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					REFERENCE DOCUMENT
    REFERENCE DOCUMENT




1    GROUPE CAISSE D’EPARGNE’S
     BUSINESS LINES .............................................................. 3



2    FINANCIAL REPORT OF THE
     CNCE GROUP.................................................................. 35



3    FINANCIAL REPORT OF
     GROUPE CAISSE D'EPARGNE.................................... 169



4    RISK
     MANAGEMENT .............................................................. 295



5    CORPORATE
     GOVERNANCE .............................................................. 319



6    GENERAL
     INFORMATION............................................................... 383




The original version of the Document de référence in French was registered with the Autorité des
marchés financiers on April 24, 2007, in compliance with articles 212-13 of the general regulations of
the Autorité des marchés financiers. It may only be used in connection with a financial transaction if an
additional prospectus, approved by the Autorité des marchés financiers, is appended.

    This Document de référence may also be downloaded from www.groupe.caisse-epargne.com.

                                                                                                       1
2
1 BUSINESS LINES
            GROUPE CAISSE D’EPARGNE’S




MESSAGE FROM THE CHAIRMEN ............................................................................................. 4


2006 KEY FIGURES ...................................................................................................................... 6


PROFILE AND HISTORY OF THE GROUP................................................................................. 8


CORPORATE STRUCTURE AT DECEMBER 31, 2006 .............................................................................. 9


CORE BUSINESS LINES ............................................................................................................ 10
Groupe Caisse d’Epargne Core Business Lines .......................................................................... 10
Activities........................................................................................................................................ 12


INVESTMENTS ............................................................................................................................ 34




                                                                                                                                                        3
    MESSAGE FROM THE CHAIRMEN


In 2006, Groupe Caisse d’Epargne took a decisive step in the transformation of its structures. We can
now look back with pride and see just how far we have traveled since 1999. Although it is true that we
have enjoyed a number of successes in recent months and that the Group has been under the
constant glare of the media spotlight, we must not lose sight of the fact that the major operations
completed in 2006 are, in fact, but the culmination of a long maturing process.

Since the 1999 reform, Groupe Caisse d’Epargne has changed both in nature and in size. Having
become a true full-service, universal bank, the Group has managed continuously to enhance the skills
and expertise that represent its principal assets. As a result, the efforts we have made to restructure
our organization allow us today to meet the needs of all types of clientele without compromising our
profitability criteria. Thanks to the active contribution of all our employees, the Group’s net banking
income rose by 13.4% in 2006 to reach a total of €11.3 billion, following what had already been an
outstanding year in 2005. Net income (after minority interests) also enjoyed substantial growth,
reaching a total of €3.8 billion (including exceptional items). Our financial strength, reflecting the
changes brought about in our Group structure, seems more satisfactory than ever before thanks to
consolidated equity of €20 billion allowing Groupe Caisse d’Epargne to boast one of the best Tier One
ratios enjoyed by a French banking institution.

Our aim now is to pursue this ongoing development, to improve our performance still further, and to
reassert the identity of Groupe Caisse d’Epargne at a time when competition in the European banking
industry is growing in intensity. In this respect, of course, the creation of Natixis represents a decisive
development for the future of the Group. Launched in March 2006 and concluded in December the
same year with a major stock market operation, this initiative was handled with a degree of efficiency
and professionalism that fully deserves our praise. Our teams, in constant liaison with their
counterparts from the Banque Populaire group, managed to bring this project to a successful
conclusion despite the added complication that it pioneered a new type of alliance between two major
cooperative banks.

A front-ranking player in the areas of corporate and investment banking, asset management and
financial services, Natixis is destined to play a decisive role in the consolidation of the European
banking industry. Above and beyond the strategic ambition embodied in this initiative, Natixis will also
prove to be a major springboard for the continued growth of Groupe Caisse d’Epargne. Indeed, the
powerful distribution network of the French savings banks will now be able to tap into the resources of
production mills equal to their needs. All our customers will benefit from the products utilizing the
expertise of our new subsidiary.

An innovative structure allowing Groupe Caisse d’Epargne harmoniously to blend its cooperative
model with a more immediate access to the financial markets, Natixis represents a further step in the
achievement of our strategic objectives. This operation, apart from the prospects it opens up for future
growth, will also have a considerable impact on the organization and corporate governance of Groupe
Caisse d’Epargne to the extent it has allowed us completely to redefine our partnership with the
Caisse des Dépôts et Consignations. 2007 will therefore represent the beginning of a new phase in
the relationship between the French savings bank group and its historic partner.

The sheer scale of the success enjoyed with Natixis confirms the Group in its ambition to reconcile
growth with economic performance. It is in this spirit that we have pursued our efforts to merge
individual Caisses d’Epargne, marked in 2006 by the creation of the Caisse d'Epargne de Bourgogne
Franche-Comté and the launch of eight other merger projects. These developments – a logical
continuation of the history of Groupe Caisse d’Epargne itself – will significantly help to consolidate our
role as a local and regional banking institution. With stronger savings banks as far as human
resources and their capital funds are concerned, the Group will be in a strong position to provide its
services more efficiently to a customer base expressing an increasingly wide variety of needs.

To provide efficient support for this consolidation, Groupe Caisse d’Epargne has decided to put the
convergence of all the savings banks’ IT resources to a single information system at the very heart of

4
its strategy for the next three years. This project will not only guarantee enhanced technical and
commercial performance but also pave the way to substantial savings in operating expenses.

Alongside this major initiative, our aim is also to anticipate changes in the banking industry with
respect to both our major operational challenges and the expectations of our clientele. To do this, it is
vital to satisfy the current needs of the French economy in terms of investment. This is why the Group
intends to focus its efforts in 2007 on the real estate market: by creating a powerful core business in
this area, we will be in a position to strengthen the ties forged over the years with our customers and
to accompany new clients in the realization of their projects. We also intend to actively pursue the
expansion of our insurance business.

In this area, as well as in its other activities, Groupe Caisse d’Epargne has set itself an ambitious
objective: to achieve a high level of operational efficiency allowing it to combine rapid growth with a
high degree of profitability. This will allow us to capitalize fully on our identity as a socially responsible
bank and to pursue our actions in the area of social solidarity via, in particular, the funding of local and
social economy projects and the activities of the Caisse d’Epargne Foundation for Social Solidarity.

The successes achieved by Groupe Caisse d’Epargne in recent months have reinforced our status as
a front-ranking player in the banking industry, enhanced our visibility and heightened the expectations
of our customers and partners. Thanks to the active commitment of all its employees, the Group – we
are certain – shall both satisfy and exceed these expectations. We fully intend to build our future on
our continued ability to surprise.




                Charles Milhaud                                            Jacques Mouton
         Chairman of the Management Board                            Chairman of the Supervisory Board
   of the Caisse Nationale des Caisses d’Epargne              of the Caisse Nationale des Caisses d’Epargne




                                                                                                              5
     2006 KEY FIGURES


GROUPE CAISSE D'EPARGNE

    Earnings trends
                                                Pro forma 2004
                                                                           2005                 2006           2006/2005
in billions of euros                             French GAAP
Net banking income                                              9.7               10.0                 11.3              13%
Gross operating income                                          2.6                2.3                  2.8              25%
Income before tax                                               2.4                2.5                  5.2            106%
Net income (after minority interests)                           1.8                1.8                  3.8            115%
Consolidated equity (1)                                        18.0               20.0                 20.0             0,3%
(1) Including Reserve for General Banking Risks in 2004, and including other comprehensive income (OCI) in 2005 and 2006



    Return on equity and capital adequacy ratio


                                                                           2005                            2006
(%)
Return on equity (1)                                                                     10.4                           11.9
Capital adequacy ratio (2)                                                                153                            131

(1) RoE determined on the basis of average equity, excluding OCI; in 2006, RoE adjusted for non-recurring items (related, in
particular, to the creation of Natixis)
(2) Recorded under French GAAP in 2005
                                                                                                           2006
                        Tier One ratio (%)                                                                                8.7




CNCE GROUP

    Earnings trends
                                                 Pro forma 2004
                                                                           2005                 2006           2006/2005
    in billions of euros                          French GAAP
    Net banking income                                           4                 4.4                  5.4             23%
    Gross operating income                                     0.8                 0.9                  1.2             34%
    Income before tax                                          1.2                 1.5                  4.3            195%
    Net income (after minority interests)                      0.9                 1.1                  3.3            192%
    Consolidated equity (1)                                   11.5                13.2                 10.6            -20%
    (1) including Reserve for General Banking Risks in 2004, and including other comprehensive income (OCI) in 2005 and 2006



    Return on equity and capital adequacy ratio
                                                                           2005                            2006
(%)
Return on equity (1)                                                                     10.1                           11.4
Capital adequacy ratio (2)                                                                178                            119

(1) RoE determined on the basis of average equity, excluding OCI; in 2006, RoE adjusted for non-recurring items (related, in
particular, to the creation of Natixis)
(2) Recorded under French GAAP in 2005
                                                                                                           2006
                       Tier One ratio (%)                                                                                 8.9




6
OUTSTANDINGS OF GROUPE CAISSE D'EPARGNE

 in billions of euros      Loans outstanding                                   Investment and liquid savings
        2005                                                      204                                                  344

        2006                                                      230                                                  344



                                                                             Customer savings remain stable following
                        An excellent year for loans
                                                                             the incorporation of Natixis


                        Group outstandings advanced 13% to reach a           The outstandings of the commercial Banking
                        total of €230 billion, driven by strong demand for   division enjoyed strong 6% growth to €325 billion
                        real estate loans and consumer credit.               buoyed by the extremely good performance of
    Comments
                                                                             insurance activities and the sharp increase in
                                                                             demand deposits following the launch of
                                                                             interest-bearing current accounts.
                                                                             The outstandings of the investment Banking
                                                                             division declined in line with the inclusion of
                                                                             34.44% of IXIS CIB outstandings, reflecting the
                                                                             Group’s interest in Natixis.




 in billions of euros      Assets under management                             Assets under custody
        2005                                                      433                                            1,547 (1)

        2006                                                      468                                                1,787



                        IXIS AM Group delivers an excellent                  CACEIS, leader for institutional custody
                        performance in asset management                      services


                        Assets under management rose by 13% (at              Assets under custody reached a total of €1,787
                        constant euro rates). This growth reflects the       billion at the end of 2006, a 16% year-on-year
    Comments            combined impact of postive net fund inflows and      rise. CACEIS confirms its position in the top 10
                        good market performance, despite a negative          custodians worldwide.
                        currency impact following the sharp depreciation
                        in the value of the dollar during the year.          (1) Data for 2005 relate to IXIS Investor Services
                                                                             and Crédit Agricole Investor Services.




OTHER DATA
                                                                              2005                           2006

  Number of branches                                                                                         4 700

  Headcount                                                                  54 400                         55 800

   Number of cooperative shareholders
(in millions)                                                                  3.1                            3.4


 Credit ratings: AA/Aa2/AA (stable outlook)




                                                                                                                                  7
    PROFILE AND HISTORY OF THE GROUP

One of the largest retail banks in France, comprising the Caisses d’Epargne, Crédit Foncier,
Banque Palatine and OCÉOR banking networks as well as its own specialized subsidiaries,
Groupe Caisse d’Epargne ranks among the leading full-service, universal banks. Since its
establishment, Groupe Caisse d’Epargne's vocation for and experience in aligning economic
performance with social responsibilities has marked it out from other banks.

Groupe Caisse d’Epargne maintains a strong presence among private individuals and
professionals in mainland France and the overseas territories, offering a full range of saving,
financial and services products through its various banners. Groupe Caisse d'Epargne is also
a partner for regional development. It provides local authorities, hospitals, social housing and
social economy organizations, and businesses with a full product and service offering
designed to finance projects, simplify management and maximize investments.

Natixis, which is owned jointly with the Banque Populaire group, now spearheads the
Group's investment and corporate, asset management and financial services offering.

Backed by €20 billion in consolidated equity, net income of €3.8 billion and credit ratings that
rank among the very best in the French banking sector, Groupe Caisse d’Epargne has an
especially solid financial profile.

With nearly 56,000 employees, 4,700 branches and 26 million customers, Groupe Caisse
d'Epargne caters for all business sectors and types of clientele and is present on the world's
main financial markets.

The Group's ambition is to play an active role in the consolidation of the European banking
sector and continue to honor its founding pledge by expanding its commitment to social
progress.


1818: First Caisse d’Epargne created in Paris.
1950: The Minjoz law authorizes the Caisses d’Epargne to finance local authorities.
1978: Authorized to grant consumer loans and to open deposit accounts.
1983: The July 1 reform bill grants the individual Caisses d’Epargne the status of not-for-profit
financial institutions. Establishment of the Centre National des Caisses d’Epargne.
1991: The 180 Caisses d'Epargne are merged into 35 regional banks.
1999: The individual Caisses d’Epargne adopt the status of cooperative, universal banks. Creation of
the Caisse Nationale des Caisses d'Epargne and acquisition of Crédit Foncier.
2004: Acquisition of Banque Sanpaolo (renamed Banque Palatine in June 2005), Entenial (merged
with Crédit Foncier in June 2005) and IXIS.
2005: Creation of La Compagnie 1818 – Banquiers Privés and CACEIS.
2006: Creation of Natixis.




8
     CORPORATE STRUCTURE AT DECEMBER 31, 2006




                                             440 local savings companies (LSC)                     Fédération Nationale
                                                3.4 million cooperative shareholders              des Caisses d’Epargne
                                                                     80% (shares)


                                                             Caisses
                                                            d’Epargne
                                                                                       20% (CICs) 1
                                                                     100%

                                   Caisse Nationale des Caisses d’Epargne
                                                                                                              34.44%
                                                                                         INVESTMENT AND PROJECT
                      COMMERCIAL BANKING
                                                                                             BANK – NATIXIS 8
                     Banque Palatine                                                     Corporate and Investment Banking
   Banking           Financière OCÉOR 2
  networks *         Banque BCP (France 3 – Luxemburg 4)
                     CIH (Morocco) 5                                                             Asset Management

                                                                                         Private Equity and Private Banking
                     Ecureuil Assurances IARD
  Insurance          CNP 6 , Ecureuil Vie 7
                                                                                                       Services

 Specialized         Crédit Foncier                                                           Receivables Management
   financial         GCE Habitat
 institutions        GCE Immobilier                                                               Financial Guaranty




* Other than the Caisses d’Epargne.
1. Cooperative investment certificates (CICs) representing 20% of the capital of the Caisses d’Epargne entitling holders
   to receive dividends but including no voting rights.
2. The Financière OCÉOR holding company owns the Group’s investments in its overseas banks.
3. 50.1% owned by the Caisse d'Epargne Ile-de-France Paris and 30% owned by the CNCE.
4. 50.1% owned by Financière OCÉOR and 30% owned by the CNCE.
5. Indirect interest of approximately 25% held by GCE Maroc (OCÉOR).
6. 15.76% held by Sopassure, a 49.98% subsidiary of the CNCE.
7. Ecureuil Vie became a subsidiary of CNP Assurance in February 2007.
8. The Caisse Nationale des Caisses d'Epargne and Banque Fédérale des Banques Populaires each own a 34.44%
   stake in Natixis, which itself owns 20% of the capital of the Caisses d'Epargne and Banques Populaires in the form of
   Cooperative Investment Certificates (CIC).




                                                                                                                              9
I
     CORE BUSINESS LINES




     GROUPE CAISSE D’EPARGNE CORE BUSINESS LINES

1.1 The Caisses d’Epargne

A local bank for individual and professional customers, a specialist bank for regional
development, and a bank based on solidarity and social commitment

Caisse d’Epargne offers all the products and services expected from a bank, from current accounts
through to structured financing. Savings products are a central part of the bank’s relationship with its
customers and include mutual fund distribution, life insurance and state-regulated savings. Caisse
d’Epargne was the first French bank to pay interest on current accounts.

As a specialist bank for regional development, Caisse d’Epargne is a key partner to local authorities
and institutions, social housing and social economy players, and local businesses. It offers them
customized solutions for their development projects, optimized debt portfolio management, and a range
of products and services that covers all their banking needs. The Group is also the bank of choice for
many public-private partnerships (PPP).

True to its founding ideals of solidarity and social commitment, Caisse d’Epargne contributes actively to
social cohesion, and especially social housing, local development and sustainable development. The
Caisses d’Epargne Foundation for Social Solidarity is particularly involved in the fight against social
exclusion.

■    26 million customers
■    Third-largest banking network in France
■    4,294 branches
■    6,300 ATMs
■    3.4 million cooperative shareholders
■    Joint leader in the provision of financing for the regional public sector and the hospital sector
■    Leading private bank for social housing
■    Leading private operator in regional venture capital and private equity
■    2,718 local and social economy projects (PELS) in 2006


1.2 Commercial banking

The Group is developing a multi-brand strategy aimed at winning clients and building expanding,
long-lasting relationships with them. This strategy is underpinned by a wide-ranging and well-
structured offering developed by the complementary businesses in retail banking, insurance, credit
guarantees, consumer credit, personal care services and securities custody services for private
individuals. The CNCE has also set up a powerful real estate business with its subsidiary Crédit
Foncier.

Banque Palatine’s products and services are geared principally towards fast-growing, medium-sized
companies. The bank also serves affluent private individuals and provides asset management services
to institutional clients.

BCP France caters to Portuguese clients in France. It serves both private individuals and companies,
providing the latter with an array of corporate finance services encompassing start-up, development
and innovation capital, business transfers and buyouts.

10
Financière OCÉOR holds Groupe Caisse d’Epargne’s retail banking interests outside continental
France. It controls the largest banking network in the French overseas territories, BCP Luxembourg and
Crédit Immobilier et Hôtelier (CIH) in Morocco, to which it offers a full range of services.

Insurance is one of the fastest-growing businesses at Groupe Caisse d’Epargne, encompassing life
insurance, general insurance and financial guarantees. Groupe Caisse d'Epargne aims to become a top
insurance provider and has forged a strategic partnership with two mutual insurers, MACIF and MAIF,
respectively France’s leading providers of family insurance and insurance for associations. The Group
is also a key shareholder of CNP Assurances, France’s top personal insurance company.

In real estate financing, Groupe Caisse d'Epargne, with its subsidiary Crédit Foncier, is the largest full-
service provider in France, with three principal activities: the financing of residential, corporate and
investment real estate, real estate services and secured lending. Two large subsidiaries – GCE
Immobilier and GCE Habitat – have been created to deal respectively with competitive real estate
activities and financing for social housing and other general interest initiatives.

■   No. 1 banking network in the French overseas territories
■   No. 2 in life bancassurance, no. 3 in general bancassurance, no. 2 in credit and financial guarantees
■   No. 2 bank in the residential real estate financing market
■   No. 1 partner of real estate professionals
■   No. 1 issuer of secured bonds


1.3 Corporate and investment banking

Until November 17, 2006, corporate and investment banking was conducted through four main
specialized subsidiaries: IXIS Corporate & Investment Bank (capital markets and financing),
CIFG (specialized in financial guarantees), IXIS Asset Management (asset management
services) and CACEIS (custody services, fund administration and issuer services). At the end
of 2006, these subsidiaries were all brought together with the Banque Populaire group to
create a jointly-held, listed bank called Natixis.


IXIS Corporate & Investment Bank (IXIS CIB) focuses on high value-added activities with issuers,
banks, institutional investors, local government and large corporations. It is active in fixed-income and
equity markets, and also offers financial engineering and financing services.

CIFG Group, specialized in financial guarantees, facilitates the placement of structured products and
the financing of public-private partnerships or projects (PPPs) by providing unconditional payment
guarantees for investors. It thus enables issuers to raise capital at lower cost and gives investors
access to credit-enhanced products with new risk profiles.

IXIS AM Group provides a wide range of expertise to institutional and corporate investors, distribution
networks and leading private investors in France, Europe, the US and Asia. Real estate asset
management is handled by IXIS AEW Europe and AEW Capital Management in the US and Singapore.

CACEIS is a key player in Europe in securities custody services, fund administration and issuer
services. Its cross-border offering comprises products for all asset classes and caters to investment
management companies, institutional investors, insurance companies, pension funds, complementary
health and personal risk insurers, banks and large corporations.

■ IXIS CIB: no. 1 in France and no. 4 worldwide in secured bonds; no. 3 primary dealer in French
    government securities)

■ IXIS AM Group: no. 1 institutional asset management company in France with managed assets of
    €468.2 billion; no. 7 worldwide in real estate asset management with IXIS AEW Europe and AEW
    Capital Management

■ CACEIS: no. 1 custodian bank in France with assets under custody of €1,787 billion; among the
    top 10 custodians worldwide; no. 1 fund administrator in France and no. 3 in Luxembourg.

                                                                                                       11
     ACTIVITIES

2.1 The Caisses d’Epargne


2.1 1 A local bank for individual and professional customers

The network of Caisses d’Epargne is the cornerstone of the Group. It is the third largest banking
network in France, boasting 4,294 branches, 6,300 ATMs and a full range of online banking services.
Almost one out of every two French people is a customer of Caisse d’Epargne and more than three
million are cooperative shareholders. Faithful to their founding principle of social progress, and with a
philosophy open to all types of customers, the Caisses d’Epargne are constantly coming up with new
ways of making life easier for their individual and professional customers and assisting them with their
various projects. The Caisses d’Epargne offers the full range of products and services expected from a
bank: investments, insurance, provident insurance, asset management, loans, real estate financing and
payment methods. Ever innovative, it was the first French bank to pay interest on current accounts and
is the exclusive banking partner of the highly successful S’Miles customer loyalty program.
Particular highlights of 2006 were (i) the ongoing implementation of the Fréquence Client program,
which was extended to professional customers on the back of its success with individuals; (ii) a
continuing drive to find original new offerings, especially in mobile phone banking and internet banking;
(iii) the roll out of personal care services; (iv) an uptrend in consumer credit and the sale of general
insurance products; and (v) the success of the entire Caisses d’Epargne investment range.

Individual customers

Fréquence Client
The Caisses d’Epargne are set to invest over €750 million on improving their sales methods and
distribution network between 2005 and 2007, with the twofold objective of extending their customer
base and improving customer follow-up with a view to providing a more tailor-made service.

Under the Fréquence Client program the Group's 26 million individual customers are divided into seven
specific segments. This program can be run from each retail bank employee’s workstation, allowing
them to adapt the form of contact and products and services offered to each customer and to meet their
clients’ changing needs over time.
Major renovation work is also being carried out, with 1,297 branches refurbished or launched since the
start of the Fréquence Client program. Almost the entire network will have been renovated by the end of
2007. The new branches offer better service, greater security and increased automation. This makes it
easier for customers to carry out their transactions, with branch employees therefore able to dedicate
more time to providing personalized advice for their customers. An unprecedented training drive for
sales teams was introduced during the year to enhance these changes.

A new, leading edge offering is being introduced in the form of direct marketing and mobile phone
banking.
A new tool for managing marketing campaigns – Crescendo – has also aided commercial development.
This tool was used for all the Group’s multichannel campaigns in France in 2006, providing the Caisses
d'Epargne with over 100 readymade marketing solutions.
The various remote banking channels have also been optimized. Online banking services are becoming
increasingly secure and telephone banking is also popular. Customer relations centers can be
accessed via internet. The Group’s website is the second most visited banking site in France, and is a
powerful information and sales tool. A new national network for telephone banking and customer
relations centers is also being gradually rolled out.
Mobile phone banking also continued to gather speed in 2006. Two services – Direct Ecureuil Mobile
(WAP and I-mode) and AlertEcureuil (text messages) are available through all Caisses d’Epargne and
now come with improved security features. Caisse d’Epargne demonstrated its ingenuity in this area
in 2006 with the launch of movo, the first person-to-person money transfer service via mobile phone in
France.




12
Savings and life insurance
Savings product inflows, which represent a central part of the bank’s relationship with its customers,
increased considerably during the year due to the precision and scope of Caisse d’Epargne’s
investment offering and the fact that individual savings rates are still high due to customers’ increased
purchasing power.
Livret A savings accounts enjoyed two successive rate hikes and the reform in home savings accounts
generated a massive changeover to life assurance, which now ranks as the preferred form of financial
investment in France. Resilient stock market performances and the introduction of the Fourgous
amendment boosted the popularity of unit-linked and mutual funds.
Outstanding efforts by the entire network resulted in a record level of investment in Natixis shares by
customers, who also opened securities accounts. The Group’s subsidiary Gestitres, which processes
stock market orders and manages securities accounts, once again demonstrated its capacity to process
extremely large volumes of business.
A particularly dynamic mutual fund offering saw net inflows rise once again in 2006. There are
approximately 100 products in the mutual fund range, covering the needs of (i) knowledgeable
customers who already own mutual funds; (ii) customers looking for risk-free access to the financial
markets through guaranteed products; and (iii) customers wishing to take their first steps in the financial
markets.
The year was also an excellent one for life insurance at the Caisses d'Epargne with unit-linked policies
especially upbeat. The Nuances 3D, Nuances Plus and Nuances Privilège contracts continued to prove
extremely popular, boosted by a favorable stock market climate.
Caisse d’Epargne is known for the clarity and scope of its life insurance products, which cover the
whole gamut of customer segments. The Ricochet policy, for example, is an ideal introduction to life
assurance that enables customers to save in complete peace of mind, whilst Nuances Privilège offers
tailor-made private asset management solutions.

Private asset management
Caisse d’Epargne is going from strength to strength on the private asset management market.
Customers in this segment now account for the majority of life insurance output by the Caisses
d’Epargne.
Complementary private asset management expertise is provided by specialist account managers and,
at a technical level, by the Group’s asset engineering and management teams, who are experienced in
all types of assets and all asset management styles. La Compagnie 1818 – Banquiers Privés, the
Group’s specialized private banking subsidiary, provides customized solutions upon request to the
private asset management account managers at the Caisses d’Epargne. The subsidiary Iselection
specializes in real estate investments, and its dedicated advisors offer a full range of turnkey rental
investments and tax efficient solutions.
Caisse d’Epargne now offers a more diverse product range in order to provide its customers with more
comprehensive and specialized services. These range from asset analysis to personalized solutions,
and come in a very different format to the often unimaginative traditional offerings.
There are also now more asset management products to choose from and customers have access the
best funds on the market as selected by the experts at La Compagnie 1818. This represents an
alternative to discretionary management agreements. Two new policies have been added to this
sector’s life assurance offering, aimed at customers subject to wealth tax.
Finally, Caisse d’Epargne’s unique tax efficiency offering brought new products on board, the most
notable being industrial investments in French overseas departments and territories (in accordance with
the Girardin law).

Banking services
One in five French people use Caisse d’Epargne for day-to-day banking transactions and the Group
boasts the third-largest banking network in France. In 2006 it became the first bank to offer interest on
current accounts from the first euro without any offsetting charges. This contributed to the upswing in
sales of service packages and helped win new customers. This mutually beneficial arrangement was
bolstered by the launch of the overwhelmingly successful S’Miles customer loyalty program in
September. New bank cards were issued, reinforcing Caisse d’Epargne's position as front-ranking
issuer of Visa cards in France and the second-largest issuer of bank cards irrespective of brand. The
entire network joined in the drive to encourage customers to transfer their accounts to Caisse
d’Epargne thanks to the new Domilis product, taking advantage of the favorable backdrop of interest
bearing accounts. Inflows for individual demand deposits also improved.


                                                                                                       13
Caisse d’Epargne is the number one bank among young people, who account for 30% of new
customers. With this in mind, the Group developed new, specially-dedicated youth offerings in 2006 in
an endeavor to respond to three of this age group's most pressing needs: employment, housing and
mobility. Caisse d’Epargne is strongly committed to helping young people become independent,
manage their budget and finance their various projects.

The Ecureuil Sérénité Services personal care services range was launched at the start of the year in
partnership with mutual insurance companies MACIF and MAIF and will be available through all
Caisses d'Epargne by June 2007. Caisse d’Epargne also entered into a strategic partnership with
Accor Services with a view to offering business and local authority customers prepaid Cesu 1 . This
global offering encourages people to use personal care services, thus promoting growth in this area.
At the end of the year Caisse d’Epargne launched three simple and competitive supplementary health
insurance policies in partnership with the MACIF Group. These are adapted to meet the requirements
of different age brackets, with three levels of guarantee offering increasing levels of coverage on dental
and eye care for (i) young people without children; (ii) families; and (iii) old-age citizens. This offering
will be available branchwide in 2007.

Loans and general insurance products
Loan activity was brisk in 2006, with a marked upturn in non-revolving consumer loans in particular.
More than one in ten French people use Caisse d’Epargne for their mortgage, with the result that the
Group is now the second largest bank for home loans in France. It now offers customers the recently
introduced hypothèque rechargeable (home equity loan) on new mortgages.
Caisse d’Epargne has extended its choice of consumer credit products to meet the full range of
individual financing needs, such as new or used vehicles, the costs involved in setting up a new home,
home appliances, repairs and improvements, and other general cash requirements. In 2006 the
Ecureuil credit développement durable loan was added to the range. This is available to individuals
wishing to improve energy efficiency in their homes and is backed by Ademe, the French agency for
environment and energy management. The Teoz credit card, managed by Caisse d'Epargne
Financement (CEFi), is at the center of the Group’s consumer credit offerings and involves revolving
credit in particular. CEFi has provided all the Caisses d'Epargne with a unique IT solution that allows
them to vastly increase sales opportunities for personal loans.

The general insurance business, developed by the subsidiary Groupe Ecureuil Assurances IARD,
notched up impressive gains over the year thanks to improved coordination and a popular scheme that
allowed reductions to customers taking out several policies. Ecureuil Assurances IARD is the second-
largest medical and health insurance provider and third-largest provider of car insurance,
comprehensive home insurance and legal protection.
A major awareness-raising campaign was carried out with regard to the provident insurance range in
2006.




1
  A Cesu, or chèque emploi service universel is a type of voucher, or check, that can be used to pay
for a range of personal care services in France.
14
Professional customers

Caisse d’Epargne is a key partner for retailers, tradespeople and self-employed professionals, in both a
professional and private capacity. Paying interest on current accounts has considerably lifted the
number of new customers, net inflows, and credit, with a major increase in loan production, surplus
savings, and average current account deposits, as well as a significant upturn in the private banking
business.
Specialized training was introduced for branch managers and account managers in this sector, linked to
the Fréquence Client Pro program, which helps them achieve specific targets. Twenty-four businesses
have been selected as being particularly dynamic and profitable, with the aim of developing a balanced
portfolio of tradespeople, retailers and self-employed professionals and providing professional
customers with the best possible service. A sales offensive was put in place in 2006, which drew on a
solid communications policy, partnerships with numerous professional associations, and a welcome
offer to generate new customers and increase the number of new service package subscriptions. The
products and services on offer include electronic cash transfers, remote transmission software such as
Datalys (specially-designed for accountants), account management and overdraft facilities, insurance,
legal and tax assistance and online collaborative accounting tools. Caisse d’Epargne also targets new
business from franchisees, with the backing of its subsidiary SACCEF, with respect to the issuance of
credit guarantees. The Group has entered into partnerships with 28 national and regional franchise
networks. A special service package has been set up for clients in this field, which includes the
payment of interest on current accounts. A national division was launched in 2006 to ensure the link
between the franchisor, the needs of the franchisee and Caisse d’Epargne.

Caisse d’Epargne continued to improve its electronic banking and online commerce service with new
and competitive offerings. There has been an increase in the number of electronic banking contracts
thanks to the Paiement trois fois service that allows retailers to offer their customers the option of
paying for their goods in three installments.
Transactions via SP Plus, the Group’s secure server, continued to escalate, whilst SP Plus Site, a
turnkey solution that includes an internet site and a secure payment mechanism, was successfully
launched. With its subsidiary GCE Newtec, which specializes in NICTs (new information and
communications technologies), Caisse d’Epargne offers cutting edge and highly efficient services in this
domain. An antifraud solution allows real-time identification of buyers each time an internet payment is
made, and the 3D Secure program authenticates international payments made by Visa or Mastercard.

Caisse d’Epargne offers an entire assortment of loans to professional customers, covering all their
needs from business creation to capital goods loans and business transfer or buyout. The Ecureuil
Crédit Express loan finances renovations, purchases of equipment or vehicles, and construction work.
A new form of guarantee that fully covers mortgages used to finance professional or mixed-use
premises was launched in 2006.
There was a strong showing in loans to professional customers overall in 2006. This holds particularly
true for consumer credit, mortgages, and loans to professional customers in a private capacity.
Caisse d’Epargne also offers an ample selection of savings, insurance, provident insurance, and
retirement planning products to its professional customers, as well as advice on asset management and
transfer.


2.1.2 Specialist Bank for Regional Development

Groupe Caisse d’Epargne has a strong regional presence, and is partner to regional social and
economic development groups of all sizes. Two out of every three communes 2 are Caisse d'Epargne
clients. Proximity and innovation are central to Caisse d’Epargne’s philosophy, and the Group provides
local authorities, hospitals, social housing organizations, real estate professionals and local businesses
with a complete range of products and services to finance their projects, simplify their management,
and maximize their investments.
In 2006, Groupe Caisse d’Epargne put in place a new cross-functional organization – the regional
development bank – with the aim of improving customer satisfaction among local and regional
economic players by strengthening the teams and resources at their service and mobilizing Group-wide
expertise for their benefit.



2
    A French administrative division, roughly equivalent to a town.
                                                                                                      15
Local authorities and institutions

Groupe Caisse d’Epargne has long been a partner to local authorities and institutions, helping them to
meet the needs of citizens. As the joint number one provider of finance to the regional public and
hospital sector, Groupe Caisse d’Epargne supplies banking advisory services to local authorities and
institutions, offering them tailor-made solutions for their development projects, enhanced management
of their debt portfolio, and a wide range of products and services to facilitate their day-to-day
administration.
Local public and hospital sector expenses, which account for almost 70% of public investment, increase
on a regular basis, resulting in a greater need for credit and the recent development of public-private
partnerships for all types of projects.
Groupe Caisse d’Epargne strengthened its presence on the local authorities and institutions market in
2006, in particular with respect to outstanding loans. This was thanks to stronger sales teams
(specialists from IXIS CIB worked alongside regional teams) and the synergies between CNCE, IXIS
CIB and Crédit Foncier. Groupe Caisse d’Epargne works with the whole range of local authorities and
institutions: towns, inter-municipal organizations, departments, regions, public health institutions, semi-
private development and service companies, and in 2006 in particular, public transport authorities. New
structured loans to local authorities and institutions were introduced reflecting the success of the range,
which has been improved with new interest rate strategies.
Caisse d’Epargne maintained its dynamic debt management strategy, which includes active
management of structured products, with made-to-measure facilities, outstanding debt analysis and
customer follow-up throughout the life of the loan. Groupe Caisse d’Epargne also offers dynamic asset
management advice in conjunction with Crédit Foncier’s advisory division. Given the growing financing
needs of the regional public sector, the active management of public land and real estate assets has
become just as important as debt management and can help the local public sector generate significant
margins for maneuver. In response to the demand for longer loans, some of which now exceed 30 or 40
years for local authorities and institutions, social housing organizations and public-private partnerships,
2006 saw Compagnie de Financement Foncier launch the first public issue of 50-year obligations
foncières (covered bonds).
Caisse d’Epargne is also developing new services that allow local authorities and institutions rapid
access to short-term financing via internet and manage their funds through standardized automatic
debit and reimbursement procedures. Users can pay for municipal services, from canteens to sports
facilities, using the bank’s secure online payment facility. This service has soared in popularity since the
development of high-speed internet access.
The Cesu is a new, high-potential social policy tool by which employers can cover part of the cost of
their employees' personal care services. Launched at the start of the year in collaboration with Accor
Services, the world leader in payment vouchers, the Cesu has been overwhelmingly successful in the
local authority and institution sector.
New investment offerings adapted to the needs of local authorities and institutions were developed in
conjunction with GERER, Ecureuil Gestion and IXIS Asset Management. These include the first
investment fund created specially for semi-private companies, which aims to boost these companies'
cash management returns.

As joint number one provider of finance to public health institutions, Groupe Caisse d’Epargne
experienced sustained growth in 2006 thanks to the implementation of a dedicated structure, which
includes the appointment of a “health correspondent” in each branch. The projects financed included
the modernization of an inter-municipal hospital facility, the financing of a group health cooperative and
the construction of a surgical facility in accordance with High Environmental Quality standards.
The Caisses d’Epargne Foundation has joined forces with the French Hospital Federation to carry out
ground-breaking projects that benefit society as a whole. This is indicative of Groupe Caisse
d’Epargne’s commitment to the healthcare and social welfare sector.
Groupe Caisse d’Epargne is furthermore developing its business on the local authorities and institutions
market outside France on the strength of CIFG’s credit enhancement activities, Compagnie de
Financement Foncier’s performance, and the financial engineering of IXIS CIB.




16
Social housing and the social economy

Caisse d’Epargne is the foremost bank for social housing in France and the number one loan provider
for associations (voluntary organizations) and adults in state protection programs. It is a key partner to
all social economy players, allowing vulnerable citizens access to banking services and supporting a
wealth of local initiatives in favor of social solidarity and job creation. The Caisses d’Epargne have
specially-trained account managers dedicated to these customers, and are strengthening their sales
approach with major accounts by joining forces with subsidiaries that offer complementary services.

Social housing
Groupe Caisse d’Epargne is the historical partner of the HLM social housing movement where it fulfils
the role of banker, shareholder and social housing operator. Its main activities in this field are cash and
private debt management for Social Housing Enterprises (ESH) and HLM cooperatives, whose
construction programs are financed by the collection and distribution of funds on Livret A passbook
accounts. Groupe Caisse d’Epargne also offers a full range of loans for the construction of subsidized
housing (some with state-regulated credit), a wide choice of fixed and adjustable rate loans and
structured credit, and a new Euribor- and inflation-linked loan. In 2006 these products enjoyed
sustained growth with social housing bodies, local authorities and management associations. Caisse
d’Epargne also offers special loans to help facilitate home ownership by low-income households
(PSLA).
In the context of the social cohesion plan launched by the French government in 2004, these
organizations are stepping up their housing production and thus naturally using up significant amounts
of their cash flow. In light of this, new investment products have been designed with the subsidiary
GERER. These include term accounts and structured Euro Medium Term Notes (EMTN).
Caisse d’Epargne moreover assists social housing organizations with their day-to-day activities, such
as automatic cash management, remote transmission, payment of rent by means of interbank payment
slips or internet, and employee savings.
The Caisse d’Epargne network is the largest private shareholder in the social housing sector and plays
an active role in the corporate governance of social housing organizations and semi-private companies.
The Caisses d’Epargne are shareholders and directors of more than one out of three ESH and, as a
result of the corporate governance reform provided for by the Borloo law, a key shareholder in 65 of
them. They are also directors on the board of most Public Agencies for Development and Construction
(OPAC) and the largest private shareholders in semi-private real estate companies, whose majority
shareholders are local authorities. Finally, the Group is one of the main private operators in the social
housing sector (ownership or management) with its national subsidiaries GCE Habitat and Erilia and its
eight subsidiaries held by the Caisses d’Epargne.

The social economy
Caisse d’Epargne works closely with social economy players and counts more than one in four French
associations among its customers. Growth has been sustained, and the Group is now among the
leading providers of loans to this forward-moving sector, which is comprised of voluntary organizations
and foundations, mutual health insurance companies, the not-for-profit healthcare sector, private
education establishments, cooperatives, works committees, and not-for-profit leisure organizations. The
Group employs specially dedicated social economy staff.
In 2006, the Group’s social economy business experienced a sharp upturn in terms of net inflows and
production of loans, a portion of which is guaranteed by GCE Garanties. These loans are mainly
concentrated in the health and social sectors and private education. State-sponsored rental
accommodation loans were provided to help finance retirement homes and special accommodation for
disabled persons. In addition, Caisse d’Epargne stepped up its presence among large-size
associations, with tailor-made proposals aimed at optimizing their debt structure; specific loans for
healthcare, social, education and training establishments; and innovative investments such as
structured and guaranteed formula products. A range of secure products and services, centered on
current account management and rounded out by a selection of specific insurance products (including a
civil liability policy for senior management) and online contribution payment services, has been specially
designed for small associations.
Caisse d’Epargne is the number one bank for persons under legal protection thanks to the quality of its
specialist teams and their relationships with family managers and guardianship bodies. It provides
solutions adapted to the particular needs of these customers, such as a secure bank card or a special
interbank card. The Group also made considerable strides in 2006 to prepare for the reform in the
French law regarding the protection of vulnerable persons.


                                                                                                       17
Corporate customers
Caisse d’Epargne assists regional businesses from their creation to transfer or buyout, offering them an
extensive choice of loans and services and providing them with equity solutions via its regional and
national investment structures. One company in ten is a customer of Caisse d’Epargne. The Group’s
sales teams include specialist account managers from both the Caisses d’Epargne and Banque
Palatine, which assists the Caisses d’Epargne within the scope of cooperation agreements. This
arrangement enabled the Group to considerably increase its market penetration in 2006.
The creation of Natixis will help the Caisses d’Epargne pack a more powerful punch in important areas
such as accounts receivable management, employee savings and specialized financing. Several
individual Caisses d’Epargne joined forces in 2006, with a view to creating stronger and more efficient
regional banks, increasing market share, and fostering primary-bank relationships with their corporate
customers.
The corporate customers activity enjoyed brisk growth in 2006 and the sales offensive launched by the
Caisses d’Epargne resulted in the conquest of new small- and medium-sized companies, the
development of bank services with increased sales flows and a stronger financing business. Net inflows
also improved thanks to the payment of interest on current accounts.
Caisse d’Epargne also significantly expanded its range of products and services for corporate
customers as regards investment projects, online VAT payment and online guarantees. And in the
international trade financing domain, GCE entered into a partnership that allows corporate customers to
benefit from ABN Amro technology, the ABN Amro Group being one of the three leading players
worldwide in the management of international trade flows. A skills center, with a highly-effective
management tool developed by ABN AMRO under the Caisse d’Epargne flag, is available to all
branches.
A team of account managers specialized in international trade was set up within Banque Palatine,
which assists Caisse d’Epargne account managers through its tailor-made solutions for small- and
medium-sized companies.
Groupe Caisse d’Epargne is the top local investment fund player in France. It enjoys a strong presence
in a large number of regional funds and has invested heavily in small companies. It was one of the first
players to launch funds in this area. The regional capital investment teams manage local investment
funds aimed at the institutional sector. In 2006, the Group created a new nationwide tool – GCE Capital
– with the aim of strengthening the Group’s private equity and LBO/LBMO activities, and launched a
fund of funds.

Real estate and complex transactions
A new division for real estate and complex transactions brings the real estate and PPP offerings
together within the same structure in the CNCE. The purpose of this is to provide customers (mainly
local authorities) with global solutions for their development projects.
In parallel, the creation of GCE Immobilier, which groups together the Group’s real estate services
companies, reinforces and rounds out the range of services. Business lines have been set up to deal
with real estate promotion, development, investment and transactions, and to promote synergies
between the real estate subsidiaries. Groupe Caisse d’Epargne, the second-largest provider of
financing for professionals in the real estate sector, witnessed a major growth in demand for real estate
project financing. Caisse d’Epargne also works closely with real estate management and transaction
professionals, to whom it offers a full range of services, including escrow accounts and financial
guarantees. These activities are performed in accordance with the requirements of the Hoguet law,
which applies to individuals and companies buying or selling real estate in France.
Specific efforts have been made to improve the follow-up of real estate projects throughout the Group.
This reorganization drive was enhanced by the development of a Basel II rating tool for the Caisses
d’Epargne and the subsidiaries.
The number of public-private partnership agreements are on the increase with hospitals, schools, police
stations, trams, and sports facilities. These partnerships help fill the gap in State and local authority
resources, and provide a means of increasing public investment without increasing debt, and of
opening up new markets to banks and businesses. The Group acts as investor, arranger, advisor and
lender and has played a role in all key projects of this kind, in particular the first major public-private
partnership implemented by a local authority and the first public-private partnership in the hospital
sector.
The Caisses d’Epargne are backed up by two specialist investment structures. FIDEPPP, the leading
investment fund in the PPP field, was set up in 2005 and has capital of €170 million fully underwritten
by the Group, 25% of which it has invested in infrastructure projects. Cicobail, part of the Crédit Foncier
group, specializes in real estate lease financing for medium size public-private partnerships such as
police stations or government buildings.

18
2.2 Commercial banking

Alongside the Caisses d’Epargne network, the Group is developing a multi-brand strategy aimed at
winning clients and building expanding, long-lasting relationships with them, thanks to a wide-ranging
and well-structured offering developed by the various complementary businesses:
■ retail banking through Banque Palatine (specialized in medium-sized companies), BCP France (for
   Portuguese clients in France), La Compagnie 1818 - Banquiers Privés (private banking) and
   OCÉOR (retail banking in the French overseas territories);

■ insurance, credit guarantees, consumer credit, personal care services and securities custody
   services for private individuals offered through specialized subsidiaries, some of which are now
   housed in Natixis;

■ Two subsidiaries were created in 2006 – GCE Immobilier, which engages in competitive real estate
   activities, and GCE Habitat, which is dedicated to social housing.


2.2.1 Retail banking

Banque Palatine, providing banking advice to the SME segment and private individuals
Banque Palatine is owned 62.69% by the CNCE and 37.31% by the Intesa Sanpaolo group. Its
products and services are geared principally towards fast-growing, medium-sized companies. It also
serves affluent private individuals and provides asset management services to institutional clients.
Banque Palatine now has a 63-strong branch network and works closely with the Caisses d’Epargne
and La Compagnie 1818 – Banquiers Privés.
One of Banque Palatine’s key areas of expertise is the financing of foreign trade and related services
through the “Trade” program, organized in partnership with ABN Amro. As a provider of banking
advisory services for medium-sized companies, Banque Palatine lead-managed a number of IPOs
during 2006 and also arranged financing for several acquisitions, including one structured as a
leveraged buyout (LBO). The bank’s wealth management advisory services have been enhanced to
cater more effectively to high-tax-bracket individuals and corporate directors. This entailed the
formation of a new partnership with Group subsidiary Iselection, which specializes in investment real
estate. The life insurance offering has likewise been expanded through the addition of a new, forward-
looking product designed by Ecureuil Vie. Palatine Asset Management (PAM) has won a number of
awards for its consistently innovative solutions in the institutional investor segment and is well ranked in
the mutual funds league.

La Compagnie 1818 – Banquiers Privés, meeting the private banking needs
of high-net-worth clients
La Compagnie 1818 - Banquiers Privés was set up in 2005 and saw strong growth in 2006 across its
three business lines:

■ wealth management for high-net-worth clients via an open architecture-based, comprehensive
   offering, with best-in-class products and managers;
■ private asset management, alongside Groupe Caisse d’Epargne channels, notably the Caisses
  d’Epargne network;
■ asset management services for independent asset management advisors operating under the
  Centre Français du Patrimoine banner.

During 2006, La Compagnie 1818 – Banquiers Privés saw a sharp increase in net inflows across
various channels, particularly the Caisses d’Epargne network, and in assets under management.
Business base expansion was aided by the September 2006 acquisition of the operations of Bryan
Garnier Asset Management. La Compagnie 1818 – Gestion Privée achieved strong performances in
mutual funds and discretionary asset management.

La Compagnie 1818 - Banquiers Privés has been transferred to Natixis, along with the two Banques
Populaires wealth management subsidiaries – Banque Privée Saint-Dominique and Natexis Private
Banking Luxembourg.



                                                                                                        19
OCÉOR, the international and overseas territories’ retail banking division
2006 was an especially eventful year for the OCÉOR Group, Groupe Caisse d’Epargne’s banking
network outside continental France.
Financière OCÉOR now houses two specialized financing entities, OCÉORANE and INGEPAR, in
addition to the non-French retail banking operations acquired by GCE in 2006 – BCP Luxembourg and
Crédit Immobilier et Hôtelier (CIH) in Morocco.
In response to these changes and to further its development, particularly in the international sphere,
Financière OCÉOR, the Group’s holding company, has crafted a strategic action plan to enhance its
effectiveness as the spearhead of a banking network. In 2006, the organizational structure was redrawn
along business lines with centralized operational decision-making power and responsibility for the
coordination and control of the various functions within the banks and subsidiaries. OCÉOR Group’s
retail banking business posted strong growth in 2006. Product introductions included general insurance
products, loan insurance, account guarantees, payment methods insurance and life insurance
solutions.
2006 also saw the creation of a “Key accounts” unit, with special responsibility for arranging medium-
and long-term financing for OCÉOR Group banks. Significant transactions during the year included debt
restructuring, undersea cable project financing and the financing of acquisitions of major industrial
group subsidiaries by local investors.
The early 2006 acquisition of Orane Group, which has been renamed OCÉORANE, made OCÉOR the
first bank to provide an integrated package combining financing and tax planning for SMEs in the
French overseas territories doing business with mainland investors. OCÉORANE has extensive
expertise in the field of tax-efficient transactions under the “Girardin Law”, which enables inward
investment in business equipment in France’s overseas territories. INGEPAR, which was previously
part directly-owned by the CNCE, specializes in tax-efficient, complex asset financing for aircraft, ships,
trains, hotel projects, energy production and public service concessions, particularly in the French
overseas territories.
Financière OCÉOR holds Groupe Caisse d’Epargne’s retail banking interests outside France. It controls
BCP Luxembourg SA, which provides banking services principally to clients of Portuguese origin.
Financière OCÉOR holds 50.1% of BCP Luxembourg SA’s capital and the CNCE 30%. It also carries
Groupe Caisse d’Epargne’s 23.45% stake in Crédit Immobilier et Hôtelier (CIH), which is also owned by
Caisse de Dépôt et de Gestion du Maroc. CIH’s development is geared towards one-stop personal
banking, with a broad spectrum of leading-edge products and services.

BCP France, catering to Portuguese clients in France
In 2006, BCP France, like BCP Luxembourg, was integrated into Groupe Caisse d’Epargne under a
long-term partnership with Portuguese banking group Millennium bcp.
BCP France is 30%-owned by the CNCE and 50.1%-owned by Caisse d’Epargne Ile-de-France Paris. It
serves both private individuals and companies, providing the latter with an array of corporate finance
services encompassing start-up, development and innovation capital, business transfers and buyouts.


2.2.2 Insurance

Insurance is one of the fastest-growing businesses at Groupe Caisse d’Epargne, which is one of
France’s top addresses for bancassurance (no. 2 in life insurance, no. 3 in general insurance and no. 2
in financial guarantees). Through Natixis, Groupe Caisse d’Epargne is both a distributor and an
operator in the sphere of general insurance and guarantees. It is also a key shareholder of CNP
Assurances, France’s top personal insurance company.
During 2006, the status of life insurance as private individuals’ preferred investment vehicle was
reaffirmed. The principal partners of Groupe Caisse d’Epargne’s networks in this sphere are CNP
Assurances, in which the CNCE and La Poste have a jointly-owned 36% stake, and Ecureuil Vie. On
February 20, 2007, the CNCE sold its 50% stake in Ecureuil Vie to CNP Assurances. At the same time,
the distribution agreements between Groupe Caisse d’Epargne and CNP Assurances with respect to
life insurance and loan insurance were extended until 2015, with distribution fees revised upwards.
The resounding success of the Ecureuil Vie products, which are distributed by the Caisses d’Epargne
network, is reflected in both net fund inflows and the volume of assets under management during 2006.
Also noteworthy is the robust growth in unit-linked policies over the year.
Foncier Assurance, owned 60% by the CNCE and 40% by Crédit Foncier, provides life insurance and
loan insurance solutions for GCE entities and external partners. The subsidiary specializes in original,
customized life insurance solutions, the quality of which was officially recognized on many occasions in
2006.

20
Foncier Assurance has been transferred to Natixis and integrated into Natixis Assurance.
Groupe Caisse d’Epargne’s networks also distinguished themselves in the distribution of general
insurance products designed by Ecureuil Assurances IARD, achieving strong growth in new policies
sold, both separately and in conjunction with a loan.
Muracef insures the risks of Groupe Caisse d’Epargne’s establishments and also provides non-bank
insurance for private individuals. After launching mobile telephone insurance in 2005, Muracef added
savings insurance to its offering in 2006, with the policyholder’s entire savings covered in the event of
accidental death. 2006 also marked Groupe Caisse d'Epargne’s entry into the health insurance market,
through the provision of Muracef-designed complementary health insurance for private individuals and
business clients in partnership with MACIF.
Groupe Caisse d'Epargne aims to become a top insurance provider and has forged a strategic
partnership with two mutual insurers, MACIF and MAIF, respectively France’s leading providers of
family insurance and insurance for associations. The partnership is intended to provide the three
parties’ members and clients with a complete range of services to meet their needs with respect to
insurance, banking, assistance and personal care services. In 2006, the three partners joined forces
with Mutuelle Générale de l’Education Nationale to provide personal care services through the Séréna
platform. By end-2007, the collaborative arrangement will extend to legal expense insurance and long-
term vehicle hire for private individuals.
GCE Garanties, which provides loan guarantees for social economy and social housing projects, has
three specialized insurance companies: Saccef (loan guarantees for private individuals and self-
employed professionals, including the majority of residential mortgages granted by GCE), CEGI
(statutory warranties for builders of single-family homes, regulatory guarantees in the sphere of off-plan
housing sales, customs and excise tax guarantees) and Socamab Assurances (statutory warranties for
real estate management companies).
GCE Garanties has been transferred to Natixis to form Natixis Garanties, which is part of the Services
division.


2.2.3 Real estate

Groupe Caisse d'Epargne is the largest full-service provider of real estate financing in France. It ranks
second in residential real estate financing and first in the real estate professionals segment, and is a
leading player in social housing financing. The Group is also a service provider, institutional investor
and asset manager.
Crédit Foncier is France’s top real estate financing specialist and engages in three principal activities:
the financing of residential real estate, the financing of corporate and investment real estate, and – in
association with Compagnie de Financement Foncier – secured lending. New loans granted to private
individuals showed healthy growth in 2006, with firm margins and lengthier loan terms. Crédit Foncier
has a strong presence in subsidized lending and ranks second in the distribution of guaranteed interest-
free loans and below-market rate home loans for low-income households. However, non-subsidized
lending represents three-quarters of business.
Amid buoyant market conditions, growth was achieved in corporate real estate and real estate
investment financing, helped by cross-fertilization with the Caisses d’Epargne network. Crédit Foncier is
also the leader in the very specialized market for co-owned real estate financing and has developed a
range of banking services specifically for regulated professionals and real estate agents.
In the sphere of structured real estate financing, operations have been extended across all corporate
real estate asset categories, encompassing logistics platforms, offices and the medico-social sector. In
the field of financing products for public-private partnerships (PPPs), Crédit Foncier has acquired a
stake in FIDEPPP (an investment fund dedicated to the development of public-private partnerships) and
has participated in several transactions involving a partnership arrangement between companies and
the building contractor.
In the highly competitive social housing sector, Crédit Foncier has strengthened its operational base
alongside the Caisses d’Epargne. Crédit Foncier is a front-ranking distributor of state-regulated loans
and is also active in the open market for very long-term financing solutions.
Despite a less favorable backdrop, Cicobail, Groupe Caisse d’Epargne’s real estate lease-financing
subsidiary, achieved growth in loan originations. The first lease-financed, medium-sized PPPs made a
significant contribution.




                                                                                                      21
Another significant event in 2006 was the opening of an office in London. This move is part of Crédit
Foncier’s strategy to achieve a 50% increase in its share of real estate lending to UK citizens resident in
France. UK and Irish citizens represent 48% of foreign real estate buyers in France.
In the ever-burgeoning property development market, Crédit Foncier continued to make headway
during the year, notably in the sphere of non-syndicated lending. The Group works with major national
real estate developers and a large number of regional developers, and has close ties with the Caisses
d'Epargne network.
Crédit Foncier’s secured financing subsidiary, Compagnie de Financement Foncier, is rated AAA and
ranks second in secured debt issues in Europe. The subsidiary attracted a record level of business
during 2006. Transactions included a 50-year debt issue, the longest ever in the secured bond market.
The issue was carried out to fund Groupe Caisse d’Epargne’s business development, which typically
requires maturities of more than 30 or 40 years. This is especially true of reverse mortgages, which
likewise require very long-term financing.
2006 was also devoted to the exploitation of synergies with the various Groupe Caisse d’Epargne
entities, the Caisses d’Epargne, the CNCE and IXIS CIB with respect to debt management solutions.
Thanks to Compagnie de Financement Foncier’s AAA rating, Crédit Foncier was also able to provide
receivables financing for the local and regional government clients of several Caisses d’Epargne banks
on optimal financing terms.
Emphasis was placed during the year on enriching the expertise services provided by the Foncier
Expertise and Serexim subsidiaries, as well as on progress in new areas like retirement homes, private
clinics and industrial facilities.


GCE Immobilier, the services entity set up in February 2006, is a holding company wholly owned by the
CNCE. It houses and develops all competitive real estate activities and semi-public operations. It further
provides assistance with real estate asset management approaches, notably to Groupe Caisse
d’Epargne entities. All the activities of Perexia have been transferred to GCE Immobilier, with the
exception of social housing enterprises, which are now part of GCE Habitat.
Crédit Foncier has sold its majority stake in real estate services subsidiary Foncier Services Immobiliers
to GCE Immobilier to create a services holding company, GCE Services Immobiliers, which is wholly
owned by GCE Immobilier. GCE Services Immobiliers thus heads the sub-group composed of KEOPS,
GEMCO, GESTRIMELEC, GCEI REIM, GCEI Conseil Immobilier and CILOGER, whose operations in
the corporate and residential real estate markets embrace marketing, rental property management,
advisory services, asset management and the management of unlisted non-trading real estate
investment companies (“SCPIs”).
GCE Immobilier has further acquired a 34% stake in Iselection, which specializes in the sale of rental
real estate products to individual investors. In the sphere of residential real estate transactions, Groupe
Caisse d’Epargne has acquired a 34% stake in Arthur Communication (with 22% held by GCE
Immobilier and 12% by Crédit Foncier), which awards trademark licenses for Arthur l’Optimist, France’s
fifth-ranked real estate agency network. This transaction has given Groupe Caisse d’Epargne a solid
position in a sector that offers a multitude of synergies with the Caisses d’Epargne network and other
real estate activities. GCE Immobilier has also purchased a 34% stake in the Aegide group, which
specializes in the development of non-medicalized residential care homes for the elderly.

