department of Compagnie Financire in conjunction primarily with the Finance Department and the Risk Management Department of Caisse Interfdrale de Crdit Mutuel. This report is also based on the available reporting packages and procedural manuals in use at Compagnie Financire for the internal control system mandated by the applicable regulations. Moreover, the Board of Directors regularly discussed Compagnie Financires internal control and risk management at meetings on the basis of the work of the companys permanent control committee and the Groups financial statements committee, audit committee and periodic control committee in connection with annual risk control and risk management presentations.
Conditions for preparing and organizing the work of the Board of Directors
The work of the Board of Directors is organized and prepared in the following manner: Compagnie Financire du Crdit Mutuel, a French corporation governed by Articles L 225-17 to L 225-56 of the French Commercial Code, has chosen to base its corporate governance on the segregation of the functions of the Chairman and the Chief Executive Officer. Under this system: The Chairman heads the Board of Directors, ensures that it operates properly and that it is kept fully informed at all times. He also acts as a liaison between the Board and Executive Management, The Board of Directors establishes the companys business strategies, ensures that they are properly implemented and makes sure that all control systems are compliant and efficient, notably with regard to limits pertaining to capital market and investment transactions; it addresses all matters pertaining to the companys smooth operation and settles all relevant matters through its deliberations, The Chief Executive Officer, Humbert de Fresnoye, manages all of the companys operational and executive components and represents the company in its relations with third parties.
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The Board of Directors of Compagnie Financire du Crdit Mutuel consists of 15 members. Most are active in the business world, and each member owns a share in the company. The names of potential board candidates are submitted to the Shareholders Meeting upon the recommendation of Caisse Interfdrale de Crdit Mutuel, taking care to fulfill the selection criteria such as availability and competency in the areas related to the companys activity. The term of office of directors is three years and is renewable. The by-laws set the age limit for directors at 65 for a first appointment and at 70 for a renewal. The company has neither non voting director nor director elected by the employees on its board, whose members must observe the rules of procedure adopted by the Arka Group. Theses rules for all companies the duties and commitments of directors with respect to: Attendance at meetings, Training for the performance of their duties, Independence and absence of conflict of interests, All personal and financial relations with the Group, Privacy of all deliberations.
The Board of Directors may hold as many meetings as it deems necessary in the interests of the company, and according to an annual schedule adopted at the end of the previous year. Except in the event of an emergency, notices of meetings containing the agenda must be sent by the Chairman seven days before the Board meetings. The documents and matters warranting more in-depth review must be sent to the directors together with the notice of meeting whenever possible to enable them to study them before the meeting and prepare their observations, suggestions and decisions. In any event, the main topics addressed at the Board meetings are contained in documents or summary memoranda that are submitted at the time of the meeting. These matters are prepared by the Chairman of the Board of Directors and the Chief Executive Officer with the assistance of the companys administrative and operating units. Other documents that may assist the Board in making a decision may also be used. Each director may ask the Chairman at any time for any document pertaining to the company that the director believes may be useful in the fulfillment of his duties. Minutes must be prepared at the end of each meeting. They must be submitted for approval by the directors at the next meeting. During the previous financial year, the Board of Directors of Compagnie Financire du Crdit Mutuel met 12 times, including one special meeting, with an average attendance rate by directors of 82%. All but two meetings were held at the companys main office, one was held at Crouesty (56) to coincide with a directors training seminar, and one was held in Rennes (35). During these meetings, the Board was regularly informed of the Compagnie Financires financial situation. Starting with its march meeting and each month thereafter, the Boards meetings included one agenda item on the financial crisis and its consequences for the company.
In addition to the decisions that must be on the agenda in compliance with current statutes and regulations, the deliberations of the Board covered the following matters in particular: Review and approval of 2007 parent company and consolidated financial statements; Proposal of candidates to become directors of Compagnie Financire and its subsidiaries, Monitoring and management of the Brit Alliance joint venture issue, Establishment of 2008 development policy and strategy for Compagnie Financire and its subsidiaries, along with adoption of 2008 operating plan, Monitoring of the operating results of the company and its subsidiaries, Periodic analysis of economic conditions, Current news trends that affect Compagnie Financires activities, Updating and approval of risk management system for 2007, Approval of Compagnie Financires annual management report, Analysis and adoption of counterparty limits, Monitoring and analysis of companys earnings and capital commitments, Approval of bond issue procedure, Status report on initiatives related to the fight against money-laundering and terrorism financing, Presentation of internal control measures with respect to the activities of the company and its subsidiaries, Presentation of the work of the audit committee of Caisse Interfdrale de Crdit Mutuel on the consolidation scope of Compagnie Financire and its subsidiaries, Presentation of transactions related to acquisitions, investments, divestments and partnerships of the company and its subsidiaries, Approval of a system for monitoring changes in the situation of the capital markets business in light of the international financial crisis, Approval of strengthening of internal control and compliance initiatives and procedures, Presentation and approval of 2010 Real Estate project.
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All of the Board of Directors decisions were unanimously approved by members in attendance or represented, with the exception of one abstention on a vote regarding Brit Alliance. I would like to point out that this issue, which has been carefully monitored and analyzed, is entirely under control. Training is regularly offered to Board members in order to improve the effectiveness of the Board of Directors, the relevancy of its decisions and the full exercise of their responsibilities. In 2007, these training initiatives focused largely on Compagnie Financires businesses, in particular the capital markets activity, which was covered in a special seminar and received close attention. In order to ensure that it operates correctly and to enhance its operational effectiveness, Compagnie Financire has set up specialized committees, whose purpose and members are determined ad-hoc and whose work contributes to the preparation of decisions made by the Board of Directors. The executive committee, which includes the heads of Compagnie Financires main divisions and is chaired by the Chief Executive Officer, organizes the flow of information within Compagnie Financire and its subsidiaries. It coordinates major projects. In that respect, it supports the strategic operations decided by senior management in each operating and administrative area. It also identifies and studies cross expansion between the various components of the Arka Group. This committee meets every week.
The credit committee reviews the banking commitments given by Compagnie Financire and the counter-guarantees given in connection with the loans extended by its subsidiaries. The Chief Executive Officer of Compagnie Financire is the chairman of the committee. This committee met 26 times in 2007 and its decision-making authority is set by the Board of Directors. The credit risk monitoring committee, which was established in 2007 and met once last year, monitors changes in sensitive credit files. The capital markets counterparty credit committee analyzes and prepares counterparty credit limit recommendations, changes in prudential rules and approvals of intermediaries submitted for approval to the Board of Directors. It met five times in 2007. The partner approval committee is responsible for optimizing and securing the financial product and service purchasing policy followed by the entire Arka Group. It met three times in 2007. The financial management committee ensures compliance with the financial ratios of Compagnie Financire du Crdit Mutuel. It performs financial management using such ratios. The permanent control committees role is to monitor the major risks, by type and by business line, to which Compagnie Financire is exposed for the parent company and the consolidated group. It assesses the quality and effectiveness of the internal control system. It oversees the installation of software applications and monitors its progress. The committee met four times in 2007.
Limitation of the powers of the Chief Executive Officer