Perexia’s financing operations related to social housing enterprises (“ESH”) and subsidized housing
(“HLM”) cooperatives have been transferred to a large subsidiary called GCE Habitat, which was
created in 2006 to deal specifically with social housing and other general interest initiatives. GCE
Habitat is wholly owned by the CNCE and operates in four main areas: state-sponsored rental
accommodation, below-market rate home loans for low-income households, medicalized residential
facilities and healthcare establishments, and real estate services. Thanks to the subsidiaries of GCE
Habitat and Erilia, Groupe Caisse d’Epargne is an active participant in all areas of social housing and is
well placed to respond to two major challenges currently facing French society: (i) a housing crisis and
sky-high real estate prices, which are forcing an ever-growing number of families to seek out social
housing; and (ii) the ageing of the population and the resulting increasing need for new long-term care
solutions.




22
2.2.4 Other specialized subsidiaries

Consumer credit offered through the Caisses d'Epargne network is managed by CEFi, the Group’s
specialized subsidiary. CEFi provides a full range of personal loans and manages the Teoz card, which
is the centerpiece of several revolving credit offerings marketed separately or in conjunction with a
personal loan. The Izicefi application and Izibox server enable the branch network to optimize sales of
personal loans and the related lending margins.
A new consumer credit subsidiary, Creditis, has also been set up by Groupe Caisse d’Epargne and the
Carige group in Italy. Creditis intends to carve out a significant share of the Italian consumer credit
market with the help of CEFi’s expertise and know-how.
At end-2006, CEFi joined the Natixis group and has been amalgamated with Novacrédit and Creditis to
form Natixis Consumer Finance. The objective of Natixis Consumer Finance is to rise to a leading
position in Europe in consumer loans distributed by banking networks.
Gestitres is a leading player in securities custody for private individuals and is at the service of the
Caisses d’Epargne network’s clients and members. In 2006, Gestitres provided essential support in
connection with the marketing by the Caisses d’Epargne network of Bourse Esprit Ecureuil, an
investment product for newcomers to the financial markets. The product benefited from the success of
the Natixis IPO, with a record increase in the number of orders placed. The Natixis IPO also provided
an opportunity for Gestitres to confirm its capacity to handle large transaction volumes.
LCL sold its 34% stake in Gestitres to Groupe Caisse d’Epargne, which thus gained full control of the
subsidiary. Gestitres was subsequently transferred to Natixis, by which it has been wholly owned since
November 17, 2006.


2.3 Corporate and investment banking

In November 2006, Groupe Caisse d’Epargne and the Banque Populaire group brought together their
corporate and investment banking activities, asset management operations and financial services to
create a jointly-owned, listed bank, Natixis, which is a leading sector player in Europe. Groupe Caisse
d’Epargne’s investment bank subsidiaries – IXIS Corporate & Investment Bank, IXIS Asset
Management Group, CACEIS and CIFG – were all transferred to Natixis.
Natixis has business dealings with all companies included in the CAC 40 index, with more than 80% of
SBF 250 index companies and with the majority of leading institutional investors. It ranks among the
top 4 in corporate and investment banking services in France. It is the largest domestic asset manager,
ranks among the top 15 worldwide in asset management, and is third in credit insurance.
Groupe Caisse d’Epargne’s and the Banque Populaire group’s large cooperative banking networks
each own 34.44% of Natixis, which in turns owns 20% of each of the two networks. Natixis’ investment
is in the form of cooperative investment certificates (CICs), which help strengthen links between Natixis,
the Banque Populaire group and Groupe Caisse d’Epargne.




                             20 Banques Populaires                                 28 Caisses d’Epargne

                                      100%                                                  100%




         20% CICs                                                                                            20% CICs
                                      BFBP                                                  CNCE
                               (central institution)                                 (central institution)

                                                  34.44%                        34.44%




            Dz Bank : 1,9%
            SPIMI : 1,7%                                   Free float: 31.12%

A combination of complementary, diversified activities
                                                                                                                  23
                                                            Corporate and investment banking
                                                            Structured financing and commodities
                                                            Financing and services to corporate and institutional clients in France
                                                            Capital markets
                                                            International
                                                            Proprietary activities, finances
                                                            Securitization and principal finance




                                                                                                 41%
                 Private equity
                 and private banking
                                                                                                                                                        Retail banking
                                                                                                                                                        Caisses d’Epargne (CICs)
                                                                                                                                                        Banques Populaires (CICs)
                                                                                                                            21%
                                                                             10%
                                                     CIFG              1%             6%
                                                                                                10%             11%


                             Receivables management                                                                         Asset management
                             Credit insurance                             Services
                             Factoring                                    Custody                                           Financial and real estate asset management
                             Corporate information                        Electronic banking                                Multi-management
                             Other receivables                            Insurance                                         Multi-distribution platform
                             management                                   Guarantees
                                                                          Employee benefits
 N.B.: Breakdown based on 2006 data,                                      Consumer credit
 adjusted for holding company activities.




2.3.1 Capital markets, financing and financial guarantees


IXIS Corporate & Investment Bank
IXIS Corporate & Investment Bank (IXIS CIB) became a subsidiary of Natixis in November 2006. The
bank has developed a culture of excellence and focuses on high value-added activities with issuers,
banks, institutional investors, local government and large corporations. It is active in fixed-income and
equity markets, and also offers financial engineering and financing services.
Thanks to very propitious conditions, characterized by strong equity market and transaction growth,
2006 was an exceptional year for IXIS CIB, particularly with respect to equity-related transactions.
During the year, the offering for large corporations underwent significant expansion under the impetus
of the successful partnership with Lazard and the integration of Nexgen. IXIS CIB already owned a 38%
stake in Nexgen and bought out the rest of the Irish group’s capital in March 2006. Nexgen specializes
in turnkey solutions for large corporations in the fields of equity derivatives, structured financing and
reinsurance, and has offices in Dublin, Singapore, Paris and Milan. IXIS CIB also continued to expand
its international network by opening a new branch in Madrid, reinforcing existing teams in London, Hong
Kong and Tokyo, and establishing its IXIS Middle East subsidiary in Dubai.

Expanding synergies with Groupe Caisse d’Epargne
During 2006, IXIS CIB also continued to exploit synergies with Groupe Caisse d’Epargne, notably in
intermediation, sales, asset allocation advisory services, and complex transactions support. Its teams
help the Caisses d’Epargne network to optimize and diversify proprietary trading activities on the
financial markets by selecting the best managers for each asset class to intervene alongside IXIS Asset
Management Group. IXIS CIB also designs debt securitization products in the form of collateralized
debt obligation-type (CDO) instruments, a field in which the bank ranks among the top 10 worldwide.
The CDOs are intended primarily to enable the Caisses d'Epargne regional banks to achieve a
balanced exposure across sectors and improve risk diversification, but are also marketed to outside
investors. IXIS CIB also supports the Caisses d’Epargne with respect to complex transactions for local
government and institutional investors, including debt restructuring advisory services, structured
financing, bond origination and currency hedging.



24
Capital markets
IXIS CIB’s capital market operations, the bank’s principal earnings contributor, are backed by
compelling research and innovative, complex products. IXIS CIB offers its large clientele of financial
institutions, banks, investment managers and insurance companies an array of leading-edge
investment products to meet their own proprietary trading needs, as well as high-performance financial
solutions for the benefit of their clients. The bank also has a strong presence in the local government
sector and is expanding its operations with large corporations through a cooperative agreement with
Lazard for primary equity market issues in excess of €500 million. In turn, Lazard markets complex
products designed by IXIS CIB to its clients. Such products include structured financing, securitization
programs and bond origination. Most of IXIS CIB’s business lines in Europe help drive growth in
earnings from capital market operations. The bank is replicating its towering know-how in bond market
activities with new instruments such as hybrid derivatives and structured products. In 2006, equity
market activities remained on a particularly positive trend across the board.
In the US, IXIS Capital Markets is especially active in the MBS (mortgage-backed securities) market.
Earnings surged during 2006 under the impetus of MBS/ABS (asset-backed securities) securitization
programs and robust demand for structured products (CDOs). The spearhead of operations in Asia is
Hong Kong-based IXIS Asia Limited, which markets structured products based on equity, fixed-income
and currency derivatives. The Asian subsidiary, which is also active in guarantees and the construction
of funds of funds, registered a twofold increase in business volume in 2006. Regional transaction flows
were healthy and extensively China-sourced. Distribution agreements have been forged with retail
banking networks in Hong Kong, Taiwan and Singapore.
The strong demand for equity and arbitrage operations during 2006 was driven by the enrichment of the
product range and international expansion. IXIS CIB engages in the trading and distribution of high
value-added equity derivatives and developed a multi-asset hybrid product in 2006. Directional and
M&A arbitrage operations were also in great demand during the year. Intermediation activities are
handled by IXIS Securities, one of the top 4 brokerage firms in France with a number 3 ranking in
financial research, and by IXIS Midcaps, which together cover 350 European stocks. IXIS Securities
increased its presence in the institutional investor segment in 2006 and expanded its market share in
France, the UK and the US.

Investment funds and discretionary asset management
Structured investments based on alternative management funds developed strongly in Europe and Asia
in 2006 and a unit dedicated to discretionary management in this field was created during the year to
take the quality and security of related activities to a higher level.
In Asia, IXIS CIB benefited fully from its partnership with SPARX Asset Management, Japan’s leading
independent asset management company. The bank notably strengthened its position in public
offerings of hedge fund-indexed structured products. The London-based alternative investment
management subsidiary, IXIS Alternative Investment, contributed vigorously to the development of
alternative products, with its managed funds platform enhancing risk control and improving
transparency for investors.
IXIS CIB’s subsidiary IXIS Environnement & Infrastructures invests and manages equity and quasi-
equity investments in environment and infrastructure projects. FIDEME finances projects concerning
renewable energy sources and waste recovery. The European Carbon Fund is engaged in the battle
against global warming through the purchase of emissions allowances and credits. FIDEPPP invests in
public-private partnerships. The IXIS Capital Partners subsidiary specializes in real estate investment
fund management in Europe and has reinforced its presence in commercial real estate in Germany.

Corporate finance
The Corporate Finance division engages in primary equity market activities in association with Lazard,
in addition to providing advisory services. Its development accelerated in 2006, particularly with respect
to business with large corporations. Under the Lazard-IXIS brand, IXIS CIB and Lazard together acted
as global coordinator in the offering of Natixis shares. Lazard-IXIS is also active in the sphere of IPOs,
secondary equity offerings, private placements and divestments.
The integration of Nexgen has provided a fillip to business with large corporations throughout Asia. IXIS
Corporate & Investment Bank designs and implements tailor-made structured financing solutions under
the IXIS Corporate Solutions brand.
IXIS CIB also provides advice on mergers and acquisitions and balance sheet optimization, notably with
respect to infrastructure projects, real estate, services to local government and the infrastructure,
energy and utilities sector.




                                                                                                      25
IXIS CIB is one of Europe’s leading providers of financial advice to the infrastructure, environment and
energy sector. Much of the bank’s work in this field concerns public-private partnerships for which it
provides project-related financial engineering expertise or acts as lead bank in the context of debt
syndication.
Financing activities performed extremely well during 2006. IXIS CIB served as lead arranger-
coordinator and provided support to Groupe Caisse d’Epargne in infrastructure financing, acquisitions,
LBOs, securitization issues and real estate transactions.

Financial guarantees: CIFG
CIFG Group facilitates the placement of structured products and the financing of public-private
partnerships and projects by providing unconditional payment guarantees for investors. It thus enables
issuers to raise capital at lower cost and gives investors access to credit-enhanced products with new
risk profiles.
CIFG was created in 2002 and has been wholly owned by Natixis since November 2006. It is the only
player in financial guarantees to have built a presence in both Europe and the US. Its subsidiaries CIFG
Europe, CIFG Assurance NA and CIFG Guaranty all boast optimal credit ratings (AAA, Aaa and AAA).
CIFG is active in all market segments – local government, public-private partnerships, project finance
and structured financing.
Despite persistent pressure on lending margins and stringent requirements concerning credit quality,
CIFG continued to grow at a healthy pace. Progress was particularly strong in local government
financing in the US, public placements and structured financing in various areas (residential mortgages,
leasing and mortality bonds on both sides of the Atlantic). CIFG has strengthened its presence in CDOs
(collateralized debt obligations) and CLOs (collateralized loan obligations); its share of the European
CLO market now stands at 20%. In 2006, as in 2005, CIFG was the sole player to act as primary
guarantee agent for a public issue of a pool of non-conforming mortgage loans in the UK. Operations in
infrastructure financing, project finance and sovereign and sub-sovereign risks have undergone
expansion, with transactions now covering nine European countries, including several new EU member
states.
CIFG also played a role in the successful first issue of mortality-indexed bonds by an insurance
company, helping transfer the risk of mortality rate deviation to the financial markets.
The business base has expanded to include new asset classes such as wind farms, sovereign issues
by new EU member states, equipment-leasing portfolios, portfolios of loans to small retailers and small
businesses in the US and net interest margin securities. CIFG now also undertakes market transactions
related to insurance activities, including mortality bonds (as referred to above) and Triple-X insurance
securitization operations (US Regulation Triple-X).


2.3.2 Asset management

IXIS Asset Management Group

The asset management division, through IXIS Asset Management Group, enjoyed another year of
vigorous growth in terms of total assets under management as well as net inflows and revenues.
In November 2006, IXIS AM Group became a part of the asset management division of Natixis, which,
in addition to IXIS AM Group and its subsidiaries, includes Natexis’ former subsidiaries Natexis AM,
Natexis Asset Square, Natexis AM Immobilier and AXELTIS.
IXIS AM Group offers a wide range of expertise to a clientele of institutional investors, corporates,
distribution networks and major private investors. It brings together some fifteen asset management
subsidiaries in France, Europe, the US and Asia. IXIS AM Group also includes specialized distribution
entities: Ecureuil Gestion for the Caisses d'Epargne network, IXIS AM Advisors in North America and
IXIS AM Global Associates for cross-border sales.

Total assets under management grew in both Europe and Asia-Pacific while IXIS AM France won the
confidence of new client companies, banks, mutual insurance companies and pension and benefit fund
institutions and strengthened its relationships with independent advisors. A new team dedicated to
structuring, analysis, modeling and solutions (SAM’S) is in charge of developing tools for the in-depth
analysis of proposed structures, incorporating the quantitative aspects and structuring the products.




26
IXIS AM France

IXIS AM France enhanced its award-winning range of products with new mutual funds, dynamic money
market products with highly diversified products which draw on all the Group's expertise in order to
combine alternative investment management, senior bank loans and securitization.
New products were also created in the CDO field which gained rapid acceptance, despite reduced
credit spreads.
IXIS Private Capital Management, the specialist in open architecture, active multi-management, had
excellent sales results in terms of net inflows and total assets under management. Its funds are
regularly rated 4 or 5 stars by S&P Micropal and Morningstar for their three-year, risk/return profiles.
The equity funds and absolute return funds are generally ranked in their categories’ top quartile.
Ecureuil Gestion also boosted assets under management by making a major contribution to the
marketing of guaranteed funds and Bourse Esprit Ecureuil in particular through the Caisse d’Epargne
network.

IXIS AM Group’s international activity

IXIS AM Group’s subsidiaries in the US reported their highest growth ever thanks to major inflows,
three-quarters of which were collected through the distribution platform. The entire product range of
Loomis Sayles and Harris Alternatives had an excellent year in terms of both inflows and fund
performance. The distribution companies IXIS AM Advisors Group and IXIS AM Global Associates
made substantial contributions to the rise in global net inflows. The widely recognized performance of
the American funds remained high in 2006: 94% of the funds that were invested in international
equities and 99% of the funds in bonds turned in top-quartile performances. Eighty-five percent of all
of the funds, excluding monetary funds, scored above the average in the three- and the five-year
period. The Group’s ten largest funds in the US ranked in the first quartile over the one-year, three-
year and five-year periods.
IXIS AM Group made advances on several international markets thanks to IXIS Asset Management
Global Associates, which markets the expertise of asset management companies to institutional clients
and intermediaries outside France and the US. The year witnessed vigorous growth in cross-border
inflows combined with organizational changes targeting further improvements in customer service.
The company broadened its global presence and created two companies headquartered in Dubai and
Luxembourg. The sales entities in the UK, Dubai and Australia reported particularly sustained levels of
activity.

Real estate assets in Europe and the US
Real estate assets are managed by IXIS AEW Europe and AEW Capital Management in the US and
Singapore which together represent the world's seventh largest player. IXIS AEW Europe has a vast
10-country European platform that enables it to leverage cyclical opportunities on increasingly
competitive markets.
Its growth is built around four activities – discretionary management, transactions organized through
club deals, the creation and management of closed-end funds, and advice on investing in open-ended
funds distributed by Europe’s major banking networks.
IXIS AEW Europe has created new funds dedicated to French institutional investors specialized in
office properties in the eurozone and office, commercial and logistical investments in central Europe.
Every year since 1999, IXIS AEW Europe has outperformed the profession’s benchmark, the IPD
(International Property Data) index. Bolstered by a high value-added offering, solid expertise in
products designed for the retail banking market and a global distribution platform, IXIS AM Group
intends to take full advantage of the growth and internationalization of the asset management business.
Its objective within Natixis is to further strengthen its resources with a view to providing customers with
the expertise they are looking for, particularly in relation to retirement planning, maintaining a high
quality of service and achieving excellence in risk control, internal control and compliance.




                                                                                                       27
2.3.3 Custody and institutional investor services

CACEIS

Created in 2005 from the linkup of the securities activities of the CNCE and Crédit Agricole SA,
CACEIS has operations in France, Luxembourg, Belgium, Ireland, Switzerland and the Netherlands.
The no. 1 custodian and funds administrator in France, and no. 3 in Luxembourg, CACEIS enjoys an
excellent reputation and a benchmark role in Europe. It is rated AA-/A-1+ with a stable outlook by
Standard & Poor’s and has been named “top rated” and “best sub-custody provider for France” by
Global Custodian magazine. CACEIS offers depositary and custodian bank securities services, fund
administration via the Fastnet network and issuer services. Its global, cross-border and multi-business
offering serves the needs of asset management companies, institutional investors, insurance
companies, pension funds, mutual insurance and employee benefit organizations, banks and major
corporations.
CACEIS is France’s no. 1 mutual fund custodian and its leading administrative and accounting manager
with 30% and 40% market share, respectively. CACEIS is no. 3 in terms of number of funds in
Luxembourg, Europe’s fourth largest custodian and ranks among the top ten worldwide.
Since November 2006, its two equal shareholders are Crédit Agricole SA and Natixis.

One year after its creation, CACEIS reported an active and profitable year and reaped the benefits of its
strategic choices. Its growth in net banking income, outstanding assets under custody and outstanding
assets under administration bear witness to the dynamism of its European teams. Its activities in
France were successfully merged in record time and represent a solid foundation from which to pursue
CACEIS’ growth objectives in France and abroad.
In Spain, CACEIS decided to sell its shareholdings in IXIS Urquijo to Banco Sabadell, following its
acquisition of Banco Urquijo. In Switzerland, CACEIS acquired in December 2006 the fund
administration activities of FidFund Management SA, a subsidiary of Banque Bénédict Hentsch & Cie
SA, with a view to offering local services to its Swiss customers. The group is studying new partnership
and bolt-on projects in several countries.
CACEIS has enhanced its range of innovative products and improved the quality of its services. Its
alternative management services have been considerably broadened and represent a large part of the
outstanding assets administered in Luxembourg, Ireland and the Netherlands. In addition, a structure
has been created in Luxembourg to assist in the development of private equity activities. Lastly,
CACEIS is developing an outsourcing offering in support functions for the cross-border distribution of
mutual funds (European TA) and the monitoring of OTC derivative, currency and loan/borrowing
transactions.


2.4 Human Resources

Groupe Caisse d’Epargne’s human resources policy focused on four main objectives in 2006:
■ ensuring that management is central to change;
■ offering career paths that facilitate recruitment and staff retention;
■ boosting training and mobility;
■ improving labor relations.
The year was characterized by record levels of recruitment.

2.4.1 A record year for recruitment

Groupe Caisse d’Epargne continued to recruit actively, hiring almost 4,000 permanent employees
during the year (over 4,000 including fixed-term contracts). The overall number of employees in the
Group rose from 54,400 to 55,800 year-on-year, representing an increase of 2.6%. The average
number of CNCE employees reached 1,428, broken down into 1,063 managerial and 365 non-
managerial staff. The rate of recourse to temporary and fixed-term contract employees averaged 6%
for the Group as a whole in 2006.
Against a backdrop of vigorous competition, the Group unveiled its “employer image” campaign in
2006, by which it aims to convey the diversity of profiles required and the attention given by the Group
to personal qualities. This campaign was widely covered in the press and should help the Group
establish itself as an employer of reference.

28
The launch of a dedicated website in May 2006, on which Group companies can advertise positions
and candidates can submit applications, also helped raise awareness about the campaign. The site
has been extremely successful, leading to over 70,000 high-quality applications in eight months and
900 new hires.
Multitalent, a software system designed to manage applications and internal transfers, was also rolled
out in May 2006 in conjunction with the website.


2.4.2 Extensive dialogue between management and workers leads to competitive
      overall salaries and a new approach to employee welfare

A new system for classifying posts and minimum annual salaries for each employee category has
been in place since January 1, 2004. In addition, a national collective agreement was signed in
November 2005 that provides for the yearly recalculation of minimum annual salaries for each grade.
Extensive dialogue between management and employee representatives at the end of 2005 brought
employee welfare to new levels and involved healthcare, a personal risk plan and a supplementary
pension scheme. This guarantees equal opportunities for all employees, highlights the importance of
cost monitoring, and modernizes recruitment, employee retention, career development and internal
mobility.
In 2006, the average salary per full time employee (FTE) within the Caisse d’Epargne segment 3 ,
counting bonuses and variable compensation, was €36,700, including a basic salary of €32,200. FTE
managerial staff received an average salary of €53,300, with non-managerial staff at €30,900.
For employees within the Caisse d’Epargne segment, individual variable compensation amounted on
average to 4.7% of basic salary received in 2006. Collective variable remuneration, including profit-
sharing and incentive schemes, amounted on average to 6.7% of the overall salary received in 2006.
All Group entities comply with their social security and employee benefit payment obligations.

In 2006, total social security costs and payroll-based taxes (excluding pension costs) for Groupe
Caisse d’Epargne came in at €1,154 million; pension costs amounted to €374 million, and profit-
sharing and incentive schemes reached €315 million over the period.


2.4.3 Forward-looking career management and enhanced training possibilities

Career management and mobility

Pursuant to the Caisse d’Epargne segment’s career management agreement each employee must
meet with a Human Resources representative every five years. This is in addition to the skills
assessment meeting with a manger every two years. Specific training for directors, high-potential
employees and senior managers includes specially-adapted mechanisms such as career committees,
assessment centers, and courses at top business schools, including Essec and HEC and the Caisse
d'Epargne university.
The Cap 25 program for “senior" employees with over 25 years’ service in the Group, involves three
main stages: an individual career appraisal, a five-day residential seminar and, finally, the
formalization of career objectives and individual action plans. In 2006, 400 employees with an average
age of 51 took part in fifteen Cap 25 sessions.
The Multitalent program has been extended to internal mobility management in order to facilitate
transfers within the Group or within individual Group companies. These procedures are being rolled
out gradually via a new page on the Group’s intranet called Mobilité Groupe, which has been up and
running since the end of October 2006.




3
    Including CNCE, the Caisses d’Epargne, the IT communities, and certain joint subsidiaries and entities
                                                                                                             29
Training

In 2005, companies within the Caisse d'Epargne segment signed a national collective agreement on
ongoing professional development. This led to a considerable expansion in the training offering in
2006, to which the Group dedicated over 5% of its total payroll.
The Group also launched a national training offering based on the DIF (droit individuel à la formation –
right to individual training). This comes on top of the training offered by each individual company and
is based on supporting employees and improving the quality of their working life through
communication initiatives such as language learning.
Thanks to the new DIF legislation, so-called “institutional” courses have also been overhauled in line
with the new Group structure. The Group now has a specific induction course designed for all new
employees irrespective of entity or business line. This gives new arrivals an overview of the Group’s
structure, values and ambitions and even includes modules on sustainable development and social
commitment.
The Group has also broadened its training for managers through courses offered by the “Sales and
customer services” function. These courses are available to Group directors and branch managers via
the Fréquence Client program.
Finally, training for directors has been stepped up (a “Directors’ career path” has been created and
succession systems have been set up) to pave the way for the new generation of directors due to
head up the Group in the next 10 to 15 years


2.4.4 Promoting diversity and equal opportunity

Disabled employees

On July 21, 2006, the Caisse d'Epargne segment signed a national collective agreement in favor of
the employment of disabled persons. This agreement, which was drawn up for the 2006-2008 period,
was approved in December 2006 by the French Labor Minister. It provides for 170 additional hires, the
long-term integration of disabled employees with adapted career prospects, and better access to
protected-sector companies. Some €3.5 million per year have been allocated to the program, which is
coordinated by the Handicap and Diversity Unit at Group level and disseminated by specially-
appointed employees in each entity.

Equal opportunities

Women accounted for 49.2% of FTEs and 27% of management-level employees in the Caisse
d'Epargne segment in 2006.
In 2005, the French national employment commission gave the Observatory of New Professions and
Qualifications responsibility for monitoring developments in the sector, with special attention to the
comparative position of men and women. The national collective agreement of June 10, 2005 on
ongoing professional development also provided for a special “professionalization period” intended to
enhance equal opportunity between men and women in the workplace.


2.4.5 Working hours and occupational health and safety
Each Group company is responsible for drawing up its own internal rules. It lays down global,
permanent policies regarding working hours and the application of health and safety regulations.
Employees can consult the internal rules on their company’s intranet.
The national collective agreement of January 24, 1997 sets out the provisions regarding participation
in the health, safety and working conditions committee (CHSCT), working conditions for pregnant
women, the transfer of persons declared inapt for certain posts and special medical supervision for
employees that have been victims of attacks.
Over a dozen Group companies have put in place harassment detection or prevention measures.
A sub-commission within the national employment commission is responsible for monitoring security
issues of national interest. All new employees, including those on temporary assignments or fixed-
term contracts, in particular within the branches, must complete occupational safety training. This
training is frequently updated in accordance with regulatory changes.
The absenteeism rate in 2006 (18 days’ absence per FTE) confirms the hiatus observed since 2003.
Illness (55% of absenteeism in 2005) and maternity leave (30%) are the main causes.
Accidents in the workplace or whilst commuting to work, and attacks, are extremely rare and
represented just 0.3 days of absenteeism per FTE in 2006 within the Caisse d’Epargne segment.
30
2.5 A bank founded on solidarity and social commitment

Caisse d’Epargne was founded on the principle of social progress, a principle that the Group upholds to
this day. Its actions in this area are a concrete manifestation of its social engagement. Caisse
d’Epargne is a bank, but it is also a social housing operator, local development player, promoter of
sustainable development, and fighter of social exclusion in the form of old age, handicap and illiteracy.
The Caisses d’Epargne are proof that economic profitability can go hand-in-hand with the general
interest and, moreover, that this very profitability can go towards financing social initiatives and
promoting a more mutually supportive and engaged society.

2.5.1 Local and social economy projects (PELS)

Caisse d’Epargne is the only bank to systematically set aside a portion of its profits for local social
initiatives. Pursuant to the French law on general interest initiatives, the Caisses d’Epargne are required
to finance PELS écureuil & solidarité (projets d’économie local et sociale - local and social economy
projects). These projects are generally carried out by associations to help persons suffering from social
exclusion. The PELS target three main areas: (i) the employment of persons outside the labor market;
(ii) the autonomy of socially, physically or psychologically vulnerable citizens; and (iii) the creation of
social ties. The annual budget for financing PELS is approved each year at the Annual General Meeting
of each Caisse d’Epargne and is calculated on the basis of the interest paid to the cooperative
shareholders.
Each Caisse d’Epargne decides on specific priorities in accordance with the particular needs of its
region. The directors of the sociétés locales d’épargne (local savings companies, Caisse d’Epargne
entities which hold the bank’s capital) are encouraged to submit projects, give their opinion, and play a
role in the follow-up of the project. In this way they contribute their knowledge of the social and
economic fabric of their particular regions. Each Caisse d’Epargne has a specially-trained “general
interest initiatives” manager who oversees the successful completion of each local and social economy
project. The Group's intranet site provides these managers with an online forum and models on how to
analyze, appraise, manage and report on each project. When a project has been completed, Caisse
d’Epargne reviews it to ensure it has been properly implemented and analyze the impact for its
beneficiaries. This gives Caisse d’Epargne the opportunity to strengthen its ties with the organizations it
supports and improve its knowledge of the needs of vulnerable sectors of society.
Caisse d’Epargne offers specific loans and banking services to persons outside the labor market or
those without access to traditional financial channels, to help them to create or take over a business.
These micro-entrepreneurs require the backing of a professional network. National agreements have
been signed with five major assistance networks, by means of which Caisse d’Epargne can pay out
funds for loans on trust and guarantee funds, contribute to grants for equipment or simply offer its
know-how and expertise. In order to give unemployed persons greater access to the labor market,
Caisse d’Epargne supports associations or work re-entry projects that enable the unemployed to
acquire training and qualifications, and learn how to (re)adapt to a working environment.
Caisse d’Epargne is well aware that access to banking services is an indispensable factor of modern
life, and with this in mind it strives to combat banking exclusion. Conscious of the role they can play in
encouraging and maintaining banking relations, the Caisses d’Epargne have stepped up their
commitment in this area with a new scheme that embodies the Group’s commitment to both the
banking profession and social cohesion. This scheme gives access to micro loans to people
experiencing serious financial and social difficulties and entrepreneurs who cannot find solutions
through traditional banking channel. The aim is to help them achieve a more stable situation, but also to
provide them with information and social assistance by means of customized support and follow-up.
This includes assessing their situation and providing a specially-adapted offering, as well as group
training sessions on budget management and social support via the social authorities. Caisse
d’Epargne is the first French bank to offer such a complete range of banking services to people in
difficulty. This innovative mechanism is financed through the PELS budget, with a social cohesion fund
guarantee in partnership with Caisse des Dépôts.

The Group also provides backing for programs that help adults to master essential skills such as
reading, writing and arithmetic, as well as IT workshops or information on money management. The
actions financed are very concrete, encouraging a pragmatic approach to daily life.
As a local bank, Caisse d’Epargne assists initiatives that help create social ties. It does this through
sponsorship of local sporting events or shows. PELS financing can also go towards local heritage
preservation, as well as to associations involved in environmental protection, so long as the project falls
within the scope of social cohesion.

                                                                                                       31
2.5.2 The Caisses d’Epargne Foundation for Social Solidarity

Set up and recognized as an entity in the public interest in 2001, the Caisses d’Epargne Foundation for
Social Solidarity contributes to the fight against all forms of dependence and social isolation caused by
old age, illness, disabilities or illiteracy. It is illustrative of the Group’s ambition to be a forerunner in the
promotion of solidarity by forging close relations in local areas.
The Caisses d’Epargne Foundation for Social Solidarity acts in three ways:
■ in its capacity as a not-for-profit organization, it develops and manages the largest network of homes
    for dependent elderly persons;
■ it is directly involved in the fight against illiteracy, offering assistance to young people in difficulty;
■ it selects and finances innovative projects in favor of personal autonomy and the fight against social
    exclusion.
The Caisses d’Epargne Foundation for Social Solidarity has been expanding at a remarkable rate over
the last five years. The network of residences has increased in size, and anti-illiteracy initiatives and
social innovation projects have picked up pace. The Group and its subsidiaries sponsored 97 projects
in 2006, providing financing for general interest initiatives defined and led by the Foundation.
Ongoing contact with vulnerable citizens enables the Foundation to establish support policies that
encourage personal autonomy. The Foundation has also entered into two new partnerships with a view
to combating illiteracy among 16 to 25 year olds. Other schemes in areas as diverse as the fight against
lead poisoning, the fight against poverty, and social emergency services training, have also received
funding from the Group.


2.5.3 Sustainable development

The general interest has been integral to the Groupe Caisse d’Epargne’s philosophy since the creation
of the Group. This gives particular weight to its sustainable development policy, which is part of its
strategic project for 2004/2007. A national steering committee and a new Sustainable Development and
General Interest division, set up in 2006 within the CNCE and reporting directly to general
management, is responsible for implementing the sustainable development policy and ensuring that it
plays a prominent role within each business line. The policy is relayed by a network of sustainable
development managers in each entity.
Programs respond to three priority needs: environmental protection, which includes real estate and the
creation of “green” products for customers; socially responsible investment (SRI); and insertion through
employment.
Environmental preservation is one of the Group’s main concerns. A trial Carbon Audit scheme was
carried out by the CNCE, the Caisse d’Epargne de Provence-Alpes-Corse and the Caisse d’Epargne
des Alpes. Developed by the Ademe, this audit calculates the direct and indirect emissions of six
greenhouse gases for businesses or sites. The scheme is due to be implemented across the entire
Caisses d’Epargne network. Business trips by employees account for a significant share of greenhouse
gas emissions. In light of this, the CNCE has introduced a tool for estimating emissions related to the
organization of large meetings and issues recommendations for reducing them.
The Group applies high environmental quality standards in its new buildings and renovation projects.
These standards are based on the High Environmental Quality (HEQ) benchmark. The social housing
subsidiaries, with the backing of the Foundation’s pilot projects, are also making considerable efforts to
improve energy efficiency and quality in housing, right from the design stage and during renovation.
The procurement and general services division takes sustainable development criteria into account
when selecting, approving and monitoring suppliers. It includes HEQ criteria in the job specifications for
buildings and promotes standards that facilitate the selection of environmentally responsible products.
In conjunction with the European Investment Bank or, in certain cases, the Ademe, the Caisses
d’Epargne offer preferential loans to regional authorities involved in sustainable development projects.
As no. 1 partner to social housing bodies, they raise awareness about the importance of environmental
quality in new buildings and renovation projects. The Group is also helping Ademe to introduce the
Carbon Audit to local authorities by encouraging such authorities to take greenhouse gas emissions
into account in their decisions and investment choices.




32
Groupe Caisse d’Epargne is one of the most active banks in France in terms of financing infrastructure
projects, many of which contribute to environmental preservation, (i.e., trams, wind farms and high
speed railway lines, which pollute less than cars or planes). A pioneer in the field of socially responsible
investment (SRI), the Group offers diversified management investment funds, investing up to 10% of
funds in the unlisted securities of Social Economy companies. Several entities are also developing
funds dedicated to responsible investment, in particular in the areas of water, renewable energy and
waste treatment.
Another scheme close to Groupe Caisse d’Epargne’s heart is the encouragement of social insertion
through employment. The Group is very active in this area through PELS aimed at encouraging
insertion through employment and micro loans. Within the Group itself, efforts are being made to
increase the number of disabled persons hired and to help employees who have become disabled to
remain employed. In 2006, a national agreement in favor of the employment of handicapped persons
was concluded. Apart from additional hires, the Group is also planning to adapt training programs,
provide special one-on-one guidance for each new arrival, adjust work posts to facilitate the insertion
of hard of vision and hard of hearing employees, and contribute to the education of young disabled
people through study grants, internships, and gifts of equipment to schools and universities.




                                                                                                        33
        INVESTMENTS


                                                                              2004

     Real estate services/Real estate                         Acquisition by Crédit Foncier de France (CFF) of a 99.99% stake in Entenial.

                                                                              2005

     No material single investments (more than €150 million, net) were made at Group level in 2005.
     None of the investments carried out required a contribution of additional shareholders’ equity, as the Group relied on its usual financing methods.

     Capital markets and financing
     International development                                New sites outside France (Italy and Luxembourg).

     Institutional investor services                          Creation of CACEIS – the leading custodian in France – in a joint venture between Groupe
                                                              Caisse d’Epargne and Crédit Agricole.
     Real estate services/Real estate
                                                              Acquisition by CFF of a 35% stake in Secundis Finance, a company specializing in mortgage
                                                              restructuring in Portugal, renamed Banco Primus on February 16, 2006.
                                                              Acquisition by La Compagnie 1818 – Banquiers Privés of 34% of the capital of Iselection, a
                                                              company specializing in the sale of real estate products for the rental market to private
                                                              investors.
     Personal care services                                   Creation of a joint venture holding company with MACIF and MAIF, half-owned by Groupe
                                                              Caisse d’Epargne, and acquisition (in January 2006) of a 25% stake in Séréna, a company
                                                              specializing in home services.
     Foreign banks                                            Acquisition of ordinary shares in Banca Carige, increasing CNCE’s shareholding to 10.22%.

                                                                              2006

     The year's highlight was the creation of Natixis, a subsidiary owned jointly by Groupe Caisse d'Epargne and the Banque Populaire group. Natixis
     brings together both groups' corporate and investment banking and financial services businesses, and was formed through asset contributions. Its
     creation did not therefore generate any exceptional cash flow requirements. In connection with the creation of Natixis, CDC withdrew from the capital
     of the CNCE for an amount of €7 billion. The acquisition of CDC's interest was financed by:
     - the sale of Cooperative Investment Certificates (CICs) held by the CNCE to the Banque Populaire group, for €3.1 billion;
     - the proceeds from the public offering for Natixis shares, amounting to €2.8 billion;
     - and the sale of Ecureuil Vie to CNP, for €1.4 billion.
     No other material single investments (more than €150 million, net) were made at Group level in 2006. None of the investments carried out required a
     contribution of additional shareholders’ equity, as the Group relied on its usual financing methods.

     Retail Banking – France and French overseas
     territories
                                                              Acquisition by OCÉOR of Orane, a company specializing in the financing of capital goods in
                                                              the French overseas territories, in the context of tax efficient transactions.
                                                              Acquisition of 80.1% of Banque BCP France, of which 50.1% by Caisse d’Epargne Ile-de-
                                                              France Paris and 30% by the CNCE.
     Foreign banks
                                                              Acquisition of 80.1% of Banque BCP Luxembourg, of which 50.1% by Financière OCÉOR
                                                              and 30% by the CNCE.
                                                              Indirect acquisition of 23.45% of Moroccan bank CIH.
                                                              Subscription to the capital increase of Banca Carige, increasing the CNCE’s shareholding to
                                                              10.88%.
     Capital markets and financing
     International development                                Acquisition by IXIS CIB of the entire capital of Nexgen, a company specializing in financial
                                                              engineering for corporates.
                                                              New sites in Dubai and Madrid.
                                                              Creation by IXIS CIB of UK-based subsidiary IXIS Alternative Investments.
     Non-banking activities                                   Acquisition by the CNCE of a 8.9% minority interest in DV Holding (retirement homes
                                                              sector).
     Real estate services/Real estate
                                                              Public buyout offer for Eurosic shares, increasing Banque Palatine's interest to 91.63%.
                                                              Public buyout offer for Locindus shares launched by CFF from January 12, 2007 to February
                                                              15, 2007 at €37 per share.
                                                              Takeover of Lamy in view of a tie-up with Gestrim.
     Natixis                                                  The Group holds a 34.44% stake in Natixis following asset contributions and a public
                                                              offering.




34
2 CNCE GROUP
           FINANCIAL REPORT OF THE




MANAGEMENT REPORT ........................................................................................................... 36
1 Corporate structure of the Caisse Nationale
des Caisses d’Epargne group at december 31, 2006.................................................................. 36
2 Significant events of 2006 .......................................................................................................... 37
3 Vigorous growth in consolidated results reflecting the CNCE group’s new dimension ............. 44
4 Caisses d’Epargne banking network: surge in aggregate financial results ............................... 51
5 Commercial banking: a steady increase in results..................................................................... 53
6 Investment banking: an exceptional performance ..................................................................... 58
7 Comments on the activities and results of the CNCE parent company ..................................... 66
8 Pro forma consolidated income statement................................................................................. 70
9 Analysis of the consolidated balance sheet ............................................................................... 70
10 Regulatory capital and capital adequacy ratio ......................................................................... 71
11 Recent developments and outlook for 2007............................................................................. 72



IFRS CONSOLIDATED FINANCIAL STATEMENTS OF CNCE GROUP.................................. 74
1 Consolidated balance sheet .................................................................................... 74
2 Consolidated statement of income ............................................................................................ 76
3 Statement of changes in shareholders' equity ........................................................................... 77
4 Consolidated statement of cash flows........................................................................................ 78
5 Notes to the consolidated financial statements of the CNCE group .......................................... 79
6 Statutory auditors’ report on the consolidated financial statements ........................................ 158


INFORMATION ON THE FINANCIAL STATEMENTS OF THE PARENT COMPANY ........... 160
1 Balance sheet at december 31, 2006 and december 31, 2005 ...................................... 160
2 Profit and loss account for the years ended december 31, 2006 and 2005 ........................... 162
3 Statement of changes in capital funds and reserves ............................................................... 163
4 Equity interests, affiliates and other long-term investments..................................................... 164
5 Other commitments not recorded off-balance sheet (extracts)................................................ 167




                                                                                                                                             35
              MANAGEMENT REPORT



                CORPORATE STRUCTURE OF THE CAISSE NATIONALE
                DES CAISSES D’EPARGNE GROUP AT DECEMBER 31, 2006


      The individual Caisses d’Epargne – the foundations on which the Caisse Nationale des Caisses
      d’Epargne (CNCE) Group is built – are cooperative savings banks; 80% of their share capital is owned
      by local savings companies, bringing together more than three million cooperative shareholders. The
      CNCE is the Group’s central institution, and holds most of the national subsidiaries and investments.

      The CNCE also held cooperative investment certificates (CICs) representing 20% of the capital of the
      individual Caisses d’Epargne and which conferred entitlement to dividends received during first-half
      2006, but no voting rights.

      The CICs were contributed to Natexis Banques Populaires in connection with the creation of Natixis
      (see section 2.2.1).

      The simplified ownership structure of the Caisse Nationale des Caisses d’Epargne Group at
      December 31, 2006 reflects the following impacts:
      ■ the creation of Natixis, which led to the establishment of a new "Investment and Project Bank"
          division;
      ■ the withdrawal of Caisse des Dépôts et Consignations from the capital of the CNCE, with the
          individual Caisses d'Epargne becoming the sole shareholder of the CNCE.

                                                                                  440 local savings companies (LSC)                                      Fédération Nationale
                                                                                     3.4 million cooperative shareholders                               des Caisses d’Epargne
                                                                                                                   80% (shares)


                                                                                                        Caisses
                                                                                                       d’Epargne
                                                                                                                                         20% (CICs) 1
                                                                                                                   100%

                                                                      Caisse Nationale des Caisses d’Epargne
                                                                                                                                                                      34.44%
                                                                                                                                            INVESTMENT AND PROJECT
                                                     COMMERCIAL BANKING
                                                                                                                                                BANK – NATIXIS 8
                                                    Banque Palatine                                                                         Corporate and Investment Banking
                            Banking                 Financière OCÉOR 2
                           networks *               Banque BCP (France 3 – Luxemburg 4)
                                                    CIH (Morocco) 5                                                                                    Asset Management

                                                                                                                                            Private Equity and Private Banking
                                                    Ecureuil Assurances IARD
                            Insurance               CNP 6 , Ecureuil Vie 7
                                                                                                                                                              Services

                          Specialized               Crédit Foncier                                                                                Receivables Management
                            financial               GCE Habitat
                          institutions              GCE Immobilier                                                                                     Financial Guaranty

* Other than the Caisses d’Epargne.                                                           4. 50.1% owned by Financière OCÉOR and 30% owned by the CNCE. 8. The Caisse Nationale des Caisses d'Epargne and Banque Fédérale
1. Cooperative investment certificates (CICs) representing 20% of the capital of the          5. Indirect interest of approximately 25% held by GCE Maroc (OCÉOR). des Banques Populaires each own a 34.44% stake in Natixis, which
   Caisses d’Epargne entitling holders to receive dividends but including no voting rights.   6. 15.76% held by Sopassure, a 49.98% subsidiary of the CNCE.        itself owns 20% of the capital of the Caisses d'Epargne and
2. The Financière OCÉOR holding company owns the Group’s investments in its overseas banks.   7. Ecureuil Vie became a subsidiary of CNP Assurance                 Banques Populaires in the form of Cooperative Investment
3. 50.1% owned by the Caisse d'Epargne Ile-de-France Paris and 30% owned by the CNCE.            in February 2007.                                                 Certificates (CIC).




      36
    SIGNIFICANT EVENTS OF 2006

2.1 Macroeconomic environment

2.1.1   A buoyant international environment, fueled by the emerging economies
        and the US as well as the upturn in European growth...

The global economy experienced a third straight year of very strong growth (estimated at 4.8%). New
records were set, from the trade surpluses booked by the emerging countries (mainly in Asia) to the
vigorous growth in US GDP (up 3.3%). At the same time, Japan now appears to have left its long period
of economic stagnation behind, as evidenced by healthy banking sector balance sheets, enhanced
business profitability and lower debt levels. The European economy has also made a remarkable
comeback (up 2.7%), driven in particular by growth in Germany (2.5%), the Netherlands (2.9%), Spain
(3.7%) and Ireland (5.4%).

2006 also proved to be a favorable year for the euro, which gained almost 12% against the dollar
(US$1.32 for €1 at December 31, 2006). The euro benefited from both a narrower GDP gap between
the US and Europe, the European Central Bank’s (ECB) policies and the Bank of China’s foreign
currency arbitrage trading.

…but rendered fragile by persistent tensions

Current account imbalances reached unprecedented levels, particularly in the US, where the current
account and federal deficits are both close to 8% of GDP. In addition, China and the other emerging
Asian economies remain a potential source of turbulence, given that their unbridled growth is also a
source of profound economic, social and even ecological instability.


2.1.2   Improved economic performance in France driven by the level of consumer
        spending and growth in industrial output and exports

Within this overall context, the French economy grew 2%, buoyed by strong consumer demand. This
demand was fueled in turn by positive results for employment – the jobless rate dropped by 1.1 point
to 8.6% at the end of the year – as well as for business investment. However, there are several
sources of concern, in particular the trade deficit.


2.1.3   Contrasting interest rate policies during the second half of the year accompanied
        by rising market volatility

Expectations of a slowdown in the American economy prompted the Federal Reserve in July 2006 to
interrupt the policy of monetary tightening it had followed since mid-2004. The federal funds rate
nevertheless increased by 100 basis points to 5.25% by the end of the year.
In contrast, the ECB maintained its restrictive monetary policy; its key interest rate thus increased by
125 basis points to 3.5% at the end of 2006.

The recycling of Asian trade surpluses, the trend towards privatization of healthcare and retirement
provisions and changes in the banking and insurance regulatory environment (Basel II, Solvency,
IFRS, etc.) all stimulated purchases of bonds. The bond market was very tight at the beginning of
2006, and over four months, the 10-year US treasury bond yield rose from 4.4% to 5.0%, while the 10-
year rate on French government bonds (OATs) rose from 3.3% to 4.0%. For the year as a whole, US
and French long-term yields averaged 4.8% and 3.8%, respectively.

Meanwhile, with interest rates still moderate, company profits continued upward, while equity markets
reaped the benefits of corporate share buyback and dividend policies, as well as an upsurge in
mergers and acquisitions. The CAC 40 share index rose by almost 17.5% during the year, reaching
5,541 points. The rise was accompanied by increased volatility, however. During the second and third
quarters in particular, there were phases of strong downward price movements, reflecting uncertainty
as to the business outlook in the middle of the year and the war in Lebanon.


                                                                                                     37
Multiple sources of geopolitical tension (Iran’s nuclear program, the danger of interruption to Russian
gas supplies, the election of strongly anti-US governments in South America) exacerbated fossil fuel
price volatility, which nevertheless diminished during the second half of the year. Oil ended the year at
US$59 per barrel, compared with an average of US$65 in 2006, while natural gas fell to its 2003 price
level of about US$20, a fourfold decrease from the beginning of the year.



2.2 An evolving Group

2006 was an historic year, marked by the merger between the Banque Populaire group and Groupe
Caisse d'Epargne (GCE), the creation of Natixis and the success of Euronext’s largest share
placement during the year (more than 248 million shares were placed while 1.1 million share purchase
orders were received from Groupe Caisse d'Epargne's customers and cooperative shareholders). As
a result, the Caisse Nationale des Caisses d’Epargne’s (CNCE) ownership structure changed
substantially and Caisse des Dépôts et Consignations (CDC) ceased to be a shareholder.


2.2.1 Creation of Natixis

At the end of the period of exclusive negotiations initiated on March 12, 2006, Groupe Caisse
d’Epargne and the Banque Populaire group signed a memorandum of understanding on June 6, 2006.
The memorandum set out the conditions for creating their new joint subsidiary, Natixis, which brings
together their corporate, investment banking and services businesses.

Pre-merger transactions

The following pre-merger transactions took place during the second half of 2006:

■ the CNCE purchased the 62% stake in CEFi held by the individual Caisses d'Epargne;
■ the CNCE purchased Banque Palatine’s 100% interest in GCE Bail and GCE Affacturage;
■ the CNCE purchased the stakes in La Compagnie 1818 held by CFF (3.73%) and Banque Palatine
     (9.74%);
■ Holgest was absorbed by the CNCE, which thereby obtained a direct 66% interest in Gestitres;
■ Ecureuil Participations was merged into the CNCE, which thus obtained a direct interest in:
               - GCE Garanties (an additional 6.04%),
               - IXIS AM Group (an additional 2.87%),
               - Ecureuil Vie (7.91%)
■    the CNCE purchased the 34% stake in Gestitres held by Crédit Lyonnais;
■    the CNCE sold its holding of preferred shares in the Group’s subsidiary IXIS AM US Corp to IXIS
     AM Group;
■    IXIS AM Group increased its share capital by €957 million to be able to purchase the preferred
     shares in IXIS AM US Corp; CNP and Sanpaolo IMI waived their subscription rights in favor of the
     CNCE;
■    the CNCE and Banque Fédérale des Banques Populaires (BFBP) jointly purchased Sanpaolo IMI’s
     interest in IXIS AM Group (12%) and IXIS CIB (2.45%).




38
Restructuring transactions
On November 17, 2006 the Ordinary and Extraordinary Shareholders’ Meeting of Natexis Banques
Populaires approved the creation of Natixis, the asset contributions of the Caisse Nationale des
Caisses d’Epargne and SNC Champion (a subsidiary of Banque Fédérale des Banques Populaires)
as well as a share capital increase enabling payment for those contributions.

The CNCE therefore transferred to Natexis Banques Populaires the following assets for an amount of
€10.7 billion:

■ its entire interest in La Compagnie 1818, CACEIS, GCE Garanties, Gestitres, IXIS CIB, IXIS AM
  Group, CIFG, CEFi, GCE Affacturage, GCE Bail, Foncier Assurance (with the exception of the 40%
  held directly by Crédit Foncier) and GCE Financial Services, for a total of €9.2 billion; and
■ €1.5 billion of the cooperative investment certificates (CICs) issued by the individual Caisses
  d’Epargne in 2004.

The remaining cooperative investment certificates issued by the Caisses d’Epargne network were sold
to the Banque Populaire group for €3 billion and transferred to Natexis Banques Populaires by SNC
Champion in order to even out the stake held by the two groups. The CNCE and SNC Champion also
contributed the shares in IXIS CIB and IXIS AM Group which they had acquired from Sanpaolo IMI.

Each of the Banques Populaires issued cooperative investment certificates, representing 20% of their
share capital, which were taken up by Natexis Banques Populaires.

At the end of this process, both groups held (directly and via SNC Champion) a 45.5% stake in
Natexis Banques Populaires, which was renamed Natixis.

Market transaction
In order to boost the liquidity and attractiveness of Natixis shares, both shareholders agreed to
increase the free float of the new bank by making shares available for sale to investors and the public.

Accordingly, on November 17, 2006 Banque Fédérale des Banques Populaires (BFBP) and the CNCE
offered a portion of their shares in Natixis on the market, in the form of an open price offer (OPO)
available to the public, subject to a period of reservation which began on November 18, as well as a
global placement with institutional investors both in France and abroad.

On December 6, the board of directors of BFBP and the Supervisory Board of the CNCE approved the
sale of Natixis shares at €19.55 per share.

Following the successful completion of the OPO, at December 31, 2006 the CNCE and BFBP each
held a 34.44% stake in Natixis, and two other stable shareholders, DZ Bank and Sanpaolo IMI,
respectively held stakes of 1.87% and 1.68%.
At the same time, Natixis owns a 20% stake in the branch networks of each of its majority
shareholders via the cooperative investment certificates it holds.




2.2.2 Transactions with Caisse des Dépôts et Consignations

On June 6, 2006, the CNCE and CDC agreed on the conditions for reorganizing their business
relationship, which are set out in:

■ a memorandum of understanding representing an irrevocable commitment by both parties in
  respect of the repurchase of CDC’s interest in the capital of the CNCE;
■ a letter of intent setting out the terms of a new strategic partnership between the two groups,
  known as the “New Deal”. This partnership concerns non-banking activities, particularly life
  insurance, real estate and private equity.




                                                                                                     39
Repurchase of CDC’s stake in the CNCE

CDC's stake in the CNCE was valued at €7 billion, an estimate which includes a premium payable to
CDC in respect of its specific contractual rights as a strategic shareholder.

This interest was repurchased in two stages:
■ On December 18, 2006, the CNCE purchased shares held by CDC for an amount of €5.5 billion,
   thus reducing CDC’s interest in the CNCE to 10.34% of its share capital;
■ On January 29, 2007, the CNCE purchased the residual shares for an amount of €1.5 billion.

Launch of a new strategic partnership between the two groups, mainly in the insurance and
real estate sectors: the New Deal transactions
In the field of life insurance, the agreements between the Group and CNP Assurances have been
redefined and extended to 2015 with an option for renegotiation commencing in 2013. However, the
CNCE’s stake in CNP Assurances remains unchanged. In addition, Ecureuil Vie, a CNCE subsidiary,
was sold to CNP Assurances during the first quarter of 2007.

In the real estate field, the CNCE contributed a portion of its assets to CDC during the second half of
2006, notably concerning its investments in the semi-public real estate companies Sagi and RIVP.

Furthermore, the CNCE and CDC have simplified their relationship in the area of private equity:
■ On September 1, 2006, CDC Entreprises (a wholly-owned subsidiary of CDC) transferred its 50%
  stake in Alliance Entreprendre to the CNCE.
■ On July 17, 2006, the CNCE sold its 35% minority interest in CDC Entreprises Capital
  Investissement (CDC ECI) to CDC Entreprises (a wholly-owned subsidiary of CDC).



2.2.3 Significant events in 2006 within the Group’s businesses

Alongside the Natixis project, in 2006 the CNCE Group carried out a number of external growth
ventures in each of its core businesses and reinforced existing strategic cooperation agreements or
signed new ones. The Group’s Investment Banking division also continued to pursue a policy of
targeted international growth.

Operations in the Commercial Banking sphere included:
Retail banking
■ Operational roll-out of the S’Miles multi-brand loyalty program in September 2006, as a means of
     rewarding customers and boosting the Caisse d’Epargne brand.
■ Operational roll-out of the common personal care services platform Séréna since
     January 31, 2006. Séréna is a jointly-owned subsidiary of the Caisse d’Epargne, MAIF, MACIF and
     MGEN groups.
■ Launch of the new CESUs (multi-purpose employment service checks) issued jointly by Accor
     Services and Caisse d’Epargne.
■ Launch of the Parcours Confiance initiative: the CNCE Group has stepped up its commitment to
     combating banking exclusion. Caisse d’Epargne is the first French bank to offer a complete range
     of banking services to customers experiencing financial difficulties, thus enabling them to stabilize
     their financial situation. The Parcours Confiance initiative will eventually be made available to
     10,000 private and business customers every year.




40
Regional development banking
■ With regard to local government bodies and institutions, renewal and reinforcement of partnerships
   with representative associations.
■ With regard to public-private partnerships, provision of funding for major projects such as the
   Reims tramway and the French Foreign Ministry’s archives.
■ With regard to social housing and the social economy, the launch of appropriate offers in the
   various market segments (long-term loans, inflation-linked loans, etc.).
■ Reinforcement of the Group’s real estate division with the creation in 2006 of GCE Habitat for
   social housing and GCE Immobilier for services. Using PEREXIA’s competitive real estate
   operation as its foundation, GCE Immobilier was created in the spring to fulfill the Group’s ambition
   of possessing a single division catering for the whole range of real estate services. GCE Immobilier
   has already strengthened its position by acquiring stakes in two other companies, Aegide (the
   market leader for serviced accommodation for seniors) and Arthur Communication (which operates
   a national network of 450 agencies under the brand name Arthur L’Optimist).
■ Launch of a national real estate leasing division in line with the Group’s plan to strengthen its
   position as a dominant player in this segment. This business is headed by Crédit Foncier via its
   subsidiary Cicobail. The launch involved the following operations:
            ■ Cicobail’s purchase of Eurosic’s real estate lease portfolio;
            ■ Cicobail, Mur Ecureuil, Cinergie, Foncier Bail, Investimur and Palatine Mur SNC were
               merged with retroactive effect from January 1, 2006. Banque Palatine owns a 40%
               stake in the new entity;
            ■ in November, Picardie Bail, a local subsidiary of Caisse d’Epargne de Picardie, was
               sold to the Crédit Foncier group.