The Board of Directors has not set any specific limits on the powers of the Chief Executive Officer, whose duties are performed in accordance with the prudential rules adopted by the Board and the internal control procedures described below.
Internal control procedures

The purpose of the internal control procedures in effect at Compagnie Financire du Crdit Mutuel is to: First, ensure that all management acts and transactions as well as staff behavior are compliant with the business strategies adopted by the decision-making and executive bodies of Compagnie Financire du Crdit Mutuel, and with the applicable statutes and regulations, professional standards, values, ethics and rules of procedure of the company. Second, verify that the accounting, financial and management information provided to the corporate bodies of Compagnie Financire presents fairly the companys business and financial position.
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Internal control system

The internal control system of Compagnie Financire du Crdit Mutuel and its subsidiaries seeks to control all types of activities and risk in order to ensure smooth, efficient and secure transactions, the reliability of all information and the safe-keeping of the companys assets. As with all control systems, however, it does not provide an absolute guarantee that all these risks have been totally eliminated. The entire system is part of the overall system adopted by the Arka Group to comply with the regulations set forth by the Financial Legislation and Regulation Advisory Committee (CCLRF, formerly the CRBF) and is based on the standards issued by regulatory authorities and by Confdration Nationale du Crdit Mutuel. Compagnie Financires internal control system is organized as follows: A first level of permanent control is performed by the operational Departments that have a dedicated permanent control function, A second level of permanent control is performed by the Permanent Control Department. This Department is independent of the operating units. It administers the control system together with the Risk Management Department of Caisse Interfdrale de Crdit Mutuel, and ensures the consistency of these two systems,
A General Audit and Periodic Control Department, which is responsible for periodic control. It is also part of Caisse Interfdrale. As a result, each operating Department at Compagnie Financire has its own full-time controllers who carry out their assignments in the areas of international activities, financial transactions (Front Office), Back Office and Middle Office (risk analysis). Using the procedural manuals containing the prudential rules to be observed and the procedures specific to each business, the permanent control staff ensures the consistency of the methods used. Staff members are responsible for defining and documenting the applicable control system, and ensure that a risk map and business continuity plans are prepared. The Back Office department, which is part of the Company Secretarys team, is the custodian for the mutual funds of the Arka Groups management companies. As such, a two-person custody control unit, which reports directly to the Company Secretary, carries out the activities and control assignments required by regulations and ensures that the interests of financial savings subscribers and shareholders are protected.
Permanent controllers report regularly to Compagnie Financires senior management bodies. In 2007, risk management and control activities focused mainly on the continuation of research studies begun in 2006 for the development of a new, high-performance IT system aimed at strengthening the security of transactions performed by Compagnie Financire. To further enhance its control over its activities, the company also continued updating its risk mapping. Given the turbulent market environment in 2007, Compagnie Financire paid close attention to its capital markets activities, strengthening its control and safeguards while adding to its risk analysis resources and risk monitoring and control activities. It also adopted the capital markets Charter, which sets forth the companys principles for managing and securing the risk exposure in this activity. This approach focusing on the proprietary trading activity will be extended in 2008 to cover the refinancing and third-party trading activities even more closely. In addition, the Permanent Control Department actively participated in the analysis and implementation of the necessary modifications required by the MiFID directive, and coordinated the activities of Compagnie Financire and its subsidiaries in the fight against money-laundering and terrorism financing. In that respect, the anti-money-laundering system is prescribed by the Caisse Interfdrale de Crdit Mutuel, as for all Arka Group entities, and integrated into the internal control system adopted in accordance with the provisions of Regulation No. 97-02, as amended. Specifically, the IT applications of the various Group entities are based on an automated flow monitoring system that enables the detection of certain pre-defined transactions as well as the use of lists of people whose assets have been frozen. The system generates warnings, which are then processed by the operations staff members and subjected to a second-tier control by
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the permanent controllers. If suspect transactions are detected, the permanent controllers perform a detailed analysis of the relevant account activity, gather the necessary data and, where applicable, report their concerns to Tracfin. In that respect, the permanent control department ensured that the various units adopted and implemented procedures suited to their activities while ensuring uniform and coordinated practices. In addition, Compagnie Financire du Crdit Mutuel has implemented a training program for new staff members that covers the fight against money-laundering and terrorism financing, complemented by regular training sessions for employees, which take into account the latest legislative and regulatory changes. The Board of Directors of CFCM is kept regularly informed of the conditions for implementing the system to combat money-laundering and terrorism financing. In addition, the control process for investment services compliance and the code of ethics were updated to reflect the regulatory changes governing relevant persons as defined by the General Regulation of the French securities market regulator (AMF).
As a subsidiary of Caisse Interfdrale du Crdit Mutuel, Compagnie Financire is part of the Arka Groups overall control organization. As such, its control system is based on the following structures: The audit committee of the Arka Group consists of 3 to 5 non-salaried members, who may or may not be from the Arka Group. Its role is to assess the quality of the internal control, the consistency and effectiveness of risk assessment and oversight systems and the control of the major risks of the Group including those to which Compagnie Financire and its subsidiaries are exposed. The Risk Management Department of Caisse Interfdrale du Crdit Mutuel ensures and promotes the effectiveness of permanent control. It coordinates permanent control by defining and implementing joint tools that are appropriate for all Group companies. This department works closely with the Permanent Control Department of Compagnie Financire. The effectiveness of the internal control system is enhanced by the work of the group permanent control committee. The committees role is to ensure compliance with the rules governing the assumption of risk and check that the ongoing control systems are suitable for the Groups and Compagnie Financires businesses and risks.