2006 was also marked by a certain number of partnerships and acquisitions, some of them with
international scope:
■ Acquisition by Financière OCÉOR of the Orane group, which is specialized in arranging tax-
   efficient transactions for SMEs operating in French overseas territories and departments and
   INGEPAR (which operates in the aeronautics and terrestrial transportation sectors).
■ Acquisition of a minority interest in DV Holding, a company operating in the area of housing for
   dependent seniors, thereby adding a new dimension to the MACIF-GCE alliance.
■ Acquisition of an interest in Crédit Immobilier et Hôtelier (CIH), enabling Groupe Caisse d’Epargne
   to obtain a foothold in Morocco. This was achieved via the purchase in July of a 35% Group
   interest in Massira Capital Management (MCM), which controls 67% of CIH. This project aims to
   transform CIH, which has traditionally specialized in providing home loans, into a retail bank
   delivering a complete range of leading-edge products and services.
■ Acquisition of an interest in BCP’s France- and Luxembourg-based subsidiaries. BCP France is
   jointly held by the Caisse d’Epargne Ile-de-France Paris (50.1%) and by the CNCE (30%); BCP
   Luxembourg is held by Financière OCÉOR (50.1%) and the CNCE (30%). The Millennium bcp
   group retains its 19.9% stake in both banks.
■ Signature of a memorandum of understanding for the creation of a joint Groupe Caisse d’Epargne
   and Banca Carige group subsidiary, which will be domiciled in Italy and will specialize in consumer
   credit.


Operations in the Investment Banking sphere in 2006 included:
■ Roll-out of the business activities of CACEIS. Following the launch in February of CACEIS
   Corporate Trust, which provides services to issuers, CACEIS completed the operational
   restructuring of its fund administration activities in France by creating CACEIS Fastnet, the market
   leader in French fund administration with 3,695 portfolios (mutual funds and mandates),
   administered funds of €627 billion and 550 employees.


                                                                                                     41
■ Finalization of IXIS CIB’s acquisition of 100% of Nexgen, a company specializing in structured
     finance for large corporations; since the second half of 2006, Nexgen has traded under the IXIS
     Corporate Solutions brand.
■ Continued international expansion of IXIS CIB. The Milan branch began operations and a
     subsidiary was opened in Dubai to market the bank’s entire range of products, although its
     operations will still be structured by teams working out of Paris, London and Tokyo.



In 2006, a wave of mergers took place within the Caisses d’Epargne network, designed to give the
regional banks the requisite human and financial resources to step up the pace of their commercial
development.

Accordingly, the Caisse d’Epargne de Bourgogne and the Caisse d’Epargne de Franche-Comté
completed their merger on May 19, 2006.

A number of other linkups between individual Caisses d’Epargne were announced in 2006, notably:
■ In June 2006, the Caisse d'Epargne des Alpes and the Caisse d'Epargne de Rhône-Alpes Lyon
     signed a draft merger agreement.
■ In July 2006, the Caisse d'Epargne de Flandre, the Caisse d'Epargne du Pas-de-Calais and the
     Caisse d'Epargne des Pays du Hainaut signed a foundation agreement, and the resulting linkup
     agreement was signed on November 17, 2006. The new regional savings bank will be called
     “Caisse d’Epargne Nord France Europe”.
■ At the end of 2006, the Caisse d'Epargne de Lorraine and the Caisse d'Epargne de Champagne-
     Ardenne signed a foundation agreement paving the way for a merger between the two entities
     towards the end of 2007.
■ In October, the Caisse d'Epargne Aquitaine-Nord and the Caisse d'Epargne Poitou-Charentes
     signed a memorandum of understanding. Work is underway aimed at exploring the terms and
     conditions for a prospective merger between these similar-sized entities in 2008.
■ In November 2006, the Steering and Supervisory Boards of the Caisse d'Epargne de Provence-
     Alpes-Corse and the Caisse d'Epargne de Martinique approved a draft merger agreement.
■ In mid-December 2006, the Steering and Supervisory Boards of three Paris-based Caisses
     d'Epargne (Ile-de-France Nord, Ile-de-France Ouest and Ile-de-France Paris) approved the start of
     exclusive negotiations regarding the creation of a single Caisse d'Epargne Ile-de-France.
■ In mid-December 2006, the Steering and Supervisory Boards of two Caisses d’Epargne from the
     central region (Centre-Val de Loire and Val de France-Orléanais) mandated their Management
     Boards to commence preliminary studies in view of a merger.


In 2006, the Caisses d'Epargne network decided to converge towards a single IT system. In the
second half of 2006, the Group launched an IT Efficiency Program aimed at integrating its three IT
platforms, improving quality of service and obtaining economies of scale. This scope of this program
includes the IT economic interest groupings SIRIS, Arpège, RSI and CNETI.
The project is scheduled for completion in 2010, and breaks down into three phases:
■ Harmonization: consisting in preparing the infrastructure, cross-disciplinary projects and mergers,
     as well as identifying the target IT architecture.
■ Construction: consisting in laying the groundwork for the integration of the mergers and migrations.
     This stage will end with the creation of the convergence IT system.
■ Convergence: this stage will be devoted to migrating the Caisses d’Epargne onto the new single IT
     platform.




42
2.3 Basel II

The aim of the revised Basel II capital framework is to define a better risk monitoring system and to
bring capital into line with exposure to risks. The Basel II rating system appraises credit risk by
calculating both the probability of the borrower defaulting on the loan and the rate of loss should the
borrower actually default. Basel II also provides for closer monitoring of other types of risk, especially
market and operational risks.

The Basel II initiative is a cross-functional project. It has been coordinated by Group Risk
Management since the end of 2005 and involves an extremely large number of participants, both from
the CNCE and the individual Caisses d'Epargne, subsidiaries and IT communities.

Preparation for Basel II compliance by both the Group and its entities continued apace in 2006.
Different tools have been developed to assess the risk monitoring system in light of Basel II
requirements, as well as the status of rated outstandings, which have been reconciled to the relevant
accounting balances. A number of presentations have also been given to the Group’s steering
committees and corporate governance structures.

The Internal Audit department has completed its audit of the rating systems used by the Commercial
and Investment Banking divisions. The audit involved two external service providers (Deloitte and
Standard & Poor’s Risk Solutions), and its findings have been passed on to the Commission bancaire
(French Banking Commission).

From January 1, 2008, the Group plans to treat its main asset classes in accordance with Basel II. It
has asked the French Banking Commission to review the systems in place within the Investment
Banking division (from October 2006) and the Retail Banking business (from the end of 2006).

As regards operational risks, the Group has also informed the French Banking Commission that it
intends to comply with the Advanced Measurement Approach (AMA) from January 1, 2009. Thanks to
the financial modeling work initiated at the end of 2005, the Group now has a Basel II-compliant
prototype model for measuring capital. This has already been pilot-tested and should be rolled out to
the Group as a whole by the beginning of 2007.



2.4 Change in accounting policies: transition to IAS/IFRS

Companies that are not officially listed in the European Union, but whose debt securities are traded on
a regulated market, must prepare their consolidated financial statements in compliance with the
international accounting standards drawn up by the International Accounting Standards Board (IASB)
as adopted for use by the European Union, by 2007 at the latest (EC regulation No. 1606/2002).

The French Finance Minister’s order of December 20, 2004 (order No. 2004/1382) authorizes unlisted
companies to prepare their consolidated financial statements using international accounting standards
prior to 2007.

The Group has elected for early application and prepares its consolidated financial statements under
IAS/IFRS as adopted for use by the European Union with effect from January 1, 2006.

The 2005 consolidated financial statements have been restated under IFRS for comparison purposes.
Note 3 to the consolidated financial statements, “First-time adoption of IFRS”, sets out the principles
adopted by the Group for the preparation of its opening balance sheet under IFRS at January 1, 2005.

The impacts of IFRS adoption on equity and the opening consolidated balance sheet at
January 1, 2005 and the 2005 consolidated income statement, are set out in Note 6 to the
consolidated financial statements.




                                                                                                       43
             VIGOROUS GROWTH IN CONSOLIDATED RESULTS REFLECTING
             THE CNCE GROUP’S NEW DIMENSION

Following the decision to elect for early application, the Group’s consolidated financial statements
have been prepared under IFRS as adopted for use by the European Union and applicable at the
balance sheet date, December 31, 2006. Data for 2005 have been restated under IFRS.



3.1 A slight positive impact of IFRS adoption on 2005 income


                                                                                                                            Total positive impact:
                                                                                                                                 €27 million
                   + 30                                                                                       + 157
                                                                                                                                   -1
                                                           + 15                                + 19
                            - 97
                                           - 39
                                                                            - 57
                                                                                                                                             Net incom e
     Net incom e


     1,103                                                                                                                                   1,130
                                                                                                                                                IFRS
       French
        GAAP




                   Loans    Financial   Day one profit   Cost of risk     Share in net      Share in net      Business         Other items
                           operations                                    income – CEP         income –       combinations
                                                                        (equity method)      Insurance
                                                                                          business (equity
                                                                                               method)




Loans

IFRS application impacts
Loans and receivables are initially measured at their fair value; they are subsequently measured at
amortized cost using the effective interest method.
The effective interest rate is the rate that exactly discounts future cash flows to the fair value of the
loan at inception. This rate includes any discounts recorded in respect of loans granted at below-
market rates, as well as transaction costs and commissions from loans issued, which are treated as
an adjustment to the effective yield on the loan.

Financial impact for the CNCE Group
In the case of retail banking, commissions included in the initial fair value of loans are mainly
commissions paid to intermediaries.




44
Financial operations

IFRS application impacts

Securities portfolio
The classification of portfolio equity investments has been modified by IAS 39, which classifies
financial assets into four categories (financial assets at fair value through profit or loss, held-to-
maturity investments, loans and receivables, and available-for sale financial assets).
Changes in the fair value of available-for sale financial assets are recorded by means of an offsetting
entry in a specific equity account, entitled “Unrealized or deferred gains and losses (net of tax)”.
Changes in fair value are taken to income upon disposal of the securities or whenever the securities
are deemed to have suffered a lasting decline in value. Impairment recorded against an equity
instrument may not be reversed.
Held-to-maturity assets are recognized at amortized cost. However, unlike under French GAAP, these
securities may not be hedged against interest rate risk.

Derivatives used for hedging purposes – Specific hedging strategy
All derivative financial instruments must be carried at fair value in the balance sheet regardless of the
purpose for which the hedge was contracted.
Hedging relationships only qualify for hedge accounting if they are properly documented and meet
strict eligibility criteria. The effectiveness of the hedge must be demonstrated at the inception of the
contract and subsequently verified.
The Group uses two types of hedge:
■ fair value hedges: changes in the fair value of the hedged item are recognized in income
    symmetrically with the remeasurement of the hedging instrument;
■ cash flow hedges: the portion of the gain or loss on the hedging instrument that is determined to be
    an effective hedge is recognized on a separate line in equity to be recycled to the income
    statement, while the ineffective portion is recognized in profit or loss.

Derivatives used for hedging purposes – Macro-hedging strategy
Under the so-called “carve-out” from IAS 39, macro-hedging transactions (interest rate swaps) carried
out within the scope of Asset/Liability Management (ALM) qualify as fair value hedges.
Gains and losses on the remeasurement of the hedged item are recorded in “Remeasurement
adjustment on interest-rate risk hedged portfolios”. This neutralizes the impact of any changes in fair
value of the hedging instrument and therefore eliminates the volatility of equity and earnings.

Financial assets and liabilities accounted for under the fair value option
Under IAS 39, entities can choose to designate a financial asset or liability on initial recognition at fair
value in the following cases:
■ if a hybrid financial instrument contains embedded derivatives;
■ if this option eliminates or significantly reduces a measurement or recognition inconsistency
   (accounting mismatch) that would otherwise arise from measuring assets or liabilities using
   different bases;
■ if the group of financial assets and/or financial liabilities is managed and valued on a fair value
   basis in accordance with a documented risk management or investment strategy.


Day one profit

IFRS application impacts
In valuing certain structured products, the valuation model may use certain non-observable market
parameters. On initial recognition of such instruments, the transaction price is taken to reflect the
market price, and the margin generated when these instruments are traded (day one profit) is deferred
and taken to profit or loss over the period through maturity, or over the period during which the
valuation parameters are expected to remain non-observable. When the valuation parameters applied
become observable, the portion of day one profit not yet recognized is taken to profit or loss.




                                                                                                         45
Financial impact for the CNCE Group
Margins previously recorded under French GAAP upon the inception of trading were deducted from
equity at January 1, 2005 and will be released to income over the residual life of the financial
instruments concerned, or over the period during which the valuation parameters remain non-
observable. Margins on transactions processed on or after October 25, 2002 were restated
prospectively.
This will help reduce the volatility of income relating to such operations. The related risks continue to
be tracked and managed in the same way.
   The non-recognition of day one profit had a negative €39 million impact on 2005 income


Cost of risk

IFRS application impacts
Where it is not possible to identify impaired loans individually, impairment tests are carried out on
portfolios of loans with similar characteristics which present objective evidence of collective
impairment.

Financial impact for the CNCE Group
The general provisions previously recorded by the CNCE Group are not compatible with IFRS and
have been reversed. Accordingly, portfolio-based provisions were set aside on January 1, 2005, and
the balance is essentially linked to the portion of provisions previously booked in respect of
commitments on securities, which are now measured at fair value.
   The slight positive impact on net income in 2005 was €15 million.


Share in net income of companies accounted for by the equity method

The main impacts concern:

The individual Caisses d'Epargne
The most significant impact of IFRS adoption on the share of earnings of the Caisses d’Epargne
relates to deferred taxes. Tax income arising from transfers of assets to the CGR pension fund under
French GAAP 1 are included in the opening IFRS balance sheet, leading to a reduction in the
contribution of the Caisses d’Epargne to net income.
   This had a negative €57 million impact on income in 2005.

Insurance companies
The non-recyclable, non-amortizable impacts of IFRS adoption on the equity of equity-accounted
insurance subsidiaries mainly relate to deferred tax recognized on the capitalization reserve.
Financial assets held by insurance companies are recognized in the balance sheet within one of the
categories defined by IAS 39, and are measured in accordance with the prescribed treatment.
   This had a positive €19 million impact on net income in 2005.


Business combinations

IFRS application impacts
Under IFRS 1, entities may choose not to restate business combinations that took place prior to the
IFRS transition date. However, assets and liabilities acquired as part of past business combinations
may only be recognized in the opening balance sheet provided that they meet the recognition criteria
set out in IFRS.
Goodwill is no longer amortized but is instead subject to periodic impairment tests. In the event of an
objective indication of impairment, an irreversible impairment charge is recognized in income.




1
  Under the terms of the Fillon law relating to pension schemes in France, the CGRCE pension fund became an employee
benefit savings institution (institution de prévoyance) and a number of assets were transferred from Group entities to the
CGRCE with the aim of setting up provisions for the pension obligation in the CGRCE’s balance sheet. As these transfers
involved the release of non-taxable provisions, they gave rise to tax income under French GAAP.
46
Financial impact for the CNCE Group
The Group has chosen the option offered by IFRS 1: business combinations arising prior to
January 1, 2005 have not been restated.
Intangible assets acquired by the Group that do not qualify for recognition as intangible assets under
IFRS (e.g., market share and business goodwill), have been reclassified under goodwill.
The tax credit recognized in connection with the Nvest acquisition, which represents potential future
tax savings arising from the tax-deductibility of US goodwill, is not an identifiable asset under IFRS
and does not therefore appear in the opening balance sheet.
The Group does not anticipate any material impairment risk in relation to existing goodwill.
   The cancellation of goodwill amortization had a positive €157 million impact in 2005.




3.2 Effective date of the Natixis transaction: December 31, 2006


3.2.1 Method of preparation of the published income statement

Note 4.3 – “Presentation of the consolidated financial statements and balance sheet date” to the
CNCE Group's consolidated financial statements sets out the accounting policies applied for the
preparation of the Group’s 2006 statement of income.

In particular, the statement of income reflects the sole activity of the CNCE Group's entities prior to the
Natixis transaction since the constitution of Natixis took place with effect from December 31, 2006.

The statement of income therefore reflects the contribution for 12 months of the entities contributed to
Natixis, and excludes the interest in Natexis Banques Populaires and the cooperative investment
certificates in the regional Banques Populaires received in return for assets contributed to Natixis.

As a result, the gains arising on assets contributed or sold to Natixis have been determined on the
basis of the shares in the underlying net assets as at December 31, 2006 of the entities contributed.


3.2.2 Reporting by division

Until the end of 2006, the CNCE Group had a matrix structure comprising two main operating
divisions, Commercial Banking and Investment Banking, as well as cross-functional divisions
providing services to the Group as a whole.

The scope of the Commercial Banking division differs from that of Groupe Caisse d’Epargne, notably
in that it includes 20% of the individual Caisses d'Epargne, as well as Surassur, on an equity-
accounted basis. In addition, Muracef is not included within the CNCE Group's scope of consolidation.
The CNCE Group's Commercial Banking division therefore comprises:
■ the Group's share in net income of the individual Caisses d’Epargne;
■ operations relating to lending, savings and other banking services carried out by the subsidiaries of
    the Caisses d’Epargne, including Banque Palatine, OCÉOR and La Compagnie 1818;
■ the Group’s insurance subsidiaries, particularly CNP, Ecureuil Vie, Ecureuil Assurances IARD and
    GCE Garanties;
■ the specialist banking and financial institutions, in particular Crédit Foncier 2 and CEFi.




2
 Data excluding Foncier Assurance (fully consolidated at 100% in 2005, accounted for under the equity method at 40% in 2006)
and SICP (GCE Immobilier) in 2005 (accounted for under the equity method), presented as an insurance subsidiary and a
specialized financial subsidiary, respectively.
                                                                                                                         47
The Investment Banking division is structured around four business lines:
■ IXIS Corporate & Investment Bank, the Group’s capital markets and financing arm. This division
     operates on an international scale through its offices and subsidiaries in Europe (Paris, Frankfurt,
     London, Milan and Luxembourg), the US (New York) and Asia (Hong Kong and Tokyo). IXIS
     Corporate & Investment Bank has also recently opened a subsidiary in Dubai;
■ IXIS Asset Management Group, responsible for financial and real estate asset management in
     Europe, Asia and North America;
■ CACEIS (IXIS Investor Services until June 30, 2005), the market leader in providing custody, fund
     management and institutional investor services in Europe;
■ IXIS Financial Guaranty (CIFG), specialized in financial guaranty operations, mainly in the US.

A holding structure completes the lineup, encompassing:
■ the CNCE's proprietary trading portfolio;
■ CNCE support functions, excluding those directly relating to management of the Group’s
     businesses;
■ management of investments in unconsolidated undertakings;
■ management of certain items of income or expense, such as impairment of goodwill or
     amortization of valuation differences, not directly related to the Group’s commercial or investment
     banking activity and sometimes of an exceptional nature: notably in 2006, this concerned the gains
     recognized as a result of the Natixis and New Deal transactions.

The breakdown by division is aimed at providing a clearer picture of the results and profitability of
each of the Group’s divisions.

Reporting by division is based on the following rules and methods:

Net banking income
Net banking income by division includes revenues generated by the divisions concerned, excluding
certain non-recurring items.

Total operating expenses
Total operating expenses of the divisions correspond to total expenditure of the legal entities within
each division and direct costs borne by the CNCE in relation to managing and monitoring each
business segment (essentially impacting the Commercial Banking division).
Operating expenses included under the holding structure comprise costs related to managing
proprietary portfolio transactions on behalf of the CNCE, as well as exceptional expenditure and
committed costs that cannot be directly allocated to the operating divisions.

Cost of risk
Provisions are booked to cover the risks inherent in each division.

Net gains or losses on other assets
This item includes capital gains or losses generated by the businesses on the sale of investments in
consolidated companies, property, plant and equipment, and intangible assets (with the exception of
certain non-recurring capital gains).

Tax charge
The tax charge of the divisions represents the charge recorded at the level of the legal entities,
adjusted if necessary to take account of the income or expense relating to items included under the
holding structure. Tax savings generated in the framework of the CNCE Group’s tax consolidation
arrangements, as well as tax income and expense related to exceptional items, are recognized by the
holding structure.




48
3.3 An exceptional level of net income in excess of €3.3 billion for 2006



                                                                        Consolidated
                                                                   financial statements                  Change
                                                                     of the CNCE Group
                         in millions of euros                         2005       2006                Amount     %


               Net banking income                                         4,373           5,385        1,012      23%
               Total operating expenses                                 (3,509)         (4,231)         -722      21%

               Gross operating income                                       864          1,154          290     34%
               Cost/income ratio                                        80.2%           78.6%         -1.6 pt        --
               Cost of risk                                                   (5)             88          93         nm
               Share in net income of companies
               accounted for by the equity method                            462             692         230      50%
               Net gains or losses on other assets                           136          2,406        2,270       nm
               Changes in value of goodwill                                   (1)           (43)         -42       nm

               Income before tax                                         1,456           4,297        2,841     195%

               Income tax                                                  (251)          (878)         -627       nm
               Minority interests                                           (75)          (120)          -45      60%
               Net income attributable to equity
               holders of the parent                                     1,130           3,299        2,169     192%

               Return on equity (*)                                   10.1%          11.4%            1.3 pt    --

               (*) Ro E adjusted fo r no n-recurring items based o n average equity excluding OCI.




Thanks to steady growth in our businesses and the very positive impacts of the Natixis and New Deal
transactions, the CNCE Group's 2006 results grew considerably on 2005 and have reached an all-
time high.

Net banking income came in at €5,385 million, up 23% on the figure for 2005, buoyed by the solid
performances of the commercial and retail banking networks, as well as an excellent showing by the
capital markets and financing businesses.
■ The Commercial Banking division’s net banking income for the year ended December 31, 2006
   came in at €2,053 million, up 15% compared to 2005.
■ On the back of especially favorable conditions throughout 2006, the Investment Banking division
   recorded an impressive 31% leap in net banking income year-on-year to €3,480 million.

Total operating expenses for the year ended December 31, 2006 came in at €4,231 million, up 21%
compared to 2005.
Personnel costs represented 59% of total operating expenses, rising to €2,483 million, an increase of
22% on the 2005 figure. There are several factors behind this rise: a higher variable portion of
employee compensation (particularly within the Investment Banking division) in line with the higher
levels of business, and an increase in profit-sharing and incentive payments to employees. The CNCE
Group’s headcount grew by around 4% to nearly 15,170 FTEs (full-time equivalents), which also
contributed to the increase in personnel costs.
Other operating expenses increased 18%, reflecting:
■ higher expenditure on coordination and management of business and a new risk management
   function within the Group’s divisions;
■ costs incurred in connection with regulatory commitments (notably Basel II);
■ the continued development of the Investment Banking division.
Gross operating income leapt 34% to €1,154 million driven by the combined impact of the increase
in net banking income and a tight rein on total operating expenses, against a backdrop of buoyant
investment activity. Accordingly, the cost/income ratio improved by 1.6 percentage point and came in
at 78.6% for 2006.

                                                                                                                          49
Cost of risk in 2006 resulted in a net reversal of provisions amounting to €88 million, consolidating
the CNCE Group’s low risk profile, and notably reflecting the reversal of significant provisions set
aside against large corporate customers by IXIS CIB.

The share in net income of companies accounted for by the equity method came out at
€692 million, a 50% leap on the 2005 figure, and mainly comprised the share in net income of the
individual Caisses d’Epargne (€280 million), as well as the insurance subsidiaries, with CNP and
Ecureuil Vie bringing in €176 million and €169 million, respectively.

Thanks to sustained levels of business and a positive cost of risk, as well as higher levels of income
from equity-accounted companies and the capital gains realized on the Natixis and New Deal
transactions, income before tax for 2006 came in at an exceptional level of €4,297 million.

Net income attributable to equity holders of the parent for the year increased almost threefold
compared to 2005, coming in at €3.3 billion. The rise in net income is lower than the increase in
income before tax as a result of the considerable rise in tax expense as well as higher minority
interests, in particular following the acquisition by CNP of a 5.9% stake in the IXIS AM Group in
December 2005.


3.3.1 A strong increase of 26% in recurring net income

The year’s non-recurring items mainly related to the Natixis and New Deal transactions which had the
following consequences:
■ Gains arising on assets sold and contributed to Natixis amounted to €1.6 billion after corporate
    income tax, including €0.9 billion relating to the contribution of IXIS AM Group and €0.4 billion
    arising from the contribution and transfer of CICs.
■ Gains arising on the disposals within the scope of the New Deal agreement with CDC, the most
    significant of which was the sale of Ecureuil Vie by the CNCE to CNP, generating an after-tax profit
    of €0.5 billion. The other disposals were made either by the CNCE (CDC ECI), the Crédit Foncier
    group (RIVP) or GCE Immobilier (Sagi).
■ Incidental costs of creating Natixis and implementing the new partnerships with CDC amounted to
    about €50 million.
The other non-recurring items were:
■ the IT Efficiency Program provision for the costs of convergence of the computer platforms of the
    Caisses d’Epargne; a pre-tax charge of €20 million was recorded against the Caisses d’Epargne
    CICs under "Share in net income of companies accounted for by the equity method";
■ the negative impact of the change in the value of goodwill relating to the OCÉOR group, in an
    amount of €45 million;
■ and the tax effect of changes within the CNCE's tax consolidation group.
After adjusting for these items net income amounts to €1,426 million, an increase of 26% compared to
2005, and the Group cost/income ratio comes in at 77.6%.



3.3.2 A solid financial position

At December 31, 2006, and despite the €7 billion cost of the withdrawal of CDC from the CNCE's
capital, the CNCE Group's consolidated equity stood at €10.9 billion against €13.7 billion at end-
December 2005. After adjusting for non-recurring items, the CNCE Group's after-tax return on equity
amounted to 11.4%, an increase of 1.3 point, and the Group’s Tier One ratio stood at 8.9%.




50
3.3.3 Excellent performance of our businesses

                                                     Consolidated
                                                                               Including                       Including
                                                financial statements
                                                                           Commercial Banking             Investment Banking
                                                  of the CNCE Group
                  in millions of euros             2005       2006           2005           2006            2005           2006


         Net banking income                            4,373     5,385         1,783           2,053           2,652            3,480
         Total operating expenses                    (3,509)   (4,231)       (1,285)         (1,448)         (1,875)          (2,329)

         Gross operating income                        864     1,154              498           605                777        1,151
         Cost/income ratio                           80.2%     78.6%          72.0%           70.5%          70.7%            66.9%
         Cost of risk                                    (5)       88               (5)         (36)               (18)            124
         Share in net income of companies
         accounted for by the equity method             462       692              452            677               10               15
         Net gains or losses on other assets            136     2,406               19              4               29              (1)
         Changes in value of goodwill                    (1)      (43)

         Income before tax                           1,456     4,297              964         1,250                798        1,289

         Income tax                                   (251)     (878)             (150)        (185)           (224)              (377)
         Minority interests                            (75)     (120)              (19)         (27)            (56)               (94)
         Net income attributable to equity
         holders of the parent                       1,130     3,299              795         1,038                518            818



Both of the CNCE Group’s operating divisions contributed to the enhanced results. Investment
Banking turned in an excellent performance, with an increase in its net income of 58% compared to
2005, while Commercial Banking also performed well with net income rising by 31%.

Excluding the contribution made by the holding structure, the Investment Banking division generated
almost two-thirds (63%) of the Group's net banking income in 2006 and 44% of its net income. The
Commercial Banking division represents 37% of net banking income, but more than half (56%) of net
income.




    CAISSES D’EPARGNE BANKING NETWORK: SURGE IN AGGREGATE
    FINANCIAL RESULTS

The network of individual Caisses d’Epargne forms the Group’s historic foundation. The CNCE
Group’s consolidated financial statements include 20% of the results of the equity-accounted Caisses
d’Epargne (through the CICs held by the CNCE Group), which is allocated in full to the Commercial
Banking division.

                                                                  Caisses d'Epargne
                                                                                                            Change
                                                                  (aggregated data)
                              in millions of euros                  2005             2006               Amount            %


               Net banking income                                         5,820             6,221           401            7%
               Total operating expenses                                 (4,116)           (4,180)           -64            2%

               Gross operating income                                    1,703            2,041             338           20%
               Cost/income ratio                                         70.7%            67.2%         -3.5 pts              -
               Cost of risk                                               (126)            (142)            -16           13%
               Net gains or losses on other assets                          (2)              142            144            nm

               Income before tax                                         1,575            2,041             466           30%

               Income tax                                                 (431)            (499)             -68          16%
               Net income attributable to equity holders
               of the parent                                             1,144            1,542             398           35%



                                                                                                                                          51
The individual Caisses d'Epargne recorded excellent performances in 2006, reflecting the pertinence
of their commercial strategies as well as their overall financial solidity.

Aggregate net banking income advanced 7% year-on-year, to €6.2 billion.

Interest margin and other products grew by 11% to reach nearly €3.5 billion. While this increase partly
reflects changes in the provision recorded on regulated savings products, even adjusted for this
writeback, interest margin and other products still comes in 5% higher than one year ago. This change
reflects the higher levels of outstanding loans granted and savings, which offset tighter lending
margins and lower revenues from the investments of customer deposits.

■ Total outstandings advanced 8% year-on-year to €114 billion on the back of sustained demand for
  real estate loans and a vigorous consumer credit business which was boosted by the commercial
  rollout of consumer loans through the Caisse d’Epargne Financement subsidiary. The Caisses
  d’Epargne continued to grow their retail banking franchise across the board, while maintaining their
  presence in regional development banking.
■ Savings, excluding demand deposits, reached €270 billion at the end of 2006, thus increasing by
  5% on the 2005 figure. This change is attributable to the strong growth in life insurance assets (up
  13%), thanks in particular to the sustained policy of recycling customers’ home savings accounts
  into life insurance investments in the wake of measures to tax interest on PEL home savings plans
  set up more than 10 years ago.
  In addition, demand deposits increased by nearly 7% year-on-year to reach €24 billion at the end
  of 2006, reflecting the continued increase in the bank’s customer base and in the number of
  service package customers (up 398,000) who received interest on their current accounts.

Commissions and fees posted a modest 3% increase to nearly €2.8 billion, reflecting a significant
fallback in commissions and fees from regulated savings products which were heavily impacted by the
decrease in commissions received on Livret A passbook accounts (the full-year effect in 2006 of the
two consecutive 10-euro cent cuts in 2005) as well as the lower rate of CDC centralization of Codevi
accounts 3. Once commissions and fees from regulated savings products are factored out,
commissions and fees actually increased by almost 9%, thanks in particular to life insurance products
and to greater levels of equipment sold to customers.

Total operating expenses increased 1.5% to €4.2 billion. In both 2005 and 2006, total operating
expenses included significant non-recurring items: in 2005, a €146 million charge in connection with
the constitution of the CGRCE pension fund's solvency margin within the scope of its conversion into
an employee benefit savings institution (institution de prévoyance) under the terms of the Fillon law;
and in 2006, a €154 million provision set aside in respect of the IT Efficiency Program.
The contained growth of total operating expenses reflects the tight rein kept on these costs despite
significant capital expenditure, in particular within the scope of the renovation and reorganization
program focusing on the branch network.

Gross operating income came in 20% higher than the 2005 figure, at €2 billion, and was boosted by
a leverage effect. The cost/income ratio improved by 3.5 percentage points to 67.2% when compared
with year-end 2005.

The Caisses d’Epargne’s low risk profile and their negligible rate of default helped keep the cost of
risk reined in at €142 million, in spite of a coverage rate for non-performing loans of 74%.

Thanks to these strong performances and the capital gains recorded on the sale of CEFi shares to the
CNCE (€118 million after tax), aggregate net income of the individual Caisses d'Epargne leapt by
35% to more than €1.5 billion.


The individual Caisses d’Epargne are accounted for under the equity method on the basis of this net
income, after consolidation adjustments (notably the elimination of dividends and capital gains on the
sale of CEFi shares). Their contribution to the CNCE Group’s consolidated net income came in at
€280 million for 2006, versus €188 million for 2005.


3
    Renamed the Livret développement durable as of January 1, 2007.
52
In millions of euros                                                        2005         2006        Change

Aggregated income of the Caisses d'Epargne                                  1,144        1,542             35%

Dividends received from the CNCE                                            (294)        (359)             22%
Other adjustments                                                           (46)         (153)              nm

Basis of contribution                                                       804          1,030             28%

Equity-accounted income (20%)                                                161          206              28%
Change in share of reserves                                                  28            74               nm

Contribution of CICs to the CNCE (20%)                                      188           280              49%




     COMMERCIAL BANKING: A STEADY INCREASE IN RESULTS


                                                             Commercial Banking             Change

                                in millions of euros           2005         2006        Amount     %


                       Net banking income                        1,783        2,053         270      15%
                       Total operating expenses                (1,285)      (1,448)        -163      13%

                       Gross operating income                     498          605         107     21%
                       Cost/income ratio                        72.0%       70.5%        -1.5 pt       -
                       Cost of risk                                   (5)      (36)          -31      nm
                       Share in net income of companies
                       accounted for by the equity method         452             677       225     50%
                       Net gains or losses on other assets         19               4       -15    -81%

                       Income before tax                          964        1,250         286     30%

                       Income tax                                (150)        (185)          -35     23%
                       Minority interests                         (19)         (27)           -8     42%

                       Net income attributable to equity
                       holders of the parent                      795        1,038          243    31%




The Commercial Banking division’s results for 2006 reflect its strong positive momentum:
■ Net banking income advanced strongly by 15%, a tribute to the dynamism of the branch network
   and to the implementation of innovative policies (including interest-bearing current accounts, a
   broader-based product offering and the S’Miles customer loyalty program).
■ Thanks to the division’s commercial success and cost control in respect of capital expenditure,
   gross operating income increased by 21% to €605 million and the division's cost/income ratio
   improved 1.5 percentage point to 70.5%.
■ Cost of risk came in at a very low €36 million due mainly to favorable lending conditions and the
   CNCE Group's low risk profile.
■ Income before tax increased by 30%, thus outstripping gross operating income. It was boosted by
   the greatly improved share in net income of companies accounted for by the equity method.
■ Net income attributable to equity holders of the parent came in at €1,038 million for 2006, a
   31% jump on the year-earlier figure.




                                                                                                                 53
At December 31, 2006, the CNCE Group's Commercial Banking division had average allocated equity
of €8.7 billion. Return on allocated equity, determined based on regulatory capital requirements
(equivalent to 6% of risk-weighted assets for banking activities and 100% of the solvency margin for
insurance business) was 18% at year-end 2006.



5.1 Net banking income up 15% on the back of sustained sales

In 2006, the Commercial Banking division continued to enjoy very high volumes despite fierce market
competition. The division’s net banking income climbed 15% to nearly €2 billion.



                                              Net banking income
                                              (in millions of euros)
                                                      15%            2,053

                                       1,783




                                                                     1,470
                                       1,207




                                        576                          583



                                        2005                          2006
                                        Interest margin and other products
                                        Net commission and fee income



5.1.1 Interest margin and other products

The net interest margin jumped 22% year-on-year to more than €1,470 million. The increase in
interest margin is due to the higher volumes of outstanding loans, despite an erosion of lending
margins under pressure from a very competitive market.
The interest margin improved right across the Group's banners, and in particular within the Crédit
Foncier and OCÉOR groups due to both changes in consolidation scope (consolidation of Foncier
Expertise, Serexim and Foncière d’Evreux within Crédit Foncier, and of OCEORANE, INGEPAR, GCE
Maroc and BCP Luxembourg within the OCÉOR group), and gains arising on the disposal of assets
(Cofimab within Crédit Foncier’s accounts and the Opéra Hanoï hotel within OCÉOR’s accounts).
Caisse d’Epargne Financement also performed well during the year and significantly improved its
interest margin, in particular in respect of Teoz, the revolving credit product, which recorded strong
results in 2006.
Net insurance income – which comprises the major item within “Income from other activities” – slipped
back slightly on the 2005 figure, to €142 million.




54
5.1.2 Another record year for loans

Total outstanding loans (including finance leases and excluding the outstandings of the individual
Caisses d’Epargne) were 20% higher than at year-end 2005, boosted notably by the vibrant but
fiercely competitive property loans market and buoyant consumer credit. At year-end 2006, total
outstanding loans stood at €80 billion.

                                             Customer loans
                                             (in billions of euros)

                                                    20%            81.0
                                  67.3
                                                                      24.5
                                    15.1
                                                                       9.3
                                    9.1



                                    43.1                              47.2




                                Dec. 31, 2005                   Dec. 31, 2006

                              Home purchase loans      Equipment loans       Other loans



5.1.3 Customer savings rise by 11%

At December 31, 2006, customer savings (excluding demand deposits) amounted to €130 billion, up
11% on the year-earlier figure.

Total savings, i.e., including demand deposits, reached €134 billion at the end of 2006 and increased
by 11% on the prior-year figure. Banque Palatine and La Compagnie 1818 made major contributions
to the increases in new deposits, especially in life insurance.

                                  Customer savings including demand
                                                deposits
                                         (in billions of euros)
                                                    11%
                                                              134.5
                                       121.3




                                                                  125.8
                                           113.1




                                            8.2                       8.7
                                     Dec. 31, 2005             Dec. 31, 2006



                                           Liquid savings   Investment savings


                                                                                                   55
Liquid savings (including demand deposits) stood at €8.7 billion at end-2006, a rise of 5% compared
to the prior-year figure, essentially reflecting an increase in demand deposits (up 10%) following the
success of the decision to pay interest on current accounts, effective since April 14, 2005.
Investment savings amounted to €125.8 billion, a strong year-on-year increase of 11%, mainly
attributable to the 13% increase in life insurance savings to €83 billion on the back of a record level of
inflows. Mutual fund investments also posted a significant advance of almost 8% to reach €43 billion
at the end of 2006.


5.1.4 Net commission and fee income

Commissions and fees grew only marginally (1%), as a result of a number of contrasting
performances:
■ Commissions and fees from savings products came in at €263 million for the year ended
     December 31, 2006, reflecting a 13% year-on-year rise due to the advance of commissions and
     fees on mutual funds. In particular, La Compagnie 1818 recorded a €10 million rise in income,
     which was attributable both to the high volume of transactions and to the satisfactory level of
     managed assets. Net commission and fee income also reflects growth in non-life income through
     the contributions of GCE Garanties and Ecureuil Assurances IARD.
■ Commissions and fees from loans advanced 14% to €162 million in 2006.
     Payment protection insurance contributed €54 million, representing a year-on-year increase of
     47% – primarily driven by the renegotiation of the p artnership with CNP and a vigorous real estate
     lending market that also boosted incidental commissions on loans, including handling fees and
     guarantees, which grew 24% year-on-year. In contrast, early repayment loan penalties fell as a
     result of higher interest rates in 2006 that led to unfavorable renegotiation conditions for
     customers.
■ Commissions and fees from banking services fell by 22% year-on-year and amounted to
     €158 million at the end of 2006. These commissions notably comprise electronic banking and
     payment products.




5.2 Total operating expenses up 13% due to higher levels of capital expenditure

                                                         2005       2006       Change
                In millions of euros


                Personnel costs                             (691)     (725)    -34       5%
                Other operating expenses                    (594)     (723)   -129      22%

                Total operating expenses                 (1,285)    (1,448)   -163      13%



Personnel costs came in at €725 million for the year and represented 50% of total operating
expenses. The year-on-year increase has been contained at 5%, reflecting:
           a volume effect: employee numbers rose by about 1%, mainly due to the strengthening of
           headcount within the insurance subsidiaries and the OCÉOR group;
           the absence of specific charges recorded in 2005 such as the Villepin bonus system, and
           specific measures taken by Crédit Foncier (offer to encourage voluntary retirement by
           providing for cash payments representing €9 million and the upward alignment of employee
           benefits following the merger with Entenial).
The OCÉOR group’s personnel costs surged by 15% mainly due to the consolidation of OCEORANE,
GCE Maroc, INGEPAR and BCP Luxembourg.




56
Other operating expenses increased significantly to €723 million. They included:
■ a 25% increase in external services to €606 million. This rise reflects investments relating to
   regulatory commitments, as well as risk monitoring and management, and higher IT expenses
   incurred by entities such as Crédit Foncier, which have begun preparations for Group
   convergence;
■ a limited €7 million rise in taxes other than on income to €43 million;
■ depreciation and amortization expense, which rose very slightly over the year.


5.3 A 21 % jump in gross operating income


Gross operating income in 2006 surged 21% on the prior year figure to €605 million, while the
Commercial Banking division’s cost/income ratio also improved by 1.5 percentage point, to 70.5%.


5.4 Cost of risk is kept under a tight rein

Cost of risk in 2006 increased by €31 million, but still remained very low overall at €36 million. In 2006,
the Group benefited from a very low risk profile and a favorable economic environment.
Non-performing loans represented 2.7% of total customer outstandings, down 0.5 percentage point on
the year-earlier figure.


5.5 Income before tax leaps 30%

Income before tax amounted to €1,250 million in 2006, a rise of 30% on 2005. This significant
increase essentially reflects the higher level of income from equity-accounted companies, as well as
the strong level of gross operating income posted by the Group as a whole. The contribution of the
individual Caisses d’Epargne through the CICs held by the CNCE Group increased sharply in 2006,
as did the contribution of the insurance companies CNP and Ecureuil Vie on the back of the positive
impact of the Finance Act voted at the end of 2006, which abolished the reduced rate of tax previously
applicable to capital gains of more than €22.8 million in respect of shareholdings of less than 5%, thus
enabling the Group to recognize a higher level of tax credits in France in respect of the impairment
losses previously recorded for certain securities. Ecureuil Vie also made gains following
implementation of its new basis of commissioning.
Net gains or losses on other assets fell slightly in 2006, notably in light of the €38 million gain
recognized during the previous year by Crédit Foncier on its sale of Capri.


5.6 Net income for the year tops the €1 billion mark

Net income came in at €1,038 million for 2006, a 31% jump on the year-earlier figure.
Regulatory return on equity for the Commercial Banking division stood at 18% after tax, based on
regulatory capital requirements equivalent to 6% of risk-weighted assets for banking activities and
100% of the solvency margin for insurance business.




                                                                                                        57
     INVESTMENT BANKING: AN EXCEPTIONAL PERFORMANCE

Given a particularly propitious economic climate for investment banking in 2006 and the excellent
intrinsic performance of the Group’s entities, the Investment Banking division recorded strong results
for the year with a 31% increase in its net banking income. Operating costs reflected increased
variable remuneration given the sustained level of activity, as well as the pursuit of capital investment
and adaptation to the division’s new environment following the tie-up with Banques Populaires. These
factors, combined with a much lower cost of risk, drove a 58% surge in net income.

IXIS CIB’s capital markets and financing business reinforced its position as the division’s number one
contributor, providing 53% of the Investment Banking division’s net banking income and 68% of its net
income in 2006.


Net income attributable to equity holders of the parent: up 58% to €818 million


                                                       Financial
                                                     guaranty: 2.7%
                                                             3.4%
                          Investor services:
                                 6.0%
                                      4.9%




                      Asset
                   management:
                      23.4%
                      34.9%




                                                                         Capital markets
                                                                          and financing:
                                                                              68.0%
                                                                             56.8%




                         % in italics are for 2005




58
6.1 Capital markets, financing and financial guaranty

6.1.1   Capital markets and financing



                                                       Capital markets and
                                                                                Change
                                                            financing
                 in millions of euros                    2005        2006       Amount     %


                 Net banking income                        1,293       1,846        553    43%
                 Total operating expenses                  (842)     (1,123)       -281    33%

                 Gross operating income                     451        723          272    60%
                 Cost/income ratio                        65.1%      60.8%      -4.3 pts       --
                 Cost of risk                               (17)        124         141     nm
                 Share in net income of companies
                 accounted for by the equity method             1           3          2    nm
                 Net gains or losses on other assets            1           0         -1    nm

                 Income before tax                          436        850         414     95%

                 Income tax                                (134)       (285)       -151     nm
                 Minority interests                          (7)         (9)         -2    35%
                 Net income attributable to equity
                 holders of the parent                      295        556          261    89%

                 Return on equity based on
                 regulatory capital requirements (*)            --     24%            --       --

                 (*) Return on allocated equity.




The capital markets and financing business achieved an historic result of €556 million, 89% higher
than 2005.

During 2006, IXIS CIB developed its business as follows:

■ international development: launch of IXIS Middle East in Dubai in March, creation of a branch in
  Madrid in July and sustained growth in staff numbers in London, Tokyo and Hong Kong;
■ acceleration of corporate offerings under the IXIS Corporate Solutions brand following the 100%
  takeover of Nexgen in March;
■ structuring of third-party management services with the creation of a dedicated IXIS Environment
  and Infrastructures department.




                                                                                                    59
Economic net banking income

IXIS CIB’s economic net banking income amounted to €1,771 million, reflecting an exceptional year
with overall growth of 31% compared to 2005 4.

in millions of euros




                                                       30.9%          1,771
                                                                                               North
                                                                                               America
                                                                      458
                                             1,353


                                             412




                                                                      1,313
                                                                                               Europe and
                                             941                                               Asia




                                             2005                     2006


Economic net banking income for Europe and Asia amounted to €1,313 million in 2006 and rose
steeply (40%) compared to 2005. North America experienced lower growth which nevertheless
reached 11%. Europe and Asia remain the principal markets, generating 74% of total economic net
banking income.

All of IXIS CIB’s business lines achieved an excellent performance worldwide, in particular Equity &
Arbitrage and Financing & Credit, which together contributed more than 55% of total economic net
banking income:

                                                                                        Cross-functional
                                                                                      and holding structure
                                                                                               6%



             in millions of euros    2005     2006    Amount    %

                                                                                  Corporate                Fixed
      Fixed income                    273      274      1       0%
                                                                                   finance                income
      Equity & arbitrage              283      361      78      28%                  11%                    15%
      Financing & credit              479      651     172      36%
      Structured financing            142      181      39      27%
                                                                              Structured                           Equity &
      Corporate finance                56      197     141     252%
                                                                               financing                           arbitrage
      Cross-functional and holding
      structure                       120      107     -13     -11%
                                                                                  10%                                20%

      Economic net banking income    1,353    1,771    418     31%
                                                                                              Financing
                                                                                               & credit
                                                                                                 37%




4
    2005 data reflects the full consolidation of 100% of Nexgen
60
■ The Fixed Income business line remained at a similar level to 2005, deriving more than 95% of its
   revenues from Europe and Asia. Derivative volumes were on the rise: plain vanilla products, which
   offer a large degree of stability compared to fluctuations in the underlying items (and so are used
   for fair value applications) were particularly in demand from customers in the context of IFRS
   implementation and their volume doubled compared to 2005. This business line also improved its
   positioning within the primary market for euro issues.

■ Equity & Arbitrage revenues surged by 28%, underpinned by all the components of the business.
   Arbitrage provides an increasingly significant contribution to the business line’s net banking income
   both in Europe/Asia and in North America, boosted by a buoyant market for directional options and
   mergers and acquisitions.
   The IXIS Securities subsidiary won new market shares as its revenues increased significantly both
   in France and abroad, in particular in Germany and Benelux. The company also received 25 “top
   three” nominations for the prestigious Agefi/Extel Focus France award, compared to 10 in 2005,
   and ranks among the top three French brokerage firms.

■ The Financing & Credit business also surged by 36% compared to 2005:

            ■ Credit:
            The American subsidiary IXIS Capital Markets completed seven securitization
            transactions involving CMBS (Commercial Mortgage Backed Securities), for a total
            amount of more than US$3 billion, and five transactions involving ABS (Asset Backed
            Securities) for a total amount of more than US$4 billion.
            Europe and Asia also performed well both in terms of classic products such as CDO/CLO,
            for AXA or Commerzbank for example, and in terms of hybrid products.

            ■ Financing:
            Financing income rose 11% over the year while structured finance outstanding surged
            71%. Throughout the year the business line was assigned numerous roles as lead
            arranger, sole arranger and book runner and is now the number eight mandated lead
            arranger in France.

■ Structured Finance had a very good year, progressing by 27% compared to 2005 and
   consolidated its positioning in structured products suitable for funds providing capital guarantees,
   in particular in France with the support of the French banking networks (Caisses d’Epargne and
   Crédit Agricole). The American subsidiary’s Structured Products business line expanded rapidly,
   reaping the benefits of a fully mature Wrappers activity and rolling out a new Hybrid Structured
   Products business.

■ Corporate Finance also had a very good year, multiplying its income by 3.5 times compared to
   2005. Equity Capital Markets obtained excellent results, reaping the fruits of the Lazard-IXIS
   partnership which acted as lead arranger and global coordinator for three stock exchange listings:
   Icade (the biggest property company listed in Paris), PARROT (a technology company) and EDF
   Energies Nouvelles. The same teams also managed Cap Gemini’s share capital increase, for the
   purpose of refinancing the group’s acquisition of the American company Kanbay, and coordinated
   the Natixis placement representing a total amount of €5.5 billion.
   IXIS Corporate Solutions, which benefited fully from the 100% integration of Nexgen, also
   performed well, particularly during the fourth quarter when it completed almost 20 new transactions
   or restructurings of existing transactions.




                                                                                                     61
Total operating expenses

IXIS CIB’s operating expenses increased significantly, by 33%, due to several factors – relating in
particular to personnel costs:
■ a rise in headcount, in particular internationally (54 new hires in New York);
■ an increase in the company’s international locations, in line with its ambitious plans for
   development;
■ a higher variable portion of employee compensation resulting from the high level of business.
Other operating expenses also rose, partly as a result of changes in operating and management
systems (e.g., the introduction of a CRM system) and partly as a result of the tie-up with Banques
Populaires which involved a higher level of professional and research fees.

However, since operating expenses were outpaced by revenues, gross operating income increased
by 60% to €723 million. The cost/income ratio, which improved by 4.3 percentage points to 60.8%, is
one of the lowest in the industry.

The cost of risk saw a net reversal of €124 million of which €115.1 million related to a single major
corporate counterparty following an improvement in its credit rating and the receipt of certain
guarantees. A net charge of €3.2 million was made to individually-assessed provisions.

Income before tax amounted to €850 million.

Net income attributable to equity holders of the parent came in at €556 million for 2006, an impressive
89% leap on the year-earlier figure. Regulatory return on equity for the capital markets and financing
business was 24% after tax (based on an equity allocation equal to 6% of risk-weighted assets).



6.1.2 Financial guaranty



                                                      Financial guaranty        Change

                         in millions of euros          2005       2006      Amount     %


                  Net banking income                         51        78         27     52%
                  Total operating expenses                 (28)      (41)        -13     46%

                  Gross operating income                    23        37         14      nm
                  Cost/income ratio                     54.9%      52.6%    -2.3 pts       --
                  Net income attributable to equity
                  holders of the parent                     17        22          5    27%


CIFG group enjoyed a sustained level of activity in 2006 in terms both of the number of transactions
and the volume of guarantees provided.

The year thus saw 625 transactions entered into compared to 367 in 2005, with a nominal gross
amount guaranteed rising 70% to US$36.1 billion, thus enabling the business line to approach
US$75 billion of net guarantees outstanding at the end of the year (up 75%).

CIFG’s presence in the financial guaranty market is also reinforced by the fact that its portfolio is well
diversified over the whole range of asset classes with 27% relating to US local government bodies,
44% comprising US structured products, 7% relating to European local government bodies and 22%
comprising European structured products. Almost two-thirds of the portfolio is rated above AA.

The Adjusted Gross Premium rose by 43% over the year to US$232.3 million.

Net banking income surged by more than 52% year-on-year to €78 million on the back of the growth in
guarantees written, particularly in the US structured products segment. Net income also leapt 27% to
€22 million.

62
6.2 Asset management, custody and investor services

6.2.1 Asset management

                                                                Asset management                  Change

                           in millions of euros                  2005        2006          Amount       %


                Net banking income                                 1,122          1,301        178         16%
                Total operating expenses                           (857)          (986)       -129         15%

                Gross operating income                                265          315            50    19%
                Cost/income ratio                                 76.4%          75.8%      -0.6 pt         --
                Cost of risk                                           (3)           0             3        nm
                Share in net income of companies
                accounted for by the equity method                       9          12              3      33%
                Net gains or losses on other assets                     29           0            -28       nm

                Income before tax                                     300          327            28       9%

                Income tax                                            (71)         (54)            18       nm
                Minority interests                                    (48)         (83)           -35      74%

                Net income attributable to equity
                holders of the parent                                 181          190            10       5%


The asset management business put in a strong commercial performance in 2006. Assets under
management rose by €35.6 billion (up 8% at current euro rates, and up 13% at constant euro rates)
over the year to €468.2 billion, reflecting both the rise in net inflows, up 44% to €25.1 billion, and the
buoyancy of the markets which provided an extra €28 billion in value. However, the 10% fall in value
of the dollar against the euro during the period led to an adverse foreign exchange impact of €17.4
billion.

in billions of euros

                                                                         -17.4
                                                         28.0                             468.2



                                                    US
                                        18.1
                          432.6                     Europe and Asia
                                           7.0




                       Dec. 31, 2005   Net funds      Market effect Currency effect Dec. 31, 2006
                                        inflow



Total assets under management in Europe and Asia rose by €19.3 billion (7.4%) over the year to
€280.6 billion thanks to a significant increase in market valuation (€12.1 billion, up 4.6%) and a
€7 billion net funds inflow. The chief vector for growth remains life insurance, which represents more
than 60% of total managed assets, although fixed income securities and shares also performed
satisfactorily.


                                                                                                                 63
Total assets under management in North America rose to US$247.1 billion at the end of 2006, an
increase of US$44.4 billion (21.9%) since the beginning of the year thanks in part to a strong fund
inflow of US$23.8 billion mainly focused on bonds and alternative products. The increase in market
valuation was also strong (a rise of US$20.6 billion), mainly focused on shares and real estate
products. The increase in total assets under management was also driven by equities, buoyed by the
performance of Loomis Sayles (essentially with their large cap growth products during the first half of
the year) and the success of Global and Medium Grade fixed income products.

IXIS AM Group’s excellent performance won numerous industry awards, such as the first prize for
Ecureuil Harmonie in the three-year diversified euro category awarded by Agefi or the Talents de la
Gestion 2006 prize awarded for institutional management.

This remarkable level of activity, reinforced by the impact of transaction and performance
commissions, as well as the favorable trend in average commission rates, particularly in Europe,
enabled the asset management business line to increase its net banking income by 16% to €1.3
billion.

Total operating expenses progressed by 15% to €986 million, reflecting a 3% increase in the number
of employees and a jump in the amount of variable remuneration (both performance bonuses and
long-term incentives) in light of the level of activity.

Gross operating income thus rose by 19% to €315 million, with the cost/income ratio remaining
broadly stable at 75.8%.

Net income attributable to equity holders of the parent rose 5% to €190 million: this result is due to the
strong operating performance, a low tax charge (the impact of the reversal of a €35.5 million tax
provision), the increase in minority interests (following the acquisition of 5.9% of IXIS AM Group by
CNP in December 2005), as well as the non-recurring €29 million capital gain recognized in 2005.



6.2.2 Custody and investor services


                                                     Custody and
                                                                              Change
                                                  investor services
                        in millions of euros      2005       2006         Amount     %


                   Net banking income                  186        255           69     37%
                   Total operating expenses          (148)      (179)          -31     21%

                   Gross operating income              38           76         38    99%
                   Cost/income ratio               79.6%      70.2%       -9.4 pts       --
                   Cost of risk                          1            0         -1      nm

                   Income before tax                   39         75           36    92%

                   Income tax                         (13)       (23)          -11     86%
                   Minority interests                  (1)        (2)           -1      nm
                   Net income attributable to
                   equity holders of the parent        25           50         25    98%


Pursuant to the partnership arrangement finalized on July 4, 2005, Groupe Caisse d’Epargne and
Crédit Agricole merged their respective investor service subsidiaries, IXIS Investor Services and
Crédit Agricole Investor Services, to form the joint venture CACEIS (Crédit Agricole Caisse d’Epargne
Investor Services).




64
Accordingly, the financial data reported for fiscal years 2005 and 2006 do not reflect a constant Group
structure:
■ in 2006: 50% of 2006 income for the newly created CACEIS group, accounted for by the
    proportional consolidation method;
■ in 2005: 100% of the first-half results for IXIS Investor Services (IXIS IS) and its subsidiaries (IXIS
    Urquijo, IXIS Administration de Fonds – IXIS AF - and Euro Emetteur Finance) and 50% of the
    second-half results of CACEIS (subject to proportional consolidation).

CACEIS, the market leader for institutional custody services, continued to develop its business in
2006 with:
■ the launch in February of CACEIS Corporate Trust, which provides services to issuers;
■ the creation in April of CACEIS Fastnet, combining Fastnet France and IXIS AF;
■ the formation of CACEIS Bank following the legal merger of CA-IS Bank and IXIS IS;
■ the acquisition in December of the fund administration activities of FidFund Management SA, a
   subsidiary of Banque Bénédict Hentsch & Cie SA, a transaction which has created value by
   expanding the range of services offered to the entity’s Swiss customers.
During 2006, CACEIS also carried out streamlining projects which were indispensable to its future
development: organizational restructuring, combining teams and IT convergence.

One and a half years following its creation, the CACEIS group thus reported an excellent
performance:
■ assets under custody amounted to €1,787 billion at the end of December, of which 91% in France,
   an increase of 16% compared to the end of 2005;
■ administered funds grew 15% over 2006 to €860 billion.
As a result, the business line’s net banking income grew by 37% to €255 million. The substantial
growth in custody fees, which contribute to the core revenue base, mirrored the rise in assets in
custody. This positive trend attests to a concerted marketing drive to win new business and market
growth.

Gross operating income totaled €76 million thanks to the increase in net banking income and
contained operating expenses, which were nevertheless inflated by restructuring costs (generated by
the internal reorganization of CACEIS). The cost/income ratio improved by 9.4 points to 70.2%.

Net income attributable to equity holders of the parent came in at €50 million, almost double the figure
for 2005.




                                                                                                      65
      COMMENTS ON THE ACTIVITIES AND RESULTS
      OF THE CNCE PARENT COMPANY


7.1 Changes in accounting methods (French GAAP)

Several changes of accounting method were applied at January 1, 2006:

■ Regulation no. 2005-03 issued by the Comité de la réglementation comptable (French accounting
     standard setter – CRC) changed the benchmark rate used for calculating discounts on restructured
     loans, with effect from January 1, 2006. The rate at inception of the loan is now applied, instead of
     the market rate.
              ■ This change of accounting method did not have a material impact on the Company's
                  accounts, and did not lead to any adjustments to equity.

■ CRC regulation no. 2005-01 authorized the reclassification of certain items from the investment
     securities portfolio with effect from January 1, 2006.
              ■ The first-time adoption of this regulation led to transfers of securities from the
                  investment portfolio to the held-for-sale portfolio in an amount of €1,252 million. Due to
                  the application of tax rules, the Company has recognized the €1 million impact of this
                  change in method through profit and loss.

■ CRC regulation no. 2005-01 has standardized the actuarial calculation used to amortize premiums
     and discounts on the securities portfolio. Adjustments recorded in connection with the first-time
     adoption of this regulation are treated in accordance with the general provisions for changes in
     accounting method laid down in article 314-1 of CRC regulation no. 99-03. Accordingly, the new
     method is applied retrospectively, as though it had always been in force.
             ■ This change of accounting method did not have a material impact on the Company's
                 accounts.


7.2 Changes in the balance sheet of the CNCE parent company

            in billions of euros              Dec. 31, 2005   Dec. 31, 2006         Change

                                                                               Amounts       %




           Due from banks                             101.9           103.4          1.5     1.5%
           Due from customers                           2.3             2.3          0.0     0.0%
           Securities transactions                      6.2             8.8          2.6    40.3%
           Affiliates, equity interests and
                                                       14.3            13.6         -0.6     -4.5%
           long-term investments
           Other assets                                 8.2             6.3         -1.9   -22.2%
           Total assets                               133.0           134.5          1.5     1.1%


           Due to banks                                66.9            56.3        -10.6   -15.9%
           Securities and subordinated
                                                       43.9            53.2          9.3    21.2%
           debt
           Other liabilities                           11.9            14.9          3.0    24.7%
           Capital funds and reserves
                                                       10.2            10.1         -0.1     -1.0%
           (including RGBR)
           Total liabilities, capital funds
                                                      133.0           134.5          1.5     1.1%
           and reserves

At December 31, 2006 total assets amounted to €134.5 billion, up very slightly by 1.1% on the
previous year.


66
With regard to assets, increases in interbank receivables and securities transactions partially offset
the decrease in investments in companies accounted for by the equity method and other assets. In
particular, the fixed-income trading portfolio increased by €2.8 billion to €4.5 billion at
December 31, 2006, while accruals and other accounts receivable decreased by €1 billion in line with
a fall in items in course of collection. Following the transactions carried out in connection with the
creation of Natixis, the gross value of the CNCE’s investments stood at €13.6 billion, down slightly
(€0.6 billion) on the prior-year figure.
With regard to liabilities, the fall in amounts due to banks is offset by an increase in securities and
subordinated debt, notably concerning certificates of deposit (up €4.6 billion); Euro Medium Term
Notes (up €2 billion); and US commercial paper (up €1.4 billion), as well as other liabilities.
Capital funds and reserves remain virtually flat: the impact of the withdrawal of CDC from the CNCE's
capital was entirely absorbed by income for the year and the €1 billion capital increase.


7.3 Changes in income posted by the CNCE parent company (French GAAP)


                                           in millions of euros                      2005          2006             Change

                                                                                                              Amount         %


                            Net banking income                                            714           966         252       35%

                            General operating expenses                                 (415)        (595)          -180       43%

                            Gross operating income                                        299           371          72       24%
                            Cost/income ratio                                             58%         62%                    +3 Pts

                            Net allocations to provisions                                 (35)          (1)          34
                            Net gains on fixed assets                                     194        4,139        3,944

                            Ordinary income before tax                                    458       4,509        4,051           ns

                            Exceptional items                                              (3)           0            3
                            Corporate income tax                                          153        (107)         -260

                            Net income                                                    608       4,402        3,794           ns



Net income for 2006 came in at an exceptional level, boosted by the Natixis transactions, and
amounted to €4.4 billion – including €4.2 billion in capital gains on disposals and contributions to
Natixis.


7.3.1 Net banking income

The CNCE’s net banking income for 2006 surged 35% to €966 million, due to a sharp rise in dividends
received.

                              in millions of euros                                               2005         2006                Change
                                                                                                                             Amount        %



Holding company activities and other income                                                        480             858            378      79%

Loans                                                                                                10                2              -8   -80%

Proprietary activities and intermediation (1)                                                      108               18           -90      -83%

Net banking income: banking services lines                                                         126             128                 2    1%

Other (2)                                                                                          (10)            (40)            -30       nm
Net banking income                                                                                 714             966            252      35%


  )
(1 Unrealized capital gains and lo sses o n Gro up pro prietary and banking activities.            166             264                98   59%
                                                       1
(2) In 2005, this item includes a negative amo unt o f €1millio n in co nnectio n with the M artignac merger transactio n.
                                                                                            28.7 millio n.
   In 2006, this item includes the pro visio n set aside o n EA DS shares in an amo unt o f €

                                                                                                                                                  67
Net banking income is mainly composed of dividends net of the cost of refinancing equity interests.
The sharp increase in this item reflects the results of the company's subsidiaries in 2006, in particular
those of the Investment Banking division and the Crédit Foncier group, as well as the full-year impact
in 2006 of the income generated on the CICs held in the individual Caisses d'Epargne.

Since the bulk of the company's lending business was transferred to subsidiaries in 2005, income
from this activity tailed off sharply.

In addition, a lower level of capital gains on proprietary trading activities was realized in 2006, thereby
safeguarding results in future years. At December 31, 2006, unrealized gains stood at €264 million.

The banking services lines, comprising interbank transfers, electronic money systems (bank cards)
and custody services, advanced slightly on the prior-year figure, essentially reflecting the commercial
success of the company's electronic money systems: in 2006 the number of issued bank cards rose
5% year-on-year to almost 7.7 million, and equipment sales to retailers swelled by 9%.


7.3.2 Total operating expenses


                               in millions of euros                             2005         2006                 Change

                                                                                                           Amount          %

         Personnel costs                                                           (177)        (220)             -43      24%
         Other expenses including:                                                 (410)        (463)             -53      13%
                                                                Research      (186)         (206)          -20             11%
                                      Property costs and shared expenses      (69)          (66)           3               -4%
                                                         Other operations     (65)          (67)           -2               3%
                                              General operating expenses      (90)          (124)          -34             38%

         Total, gross (excluding the impact of the
                                                                                  (587)        (683)              -96      16%
         Champion/New Deal transactions)

         Costs relating to the Champion/New Deal transactions                                       (85)

         Total, gross                                                             (587)        (768)             -181      31%

         Cross-charged expenses                                                       172           173            1       1%

         Total, net                                                               (415)        (595)             -180      43%


Net operating expenses 5 rose sharply during the year, mainly as a result of exceptional items and a
higher headcount.
Exceptional items relate in part to the Natixis project, which generated €85 million in additional
operating expenses (essentially professional fees), and to IT development expenditure amounting to
approximately €26 million, due in particular to the acceleration of the amortization schedule.
The rise in personnel costs reflects a 10.5% increase in average headcount – mainly allocated to
strengthening the risk monitoring teams – as well as the introduction of a certain number of payroll
measures, including the establishment of the employee time savings account and higher levels of
profit-sharing and incentive payments made over the year.

Consequently, gross operating income for 2006 rose by 24% compared with the previous year,
coming in at €371 million, while the cost/income ratio stood at 62%.




5
    Including €167,073 in respect of expenditure falling within the scope of articles 39-4 and 223 quater of the French tax code.
68
7.3.3 Other income and expense items

Net gains on fixed assets include €4.2 billion in capital gains generated by the Natixis transactions. At
€1.2 billion, the sale and contribution of cooperative investment certificates (CICs) in the Caisses
d’Epargne was among the largest of these gains. Significant capital gains were also realized on the
contribution of IXIS CIB, IXIS AM Group and GCE Garanties to Natixis.

Corporate income tax includes capital gains taxes payable and the negative impact of the withdrawal
of the subsidiaries contributed to Natixis from the CNCE's tax consolidation group.

Consequently, net income for the year came in at €4,402 million.

At the Annual Shareholders’ Meeting, shareholders will be asked to approve the appropriation of
income as follows:
■ the allocation of €1,042 million to negative retained earnings;
■ the allocation of €168 million to the legal reserve;
■ a dividend payout of €318 million, i.e., a net per share dividend of €0.81;
■ the allocation of the balance (€2,874 million) to retained earnings.
The net per share dividends paid over the last three years were as follows:


                                                                                                             Avoir fiscal
                                                                              Net dividend                                           Gross dividend
                                                (in euros)                                                   tax credit

                                                                                                                0.22 (1)                   0.66 (1)
                                  2003                                                    0.44
                                                                                                                0.04 (2)                   0.48 (2)

                                  2004                                                    1.46                     NA                      1.46 (3)

                                  2005                                                    1.16                     NA                          1.16
                                  (1) For natural persons or legal entities w ith parent company tax status.
                                  (2) For other legal entities.
                                  (3) Including an interim dividend of €0.46 paid in 2004.




7.4 Five-year financial summary

                                                                                                                                                                                    in euros

                                                                                                                       2002            2003           2004          2005          2006
Capital at Dec. 31

- Capital funds                                                                                                    2,905,079,235 2,905,079,235 6,905,865,632 7,251,677,774 6,560,707,548
- Number of shares                                                                                                   190,496,999 190,496,999 452,843,648       475,519,854   430,210,331

Results for the year

- Revenues                                                                                                         2,172,301,666 2,387,471,347 5,874,994,587 3,810,280,765 7,635,306,248
- Profit before income tax, depreciation, amortization and provisions                                                 89,118,725    84,495,747 825,520,624     374,893,131 4,657,806,400
- Corporate income tax                                                                                                   159,016             0 149,483,133 (152,781,257)     107,349,925
- Profit net of income tax, employee profit-sharing, depreciation, amortization, impairment and provisions            86,105,054    86,530,714 776,800,149     608,445,223 4,401,723,777
- Dividend paid (1)                                                                                                   80,008,740    83,818,680 656,513,688     551,603,031   317,915,845

Per share data

- Revenues                                                                                                                      11              13             13            8           19    (2)

- Profit before income tax, depreciation, amortization and provisions                                                         0.47            0.44           1.82         0.79        11.87    (2)

- Corporate income tax                                                                                                        0.00            0.00           0.33       (0.32)         0.27    (2)

- Profit net of income tax, employee profit-sharing, depreciation, amortization, impairment and provisions                    0.45            0.45           1.72         1.28        11.21    (2)

- Dividend per share                                                                                                          0.42            0.44           1.45         1.16         0.81    (2)



Employee data

- Average headcount                                                                                                          694             789           1,712         1,292         1,428
   - managerial staff                                                                                                        413             520           1,203           976         1,063
   - non-managerial staff                                                                                                    281             269             509           316           365
- Total payroll                                                                                                       43,683,337      49,990,322     119,402,998    90,674,236   101,013,234

(1) Subject to approval by the Annual Shareholders' Meeting.
(2) In 2006, per share data is calculated based on the number of shares on the day of the Annual Shareholders' Meeting, i.e., 392,488,698 shares.




                                                                                                                                                                                               69
     PRO FORMA CONSOLIDATED INCOME STATEMENT

The Caisse Nationale des Caisses d’Epargne Group's pro forma income statement for 2006,
presented in Note 14.4 to the consolidated financial statements, was prepared to reflect the Group's
income and expenses as if the following transactions had taken place at January 1, 2006:
■ all transactions carried out in connection with the creation of Natixis;
■ all transactions regarding the partnership renegotiated with CDC.
The following assumptions were made when preparing the pro forma consolidated financial
statements:
■ capital gains generated on asset contributions and disposals were cancelled;
■ the impacts of transactions carried out prior to the creation of Natixis, in particular those relating to
   the share issue by IXIS Asset Management Group subscribed by the CNCE in order to finance its
   purchase of preferred shares issued by IXIS AM US Corp, were taken into account;
■ the contribution of subsidiaries as reported prior to the transactions was eliminated;
■ contributions were computed from entities under the new consolidation methods;
■ the impacts of interest on financial flows were taken into account based on an annual rate of 4.2%.




     ANALYSIS OF THE CONSOLIDATED BALANCE SHEET


                                                                                                      Change
        in billions of euros                                            Dec. 31, 2005 Dec. 31, 2006     %

        Cash and amounts due from central banks and post office banks        7.4          4.0          -46%
        Financial assets at fair value through profit or loss               124.0         64.4         -48%
        Derivatives used for hedging purposes                                3.6          3.1          -13%
        Available-for-sale financial assets                                 31.7         29.9           -6%
        Loans and receivables due from credit institutions                  157.5        132.1         -16%
        Loans and receivables due from customers                            96.6         114.4          18%
        Remeasurement adjustment on interest-rate risk hedged
        portfolios                                                           0.6           0.1         -74%
        Held-to-maturity financial assets                                    0.3           2.7           nm
        Deferred tax assets and other assets                                32.3          19.9         -38%
        Property, plant and equipment and intangible assets                  1.4           1.9          37%

        Total assets                                                       455.4         372.5        -18%

        Due to central banks and post office banks                           0.0          0.2            nm
        Financial liabilities at fair value through profit or loss          132.2         53.0         -60%
        Derivatives used for hedging purposes                                2.7          2.7            3%
        Due to credit institutions                                          127.5        101.2         -21%
        Due to customers                                                     44.1         27.4         -38%
        Debt securities                                                     102.1        133.6          31%
        Remeasurement adjustment on interest-rate risk hedged
        portfolios                                                           0.1           0.2          21%
        Deferred tax liabilities and other liabilities                      22.1          20.5          -7%
        Technical reserves of insurance companies                            1.4          11.2           nm
        Provisions for contingencies and charges                             0.7           0.7           2%
        Subordinated debt                                                    8.8          10.8          22%
        Equity attributable to equity holders of the parent                 13.2          10.6         -20%
        Minority interests                                                   0.5           0.4         -24%

        Total liabilities and equity                                       455.4         372.5        -18%


The CNCE Group’s consolidated balance sheet at December 31, 2006 includes the Group’s 34.44%
interest in the assets and liabilities of the Natixis group, and discloses total consolidated assets of
€372.5 billion.

70
The Natixis transaction has thus reduced total consolidated assets by approximately €100 billion 6
(mainly relating to IXIS CIB).

Outstanding customer loans at December 31, 2006 surged by €17.8 billion to €114.4 billion, a rise of
18% on the year-earlier figure, and now account for 31% of total consolidated assets.

Equity attributable to equity holders of the parent amounted to €10.6 billion at December 31, 2006,
versus €13.2 billion at December 31, 2005, mainly due to:
■ the negative impact of dividends paid in respect of 2005 (€0.5 billion);
■ the €1.5 billion capital increase;
■ the impact of recurring operations in 2006 which amounted to €1.4 billion;
■ the positive impacts of other non-recurring items, in particular the realization of capital gains
   relating to the Natixis transactions in an amount of €2.3 billion;
■ the €7 billion cost of repurchasing CDC’s interest in the capital of the CNCE.



    REGULATORY CAPITAL AND CAPITAL ADEQUACY RATIO

               in millions of euros                            Dec. 31, 2005 Dec. 31, 2006
                                                               French GAAP       IFRS

               TOTAL CAPITAL                                       13,688          9,603

               of which Tier One capital                           12,809          8,980

               CAPITAL REQUIREMENTS                                7,705           8,054

               Credit risks                                        6,358           7,591
               Market risks                                        1,347            463

               Capital adequacy ratio                              178%            119%



Three factors have had a profound impact on the CNCE Group’s prudential data: the adoption of
IFRS, the constitution of Natixis and the withdrawal of CDC from the CNCE’s capital.

With regard to capital requirements, the sharp decline in market risk is a function of the narrower basis
used to measure this risk. A large portion of securities that were included in trading account securities
under French GAAP are classified in available-for-sale financial assets under IFRS and thus
contribute to credit risk. The Natixis transaction involves two opposite effects which broadly cancel
each other out: the decrease in requirements related to the exit from the CNCE Group’s consolidation
scope of 65.56% of the entities contributed, and an increase in such requirements in respect of the
entry of 34.44% of the former Natexis.

With regard to Tier One capital, the reduction arising from the separation from CDC and the
application of the prudential filters are offset by 2006 net income, which includes the capital gains
related to the Natixis transaction.

Prudential equity fell as a result of increased deductions particularly in respect of the inclusion of
34.44% of the Banques Populaires cooperative investment certificates within the CNCE Group's
consolidation scope.

As of December 31, 2006 the Group’s Tier One ratio remained at the high level of 8.9%.




6
 Impact calculated on the basis of an unpublished internal pre-transaction CNCE balance sheet at December 31,
2006.
                                                                                                          71
     RECENT DEVELOPMENTS AND OUTLOOK FOR 2007

In 2007, the CNCE Group will press ahead with the development of its businesses, focusing on three
major principles: bolstering the Commercial Banking division's operations; efficiency and performance;
and consolidating key partnerships.


11.1 Bolstering the Commercial Banking division's operations

In 2007, the Group intends to reinforce its historical business, through its Commercial Banking arm, by
focusing on both retail and regional development banking.

Within retail banking, the CNCE Group will continue to enrich its product offering in response to its
customers’ requirements. One of the Group’s priorities is to improve customer satisfaction, via the
implementation of its Ecureuil Attitude scheme, and retain loyalty by intensifying the S’Miles program.

Regional development banking must become a growth and profitability driver for the Group. 2007
will thus see the finalization of the business’s organization to help it meet its varied and ambitious
challenges: consolidating its position as the key player in social housing; becoming the number one
provider of local government financing; and within three years, establishing itself as the leader in the
social economy segment.

2007 will also be a key year for the real estate division, since the Group intends to create a strong
real estate division that can provide customers with a full product offering combining both financing
and services.
To this end, the Group is reviewing the possibility of a new partnership with the listed property
developer Nexity. The Caisse Nationale des Caisses d’Epargne and Nexity have therefore signed a
letter opening exclusive negotiations to pursue their discussions on the creation of a leading real
estate company. The exclusive negotiation period, which runs from February 12, 2007 through April
30, 2007, is designed to allow the parties to press ahead with detailed studies of this joint industrial
and managerial project, including its value creation potential.
In the field of real estate, the Group will also step up the development of Eurosic, a subsidiary in which
Banque Palatine owns more than 90% of the share capital. On March 7, Eurosic acquired a controlling
interest in Vectrane (a listed real estate company) with a view to enhancing its operations.


11.2 Group reorganization and performance

In keeping with the Group’s growth and performance strategy, the process of integrating the
Caisses d’Epargne will be actively continued in 2007. Three new linkups were announced at the
beginning of the year: the Caisses d’Epargne de Haute-Normandie and Basse-Normandie; the
Caisses d’Epargne des Pays de l’Adour, Aquitaine-Nord and Poitou-Charentes; and the Caisses
d’Epargne de Bretagne and des Pays de la Loire. To date, nine merger processes have been
launched with the intention of creating an efficient, forward-looking Caisses d’Epargne network for
tomorrow’s world.

The quest for greater efficiency also involves implementation of the IT Efficiency Program to create a
single IT platform capable of meeting the evolving commercial and financial challenges. In commercial
terms, the intention is to migrate to a universal banking system from one that is currently essentially
focused on retail banking.




72
11.3 Consolidating existing partnerships and engaging in new acquisitions

The Group will continue to strengthen and consolidate its existing partnerships in 2007.

The partnership between Groupe Caisse d’Epargne, MACIF and MAIF, initiated at the end of
2004, will be reinforced in 2007 with the aim of strengthening the Group’s position in the fields of
insurance and personal care services.
To this end, at the beginning of the year, the Group signed an agreement with the MMA group defining
the final provisions for the sale of MMA’s 35% interest in Ecureuil Assurances IARD (ECA) by June. In
order to give long-term substance to the new partnership, the Group is also examining the terms on
which MACIF and MAIF might enter the share capital of ECA.
The partnership has recently been extended to provision for senior welfare benefits with the
acquisition by both MACIF and the CNCE of a 17% stake in the capital of DomusVi, a company
providing services to the elderly.


Finally, the Group will be concerned to capitalize on the Natixis transaction, particularly in terms of
synergies: initially by unlocking those already identified and then identifying and materializing
additional synergies by providing additional services and offers.



                      Information concerning the Group's corporate officers

Information concerning the remuneration, directorships and positions of the Group's corporate officers,
as required by article L.225-102 of the French Commercial Code (Code de commerce) pursuant to the
   New Economic Regulations (Nouvelles régulations économiques) of May 15, 2001, the Financial
 Security law (loi de Sécurité financière) of August 1, 2003, and order no. 2004-604 of June 24, 2004,
            is set out in section 5 – “Corporate Governance” of the Document de référence.




                                                                                                     73
     IFRS CONSOLIDATED FINANCIAL STATEMENTS
     OF CNCE GROUP


     CONSOLIDATED BALANCE SHEET

ASSETS


                (in m illions of e uros)                Note De c. 31, 2006 De c. 31, 2005

Cash and amounts due from central banks and post
office banks                                                       3,989          7,419
Financial assets at fair value through profit or loss   8.1.1     64,374        123,976
Derivatives used for hedging purposes                    8.2       3,105          3,570
Available-for-sale financial assets                      8.3      29,890         31,701
Loans and receivables due from credit institutions      8.4.1    132,120        157,533
Loans and receivables due from customers                8.4.2    114,398         96,632
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                            149           577
Held-to-maturity financial assets                        8.6        2,713           281
Current and deferred tax assets                                       549         1,220
Accrued income and other assets                         8.8.1      12,521        22,615
Investments in companies accounted for by the equity
method                                                    8.9      4,591          6,393
Investment property                                     8.10.1       512            118
Property, plant and equipment                           8.10.1     1,160          1,050
Intangible assets                                       8.10.2       277            256
Goodwill                                                 8.11      2,179          2,051
TOTAL ASSETS                                                     372,527        455,392




74
LIABILITIES AND EQUITY


                   (in m illions of e uros)                  Note De c. 31, 2006 De c. 31, 2005

Due to central banks and post office banks                                   229             4
Financial liabilities at fair value through profit or loss   8.1.2        52,963       132,205
Derivatives used for hedging purposes                         8.2          2,749         2,667
Due to credit institutions                                   8.5.1       101,232       127,476
Due to customers                                             8.5.2        27,441        44,136
Debt securities                                              8.7.1       133,626       102,131
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                                    166          137
Current and deferred tax liabilities                                          360          446
Accrued expenses and other liabilities                       8.8.2        20,092        21,556
Technical reserves of insurance companies                    8.12         11,217         1,434
Provisions for contingencies and charges                     8.13             716          705
Subordinated debt                                            8.7.2        10,789         8,813
Consolida te d e quity                                                    10,947        13,682
A ttributable to equity holders of the parent                             10,583        13,201
Share capital and additional paid-in capital                               6,561         9,298
Retained earnings                                                            -699        1,415
Net income for the period                                                  3,299         1,130
Unrealized or deferred gains and losses                                    1,422         1,358
M inority interests                                                           364          481
TOTAL LIABILITIES AND EQUITY                                             372,527       455,392




                                                                                              75
     CONSOLIDATED STATEMENT OF INCOME


(in millions of euros)                                                              Note   2006        2005

Interest and similar income                                                         9.1       17,261      13,445
Interest and similar expense                                                        9.1     (16,301)    (12,813)
Commission income                                                                   9.2        3,140       2,630
Commission expense                                                                  9.2        (818)       (690)
Net gains or losses on financial instruments at fair value through profit or loss   9.3        1,498       1,169
Net gains or losses on available-for-sale financial assets                          9.4          279         341
Income from other activities                                                        9.5        1,038         890
Expense on other activities                                                         9.5        (712)       (599)
NET BANKING INCOME                                                                             5,385       4,373
Operating expenses                                                                  9.6      (4,044)     (3,337)
Depreciation, amortization and impairment of property, plant and equipment and
intangible assets                                                                   9.7       (187)       (172)
GROSS OPERATING INCOME                                                                        1,154         864
Cost of risk                                                                        9.8           88         (5)
OPERATING INCOME                                                                              1,242         859
Share in net income of companies accounted for by the equity method                 8.9         692         462
Net gains or losses on other assets                                                 9.9       2,406         136
Changes in value of goodwill                                                                    (43)         (1)
INCOME BEFORE TAX                                                                             4,297       1,456
Income tax                                                                          9.10      (878)       (251)
NET INCOME                                                                                    3,419       1,205
Minority interests                                                                            (120)         (75)
NET INCOME attributable to equity holders of the parent                                       3,299       1,130




76
     STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

                                                             Share capital and
                                                                                                 Unrealized or deferred gains
                                                             additional paid-in
                                                                                                    and losses (net of tax)
                                                                   capital
                                                                                                                                    Net
                                                                                    Retained                                     income       Equity
                                                                                                                   Cumulative
                                                                                                                                 attributa attributable
                                                                         Additional earnings     Cumulative       change in fair                                           Consolidat
                                                             Share                                                                ble to         to         Minority
                        (in millions of euros)                            paid-in                 translation        value of                                                 ed
                                                             capital                                                              equity      equity        interests
                                                                          capital                adjustments         financial                                               equity
                                                                                                                                 holders holders of
                                                                                                                   instruments
                                                                                                                                  of the   the parent
                                                                                                                                  parent
Equity at Dec. 31, 2004 under French GAAP                       6,906         1,939    2,018              (519)                        885        11,229            621        11,850
Changes in accounting policies during 2005 (French GAAP)                               (247)                                                        (247)            (5)        (252)
Equity at Jan. 1, 2005 under French GAAP                        6,906         1,939    1,771              (519)                0       885        10,982            616        11,598
Impact of the transition to IFRS                                                       (872)                493              918                      539         (244)           295
Equity at Jan. 1, 2005 under IFRS                               6,906         1,939      899               (26)              918       885        11,521            372        11,893

Appropriation of 2004 net income                                                         885                                         (885)             0                            0

Capital increase                                                  346          107                                                                    453                         453
Dividend paid in 2005 out of net income for 2004                                        (394)                                                       (394)           (26)        (420)
Total movements arising from relations with shareholders         346           107      (394)                                                          59          (26)            33

Change in fair value of financial instruments                                                                                303                     303             4            307
Net income for 2005                                                                                                                  1,130         1,130            75          1,205
Sub-total                                                                                                                    303     1,130         1,433            79          1,512

Impact of acquisitions and disposals on minority interests                                                                                                           12           12
Other changes                                                                              25              163                                       188             44          232

Equity at Dec. 31, 2005 under IFRS                              7,252         2,046    1,415               137             1,221     1,130        13,201           481         13,682

Appropriation of net income for 2005                                                   1,130                                        (1,130)

Capital increase                                                 1,418          133                                                                 1,551                        1,551
Capital reduction (1)                                          (2,109)      (2,179)    (2,712)                                                    (7,000)                      (7,000)
Dividend paid in 2006 out of net income for 2005                                         (480)                                                      (480)          (56)          (536)
Total movements arising from relations with shareholders        (691)       (2,046)   (3,192)                                                    (5,929)          (56)        (5,985)

Change in fair value of financial instruments                                                                                208                     208            (3)           205
Net income for 2006                                                                                                                  3,299         3,299           120          3,419
Sub-total                                                                                                                    208     3,299         3,507           117          3,624

Other changes                                                                            (52)            (144)                                      (196)         (178)         (374)

Equity at Dec. 31, 2006 under IFRS                              6,561           (0)     (699)              (7)             1,429    3,299         10,583           364         10,947
(1) See Note 15.1.



77
     CONSOLIDATED STATEMENT OF CASH FLOWS

The consolidated statement of cash flows is presented in accordance with the indirect method.

Investing activities represent cash flows arising from the acquisition and disposal of interests in
consolidated companies and held-to-maturity financial assets, as well as property, plant and
equipment and intangible assets.

Financing activities arise from changes resulting from transactions with equity instruments,
subordinated debt and bond debt.

Operating activities include all cash flows that do not fall into the other two categories, and mainly
comprise securities relating to strategic equity investments recorded within the “Available-for-sale
financial assets” portfolio.

(in millions of euros)                                                                               2006           2005
Income before tax                                                                                       4,297          1,456

Net depreciation and amortization of property, plant and equipment and intangible assets                   187            179
Net additions to/(reversals from) provisions for impairment                                                462            136
Share in net income of companies accounted for by the equity method                                      (741)          (312)
Net loss/gain from investing activities                                                                (2,734)          (277)
Income/expense from financing activities                                                                   411            331
Other movements                                                                                        11,583        (11,531)

Total non-monetary items included in net income before tax                                              9,168       (11,474)

Net increase (decrease) in cash and cash equivalents arising from transactions with credit
institutions                                                                                           (5,011)          6,171
Net decrease in cash and cash equivalents arising from transactions with customers                    (24,526)        (5,193)
Net increase in cash and cash equivalents arising from transactions involving financial assets and
liabilities                                                                                            11,140          5,758
Net increase in cash and cash equivalents arising from transactions involving non-financial assets
and liabilities                                                                                               129      1,753
Taxes paid                                                                                                  (542)      (266)

Net increase (decrease) in assets resulting from operating activities                                 (18,810)         8,223

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS GENERATED BY
OPERATING ACTIVITIES (A)                                                                               (5,345)        (1,795)

Net increase (decrease) in cash and cash equivalents related to financial assets and equity
investments                                                                                            10,537          1,008
Net increase (decrease) in cash and cash equivalents related to investment property                         7              5
Net increase (decrease) in cash and cash equivalents related to property, plant and equipment and
intangible assets                                                                                           (266)       (227)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ARISING FROM INVESTING
ACTIVITIES (B)                                                                                         10,278              786

Net increase (decrease) in cash and cash equivalents arising from transactions with shareholders       (4,428)             191
Other increases (decreases) in cash and cash equivalents generated by financing activities                 334             184

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ARISING FROM FINANCING
ACTIVITIES (C)                                                                                         (4,094)             375

Effect of movements in exchange rates on cash and cash equivalents (D)                                       119        (332)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C+D)                                               958        (966)

Cash and cash equivalents at the start of the year                                                      3,324          4,290
Cash and cash equivalents at the end of the year                                                        4,282          3,324

Net increase (decrease) in cash and cash equivalents                                                         958        (966)




78
ANALYSIS OF CASH AND CASH EQUIVALENTS

Net cash and cash equivalents correspond to cash, amounts due to/from central banks and post office
banks, as well as demand accounts (assets and liabilities) with credit institutions.

                                                           Dec. 31, 2006       Dec. 31, 2005
(in millions of euros)                                Receivables Payables Receivables Payables
Net balance of cash accounts                                 73                      60
Net balance of accounts with central banks and post
office banks                                               3,917        228        7,362          3
Sub-total                                                  3,990        228        7,422          3
Net balance of accounts with credit institutions –
repayable on demand                                       22,893     22,372      29,458    33,553
Net balance of cash and cash equivalents                  26,883     22,600      36,880    33,556




    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE CNCE GROUP

NOTE 1 – LEGAL AND FINANCIAL FRAMEWORK – SIGNIFICANT EVENTS IN 2006 AND
         SUBSEQUENT EVENTS
         1.1 Legal framework of the Caisse Nationale des Caisses d’Epargne
             et de Prévoyance (CNCE)
         1.2 Guarantee system
         1.3 Significant events in 2006
         1.4 Subsequent events

NOTE 2 – REGULATORY FRAMEWORK

NOTE 3 – FIRST-TIME ADOPTION OF IFRS

NOTE 4 – PRINCIPLES AND METHODS OF CONSOLIDATION OF THE CNCE GROUP
         4.1 Scope of consolidation
         4.2 Consolidation methods
         4.3 Presentation of the consolidated financial statements and balance sheet date
         4.4 Presentation of Natixis’ institutional business
         4.5 Consolidation principles
         4.6 Business combinations

NOTE 5 – ACCOUNTING POLICIES
         5.1 Foreign currency transactions
         5.2 Financial assets and liabilities
         5.3 Property, plant and equipment and intangible assets
         5.4 Leases
         5.5 Non-current assets held for sale and associated liabilities
         5.6 Provisions recorded under liabilities
         5.7 Distinction between debt and equity
         5.8 Employee benefits
         5.9 Share-based payment
         5.10 Deferred taxes
         5.11 Insurance businesses
         5.12 Use of estimates in the preparation of financial statements




                                                                                             79
NOTE 6 – IMPACTS OF THE TRANSITION TO IFRS
          6.1 Impact of IFRS adoption on equity
          6.2 Reconciliation of the balance sheet under French GAAP to the balance sheet
              under IFRS at January 1, 2005
          6.3 Reconciliation of 2005 income under French GAAP to 2005 income under IFRS
          6.4 Remarks on the impact of IFRS adoption

NOTE 7 – RISK EXPOSURE AND RISK MANAGEMENT
         7.1 Organization of risk management: overview of the main risk exposures
         7.2 Credit and counterparty risk management
         7.3 Asset/Liability Management risks
         7.4 Market and financial risks
         7.5 Intermediation risk (IXIS Securities)
         7.6 Settlement-delivery risk (IXIS CIB)

NOTE 8 – NOTES TO THE CONSOLIDATED BALANCE SHEET
         8.1 Financial assets and liabilities at fair value through profit or loss
         8.2 Derivatives used for hedging purposes
         8.3 Available-for-sale financial assets
         8.4 Loans and receivables
         8.5 Amounts due to credit institutions and customers
         8.6 Held-to-maturity financial assets
         8.7 Debt securities and subordinated debt
         8.8 Accrual accounts and other assets and liabilities
         8.9 Investments in companies accounted for by the equity method
         8.10 Property, plant and equipment and intangible assets
         8.11 Goodwill
         8.12 Technical reserves of insurance companies
         8.13 Provisions
         8.14 Information on the Company's capital

NOTE 9 – NOTES TO THE CONSOLIDATED STATEMENT OF INCOME
         9.1 Interest and similar income and expense
         9.2 Commission income and expense
         9.3 Net gains or losses on financial instruments at fair value through profit or loss
         9.4 Gains or losses on available-for-sale financial assets
         9.5 Income and expense on other activities
         9.6 Operating expenses
         9.7 Depreciation, amortization and impairment of property, plant and equipment
              and intangible assets
         9.8 Credit risk
         9.9 Gains or losses on other assets
         9.10 Income tax

NOTE 10 – EMPLOYEE BENEFITS
          10.1 Personnel costs
          10.2 Average number of employees
          10.3 Employee benefit obligations
          10.4 Share-based payment


NOTE 11 – SEGMENT INFORMATION
          11.1 Segment information: consolidated statement of income
          11.2 Segment information: consolidated balance sheet

NOTE 12 – COMMITMENTS GIVEN AND RECEIVED



80
NOTE 13 – OTHER INFORMATION
          13.1 Analysis of loans and borrowings by term outstanding
          13.2 Analysis of assets and liabilities by currency
          13.3 Related parties

NOTE 14 – PRO FORMA INFORMATION
          14.1 Basis of preparation
          14.2 Significant accounting policies and scope of consolidation
          14.3 Restatements
          14.4 Pro forma statement of income

NOTE 15 – SCOPE OF CONSOLIDATION
          15.1 Changes in the scope of consolidation in 2006
          15.2 Securitization transactions
          15.3 Mutual funds
          15.4 Scope of consolidation at December 31, 2006




                                                                            81
NOTE 1 – LEGAL AND FINANCIAL FRAMEWORK – SIGNIFICANT EVENTS IN 2006
         AND SUBSEQUENT EVENTS



1.1 LEGAL FRAMEWORK OF THE CAISSE NATIONALE DES CAISSES D’EPARGNE
    ET DE PRÉVOYANCE (CNCE)

The CNCE is the central institution of Groupe Caisse d'Epargne as defined by French banking law,
and a credit institution authorized to operate as a bank. It is a limited liability company (société
anonyme) with a two-tier management structure (Management Board and Supervisory Board) whose
entire capital has been held by the individual Caisses d'Epargne et de Prévoyance since
January 29, 2007.

Specifically, the CNCE represents its various affiliates with regard to the supervisory authorities,
defines the range of products and services offered by them, organizes depositor protection, approves
senior management appointments and oversees the smooth functioning of the Group's institutions.

As the holding company, the CNCE performs the role of Group head, owning and managing the
interests in Group subsidiaries, and setting out its development strategy.
In respect of the Group's financial functions, the CNCE is notably responsible for the centralized
management of any surplus funds held by the individual Caisses d'Epargne, for carrying out any
financial transactions required to develop and refinance the Group, and for choosing the most efficient
counterparty for these transactions in the broader interests of the Group. The CNCE also provides
banking services to the other Group entities.

Subsidiaries

The French subsidiaries and investments are split into two major divisions, as follows:
■ Commercial Banking: Banque Palatine, Financière OCÉOR, along with real estate and specialized
     services (including Crédit Foncier);
■ Natixis, the Investment and Project Bank owned jointly by Groupe Caisse d'Epargne and the
     Banque Populaire group, which brings together both groups' corporate and investment banking
     activities (including IXIS Corporate & Investment Bank), asset management businesses (including
     IXIS Asset Management Group) and investor services (CACEIS) activities.

Specialized IT subsidiaries
Customer transaction processing is carried out by a banking information system organized around
three software publishers set up to develop and deploy IT application platforms, and a national IT
center (CNETI).



1.2 GUARANTEE SYSTEM

Pursuant to article L.511-31 of the French Monetary and Financial Code, as amended by article L.512-
96 of the said Code, the CNCE, acting as the central institution, organized a network mutual
guarantee and solidarity mechanism within Groupe Caisse d'Epargne to ensure the liquidity and
solvency of each entity. The scope of this guarantee system includes not only the entities belonging to
the Caisses d’Epargne network as provided for by article L.512-95 of the French Monetary and
Financial Code, but also all the credit institutions subject to French law and affiliated to the CNCE
further to the CNCE's decision, in accordance with articles R512-57 and R512-58 of the French
Monetary and Financial Code. More generally, the guarantee system covers all Group entities by
virtue of the principle of responsibility based on shareholder links.
The terms of the relationship with Natixis – a credit institution under the common control of Banque
Fédérale des Banques Populaires (BFBP, the central institution of the Banques Populaires banks) and
the CNCE – is governed by a new provision introduced by article 42 of act no. 2006-1770 of
December 30, 2006, which supplements article L.511-31 of the French Monetary and Financial Code.
This provision allows credit institutions to be affiliated to several central institutions under direct or
indirect common control, and is therefore applicable to the subsidiaries of Natixis, including notably
IXIS Corporate & Investment Bank.



82
Under the provision, the central institutions can draw up an agreement setting out the conditions for
exercising their respective control over the affiliated entity, and for discharging their obligations
towards it, in particular as regards liquidity and solvency. Although this provision is not yet applicable,
BFBP and the CNCE will, as required by legislation and banking regulations, fulfill their respective
duties as strategic shareholders of Natixis, in accordance with the request from the Commission
Bancaire (French Banking Commission). Consequently, BFBP and the CNCE have entered into an
irrevocable joint agreement under which, even in the event of a dispute, they agree to act in
accordance with the recommendations or injunctions of the French Banking Commission, and provide
the necessary funds in equal proportions, and if required jointly and severally, to ensure that Natixis
complies with the applicable legislation and banking regulations, and honors any commitments made
with regard to the banking authorities.

In the event that BFBP or the CNCE needed financial support as a result of assisting Natixis, their
internal network mutual guarantee and solidarity mechanisms would come into effect in accordance
with article L.511-31 of the French Monetary and Financial Code.

The individual Caisses d’Epargne participate in the guarantee system through a Fonds de garantie et
de solidarité du réseau (Network Mutual Guarantee and Solidarity Fund – FGSR), set up pursuant to
article L.512-96 of the French Monetary and Financial Code, and carried in the books of the CNCE.
The FGSR has €250 million worth of funds that can be used immediately if the need arises. This
amount is invested in a dedicated mutual fund. Should this prove insufficient to prevent the default of a
member, the Management Board of the CNCE can obtain the necessary additional resources via a
rapid decision-making process ensuring timely action.

The purpose of this fund is to promote solidarity between the individual Caisses d’Epargne. It may be
used by the CNCE, particularly where it has to intervene on behalf of one of its associated entities and
where the amount in question exceeds that entity’s financial capabilities.

The guarantee system’s objective of averting default complements the chiefly curative market
guarantee systems to which Groupe Caisse d’Epargne also subscribes.



1.3 SIGNIFICANT EVENTS IN 2006
Creation of Natixis
On June 6, 2006, Groupe Caisse d’Epargne and the Banque Populaire group signed a memorandum of
understanding setting out the conditions for the creation of a new jointly owned subsidiary, Natixis, which
brings together their corporate & investment banking and financial services businesses.

The Ordinary and Extraordinary Shareholders' Meeting of Natexis Banques Populaires held on November
17, 2006 approved the asset contributions from the Caisse Nationale des Caisses d'Epargne et de
Prévoyance and SNC Champion (a subsidiary of Banque Fédérale des Banques Populaires), as well as
an issue of shares in consideration for these contributions. Natexis Banques Populaires' corporate name
was changed to Natixis.

To pave the way for the creation of Natixis, the CNCE transferred to Natexis Banques Populaires the
following assets for an approximate amount of €11 billion:
■ 100% of GCE Garanties, Gestitres, CIFG Holding, GCE Affacturage, GCE Bail, and GCE Financial
    Services;
■ 98.78% of IXIS CIB (the rest of the capital was contributed by SNC Champion after it had acquired
    the remaining shares from Sanpaolo IMI International);
■ 79.957% of IXIS AM Group (SNC Champion contributed 4.627% after it had acquired the
    remaining shares from Sanpaolo IMI International);
■ 67% of Caisse d’Epargne Financement (CEFi);
■ 60% of Foncier Assurances;
■ 57.85% of La Compagnie 1818 – Banquiers Privés;
■ 50% of CACEIS;
■ a portion of the CICs issued by the Caisses d’Epargne on June 30, 2004 (€1.5 billion). The
    remaining CICs were sold to SNC Champion and subsequently contributed to Natexis Banques
    Populaires.



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Therefore, prior to the asset contributions, the CNCE had acquired the shares of companies contributed
by the individual Caisses d’Epargne et de Prévoyance (CEFi), as well as its subsidiaries (Banque
Palatine's interests in GCE Bail, GCE Affacturage and La Compagnie 1818 – Banquiers Privés, and
Crédit Foncier de France's stake in La Compagnie 1818 – Banquiers Privés).

As a result of the various asset contributions and disposals, Groupe Caisse d'Epargne and the Banque
Populaire group each held 45.5% of the capital of Natixis. At the same time, Natixis held a 20% stake in
each Caisse d’Epargne et de Prévoyance through its CICs.

In order to boost the liquidity and attractiveness of the Natixis share, the two shareholders agreed to
increase the free float of the new bank by making shares available for sale to investors and the public.
Accordingly, on November 17, 2006 – following the AMF’s approval of its prospectus under visa no. 06-
411, Banque Fédérale des Banques Populaires and the Caisse Nationale des Caisses d’Epargne made a
portion of the shares in their joint subsidiary available for sale through an Open Price Offer (OPO).

Lastly, the partnership between the two shareholders of Natixis is governed by a shareholder agreement
with an initial term of 15 years, which includes commitments to maintain an unchanged level of equity
investment for at least 10 years, tacitly renewable for successive five-year periods.

Following the successful completion of the OPO, at December 31, 2006 the CNCE and BFBP each held
a 34.44% stake in Natixis.

Agreements with Caisse des Dépôts et Consignations (CDC)
On July 7, 2006, CDC, CDC Holding Finance, the Caisses d’Epargne and the CNCE signed a
memorandum of understanding setting out the terms and conditions for the purchase of the CDC's entire
35% interest in the capital of the CNCE via CDC Holding Finance. This memorandum of understanding
also provides for the acquisition and subsequent cancellation by the CNCE of its own shares as part of a
capital reduction.

On December 18, 2006, the CNCE acquired the shares held by CDC Holding Finance for an amount of
€5.5 billion, thereby reducing CDC Holding Finance's stake in the CNCE to 10.34%. At December 31,
2006, CDC Holding Finance held 8.77% of the CNCE's capital following the €1 billion share issue
reserved for the Caisses d’Epargne.
The remaining shares were acquired on January 29, 2007, further to which the Caisses d’Epargne held
the entire share capital of the CNCE.

Within the scope of the above-mentioned memorandum of understanding, the parties revised their
partnerships in the fields of life insurance, real estate and private equity. In particular, the CNCE
agreed to sell Groupe Caisse d’Epargne's stake in the capital of Ecureuil Vie to CNP Assurances for
€1.4 billion.



1.4 SUBSEQUENT EVENTS

Agreement reached between Groupe Caisse d’Epargne and Mutuelles du Mans Assurance
regarding Ecureuil Assurances IARD
On January 11, 2007, the two groups signed a memorandum of understanding which set out an
agreed valuation method for their jointly-held property and casualty insurance company Ecureuil
Assurances IARD, thereby setting the price for the 35% interest in that company held by Mutuelles du
Mans Assurance.
Pursuant to the memorandum of understanding, the groups announced in early March that they had
reached an agreement on the final terms and conditions governing the sale by Mutuelles du Mans
Assurance of its interest in Ecureuil Assurances IARD, including an agreement on the sale price.

Start of exclusive negotiations with Nexity
Nexity and the Caisse Nationale des Caisses d’Epargne signed a letter opening exclusive negotiations
to continue their discussions on the creation of a leading real estate company.
The exclusive negotiation period, which runs from February 12, 2007 through April 30, 2007, is
designed to allow the parties to press ahead with detailed studies of this joint industrial and
managerial project, including its value creation potential.



84
NOTE 2 – REGULATORY FRAMEWORK


With a view to improving the operation of the internal market, on July 19, 2002 the European
Parliament adopted EC regulation No. 1606/2002 requiring companies that are not listed in the
European Union but whose debt securities are traded on a regulated market to prepare their
consolidated financial statements in compliance with the international accounting standards drawn up
by the International Accounting Standards Board (IASB) as adopted for use by the European Union,
by 2007 at the latest.

The French Finance Minister’s order of December 20, 2004 (order no. 2004/1382) authorizes unlisted
companies to prepare their consolidated financial statements using international accounting standards
prior to 2007.

Groupe Caisse d’Epargne has elected for early application and prepares its consolidated financial
statements under IAS/IFRS as adopted for use by the European Union with effect from
January 1, 2006.

Groupe Caisse d’Epargne’s date of transition to IFRS is therefore January 1, 2005.

Only those standards published in the Official Journal of the European Union, and applicable as at the
balance sheet date, have been used to prepare the opening balance sheet.

Consequently, IFRS 7 – Financial Instruments: Disclosures, and the amendment to IAS 1 relating to
capital disclosures, will be applied as from January 1, 2007. The application of these new standards
will only impact the information disclosed in the notes to the consolidated financial statements, and will
have no effect on the methods used for recognizing and measuring financial instruments.

However, IFRIC 8 – Scope of IFRS 2, and IFRIC 9 – Reassessment of Embedded Derivatives, have
both been early-adopted in 2006.



NOTE 3 – FIRST-TIME ADOPTION OF IFRS

IFRS 1 applies to entities preparing their consolidated financial statements for the first time in
accordance with International Financial Reporting Standards.

IFRS 1 provides for retrospective application of IFRS and for the recognition in opening equity at
January 1, 2005 (date of the Group’s transition to IFRS) of the impact of the new standards in relation
to French GAAP, applied by the Group up to December 31, 2004.

However, IFRS 1 provides for both optional and mandatory exemptions to retrospective application for
certain items. The Group has elected to use the following exemptions:

Business combinations
The Group has elected not to restate in accordance with IFRS 3 business combinations that took
place prior to January 1, 2005. In particular, residual goodwill at this date is not amortized but is tested
for impairment.

Assets and liabilities acquired within the scope of a business combination that took place prior to
January 1, 2005 must nevertheless meet the general criteria for recognition under IFRS in order to be
included in the opening balance sheet. For example, intangible assets acquired such as market share
do not qualify as intangible assets under IFRS and have therefore been reclassified under goodwill.

Measurement of property, plant, and equipment at fair value
The Group has elected to continue to carry investment property and property, plant and equipment
used in operations at cost, less depreciation and impairment, if applicable.

Employee benefits
In accordance with the option available under IFRS 1, the Group has elected to recognize cumulative
actuarial gains and losses in equity at the transition date.


                                                                                                         85
Cumulative translation adjustments
The Group has transferred all adjustments arising on the translation of the accounts of foreign
subsidiaries at January 1, 2005 to retained earnings. As the reclassification is between two equity
accounts, it has no impact on opening equity at January 1, 2005. In the event that these entities are
subsequently sold, the gain or loss on disposal will not include translation adjustments prior to
January 1, 2005.

Share-based payment
The Group has elected to apply IFRS 2 for equity-settled plans set up after November 7, 2002 that
had not yet vested at January 1, 2005.

Day one profit
The margin generated on structured instruments trading was restated on a prospective basis for
transactions entered into after October 25, 2002.

Fair value option
As permitted under the amendment to IAS 39, at the transition date the Group elected to recognize all
qualifying financial assets and liabilities at fair value.

Hedge accounting
As permitted by IFRS 1, the Group has elected to apply hedge accounting on a prospective basis with
effect from January 1, 2005.

Therefore, hedging relationships recognized as such under French GAAP but that do not qualify for
hedge accounting under IFRS are not recorded as hedges in the opening balance sheet and are
instead reclassified as trading transactions.

Existing hedging relationships that qualify for hedge accounting under IFRS have been recognized in
the opening balance sheet as hedging transactions.



NOTE 4 – PRINCIPLES AND METHODS OF CONSOLIDATION OF THE CNCE GROUP

4.1 SCOPE OF CONSOLIDATION

The consolidated financial statements of the CNCE Group include the accounts of the Caisse
Nationale des Caisses d’Epargne, and all subsidiaries and companies controlled by the Group or over
which it exercises significant influence, the consolidation of which is material to the Group.

Control
Exclusive control is the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities, and results from either the direct or indirect ownership of the majority of
voting rights; the power to appoint a majority of the members of the board of directors; or the right to
exercise a dominant influence by virtue of a management contract or under statute.

Joint control is the contractually agreed sharing of control over an economic entity involving a limited
number of associates or shareholders, such that the entity’s financial and operating policies are
determined by agreement between those partners, and exists only when the strategic financial and
operating decisions require the unanimous consent of the parties sharing control.

Significant influence is the power to participate in the financial and operating policy decisions of an
entity, but is not control or joint control over those policies. Significant influence may be exercised
through representation on the board of directors or equivalent governing body of the entity,
participation in policy-making decisions, material transactions between the Group and the entity,
exchanges of managerial personnel or provision of essential technical information. Significant
influence is presumed to exist when the Group holds, directly or indirectly, 20% or more of the voting
rights of an entity.




86
The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether control exists. These potential voting rights may result, for
example, from share call options traded on the market, debt or equity instruments that are convertible
into ordinary shares, or equity warrants attached to other financial instruments. However, potential
voting rights are not considered for the purpose of determining the Group’s ownership interest.


Special purpose entities
The Group consolidates special purpose entities (SPEs) formed specifically to manage a transaction
or a group of transactions with similar characteristics – even if the Group has no equity interest in the
entity – when in substance they are controlled by the Group.

Control is established if, in substance:
- the activities of the SPE are being conducted exclusively on behalf of the Group, such that the Group
obtains benefits from those activities;
- the Group has decision-making and management powers over the ordinary activities or the assets of
the SPE; or by setting up an "autopilot" mechanism, the entity has delegated these decision-making
powers;
- the Group has rights to obtain the majority of the benefits of the SPE;
- the Group is exposed to a majority of the risks incident to the activities of the SPE.

However, entities operating in a fiduciary capacity and on behalf of third parties and in the interests of
all parties involved are not consolidated.



Private equity businesses
IAS 28 and IAS 31 dealing with investments in associates and interests in joint ventures recognize the
specific circumstances of private equity businesses, and allow such entities to choose not to account
for investments representing between 20% and 50% of a company’s share capital by the equity
method, provided that these investments are classified within "Financial assets at fair value through
profit or loss".

The Natixis group's private equity subsidiaries have chosen to account for their investments in
accordance with this provision, on the grounds that it provides more relevant information for investors.

The review of investments held by the Natixis group's private equity businesses did not lead to the
consolidation of any majority investments, as no such investments represent a material amount.

4.2 CONSOLIDATION METHODS
Consolidation methods are based on the Group's ability to control an entity, irrespective of the nature
    of that entity's business activities.

The accounts of entities under exclusive control – including entities with different accounting
    structures – are carried in the Group’s accounts as fully consolidated subsidiaries.

Entities that the Group jointly controls with another investor are consolidated on a proportional basis.

Entities over which the Group exercises significant influence are accounted for by the equity method.


4.3 PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
    AND BALANCE SHEET DATE

Presentation of the consolidated financial statements

Since IFRS does not set out a model for the presentation of financial statements, the Group has used
the presentation proposed by the Conseil national de la comptabilité (French national accounting
board – CNC) recommendation 2004-R-03 of October 27, 2004.




                                                                                                           87
Balance sheet date

The consolidated financial statements for the year ended December 31, 2006 have been prepared
based on the companies in the scope of consolidation of the CNCE Group, and were adopted by the
Management Board on March 12, 2007.


Preparation of pro forma financial information and effective date of the Natixis transaction

The transactions carried out in connection with the creation of Natixis are presented in the
consolidated financial statements of the CNCE Group as if they had been effective at
December 31, 2006.

The objective fixed by Groupe Caisse d’Epargne and the Banque Populaire at the outset of the
transaction was to set their participation in Natixis at approximately 35% each, thereby enabling their
subsidiary to maintain approximately one-third of its share capital as free float.

The scope and complexity of the transaction involved a number of successive and inseparable stages
that occurred within a very short timeframe. Natixis' inaugural Shareholders' Meeting of
November 17, 2006 was followed by the public offering for a portion of the shares held by the two
groups in December 2006, with the aim of reaching their agreed shareholding in the capital of Natixis.

The CNCE Group's percentage interest in the capital of Natixis stabilized on December 31, 2006 (the
effective date of the transaction for accounting purposes), in accordance with the objectives fixed at
the outset of the transaction.

Accordingly, the statement of income published for 2006 reflects the results of the entities within the
scope of consolidation of the CNCE Group prior to the Natixis operation. The statement of income
subtotals for 2006 are therefore directly comparable with those for 2005, with the exception of "Gains
and losses on other assets" which includes the gains on the sale of entities transferred to Natixis (see
Note 15 – Scope of consolidation).
In accordance with IFRS 3 – Business Combinations, a pro forma statement of income for 2006 has
been prepared reflecting the Group’s operations as though the public offering and the transactions
carried out further to the renegotiation of the partnership with CDC had taken place on
January 1, 2006. Items included in 2006 pro forma income and expense are described in Note 14.

The CNCE Group's balance sheet at December 31, 2006 includes the Group's percentage interest in
the assets and liabilities of the Natixis group.



4.4 NATIXIS’ INSTITUTIONAL BUSINESS
Article 116 of the 2005 amended Finance Act (no. 2005-1720 of December 30, 2005), renewed the
mandate entrusted to Natixis and companies under its control to manage certain public procedures on
behalf of the French State. Operations carried out in relation with this mandate are recognized
separately in the consolidated financial statements and some of them may be guaranteed by the
French State. The French State and other related creditors have a specific claim over the assets and
liabilities allocated by the amended Act to these institutional activities.

Insurance transactions managed by Coface on behalf of the State are not recognized in the
consolidated financial statements. However, management fees received in this respect are recognized
in the income statement under the heading “Commission income”.

The amount of fees received and financing outstanding in connection with institutional activities is not
material. Accordingly, the related amounts have not been restated at amortized cost. Activities other
than financing, where Natixis acts as intermediary on behalf of the State, have been accounted for in
the IFRS financial statements using the treatment applied under French GAAP.




88
4.5 CONSOLIDATION PRINCIPLES

The consolidated financial statements are prepared using uniform accounting policies for reporting like
transactions in similar circumstances. Where material, consolidation adjustments are made to ensure
the uniformity of the measurement methods of consolidated entities.

Elimination of intragroup balances and transactions

The effect of intragroup transactions and balances on the consolidated balance sheet and
consolidated statement of income is eliminated on consolidation. Gains and losses on intragroup
asset disposals are also eliminated, while intragroup impairment losses are maintained.

Foreign currency translation

The CNCE Group’s consolidated financial statements are presented in euros.

Balance sheet items of foreign entities whose functional currency is not the euro are translated using
the exchange rate at the balance sheet date. Income and expense items are translated at the average
exchange rate for the period.

Differences arising on the translation of balance sheet and income or expense items are recorded in
shareholders’ equity under “Translation adjustments” for the portion attributable to equity holders of
the parent, and under “Minority interests” for the portion attributable to minority shareholders.



4.6 BUSINESS COMBINATIONS

All business combinations carried out after January 1, 2005 (date of the CNCE Group's transition to
IFRS) are accounted for by applying the purchase method, except business combinations involving
two or more mutual entities or entities under common control, because these transactions do not fall
within the scope of IFRS 3. The Group has elected to recognize these business combinations at
historical cost.

The cost of a business combination is the aggregate of the fair values, at the date of exchange, of
assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in
exchange for control of the entity, plus any costs directly attributable to the business combination.

At the acquisition date, all identifiable assets, liabilities, contingent liabilities and off-balance sheet
items of the acquiree are recognized at fair value. The provisional accounting for a business
combination may be adjusted within 12 months of the acquisition date.

Goodwill represents the difference between the cost of the business combination and the acquirer’s
interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill is
recognized in the acquirer’s balance sheet and negative goodwill is recognized immediately in profit or
loss.

In the event that the Group increases its interest in an entity it already controls, the transaction gives
rise to the recognition of additional goodwill, which is determined by comparing the cost of the shares
with the Group's interest in the net assets acquired.

Goodwill is recognized in the functional currency of the acquiree and is translated at the closing
exchange rate.

It is tested for impairment at least annually, or more frequently if events or changes in circumstances
indicate that it might be impaired.

At the acquisition date, goodwill acquired in a business combination is allocated to each of the cash-
generating units (CGUs), or groups of cash-generating units, expected to benefit from the synergies of
the combination. Cash-generating units have been defined within the Group’s core businesses, and
represent the lowest level within an activity used by management to monitor return on investment.