Internal control procedures related to the preparation and processing of accounting information
Compagnie Financire prepares and processes all the accounting information using a secured accounting sub-system that is part of the Finance Department of Caisse Interfdrale de Crdit Mutuel. This Department defines the accounting rules and methods and implements the consolidation process. It also performs the control and analysis procedures required to prepare and process accounting information. In addition, it prepares the financial statements and issues the regulatory disclosures of Compagnie Financire and most of its subsidiaries. The Department is therefore organized and structured in a way that allows it to perform its duties for all relevant companies in the Arka Group. Moreover, the Finance Department performs the account justification process in cooperation with the management structures of the Group and it subsidiaries. Lastly, it performs the management control that is responsible for ensuring that
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accounting and financial data are reliable, in particular by carrying out budgetary controls and analyzing results. All the processes performed by the Finance Department of Caisse Interfdrale de Crdit Mutuel are checked by the statutory auditors. Compagnie Financire has its own secure system for preparing and processing proprietary accounting information. Accordingly, the Equity Investment Department, which reports directly to the Chief Executive Officer, prepares investment and divestment decisions as well as the compensation and provisioning proposals for all the equity investments as part of its role to monitor the companys equity investment portfolio. Such decisions and proposals are based on a valuation method approved by the statutory auditors in cooperation with the Finance Department of Caisse Interfdrale de Crdit Mutuel. Performance indicators and revenue and earnings reports are submitted on a regular basis to the Board of Directors of Compagnie Financire.
Lastly, the Arka Groups financial statements committee examines the parent company and consolidated financial statements of Compagnie Financire every year. This five-person committee includes one director of Compagnie Financire and one subsidiary company director. They are appointed for three-year terms by the Board of Directors of Caisse Interfdrale de Crdit Mutuel. The committee meets at least twice a year. The committee is responsible for helping the Board of Directors assess the financial information and control its accuracy. As a part of its role, it analyzes the financial statements and assesses the relevance of the accounting methods adopted before they are submitted to the Board. The committee also checks the annual report and the regulatory documents required to be filed with supervisory bodies. The financial statements committee issues a recommendation concerning the appointment of the statutory auditors and analyzes their audit conclusions. It reports on its duties and conclusions to the Board of Directors of Caisse Interfdrale de Crdit Mutuel. In that respect, the Board of Directors, senior management and relevant units of Compagnie Financire and the Arka Group receive detailed information on the internal control and risks as they arise, especially through the presentation of the internal control and risk monitoring and assessment report. To conclude, I wish to point out that presently none of the findings of the various internal control bodies or independent auditors of Compagnie Financire, which were submitted to the Board and its committees, nor any of the initiatives taken by the company to strengthen its control system have uncovered any significant deficiency that would call into question the current overall effectiveness of the internal control system in the preparation of accounting and financial information.
For the upcoming year, we will continue the efforts undertaken to date to bring about further improvements in the control procedures and systems. More generally, I would note that Compagnie Financire intends to sustain this continuous improvement approach to internal control regarding the reliability of financial information. Some of the planned changes still need to be implemented, but no major difficulties have arisen in these areas. Finally, I would add that that the Board of Directors organization, operation and deliberations are all compliant with regulatory requirements.
Chairman of the Board of Directors Christian Touzalin
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[.]
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General information
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General information
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Person responsible for the document of reference
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Person responsible for auditing the financial statements
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Company name
General information
Compagnie Financire du Crdit Mutuel 1, rue Louis Lichou, 29480 Le Relecq-Kerhuon French corporation (Socit Anonyme) with the status of credit institution All laws and regulations applicable to credit institutions, and notably the French Monetary and Financial Code The French Commercial Code October 20, 2000 All banking transactions, transactions that are related and ancillary to banking transactions, including notably the provision of investment services Insurance-related brokerage and intermediary activities Capital markets transactions All types of equity investment All commercial, industrial, securities or real-estate transactions directly or indirectly related to the corporate purpose SIREN 433 383 122 RCS Brest Code APE 6419 Z All documents pertaining to the company, and notably documents its articles of incorporation, its financial statements, and all reports presented to its Annual General Meetings by the Board of Directors and the statutory auditors, are available for inspection at the companys registered office.
Registered office Legal form Applicable legislation
Date founded Corporate purpose
Identification
Documents
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>>> General information
Person responsible for the document of reference Humbert de Fresnoye Executive Managing Director of Compagnie Financire du Crdit Mutuel Statement of the person responsible for the document of reference To our knowledge, the information contained in this document of reference is accurate, and includes all information required to form an opinion of the assets, the business, the financial position and the results of the company. It contains no omissions that would alter that opinion. The Chief Executive Officer Humbert de Fresnoye
Persons responsible for auditing the financial statements
Statutory auditors
Name Address Date first term began Current term Term expires Mazars & Gurard 61, rue Henri Rgnault, 92400 Courbevoie 2000 6 years Following the Annual General Meeting held to approve the financial statements for the year ending December 31, 2011 Deloitte et Associs 185, avenue Charles de Gaulle, 92524 Neuilly-sur-Seine Cedex 2007 5 years Following the Annual General Meeting held to approve the financial statements for the year ending December 31, 2011
Name Address Date first term began Current term Term expires
Substitute statutory auditors