                                                                                                           89
Impairment tests consist in comparing the carrying value of each CGU (including allocated goodwill)
with its recoverable amount (the higher of the fair value of the unit and its value in use).

Market value is defined as the best estimate of the amount, less costs to sell, for which an asset could
be exchanged or a liability settled between knowledgeable, willing parties in an arm's length
transaction, on the basis of available market information and taking account of any specific
circumstances. Value in use is generally calculated using the estimated future cash flows method,
unless another method is deemed more appropriate.

An impairment loss is recognized in income if the carrying amount of the unit exceeds the recoverable
amount. Impairment losses recognized for goodwill may not be reversed in subsequent periods.



NOTE 5 – ACCOUNTING POLICIES


5.1 FOREIGN CURRENCY TRANSACTIONS

The method used to account for assets and liabilities relating to foreign currency transactions entered
into by the Group depends upon whether the asset or liability in question is classified as a monetary or
a non-monetary item.

Monetary assets and liabilities expressed in foreign currencies are translated into euros, the Group's
functional currency, at the closing rate on the balance sheet date. All resulting translation differences
are recognized in income, except in the following circumstances:
    - only the portion of the translation difference calculated based on the amortized cost of
        available-for-sale financial assets is recognized in income; any additional translation
        difference is recognized in equity;
    - translation differences arising on monetary items designated as cash flow hedges or as part of
        a net investment hedge are recognized in equity.

Non-monetary assets carried at historical cost are translated using the exchange rate at the
transaction date, while non-monetary assets measured at fair value are translated using the closing
rate at the balance sheet date. Translation differences on non-monetary items are recognized in
income if gains and losses relating to the items are recorded in income, and in equity if gains and
losses relating to the items are recorded in equity.


5.2 FINANCIAL ASSETS AND LIABILITIES


5.2.1 – LOANS AND RECEIVABLES

Loans and receivables due from credit institutions and customers are generally recorded within
“Loans and receivables”.

Loans and receivables are initially recorded at fair value and subsequently measured at amortized
cost using the effective interest rate method.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
to the fair value of the loan at inception. This rate includes any discounts recorded in respect of loans
granted at below-market rates, as well as any fees and points paid or received and transaction costs
directly related to the issue of the loan, which are treated as an adjustment to the effective yield on the
loan.




90
Impairment of loans and receivables

An impairment loss is recognized when, after the inception of the loan, objective evidence of
impairment exists whose impact on future cash flows can be measured reliably.

Provisions assessed on an individual basis
Loans are first assessed for impairment on an individual basis. They are considered “at-risk” when it is
probable that the Group will not collect all or part of the sums due under the terms of the commitments
made by the counterparty, notwithstanding any guarantees or collateral. Loans and receivables are
classified as non-performing:
    - when one or more installments is at least three months past due (nine months past due in the
         case of loans to local authorities);
    - when the financial position of the counterparty presents a known risk, irrespective of whether
         the counterparty has defaulted;
    - in the event of litigation.

The amount of impairment is the difference between the carrying amount of the asset and the present
value of estimated future cash flows discounted at the original effective interest rate. Impairment is
calculated taking into account the impact of any collateral. The impairment charge is recorded in the
statement of income under “Cost of risk”, and the value of the financial asset is reduced by the same
amount.

Expected losses on portfolios composed of small loans with similar characteristics may be estimated
based on statistical methods.

Provisions assessed on a portfolio basis
Counterparties that are not individually impaired are risk-assessed on the basis of portfolios of loans
and receivables with similar characteristics. The existence of a known risk on a portfolio of loans with
similar characteristics leads to an impairment loss, even though the risk cannot at this stage be
allocated to individual counterparties.

The methodology implemented by the Group to identify at-risk portfolios draws upon a rating system
based on an analysis of incident rates and internal ratings based on historical data, combined where
necessary with an assessment of external credit ratings. The Group may also perform a business
segment or geographical analysis based on an advanced assessment taking account of various
economic factors intrinsic to the loans and receivables in question.

Portfolio-based impairment is calculated based on expected losses on the identified population. The
probability of default is calculated up to maturity.


5.2.2 – SECURITIES

Securities are classified into four categories as defined by IAS 39:
   - financial assets at fair value through profit or loss,
   - held-to-maturity financial assets,
   - loans and receivables,
   - available-for-sale financial assets.

Financial assets at fair value through profit or loss

This asset category includes:
    - financial assets held for trading, i.e., securities acquired principally for the purpose of selling
        them in the near term; and
    - financial assets that the Group has opted to recognize at fair value though profit or loss at
        inception using the fair value option available under IAS 39.

Securities in this category are measured at fair value at the balance sheet date. Changes in fair value
(excluding accrued interest on fixed-income securities) are presented in the statement of income
under “Net gains or losses on financial instruments at fair value through profit or loss”.




                                                                                                      91
Held-to-maturity financial assets

Held-to-maturity financial assets are securities with fixed or determinable payments and fixed maturity
that the Group has the positive intention and ability to hold until maturity (other than those designated
by the Group on initial recognition as financial assets at fair value through profit or loss or available-
for-sale assets, and assets qualifying as loans and receivables).

IAS 39 does not permit the sale or transfer of such securities before maturity except in certain specific
circumstances. In the event that such securities are sold before maturity, the entity must reclassify all
held-to-maturity assets and may not classify any financial assets in the held-to-maturity portfolio for
two years.

Hedges contracted to protect assets in this category against interest rate risk do not qualify for hedge
accounting under IFRS.

Held-to-maturity financial assets are measured at amortized cost using the effective interest method,
including any premiums, discounts and acquisition fees, where material.

An impairment loss is recognized when objective evidence of impairment exists, and is calculated as
the difference between the carrying amount of the asset and its recoverable amount, discounted at the
original effective interest rate.

Loans and receivables

The loans and receivables portfolio comprises non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Certain securities may be classified in
this portfolio under exceptional circumstances, and must then comply with the rules for recognition,
measurement and impairment applicable to loans and receivables.

Available-for-sale financial assets

Available-for-sale financial assets are all securities not classified within the previous three categories.
In particular, available-for-sale financial assets comprise securities classified under French GAAP as
held-for-sale securities, long-term investments and investments in unconsolidated subsidiaries.

Available-for-sale financial assets are recognized at purchase cost, including transaction costs and
accrued interest.

They are remeasured at fair value at the balance sheet date, with changes in fair value (excluding
accrued interest) shown on a separate line in equity under “Unrealized or deferred gains and losses
(net of tax)”. Changes in fair value are taken to income upon disposal of the securities or in the event
of a prolonged decline in value.

Impairment recorded against an equity instrument cannot subsequently be reversed. Interest income
accrued or receivable on fixed-income securities is recorded under “Interest and similar income”, while
income from variable-income securities is included within “Dividends received”.

Impairment

An impairment loss is recognized against securities when there is objective evidence of impairment,
with the exception of securities classified as financial assets at fair value through profit or loss.

The Group uses the same impairment indicators for debt securities as those used for individually
assessing the impairment risk on loans and receivables, irrespective of the portfolio to which the debt
securities are ultimately designated.

A prolonged decline as well as a material decrease in the value of an equity instrument constitute
objective indications of impairment.




92
Determination of fair value

Securities designated as financial assets at fair value through profit or loss and available-for-sale
financial assets are measured at fair value.

Quoted market prices in an active market, if available, provide the most reliable estimate of fair value.
However, when no quoted market price is available, fair value corresponds to the most recent
transaction price, provided that no significant changes in economic conditions have occurred between
that transaction and the measurement date.

If the market for a financial instrument is not active, the Group uses valuation models based on
objective and verifiable estimates and assumptions consistent with generally accepted valuation
techniques used for financial instruments. Such valuation models may be based on recent transaction
prices, the price of an instrument with similar characteristics, the discounting of future cash flows, or
revalued net assets.

Date of recognition

Securities are recorded in the balance sheet on the settlement/delivery date.


5.2.3 – DEBT SECURITIES

Financial instruments issued by the Group qualify as debt instruments if the issuer has a contractual
obligation to deliver cash or another financial asset to the holder of the instrument, or to exchange the
instrument under conditions that are potentially unfavorable to the Group.

Issues of debt securities (which are not classified as financial liabilities at fair value through profit or
loss) are initially recognized at the issue value including transaction costs, and at each balance sheet
date are remeasured at amortized cost using the effective interest method.


5.2.4 – DERIVATIVE INSTRUMENTS AND HEDGE ACCOUNTING

All derivative instruments are recognized in the balance sheet on the trade date and measured at fair
value at inception. They are remeasured to fair value at each balance sheet date regardless of
whether they were acquired for trading or hedging purposes.

Changes in the fair value of derivatives are recognized in profit or loss for the period, except for
derivatives qualifying as cash flow hedges for accounting purposes.

Derivative financial instruments are classified into two categories:

Derivatives held for trading

Derivatives held for trading are recorded in the balance sheet under “Financial assets and liabilities at
fair value through profit or loss”. Realized and unrealized gains and losses on derivatives held for
trading are taken to income on the line “Net gains or losses on financial instruments at fair value
through profit or loss”.


Derivatives used for hedging purposes

A hedging relationship qualifies for hedge accounting if, at the inception of the hedge, there is formal
documentation of the hedging relationship identifying the hedging strategy, the type of risk covered,
the designation and characteristics of the hedged item and the hedging instrument. In addition, the
effectiveness of the hedge must be demonstrated at inception and subsequently verified.

Derivatives contracted as part of a hedging relationship are designated according to the purpose of
the hedge:




                                                                                                         93
Fair value hedges
Fair value hedges are intended to reduce exposure to changes in the fair value of an asset or liability
carried in balance sheet, or a firm commitment, in particular the interest rate risk on fixed-rate assets
and liabilities.

The gain or loss on the remeasurement of derivative instruments is recognized in profit or loss
symmetrically with the gain or loss on the hedged item attributable to the risk being hedged. The
ineffective portion of the hedge, if any, is therefore reflected directly in income.

Accrued interest on the hedging instrument is taken to income symmetrically with the accrued interest
on the hedged item.

Where identified assets or liabilities are hedged, the remeasurement of the hedged component is
recognized in accordance with the classification of the hedged item.

If a hedging relationship ceases (because the derivative or hedged item is sold before maturity or no
longer fulfils the effectiveness criteria), the hedging instrument is transferred to the trading book. The
remeasurement adjustment recorded in the balance sheet in respect of the hedged item is amortized
over the residual life of the hedge.


Cash flow hedges
Cash flow hedges are hedges of the exposure to variability in cash flows of a financial instrument, in
particular the interest rate risk on variable-rate assets and liabilities.

The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is
recognized on a separate line in equity to be recycled to the statement of income, while the ineffective
portion of the gain or loss on the hedging instrument is recognized in profit or loss.

Accrued interest on the hedging instrument is taken to income symmetrically with the accrued interest
on the hedged item.

The hedged items are accounted for using the treatment applicable to their specific asset category.

If a hedging relationship ceases (because the hedge no longer meets the effectiveness criteria, or the
derivative is sold or ceases to exist) the cumulative amounts recognized in equity are transferred to
the statement of income as and when the hedged item impacts profit or loss, or immediately if the
hedged item ceases to exist.

Hedges of a net investment in a foreign operation
Net investment hedges are accounted for in the same manner as cash flow hedges.

Unrealized gains and losses initially recognized in equity are taken to income when the net investment
is sold in full or in part.

Macro-Hedging
The Group favors the so-called “carve-out” from IAS 39 adopted by the European Union to macro-
hedging transactions carried out within the scope of managing its overall fixed interest rate exposure.

In particular, the carve-out allows the Group to hedge the interbank interest rate risk on customer
items (loans, savings accounts and demand deposits). The Group chiefly uses interest rate swaps
designated as fair value hedges of fixed-rate deposits in macro-hedging.

Macro-hedging derivatives are accounted for in the same way as derivatives used to hedge specific
transactions, i.e., as fair value hedges or cash flow hedges, as appropriate. Where possible, however,
the Group uses fair value hedges. For each maturity band, the instruments correspond to a portion of
the overall interest rate exposure.

In a fair value hedging relationship, gains and losses on the remeasurement of the hedged item are
recorded in “Remeasurement adjustment on interest-rate risk hedged portfolios”. The effectiveness of
the hedging relationship is prospectively demonstrated by the fact that at inception, all derivatives are
required to reduce the interest rate risk of the underlying portfolio.


94
If a hedging relationship ceases to qualify for hedge accounting, the remeasurement adjustment is
amortized on a straight-line basis over the residual life of the hedge, or is taken directly to income if
the hedged item is no longer recorded in the balance sheet (notably in the case of prepayment).
Derivatives used for macro-hedging are disqualified from hedge accounting when the nominal amount
of the hedged instruments falls below the nominal amount of the hedges (notably in the case of the
prepayment of loans or the withdrawal of deposits).

Embedded derivatives

An embedded derivative is a component of a financial or non-financial hybrid (combined) instrument
that qualifies as a derivative. It must be separated from the host contract and accounted for as a
derivative if the hybrid instrument is not measured at fair value through profit or loss, and if the
economic characteristics and risks associated with the derivative are not closely related to those of the
host contract.


5.2.5 – DETERMINATION OF FAIR VALUE

Fair value is generally defined as the amount for which an asset could be exchanged or a liability
settled between knowledgeable, willing parties in an arm's length transaction.
The fair value of a financial instrument on initial recognition is normally the transaction price (i.e., the
fair value of the consideration given or received).

IFRS sets out a hierarchy for calculating fair value:
   ■ The best evidence of fair value is a quoted price in an active market.
   ■ If the market for a financial instrument is not active, fair value is determined by using valuation
      techniques drawing on mathematical calculation methods reflecting accepted financial
      theories, and valuation parameters derived from market conditions at the balance sheet date,
      or is determined using statistical estimates or other methods.

A market for an instrument is regarded as active if quoted prices are readily and regularly available
from an exchange, broker, dealer, pricing service or regulatory authority, and those prices represent
actual and regularly occurring market transactions conducted at arm’s length. If quoted prices are
available, they are used to determine fair value, as is notably the case for securities and derivatives
traded in organized markets.

In accordance with IAS 39, the initial margin generated when a financial instrument is set up cannot
be recognized in profit or loss unless the financial instrument can be measured reliably at inception.
Financial instruments that can be measured reliably include those traded in active markets and
instruments valued using accepted models drawing only on observable market data.


Instruments not traded in an active market
When internal valuation models are based on standard models, and the valuation method draws on
observable market data, the margin generated when these financial instruments are traded is
immediately recognized in profit or loss.

Valuation models used to price generally made-to-measure structured products may use certain
parameters that are partially non-observable on active markets. On initial recognition of such
instruments, the transaction price is taken to reflect the market price, and the margin generated when
these instruments are traded (day one profit) is deferred and taken to profit or loss over the period
during which the valuation parameters are expected to remain non-observable, or until maturity.

When these parameters become observable, or when the valuation technique used becomes widely
recognized and accepted, the portion of day one profit not yet recognized is taken to profit or loss.

Day one profit on instruments considered non-observable was restated on a prospective basis for
transactions entered into after October 25, 2002.




                                                                                                         95
5.2.6 – FINANCIAL ASSETS AND LIABILITIES ACCOUNTED FOR UNDER THE FAIR VALUE OPTION

The amendment to IAS 39 adopted by the European Union on November 15, 2005 allows entities to
designate financial assets and liabilities on initial recognition as at fair value through profit or loss.
However, an entity's decision to classify a financial asset or liability at fair value through profit or loss
under the fair value option may not be reversed.

This option may only be applied in the following circumstances:

Elimination or significant reduction of a measurement or recognition consistency (accounting
mismatch)
The option allows:
    ■ the elimination of accounting mismatches stemming from the application of different valuation
      rules to instruments managed in accordance with a single strategy (e.g., to limit equity volatility
      in the case of an available-for-sale financial asset where a liability considered related is
      measured at amortized cost, or within the scope of insurance activities, to ensure consistent
      accounting treatment for financial assets representing unit-linked policies and the related
      liabilities);
    ■ the elimination of restrictions concerning the designation, monitoring and analysis of hedge
      effectiveness in the case of fair value hedges, as the opposite changes in fair value are
      automatically offset in income (e.g., for a fixed-rate bond combined with a fixed-rate borrower
      swap).

Harmonization of accounting treatment and performance management and measurement
This option applies in the case of a group of assets and/or liabilities managed and valued on a fair
value basis, provided that it is based on a formally documented risk management or investment
strategy, and that the internal reporting mechanism is based on fair value measurements.

This option is mainly used in connection with the Group's capital markets activities.

Hybrid financial instruments containing one or more embedded derivatives
The fair value option may only be applied when the embedded derivatives substantially modify the
cash flows of the host contract and when the separate recognition of the embedded derivatives is not
specifically prohibited by IAS 39 (e.g., an early redemption option at cost embedded in a debt
instrument). This option permits the measurement of the entire instrument at fair value, and therefore
avoids the need to extract, recognize and separately measure the embedded derivative.

This accounting treatment applies in particular to structured debt issues containing significant
embedded derivatives and structured loan contracts.

As described in Note 4.1, the private equity subsidiaries of the Natixis group have chosen to measure
equity investments representing less than 50% of share capital using the fair value option, on the
grounds that this provides investors with more relevant information.


5.2.7 – FINANCIAL GUARANTEES AND FINANCING COMMITMENTS

Financial guarantees

A financial guarantee contract qualifies as an insurance contract when it requires the issuer to make
specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to
make payments when due in accordance with the original or modified terms of a debt instrument.

These contracts are initially measured at fair value, deemed to equal the premium received (generally
nil at inception). A provision is subsequently recorded under liabilities if an outflow of resources
embodying economic benefits is probable.

However, guarantees that give rise to a payment resulting from fluctuations in financial variables or
other variables (based on credit ratings, for example) must be treated and accounted for as
derivatives.




96
Financing commitments

Financing commitments are not accounted for as derivative instruments and are not recorded in the
balance sheet.

A provision for contingencies and charges is booked if it becomes probable that the counterparty will
default over the term of the commitment.


5.2.8 – DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

A financial asset (or group of financial assets) is derecognized when the contractual rights to the
asset's future cash flows expire or when such rights are transferred to a third party, together with
substantially all of the risks and rewards associated with ownership of the asset.

An asset or liability reflecting rights and obligations created or retained as a result of the transfer of the
asset (or group of assets) is recorded on a separate line in the balance sheet.

When a financial asset is derecognized in full, a gain or loss on disposal is recorded in profit or loss
reflecting the difference between the carrying amount of the asset and the consideration received.

If the Group has retained control of the financial asset, the asset continues to be recognized in the
balance sheet to the extent of the Group's continuing involvement.

The Group only removes a financial liability (or a part of a financial liability) from its balance sheet
when it is extinguished – i.e., when the obligation specified in the contract is discharged or canceled or
expires.

Repurchase agreements

Assignor
Securities sold are not derecognized. The Group recognizes a liability representing the commitment to
return the funds received, which is recorded under “Securities sold under repurchase agreements”.
This financial liability is recorded at amortized cost, not at fair value.

Assignee
Securities acquired are not recognized but a receivable on the assignor representing the funds lent is
recognized. The amount disbursed in respect of the asset is recorded under “Securities received
under repurchase agreements”.

At subsequent balance sheet dates, the securities continue to be accounted for by the assignor in
accordance with the rules applicable to the category in which they were initially classified. The
receivable continues to be recorded at face value under loans and receivables.

Securities lending
Securities lending/borrowing transactions do not qualify as transfers of financial assets within the
meaning of IFRS. Accordingly, these operations do not lead to derecognition of the securities loaned.
Loaned securities are not identified under IFRS. They continue to be recognized in the category in
which they were initially classified and valued accordingly. Borrowed securities are not recognized in
the borrower's balance sheet.




                                                                                                           97
5.2.9 – INCOME AND EXPENSE RELATING TO FINANCIAL ASSETS AND LIABILITIES

Interest income and expense is recognized on all financial instruments measured at amortized cost
using the effective interest method.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument to the net carrying amount of the financial asset or
financial liability.

The effective interest rate calculation takes account of all transaction fees paid or received as well as
premiums and discounts. Transaction fees paid or received that are an integral part of the effective
interest rate of the contract, such as loan set-up fees and commissions paid to financial
intermediaries, are treated as additional interest.

Commissions are recorded in the statement of income by type of service provided, and according to
the method used to recognize the associated financial instrument:
    ■ commissions payable on recurring services are spread over the period in which the service is
       provided (payment processing, securities deposit fees, etc.);
    ■ commissions payable on occasional services are recognized in full in the statement of income
       when the service is provided (fund transfers, payment penalties, etc.);
    ■ commissions payable on execution of a significant transaction are recognized in full in the
       statement of income on completion of the transaction.


5.3 PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

Property, plant and equipment and intangible assets are held for use in the production or supply of
goods and services, or for administrative purposes. Investment property is property held to earn
rentals or for capital appreciation, or both.

Property, plant and equipment and intangible assets are initially recognized at cost plus any directly
attributable acquisition costs. Software developed internally that fulfils the criteria for recognition as an
asset is recognized at its production cost, which includes external charges and the labor costs of
employees directly assigned to the project.

The Group applies the component-based approach to all buildings. The depreciable amount of the
asset takes account of its residual value where this is material and can be measured reliably.

After initial recognition, property, plant and equipment and intangible assets are measured at cost less
any accumulated depreciation, amortization or impairment losses.

Property, plant and equipment and intangible assets are depreciated or amortized in order to reflect
the pattern in which the asset's future economic benefits are expected to be consumed by the entity,
which generally corresponds the asset's useful life. Where an asset consists of a number of
components that have different uses or patterns of consumption of economic benefits, each
component is recognized separately and depreciated over a period appropriate to that component.

The depreciation and amortization periods used by the Group are as follows:
■ buildings: 20 to 50 years
■ fixtures and fittings: 5 to 20 years
■ furniture and special equipment: 4 to 10 years
■ computer equipment: 3 to 5 years
■ computer software: not more than 5 years
Property, plant and equipment and intangible assets are tested for impairment if there is an indication that
they may be impaired at the balance sheet date. The new recoverable amount of the asset is compared
with the carrying amount, and if the asset is found to be impaired, an impairment loss is recognized in the
statement of income.
This loss is reversed in the event of a change in the estimated recoverable amount or if there is no longer
an indication of impairment.



98
5.4 LEASES

Leases are analyzed to determine whether in the substance of the transaction and financial reality,
they are finance leases or operating leases.

Finance leases
A finance lease is a lease that transfers to the lessee substantially all the risks and rewards incidental
to ownership of an asset. It is treated as a loan granted by the lessor to the lessee in order to finance
the purchase of an asset.
In the lessor's financial statements, a receivable is recorded representing the present value of future
lease payments (plus the residual value in certain cases). Lease payments received are spread over
the lease term, and are treated as repayment of principal and finance income, so as to reflect a
constant rate of return on the lessor's net investment in the lease. The interest rate used is the rate
implicit in the lease.
Impairment losses recognized on these receivables are determined in the same way as for other loans
and receivables.
In the lessee's financial statements, finance lease contracts with purchase options are treated as the
purchase of an asset financed by a loan.

Operating leases
An operating lease is a lease under which substantially all the risks and rewards of ownership of an
asset are not transferred to the lessee.
In the lessor's financial statements, the asset is recognized under property, plant and equipment and
depreciated on a straight line basis over the lease term. The depreciable amount does not take into
account the residual value of the asset. Lease payments are recognized in income over the lease
term.
The operating lease is not recognized in the balance sheet of the lessee. Lease payments are
expensed on a straight-line basis over the lease term.


5.5 NON-CURRENT ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES

Where the Group decides to sell non-current assets and it is highly probable that the sale will occur
within 12 months, these assets are shown separately in the balance sheet on the line "Non-current
assets held for sale". Any liabilities associated with these assets are also shown separately in the
balance sheet on the line "Liabilities associated with non-current assets held for sale".

Once classified in this category, non-current assets are no longer depreciated/amortized and are
measured at the lower of the carrying amount and fair value less costs to sell.


5.6 PROVISIONS RECORDED UNDER LIABILITIES

Provisions recorded under liabilities (other than those relating to employee benefit obligations,
provisions on regulated savings products, off-balance sheet commitments, and insurance contracts)
mainly consist of provisions for restructuring, claims and litigation, fines and penalties, and tax risks.

Provisions are liabilities of uncertain timing or amount. They represent legal or constructive obligations
for the Group with regard to third parties, which are likely or certain to result in an outflow of resources
embodying economic benefits, with no equivalent consideration in return.

A liability is only recognized in the event that the amount can be measured with sufficient reliability.
The amount recognized in provisions is the best estimate of the expense required to extinguish the
present obligation at the balance sheet date.

Provisions are discounted when the impact of discounting is material.

Subsequent additions to and reversals from provisions are dealt with through the statement of income
on the line corresponding to the type of expense for which the provision was booked.




                                                                                                         99
5.7 DISTINCTION BETWEEN DEBT AND EQUITY

Financial instruments issued are classified as either debt or equity according to whether or not the
issuer has a contractual obligation to deliver cash or another financial asset to the holders.

Undated super-subordinated notes
Based on the conditions laid down in IAS 32 for analyzing the substance of these instruments and in
light of their intrinsic characteristics, undated super-subordinated notes issued by the Group qualify as
debt instruments.

Commitments to buy back minority interests (written puts)
The Group has entered into commitments with minority shareholders of certain fully consolidated
companies to buy back their shares. In accordance with IAS 32, these commitments represent written
puts whose exercise price can be determined based on a predefined formula which takes account of
possible changes in the value of the entities concerned, and therefore should be recorded as debt and
not equity.

The Group records in goodwill the difference between the amount of the commitment and the value of
the minority interests (representing the corresponding adjustment to the debt).


5.8 EMPLOYEE BENEFITS

The CNCE Group grants its employees a variety of benefits that fall into four categories:

Short-term employee benefits
Short-term employee benefits mainly include wages, salaries, paid annual leave, incentive plans,
profit-sharing, and bonuses payable within 12 months of the end of the period in which the employee
renders the service.

They are recognized as an expense for the period, including amounts remaining due at the balance
sheet date.

Long-term employee benefits
Long-term employee benefits are generally linked to long-service awards, accruing to current
employees and payable 12 months or more after the end of the period in which the employee renders
the related service. Long-term employee benefits mainly include jubilee bonuses.

A provision is set aside for the value of these obligations at the balance sheet date, which is assessed
using the same actuarial method as that applied to post-employment benefits.

Termination benefits
Termination benefits are granted to employees on termination of their contract before the normal
retirement date, either as a result of a decision by the Group to terminate a contract or a decision by
an employee to accept voluntary redundancy. A provision is set aside for termination benefits.
Termination benefits payable more than 12 months after the balance sheet date are discounted.

Post-employment benefits
Post-employment benefits include lump-sum retirement bonuses, pensions and other post-employment
benefits, and fall into two categories: defined-contribution plans, which do not give rise to an obligation for
the Group; and defined-benefit plans, which give rise to an obligation for the Group and are therefore
measured and recognized by means of a provision.

The Group records a provision in liabilities for employee benefit obligations that are not funded by
contributions charged to income and paid out to pension funds or insurance companies.

Post-employment benefit obligations are valued using an actuarial method that takes account of
demographic and financial assumptions such as age, length of service, the likelihood of the employee
being employed by the Group at retirement and the discount rate. It also takes into consideration the
value of plan assets and unrecognized actuarial gains and losses, and allocates the costs over the
working life of each employee (projected unit credit method).



100
Actuarial gains and losses on post-employment benefits, arising as a result of changes in actuarial
assumptions (early retirement, discount rate, etc.) or experience adjustments (return on plan assets, etc.)
are recognized for the portion that exceeds the greater of (i) 10% of the present value of the defined-
benefit obligation and (ii) 10% of the fair value of any plan assets (corridor method).

The annual expense recognized in respect of defined-benefit plans includes the current service cost,
interest cost (the effect of discounting the obligation), the expected return on plan assets and the
amortization of any unrecognized items.


5.9 SHARE-BASED PAYMENT

Share-based payment transactions are payments based on shares issued by the Group, regardless of
whether transactions are settled in the form of equity or cash, the value of which fluctuates in line with
price trends for the Group's shares.

The Group has elected to apply IFRS 2 for plans set up after November 7, 2002 that had not yet
vested at January 1, 2005.

The cost to the Group is calculated on the basis of the fair value at the grant date of the share
purchase or subscription options granted by certain subsidiaries. The total cost of the plan is
determined by multiplying the value of the option by the estimated number of options that will be
vested at the end of the vesting period, taking account of the likelihood that the grantees will still be
employed by the Group, and of any off-market performance conditions that may affect the plan.

The cost to the Group must be recognized through profit or loss from the notification date, without
waiting for the vesting conditions, if any, to be satisfied (for example, in the case of a subsequent
approval process) or for the beneficiaries to exercise their options.

The corresponding adjustment for the expense recorded on equity-settled plans is an increase in
equity.

For cash-settled plans, the Group recognizes a liability; the expense, equivalent to the fair value of the
liability, is taken to income over the vesting period with a corresponding adjustment to a debt account.
This debt is remeasured to fair value, with changes in fair value taken to profit or loss until the debt is
settled.


5.10 DEFERRED TAXES

Deferred taxes are recognized when temporary differences arise between the carrying value of assets
and liabilities in the balance sheet and their tax base.

Deferred taxes are calculated by the comprehensive method, which takes into account all temporary
differences, irrespective of when the tax is expected to be recovered or settled.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period
when the asset is realized or the liability settled based on tax rates (and tax laws) that have been enacted
or substantively enacted by the balance sheet date.

Deferred tax liabilities and assets are offset at the level of each consolidated entity. Deferred tax assets
are recognized only to the extent that it is probable that the temporary difference will reverse in the
foreseeable future.

Deferred taxes are recognized as tax income or expense in the statement of income, except deferred
taxes relating to unrealized gains or losses on available-for-sale assets and to changes in the fair value of
derivatives used as cash flow hedges, which are taken to equity.




                                                                                                       101
5.11 INSURANCE BUSINESSES

The financial assets of insurance companies fall within the scope of IAS 39: they are each classified
within one of the categories set out in this standard, and are subject to the measurement and
recognition rules applicable to the related category.

Pending amendments to IFRS 4, insurance liabilities continue to be measured broadly in line with
French GAAP.

In accordance with Phase I of IFRS 4, insurance contracts are classified into three categories:
    ■ Contracts that expose the insurer to a significant insurance risk within the meaning of IFRS 4:
       this category comprises policies covering personal risk insurance, pensions, property and
       casualty insurance, and unit-linked savings policies carrying a minimum guarantee. These
       contracts will continue to be measured under the rules provided under French GAAP for
       measuring technical reserves.
    ■ Investment contracts such as savings schemes that do not expose the insurer to a significant
       insurance risk are recognized in accordance with IFRS 4 if they contain a discretionary
       participation feature (contracts in euros or with-profit unit-linked policies also providing access
       to funds in euros), and will continue to be measured in accordance with the rules for measuring
       technical reserves provided under French GAAP.
    ■ Investment contracts without a discretionary participation feature such as contracts invested
       exclusively in units of accounts and without a minimum guarantee, are accounted for in
       accordance with IAS 39.

The discretionary participation feature grants life insurance policyholders the right to receive a share in
the financial income realized, in addition to guaranteed benefits. The reserve for amounts payable in
respect of policyholders’ surpluses on such contracts is adjusted to include the policyholders’ share in
the unrealized profits or losses on financial instruments measured at fair value in accordance with
IAS 39. The share in the profits attributed to the policyholder is determined based on the
characteristics of contracts likely to benefit from them.

Most investment contracts issued by Group entities contain with-profit discretionary participation
features.

In addition, the Group assesses at each balance sheet date whether its recognized insurance
liabilities are adequate, based on the present value of future cash flows from its insurance contracts
and investment contracts containing a discretionary participation feature. The liability adequacy test
shows the economic value of the liabilities corresponding to the average derived from stochastic
analyses. If the sum of the surrender value and policyholders’ surplus is lower than the fair value of
the technical reserves, the shortfall is recognized against income.

Under IFRS, the capitalization reserve set up in the parent company accounts on the sale of
amortizable securities in order to defer part of the associated net realized gain and hence maintain the
yield-to-maturity of the portfolio, gives rise to a deferred tax liability.


5.12 USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

Preparation of financial statements requires management to make estimates and assumptions with
regard to uncertain future events, based on their own judgment and the information available at the
balance sheet date.

The actual outcome of future events depends on a wide range of factors, including interest and foreign
exchange rate fluctuations, the general economic climate, and the changing regulatory or legal
environments.




102
The following areas require the use of assumptions and estimates:

   ■ Financial instruments that are not listed on organized markets and that are mostly traded over-
       the-counter are measured using models that draw on observable market data. The
       measurement of certain hybrid financial instruments that are not traded in an active market is
       based on valuation techniques that may incorporate non-observable parameters.
   ■   Financial assets and liabilities that are recognized at cost and whose fair value must be
       disclosed in the notes to the financial statements.
   ■   Credit risk valuations: individually-assessed provisions are estimated on a discounted basis
       drawing on a range of parameters (e.g., estimated timing of collection), or based on economic
       factors. Portfolio-based provisions require estimates of the probability of default and generally
       require the advice of independent experts.
   ■   The cost of pensions and future employee benefits is calculated based on various assumptions
       including discount rates, staff turnover and wage trends. Rates of return on plan assets are
       also based on estimates.
   ■   Estimates are also involved in determining provisions for contingencies and charges, since
       they are liabilities of uncertain timing and amount, and an outflow of resources embodying
       economic benefits is probable or certain in order to settle the obligation, with no equivalent
       consideration in return.
   ■   Provisions on regulated savings products are assessed based on assumptions relating to
       historic customer behavior patterns that may be at variance with actual outcomes.
   ■   Impairment tests on goodwill inherently incorporate a certain number of assumptions.




                                                                                                    103
NOTE 6 – IMPACTS OF THE TRANSITION TO IFRS


6.1 IMPACT OF IFRS ADOPTION ON EQUITY

The Group’s transition to International Financial Reporting Standards (IFRS) has a number of impacts on
equity, which can be either permanent or temporary.

      ■ The permanent impacts result from the retrospective application of IFRS, whereby:
                    ■ certain items included in the balance sheet under French GAAP are no longer
                         recognized;
                    ■ a number of items specific to IFRS are now reported in the balance sheet;
      ■ The impact of fair value adjustments recorded against “Cumulative change in fair value of
        financial instruments” can be recycled to the income statement.
      ■ The impact of adjustments to the period over which income and expenses are recognized in
        line with IFRS is said to be “amortizable”.


6.1.1 – IMPACT OF IFRS ADOPTION AT JANUARY 1, 2005

                                                                   Unrealized or
                                                                  deferred gains                Other reserves                    Equity
                                                                    and losses                                                  attributabl
   (in millions of euros) (amounts net of deferred tax)            Impacts to be                                                e to equity
                                                                                                            Non-amortizable,    holders of
                                                                  recycled to the       Amortizable
                                                                                                             non-recyclable     the parent
                                                                       income            impacts
                                                                                                                impacts
                                                                     statement
Equity attributable to equity holders of the parent at Dec. 31,
2004 under French GAAP                                                                                                              11,229
Reserve for General Banking Risks at Dec. 31, 2004 under
French GAAP                                                                                                                            256
Equity attributable to equity holders of the parent
                                                                                                                                    11,485
(including RGBR) at Dec. 31, 2004 under French GAAP
Employee benefits                                                                                                       (146)         (146)
Credit risk - Impact of discounting individually-assessed
provisions                                                                                                               (64)          (64)
Property, plant and equipment and intangible assets -
Components approach                                                                               (37)                                 (37)
Impact of changes in accounting policies in 2005                                    0             (37)                  (210)         (247)
Equity attributable to equity holders of the parent
                                                                                    0             (37)                  (210)       11,238
(including RGBR) at Jan. 1, 2005 under French GAAP
Remeasurement of available-for-sale securities                                 383                                                      383
Remeasurement of derivatives used as cash flow hedges                           52                                                       52
Loans and commissions                                                                               73                                   73
Restatement of day one profit                                                                    (134)                                (134)
Deferred taxes                                                                                      51                                   51
Provision on regulated savings products                                                                                 (112)         (112)
Provisions for performing loans                                                                                            24            24
Unrealized losses on available-for-sale financial instruments
covered by provisions                                                                                                    112           112
Reclassification to the trading book of non-qualifying
derivatives                                                                                                              (52)          (52)
Financial assets and liabilities accounted for under the fair
value option                                                                                                               40            40
Ineffective portion of hedges                                                                                           (144)         (144)
Commitments to buy back minority interests (written puts)                                                               (145)         (145)
Business combinations                                                                                                   (178)         (178)
Share in net income of companies accounted for by the
equity method - Insurance business                                             484                                      (343)          141
Other items                                                                                           (7)                 132          125
Group/minority interests share of impacts                                                                                  47           47
Impact of IFRS adoption                                                        919                (17)                  (619)          283
Equity attributable to equity holders of the parent at
Jan. 1, 2005 under IFRS                                                                                                             11,521




104
6.1.2 – IMPACT OF IFRS ADOPTION AT DECEMBER 31, 2005

                         (in m illions of euros)                      Dec. 31, 2005


  French     Reserve for General Banking Risks                                    259
   GAAP      Equity attributable to equity holders of the parent               12,287

             Unrealized or deferred gains and losses                            1,221

            Loans                                                                  45
            Day one profit                                                      (173)
            Financial operations                                                 (27)
T ransition Com m itm ents to buy back m inority interests (written
            puts)                                                               (145)
            Business com binations                                               (42)
            Share in net incom e of com panies accounted for by
            the equity m ethod                                                  (312)
            Other item s                                                           88

             Equity attributable to equity holders of the parent
   IFRS
             under IFRS                                                        13,201




                                                                                      105
6.2 RECONCILIATION OF THE BALANCE SHEET UNDER FRENCH GAAP TO THE BALANCE
    SHEET UNDER IFRS AT JANUARY 1, 2005

                                                                Balance                           Balance sheet                          Balance
(in millions of euros)                                        sheet under   Reclassifications          after         Restatements      sheet under
                                                             French GAAP                         reclassifications                        IFRS
ASSETS
Cash and amounts due from central banks and post
office banks                                                                            6,108                6,108                           6,108
Financial assets at fair value through profit or loss                                 107,761              107,761            (389)        107,372
Derivatives used for hedging purposes                                                   1,292                1,292            3,531          4,823
Available-for-sale financial assets                                                    22,072               22,072              810         22,882
Loans and receivables due from credit institutions                160,520              (9,798)             150,722              426        151,148
Loans and receivables due from customers                           91,761                 760               92,521               67         92,588
Securities portfolio                                               91,913             (91,913)
Investments by insurance companies                                  1,581              (1,581)
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                                                                                      692            692
Held-to-maturity financial assets                                                         324                  324                             324
Current tax assets                                                                        243                  243                             243
Deferred tax assets                                                                       773                  773              (17)           756
Accrued income and other assets                                    31,477             (12,458)              19,019           (1,365)        17,654
Investments in unconsolidated subsidiaries, affiliates
accounted for by the equity method and other long-term
investments                                                         7,285              (7,285)
Investments in companies accounted for by the equity
method                                                                                  5,787                5,787               28          5,815
Investment property                                                                       163                  163              (11)           152
Property, plant and equipment                                       1,153                (123)               1,030              (22)         1,008
Intangible assets                                                   1,121                (845)                 276               (5)           271
Goodwill                                                              947                 842                1,789              (68)         1,721
TOTAL                                                             387,758              22,122              409,880            3,677        413,557

LIABILITIES AND EQUITY
Due to central banks and post office banks                                                  2                    2                               2
Financial liabilities at fair value through profit or loss                            112,294              112,294            (817)        111,477
Derivatives used for hedging purposes                                                   1,510                1,510            1,384          2,894
Due to credit institutions                                        118,721              (4,969)             113,752            1,665        115,417
Due to customers                                                   42,290                 (45)              42,245               (5)        42,240
Debt securities                                                   142,324             (45,428)              96,896            2,014         98,910
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                                                                                      199            199
Current tax liabilities                                                                    88                   88                              88
Deferred tax liabilities                                                                   32                   32              259            291
Accrued expenses and other liabilities                             62,219             (41,118)              21,101            (553)         20,548
Technical reserves of insurance companies                           1,052                   1                1,053               20          1,073
Provisions for contingencies and charges                            1,133                (322)                 811            (237)            574
Subordinated debt                                                   7,913                  77                7,990              (39)         7,951
Reserve for General Banking Risks                                     256                                      256            (256)              0
Minority interests                                                    621                                      621            (249)            372
Equity attributable to equity holders of the parent
(excluding RGBR)                                                   11,229                                   11,229              292         11,521
TOTAL                                                             387,758              22,122              409,880            3,677        413,557




106
6.2.1 – DETAILS OF RECLASSIFICATIONS


                                                                                                                         Property, plant
                                                                 Standard                 Fair value                     and equipment
(in millions of euros)                                                         Securities              Derivatives                             Other     Reclassifications
                                                             reclassifications             option                        and intangible
                                                                                                                            assets
ASSETS
Cash and amounts due from central banks and post
office banks                                                            6,108                                                                                         6,108
Financial assets at fair value through profit or loss                             53,388      9,886         44,455                                 32              107,761
Derivatives used for hedging purposes                                                                        1,292                                                    1,292
Available-for-sale financial assets                                                33,481    (4,366)                                           (7,043)               22,072
Loans and receivables due from credit institutions                    (6,108)     (3,582)      (108)                                                                (9,798)
Loans and receivables due from customers                                            6,218    (5,412)                                              (46)                  760
Securities portfolio                                                             (91,913)                                                                          (91,913)
Investments by insurance companies                                                                                                             (1,581)              (1,581)
Held-to-maturity financial assets                                                    324                                                                                324
Current tax assets                                                        243                                                                                           243
Deferred tax assets                                                       773                                                                                           773
Accrued income and other assets                                       (1,016)     21,345                  (45,747)                             12,960              (12,458)
Investments in unconsolidated subsidiaries, affiliates
accounted for by the equity method and other long-
term investments                                                                  (7,285)                                                                           (7,285)
Investments in companies accounted for by the equity
method                                                                             5,787                                                                             5,787
Investment property                                                                                                                   163                              163
Property, plant and equipment                                                                                                       (163)          40                (123)
Intangible assets                                                                                                                   (842)          (3)               (845)
Goodwill                                                                                                                              842                              842
TOTAL                                                                       0     17,763          0                  0                  0       4,359               22,122

LIABILITIES AND EQUITY
Due to central banks and post office banks                                  2                                                                                              2
Financial liabilities at fair value through profit or loss                        21,345     46,130         44,819                                                 112,294
Derivatives used for hedging purposes                                                                        1,510                                                    1,510
Due to credit institutions                                                 (2)    (3,582)    (1,049)                                             (336)              (4,969)
Due to customers                                                                                (54)                                                 9                  (45)
Debt securities                                                                             (45,027)                                             (401)             (45,428)
Current tax liabilities                                                    88                                                                                             88
Deferred tax liabilities                                                   23                                                                       9                     32
Accrued expenses and other liabilities                                  (111)                             (46,329)                              5,322              (41,118)
Technical reserves of insurance companies                                                                                                           1                      1
Provisions for contingencies and charges                                                                                                        (322)                 (322)
Subordinated debt                                                                                                                                  77                     77
TOTAL                                                                       0     17,763          0                  0                     0    4,359                22,122




                                                                                                                                                                      107
6.2.2 – DETAILS OF RESTATEMENTS

                                                                                                                                                             Share in
                                                                                                                                                           net income
                                                             Remeasure
                                                                                                                                Provisions                       of
                                                               ment of      Remeasurement of                Restatement
                                                                                                 Loans and              Deferre     for     Financial      companies       Business
(in millions of euros)                                       available-for- derivatives used as              of day one                               RGBR                               Other Restatements
                                                                                                commissions             d taxes performing operations      accounted     combinations
                                                                  sale       cash flow hedges                   profit
                                                                                                                                  loans                     for by the
                                                              securities
                                                                                                                                                              equity
                                                                                                                                                             method
ASSETS
Financial assets at fair value through profit or loss                                                                                         (389)                                                   (389)
Derivatives used for hedging purposes                                                    99                                                   3,432                                                   3,531
Available-for-sale financial assets                                  494                                                                        297                                         19          810
Loans and receivables due from credit institutions                                                                                              425                                          1          426
Loans and receivables due from customers                                                               27                            (80)        34                                         86           67
Remeasurement adjustment on interest-rate risk
hedged portfolios                                                                                                                                692                                                     692
Deferred tax assets                                                 (152)               (28)          (12)          70    (40)        (2)          1                             (202)    348           (17)
Accrued income and other assets                                                                                                       (1)    (1,427)                                97    (34)       (1,365)
Investments in companies accounted for by the equity
method                                                               595                                                                                         (580)           (102)    115             28
Investment property                                                                                                                                                                       (11)          (11)
Property, plant and equipment                                                                                                                                                             (22)          (22)
Intangible assets                                                                                                                                                                          (5)           (5)
Goodwill                                                                                                                                                                                  (68)          (68)
TOTAL                                                                937                 71            15           70    (40)       (83)     3,065       0      (580)           (207)    429         3,677

LIABILITIES AND EQUITY
Financial liabilities at fair value through profit or loss                                                                                    (817)                                                   (817)
Derivatives used for hedging purposes                                                    20                                                   1,364                                                   1,384
Due to credit institutions                                                                                                                    1,664                                          1        1,665
Due to customers                                                                                                                                 (5)                                                     (5)
Debt securities                                                                                                                               2,028                                       (14)        2,014
Remeasurement adjustment on interest-rate risk
hedged portfolios                                                                                                                               199                                                      199
Deferred tax liabilities                                                                                                   53                                                              206           259
Accrued expenses and other liabilities                                                                             204                       (1,239)                               340     142         (553)
Technical reserves of insurance companies                                                                                                                                                   20            20
Negative goodwill                                                                                                                                                                 (35)      35             0
Provisions for contingencies and charges                                                                                  (53)       (86)       (90)                                        (8)        (237)
Subordinated debt                                                                                                                               (39)                                                    (39)
Reserve for General Banking Risks                                                                                                                      (256)                                           (256)
Minority interests                                                                                                                                                               (248)      (1)        (249)
Equity attributable to equity holders of the parent
(excluding RGBR)                                                     937                 51            15        (134)    (40)          3               256      (580)           (264)      48          292
TOTAL                                                                937                 71            15           70    (40)       (83)     3,065       0      (580)           (207)     429        3,677




108
6.3 RECONCILIATION OF 2005 INCOME UNDER FRENCH GAAP TO 2005 INCOME UNDER IFRS

                                                         Income
                                                                                                             Income under
               (in millions of euros)                  under French Reclassifications     Restatements
                                                                                                                 IFRS
                                                          GAAP
Net banking income                                             4,598                (8)            (217)              4,373
Operating expenses                                           (3,382)               (24)               69            (3,337)
Depreciation, amortization and impairment of
                                                               (178)                                     6               (172)
property, plant and equipment and intangible assets
Gross operating income                                         1,038               (32)            (142)                  864
Cost of risk                                                     (74)                44               25                   (5)
Operating income                                                 964                 12            (117)                  859
Share in net income of companies accounted for by
                                                                 512                                (50)                  462
the equity method
Net gains or losses on other assets                              117               (27)              46                   136
Change in value of goodwill                                    (104)                                103                    (1)
Exceptional items                                               (15)                15
(Additions to)/releases from the Reserve for General
                                                                  (2)                                    2
Banking Risks
Income before tax                                              1,472                 0              (16)             1,456
Income tax                                                     (294)                                  43             (251)
Net income                                                     1,178                 0                27             1,205
Minority interests                                               (75)                                                  (75)
Net income attributable to equity holders of the
                                                               1,103                 0               27              1,130
parent




                                                                                                                   109
6.3.1 – DETAILS OF RECLASSIFICATIONS


                                                                          Reclassification
                                                        Reclassification
                                                                           of net gains or                                                 Total
           (in millions of euros)                        of exceptional                                              Other
                                                                          losses on other                                            reclassifications
                                                             items
                                                                               assets
Net banking income                                                                       27                                  (35)                        (8)
Operating expenses                                                   (15)                                                     (9)                       (24)
Gross operating income                                               (15)                27                                  (44)                       (32)
Cost of risk                                                                                                                   44                         44
Operating income                                                         (15)                         27                        0                         12
Net gains or losses on other assets                                                                 (27)                                                (27)
Exceptional items                                                             15                                                                          15
Income before tax                                                              0                       0                        0                          0
Net income                                                                     0                       0                        0                          0
Net income attributable to equity
                                                                                0                      0                        0                           0
holders of the parent


6.3.2 – DETAILS OF RESTATEMENTS

                                                                                                     Share in net
                                                                                                      income of
                                                                                 Day
                                                                 Financial               Cost of      companies       Business                       Total
               (in millions of euros)                  Loans                     one                                                 Other
                                                                 operations               risk     accounted for by combinations                 restatements
                                                                                profit
                                                                                                      the equity
                                                                                                       method
Net banking income                                        (20)          (134)       (61)       (7)                0              0           5           (217)
Operating expenses                                          66                                                                               3              69
Depreciation, amortization and impairment of
                                                                                                                                             6              6
property, plant and equipment and intangible assets
Gross operating income                                     46           (134)       (61)      (7)               0               0        14              (142)
Cost of risk                                                                                  30                                         (5)                25
Operating income                                           46           (134)       (61)      23                0               0          9             (117)
Share in net income of companies accounted for by
                                                                                                              (51)                           1            (50)
the equity method
Net gains or losses on other assets                                      (13)                                                  45        14                46
Change in value of goodwill                                                                                                   104        (1)              103
(Additions to)/releases from the Reserve for General
                                                                                                                                             2              2
Banking Risks
Income before tax                                           46          (147)       (61)      23              (51)            149         25              (16)
Income tax                                                (16)             49         21      (8)                              13       (16)                43
Net income                                                  30           (98)       (40)      15              (51)            162          9                27
Minority interests                                                          1          1                                       (5)         3                 0
Net income attributable to equity holders of the
                                                           30            (97)       (39)      15              (51)            157        12                27
parent




110
6.4 REMARKS ON THE IMPACT OF IFRS ADOPTION


6.4.1 – IMPACT OF CHANGES IN ACCOUNTING POLICIES IN 2005 (FRENCH GAAP)

Over the past few years, under the auspices of the CNC, French generally accepted accounting
principles have gradually been brought into line with IFRS.

Several significant changes in accounting policy came into effect at January 1, 2005:

PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
The main impact on property, plant and equipment and intangible assets results from the application
of Comité de la réglementation comptable (French accounting standard setter – CRC) regulation
2002.10, amended by CRC regulation 2003.07, which sets out new rules for charging depreciation,
amortization and impairment. In particular, major building components are now accounted for
separately and depreciated over their respective useful lives.

CREDIT RISK
In application of the requirements of CRC regulation 2002.03, impairment relating to expected losses
on non-performing and doubtful loans must now be discounted to present value.

EMPLOYEE BENEFITS
Commitments in respect of post-employment benefits and long-term employee benefits are measured
in accordance with CNC recommendation 2003.R.01 relating to the recognition and measurement of
pension commitments and other post-employment benefits. Commitments are measured using an
actuarial method that takes account of the age, length of service and the likelihood of personnel being
employed by the Group until retirement, and of the value of plan assets. Actuarial gains and losses
are amortized in accordance with the corridor method.


6.4.2 – IMPACT OF IFRS ADOPTION

RESERVE FOR GENERAL BANKING RISKS (RGBR)
Under IAS 37 dealing with provisions and contingent liabilities, the Reserve for General Banking Risks
does not meet the criteria for recognition as a liability. Amounts recorded under this caption are
therefore credited to equity at January 1, 2005. Any additions to or releases from the reserve are
eliminated from the income statement.

LOANS AND COMMISSIONS
Loans and receivables are initially recorded at fair value and subsequently measured at amortized
cost using the effective interest rate method.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
to the net carrying amount of the financial asset. This rate includes any discounts recorded in respect
of loans granted at below-market rates, as well as any fees and points paid or received, and
transaction costs, which are treated as an adjustment to the effective yield on the loan.

Opening equity was adjusted for the unamortized portion of fees and discounts relating to transactions
outstanding at the opening balance sheet date.

PROVISIONS ASSESSED ON A PORTFOLIO BASIS
IAS 39 requires impairment to be assessed on the basis of portfolios of loans with similar
characteristics which present objective evidence of collective impairment where it is not possible to
identify impaired loans individually.

The general provisions previously recorded by Groupe Caisse d’Epargne are no longer compatible
with IFRS. However, overall provisions for credit risks on performing loans are not materially affected
by the adoption of the new accounting rules.




                                                                                                       111
PROVISION ON REGULATED SAVINGS PRODUCTS
A provision must be set aside under liabilities when specific commitments undertaken in connection
with regulated savings products (whether in the savings phase or borrowing phase, if any) will have an
unfavorable impact on the Group.

At January 1, 2005, a €6 million provision was charged against equity, representing the difference
between the agreed terms applicable to each of these phases and market conditions.

SECURITIES PORTFOLIO

Analysis of the securities portfolio
IAS 39 introduces new criteria for classifying securities. The bulk of the reclassifications were made
according to the following principles:
   ■ “Financial assets at fair value through profit or loss” includes financial assets held for trading,
       as well as the non-derivative financial assets that the Group has elected to measure at fair
       value in accordance with the option available under IAS 39. Application guidance regarding the
       fair value option was provided in the amendment to the standard issued in June 2005.
   ■ “Held-to-maturity financial assets” includes certain securities previously classified as
       investment securities. However, unlike under French GAAP, these securities may not be
       hedged against interest rate risk.
   ■ “Available-for-sale financial assets” is the default category that includes securities previously
       classified as held-for-sale securities and certain investment securities as well as portfolio
       equity investments, other long-term investments and investments in unconsolidated
       subsidiaries.

Remeasurement of available-for-sale securities
Changes in the fair value of available-for-sale securities are recorded with a corresponding adjustment
to a specific equity account, entitled “Cumulative change in fair value of financial instruments”. These
amounts are only taken to the income statement under net banking income upon disposal of the
securities or whenever the securities are deemed to have suffered a prolonged decline in value.
Impairment recorded against an equity instrument may not be reversed.

HEDGE ACCOUNTING
The impacts of IFRS adoption on hedging are split between: “Remeasurement of derivatives used as
cash flow hedges”, “Reclassification to the trading book of non-qualifying hedging derivatives” and
“Ineffective portion of hedges”.

Under IAS 39, all derivative financial instruments must be carried in the balance sheet at fair value.
Derivatives only qualify for hedge accounting if there is formal documentation of the hedging
relationship. The effectiveness of the hedge must be demonstrated at the inception of the contract,
and subsequently assessed retrospectively.

The Group has opted to maintain the existing classification of specific hedging relationships (micro
hedges) as defined under French GAAP in order to reflect the initial purpose of the hedge and
common business practices with regard to IFRS. However, pursuant to the rules set out in IFRS 1
concerning the treatment of hedging operations at the date of first-time application of IFRS, certain
specific hedging derivatives have been reclassified at fair value through profit or loss, particularly
those used to hedge investment securities, since IAS 39 prohibits hedging of held-to-maturity financial
assets.

In a fair value hedging relationship, the portion relating to the hedged risk will be remeasured at fair
value through profit or loss, symmetrically to the remeasurement of the hedging instrument. At
January 1, 2005, these adjustments will be recognized in equity, while the ineffective portion of the
hedge will be taken to income.




112
ASSETS AND LIABILITIES ACCOUNTED FOR UNDER THE FAIR VALUE OPTION
The Group has opted to use the exception available under IFRS 1 whereby all financial assets and
liabilities meeting the criteria defined by IAS 39 (as amended) may be designated at fair value at the
transition date.

RESTATEMENT OF DAY ONE PROFIT
The initial margin generated when a financial instrument is set up cannot be taken to profit unless the
valuation parameters are observable.

In valuing certain structured products, non-observable market parameters are sometimes used. The
margin generated when these complex financial instruments are traded (day one profit) is deferred
and taken to income over the period during which the valuation parameters are expected to remain
non-observable.

Margins previously recorded under French GAAP upon the inception of trading were recognized in
equity at January 1, 2005 and will be released to income over the residual life of the financial
instruments concerned, or over the period during which the valuation parameters are expected to
remain non-observable. Margins on transactions processed on or after October 25, 2002 were
restated prospectively.

COMMITMENTS TO BUY BACK MINORITY INTERESTS (WRITTEN PUTS)
The Group has entered into commitments with minority shareholders of certain fully consolidated
companies to buy back their shares. In accordance with IAS 32, these commitments represent written
puts whose exercise price can be determined based on a predefined formula which takes account of
possible changes in the value of the entities concerned, and therefore should be recorded as debt and
not equity.

In accordance with IFRS 1, the minority interests concerned have been reclassified as debt, and
equity was reduced accordingly.

The largest put was written for an amount of €340 million.

BUSINESS COMBINATIONS AND GOODWILL
Under IFRS 1, entities may choose not to restate business combinations that occurred prior to the
date of transition to IFRS. However, assets and liabilities acquired as part of past business
combinations may only be recognized in the opening balance sheet provided that they meet the
recognition criteria set out in IFRS.

Accordingly, certain intangible assets such as market share that were acquired within the scope of a
business combination but that do not qualify for recognition as intangible assets under IFRS, have
been reclassified within goodwill. Assets that do not meet the identifiability criteria prescribed by IFRS
are not reported in the opening balance sheet.

Positive goodwill is no longer amortized but tested for impairment at least once a year, or whenever
there is an indication that it may be impaired.

SCOPE OF CONSOLIDATION
The definition of control under IFRS is similar to that provided by French GAAP. Consequently, the
application of IFRS does not have a material impact on the scope of consolidation.


INSURANCE
The non-recyclable, non-amortizable impacts of IFRS adoption on the equity of equity-accounted
insurance subsidiaries have been included on a separate line (“Share in net income of companies
accounted for by the equity method”).

This caption includes mainly deferred tax recognized on the capitalization reserve.