Name Address Date first term began Current term Term expires Manuela Baudoin-Revert 61, rue Henri Rgnault, 92400 Courbevoie 2000 6 years Following the Annual General Meeting held to approve the financial statements for the year ending December 31, 2011 Pascal Pincemin 7-9, villa Houssay, 92524 Neuilly-sur-Seine Cedex 2007 5 years Following the Annual General Meeting held to approve the financial statements for the year ending December 31, 2011
Name Address Date first term began Current term Term expires
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Sige social et Direction Gnrale 1, rue Louis Lichou 29808 Brest cedex 9 Tl. : 02 98 00 22 22 Fax : 02 98 30 52 10
Socit anonyme au capital de 715 000 000 euros Banque et socit de courtage en assurances Siren : 433 383 122 RCS Brest
Layout and design: HDI/Isabelle Huguenin/Studio Alain Millet

CFCM - RG Gb07stat

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Annual Report

Compagnie Financire du Crdit Mutuel

Satisfactory results, despite highly turbulent conditions in the financial markets

Crdit Mutuel du Sud-Ouest

Crdit Mutuel Massif Central

Compagnie Financire du Crdit Mutuel *

organization of Compagnie Financire >>> Internal du Crdit Mutuel //

Development and partnerships

Financial markets and international

Governance of Compagnie Financire du Crdit Mutuel

Duties of the Board of Directors

Compensation of members of the Board of Directors

>>> Economic conditions

2. Economic conditions during the year 2007

Europe: the economy held up

United States: a clear slowdown

>>> Economic conditions

Emerging countries: the engine of world growth

>>> Economic conditions

Outlook for 2008

>>> Activities 2007

Capital markets and investment banking

Unfavorable context for proprietary trading

Robust sales and marketing activity

>>> Activities 2007

Change in average monthly transaction volumes

Back Office activities

>>> Activities 2007

>>> Activities 2007

>>> Activities 2007

>>> Activities 2007

>>> Activities 2007

>>> Activities 2007

Symphonis Symphonis Fortuneo Suravenir

Laurier dArgent Oscar Label dexcellence Label dExcellence

Les Dossiers de lEpargne

Suravenir Suravenir Suravenir Suravenir Assurances

Label dExcellence Trophe dArgent Trophe de bronze Label dExcellence

Les Dossiers de lEpargne Le Revenu Le Revenu Les Dossiers de lEpargne

Groupe Federal Finance Groupe Federal Finance Groupe Federal Finance

Groupe Federal Finance Novlia Compagnie Financire du Crdit Mutuel

Label dExcellence Label Dveloppement Durable Award

Les Dossiers de lEpargne Rennes Mtrople JP Morgan Chase Bank

>>> Risk management

Risk management in the Arka Group

>>> Risk management

Financial statements committee

Risk Management Department

Periodic controls committee

Internal Audit and Periodic Controls Department

Permanent controls committee

>>> Risk management

Internal control in the Arka Group

Board of Directors Audit committee

Control committees (Crdit Mutuel Federations in the Arka Group)

Level 2 permanent control Level 1 permanent control

>>> Risk management

Compagnie Financire du Crdit Mutuels risk management system

>>> Risk management

Compagnie Financire du Crdit Mutuels internal control system

>>> Risk management

Credit risk on customers

Credit risk on capital markets counterparties