Financial assets held by insurance companies are recognized in the balance sheet within one of the
categories defined by IAS 39, and are measured in accordance with the prescribed treatment.




                                                                                                        113
In accordance with Phase I of IFRS 4, contracts classified as insurance contracts under
French GAAP fall into two categories:
    ■ contracts that generate significant insurance risk within the meaning of IFRS 4 will continue to
       be accounted for under French GAAP, pending Phase II of IFRS 4. The Group will therefore
       continue to use the rules for measuring technical reserves set out in French GAAP;
    ■ investment contracts that do not generate significant insurance risk, such as savings schemes,
       are recognized under IFRS 4 if they contain a discretionary participation feature; otherwise
       they are accounted for in accordance with IAS 39.

Most investment contracts issued by Group entities contain with-profit discretionary participation
features; as such, the provision for amounts payable on with-profit policies is adjusted to include the
policyholders’ share in the unrealized profits or losses on financial instruments measured at fair value
under IAS 39.



NOTE 7 – RISK EXPOSURE AND RISK MANAGEMENT


7.1 ORGANIZATION OF RISK MANAGEMENT: OVERVIEW OF THE MAIN RISK EXPOSURES


7.1.1 – General financial risks

Groupe Caisse d’Epargne’s business involves exposure to the following main risks:
■ credit or counterparty risks;
■ liquidity, interest rate and currency risks, arising primarily from retail banking operations;
■ capital market risks;
■ operational risks;
■ legal risks;
■ compliance risks.
As the network’s central institution, the CNCE is responsible for establishing and maintaining
consistent risk management processes across the entire organization, by:
■ setting exposure limits for each Group entity and for all significant counterparties representing
   exposures in excess of the entity-level limit. These limits are decided by a number of special
   committees and formally set down in writing;
■ monitoring entities’ compliance with these limits and tracking any overruns;
■ approving and implementing the internal methods and tools used to rate and compute all types of
   risk throughout the Group;
■ defining risk control, processing and oversight structures and procedures to be applied by all
   entities, and monitoring their application on an ongoing basis.

Most of these functions are performed by Group Risk Management.


7.1.2 – Role and responsibilities of the Risk Management function

Group Risk Management reports to the CNCE Management Board in compliance with regulatory
principles, in particular regulation 97-02 (as amended). The department has set up a risk management
function spanning all Group entities and based on a common organizational structure, as well as
common risk analysis, tracking and control procedures.

Group Risk Management’s responsibilities cover two main areas:
■ defining and implementing risk control, monitoring and management processes across the Risk
   Management function, as defined in CRBF regulation 97-02 (as amended),
■ developing procedures to comply with the new Basel II requirements, as incorporated in the
   European directive and French enabling legislation, and integrating them in the risk monitoring and
   management process.

114
7.1.3 – ORGANIZATION OF THE RISK MANAGEMENT FUNCTION

The risk management function comprises Group Risk Management and the risk management units of
the Group (Caisses d’Epargne and subsidiaries).

Group Risk Management
Group Risk Management is responsible for monitoring and managing credit, capital market, financial
and operational risks, as well as the Group’s overall interest rate and liquidity risk exposure.

Group Risk Management ensures that assumed risks are compatible with the entities’ financial,
human and IT resources, as well as with the Group’s profitability and ratings targets. It also
recommends overall limits on credit, market and other risk exposures, to be assigned to the individual
entities and business lines, as well as the levels of authority to be assigned to subsidiaries, in line with
the Group’s risk policies.

Risks are managed, monitored and controlled by several committees reporting to Group Risk
Management:
■ the Group Risk Committee, which meets at monthly intervals to set the overall framework for
   dealing with risk issues, as well as for the development and upgrading of risk management
   processes;
■ the Group Major Counterparties and SME Credit committees, which meet at least twice a month to
   review commitments in excess of the entities’ exposure limits and to set maximum exposures;
■ the Group Watchlist & Provisions committees, which meet at quarterly intervals. The Watchlist
   Committee is tasked with the quarterly monitoring of sensitive commitments relating to major
   counterparties (revenues of over €500 million) for which a provision may be required;
■ the Group Market Risks and Investment Funds committees, which meet on a monthly basis;
■ the Group Operational Risk Committee, which meets every quarter;
■ the New Products and Financial Operations Committees, which meet at monthly intervals.
The head of Group Risk Management is a voting member of the Group ALM Committee, the
Commercial Banking ALM Committee and the CNCE Investment and Finance committees.

Group Risk Management is also responsible for consolidated credit, capital market and operational
risk reporting to Groupe Caisse d’Epargne’s corporate governance structures and the banking
regulator.
Ongoing monitoring procedures performed by the Standard & Procedures unit are designed to
oversee entities’ application of groupwide risk standards, encourage take-up of the standards and
report to the Group’s corporate governance structures.
At the end of 2006, Groupe Caisse d’Epargne’s governance structures were adapted and expanded to
cover the Natixis group:
■ the head of risk at Natixis reports to the risk managers at the CNCE and Banque Fédérale des
    Banques Populaires;
■ the risk managers of Natixis, the CNCE and Banque Fédérale des Banques Populaires approve
    the risk charter drawn up by Natixis;
■ the coordination of risk management efforts across the three groups (Natixis, Groupe Caisse
    d’Epargne and Banque Populaire) is the responsibility of three permanent committees: Standards
    & Procedures, Risk Information Systems and Global Risk.

Entity-level risk management units
The organization of risk monitoring and control processes at the Caisses d’Epargne and subsidiaries
is based on guidelines issued by Group Risk Management.

Each entity’s Risk Management unit covers all risk exposures, including credit and counterparty risks,
market and financial risks, overall interest rate and currency risks, and liquidity and settlement-delivery
risks. The units perform ex-ante risk analyses based on the exposure limits assigned to the entity, as
well as ex-post analyses and controls. They lead the activities of their entity’s Risk Committee,
Commitments Committee, Financial Management Committee and Operational Risk Committee, and
also participate in meetings of the entity’s ALM Committee. They represent Group Risk Management’s
local contact and are responsible for rolling out to their entity the national procedures and projects
developed or initiated by Group Risk Management.



                                                                                                          115
The Risk Management units ensure that Basel II standards are applied within their entity, and monitor
their correct application on an ongoing basis. Basel II standards are an integral part of the Group’s risk
measurement, monitoring and oversight structure.



7.2 CREDIT AND COUNTERPARTY RISK MANAGEMENT


7.2.1 – CREDIT RISK MANAGEMENT AND MEASUREMENT

Group Risk Management organizes consolidated credit risk measurement and management
processes by:
■ setting exposure limits for all significant counterparties representing exposures in excess of entity-
   level limits. These limits are defined by a number of special committees, such as the Group Major
   Counterparty Credit and Group SME Credit committees, and are formally set down in writing;
■ developing and maintaining the Group’s rating systems;
■ approving internal ratings-based methodologies;
■ defining standards and procedures to be applied by all entities.


7.2.2 – RISK OVERSIGHT AND MANAGEMENT OF EXPOSURE LIMIT OVERRUNS

Standard procedures

Group Risk Management coordinates the committees and prepares the performance charts used to
monitor GCE’s credit risks.

The Major Counterparties Credit Analysis unit performs or oversees expert analyses of credit risks
associated with sovereign, bank, insurance, corporate and securitization issuers for the entire Group.
These analyses are presented and discussed during meetings of the Major Counterparties Committee
or the Risks Committee, as appropriate, providing a basis for the attribution of a rating and Group-
level exposure limit to each counterparty. These exposure limits are then communicated to the entities
and incorporated in the system used to monitor exposures and exposure limits.

The SME Credit Analyses unit reviews the internal ratings already attributed to SMEs by the Anadefi
application for statutory accounts, and devises a consolidated internal rating for the groups
concerned. It then presents its own comparative assessment of the credit risk to the Group SME
Credit Committee in line with the allocations of authority.

The Credit Risk Controls & Reporting Department is responsible for developing and enhancing credit
risk control procedures, as well as for producing risk monitoring reports submitted to the Risk
committees and the Management Board.

The Commercial Banking Rating Systems unit monitors the quality and pertinence of qualitative and
score-based internal ratings.

Lastly, the Credit Risk System Implementation & Maintenance unit is tasked with developing and
tracking the Group’s Fermat exposure limit monitoring and management system.

Dedicated SME procedures

A dedicated system has been developed to manage risks associated with SMEs. It is organized
around:
■ risk analysis and selection processes;
■ a system of exposure limits and thresholds for referral to the CNCE, resulting in monthly reports on
   entities’ compliance with these limits;
■ entity-level risk selection, acceptance and monitoring procedures;
■ a risk management structure at the level of the CNCE.

116
7.3 ASSET/LIABILITY MANAGEMENT RISKS


7.3.1 – ORGANIZATION OF THE ALM UNIT

Group-level organization
To reflect the change in the structure of Groupe Caisse d’Epargne towards a full-service, universal
bank, the CNCE in its role as the central institution set up a Group ALM unit tasked with monitoring
and managing ALM risks on a consolidated basis. This extends the work carried out previously to
monitor ALM risks at the level of the individual Caisses d’Epargne et de Prévoyance and the
Commercial Banking subsidiaries.

Chaired by the CNCE Management Board member responsible for the Finance and Risks division, the
quarterly Group ALM Committee comprises several other Management Board members, the Finance
directors of the main subsidiaries and the officers of the Caisses d’Epargne et de Prévoyance. It
should be noted that each Group company already had its own local ALM Committee. There is also a
specific CNCE ALM Committee covering Commercial Banking activities.

To monitor consolidated risks in compliance with the applicable regulations, the Group ALM unit uses
ALM simulation and consolidation software to process data generated by the various Group entities.

Organization of ALM for Commercial Banking
Asset-liability management risks for the 28 Caisses d’Epargne, Financière OCÉOR and Banque
Palatine are monitored by a Commercial Banking ALM Committee, which meets at quarterly intervals
to review interest rate and liquidity exposures of entities falling within its remit. Currency risk does not
represent a major exposure for the Commercial Banking division.

Since December 2005, a new financial management charter defines the role, organization and
supervisory framework of asset/liability management and other financial activities carried out by the
Group’s Commercial Banking subsidiaries. This charter sets out the specific rules governing
exposures and the monitoring of interest rate, liquidity and currency risks. These rules are then taken
up in the ALM charters of the Commercial Banking entities and monitored by the local ALM
committees.

The main Commercial Banking entities use a common ALM management application (ALM SIS). This
software has an identical configuration for each entity and allows for entity-level management of ALM,
while overall risk exposure is monitored by the CNCE.



7.3.2 – LIQUIDITY RISK MANAGEMENT

Organization of refinancing within the Group
As the central institution, the CNCE is responsible for the Group’s overall liquidity exposure. Around
75% of the refinancing needs of the Caisses d’Epargne are met by customer deposits. The refinancing
raised by the Group on the market to satisfy its residual funding requirements is managed and
coordinated by the CNCE on the basis of:
■ the CNCE is responsible for providing the Caisses d’Epargne with the additional funds necessary
   to finance their activities. The CNCE is also the Group’s sole issuer of subordinated notes and
   hybrid regulatory capital instruments;
■ Compagnie de Financement Foncier issues covered bonds to refinance a portion of the eligible
   assets of CFF and particularly of GCE (mortgage loans and loans to local public borrowers).

The overall liquidity position of the Group and the liquidity positions of each individual entity are
monitored at the level of the CNCE. Annual financing plans approved by the Group ALM Committee
are drawn up covering the entities’ short- and medium-term financing requirements based on business
forecasts. Short-term financing is allocated to each Commercial Banking entity based on the CNCE’s
ability to raise short-term funds on the market.




                                                                                                          117
Since the creation of Natixis on November 17, 2006, the third segment comprising the activities
carried out by IXIS CIB is now part of the Natixis group and is therefore no longer directly monitored
by the CNCE. However, as the strategic shareholder alongside Banque Fédérale des Banques
Populaires (BFBP), and in its capacity as the central institution of Natixis in its dual management
structure, the CNCE co-guarantees the liquidity of Natixis in the last instance.
A process has been set up in order to ensure that the information reported to the CNCE is adequate to
allow it to monitor its commitment.


Monitoring liquidity risk for the main Group entities
Liquidity risk is the risk that the Bank is unable to meet its payment obligations as they fall due and
replace funds when they are withdrawn. Liquidity risk stems from a mismatch between maturities of
assets and liabilities in a given period. Mismatches occur when unexpected liquidity requirements
arise that are not matched by liquid assets; or when other external factors such as market instability
mean that the Group is unable to raise capital on the financial markets at a reasonable cost.

Liquidity gap analysis
Liquidity gaps are calculated for each of the Group’s businesses. Fixed-maturity items fall due in line
with their contractual repayment schedules, while the repayment profiles of items with no fixed
maturity are captured using the Group’s internal models.

Regulatory risk indicators and exposure limits
Each individual Group entity implements the required regulatory risk indicators, such as the one-
month liquidity ratio or the ratio of shareholders’ equity to long-term funding, calculated on an entity-
by-entity basis.
In the Commercial Banking division, the CNCE has granted each Caisse d’Epargne an individual
drawdown limit (ranging from one day to one year) aimed at controlling liquidity requirements. The
annual loans-to-deposits for each entity must be above 60% until the termination of all related
outstanding transactions as assessed each quarter.


7.3.3 – INTEREST RATE RISK MANAGEMENT

Interest rate risk is the risk that unfavorable changes in interest rates will lead to earnings instability.
The Group’s exposure to interest rate risk affects the amount of interest paid/received on
loans/borrowings and financial instruments. It impacts ordinary operations and net asset value, and
therefore has an impact on equity. This risk is assessed using the indicators described below.

Interest rate gap analysis
Interest rate positions are assessed using gap analyses. Interest rate gaps are calculated in the same
way as liquidity gaps, i.e. the difference between uses of funds (loans) and sources of funds
(deposits). A positive gap indicates a financing shortfall, while a negative gap represents a financing
surplus. In static gap analyses, fixed-maturity items fall due in line with their contractual repayment
schedules, while the repayment profile of items with no fixed maturity is captured using the Group’s
internal models.

Interest rate risk indicators and sensitivity analysis
In addition to interest rate gaps, the sensitivity of net present value and gross operating income is
calculated for a number of Group entities:
■ the sensitivity of net present value is calculated using the standard Basel II indicator based on the
      interest rate gap, and must not exceed 20% of equity;
■ the sensitivity of gross operating income is assessed on the basis of four alternative scenarios in
      addition to a standard scenario and a stress test, where appropriate. The sensitivity limit is set on
      the basis of the year.

Dynamic gaps are also modeled for the Commercial Banking division, taking into account business
forecasts for the current year and the three subsequent years.



118
7.3.4 – CURRENCY RISK MANAGEMENT

Currency risk is the risk of losses resulting from changes in exchange rates. The Group’s foreign
currency positions are very small, because substantially all foreign currency assets are match funded
in the same currency. Foreign currency positions are monitored using regulatory indicators (capital
adequacy requirements).



7.4 CAPITAL MARKET AND FINANCIAL RISKS

All Group entities are exposed to market risks and fund-related risks (mutual funds and unregulated
funds other than private equity funds). Risks are analyzed at the level of the Investment and
Commercial Banking divisions – comprising the individual Caisses d’Epargne, the specialist
subsidiaries (Crédit Foncier, Banque Palatine, Financière OCÉOR, Natixis Garanties and La
Compagnie 1818) – and also the CNCE. This scope of market and financial risk analysis is being
adjusted to reflect the creation of Natixis, with certain specialist subsidiaries already transferred to the
Investment Banking division.

Investments in regulated and unregulated funds account for a significant and growing portion of the
entities’ financial operations, and the risks associated with these investments are not limited to capital
market risks. As a result, they are included in the capital market risk management process but are
also subject to special treatment.

7.4.1 – COMMERCIAL BANKING

Structure of the commercial banking market risk management process
Upstream operations: providing a risk management framework for new products
A new-product approval procedure and an approved-product list are used to manage the exposures
incurred by the Commercial Banking division. The two measures are designed to ensure that the use
of financial products is covered by appropriate operational safeguards, in compliance with the
applicable regulations and Group risk management standards. Some 120 financial products were
analyzed in 2006, in response to requests received from all the Commercial Banking entities.

Financial transaction monitoring and control: using standard market risk management tools throughout
the Group
A process has been developed to analyze consolidated and entity-level exposures using standard
indicators that are calculated by the same methods throughout the Group. Daily VaR calculations
(based on a 1-day holding period and a 99% confidence level) are performed for proprietary trading
operations carried out by the Commercial Banking division (CNCE, Caisses d’Epargne and
subsidiaries) and the Investment Banking business. Groupwide VaR calculations are based on
Scénarisk software, which was developed by IXIS CIB and validated as an internal measurement tool
for Investment Banking operations. VaR estimates are also computed on a daily basis for transactions
carried out by Group entities on their medium- and long-term portfolios.

Over the first six months of 2006, calculations of VaR were backed by a series of historical and
hypothetical stress scenarios that were implemented for the Commercial Banking division’s proprietary
trading activities. These were deployed based on the same principles as those applied by IXIS CIB.
This approach was validated by the Group Risk Committee in March 2006 and gave rise to a series of
stress scenarios making it possible to measure the instantaneous change in the value of proprietary
portfolios in the event of a specific stress such as a stock market crash, a collapse in the fixed income
market or a credit or hedge fund crisis. The shocks are calibrated on either a historical or hypothetical
basis, and applied to a number of risk factors representing the different exposures in the Group’s
portfolio.

These global risk measurement tools are rolled out in the form of operational risk indicators under the
responsibility of the individual entities.




                                                                                                          119
Exposure management: setting exposure limits
The system of exposure limits reflects the segmentation of Commercial Banking financial operations
between proprietary trading on the one hand and ALM and the management of medium- and long-
term positions on the other. A Financial Charter describing risk management and monitoring principles
applied to these activities was approved at the end of 2005. An overall VaR limit has been set for all
proprietary trading activities, while gross operating income sensitivity and volume limits have been set
for ALM and medium- and long-term positions. These limits are determined at national level and then
allocated among the Group entities.

Compliance control: reporting
The reporting system is designed to track and control exposures to ensure that they comply with the
operational principles defined by the Group and are consistent with allocated exposure limits. It is
organized around:
■ daily reporting of proprietary trading VaR by the Group entities. These reports are used to monitor
   changes in Value at Risk for Commercial Banking and Investment Banking activities (IXIS CIB)
   compared with their respective exposure limits;
■ weekly reporting of changes in VaR over one week, including detailed analyses and historical data;
■ monthly management reports, summaries of which are submitted to the Management Board, as
   well as full reports made available to the Market Risks committees and Fund Risks committees.

Update on procedures
As mentioned above, the list of authorized products and operational guidelines for the New Products &
Financial Operations Committee were approved, along with the criteria for authorizing purchases of
fund units and the related fast-track procedure. A procedure setting out guidelines for managing
exposure limit overruns also came into effect.

The monthly Market Risks committees and Fund Risks committees are responsible for tracking and
overseeing financial transactions and validating exposure limits prior to their submission to the Group
Risk Committee.


Market risk measurement and exposure limits
Structure of the exposure limits system
The structure of the exposure limits system is based on the joint use of gross operating income and
VaR indicators in order to take into account the following two main types of market risk exposures:
■ the potential variability of cash flows and net interest margins;
■ the sensitivity of the market value of the securities portfolio, the related hedges and isolated open
   positions.

Limits applicable to the Group (excluding IXIS CIB) at the end of 2006
Based on the definition of proprietary trading, consolidated 1-day VaR based on a 99% confidence
level may not exceed €7 million for the Caisses d’Epargne taken together. This exposure limit was
rolled down to the various entities based on capital and earnings criteria. The overall limits assigned to
each entity are reviewed each year by the Market Risks Committee.

The VaR limit (based on a 1-day holding period and a 99% confidence level) has been set at €0.5
million for proprietary trading operations carried out by the Group’s specialist subsidiaries.




120
7.4.2 – Corporate and investment banking (IXIS CIB)

Market exposures at IXIS CIB are monitored by the Market Risks department, which reports to Group
Risk Management. This department defines the principles to be applied to measure market risks and
devises the corresponding tools, independently from the operating units. Risks are monitored on the
basis of five main processes, as set out below.


Risk measures
Risk measurement tools are used to estimate the financial losses that could result from changes in
market variables, such as interest and exchange rates, share prices and the implicit volatility
associated with these variables, financial instrument or issuer spreads, and more generally all factors
taken into account when assessing the value of a portfolio.

Market risks are assessed using a variety of different tools:
■ synthetic Value at Risk (VaR) calculations (using the Monte Carlo method, for example) that
  determine potential losses from each activity at a given confidence level (e.g., 99%) and holding
  period (e.g., one day). The calculation is performed and monitored daily for all of the Group’s
  trading activities. In 2006, risk measurement tools were enhanced by:
■ further developments in the Group’s internal model for assessing market risks;
■ more refined methods to calculate specific risks and an enhanced risk factor database;
■ stress tests;
■ analyses of operating indicators that set limits for all capital markets activities and/or per trader,
  based on directly observable figures such as nominal amounts, sensitivities, stop-loss limits,
  diversification indicators and market share indicators. The exposure limits determined from these
  operational indicators are applied alongside the VaR and stress test limits.

Control procedures
Control procedures involve comparing these risk measures (VaR, stress tests, operational indicators)
with the corresponding exposure limits which must be complied with at all times. The exposure limits
are set every year by IXIS CIB’s Management Board and revised whenever necessary during this
period. The VaR limits represent the economic capital allocated to the activity and are defined based
on observed or expected yield/risk pairings.

Performance charts are drawn up on a daily, weekly or monthly basis, as necessary, in respect of
these controls, and are reviewed by the appropriate management bodies. The entity's risk position
together with its economic earnings figures are presented each month to the Chairman of the
Management Board of IXIS CIB. All market risk measurement tools and exposure limits are also
presented to the Market Risk Committee chaired by the Chairman of IXIS CIB’s Management Board.

Reserve policy
The Market Risks department is responsible for defining and implementing the reserve policy with
regard to the management figures reported by the capital markets business. The policy is defined after
the various front offices have been consulted, and is reviewed by the entity’s statutory auditors.

The dual aim of this policy is to:
■ ensure that published earnings figures are reliable and comply with the principle of prudence (see
  CRBF regulation 97-02);
■ protect IXIS CIB from adverse events which are difficult or even impossible to counter.
New product oversight
IXIS CIB has set up a procedure on the initiative of the Chairman of its Management Board, whereby
all new products or activities must be approved by its New Product Committee before they can be
launched. The Risk Director is responsible for this committee and approves new products or activities
for trading, sometimes under certain conditions. The committee’s decisions are formally documented
in the minutes of the meeting and a full report on the discussions is also reviewed by the head of the
front office concerned before being submitted to the members of the Management Board.




                                                                                                      121
Every year, the internal control department is responsible for verifying that the committee has
operated in a due and proper manner.
A “fast-track” procedure was also put in place in 2003 for specific products that are only considered
new because of their pay-off profile.

Calculating regulatory ratios
The operating unit of the risk analytics department reporting to Group Risk Management is
responsible for calculating regulatory capital adequacy requirements, representing capital consumed
in respect of credit/counterparty and market risks, as well as any overruns for key risks.

Since 1997, IXIS CIB has been using an internal model (Scénarisk) to report market risks. This model
was approved by the French Banking Commission as providing a calculation of VaR using the Monte
Carlo simulation methodology (with the exception of certain aspects specific to interest rate risk).

This risk control tool is further enhanced by the work of the Results unit.

Analysis of risks and earnings
Risk indicators and market trends are regularly compared with economic earnings from capital
markets activities. This comparison provides a clearer overview of the portfolios and the related
strategies, and enables entities to quickly detect any irregularities. The Market Risks department
provides a risks/earnings update to the Management Board of IXIS CIB on a weekly basis.

Validating and reconciling management figures with accounting data
In accordance with CRB regulations 97.02 and 2001.01, at each balance sheet date IXIS CIB
reconciles management figures with the accounting data. In this process, the Results unit is
responsible for computing these management figures and for reconciling them with economic
earnings figures and accounting data.



7.5 INTERMEDIATION RISK (IXIS SECURITIES)

Error accounts

Applicable procedures require that any errors in connection with receiving, sending and executing
transactions on behalf of third parties:
■ are disclosed in a special report if their individual amount exceeds €1,000;
■ are disclosed in a report written by the person responsible for the transaction if their individual
   amount exceeds €3,000.

Stock accounts

These accounts are always subject to a dual exposure limit: an overall commitment limit of €20 million,
and a potential loss limit of €150,000.
The Management Board of the entity concerned systematically receives an electronic alert whenever
any material overruns are incurred (in excess of €20 million).



7.6 SETTLEMENT-DELIVERY RISK (IXIS CIB)

The system for managing and measuring settlement-delivery risk was enhanced in 2006 and
upgraded to include repo (repurchase) transactions.

The exposure limits application became operational following the validation of the delivery-settlement
risk procedure in May 2006.




122
NOTE 8 – NOTES TO THE CONSOLIDATED BALANCE SHEET


8.1 FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets and liabilities at fair value through profit or loss include instruments held for trading,
including derivatives, and certain assets and liabilities that the Group has opted to account for under
the fair value option at the date of acquisition or issue.

Financial assets in the trading portfolio mainly include securities transactions, repurchase agreements
and derivative instruments contracted by the Group to manage its risk exposure.

Financial liabilities at fair value through profit or loss include securities borrowing and short selling
transactions, repurchase agreements and derivative instruments.

Financial assets accounted for under the fair value option mainly concern assets containing
embedded derivatives, such as certain structured loan agreements. Financial liabilities accounted for
under the fair value option mainly consist of structured debt issues containing material embedded
derivatives. Groups of financial assets and financial liabilities managed and evaluated on a fair value
basis in the Group’s capital markets business are also accounted for under the fair value option.



8.1.1 – FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS


              (in millions of euros)                      Dec. 31, 2006                      Dec. 31, 2005
                                                Trading     Fair value             Trading     Fair value
                                                  book         option     Total      book        option      Total
Treasury bills and similar securities             6,884          320       7,204    18,362        1,516      19,878
Bonds                                            11,024         2,676     13,700    16,385        2,103      18,488
Subordinated notes                                  20           425        445        5            50         55
Mutual funds                                      1,750          912       2,662     2,833        5,224      8,057
Interbank and other money market securities       5,947          148       6,095     2,849         320       3,169
Fixed-income securities                          25,625         4,481     30,106    40,434        9,213      49,647
Equities and other variable-income securities     9,396         1,589     10,985    21,393        2,290      23,683
Securities portfolio                              9,396         1,589     10,985    21,393        2,290      23,683
Loans to credit institutions                       693           317       1,010      12           101        113
Loans to customers                                  0           3,095      3,095       0          6,656      6,656
Loan book                                          693          3,412      4,105      12          6,757      6,769

Repurchase agreements                               0            6          6         0             0          0

Derivatives held for trading                     19,172                   19,172   43,877                    43,877

Total financial assets at fair value through
profit or loss                                   54,886        9,488      64,374   105,716       18,260      123,976
The year-on-year decrease in total financial assets at fair value through profit or loss is attributable to
the creation of Natixis, in an amount of €75,282 million.




                                                                                                             123
8.1.2 – FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS



(in m illions of e uros)                                                                       De c. 31, 2006 De c. 31, 2005

Short selling of securities                                                                               352                   0
Repurchase agreements                                                                                  10,083              36,396
Other financial liabilities                                                                                74                   0
Fina ncia l lia bilitie s he ld for tra ding                                                           10,509              36,396

De riva tive s he ld for tra ding                                                                      19,139              42,067

Interbank term accounts and loans                                                                          75                 139
Customer term accounts and loans                                                                           48                  53
Debt securities                                                                                        23,192              53,550
Fina ncia l lia bilitie s a ccounte d for unde r the fa ir va lue option                               23,315              53,742

TOTAL FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR
LOSS                                                                                                   52,963            132,205
The year-on-year decrease in total financial liabilities at fair value through profit or loss is attributable
to the creation of Natixis, in an amount of €72,684 million.


8.1.3 – DERIVATIVES HELD FOR TRADING

The notional amounts of derivative instruments are merely an indication of the volume of the Group’s
activities in financial instruments markets, and do not reflect the market risks associated with such
instruments. The positive and negative fair values represent the replacement value of these
instruments, which may fluctuate significantly in response to changes in market parameters.

                                                                  Dec. 31, 2006                           Dec. 31, 2005
                     (in millions of euros)            Notional Positive fair Negative         Notional Positive fair Negative
                                                       amount        value      fair value     amount        value      fair value
Interest rate                                           1,568,187       13,462        13,122    3,422,438       36,348        33,631
Equity                                                      2,419            23           47        1,372             0           40
Currency                                                  180,757           964        1,075      463,240         1,455        1,931
Other                                                      36,454            21          560        6,676            11          323
Futures                                                 1,787,817       14,470        14,804    3,893,726       37,814        35,925
Interest rate                                             802,736           867        1,033    1,067,822         1,107        2,268
Equity                                                     28,784         1,867        1,741       64,619         2,963        2,988
Currency                                                   87,492           729          609       12,246           245          190
Other                                                      21,559           514          276       17,435         1,154           92
Options                                                   940,571         3,977        3,659    1,162,122         5,469        5,538
Credit derivatives                                        145,347           725          676      171,594           594          604
TOTAL DERIVATIVES HELD FOR TRADING                      2,873,735       19,172       19,139      5,227,442      43,877       42,067




124
8.2 DERIVATIVES USED FOR HEDGING PURPOSES


Under IAS 39, at the inception of each hedge there must be formal designation and documentation of
the hedging relationship, setting out the entity’s risk management objective and strategy for
undertaking the hedge, and the methods to be used to assess the hedging instrument’s effectiveness.


                                                               Dec. 31, 2006                       Dec. 31, 2005
                (in millions of euros)               Notional Positive fair Negative Notional Positive fair Negative
                                                     amount      value       fair value   amount     value       fair value
Interest rate                                         158,380        2,878          2,566   77,517       3,529          2,503
Currency                                               12,928            90           130   10,846            0           142
Futures                                               171,308        2,968          2,696   88,363       3,529          2,645
Interest rate                                            7,299           45             1    5,915           41            22
Equity                                                       9           15             0        0            0             0
Currency                                                     0            0             0      153            0             0
Other                                                       88            0             0        0            0             0
Options                                                  7,396           60             1    6,068           41            22
Fair value hedges                                     178,704        3,028          2,697   94,431       3,570          2,667
Futures                                                26,581            69            51        0            0             0
Cash flow hedges                                       26,581            69            51        0            0             0
Credit derivatives                                       2,367            7             1    3,330            0             0
TOTAL DERIVATIVES USED FOR HEDGING PURPOSES           207,652        3,105          2,749   97,761       3,570          2,667




8.3 AVAILABLE-FOR-SALE FINANCIAL ASSETS

These are non-derivative financial assets that are not classified as at fair value through profit or loss,
held to maturity, or as loans and receivables.

(in m illions of e uros)                                                   De c. 31, 2006       De c. 31, 2005

Treasury bills and similar securities                                                   498                  453
Bonds                                                                                13,840               13,433
Subordinated notes                                                                       38                  444
Mutual funds                                                                          3,558                6,488
Interbank and other money market securities                                           4,899                5,936

Fix e d-incom e se curitie s                                                         22,833               26,754

Loans to customers                                                                       149                  197
Equities and other variable-income securities                                          7,130                5,079
Non-performing items                                                                      13                    38

Ava ila ble -for-sa le fina ncia l a sse ts, gross                                   30,125               32,068

Impairment                                                                             (235)                (367)

Ava ila ble -for-sa le fina ncia l a sse ts                                          29,890               31,701




                                                                                                                     125
8.4 LOANS AND RECEIVABLES

Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. Most loans originated by the Group are classified in this category.


8.4.1 – LOANS AND RECEIVABLES DUE FROM CREDIT INSTITUTIONS

(in m illions of e uros)                                                        De c. 31, 2006    De c. 31, 2005

Current accounts                                                                         18,730          24,535
Overnight deposits and loans                                                              3,255           3,174
Repurchase agreements                                                                     1,056           1,841

Due from cre dit institutions – re pa ya ble on de m a nd                                23,041          29,550

Term deposits and loans                                                                  78,719          65,705
Repurchase agreements                                                                    28,442          61,390
Subordinated loans                                                                        1,830             837

Due from cre dit institutions – re pa ya ble a t a gre e d m a turity da te s          108,991          127,932

Finance leases                                                                               35               47
Unlisted securities                                                                          68                2

Non-performing loans and receivables                                                         16                4
Loa ns a nd re ce iva ble s due from cre dit institutions, gross                       132,151          157,535
Impairment                                                                                 (31)              (2)
Loa ns a nd re ce iva ble s due from cre dit institutions                              132,120          157,533
“Impairment” covers provisions calculated on an individual basis as well as portfolio-assessed
provisions.

The fair value of loans and receivables due from credit institutions was €132,364 million at December
31, 2006.




126
8.4.2 – LOANS AND RECEIVABLES DUE FROM CUSTOMERS

(in m illions of e uros)                                  De c. 31, 2006    De c. 31, 2005
Curre nt a ccounts in de bit                                       3,862             3,243

Loans to financial institutions                                    2,211             3,492
Short-term credit facilities                                      11,491             6,014
Equipment loans                                                   11,384            10,801
Home loans                                                        47,279            43,080
Export credit                                                        593
Other                                                              6,837             5,520
Repurchase agreements                                              7,368            13,927
Subordinated loans                                                   114                34

Othe r custom e r loa ns                                          87,277            82,868

Finance leases                                                     5,012             3,011
Insurance-related receivables                                        309               117
Factoring receivables                                              1,600
Unlisted securities                                               15,091             6,144

Non-performing loans and receivables                               2,569             2,259
Loa ns a nd re ce iva ble s due from custom e rs, gross          115,720            97,642
Impairment                                                        (1,322)           (1,010)
Loa ns a nd re ce iva ble s due from custom e rs                 114,398            96,632
“Impairment” covers provisions calculated on an individual basis as well as portfolio-assessed
provisions.

At December 31, 2006, the fair value of loans and receivables due from customers was
€114,496 million.




                                                                                              127
8.5 DUE TO CREDIT INSTITUTIONS AND CUSTOMERS

These liabilities, which are not classified as financial liabilities at fair value through profit or loss, are
carried at amortized cost under “Due to credit institutions” or “Due to customers”. They are shown in
the balance sheet according to their nature, taking into account demand or term features.

8.5.1 – DUE TO CREDIT INSTITUTIONS

(in millions of e uros)                                                          Dec. 31, 2006 De c. 31, 2005
Dem and deposits                                                                         21,483        29,926
Securities sold under repurchase agreem ents                                                889         3,625
Accrued interest                                                                             30            96
Due to credit institutions – repayable on demand                                         22,402        33,647
Term deposits and loans                                                                  55,870        65,861
Repurchase agreem ents                                                                   22,155        27,290
Accrued interest                                                                            805           678
Due to credit institutions – repayable at agre ed maturity dates                        78,830         93,829
T otal due to credit institutions                                                      101,232        127,476
At December 31, 2006 the fair value of amounts due to credit institutions was €101,402 million.


8.5.2 – DUE TO CUSTOMERS

(in millions of e uros)                                              Dec. 31, 2006        De c. 31, 2005
Current accounts                                                                 7,937               8,674
Other de mand and term deposits                                                  9,800              17,470
Livret A                                                                            66                  64
Livret jeune                                                                         5                   3
Livret B                                                                           901                 911
PEL                                                                                665                 741
CEL                                                                                 94                  97
Codevi                                                                             120                 118
PEP                                                                                 28                  34
Other                                                                              207                 174
Accrued interest                                                                    27                  39
Regulated savings accounts                                                       2,113               2,181
Repurchase agreem ents                                                           7,002              15,787
Insurance-related liabilities                                                      158                  24
Factoring liabilities                                                              431                   0

T otal due to customers                                                        27,441               44,136
The fair value of amounts due to customers at December 31, 2006 was €27,470 million.




128
8.6 HELD-TO-MATURITY FINANCIAL ASSETS

These are non-derivative financial assets with fixed or determinable payments that the Group has a
positive intention and ability to hold to maturity.

(in millions of euros)                                                              Dec. 31, 2006      Dec. 31, 2005

Treasury bills and similar securities                                                           253                  273
Bonds                                                                                             8                    8
Interbank and other money market securities                                                   2,452                    0
HELD-TO-MATURITY FINANCIAL ASSETS, GROSS                                                      2,713                  281
Impairment                                                                                        0                    0
HELD-TO-MATURITY FINANCIAL ASSETS                                                             2,713                  281
At December 31, 2006, the fair value of held-to-maturity financial assets was €2,879 million.



8.7 DEBT SECURITIES AND SUBORDINATED DEBT

8.7.1 – DEBT SECURITIES
Debt securities are classified based on the nature of the underlying with the exception of subordinated
notes presented under “Subordinated debt”.

(in m illions of e uros)                            De c. 31, 2006      De c. 31, 2005

Retail certificates of deposit                                    70                 67
Interbank and money market securities and
certificates of deposit                                        56,425           35,563
Bonds                                                          76,642           66,348
Other debt securities                                             489              153

Tota l de bt se curitie s                                  133,626             102,131
The fair value of debt securities at December 31, 2006 was €133,343 million.


8.7.2 – SUBORDINATED DEBT
Subordinated debt is classified separately from issues of other debt and bonds because in the event
of default, holders of subordinated debt rank after all senior debtholders but before holders of
participating loans and securities and super-subordinated notes.

Preferred shares may be classified as debt or equity depending on the nature of the contract.
Preferred shares issued by the Natixis group (€234 million) are recorded as a component of
subordinated debt, whereas they were shown within minority interests in the consolidated financial
statements prepared in accordance with French GAAP.


(in m illions of euros )                               Dec. 31, 2006 Dec. 31, 2005

Dated subordinated debt                                           7,348             6,470
Undated subordinated debt                                           100               214
Undated super-subordinated debt                                   3,341             2,129

TOTAL SUBORDINATED DEBT                                          10,789             8,813

Maturity date or date of repayment option    2007        2008           2009   2010 - 2014   After 2014      Total
                (in millions of euros)

Total dated subordinated debt                124          10             53      3,017         4,144         7,348

At December 31, 2006, the fair value of subordinated debt was €10,945 million.




                                                                                                             129
8.8 ACCRUAL ACCOUNTS AND OTHER ASSETS AND LIABILITIES

Accrual items correspond to technical accounts which are broken down below.


8.8.1 – ACCRUED INCOME AND OTHER ASSETS

(in m illions of e uros)                                De c. 31, 2006 De c. 31, 2005

Prepaid expenses                                                   132              94
Accrued income                                                   1,158           1,973
Other accruals                                                   5,629           9,688

Accrua l a ccounts – a sse ts                                    6,919          11,755

Securities settlement accounts                                     510           1,631
Other debtors                                                    5,092           9,229

Othe r a sse ts                                                  5,602          10,860
Accrue d incom e a nd othe r a sse ts                           12,521          22,615



8.8.2 – ACCRUED EXPENSES AND OTHER LIABILITIES

(in m illions of e uros)                                                 De c. 31, 2006   De c. 31, 2005

 Accounts payable                                                                   756            1,148
 Unearned income                                                                    278              258
 Items in the course of collection                                                3,402            3,043
 Other accruals                                                                   7,416            4,702

 Accrua l a ccounts – lia bilitie s                                              11,852            9,151

 Securities settlement accounts                                                   1,309            1,742
 Other creditors                                                                  6,931           10,663

 Othe r lia bilitie s                                                             8,240           12,405
 Accrue d e x pe nse s a nd othe r lia bilitie s                                 20,092           21,556




130
8.9 INVESTMENTS IN COMPANIES ACCOUNTED FOR BY THE EQUITY METHOD

                                                               Dec. 31, 2006                             Dec. 31, 2005
                                                    Value of                                  Value of
                                                                              Share in net                              Share in net
                                                     equity-                                   equity-
                                                                               income of                                 income of
                                                   accounted                                 accounted
               (in millions of euros)                                         companies                                 companies
                                                 companies in o/w goodwill                 companies in o/w goodwill
                                                                             accounted for                             accounted for
                                                      the                                        the
                                                                             by the equity                             by the equity
                                                  consolidated                             consolidated
                                                                                 method                                   method
                                                 balance sheet                             balance sheet

Banques Populaires CICs                                  1,539            0               0              0             0              0
CNP Assurances (group)                                   1,350            0             176          1,410             0            150
28 Caisses d’Epargne et de Prévoyance in
metropolitan France                                      1,289            0             280          3,567           108            188
GCE Immobilier (group)                                     314            0              44            193             0              3
Ecureuil Vie                                                 0            0             169            896             0             96
CDC Entreprises Capital Investissement                       0            0               0            116             0              5
Nexgen Financial Holding                                     0            0               0             85             0              1
Others                                                      99           20              23            126            12             19

INVESTMENTS IN COMPANIES ACCOUNTED FOR
                                                         4,591           20             692          6,393           120            462
BY THE EQUITY METHOD


See Note 15.1 for details of the Banques Populaires CICs.

The GCE Immobilier group includes the GCE Holding Pierre group, whose contribution to Icade is
currently under discussion with Caisse des Dépôts et Consignations.



8.10 PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

8.10.1 – INVESTMENT PROPERTY AND PROPERTY, PLANT AND EQUIPMENT

                                                                                                           Equipment,
                                                                                                                               Total
                                                                                                          furniture and
                                                                      Investment         Land and                            property,
                        (in millions of euros)                                                           other property,
                                                                       property          buildings                           plant and
                                                                                                            plant and
                                                                                                                            equipment
                                                                                                           equipment
Gross value at Jan. 1, 2006                                                      168              884                  778         1,662
Acquisitions                                                                      13                87                 164           251
Disposals/retirements                                                           (13)              (13)               (104)         (117)
Other movements (1)                                                              509                58                  (2)            56
Gross value at Dec. 31, 2006                                                     677            1,016                  836         1,852
Accumulated depreciation and impairment at Jan. 1, 2006                         (50)            (168)                (444)         (612)
Additions                                                                         (4)             (22)                (81)         (103)
Reversals                                                                           8               10                  65             75
Other movements (1)                                                            (119)              (26)                (26)           (52)
Accumulated depreciation and impairment at Dec. 31, 2006                       (165)            (206)                (486)         (692)
NET BOOK VALUE AT DEC. 31, 2006                                                  512              810                  350         1,160
(1) Including changes in Group structure and exchange rates.
The fair value of investment properties at December 31, 2006 was €616 million.




                                                                                                                              131
8.10.2 – INTANGIBLE ASSETS

                                                              Leasehold                    Other intangible Total intangible
                   (in millions of euros)                                     Software
                                                                rights                          assets           assets
Gross value at Jan. 1, 2006                                              71         365                179               615
Acquisitions                                                              3         135                   3              141
Disposals/retirements                                                   (1)       (109)                 (1)            (111)
Other movements (1)                                                    (19)          (5)                13              (11)
Gross value at Dec. 31, 2006                                             54         386                194               634

Accumulated amortization and impairment at Jan. 1,
2006                                                                   (21)       (243)                (95)            (359)
Additions                                                                 0        (61)                (21)             (82)
Reversals                                                                 0          61                   0               61
Other movements (1)                                                       1           1                  21               23
Accumulated amortization and impairment at Dec. 31,
2006                                                                   (20)       (242)                (95)            (357)

NET BOOK VALUE AT DEC. 31, 2006                                         34         144                   99              277
(1) Including changes in Group structure and exchange rates.


8.11 GOODWILL

(in m illions of e uros)                                           De c. 31, 2006           De c. 31, 2005
Gross book va lue a t sta rt of ye a r                                          2,051                   1,721
Ne t book va lue a t sta rt of ye a r                                           2,051                   1,721

Acquisitions                                                                    1,486                     165
Disposals                                                                      (1,182)                        (2)
Translation adjustments                                                          (127)                    167

Gross book va lue a t e nd of ye a r                                            2,228                   2,051
Cum ula tive im pa irm e nt losse s a t e nd of ye a r                            (49)                         0
Ne t book va lue a t e nd of ye a r                                             2,179                   2,051


Bre a kdow n of the m a in ite m s of goodw ill


(in m illions of e uros)                                                      Ne t book va lue
                                                                   De c. 31, 2006           De c. 31, 2005

Natixis (formerly Natexis Banques Populaires) (1)                               1,394                          0
IXIS Asset Management (group)                                                     397                   1,283
Banque Palatine                                                                   177                     177
CACEIS                                                                             52                     150
OCEORANE                                                                           39                          0
Crédit Foncier de France                                                           32                         32
Banque de la Réunion                                                               23                         23
New Foundations agreement                                                            0                    293
Financière OCÉOR                                                                     0                        42
Other                                                                              65                         51

TOTAL GOODW ILL                                                                 2,179                   2,051


(1) See Note 15.1 for details of the goodwill relating to Natexis Banques Populaires.



132
8.12 TECHNICAL RESERVES OF INSURANCE COMPANIES



                                                                                                          Other
                                                                                           Additions/Re
                             (in millions of euros)                        Dec. 31, 2005                movements Dec. 31, 2006
                                                                                             versals
                                                                                                           (1)

Technical reserves of non-life insurance companies                                  850             232          (149)          933

Life (euros)                                                                        410              64          7,541         8,015
Life (unit-linked)                                                                  140              88          1,651         1,879
Technical reserves of life insurance companies                                      550             152          9,192         9,894

Technical reserves relating to guarantee contracts                                    0               0            18            18

Deferred policyholders' surplus                                                      34               0           338           372

TOTAL TECHNICAL RESERVES OF INSURANCE COMPANIES                                    1,434            384          9,399     11,217
(1) Including the creation of Natixis: €9,380 million.




8.13 PROVISIONS

Provisions chiefly concern employee benefit obligations and litigation.

                                                                                                    Othe r
                                            De c. 31, 2005     Additions     Re ve rsa ls        m ove m e nts De c. 31, 2006
(in m illions of e uros)                                                                             (1)

 Em ploye e be ne fit
obliga tions                                             127          16              (18)                  63                 188

 Othe r provisions                                       578         190             (260)                  20                 528
 Provision on regulated
savings products                                          13           1                   (2)               4                  16
 Off-balance sheet
commitments                                              213          11             (138)                   9                  95
 Provision for restructuring
costs                                                     87          35              (35)                (26)                  61
 Provisions for claims and
litigation                                               116          67              (28)                  50                 205
 Other                                                   149          76              (57)                (17)                 151

 Tota l provisions                                       705         206             (278)                  83                 716
(1) Including changes in Group structure and exchange rates.




                                                                                                                         133
8.14 INFORMATION ON THE COMPANY'S CAPITAL

                                           Numbe r of        Nom ina l         Share ca pita l
                                            sha re s         a mount       (in m illions of e uros)

Jan. 1, 2005                                   452,843,648    €15.25                         6,906
Capital increase                                22,676,206    €15.25                             346
Dec. 31, 2005                                  475,519,854    €15.25                         7,252
Capital increase                             93,003,063       €15.25                         1,418
Capital reduction                          -138,312,586       €15.25                         (2,109)
Dec. 31, 2006                                  430,210,331    €15.25                         6,561

CDC Holding Finance's outstanding interest in the capital of the CNCE was acquired on January 29,
2007, for an amount of €1.5 billion. The Management Board meeting of January 29, 2007 cancelled the
shares acquired and announced a €575,254,903.25 capital reduction, thereby reducing the CNCE's
capital from €6,560,707,547.75 to €5,985,452,644.50.

Further to this transaction, the Caisses d’Epargne hold the entire share capital of the CNCE.



NOTE 9 – NOTES TO THE CONSOLIDATED STATEMENT OF INCOME


9.1 INTEREST AND SIMILAR INCOME AND EXPENSE

This line item comprises interest income and expense – calculated using the effective interest method
– on financial assets and liabilities measured at amortized cost, which include interbank and customer
items, held-to-maturity assets, debt securities and subordinated debt.

It also includes interest receivable on fixed-income securities classified as available-for-sale financial
assets and derivatives used for hedging purposes. However, interest receivable on derivatives used
as cash flow hedges is taken to income on a symmetrical basis with the interest accrued on the
hedged item.

                       (in millions of euros)                             2006                             2005
                                                                  Income Expense           Net     Income Expense          Net

Available-for-sale financial assets                                     1,062         0    1,062         585          0     585

Interbank items                                                         7,152    (6,729)    423         5,706    (4,705)   1,001

Customer items                                                          5,181    (1,319)   3,862        3,887    (1,266)   2,621

Finance leases                                                           182          0     182          182          0     182

Held-to-maturity financial assets                                         12          0      12           10          0      10

Debt securities and subordinated debt                                      0     (5,418) (5,418)           0     (4,323) (4,323)
Certificates of deposit and other securities                               0     (1,918) (1,918)           0     (1,512) (1,512)
Bonds                                                                      0     (3,079) (3,079)           0     (2,480) (2,480)
Participating loans and subordinated debt                                  0       (421)   (421)           0       (331)   (331)

Other                                                                     14       (211)   (197)           9       (159)   (150)

Derivatives used for hedging purposes                                   3,658    (2,624)   1,034        3,066    (2,360)    706

TOTAL INTEREST AND SIMILAR INCOME AND EXPENSE                          17,261   (16,301)    960        13,445   (12,813)    632




134
9.2 COMMISSION INCOME AND EXPENSE

Commissions are recorded based on the type of service rendered and on the method of accounting
for the financial instrument to which the service relates.

This line includes mainly commissions receivable or payable on recurring services (payment
processing, custody fees, etc.) and occasional services (fund transfers, payment penalties, etc.), and
commissions receivable or payable on execution of significant transactions.

However, commissions that form an integral part of the effective yield of a contract are recorded under
“Net interest income”.


                       (in millions of euros)                        2006                              2005

                                                         Income      Expense     Net      Income       Expense        Net

Cash and interbank items                                        20        (5)        15            8        (7)             1
Customer items                                                 240       (24)       216          249       (33)           216
Financial services                                             409      (138)       271          306      (138)           168
Sales of life insurance products                                78          0        78           47          0            47
Payment processing services                                     86       (26)        60           99       (25)            74
Securities transactions                                      2,194       (89)     2,105        1,849       (77)         1,772
Other                                                          113      (536)     (423)           72      (410)         (338)

COMMISSION INCOME AND EXPENSE                                3,140      (818)     2,322        2,630      (690)         1,940



9.3 NET GAINS OR LOSSES ON FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH
    PROFIT OR LOSS

This line includes gains and losses (including the related interest) on financial assets and liabilities
classified as held for trading or designated at fair value through profit or loss under the fair value option.

“Hedging transactions” includes gains and losses arising from the remeasurement of derivatives used as
fair value hedges, as well as gains and losses from the symmetrical remeasurement of the hedged item,
the remeasurement at fair value of the macro-hedged portfolio and the ineffective portion of cash flow
hedges.

(in m illions of e uros)                                                        2006               2005

Financial instruments held for trading                                                 3,318               1,335

Financial instruments accounted for under the fair value option                    (1,332)                     535

Hedging transactions                                                                    (55)                   (33)

Foreign exchange transactions                                                          (433)                  (668)

NET GAINS OR LOSSES ON FINANCIAL INSTRUMENTS AT
                                                                                       1,498               1,169
FAIR VALUE THROUGH PROFIT OR LOSS




                                                                                                                  135
9.4 NET GAINS OR LOSSES ON AVAILABLE-FOR-SALE FINANCIAL ASSETS

This item includes dividends from variable-income securities, gains and losses on the sale of available-
for-sale financial assets and impairment losses taken on variable-income securities due to a prolonged
decline in value.

(in m illio n s o f e u ro s)                                                        2006                    2005
F ix e d -in co m e se cu ritie s                                                                  6                  122
G ains or los s es on dis pos als                                                                  6                  122

Eq u itie s a n d o th e r va ria b le -in co m e se cu ritie s                                272                    218
G ains or los s es on dis pos als                                                              138                    126
D ividends rec eived                                                                           199                    105
Im pairm ent los s es                                                                          (65)                   (13)

A va ila b le -fo r-sa le lo a n s                                                                 1                      1

N ET G A IN S O R L O S S ES O N AV A IL A BL E-F O R-S A L E
F IN A NC IA L A S S ET S                                                                        279                  341


9.5 INCOME AND EXPENSE ON OTHER ACTIVITIES

This item mainly comprises income and expense on investment property (rental income and expense,
gains and losses on disposals, depreciation and impairment provisions) and income and expense
resulting from the Group's insurance business (notably premium income, paid benefits and claims and
changes in technical reserves of insurance companies).

                                                                            2006                             2005
                   (in millions of euros)
                                                                  Income Expense         Net     Income Expense           Net

Income and expense on investment property                             21           (6)      15          19          (7)       12

Premium income                                                       622       (86)        536         470      (67)        403
Paid benefit and claims                                               45      (158)      (113)          22     (126)      (104)
Changes in technical reserves of insurance companies                    2     (204)      (202)           3     (135)      (132)
Other income and expense on insurance activities                      (6)      (30)       (36)          19        10         29
Income and expense on insurance activities                           663      (478)        185         514     (318)        196

Income and expense on operating leases                                16           25       41           8          (4)         4

Share of common transactions                                          58       (97)       (39)          48      (48)          0
Rebilled expenses, income paid back to suppliers                      54          0         54          54         0         54
Other operating income and expense                                   193      (120)         73         212     (157)         55
Additions to and reversals from provisions                            33       (36)        (3)          35      (65)       (30)
Other operating income and expense                                   338      (253)         85         349     (270)         79
TOTAL INCOME AND EXPENSE ON OTHER
ACTIVITIES                                                          1,038     (712)       326          890     (599)       291




136
9.6 OPERATING EXPENSES

Operating expenses include mainly personnel costs (wages and salaries net of rebilled amounts),
social security charges and employee benefit expenses such as pension costs. Operating expenses
also include the full amount of administrative expenses and other external services costs.
                                                                        2006              2005
(in m illions of e uros)

Pe rsonne l costs                                                           (2,483)             (2,028)

Taxes other than on income                                                    (108)                (69)
External services                                                           (1,453)             (1,240)
Othe r a dm inistra tive costs                                              (1,561)             (1,309)

TOTAL OPERATING EXPENSES                                                    (4,044)             (3,337)



9.7 DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF PROPERTY,
    PLANT AND EQUIPMENT AND INTANGIBLE ASSETS


(in m illions of e uros)                                                                 2006                 2005
Ne t de pre cia tion a nd a m ortiza tion e x pe nse                                     (190)                (170)
Additions to provisions for impairment of property, plant and equipment and
                                                                                           (6)                  (6)
intangible assets
Reversals from provisions for impairment of property, plant and equipment and
                                                                                              9                  4
intangible assets
Ne t (a dditions to)/re ve rsa ls from provisions for im pa irm e nt                          3                 (2)
DEPRECIATION, AMORTIZATION AND IMPAIRMENT CHARGES FOR
PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS                                      (187)                (172)



9.8 CREDIT RISK

9.8.1 – TOTAL CREDIT RISK EXPOSURE

The table below presents the CNCE Group's total credit risk exposure. The exposure is calculated
without taking into account the impact of any unrecognized netting or collateral agreements on the
basis of the carrying amount of the financial assets carried on the balance sheet.

                                                                      Non-        Gross a t       Gross a t
                                                     Pe rform ing
              (in m illions of e uros)                            pe rform ing    De c. 31,       De c. 31,
                                                        loa ns
                                                                     loa ns        2006            2005

Loans and receivables accounted for under the
fair value option                                                                       3,412         6,757
Interbank items                                           132,135            16       132,151       157,535
Customer items                                            113,151         2,569       115,720        97,642
Other financial assets                                     22,982            13        22,995        26,989
Off-balance sheet commitments                             118,883           148       119,031       100,501

TOTAL CREDIT RISK EXPOSURE                                387,151         2,746       393,309       389,424




                                                                                                          137
9.8.2 – COST OF RISK

This line records net impairment charges for credit risks, and includes both individually-assessed and
portfolio-assessed impairment.

(in m illions of e uros)                         2006                2005

Customer items                                          (386)               (307)
Other financial assets                                    (9)                 (1)
Off-balance sheet commitments                            (11)                 (8)

Additions to im pa irm e nt provisions                  (406)               (316)

Customer items                                           428                 366
Other financial assets                                    13                  15
Off-balance sheet commitments                            138                  12

Re ve rsa ls of im pa irm e nt provisions                579                 393

Losses on irrecoverable loans and
                                                        (110)               (116)
receivables
Recoveries of loans and receivables
                                                          25                     34
previously written off

Ne t loa n losse s                                       (85)                (82)
COST OF RISK                                               88                 (5)


9.8.3 – IMPAIRMENT PROVISION FOR CREDIT RISK

                                                                                 Re ve rsa l    Othe r
            (in m illions of e uros)             De c. 31, 2005 Additions                                      De c. 31, 2006
                                                                                     s         cha nge s

Interbank items                                                  2           0             0          29                  31
Customer items                                            1,010         386           (428)          354               1,322
      Individually-assessed impairment                      735         326           (371)          188                 878
      Portfolio-assessed impairment                         212             30         (35)          128                 335
      Finance leases                                            63          30         (22)           38                 109

Other financial assets                                          21           9          (13)          (6)                 11

 Tota l im pa irm e nt provisions de ducte d
                                                          1,033         395           (441)          377               1,364
from a sse ts
 Off-balance sheet commitments                              213             11        (138)                9              95
 Tota l im pa irm e nt provisions re cognize d
                                                            213             11        (138)                9              95
a s lia bilitie s

 TOTAL IMPAIRMENT PROVISIONS                              1,246         406           (579)          386               1,459




138
9.8.4 – CREDIT RISK ASSOCIATED WITH FORWARD FINANCIAL INSTRUMENTS

                                                      Governments and     OECD financial
                                                                                                 Other
              (in millions of euros)                 OECD central banks   institutions and                      Dec. 31, 2006       Dec. 31, 2005
                                                                                             counterparties
                                                       and equivalent        equivalent

Unweighted equivalent credit risk, before netting
                                                           6,538              28,039             6,955              41,532             79,023
and collateral agreements

Effect of netting agreements                               (648)             (15,762)           (1,807)             (18,217)           (46,946)


Effect of collateral agreements                             (16)              (1,928)            (353)              (2,297)            (4,378)


Unweighted equivalent credit risk, after netting
                                                           5,874              10,349             4,795              21,018             27,699
and collateral agreements


Weighted equivalent credit risk, after netting and
                                                             0                2,070              2,398               4,467              5,665
collateral agreements




9.9 GAINS OR LOSSES ON OTHER ASSETS

This item includes gains and losses on disposals of property, plant and equipment and intangible
assets, as well as gains and losses on disposals of investments in consolidated companies.

(in m illions of e uros)                                                                         2006                        2005

Gains or losses on disposals of property, plant and equipment
                                                                                                              (1)                     (19)
and intangible assets
Gains or losses on disposals of investments in consolidated
                                                                                                          2,407                       161
companies
Other                                                                                                          0                       (6)

TOTAL GAINS OR LOSSES ON OTHER ASSETS                                                                     2,406                       136

In 2006, most of the gains on disposals of investments in consolidated companies relate to the
transactions carried out in connection with the creation of Natixis and the disposals carried out
following the renegotiation of the partnership with Caisse des Dépôts et Consignations.



9.10 INCOME TAX

9.10.1 – ANALYSIS OF INCOME TAX EXPENSE

                     (in m illions of e uros)                                                    2006                          2005
Current income tax expense                                                                                 (566)                       (180)
Deferred income tax expense                                                                                (299)                        (36)
Impact of tax credit reducing current income tax expense                                                       7                           6
Other items                                                                                                 (20)                        (41)

Incom e ta x e x pe nse                                                                                    (878)                       (251)




                                                                                                                                         139
9.10.2 – TAX PROOF

                              (in m illions of e uros)                                              2006
Net income attributable to equity holders of the parent                                                  3,299
Minority interests                                                                                          120
Share in net income of companies accounted for by the equity method                                         692
Impairment of goodwill                                                                                     (43)
Income tax expense                                                                                        (878)
Ne t incom e be fore ta x a nd im pa irm e nt of goodw ill (A)                                           3,648
Sta nda rd incom e ta x ra te in Fra nce (B)                                                       34.43%
The ore tica l incom e ta x e x pe nse in Fra nce (A*B)                                                  1,256
Impact of tax rates applicable to foreign entities                                                           10
Impact of items not taxed or taxed at reduced tax rates (1)                                               (705)
Impact of the change in the CNCE's deferred tax position (2)                                                316
Change in unrecognized deferred tax assets                                                                    5
Tax on prior periods, tax credits and other taxes                                                            28
Impact of permanent differences                                                                            (32)
Incom e ta x e x pe nse                                                                                     878

Effe ctive ta x ra te (incom e ta x e x pe nse divide d by ta x a ble incom e )                 24.07%
(1) This line corresponds mainly to the tax impact of capital gains generated on the creation of Natixis and on the
renegotiation of the partnership with CDC.
(2) This line reflects the impact of changes in the CNCE tax group.


9.10.3 – DEFERRED TAX ASSETS AND LIABILITIES ANALYZED BY ORIGIN

                             (in m illions of e uros)                                De c. 31, 2006        De c. 31, 2005

De fe rre d ta x e s re la ting to te m pora ry diffe re nce s a rising on the
a pplica tion of ta x rule s                                                                       145                   536

Unrealized capital gains on mutual funds                                                              9                    62
Fiscal EIGs                                                                                        (57)                  (54)
Provisions for employee benefit obligations                                                          51                    36
Other non-deductible provisions (1)                                                                  77                  208
Other temporary differences                                                                          65                  284


De fe rre d ta x e s a rising on the utiliza tion of ta x loss ca rryforw a rds                     51                    48

De fe rre d ta x e s a rising on the a pplica tion of IFRS-com plia nt
m e a sure m e nt crite ria                                                                      (194)                  (266)


Changes in fair value of financial instruments recorded in equity                                 (98)                  (278)
Provisions on regulated savings products                                                             5                      4
Portfolio-assessed provisions                                                                      131                     79
Other balance sheet valuation adjustments                                                        (232)                   (71)

De fe rre d ta x e s on consolida tion a djustm e nts a nd e lim ina tions                          42                   187

Unre cognize d de fe rre d ta x a sse ts (2)                                                       (49)                  (60)

Ne t de fe rre d ta x a sse ts                                                                      (5)                  445

De fe rre d ta x e s re cognize d:
In assets                                                                                          186                    724
In liabilities                                                                                   (191)                  (279)

Ne t de fe rre d ta x position                                                                      (5)                  445
Positive figures indicate deferred tax assets, while negative figures in brackets represent deferred tax liabilities.
(1) Excluding portfolio-assessed provisions.
(2) This amount does not include the impact of the CNCE tax group's deficit (€185 million).


140
NOTE 10 – EMPLOYEE BENEFITS

10.1 PERSONNEL COSTS

                          (in m illions of e uros)                                     2006                          2005

W ages and salaries                                                                              (1,693)                 (1,395)
Expense on defined-benefit and defined-contribution plans                                          (123)                   (113)
Other social security charges and payroll-based taxes                                              (473)                   (407)
Profit-sharing and incentive plans                                                                 (194)                   (113)

TOTAL PERSONNEL COSTS                                                                            (2,483)                 (2,028)



10.2 AVERAGE NUMBER OF EMPLOYEES

                                        2006              2005

Managerial grades
                                               9,350              8,357
(cadres )
Other                                          6,048              6,428

TOTAL                                       15,398            14,785



10.3 EMPLOYEE BENEFIT OBLIGATIONS

The CNCE Group grants its staff a variety of employee benefits:
   ■ CGRCE (a private supplementary pension plan).
   ■ Pensions and other post-employment benefits, such as retirement indemnities and other
      benefits granted to retirees.
   ■ Other benefits such as long-service awards and other long-term employee benefits.
The CGRCE is a supplementary pension scheme that manages a private pension fund on behalf of
Group personnel. The commitment to finance the CGRCE’s future deficits is provided for on the
balance sheet, and is remeasured annually.


10.3.1 – ANALYSIS OF ASSETS AND LIABILITIES RECORDED ON THE BALANCE SHEET
              (in millions of euros)                              Dec. 31, 2006                                  Dec. 31, 2005
                                                     Pension                                     Pension
                                                                       Other                                          Other
                                                    obligations                     TOTAL       obligations                           TOTAL
                                                                    obligations                                    obligations
                                                    and CGRCE                                   and CGRCE

Present value of funded obligations                         170               34        204             189                      40       229
Fair value of plan assets                                 (111)                0      (111)           (159)                       0     (159)
Fair value of reimbursement rights                         (62)                0       (62)            (68)                       0      (68)
Present value of unfunded obligations                       101               30        131             100                       3       103
Unrecognized items (actuarial gains or losses and
past service cost)                                          13                (4)           9              (1)                   0        (1)
NET AMOUNT RECORDED IN THE BALANCE
SHEET                                                      111                60       171                 61                    43      104

Liabilities recorded in the balance sheet                  128                60       188                 84                    43      127
Assets recorded in the balance sheet                        17                 0        17                 23                     0       23




                                                                                                                            141
10.3.2 – CHANGE IN AMOUNTS REPORTED ON THE BALANCE SHEET

                  (in m illions of e uros)                               De c. 31, 2006                                   De c. 31, 2005
                                                           Pe nsion                                         Pe nsion
                                                          obliga tion        Othe r                        obliga tion        Othe r
                                                                                               TOTAL                                           TOTAL
                                                            s a nd        obliga tions                       s a nd        obliga tions
                                                           CGRCE                                            CGRCE
Projected benefit obligation at start of year                     289                    43         332            263                 41           304
Service cost                                                         7                     2           9              7                  1             8
Interest cost                                                        8                     1           9             11                  1           12
Benefits paid                                                      (9)                   (3)       (12)             (9)                (3)         (12)
Actuarial gains or losses and past service cost                   (16)                     2       (14)               4                  0             4
Other (translation adjustments, changes for the year)              (8)                   19          11              13                  3           16
PROJECTED BENEFIT OBLIGATION AT END OF YEAR                       271                    64         335            289                 43           332
Fair value of plan assets at start of year                      (159)                      0      (159)          (114)                   0        (114)
Expected return on plan assets                                     (4)                     0         (4)            (9)                  0           (9)
Plan participant contributions                                     (9)                     0         (9)           (27)                  0         (27)
Benefits paid                                                        3                     0           3              7                  0             7
Actuarial gains or losses for the year                               2                     0           2            (3)                  0           (3)
Other (translation adjustments, changes for the year)               56                     0         56            (13)                  0         (13)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR                        (111)                      0      (111)          (159)                   0        (159)
Fair value of reimbursement rights at start of year               (68)                     0       (68)            (91)                  0         (91)
Expected return on reimbursement rights                            (3)                     0         (3)            (3)                  0           (3)
Contributions paid or received                                       6                     0           6             25                  0           25
Benefits paid                                                        3                     0           3              3                  0             3
Other (translation adjustments, changes for the year)                0                     0           0            (2)                  0           (2)
FAIR VALUE OF REIMBURSEMENT RIGHTS AT END OF
YEAR                                                             (62)                     0        (62)           (68)                     0       (68)

NET OBLIGATION                                                     98                    64         162             62                    43       105
Actuarial gains and losses and past service cost                   13                    (4)          9             (1)                    0        (1)
NET AMOUNT RECORDED IN THE BALANCE SHEET                          111                    60         171             61                    43       104




10.3.3 – ANALYSIS OF THE CHARGE RELATING TO DEFINED-BENEFIT PLANS

The different components of the charge recognized for defined-benefit plans are included under
“Personnel costs”.

                  (in millions of euros)                                     2006                                              2005
                                                           Pension                                       Pension
                                                          obligations       Other                       obligation            Other
                                                                                               TOTAL                                           TOTAL
                                                              and         obligations                     s and            obligations
                                                            CGRCE                                        CGRCE
Service cost                                                         4                    2           6           2                        1             3
Interest cost                                                        6                    1           7           5                        1             6
Expected return on plan assets                                     (2)                    0         (2)         (3)                        0           (3)
Expected return on reimbursement rights                            (3)                    0         (3)         (3)                        0           (3)
Actuarial gains or losses and past service cost (amount
recognized in the year)                                              0                   (2)         (2)             0                     0            0
Exceptional items                                                    0                     0           0             3                     0            3
TOTAL CHARGE FOR DEFINED-BENEFIT PLANS                               5                     1           6             4                     2            6

10.3.4 – MAIN ACTUARIAL ASSUMPTIONS


                           (%)                                    Dec. 31, 2006                                   Dec. 31, 2005
                                                                 Pension        Other                             Pension       Other
                                                          CGRCE                                            CGRCE
                                                                obligations obligations                          obligations obligations

Discount rate                                                4.10%          3.70%               3.70%          3.90%         3.30%               3.30%
Expected return on plan assets                               4.10%                                             3.80%
Expected return on reimbursement rights                      3.90%                                             2.20%




142
10.4 SHARE-BASED PAYMENT

Stock option plans

A number of entities that were proportionally consolidated by the Group at December 31, 2006 have
set up share-based remuneration schemes for certain employees. The payments made under such
schemes are either directly settled in the Group’s own equity instruments, or are settled in cash.

These schemes are as follows:

■ Natixis grants share subscription options to certain employees. These options are exercisable for
   three years after the end of a mandatory four-year unavailability period. In accordance with IFRS 2,
   stock options granted after November 7, 2002 that have not vested at the balance sheet date are
   measured at fair value as of the grant date. Fair value is determined using the Black & Scholes
   model, and is charged to personnel costs over the related vesting period with a corresponding
   adjustment to equity.

■ Share-based payments made by IXIS Asset Management Group take the form of cash-settled
   stock options. In accordance with IFRS 2, these options are measured at fair value using a
   binominal model which takes into account the impact of volatility for a range of comparable
   companies. The fair value of the options is charged to “Wages and salaries” over the related
   vesting period with a corresponding adjustment to “Accrued expenses and other liabilities” in the
   balance sheet. Until the liability is settled, the amount is remeasured at each balance sheet with
   any changes in fair value taken to income.

   Two plans were set up in 2001 and 2004 concerning IXIS Asset Management SA investment
   certificates and preferred shares in IXIS Asset Management Participations 1. The vesting period is
   three years for US beneficiaries and four years for beneficiaries in Europe.

   Two plans were set up by IXIS Private Capital Management in 2002 and 2004, with a vesting
   period of four years.

■ Since 2004, CIFG Holding has set up three share subscription plans. In accordance with IFRS 2,
   the fair value of the options is measured at the grant date and is charged to “Wages and salaries”
   over the four-year vesting period, with a corresponding adjustment to equity. The fair value is
   revised at the balance sheet date to reflect employee departures over the period.
   Moreover, since 2005, CIFG Holding has adopted two free share grant schemes. Final vesting
   occurs only after a period of two years plus a mandatory two-year holding period which starts
   immediately after the end of the two-year vesting period. At the grant date, the obligation is
   measured at the fair value of the shares on said date, and is charged to “Wages and salaries” over
   the vesting period. The fair value is revised at each subsequent balance sheet date to reflect
   employee departures over the period.


Employee share subscription plans

Employees of Natixis and Coface are entitled to sign up to share subscription plans which offer the
company’s shares at lower-than-market price. The expense recognized for these plans is charged to
personnel costs with a corresponding adjustment to equity at the date the plan was set up.




                                                                                                        143
NOTE 11 – SEGMENT INFORMATION

11.1 SEGMENT INFORMATION: CONSOLIDATED STATEMENT OF INCOME

The methods used to prepare the CNCE Group's consolidated income statement for 2006 are outlined in
section 4.3 of Note 4, which describes the effective date of the transactions carried out in connection with
the creation of Natixis.

The transactions carried out in connection with the creation of Natixis are presented in the consolidated
financial statements of the CNCE Group as if they had been effective at December 31, 2006.

Accordingly, the business segments set out below and used to report earnings correspond to the Group's
organization prior to the first-time consolidation of Natixis.

The CNCE Group is presented with a matrix structure organized around two core divisions (Commercial
Banking and Investment Banking) and a number of cross-functional departments.

The Commercial Banking division comprises:
■ all operations related to lending, savings, and other banking services carried out by the CNCE and
  other networks operating within the Group, including Banque Palatine, OCÉOR and La Compagnie
  1818;
■ activities concerning the management of customer deposits and capital funds, as well as any
  related refinancing;
■ the Group’s insurance subsidiaries, in particular CNP, Ecureuil Vie, Ecureuil Assurances IARD and
  Natixis Garanties;
■ the specialist banking and financial institutions, in particular Crédit Foncier and CEFi.
The Investment Banking division is structured around four business lines:
■ IXIS Corporate & Investment Bank, the Group’s capital markets and financing arm. Based in Paris,
  this division operates on an international scale through subsidiaries in New York, Hong Kong and
  Luxembourg, as well as branch offices in Frankfurt, London, Tokyo and Milan;
■ IXIS Asset Management Group, responsible for financial and real-estate asset management in
  Europe, Asia and North America;
■ CACEIS, providing custody, fund administration and institutional investor services in Europe;
■ IXIS Financial Guaranty (CIFG), which spearheads the Group’s financial guaranty operations,
  mainly in the US.

A holding structure completes the lineup, encompassing proprietary trading operations; central financing
operations conducted by the CNCE on behalf of the entire network of the individual Caisses d’Epargne;
CNCE support functions, excluding those directly relating to the management of the Group’s business
lines; managing investments in non-consolidated companies; and investing any surplus capital funds of
the individual Caisses d’Epargne.
Tax savings generated by the tax group headed by the CNCE are also recorded under the holding
structure.

The breakdown by division is aimed at providing a clearer picture of the results and profitability of the
Group’s different activities.

Inter-segment transactions are conducted at market price.

The geographical breakdown of earnings is based on the country in which the relevant activity is booked.




144
                                                Commercial
                                                                        Investment Banking          Holding structure           CNCE Group                    Change
                                                  Banking
           in millions of euros                2005     2006               2005        2006          2005          2006        2005         2006         Amount         %

Net banking income                                1,783      2,054           2,652        3,479           (62)        (148)      4,373        5,385         1,012       23%
Total operating expenses                        (1,285)    (1,448)         (1,875)      (2,329)          (349)        (454)    (3,509)      (4,231)          -722       21%

Gross operating income                             498        606              777       1,150           (411)       (602)         864       1,154            290       34%
Cost/income ratio                               72.0%      70.5%            70.7%       66.9%           nm          nm          80.2%       78.6%          -1.6 pt        --

Cost of risk                                        (5)        (35)           (18)         123              18            0           (5)          88          93           nm
Share in net income of companies
accounted for by the equity method                 452         677                10          15             0           0        462          692            230       50%
Net gains or losses on other assets                 19           4                29          (1)           88       2,403        136        2,406          2,270        nm

Changes in value of goodwill                         0            0                0           0            (1)        (43)           (1)      (43)           -42           nm

Income before tax                                  964        1,252            798       1,287           (306)       1,758       1,456       4,297          2,841       195%

Income tax                                        (150)       (185)          (224)       (377)            123         (316)      (251)        (878)          -627        nm
Minority interests                                 (19)        (27)           (56)        (94)              0             1       (75)        (120)           -45       60%
                                                                                 0           0
Net income attributable to equity
holders of the parent                              795        1,040            518         816           (183)       1,443       1,130       3,299          2,169       192%




Net banking income by geographical segment

               (in m illions of e uros)                                    2006                         2005

 France                                                                        3,671                       3,009
 Europe (excluding France)                                                       176                         117
 United States                                                                 1,426                       1,158
 Asia/Pacific                                                                     97                          86
 Rest of world                                                                    15                           3

 Tota l                                                                       5,385                       4,373


11.2 SEGMENT INFORMATION: CONSOLIDATED BALANCE SHEET

The balance sheet at December 31, 2005 reflects the former structure of CNCE Group.

However, the balance sheet at December 31, 2006 includes the Group's 34.44% interest in the assets
and liabilities of Natixis. The segment information presented below therefore reflects the Group's new
scope of consolidation.

                                         C om m ercial                  Inves tm ent and Project
      in millions of euros                                                                                        H olding com pany                     CNCE Group
                                           Banking                              Bank (2)
                                  De c. 31, 2005 De c. 31, 2006       De c. 31, 2005   De c. 31, 2006      De c. 31, 2005 De c. 31, 2006     De c. 31, 2005 De c. 31, 2006


Segment assets                       94,303         104,237              245,205          148,714             115,884         119,576          455,392            372,527

Segment liabilities (1)              92,471         102,558              244,894          148,644             104,345         110,378          441,710            361,580
(1)
    Segment liabilities correspond to total liabilities less consolidated equity.
(2)
    Data for 2005 correspond to the Investment Banking division as described above.
Data for 2006 correspond to Natixis; the core business has been renamed the Investment and Project Bank.




                                                                                                                                                                  145
      in millions of euros                 France                          Europe                           US                              Other                Com m ercial banking
                               De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006

Segment assets                    92,421         101,845             0               253             0              0              1, 882           2,139         94,303        104,237

Segment liabilities (1)           90,565         100,150             0               248             0              0              1, 906           2,160         92,471        102,558

      in millions of euros                 France                          Europe                           US                              Other               Investm ent and Project
                               De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006

Segment assets                   204,865         121,372           1,179            3, 843        39, 172        20,714            (11)             2,785        245,205        148,714

Segment liabilities      (1)
                                 204,700         121,364           1,144            3, 829        39, 057        20,687             (7)             2,764        244,894        148,644

      in millions of euros                 France                          Europe                           US                              Other                  Holding com pany
                               De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006

Segment assets                   115,884         119,576             0                0              0              0                0                0          115,884        119,576

Segment liabilities (1)          104,345         110,378             0                0              0              0                0                0          104,345        110,378

      in millions of euros                 France                          Europe                           US                              Other                     CNCE Group
                               De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006   De c. 31, 2005 De c. 31, 2006

Segment assets                   413,170         342,793           1,179            4, 096        39, 172        20,714            1, 871           4,925        455,392        372,527

Segment liabilities (1)          399,610         331,892           1,144            4, 077        39, 057        20,687            1, 899           4,924        441,710        361,580
(1)
    Segment liabilities correspond to total liabilities less consolidated equity.
(2)
    Data for 2005 correspond to the Investment Banking division as described above.
Data for 2006 correspond to Natixis; the core business has been renamed the Investment and Project Bank.




NOTE 12 – COMMITMENTS GIVEN AND RECEIVED

The amounts shown represent the face value of the commitments given or received.

 (in m illions of e uros)                                                                                     De c. 31, 2006 De c. 31, 2005

 COMMITMENTS GIVEN                                                                                                        115,672                     167,775
    Financing com m itm ents                                                                                               43,762                      42,646
      to credit institutions                                                                                               14,759                      13,265
      to customers                                                                                                         29,003                      29,381
    Guarantee com m itm ents                                                                                               70,337                      57,852
      to credit institutions                                                                                                5,930                       8,878
      to customers                                                                                                         64,407                      48,974
          Com m itm ents related to securities to be delivered                                                              1,573                       2,017
          Other com m itm ents given                                                                                                                   65,260

 COMMITMENTS RECEIVED                                                                                                      61,976                         68,995
    Financing com m itm ents                                                                                                9,482                          5,715
      from credit institutions                                                                                              9,433                          5,648
      from customers                                                                                                           49                             67
    Guarantee com m itm ents                                                                                               51,050                         60,429
      from credit institutions                                                                                             21,183                         34,984
      from customers                                                                                                       29,867                         25,445
    Com m itm ents related to securities to be received                                                                     1,444                          2,110
   Other com m itm ents received                                                                                                                             741




146
NOTE 13 – OTHER INFORMATION


13.1 ANALYSIS OF LOANS AND BORROWINGS BY TERM OUTSTANDING

The table below analyzes financial assets and liabilities by contractual maturity date:


                                                             Less than 1    From 1 to 3       From 3 months to From 1 to 2    From 2 to 5                    No fixed
(in millions of euros at Dec. 31, 2006)                                                                                                      Over 5 years                      Total
                                                               month          months               1 year         years          years                       maturity

Cash and amounts due from central banks and post
                                                                    3,926                 6                  1           0              0               0               56           3,989
office banks
Financial assets at fair value through profit or loss              26,590          7,141                 3,462        2,663         6,243           15,095         3,180            64,374
Derivatives used for hedging purposes                                  47             47                   715          242           652            1,402             0             3,105
Available-for-sale financial assets                                 3,095          1,023                 1,468          458         3,530           14,047         6,269            29,890
Loans and receivables due from credit institutions                 47,285          8,410                19,161        8,769        18,760           29,646            89           132,120
Loans and receivables due from customers                           14,167          9,972                 7,744        5,473        16,149           58,038         2,855           114,398
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                             29             64                    29           39            (5)             (7)             0               149
Held-to-maturity financial assets                                       0              0                   187            0         1,023           1,503              0             2,713
Financial assets by maturity                                       95,139         26,663                32,767       17,644        46,352         119,724         12,449           350,738

Due to central banks and post office banks                              7            109                   112            0             0                0            1                229
Financial liabilities at fair value through profit or loss         23,282          1,168                 2,901        1,817         7,811           15,984            0             52,963
Derivatives used for hedging purposes                                  63             73                   411          151           835            1,216            0              2,749
Due to credit institutions                                         43,069          9,778                15,682        2,918         9,577           20,204            4            101,232
Due to customers                                                   17,583          3,889                 1,333          735         1,097            2,399          405             27,441
Debt securities                                                    10,456         22,030                18,672       17,301        32,226           32,941            0            133,626
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                             12              2                    36          123           (11)               4             0               166
Subordinated debt                                                       0              6                    38           15         1,597            5,692         3,441            10,789
Financial liabilities by maturity                                  94,472         37,055                39,185       23,060        53,132           78,440         3,851           329,195



13.2 ANALYSIS OF ASSETS AND LIABILITIES BY CURRENCY

                                                       De c. 31, 2006
(in m illions of e uros)                         Asse ts             Lia bilitie s
Euro                                             318,718               307,871
US dollar                                          37,036                   39,949
Pound sterling                                        5,743                  9,274
Japanese yen                                             888                 1,199
Other                                              10,142                   14,234
TOTAL                                            372,527                   372,527



13.3 RELATED PARTIES

For the CNCE Group, related parties are considered to be all consolidated companies, including
companies carried under the equity method, as well as the Group’s key managers.

Transactions between the CNCE Group and its related parties are carried out at the market conditions
prevailing at the time of the transactions.


13.3.1 – EXECUTIVE COMPENSATION

The Group’s main executives are the members of the Management Board and Supervisory Board of
the Caisse Nationale des Caisses d’Epargne, the central institution of Groupe Caisse d’Epargne.
Remuneration paid in respect of 2006 to the Group's main executives amounts to €6 million (€4 million
in 2005).

Short-term benefits include the compensation and benefits paid to members of the Management
Board (basic compensation, remuneration in respect of their duties as corporate officers, benefits in
kind, variable compensation and attendance fees) and attendance fees awarded to members of the
Supervisory Board.




                                                                                                                                                                             147
Regarding post-employment benefits, pursuant to an agreement entered into on July 18, 2005 certain
executives of the CNCE Group benefit from a supplementary defined-benefit pension plan, as a top-
up to the other plans from which they may benefit, intended to offer them additional pension benefits
calculated on the basis of their salary.

To be eligible for this pension plan, beneficiaries are required to meet all the conditions set out below
at the date of their departure:
■ beneficiaries must end their professional careers while with Groupe Caisse d'Epargne;
■ at the time of their departure or retirement, beneficiaries must have served as members of the
    CNCE’s Management Board for a minimum of ten years;
■ beneficiaries must have applied to receive their pension entitlements under the basic French social
    security system and the mandatory supplementary French pension systems (Arrco and Agirc).

Beneficiaries are entitled to receive pension annuities equal to 10% of their gross average
compensation over the three years prior to their retirement.


13.3.2 – INTRAGROUP TRANSACTIONS

As intragroup transactions and balances outstanding at the end of the period with fully consolidated
companies are eliminated in full on consolidation, the table below only provides data relative to the
non-eliminated portion of intragroup transactions concerning companies over which the Group
exercises joint control (proportionally consolidated); and intragroup transactions with companies over
which the Group exercises significant influence (equity-accounted).

                (in m illions of e uros)                         2006                        2005
                                                                     Companies                   Companies
                                                    Proportionally accounted for Proportionally accounted for
                                                    consolidated by the equity consolidated by the equity
                                                     companies        method      companies        method

Loans                                                       2,358                0           432            0
Other financial assets                                      1,206                0              0           0
Other assets                                                1,471                0              4           0
Total assets with related parties                           5,035                0           436            0

Payables                                                    1,539                0           422            0
Other financial liabilities                                 1,030                0              0           0
Other liabilities                                           1,471                0             14           0
Total liabilities with related parties                      4,040                0           436            0

Profit-sharing and equivalent                                   0                0              0           0
Commission income/expense                                       2                0              2           0
Net income from financing activities                            2                0              0           0
Net income from other activities                                0                0              1           0

Total net bank ing incom e with related parties                 4                0              3           0

Commitments given                                           5,791                0           454            0
Commitments received                                       14,638                0           453            0
Commitments on futures                                     80,871                0           225            0
Total com m itm ents with related parties                 101,300                0         1,132            0




148
NOTE 14 – PRO FORMA INFORMATION


14.1 BASIS OF PREPARATION

The CNCE Group's pro forma statement of income for 2006 was prepared to reflect the Group’s
income and expenses as if the following operations had taken place at January 1, 2006:
    ■ all transactions carried out in connection with the creation of Natixis;
    ■ all transactions regarding the partnership renegotiated with Caisse des Dépôts et
      Consignations.


14.2 SIGNIFICANT ACCOUNTING POLICIES AND SCOPE OF CONSOLIDATION

The Group prepared the pro forma data using the same accounting policies as those used to prepare
its consolidated financial statements.

The pro forma scope of consolidation includes all entities consolidated by the Group in 2006, and has
been adjusted to reflect the impacts of the transactions mentioned above.


                                                2006 income statement scope          2006 pro forma income statement scope

                                      Consolidation method          % interest   Consolidation method         % interest



Caisses d'Epargne CICs                     Equity method             20.0%            Equity method              6.9%
IXIS CIB (group)                          Full consolidation          97.5%      Proportional consolidation     34.4%
IXIS Asset Management group               Full consolidation          68.0%      Proportional consolidation     29.1%
CACEIS                                Proportional consolidation      50.0%      Proportional consolidation     17.2%
CIFG                                      Full consolidation         100.0%      Proportional consolidation     34.4%
CEFi                                      Full consolidation          17.4%      Proportional consolidation      6.0%
Gestitres                                 Full consolidation          67.0%      Proportional consolidation     34.4%
Natixis Garanties                         Full consolidation         100.0%      Proportional consolidation     34.4%
Compagnie 1818                            Full consolidation          94.1%      Proportional consolidation     49.0%
GCE Bail                                  Full consolidation         100.0%      Proportional consolidation     34.4%
GCE Affacturage                           Full consolidation         100.0%      Proportional consolidation     34.4%
Foncier Assurance                         Full consolidation         100.0%      Proportional consolidation     60.7%
(Former) Natexis Banques Populaires
(group)                                   Not consolidated            0.0%       Proportional consolidation     34.4%
Banques Populaires CICs                   Not consolidated            0.0%            Equity method              6.9%

Ecureuil Vie                               Equity method              57.9%           Equity method             15.8%
SAGI                                       Equity method              60.0%          Not consolidated           0.0%
RIVP                                       Equity method              27.6%          Not consolidated           0.0%
CDC ECI                                    Equity method              35.0%          Not consolidated            0.0%


14.3 ADJUSTMENTS

The following assumptions were made when preparing the pro forma consolidated financial
statements:
■ capital gains generated on asset contributions and disposals were cancelled;
■ the impacts of transactions carried out prior to the creation of Natixis, in particular those relating to
   the share issue by IXIS Asset Management Group subscribed by the CNCE in order to finance its
   purchase of preferred shares issued by IXIS AM US Corp, were taken into account;
■ the contribution of subsidiaries as reported prior to the transactions was eliminated;
■ contributions were computed from entities under the new consolidation methods;
■ the impacts of interest on financial flows were taken into account based on an annual rate of 4.2%.



14.4 PRO FORMA STATEMENT OF INCOME


                                                                                                                     149
                             (in millions of euros)                           2006 PRO
                                                                               FORMA

NET BANKING INCOME                                                                    4,168
Operating expenses                                                                   (3,410)
GROSS OPERATING INCOME                                                                     758
Cost of risk                                                                               (41)
OPERATING INCOME                                                                           717
Share in net income of companies accounted for by the equity method                        454
Net gains or losses on other assets                                                        (28)
Changes in value of goodwill                                                               (43)
INCOME BEFORE TAX                                                                     1,100
Income tax                                                                            (589)
NET INCOME                                                                                 511
Minority interests                                                                         (50)
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE
                                                                                           461
PARENT


NOTE 15 – SCOPE OF CONSOLIDATION

15.1 CHANGES IN THE SCOPE OF CONSOLIDATION IN 2006

The main changes in the scope of consolidation in the first six months of the year were:
■ the full consolidation of Nexgen, which led to the recognition of goodwill amounting to €37 million;
■ the acquisition of Orane (now OCÉORANE) by Financière OCÉOR, which led to the recognition of
      goodwill amounting to €39 million.

In the second half of 2006, the main changes in the scope of consolidation relate to the transactions
carried out in connection with the creation of Natixis and the renegotiated partnership with Caisse des
Dépôts et Consignations.

The subsidiaries contributed to Natixis (IXIS CIB, IXIS AM, CIFG, CACEIS, CEFi, Gestitres, Natixis
Garanties, Foncier Assurance and La Compagnie 1818) and the CICs issued by the Caisses
d'Epargne are included in Natixis’ scope of consolidation at December 31, 2006. In parallel, Natixis is
proportionally consolidated in the CNCE Group's consolidated financial statements as from
December 31, 2006, based on the percentage interest held by the Group (34.44%).

Goodwill relating to the consolidation of the activities carried on by the former Natexis Banques
Populaires (as well as a portion of the Banques Populaires' CICs) amounts to €1,394 million. This
amount will be adjusted once the analyses required to apply the purchase accounting method are
complete, within a period of twelve months.

The renegotiated partnership with Caisse des Dépôts et Consignations resulted in the sale of Ecureuil
Vie, RIVP, CDC ECI and SAGI (entity included in GCE Immobilier). Accordingly, these entities were
considered to have left the consolidated group at December 31, 2006.

The share buyback carried out in 2006 and the commitment to buy back the CNCE shares held by
CDC Holding Finance in January 2007 led to a decrease of €7 billion in consolidated shareholders’
equity.




150
15.2 SECURITIZATION TRANSACTIONS

The Group carried out securitization transactions either on behalf of its customers or for proprietary
purposes with the aim of managing its counterparty risk on certain portfolios or the balance sheet of a
number of its subsidiaries.

Entities created specifically for this purpose are not consolidated when the Group does not exercise
control. Control is assessed based on the criteria set out in SIC 12.


15.3 MUTUAL FUNDS

Mutual funds are funds which are designed to reach a specific amount at the end of a given period,
determined by applying a predefined calculation formula based on financial market indicators; and
where appropriate, pay over revenues derived from the investments as determined using the same
methods. The portfolio management targets of those funds are guaranteed by a credit institution.

Based on an analysis of the substance of these structures in accordance with SIC 12, the Group
cannot be regarded as having substantially all the risks and rewards of ownership. Consequently,
these entities are not consolidated.




                                                                                                     151
15.4 SCOPE OF CONSOLIDATION AT DECEMBER 31, 2006
                                                                      Balance sheet at December 31, 2006                   Income statement for 2006                              2005
                                                                  Consolidation % consolidation  % interest        Consolidatio       %          % interest   Consolidatio         %         % interest
                  Consolidated entities                     (2)
                                                                   method (1)                                      n method (1)   consolidation               n method (1)   consolidation

Credit and financial institutions
Caisse d’Epargne des Alpes                                   5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d'Epargne d'Alsace                                    5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne Aquitaine-Nord                              5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne d’Auvergne et du Limousin                   5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne de Basse-Normandie                          5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d'Epargne de Bourgogne et de Franche Comté            5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne de Bretagne                                 5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d'Epargne Centre Val de Loire                         5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d'Epargne Champagne-Ardenne                           5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d'Epargne Côte d'Azur                                 5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne de Flandre                                  5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d'Epargne de Franche-Comté                            1         -                    -              -            -               -             -          Equity         20.00%        20.00%
Caisse d’Epargne de Haute-Normandie                          5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne Ile de France-Nord                          5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne Ile de France-Ouest                         5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne Ile de France-Paris                         5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne Languedoc-Roussillon                        5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d'Epargne Loire Drôme Ardèche                         5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne de Lorraine                                 5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne de Midi-Pyrénées                            5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne du Pas de Calais                            5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne des Pays de l’Adour                         5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne des Pays de la Loire                        5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne des Pays du Hainaut                         5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne de Picardie                                 5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne Poitou-Charentes                            5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne Provence-Alpes-Corse                        5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne Rhône Alpes Lyon                            5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Caisse d’Epargne du Val de France Orléanais                  5       Equity              6.89%          6.89%         Equity        20.00%         20.00%        Equity         20.00%        20.00%
Banque BCP S.A.S.                                            2       Equity             30.00%          30.00%        Equity        30.00%         30.00%          -               -             -
Caisse d’Epargne Financement                                 5       Prop.              34.44%          23.08%         Full         100.00%        17.40%        Equity         17.40%        17.40%

Holassure group
Holassure                                                             Full              100.00%         100.00%        Full         100.00%       100.00%         Full         100.00%       100.00%
Sopassure                                                            Prop.              49.98%           49.98%       Prop.         49.98%        49.98%         Prop.         49.98%        49.98%
Caisse Nationale de Prévoyance (group)                               Equity             15.76%           15.76%       Equity        15.76%        15.76%         Equity        15.76%        15.76%

OCÉOR group
Financière OCÉOR                                                      Full              100.00%         100.00%        Full         100.00%       100.00%         Full         100.00%       100.00%
ALYSEOR                                                               Full              100.00%          97.95%        Full         100.00%       97.95%          Full         100.00%       100.00%
Banque de la Réunion                                                  Full              100.00%          84.00%        Full         100.00%       84.00%          Full         100.00%       81.97%
Banque de Nouvelle-Calédonie                                          Full              100.00%          95.89%        Full         100.00%       95.89%          Full         100.00%       95.89%
Banque de Tahiti                                                      Full              100.00%          95.66%        Full         100.00%       95.66%          Full         100.00%       95.63%
Banque des Antilles Françaises                                        Full              100.00%          98.44%        Full         100.00%       98.44%          Full         100.00%       98.13%
Banque des Iles Saint-Pierre-et-Miquelon                              Full              100.00%          97.40%        Full         100.00%       97.40%          Full         100.00%       97.15%
BCP Luxembourg                                               2        Full              100.00%          80.10%        Full         100.00%       80.10%           -               -             -
Caisse d’Epargne de Nouvelle-Calédonie                                Full              100.00%         100.00%        Full         100.00%       100.00%         Full         100.00%       100.00%
Crédit Saint-Pierrais                                                Equity             47.09%           47.09%       Equity        47.09%        47.09%         Equity        47.08%        47.08%
GCE Maroc                                                    2        Full              100.00%         100.00%        Full         100.00%       100.00%          -               -             -
GIE OCÉOR Informatique                                                Full              100.00%          90.20%        Full         100.00%       90.20%          Full         100.00%       84.50%
INGEPAR                                                      2        Full              100.00%         100.00%        Full         100.00%       100.00%          -               -             -
Mascareigne Investors Services Ltd                                    Full              100.00%          95.57%        Full         100.00%       95.57%          Full         100.00%       94.50%
OCÉOR Lease                                                           Full              100.00%          97.22%        Full         100.00%       97.22%          Full         100.00%       96.94%
OCÉOR Lease Nouméa (formerly Crédit Commercial de
Nouméa)                                                               Full              100.00%          90.78%        Full         100.00%       90.78%          Full         100.00%        90.68%
OCÉOR Lease Réunion (formerly Sibail Réunion)                         Full              100.00%          88.60%        Full         100.00%       88.60%          Full         100.00%        87.18%
OCÉOR Lease Tahiti (formerly Credipac Polynésie)                      Full              100.00%          96.21%        Full         100.00%       96.21%          Full         100.00%        96.09%
OCEORANE                                                     2        Full              100.00%         100.00%        Full         100.00%       100.00%          -               -             -
Société Havraise Calédonienne                                         Full              100.00%          85.51%        Full         100.00%       85.51%          Full         100.00%        85.44%

Banque Palatine group
Banque Palatine                                                        Full             100.00%          100.00%       Full         100.00%       100.00%         Full         100.00%       100.00%
Banque Michel Inchauspé                                              Equity              20.00%           20.00%      Equity        20.00%        20.00%         Equity        20.00%        20.00%
Conservateur Finance                                                 Equity              20.00%           20.00%      Equity        20.00%        20.00%         Equity        20.00%        20.00%
Eurosic Sicomi SA                                            3         Full             100.00%           91.63%       Full         100.00%       91.63%          Full         100.00%       88.81%
Sanpaolo Asset Management                                              Full             100.00%          100.00%       Full         100.00%       100.00%         Full         100.00%       100.00%
Palatine Mur SNC                                             1          -                   -                -          -               -             -           Full         100.00%       100.00%
Socavie SNC                                                            Full             100.00%          100.00%       Full         100.00%       100.00%         Full         100.00%       100.00%
Société Foncière d’Investissement                                      Full             100.00%          100.00%       Full         100.00%       100.00%         Full         100.00%       100.00%
Société Foncière Joseph Vallot                                         Full             100.00%          100.00%       Full         100.00%       100.00%         Full         100.00%       100.00%
Société Immobilière d’Investissement                                   Full             100.00%          100.00%       Full         100.00%       100.00%         Full         100.00%       100.00%
Thiriet Gestion                                                      Equity              33.40%           33.40%      Equity        33.40%        33.40%         Equity        33.40%        33.40%
(1) Consolidation method Full: Full consolidation, Prop.: Proportional consolidation,   Equity: equity method

(2) Changes in the scope of consolidation in 2006
1 – Merger
2 – Consolidation
3 – Partial contribution of income
4 – Deconsolidated
5 – Creation of Natixis
6 – In 2005, La Compagnie 1818 – Banquiers Privés
represented a sub consolidation group; in 2006, the
subsidiaries are directly consolidated.




152
                                                                     Balance sheet at December 31, 2006                 Income statement for 2006                             2005
                                                                   Consolidation      %        % interest        Consolidation      %         % interest   Consolidation        %           % interest
                  Consolidated entities                      (2)
                                                                    method (1)      consolidation                 method (1)   consolidation                method (1)     consolidation

IT technical centres and software houses
CNETI                                                                     Full         100.00%        72.90%          Full       100.00%        75.18%         Full          100.00%         73.42%

IXIS Corporate & Investment Bank group
IXIS Corporate & Investment Bank                              5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
CDC Holding Trust                                             5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
CLEA2                                                         5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
FILI                                                         2-5          Prop.         34.44%        34.44%          Full       100.00%        97.55%          -                -              -
ICMNA International Holding                                   5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
ICMNA AustraIia Holding Inc.-Macquarie                       2-5          Prop.         34.44%        34.44%          Full       100.00%        97.55%          -                -              -
ICMNA AustraIia Holding Inc. - St Georges                    2-5          Prop.         34.44%        34.44%          Full       100.00%        97.55%          -                -              -
IXIS Alternative Holding Ltd                                 2-5          Prop.         34.44%        34.44%          Full       100.00%        97.55%          -                -              -
IXIS Alternative Invest. Ltd                                 2-5          Prop.         34.44%        34.44%          Full       100.00%        97.55%          -                -              -
IXIS Capital Market North America                             5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Commercial Paper Corp.                                   5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Derivatives Inc.                                         5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Environnement et Infrastructures                        2-5          Prop.         34.44%        34.44%          Full       100.00%        97.55%          -                -              -
IXIS Financial Instruments Ltd                                4             -              -             -             -             -             -           Full          100.00%         97.55%
IXIS Financial Products Inc.                                  5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Funding Corp.                                            5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Investment Management Corp.                              5           Prop.         34.37%        34.37%          Full       100.00%        97.16%         Full          100.00%         97.20%
IXIS Luxembourg Investissements                               5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Municipal Products Inc.                                  5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS North America                                            5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Real Estate Capital Inc.                                 5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Securities                                               5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Securities North America Inc.                            5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Securitization Corp.                                     5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
IXIS Structured Products Ltd                                  5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
Master Financial Inc.                                        2-5          Prop.         34.44%        0.00%           Full       100.00%        0.00%           -                -              -
Natexis Belgique Investissement                              2-5          Prop.         34.44%        34.44%          Full       100.00%        97.55%          -                -              -
Natixis Asia Limited                                          5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
Natixis Innov                                                 5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%
Nexgen (group)                                                5           Prop.         34.44%        34.44%          Full       100.00%        97.55%        Equity          37.75%         37.75%
PAR Fund GP LLC                                              2-5          Prop.         34.44%        31.60%          Full       100.00%        91.75%          -                -              -
Parallel Absolute Return Master Fund                         2-5          Prop.         34.44%        25.15%          Full       100.00%        73.04%          -                -              -
Rose Mortgage Inc.                                           2-5          Prop.         34.44%        0.00%           Full       100.00%        0.00%           -                -              -
SNC Tolbiac Finance                                           5           Prop.         34.44%        34.44%          Full       100.00%        97.55%         Full          100.00%         97.55%

CACEIS group
CACEIS Holding                                                5           Prop.          17.22%         17.22%       Prop.        50.00%        50.00%         Prop.          50.00%         50.00%
CACEIS Bank Espana                                            4             -               -               -          -             -             -           Prop.          50.00%         25.50%
CACEIS Bank Luxembourg                                        5           Prop.          17.22%         17.22%       Prop.        50.00%        50.00%         Prop.          50.00%         50.00%
CACEIS Bank Paris                                             5           Prop.          17.22%         17.22%       Prop.        50.00%        50.00%         Prop.          50.00%         50.00%
CACEIS Corporate Trust                                        5           Prop.          17.22%         17.22%       Prop.        50.00%        50.00%         Prop.          50.00%         50.00%
Euro Émetteurs Finance                                        1             -               -               -          -             -             -           Prop.          50.00%         50.00%
Fastnet Belgique                                             2-5          Prop.          17.22%          8.99%       Prop.        50.00%        26.10%           -               -              -
Fastnet France                                                5           Prop.          17.22%         12.14%       Prop.        50.00%        35.24%         Prop.          50.00%         25.00%
Fastnet Ireland                                              2-5          Prop.          17.22%         17.22%       Prop.        50.00%        50.00%           -               -              -
Fastnet Luxembourg                                            5           Prop.          17.22%          8.99%       Prop.        50.00%        26.10%         Prop.          50.00%         22.50%
Fastnet Netherlands                                          2-5          Prop.          17.22%          8.99%       Prop.        50.00%        26.08%           -               -              -
Investor Service House                                       2-5          Prop.          17.22%         17.22%       Prop.        50.00%        50.00%           -               -              -
IXIS Administration de Fonds                                  1             -               -               -          -             -             -           Prop.          50.00%         50.00%
IXIS Investor Services                                        1             -               -               -          -             -             -           Prop.          50.00%         50.00%
Partinvest                                                   2-5          Prop.          17.22%         17.22%       Prop.        50.00%        50.00%           -               -              -
The Fastnet House                                            2-5          Prop.          17.22%         17.22%       Prop.        50.00%        50.00%           -               -              -
(1) Consolidation method Full: Full consolidation, Prop.: Proportional   consolidation, Equity: equity method

(2) Changes in the scope of consolidation in 2006
1 – Merger
2 – Consolidation
3 – Partial contribution of income
4 – Deconsolidated
5 – Creation of Natixis
6 – In 2005, La Compagnie 1818 – Banquiers Privés
represented a sub consolidation group; in 2006, the
subsidiaries are directly consolidated.




                                                                                                                                                                                           153
                                                               Balance sheet at December 31, 2006                       Income statement for 2006                              2005
                                                          Consolidatio % consolidation    % interest          Consolidati % consolidation      % interest   Consolidati % consolidation   % interest
               Consolidated entities                (2)                                                       on method                                     on method
                                                          n method (1)                                            (1)                                           (1)

Crédit Foncier group
Crédit Foncier de France                                      Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Auxiliaire du CFF                                             Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
CFCAL Banque                                                  Full          100.00%             66.41%           Full         100.00%            66.53%        Full        100.00%         65.79%
CFCAL SCF                                                     Full          100.00%             66.41%           Full         100.00%            66.53%        Full        100.00%         65.79%
Cicobail                                                      Full          100.00%             99.16%           Full         100.00%            99.16%        Full        100.00%         99.76%
Cinergie                                                      Full          100.00%             99.16%           Full         100.00%            99.16%        Full        100.00%         99.75%
Cofimab                                                       Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Compagnie de Financement Foncier                              Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Compagnie Financière de Garantie - CFG                        Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Compagnie Foncière de Crédit                                  Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Crédit Foncier Assurance Courtage                             Full          100.00%             99.88%           Full         100.00%            99.88%        Full        100.00%         99.88%
Ecufoncier                                                    Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Entenial Conseil                                     4         -                -                  -              -               -                 -          Full        100.00%        100.00%
Environnement Titrisation Entenial                            Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
FCC Teddy                                                     Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Financière Desvieux                                           Full          100.00%             99.99%           Full         100.00%            99.99%        Full        100.00%         99.99%
Foncier Assurance                                    5       Prop.          100.00%             60.66%           Full         100.00%           100.00%        Full        100.00%        100.00%
Foncier Bail                                         1         -                -                  -              -               -                 -          Full        100.00%        100.00%
Foncier Participations                                        Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Foncier Services Immobiliers                         1         -                -                  -            Equity        100.00%           100.00%       Equity       100.00%        100.00%
Gramat Balard                                                 Full          100.00%             79.88%           Full         100.00%            79.88%        Full        100.00%         79.88%
Foncière d'Evreux                                    2        Full          100.00%            100.00%           Full         100.00%           100.00%         -              -              -
Foncier Expertise                                    2        Full          100.00%             99.96%           Full         100.00%            99.96%         -              -              -
Investimur                                           1         -                -                  -              -               -                 -          Full        100.00%        100.00%
Mur Ecureuil                                         1         -                -                  -              -               -                 -          Full        100.00%         99.75%
Picardie Bail                                        2        Full          100.00%            100.00%           Full         100.00%           100.00%         -              -              -
Quatrinvest                                                   Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
RIVP                                                 4         -                -                  -              -               -                 -         Equity        27.64%         27.64%
Secundis Finance                                             Equity          35.00%             35.00%          Equity         35.00%            35.00%       Equity        35.00%         35.00%
Serexim                                              2        Full          100.00%            100.00%           Full         100.00%           100.00%         -              -              -
Sipari                                               2        Full          100.00%             99.99%           Full         100.00%            99.99%         -              -              -
Soclim                                                        Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Socfim                                                        Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Socfim Transaction                                            Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Socfim Participations Immobilières                            Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
Tritrisation                                         1         -                -                  -              -               -                 -          Full        100.00%        100.00%
Vendôme Investissements                                       Full          100.00%            100.00%           Full         100.00%           100.00%        Full        100.00%        100.00%
VMG                                                           Full          100.00%             99.98%           Full         100.00%            99.98%        Full        100.00%        100.00%

La Compagnie 1818 group
La Compagnie 1818 (group)                            6         -                -                  -              -               -                -           Full        100.00%         85.78%
La Compagnie 1818 - Banquiers Privés                5-6      Prop.           49.04%             49.04%           Full         100.00%           94.11%          -              -              -
Anteis Epargne                                      5-6      Prop.           49.04%             25.03%           Full         100.00%           48.04%          -              -              -
C&M Finance                                         5-6      Equity          9.81%              9.81%           Equity         18.82%           18.82%          -              -              -
Centre Européen d'Assurance                         5-6      Prop.           49.04%             49.04%           Full         100.00%           94.11%          -              -              -
Centre Français du Patrimoine                       5-6      Prop.           49.04%             49.04%           Full         100.00%           94.11%          -              -              -
La Compagnie 1818 - Gestion                         5-6      Prop.           49.04%             49.04%           Full         100.00%           94.11%          -              -              -
La Compagnie 1818 - Immobilier                      5-6      Prop.           49.04%             49.04%           Full         100.00%           94.11%          -              -              -

Natixis Garanties group (formerly GCE Garanties group)
Natixis Garanties (formerly GCE Garanties)     5       Prop.                 34.44%             34.44%            Full        100.00%           100.00%        Full        100.00%        100.00%
Cegi                                           5       Prop.                 34.44%             34.44%            Full        100.00%           100.00%        Full        100.00%        100.00%
Cegi Courtage                                 2-5      Prop.                 34.44%             34.44%            Full        100.00%           100.00%         -              -              -
Financière Cegi                                1         -                      -                  -               -              -                 -          Full        100.00%        100.00%
Saccef                                         5       Prop.                 34.44%             34.44%            Full        100.00%           100.00%        Full        100.00%        100.00%
SCI Saccef Champs-Élysées                      5       Prop.                 34.44%             34.44%            Full        100.00%           100.00%        Full        100.00%        100.00%
SCI Saccef Immobilier                          5       Prop.                 34.44%             34.44%            Full        100.00%           100.00%        Full        100.00%        100.00%
SCI Saccef La Boétie                           5       Prop.                 34.44%             34.44%            Full        100.00%           100.00%        Full        100.00%        100.00%
Socamab                                        5       Prop.                 34.44%             20.67%            Full        100.00%            60.00%        Full        100.00%         60.00%

Other entities
CDC Entreprises Capital Investissement                4        -                  -                  -            -               -                 -         Equity        35.00%         35.00%
Compagnie IXIS Financial Garantie                     5      Prop.            34.44%              34.44%         Full         100.00%           100.00%        Full        100.00%        100.00%
Ecureuil Assurance IARD                                       Full           100.00%              65.00%         Full         100.00%            65.00%        Full        100.00%         65.00%
Ecureuil Participations                               1        -                  -                  -            -               -                 -          Full        100.00%        100.00%
Ecureuil Proximité                                    1        -                  -                  -            -               -                 -          Full        100.00%         99.84%
Ecureuil Vie                                          4        -                  -                  -          Equity         49.78%            49.78%       Equity        49.78%         49.78%
GCE Affacturage                                       5      Prop.            34.44%              34.44%         Full         100.00%           100.00%        Full        100.00%        100.00%
GCE Bail                                              5      Prop.            34.44%              34.44%         Full         100.00%           100.00%        Full        100.00%        100.00%
GCE Participations                                    2       Full           100.00%             100.00%         Full         100.00%           100.00%         -              -              -
CEMM                                                  2      Prop.            50.00%              50.00%        Prop.          50.00%            50.00%         -              -              -
GCE Habitat                                           2       Full           100.00%             100.00%         Full         100.00%           100.00%         -              -              -
GCE Immobilier                                               Equity          100.00%             100.00%        Equity        100.00%           100.00%       Equity       100.00%        100.00%
GCE Newtec                                                    Full           100.00%             100.00%         Full         100.00%           100.00%        Full        100.00%        100.00%
Gestitres                                             5      Prop.            34.44%              34.44%         Full         100.00%            66.00%        Full        100.00%         66.00%
Holgest                                               1        -                  -                  -            -               -                 -          Full        100.00%        100.00%
IXIS Asset Management group                           5      Prop.            34.44%              29.13%         Full         100.00%            68.00%        Full        100.00%         68.00%
Mifcos                                                        Full           100.00%             100.00%         Full         100.00%           100.00%        Full        100.00%        100.00%
Quai de Seine Gestion et Location                             Full           100.00%             100.00%         Full         100.00%           100.00%        Full        100.00%        100.00%
SAS Foncière Ecureuil                                 5      Equity           6.00%               6.00%         Equity         17.41%            17.41%       Equity        23.86%         23.86%
SCI Avant Seine 1                                             Full           100.00%             100.00%         Full         100.00%           100.00%        Full        100.00%        100.00%
SCI Avant Seine 2                                             Full           100.00%             100.00%         Full         100.00%           100.00%        Full        100.00%        100.00%
SNC Participations Ecureuil                                   Full           100.00%             100.00%         Full         100.00%           100.00%        Full        100.00%        100.00%
SNC SEI Logement                                              Full           100.00%             100.00%         Full         100.00%           100.00%        Full        100.00%        100.00%
SNC SEI Tertiaire                                             Full           100.00%             100.00%         Full         100.00%           100.00%        Full        100.00%        100.00%
Société Européenne d’Investissement                           Full           100.00%             100.00%         Full         100.00%           100.00%        Full        100.00%        100.00%
Surassur                                                     Equity           19.03%              19.03%        Equity         32.30%            33.10%       Equity        36.99%         36.99%
(1) Consolidation method Full: Full consolidation, Prop.: Proportional consolidation, Equity: equity method

(2) Changes in the scope of consolidation in 2006
1 – Merger
2 – Consolidation
3 – Partial contribution of income
4 – Deconsolidated
5 – Creation of Natixis
6 – In 2005, La Compagnie 1818 – Banquiers
Privés represented a sub consolidation group; in
2006, the subsidiaries are directly consolidated.




154
                                                                      Balance sheet at December 31, 2006                     Income statement for 2006                             2005
                                                                   Consolidati % consolidation  % interest          Consolidatio % consolidation    % interest   Consolidati % consolidation   % interest
                    Consolidated entities                      (2) on method                                                                                     on method
                                                                       (1)                                          n method (1)                                     (1)

Banques Populaires CICs                                         5        Equity         34.44%            6.80%          -              -                -            -             -                -

(Former) Natexis Banques Populaires group
Natixis (formerly Natexis Banques Populaires)                   5        Prop.          34.44%           34.44%          -              -                -            -             -                -
ADIR                                                            5        Equity         11.71%           11.71%          -              -                -            -             -                -
AKCO Fund                                                       5        Prop.          34.44%           34.44%          -              -                -            -             -                -
ASM Alternatif Garanti 1                                        5        Prop.          34.10%           34.10%          -              -                -            -             -                -
Assurances Banque Populaire MIDCAP                              5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Assurances Banque Populaire Prévoyance                          5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Assurances Banque Populaire Vie                                 5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Assurances Banque Populaire Actions                             5        Prop.          34.10%           34.10%          -              -                -            -             -                -
Assurances Banque Populaire Croissance Rendement                5        Prop.          34.10%           34.10%          -              -                -            -             -                -
Assurances Banque Populaire IARD                                5        Equity         17.22%           17.22%          -              -                -            -             -                -
AXA Assurcrédit (formerly Assurcredit)                          5        Prop.          13.78%           13.78%          -              -                -            -             -                -
Bail Expansion                                                  5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Banque Privée St Dominique                                      5        Prop.          34.44%           34.44%          -              -                -            -             -                -
BP Développement                                                5        Prop.          14.46%           12.40%          -              -                -            -             -                -
BPSD Gestion                                                    5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Business Data Information                                       5        Prop.          21.01%           21.01%          -              -                -            -             -                -
Centre d'etudes Financières (CEF)                               5        Prop.          34.44%           34.44%          -              -                -            -             -                -
CIA de Seguros de Creditos Coface Chile SA (formerly
                                                                5                       28.93%           28.93%
Coface Chili SA)                                                          Prop.                                          -              -                -            -             -                -
Cimco Systems Ltd                                               5         Prop.         34.44%           34.44%          -              -                -            -             -                -
CO-Assur                                                        5         Prop.         34.44%           34.44%          -              -                -            -             -                -
Coface                                                          5         Prop.         34.44%           34.44%          -              -                -            -             -                -
Coface Assicurazioni Spa (formerly Viscontea Coface)            5         Prop.         34.44%           34.44%          -              -                -            -             -                -
Coface Austria (formerly Osterreichische Kreditversicherungs
                                                                5                       34.44%           34.44%
Coface (OKV Coface))                                                     Prop.                                           -              -                -            -             -                -
Coface Belgium Services (N.V. Coface Euro DB)                   5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Bulgaria CMS (formerly Coface Intercrédit Bulgaria)      5        Prop.          34.44%           25.83%          -              -                -            -             -                -
Coface Collection North America                                 5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Credit Management North America (formerly Coface
                                                                5                       34.44%           34.44%
Credit Management Services)                                              Prop.                                           -              -                -            -             -                -
Coface Croatia CMS (formerly Coface Intercredit Hratska         5        Prop.          34.44%           25.83%          -              -                -            -             -                -
Coface Czech CMS (formerly Coface Intercredit Czechia)          5        Prop.          34.44%           25.83%          -              -                -            -             -                -
Coface Danmark Services                                         5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Debitoren (formerly ADG Coface Allgemeine Debitores
                                                                5                       34.44%           34.44%
Gesellschaft)                                                            Prop.                                           -              -                -            -             -                -
Coface Debt Purchase                                            5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Deutschland (formerly AK Coface Holding AG )             5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface do Brasil Seguros de Credito                             5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Expert                                                   5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Factoring Italia SpA                                     5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Finanz (formerly Allgemeine Kredit Finanz Service        5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Holding America Latina                                   5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Holding Israël                                           5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Hungary CMS (formerly Coface Intercredit Hungary)        5        Prop.          34.44%           25.83%          -              -                -            -             -                -
Coface Italia                                                   5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Kredit (formerly Allegemeine Kredit Coface (AKC))        5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Nederland Services (formerly Coface Services             5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface North America                                            5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface North America Holding Company                            5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface North America Insurance Company                          5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Poland CMS (formerly Coface Intercredit Poland)          5        Prop.          34.44%           25.83%          -              -                -            -             -                -
Coface Poland Insurance Services                                5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Receivable Finances (formerly London Bridge Finance
                                                                5                       34.44%           34.44%
Ltd)                                                                     Prop.                                           -              -                -            -             -                -
Coface Romania CMS (formerly Coface Intercredit Romania)        5        Prop.          34.44%           25.83%          -              -                -            -             -                -
Coface Service                                                  5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Service SPA                                              5        Prop.          34.44%           34.44%          -              -                -            -             -                -
Coface Services Austria (formerly OKV Kreditinformations
                                                                5                       34.44%           34.44%
GMBH (OKI)                                                               Prop.                                           -              -               -             -             -                -
Coface Services Colombia (formerly Veritas Colombia)            5        Prop.          34.44%           34.44%          -              -               -             -             -                -
Coface Services Ecuador (formerly Veritas Andina)               5        Prop.          34.44%           34.44%          -              -               -             -             -                -
Coface Services North America Group (formerly Veritas
                                                                5                       34.44%           34.44%
Group)                                                                   Prop.                                           -              -               -             -             -                -
Coface Services Peru (formerly Veritas Peru)                    5        Prop.          34.44%           34.44%          -              -               -             -             -                -
Coface Services Venezuela (formerly Veritas Venezuela)          5        Prop.          34.44%           34.44%          -              -               -             -             -                -
Coface Servicios Argentina (formerly Veritas Argentina)         5        Prop.          34.44%           34.44%          -              -               -             -             -                -
Coface Servicios Chile (formerly Veritas Chile)                 5        Prop.          34.44%           34.44%          -              -               -             -             -                -
Coface Servicios Costa Rica (formerly Veritas de Centro
                                                                5                       34.44%           34.44%
America)                                                                 Prop.                                           -              -               -             -             -                -
Coface Servicios do Brazil                                      5        Prop.          34.44%           34.44%          -              -               -             -             -                -
Coface Servicios Espana S.L. (formerly Cofacerating.SP)         5        Prop.          34.44%           34.44%          -              -               -             -             -                -
Coface Servicios Mexico SA DE CV (formerly Informes
                                                                5                        34.44%            34.44%
Veritas)                                                                  Prop.                                          -              -                -            -             -                -
(1) Consolidation method Full: Full consolidation, Prop.: Proportional   consolidation, Equity: equity method

(2) Changes in the scope of consolidation in 2006
1 – Merger
2 – Consolidation
3 – Partial contribution of income
4 – Deconsolidated
5 – Creation of Natixis




                                                                                                                                                                                               155
                                                                        Balance sheet at December 31, 2006               Income statement for 2006                          2005
                                                                       Consolidati      %       % interest        Consolidatio       %        % interest   Consolidatio      %         % interest
                    Consolidated entities                       (2)    on method consolidatio                                  consolidatio                             consolidatio
                                                                          (1)           n                         n method (1)       n                     n method (1)      n

Coface Servicios Panama                                            5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Coface Servicios Portugal (formerly Coface MOPE)                   5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Coface Slovakia CMS (formerly Coface Intercredit Slovakia)         5       Prop.         34.44%          25.83%        -             -             -            -            -             -
Coface Slovenia CMS (formerly Coface Intercredit Slovenia)         5       Prop.         34.44%          25.83%        -             -             -            -            -             -
Coface South Africa Services (formerly CUAL)                       5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Coface South African Insurance Company                             5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Coface UK Holdings (formerly London Bridge Finance Group)          5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Coface UK Services Ltd (formerly Cofacerating.uk)                  5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Cofacerating Holding                                               5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Cofacerating.CH                                                    5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Cofacerating.DE                                                    5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Cofacrédit                                                         5       Equity        12.40%          12.40%        -             -             -            -            -             -
Cofaction 2                                                        5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Cofinpar                                                           5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Cofobligations                                                     5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Cogeri                                                             5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Collomb Magellan SCI                                               5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Compagnie Foncière Natexis                                         5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Credico Ltd (formerly Cimco Ltd)                                   5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Creditors Group Holding Ltd                                        5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Domimur                                                            5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Dupont-Denant Contrepartie                                         5       Prop.         17.22%          17.22%        -             -             -            -            -             -
Ecrinvest 6                                                        5       Prop.         34.44%          34.44%        -             -             -            -            -             -
EDVAL C Investments Ltd                                            5       Prop.         34.44%          34.44%        -             -             -            -            -             -
EIOS                                                               5       Equity        10.33%          10.33%        -             -             -            -            -             -
Energeco                                                           5       Prop.         34.44%          34.44%        -             -             -            -            -             -
FCPR Natexis Industrie                                             5       Prop.         31.00%          28.59%        -             -             -            -            -             -
FCPR Natexis Industrie II                                          5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Fimipar                                                            5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Financière Cladel                                                  5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Financiere Natexis Singapour                                       5       Prop.         34.44%          29.62%        -             -             -            -            -             -
Finatem                                                            5       Prop.         34.44%          29.62%        -             -             -            -            -             -
FNS2                                                               5       Prop.         34.44%          29.62%        -             -             -            -            -             -
FNS3                                                               5       Prop.         34.44%          29.62%        -             -             -            -            -             -
FNS4                                                               5       Prop.         34.44%          29.62%        -             -             -            -            -             -
Fonciére Kupka                                                     5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Fructibail                                                         5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Fructibail Invest                                                  5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Fructicomi                                                         5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Graydon Holding                                                    5       Equity         9.64%          9.64%         -             -             -            -            -             -
Coface Central Europe Holding Group (formerly Coface
                                                                   5                     25.83%          25.83%
Intercrédit Holding AG)                                                    Prop.                                       -             -             -            -            -             -
IFCIC                                                              5       Equity         6.89%          6.89%         -             -             -            -            -             -
Immobilière Natexis                                                5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Initiative et Finance Investissement                               5       Prop.         31.68%          25.49%        -             -             -            -            -             -
Investima 6                                                        5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Kompass Bilgi (Dagitim Hizmetleri)                                 5       Prop.         24.11%          24.11%        -             -             -            -            -             -
Kompass Czech Republic                                             5       Prop.         32.03%          32.03%        -             -             -            -            -             -
Kompass Global Databases                                           5       Prop.         25.83%          15.84%        -             -             -            -            -             -
Kompass Holding (group)                                            5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Kompass International Neuenschwander                               5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Kompass Japan                                                      5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Kompass Poland                                                     5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Kompass South East Asia                                            5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Kompass United States                                              5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Librairie Electronique                                             5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Mercosul                                                           5       Prop.         34.44%          28.93%        -             -             -            -            -             -
MSL1 Fund                                                          5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis ABM Corp LLC                                               5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis ABM Corp. (formerly Asset Backed Management
                                                                   5                     34.44%          34.44%
Corporation)                                                               Prop.                                       -             -             -            -            -             -
Natexis Actions Capital Structurant                                5       Prop.         21.70%          21.70%        -             -             -            -            -             -
Natexis Algérie                                                    5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Altaïr                                                     5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis AMBS                                                       5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Asset Management                                           5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Asset Management Immobilier (formerly Natexis
                                                                   5                     34.44%          34.44%
Immo Placement)                                                            Prop.                                       -             -             -            -            -             -
Natexis Asset Square                                               5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Banques Populaires Invest                                  5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Banques Populaires Preferred Capital I                     5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Banques Populaires Preferred Capital II                    5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Banques Populaires Preferred Capital III                   5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Bleichroeder Inc                                           5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Bleichroeder SA                                            5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Cape                                                       5       Prop.         33.75%          28.93%        -             -             -            -            -             -
Natexis Coficine                                                   5       Prop.         32.37%          32.37%        -             -             -            -            -             -
Natexis Commodity Markets Ltd (formerly Natexis Metals)            5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Factorem                                                   5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Funding USA                                                5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Intertitres                                                5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Inversiones                                                5       Prop.         34.44%          28.93%        -             -             -            -            -             -
Natexis Investissement                                             5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Investment Corp.                                           5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Lease                                                      5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Lease Madrid                                               5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Lease Milan                                                5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis LLD                                                        5       Prop.         34.44%          34.44%        -             -             -            -            -             -
Natexis Luxembourg                                                 5       Prop.         34.44%          34.44%        -             -             -            -            -             -
(1) Consolidation method Full: Full consolidation, Prop.: Proportional consolidation, Equity: equity method

(2) Changes in the scope of consolidation in 2006
1 – Merger
2 – Consolidation
3 – Partial contribution of income
4 – Deconsolidated
5 – Creation of Natixis




156
                                                              Balance sheet at December 31, 2006                    Income statement for 2006                            2005
                                                           Consolidation        %        % interest           Consolidatio      %        % interest   Consolidation        %          % interest
               Consolidated entities                 (2)                                                                     consolidatio                             consolidatio
                                                             method (1)     consolidation                     n method (1)        n                    method (1)          n

Natexis   Moscow                                     5          Prop.           34.44%          34.44%             -              -           -             -              -               -
Natexis   Pramex Asia Ltd                            5          Prop.           34.44%          34.12%             -              -           -             -              -               -
Natexis   Pramex Deutschland                         5          Prop.           34.44%          34.12%             -              -           -             -              -               -
Natexis   Pramex France                              5          Prop.           34.44%          33.78%             -              -           -             -              -               -
Natexis   Pramex Iberica SA                          5          Prop.           34.44%          34.12%             -              -           -             -              -               -
Natexis   Pramex International Inc.                  5          Prop.           34.44%          34.12%             -              -           -             -              -               -
Natexis   Pramex Italia SRL                          5          Prop.           34.44%          32.72%             -              -           -             -              -               -
Natexis   Pramex Maroc                               5          Prop.           34.44%          34.12%             -              -           -             -              -               -
Natexis   Pramex North America Corp.                 5          Prop.           34.44%          34.12%             -              -           -             -              -               -
Natexis   Pramex Polska                              5          Prop.           34.44%          34.12%             -              -           -             -              -               -
Natexis   Pramex Rus Ltd                             5          Prop.           34.44%          34.12%             -              -           -             -              -               -
Natexis   Pramex UK Ltd                              5          Prop.           34.44%          34.12%             -              -           -             -              -               -
Natexis   Private Banking                            5          Prop.           34.44%          34.44%             -              -           -             -              -               -
Natexis   Private Banking Luxembourg SA              5          Prop.           33.06%          33.06%             -              -           -             -              -               -
Natexis   Private Equity                             5          Prop.           34.44%          34.44%             -              -           -             -              -               -
Natexis   Private Equity International               5          Prop.           34.44%          34.44%             -              -           -             -              -               -
Natexis Private Equity International Management       5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natexis Private Equity International Singapour        5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natexis Private Equity Opportunities                  5          Prop.            34.44%          30.65%           -              -           -             -              -               -
Natexis Services Ltd                                  5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natexis US Finance Corporation                        5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natexis Industrie                                     5          Prop.            34.44%          30.65%           -              -           -             -              -               -
Natexis Venture Selection                             5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natinium                                              5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Arbitrage                                     5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Assurances                                    5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Axeltis Ltd (Asset Square Londres)            5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Bail                                          5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Funding                                       5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Immo Développement                            5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Immo Exploitation                             5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Interepargne                                  5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Investor Servicing                            5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Life                                          5          Prop.            34.44%          34.10%           -              -           -             -              -               -
Natixis Paiements                                     5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Natixis Transport Finance (formerly Société de
                                                      5                           34.44%          34.44%
Banque Française et Internationale)                              Prop.                                             -              -           -             -              -               -
Natixis Finance                                       5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Naxicap Partners (formerly SPEF
                                                      5                           34.44%          34.44%
Développement)                                                   Prop.                                             -              -           -             -              -               -
NEM 2                                                 5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Novacredit                                            5          Prop.            22.73%          22.73%           -              -           -             -              -               -
NXBP1                                                 5          Prop.            34.44%          34.44%           -              -           -             -              -               -
OR Informatique                                       5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Orchid Telematics Ltd                                 5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Paris Office Fund                                     5          Prop.            17.22%          17.22%           -              -           -             -              -               -
Providente                                            5          Prop.            34.44%          34.44%           -              -           -             -              -               -
S.A.G.P                                               5          Prop.            34.44%          34.44%           -              -           -             -              -               -
S.C.I. ABP Iena                                       5          Prop.            34.44%          34.44%           -              -           -             -              -               -
ABP Pompe                                             5          Prop.            34.44%          34.44%           -              -           -             -              -               -
S.C.I. Altair 1                                       5          Prop.            34.44%          34.44%           -              -           -             -              -               -
S.C.I. Altair 2                                       5          Prop.            34.44%          34.44%           -              -           -             -              -               -
S.C.I. Fructifoncier                                  5          Prop.            34.44%          34.44%           -              -           -             -              -               -
S.C.I. Valmy Coupole                                  5          Prop.            34.44%          34.44%           -              -           -             -              -               -
SEGEX                                                 5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Seventure Partners                                    5          Prop.            34.44%          34.44%           -              -           -             -              -               -
SLIB                                                  5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Sodeca                                                5         Equity             8.61%          8.61%            -              -           -             -              -               -
Soprane Services                                      5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Spafica                                               5          Prop.            34.44%          34.44%           -              -           -             -              -               -
SPEF LBO                                              5          Prop.            34.44%          34.44%           -              -           -             -              -               -
The Creditors Group Ltd                               5          Prop.            34.44%          34.44%           -              -           -             -              -               -
The Creditors Information Co Ltd                      5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Unistrat Coface                                       5          Prop.            34.44%          34.44%           -              -           -             -              -               -
VAL A                                                 5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Viscontea Immobiliare                                 5          Prop.            34.44%          34.44%           -              -           -             -              -               -
Vitalia Vie                                           5          Prop.            34.44%          34.44%           -              -           -             -              -               -
VR Factorem                                           5          Prop.            17.56%          17.56%           -              -           -             -              -               -
Worledge A Investments Ltd                            5          Prop.            34.44%          34.44%           -              -           -             -              -               -
(1) Consolidation method Full: Full consolidation, Prop.: Proportional consolidation, Equity: equity method


(2) Changes in the scope of consolidation in 2006
1 – Merger
2 – Consolidation
3 – Partial contribution of income
4 – Deconsolidated
5 – Creation of Natixis




                                                                                                                                                                                     157
      STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2006

This is a free translation into English of the Statutory Auditors’ report issued in French and is provided
solely for the convenience of English speaking readers. The Statutory Auditors’ report includes
information specifically required by French law in such reports, whether qualified or not. This
information is presented below the opinion on the consolidated financial statements and includes an
explanatory paragraph discussing the auditors’ assessments of certain significant accounting and
auditing matters. These assessments were considered for the purpose of issuing an audit opinion on
the consolidated financial statements taken as a whole and not to provide separate assurance on
individual account captions or on information taken outside of the consolidated financial statements.

This report should be read in conjunction with, and construed in accordance with, French law and
professional auditing standards applicable in France.



GROUPE CAISSE NATIONALE DES CAISSES D’EPARGNE
5, rue Masseran
75007 Paris

In compliance with the assignment entrusted to us by the Annual Shareholders’ Meeting, we have
audited the accompanying consolidated financial statements of the Caisse Nationale des Caisses
d’Epargne Groupe, for the year ended December 31, 2006.

The consolidated financial statements have been approved by the Management Board. Our role is to
express an opinion on these consolidated financial statements based on our audit.

These consolidated financial statements have been prepared for the first time in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European Union. They include
comparative information in respect of financial year 2005, restated in accordance with the same
standards.


1. Opinion on the consolidated financial statements
We conducted our audit in accordance with professional standards applicable in France. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the assets, liabilities
and financial position of the Group at 31 December 2006, and of the results of the consolidated group
of companies for the year then ended in accordance with IFRS as adopted by the European Union.




158
2. Justification of our assessments

In accordance with the requirements of article L.823-9 of the French Commercial Code (Code de
commerce) relating to the justification of our assessments, we bring to your attention the following
matters:

Accounting principles
During the year, the Group provided capital contributions to Natexis Banque Populaires in exchange
for an interest in Natixis, as described in Note 1.3 – Significant events in 2006, and calculated the
corresponding goodwill by applying the purchase accounting method prescribed by IFRS 3. Within the
context of the transactions carried out in connection with the creation of Natixis, we reviewed the
terms and conditions for calculating goodwill, which has not at this stage been allocated to assets or
liabilities.

Accounting estimates
As indicated in Notes 5.2.1 and 9.8 to the consolidated financial statements, the Group records provisions
to cover the credit risks inherent to its operations. As part of our assessment of the significant estimates
used for the preparation of the financial statements, we examined the control procedures put in place by
the Group to monitor credit risks, assess the risks of non-recovery and calculate impairment and
provisions on an individual and portfolio basis.
As indicated in Notes 5.2.4, 5.2.5, 8.2 and 9.3 to the consolidated financial statements, the Group uses
internal models and techniques to measure positions on financial instruments that are not listed on
organized markets, and to assess whether the designation of hedging transactions is appropriate. We
examined the control procedures put in place to validate the models used and define the parameters
applied.
For the purposes of preparing the consolidated financial statements, the Group also makes
accounting estimates in order to determine and record provisions for home savings plans (Notes 5.6
and 8.13) employee benefits (Notes 5.8 and 9.10), deferred taxes (Notes 5.10 and 9.10) and technical
reserves of insurance companies (Notes 5.11 and 8.12). We reviewed the assumptions used and
verified that these accounting estimates are based on documented methods that conform to the
principles set forth in the above-mentioned notes to the consolidated financial statements.

As part of our assessments, we ensured that these estimates were reasonable.

The assessments were made in the context of our audit of the consolidated financial statements,
taken as a whole, and therefore contributed to the opinion we formed which is expressed in the first
part of this report.


3. Specific verification

In accordance with professional standards applicable in France, we have also verified the information
given in the Group management report. We have no matters to report regarding its fair presentation and
conformity with the consolidated financial statements.

Neuilly sur Seine and Paris la Défense, April 10, 2007

                                          The Statutory Auditors

        PricewaterhouseCoopers Audit                                 Mazars & Guérard

   Anik Chaumartin             Patrice Morot             Michel Barbet-Massin        Charles de Boisriou




                                                                                                          159
      INFORMATION ON THE FINANCIAL STATEMENTS
      OF THE PARENT COMPANY


Extracts from the annual financial statements of the Caisse Nationale des Caisses d’Epargne et de
Prévoyance for the year ended December 31, 2006 are presented below. The annual financial
statements have been examined by the Statutory Auditors. Their report is free of qualifications but
contains observations relating to the changes in accounting method outlined hereafter.

Both the annual financial statements and the corresponding Statutory Auditors’ report may be
consulted at the CNCE’s administrative headquarters.



      BALANCE SHEET AT DECEMBER 31, 2006 AND DECEMBER 31, 2005

                                                                              (in millions of euros)
      ASSETS                                                         Dec. 31, 2006     Dec. 31,
                                                                                        2005

      CASH AND AMOUNTS DUE FROM CENTRAL BANKS AND                            3,644             7,090
      POST OFFICE BANKS
      TREASURY BILLS AND SIMILAR SECURITIES                                     54               51
      LOANS AND ADVANCES TO CREDIT INSTITUTIONS                             99,774           94,825
      - demand accounts                                                     21,748           30,358
      - term accounts                                                       78,026           64,467
      CUSTOMER ITEMS                                                         2,270            2,306
      - other customer loans                                                 1,582            1,403
      - current accounts in debit                                              688              903
      BONDS AND OTHER FIXED-INCOME SECURITIES                                6,796            4,461
      EQUITIES AND OTHER VARIABLE-INCOME SECURITIES                          1,961            1,781
      EQUITY INTERESTS AND OTHER LONG-TERM                                   1,078              866
      INVESTMENTS
      AFFILIATES ACCOUNTED FOR BY THE EQUITY METHOD                         12,556           13,417
      INTANGIBLE ASSETS                                                         26               26
      TANGIBLE ASSETS                                                          112               59
      OTHER ASSETS                                                             732            1,620
      ACCRUALS AND OTHER ACCOUNTS RECEIVABLE                                 5,474            6,453

       TOTAL ASSETS                                                        134,477        132,954
      - Of which total assets denominated in foreign currencies equivalent to €8,304 million.
                                                                              (in millions of euros)
      OFF-BALANCE SHEET COMMITMENTS                                  Dec. 31, 2006     Dec. 31,
                                                                                        2005
      Commitments given

      FINANCING COMMITMENTS                                                 15,546           19,207
      Commitments to credit institutions                                    13,747           18,061
      Commitments to customers                                               1,799            1,146
      GUARANTEES GIVEN                                                       9,881            7,116
      Commitments to credit institutions                                     1,047              816
      Commitments to customers                                               8,834            6,300
      COMMITMENTS MADE ON SECURITIES                                             6               91
      Other commitments given                                                    6               91



160
(in millions of euros)
 LIABILITIES, CAPITAL FUNDS AND RESERVES                         Dec. 31, 2006 Dec. 31, 2005

 AMOUNTS DUE TO CREDIT INSTITUTIONS                                     56,255          66,895
 - demand accounts                                                      16,380          30,545
 - term accounts                                                        39,875          36,350
 CUSTOMER ITEMS                                                           1,595           2,294
 Other accounts:                                                          1,595           2,294
 - demand accounts                                                          903           1,930
 - term accounts                                                            692             394
 DEBT SECURITIES                                                        44,991          36,414
 - interbank and other money market securities                          30,641          12,851
 - bonds                                                                11,459          23,563
 - other debt securities                                                  2,891
 OTHER LIABILITIES                                                        4,876           3,653
 ACCRUALS AND OTHER ACCOUNTS PAYABLE                                      8,135           5,750
 PROVISIONS FOR LIABILITIES AND CHARGES                                     300             247
 SUBORDINATED DEBT                                                        8,204           7,482
 RESERVE FOR GENERAL BANKING RISKS (RGBR)                                   106             106
 CAPITAL FUNDS AND RESERVES (EXCLUDING RGBR)                            10,015          10,113
 Share capital                                                            6,561           7,252
 Additional paid-in capital                                                               2,064
 Reserves                                                                     94            120
 Retained earnings                                                      (1,042)              69
 Interim dividends
 Net income for the year                                                  4,402             608
 TOTAL LIABILITIES, CAPITAL FUNDS AND RESERVES                         134,477        132,954
- Of which total liabilities denominated in foreign currencies equivalent to €8,297 million.
                                                                         (in millions of euros)
 OFF-BALANCE SHEET COMMITMENTS                                      Dec. 31,      Dec. 31, 2005
                                                                     2006

 Commitments received

 FINANCING COMMITMENTS                                                    1,891             2,344
 Commitments from credit institutions                                     1,891             2,344
 GUARANTEES RECEIVED                                                      5,860             3,736
 Commitments from credit institutions                                     5,860             3,736
 COMMITMENTS RECEIVED ON SECURITIES                                         235               343
 Other commitments received                                                 235               343




                                                                                                    161
       PROFIT AND LOSS ACCOUNT FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

                                                                                     (in millions of euros)
            PROFIT AND LOSS ACCOUNT                                                2006          2005
       + Interest and similar income                                                  6,252          3,049
        - Interest and similar expense                                              (6,518)        (3,112)
       + Income from equities and other variable-income securities                    1,125             602
       + Commissions (income)                                                           127             124
        - Commissions (expense)                                                         (20)           (23)
       +/- Net losses on trading transactions                                           (60)           (45)
       +/- Net gains on held-for-sale portfolio transactions and similar items            43            101

       + Other operating income                                                         153              69
        - Other operating expense                                                     (136)            (50)
            NET BANKING INCOME                                                          966             714
        - General operating expenses                                                  (567)          (397)
        - Depreciation, amortization and impairment of tangible and                     (28)           (18)
          intangible assets
          GROSS OPERATING INCOME                                                        371             299
        -   Net allocations to provisions                                                 (1)          (35)
            OPERATING INCOME                                                            370             264
       +/- Net gains on fixed assets                                                  4,139             194
            ORDINARY INCOME BEFORE TAX                                                4,509             458
       +/- Exceptional items                                                                            (3)
        - Corporate income tax                                                        (107)             153
       +/- NET INCOME                                                                 4,402             608

CHANGES IN ACCOUNTING METHOD

Several changes of accounting method were applied at January 1, 2006:

■ Regulation no. 2005-03 issued by the Comité de la réglementation comptable (French accounting
      standard setter – CRC) changed the benchmark rate used for calculating discounts on restructured
      loans, with effect from January 1, 2006. The rate at inception of the loan is now applied, instead of
      the market rate. This change of accounting method did not have a material impact on the
      Company's accounts, and did not lead to any adjustments to equity.

■ CRC regulation no. 2005-01 authorized the reclassification of certain items from the investment
      securities portfolio with effect from January 1, 2006.
      The first-time adoption of this regulation led to transfers of securities from the investment portfolio
      to the held-for-sale portfolio in an amount of €1,252 million. Due to the application of tax rules, the
      Company has recognized the €1 million impact of this change in method through profit and loss.

■ CRC regulation no. 2005-01 has standardized the actuarial calculation used to amortize premiums
      and discounts on the securities portfolio. Adjustments recorded in connection with the first-time
      adoption of this regulation are treated in accordance with the general provisions for changes in
      accounting method laid down in article 314-1 of CRC regulation no. 99-03. Accordingly, the new
      method is applied retrospectively, as though it had always been in force.
      This change of accounting method did not have a material impact on the Company's accounts.



162
         STATEMENT OF CHANGES IN CAPITAL FUNDS AND RESERVES
                                                                                                                     (in millions o f e uro s )
                                                                                                                          Total capital
                                                                                                                           funds and
                                                   Additional                                                               res erves
                                     Share                                          Interim     Retained        Net
                                                    paid-in       Res erves                                                (excluding
                                     capital                                       dividends    earning s     income
                                                    capital                                                               Res erve for
                                                                                                                        General Banking
                                                                                                                             Ris ks )
At December 31, 2004                    6,906           1,938                 81        (204)            0          777              9,498
Mov ements in 2005                        346             126                 39         204            69        (169)                    615
At December 31, 2005                    7,252           2,064             120              0            69          608                10,113
Ca pita l inc rea s e                   1, 000                                                                                          1, 000
Ca pita l reduc tion                  (2, 109)         (2, 197)           (57)                     (1, 137)                           (5, 500)
Appropria tion of 2005 net inc ome             0             0            582              0            26        (608)                       0
Div idends pa id                          418             133            (551)                                                                0
Other mov ements                                                                                                                              0
      et
2006 N income                                  0             0                 0                                  4,402                 4,402
At December 31, 2006                    6,561                0                94           0       (1,042)        4,402                10,015



At December 31, 2006, the CNCE’s share capital amounted to €6,561 million, divided into 430,210,331
shares with a par value of €15.25 each.

Following the meeting of the Management Board on December 20, 2006, the Company proceeded with a
€1 billion cash capital increase by issuing 65,573,755 shares with a par value of €15.25 per share.

The changes of accounting method implemented at January 1, 2006 are described above.




                                                                                                                                             163
      EQUITY INTERESTS, AFFILIATES AND OTHER LONG-TERM INVESTMENTS


Table of subsidiaries and affiliates

                                                                         Share capital Capital funds   % interest
                                                                          at Dec. 31,   other than     held at Dec.
                                                                             2005      share capital    31, 2006
                                                                                        at Dec. 31,
                                                                                           2005

in millions of euros



I. Detailed information concerning the individual Caisses d’Epargne,
subsidiaries and affiliates whose gross value exceeds 1% of the parent
company’s capital

1. S ubsidiaries (over 50%-held)

Ho lassure – 5, rue M asseran – 75007 P aris
                                                                                   811           106       100.00%
                             9,
Crédit Fo ncier de France – 1 rue des Capucines – 75001P aris
                                                                                   441           463       100.00%
                                                       4
Financière OCEOR – 27, rue de la To mbe-Isso ire – 7501 P aris
                                                                                   186           145        95.00%
B anque P alatine – 52, avenue Ho che – 75008 P aris
                                                                                   373            49        62.69%
GCE Immo bilier SA – 64, rue de Lisbo nne – 75008 P A RIS
                                                                                   144            51       100.00%


2. Caisses d’Epargne and affiliates (between 10% and 50%-held)

Ecureuil Vie – 5, rue M asseran – 75007 P aris
                                                                                   554         1,313        49.78%
                    5,                      6 23
B anca Carige SA - 1 via Cassa Risparmio – 1 1 Geno a – Italy
                                                                                 2,857                      12.87%
Natixis SA – 45, rue Saint Do minique – 75007 P aris
                                                                                   784         2,910        34.44%


II. General information about other subsidiaries and affiliates

1. Subsidiaries not included in I.1
a. French subsidiaries
b. Other subsidiaries

2. Affiliates not included in I.2
a. French companies
b. Other companies




164
 Book value of           Outstanding Guarantees Net sales for Net income for         Dividends
securities held           loans and         and         the year   the year ended received by the
                          advances     endorsement ended Dec.      Dec. 31, 2005       parent
                        granted by the s given by the  31, 2005                       company
                            parent         parent     (before tax)                during the last
                          company         company                                  financial year

Gross         Net




       928      928                                             0               0              0
     1,201    1,201              1,260                        694             187            230
       549      483              2,091                         33              23             23
       556      556              1,244          336           193              32              1
       302      302                 35                          0               6              3




       678      678                20                         906             182              86
       368      368                                                                             7
     8,214    8,214                                          1,443            459               0




        196       161             520            14                                             5
          1         1                                                                           1


        398       374              94            30                                             5
        357       352                            20                                            14




                                                                                                165
Entities for which the CNCE has unlimited liability

Company name                             Headquarters                                               Legal status
S EDI-RS I                               76, boulev a rd Pa s teur – 75015 Pa ris                   Ec onomic interes t g rouping
                                         430, rue Pierre-S imon-La pla c e – 13100 Aix-en-
Arpèg e                                                                                             Ec onomic interes t g rouping
                                         Prov enc e
Girc e Ing énierie                       Rue du Fort-de-Noy elles – 59113 S ec lin                  Ec onomic interes t g rouping
Girc e S tra tég ie                      76, boulev a rd Pa s teur – 75015 Pa ris                   Ec onomic interes t g rouping
S irc e 2                                5, rue Ma s s era n – 75007 Pa ris                         Ec onomic interes t g rouping
Antic ipa                                4, pla c e Ra oul-Da utry – 75015 Pa ris                   Ec onomic interes t g rouping
Ec ureuil Crédit                         29, rue de la Tombe-Is s oire – 75014 Pa ris               Ec onomic interes t g rouping
Inf orma tique CDC                       56, rue de Lille – 75007 Pa ris                            Ec onomic interes t g rouping
S c hiphol                               260, boulev a rd S a int-Germa in – 75007 Pa ris           Ec onomic interes t g rouping
Av a nt S eine 1                         5, rue Ma s s era n – 75007 Pa ris                         S CI (non-tra ding rea l es ta te c ompa ny )
Av a nt S eine 2                         5, rue Ma s s era n – 75007 Pa ris                         S CI (non-tra ding rea l es ta te c ompa ny )
S CI 14 Rue de la Tombe-Is s oire        14, rue de la Tombe-Is s oire – 75014 Pa ris               S CI (non-tra ding rea l es ta te c ompa ny )
S oc iété Civ ile Immobilière V is ion   6, pla c e Abel-Ga nc e – 92100 Boulog ne-Billa nc ourt    S CI (non-tra ding rea l es ta te c ompa ny )
Ha ute Cla ire                           5, rue Ma s s era n – 75007 Pa ris                         S NC (limited pa rtners hip)
Pa rtic ipa tions Ec ureuil              5, rue Ma s s era n – 75007 Pa ris                         S NC (limited pa rtners hip)
Ec uf onc ier                            19, rue des Ca puc ines – 75001 Pa ris                     S CA (pa rtners hip limited by s ha res )



Related party transactions

                                                                                                  (in millions of euros )
                                                Credit              Other                 TOTAL              TOTAL
                                             ins titutions        companies             Dec. 31, 2006 Dec. 31, 2005

Rec eiv a bles                                         77, 927                 700              78, 627            75, 282
- of w hic h s ubordina ted items                       2, 884                  20               2, 904              2, 203
Pa y a bles                                            33, 400                  84              33, 484            40, 120
Fina nc ing c ommitments g iv en                        5, 832                  13               5, 845              9, 839
Fina nc ing c ommitments rec eiv ed                     1, 441                      0            1, 441              2, 198
Gua ra ntee c ommitments g iv en                           862                 147               1, 009                646
Gua ra ntee c ommitments rec eiv ed                     5, 267                      0            5, 267              3, 688




166
    OTHER COMMITMENTS NOT RECORDED OFF-BALANCE SHEET (EXTRACTS)

CNCE’S GUARANTEE IN RESPECT OF THE BUSINESS ACTIVITIES OF IXIS CORPORATE & INVESTMENT BANK
(IXIS CIB)

Certain transactions carried out by IXIS CIB are covered by the Caisse des Dépôts et Consignations
(CDC) in the form of a joint guarantee. These include:

-   cash and interbank transactions;
-   trading in financial instruments, including transactions relating to the issuance of such
    instruments, except for those concerning the issuance of subordinated debt;
-   signature commitments such as guarantees and pledges.

According to the terms of the guarantee, IXIS CIB may provide the guarantee to some of its own
subsidiaries.

In accordance with the agreement signed with the European Commission on March 27, 2003, this
guarantee shall be closed to additional transactions from January 24, 2007. In addition, new
transactions maturing after January 23, 2017 are no longer guaranteed by CDC.
As part of the New Foundations project, on May 27, 2004 the CNCE agreed to counter-guarantee IXIS
CIB transactions guaranteed by CDC, with effect from June 30, 2004.

In addition, from October 1, 2004 the CNCE has agreed to directly guarantee IXIS CIB transactions
that are not guaranteed by CDC, with the exception of issues of subordinated debt.

With effect from November 17, 2006, Natixis counter guarantees the CNCE for commitments given as
described above.




                                                                                                167
168
3 GROUPE CAISSE D'EPARGNE
           FINANCIAL REPORT OF




MANAGEMENT REPORT ......................................................................................................... 170
1 Significant events of 2006 ........................................................................................................ 170
2 Strong upswing in financial results ........................................................................................... 177
3 Commercial Banking: A Steady Increase In Results ............................................................... 185
4 Investment banking: an exceptional performance ................................................................... 193
5 Pro forma consolidated income statement............................................................................... 201
6 Analysis of the consolidated balance sheet ............................................................................. 201
7 Regulatory capital and capital adequacy ratio ......................................................................... 203
8 Recent developments and outlook for 2007............................................................................. 204



IFRS CONSOLIDATED FINANCIAL STATEMENTS OF GROUPE CAISSE D’EPARGNE ... 206
1 Consolidated balance sheet .................................................................................. 206
2 Consolidated statement of income .......................................................................................... 208
3 Statement of changes in shareholders' equity ......................................................................... 209
4 Consolidated statement of cash flows...................................................................................... 210
5 Notes to the consolidated financial statements of Groupe Caisse d'Epargne ......................... 211
6 Statutory auditors’ report on the consolidated financial statements ........................................ 292




                                                                                                                                            169
      MANAGEMENT REPORT



        SIGNIFICANT EVENTS OF 2006

1.1 MACROECONOMIC ENVIRONMENT

1.1.1    A buoyant international environment, fueled by the emerging economies and the US
         as well as the upturn in European growth...
The global economy experienced a third straight year of very strong growth (estimated at 4.8%). New
records were set, from the trade surpluses booked by the emerging countries (mainly in Asia) to the
vigorous growth in US GDP (up 3.3%). At the same time, Japan now appears to have left its long period
of economic stagnation behind, as evidenced by healthy banking sector balance sheets, enhanced
business profitability and lower debt levels. The European economy has also made a remarkable
comeback (up 2.7%), driven in particular by growth in Germany (2.5%), the Netherlands (2.9%), Spain
(3.7%) and Ireland (5.4%).

2006 also proved to be a favorable year for the euro, which gained almost 12% against the dollar
(US$1.32 for €1 at December 31, 2006). The euro benefited from both a narrower GDP gap between
the US and Europe, the European Central Bank’s (ECB) policies and the Bank of China’s foreign
currency arbitrage trading.

…but rendered fragile by persistent tensions
Current account imbalances reached unprecedented levels, particularly in the US, where the current
account and federal deficits are both close to 8% of GDP. In addition, China and the other emerging
Asian economies remain a potential source of turbulence, given that their unbridled growth is also a
source of profound economic, social and even ecological instability.


1.1.2    Improved economic performance in France driven by the level of consumer
         spending and growth in industrial output and exports
Within this overall context, the French economy grew 2%, buoyed by strong consumer demand. This
demand was fueled in turn by positive results for employment – the jobless rate dropped by 1.1 point
to 8.6% at the end of the year – as well as for business investment. However, there are several
sources of concern, in particular the trade deficit.


1.1.3    Contrasting interest rate policies during the second half of the year accompanied
         by rising market volatility

Expectations of a slowdown in the American economy prompted the Federal Reserve in July 2006 to
interrupt the policy of monetary tightening it had followed since mid-2004. The federal funds rate
nevertheless increased by 100 basis points to 5.25% by the end of the year.
In contrast, the ECB maintained its restrictive monetary policy; its key interest rate thus increased by
125 basis points to 3.5% at the end of 2006.

The recycling of Asian trade surpluses, the trend towards privatization of healthcare and retirement
provisions and changes in the banking and insurance regulatory environment (Basel II, Solvency,
IFRS, etc.) all stimulated purchases of bonds. The bond market was very tight at the beginning of
2006, and over four months, the 10-year US treasury bond yield rose from 4.4% to 5.0%, while the 10-
year rate on French government bonds (OATs) rose from 3.3% to 4.0%. For the year as a whole, US
and French long-term yields averaged 4.8% and 3.8%, respectively.

170
Meanwhile, with interest rates still moderate, company profits continued upward, while equity markets
reaped the benefits of corporate share buyback and dividend policies as well as an upsurge in
mergers and acquisitions. The CAC 40 share index rose by almost 17.5% during the year, reaching
5,541 points. The rise was accompanied by increased volatility, however. During the second and third
quarters in particular, there were phases of strong downward price movements, reflecting uncertainty
as to the business outlook in the middle of the year and the war in Lebanon.

Multiple sources of geopolitical tension (Iran’s nuclear program, the danger of interruption to Russian
gas supplies, the election of strongly anti-US governments in South America) exacerbated fossil fuel
price volatility, which nevertheless diminished during the second half of the year. Oil ended the year at
US$59 per barrel, compared with an average of US$65 in 2006, while natural gas fell to its 2003 price
level of about US$20, a fourfold decrease from the beginning of the year.


1.2 AN EVOLVING GROUP

2006 was an historic year, marked by the merger between the Banque Populaire group and Groupe
Caisse d'Epargne (GCE), the creation of Natixis and the success of Euronext’s largest share
placement during the year (more than 248 million shares were placed while 1.1 million share purchase
orders were received from Groupe Caisse d'Epargne's customers and cooperative shareholders). As
a result, the Caisse Nationale des Caisses d’Epargne’s (CNCE) ownership structure changed
substantially and Caisse des Dépôts et Consignations (CDC) ceased to be a shareholder.

1.2.1   Creation of Natixis

At the end of the period of exclusive negotiations initiated on March 12, 2006, Groupe Caisse
d’Epargne and the Banque Populaire group signed a memorandum of understanding on June 6, 2006.
The memorandum set out the conditions for creating their new joint subsidiary, Natixis, which brings
together their corporate, investment banking and services businesses.

Pre-merger transactions
The following pre-merger transactions took place during the second half of 2006:
■ the CNCE purchased the 62% stake in CEFI held by the individual Caisses d'Epargne;
■ the CNCE purchased Banque Palatine’s 100% interest in GCE Bail and GCE Affacturage;
■ the CNCE purchased the stakes in La Compagnie 1818 held by CFF (3.73%) and Banque Palatine
   (9.74%);
■ Holgest was absorbed by the CNCE, which thereby obtained a direct 66% interest in Gestitres;
■ Ecureuil Participations was merged into the CNCE, which thus obtained a direct interest in:
             ■ GCE Garanties (an additional 6.04%),
             ■ IXIS AM Group (an additional 2.87%),
             ■ Ecureuil Vie (7.91 %);
■ the CNCE purchased the 34% stake in Gestitres held by Crédit Lyonnais;
■ the CNCE sold its holding of preferred shares in the Group’s subsidiary IXIS AM US Corp to IXIS
   AM Group;
■ IXIS AM Group increased its share capital by €957 million to be able to purchase the preferred
   shares in IXIS AM US Corp; CNP and Sanpaolo IMI waived their subscription rights in favor of the
   CNCE;
■ the CNCE and Banque Fédérale des Banques Populaires (BFBP) jointly purchased Sanpaolo IMI’s
   interest in IXIS AM Group (12%) and IXIS CIB (2.45%).

Restructuring transactions
On November 17, 2006 the Ordinary and Extraordinary Shareholders’ Meeting of Natexis Banques
Populaires approved the creation of Natixis, the asset contributions of the Caisse Nationale des
Caisses d’Epargne and SNC Champion (a subsidiary of Banque Fédérale des Banques Populaires)
as well as a share capital increase enabling payment for those contributions.




                                                                                                     171
The CNCE therefore transferred to Natexis Banques Populaires the following assets for an amount of
€10.7 billion:
■ its entire interest in La Compagnie 1818, CACEIS, GCE Garanties, Gestitres, IXIS CIB, IXIS AM
   Group, CIFG, CEFI, GCE Affacturage, GCE Bail, Foncier Assurance (with the exception of the
   40% held directly by Crédit Foncier) and GCE Financial Services, for a total of €9.2 billion; and
■ €1.5 billion of the cooperative investment certificates (CICs) issued by the individual Caisses
   d’Epargne in 2004.

The remaining cooperative investment certificates issued by the Caisses d’Epargne network were sold
to the Banque Populaire group for €3 billion and transferred to Natexis Banques Populaires by SNC
Champion in order to even out the stake held by the two groups. The CNCE and SNC Champion also
contributed the shares in IXIS CIB and IXIS AM Group which they had acquired from Sanpaolo IMI.

Each of the Banques Populaires issued cooperative investment certificates, representing 20% of their
share capital, which were taken up by Natexis Banques Populaires.

At the end of this process, both groups held (directly and via SNC Champion) a 45.5% stake in
Natexis Banques Populaires, which was renamed Natixis.


Market transaction
In order to boost the liquidity and attractiveness of Natixis shares, both shareholders agreed to
increase the free float of the new bank by making shares available for sale to investors and the public.

Accordingly, on November 17, 2006 Banque Fédérale des Banques Populaires (BFBP) and the CNCE
offered a portion of their shares in Natixis on the market, in the form of an open price offer (OPO)
available to the public, subject to a period of reservation which began on November 18, as well as a
global placement with institutional investors both in France and abroad.

On December 6, the board of directors of BFBP and the Supervisory Board of the CNCE approved the
sale of Natixis shares at €19.55 per share.

Following the successful completion of the OPO, at December 31, 2006 the CNCE and BFBP each
held a 34.44% stake in Natixis, and two other stable shareholders, DZ Bank and Sanpaolo IMI,
respectively held stakes of 1.87% and 1.68%.
At the same time, Natixis owns a 20% stake in the branch networks of each of its majority
shareholders via the cooperative investment certificates it holds.



1.2.2     Transactions with Caisse des Dépôts et Consignations

On June 6, 2006, the CNCE and CDC agreed on the conditions for reorganizing their business
relationship, which are set out in:

■ a memorandum of understanding representing an irrevocable commitment by both parties in
      respect of the repurchase of CDC’s interest in the capital of the CNCE;
■ a letter of intent setting out the terms of a new strategic partnership between the two groups,
      known as the “New Deal”. This partnership concerns non-banking activities, particularly life
      insurance, real estate and private equity.

Repurchase of CDC’s stake in the CNCE
The CDC's stake in the CNCE was valued at €7 billion, an estimate which includes a premium
payable to CDC in respect of its specific contractual rights as a strategic shareholder.

This interest was repurchased in two stages:
■ On December 18, 2006, the CNCE purchased shares held by CDC for an amount of €5.5 billion,
   thus reducing CDC’s interest in the CNCE to 10.34% of its share capital;
■ On January 29, 2007, the CNCE purchased the residual shares for an amount of €1.5 billion.

172
Launch of a new strategic partnership between the two groups, mainly in the insurance and
real estate sectors: the New Deal transactions
In the field of life insurance, the agreements between GCE and CNP Assurances have been redefined
and extended to 2015 with an option for renegotiation commencing in 2013. However, the CNCE’s
stake in CNP Assurances remains unchanged.
In addition, Ecureuil Vie, a CNCE subsidiary, was sold to CNP Assurances during the first quarter of
2007.
In the real estate field, the CNCE contributed a portion of its assets to CDC during the second half of
2006. This related notably to its investments in the semi-public real estate companies Sagi and RIVP.
Furthermore, the CNCE and CDC have simplified their relationship in the area of private equity:
■ On September 1, 2006, CDC Entreprises (a wholly-owned subsidiary of CDC) transferred its 50%
   stake in Alliance Entreprendre to the CNCE.
■ On July 17, 2006, the CNCE sold its 35% minority interest in CDC Entreprises Capital
   Investissement (CDC ECI) to CDC Entreprises (a wholly-owned subsidiary of CDC).



1.2.3 Significant events in 2006 within the Group’s businesses
Alongside the Natixis project, in 2006 Groupe Caisse d’Epargne carried out a number of external
growth ventures in each of its core businesses and reinforced existing strategic cooperation
agreements or signed new ones. The Group’s Investment Banking division also continued to pursue a
policy of targeted international growth.
Operations in the Commercial Banking sphere included:
Retail banking
■ Operational roll-out of the S’Miles multi-brand loyalty program in September 2006, as a means of
   rewarding customers and boosting the Caisse d’Epargne brand.
■ Operational roll-out of the common personal care services platform Séréna since
   January 31, 2006. Séréna is a jointly-owned subsidiary of the Caisse d’Epargne, MAIF, MACIF and
   MGEN groups.
■ Launch of the new CESUs (multi-purpose employment service checks) issued jointly by Accor
   Services and Caisse d’Epargne.
■ Launch of the Parcours Confiance initiative: Groupe Caisse d’Epargne has stepped up its
   commitment to combating banking exclusion. Caisse d’Epargne is the first French bank to offer a
   complete range of banking services to customers experiencing financial difficulties, thus enabling
   them to stabilize their financial situation. The Parcours Confiance initiative will eventually be made
   available to 10,000 private and business customers every year.


Regional development banking
■ With regard to local government bodies and institutions, renewal and reinforcement of partnerships
   with representative associations.
■ With regard to public-private partnerships, provision of funding for major projects such as the
   Reims tramway and the French Foreign Ministry’s archives.
■ With regard to social housing and the social economy, the launch of appropriate offers in the
   various market segments (long-term loans, inflation-linked loans, etc.).
■ Reinforcement of the Group’s real estate division with the creation in 2006 of GCE Habitat for
   social housing and GCE Immobilier for services. Using PEREXIA’s competitive real estate
   operation as its foundation, GCE Immobilier was created in the spring to fulfill the Group’s ambition
   of possessing a single division catering for the whole range of real estate services. GCE Immobilier
   has already strengthened its position by acquiring stakes in two other companies, Aegide (the
   market leader for serviced accommodation for seniors) and Arthur Communication (which operates
   a national network of 450 agencies under the brand name Arthur L’Optimist).



                                                                                                     173
■ Launch of a national real estate leasing division in line with the Group’s plan to strengthen its
      position as a dominant player in this segment. This business is headed by Crédit Foncier via its
      subsidiary Cicobail. The launch involved the following operations:
               ■ Cicobail’s purchase of Eurosic’s real estate lease portfolio;
               ■ Cicobail, Mur Ecureuil, Cinergie, Foncier Bail, Investimur and Palatine Mur SNC were
                  merged with retroactive effect from January 1, 2006. Banque Palatine owns a 40%
                  stake in the new entity;
               ■ in November, Picardie Bail, a local subsidiary of Caisse d’Epargne de Picardie, was
                  sold to the Crédit Foncier group.


2006 was also marked by a certain number of partnerships and acquisitions, some of them with
international scope:
■ Acquisition by Financière OCÉOR of the Orane group, which is specialized in arranging tax-
      efficient transactions for SMEs operating in French overseas territories and departments and
      INGEPAR (which operates in the aeronautics and terrestrial transportation sectors).
■ Acquisition of a minority interest in DV Holding, a company operating in the area of housing for
      dependent seniors, thereby adding a new dimension to the MACIF-GCE alliance.
■ Acquisition of an interest in Crédit Immobilier et Hôtelier (CIH), enabling Groupe Caisse d’Epargne
      to obtain a foothold in Morocco. This was achieved via the purchase in July of a 35% Group
      interest in Massira Capital Management (MCM), which controls 67% of CIH. This project aims to
      transform CIH, which has traditionally specialized in providing home loans, into a retail bank
      delivering a complete range of leading-edge products and services.
■ Acquisition of an interest in BCP’s France- and Luxembourg-based subsidiaries. BCP France is
      jointly held by the Caisse d’Epargne Ile-de-France Paris (50.1%) and by the CNCE (30%); BCP
      Luxembourg is held by Financière OCÉOR (50.1%) and the CNCE (30%). The Millennium bcp
      group retains its 19.9% stake in both banks.
■ Signature of a memorandum of understanding for the creation of a joint Groupe Caisse d’Epargne
      and Banca Carige group subsidiary, which will be domiciled in Italy and will specialize in consumer
      credit.
Operations in the Investment Banking sphere in 2006 included:
■ Roll-out of the business activities of CACEIS. Following the launch in February of CACEIS
      Corporate Trust, which provides services to issuers, CACEIS completed the operational
      restructuring of its fund administration activities in France by creating CACEIS Fastnet, the market
      leader in French fund administration with 3,695 portfolios (mutual funds and mandates),
      administered funds of €627 billion and 550 employees.
■ Finalization of IXIS CIB’s acquisition of 100% of Nexgen, a company specializing in structured
      finance for large corporations; since the second half of 2006, Nexgen has traded under the IXIS
      Corporate Solutions brand.
■ Continued international expansion of IXIS CIB. The Milan branch began operations and a
      subsidiary was opened in Dubai to market the bank’s entire range of products, although its
      operations will still be structured by teams working out of Paris, London and Tokyo.



In 2006, a wave of mergers took place within the Caisses d’Epargne network, designed to give the
regional banks the requisite human and financial resources to step up the pace of their commercial
development.

Accordingly, the Caisse d’Epargne de Bourgogne and the Caisse d’Epargne de Franche-Comté
completed their merger on May 19, 2006.




174
A number of other linkups between individual Caisses d’Epargne were announced in 2006, notably:
■ In June 2006, the Caisse d'Epargne des Alpes and the Caisse d'Epargne de Rhône-Alpes Lyon
   signed a draft merger agreement.
■ In July 2006, the Caisse d'Epargne de Flandre, the Caisse d'Epargne du Pas-de-Calais and the
   Caisse d'Epargne des Pays du Hainaut signed a foundation agreement, and the resulting linkup
   agreement was signed on November 17, 2006. The new regional savings bank will be called
   “Caisse d’Epargne Nord France Europe”.
■ At the end of 2006, the Caisse d'Epargne de Lorraine and the Caisse d'Epargne de Champagne-
   Ardenne signed a foundation agreement paving the way for a merger between the two entities
   towards the end of 2007.
■ In October, the Caisse d'Epargne Aquitaine-Nord and the Caisse d'Epargne Poitou-Charentes
   signed a memorandum of understanding. Work is underway aimed at exploring the terms and
   conditions for a prospective merger between these similar-sized entities in 2008.
■ In November 2006, the Steering and Supervisory Boards of the Caisse d'Epargne de Provence-
   Alpes-Corse and the Caisse d'Epargne de Martinique approved a draft merger agreement.
■ In mid-December 2006, the Steering and Supervisory Boards of three Paris-based Caisses
   d'Epargne (Ile-de-France Nord, Ile-de-France Ouest and Ile-de-France Paris) approved the start of
   exclusive negotiations regarding the creation of a single Caisse d'Epargne Ile-de-France.
■ In mid-December 2006, the Steering and Supervisory Boards of two Caisses d’Epargne from the
   central region (Centre-Val de Loire and Val de France-Orléanais) mandated their Management
   Boards to commence preliminary studies in view of a merger.


In 2006, the Caisses d'Epargne network decided to converge towards a single IT system. In the
second half of 2006, the Group launched an IT Efficiency Program aimed at integrating its three IT
platforms, improving quality of service and obtaining economies of scale. This scope of this program
includes the IT economic interest groupings SIRIS, Arpège, RSI and CNETI.
The project is scheduled for completion in 2010, and breaks down into three phases:
■ Harmonization: consisting in preparing the infrastructure, cross-disciplinary projects and mergers,
   as well as identifying the target IT architecture.
■ Construction: consisting in laying the groundwork for the integration of the mergers and migrations.
   This stage will end with the creation of the convergence IT system.
■ Convergence: this stage will be devoted to migrating the Caisses d’Epargne onto the new single IT
   platform.


1.3 Basel II

The aim of the revised Basel II capital framework is to define a better risk monitoring system and to
bring capital into line with exposure to risks. The Basel II rating system appraises credit risk by
calculating both the probability of the borrower defaulting on the loan and the rate of loss should the
borrower actually default. Basel II also provides for closer monitoring of other types of risk, especially
market and operational risks.

The Basel II initiative is a cross-functional project. It has been coordinated by Group Risk
Management since the end of 2005 and involves an extremely large number of participants, both from
the CNCE and the individual Caisses d'Epargne, subsidiaries and IT communities.

Preparation for Basel II compliance by both the Group and its entities continued apace in 2006.
Different tools have been developed to assess the risk monitoring system in light of Basel II
requirements, as well as the status of rated outstandings, which have been reconciled to the relevant
accounting balances. A number of presentations have also been given to the Group’s steering
committees and corporate governance structures.



                                                                                                      175
The Internal Audit department has completed its audit of the rating systems used by the Commercial
and Investment Banking divisions. The audit involved two external service providers (Deloitte and
Standard & Poor’s Risk Solutions), and its findings have been passed on to the Commission Bancaire
(French Banking Commission).

From January 1, 2008, the Group plans to treat its main asset classes in accordance with Basel II. It
has asked the French Banking Commission to review the systems in place within the Investment
Banking division (from October 2006) and the Retail Banking business (from the end of 2006).

As regards operational risks, the Group has also informed the French Banking Commission that it
intends to comply with the Advanced Measurement Approach (AMA) from January 1, 2009. Thanks to
the financial modeling work initiated at the end of 2005, the Group now has a Basel II-compliant
prototype model for measuring capital. This has already been pilot-tested and should be rolled out to
the Group as a whole by the beginning of 2007.


1.4 Change in accounting policies: transition to IAS/IFRS

Companies that are not officially listed in the European Union, but whose debt securities are traded on
a regulated market, must prepare their consolidated financial statements in compliance with the
international accounting standards drawn up by the International Accounting Standards Board (IASB)
as adopted for use by the European Union, by 2007 at the latest (EC regulation No. 1606/2002).

The French Finance Minister’s order of December 20, 2004 (order No. 2004/1382) authorizes unlisted
companies to prepare their consolidated financial statements using international accounting standards
prior to 2007.

Groupe Caisse d’Epargne has elected for early application and prepares its consolidated financial
statements under IAS/IFRS as adopted for use by the European Union with effect from
January 1, 2006.

The 2005 consolidated financial statements have been restated under IFRS for comparison purposes.
Note 3 to the consolidated financial statements, “First-time adoption of IFRS”, sets out the principles
adopted by the Group for the preparation of its opening balance sheet under IFRS at January 1, 2005.

The impacts of IFRS adoption on equity and the opening consolidated balance sheet at
January 1, 2005 and the 2005 consolidated income statement, are set out in Note 6 to the
consolidated financial statements.




176
    STRONG UPSWING IN FINANCIAL RESULTS

Following the decision to elect for early application and since the publication of the interim accounts at
June 30, 2006, the Group’s consolidated financial statements have been prepared under IFRS as
adopted for use by the European Union and applicable at the balance sheet date, December 31,
2006. Data for 2005 have been restated under IFRS.

2.1 OVERALL MATERIAL IMPACT OF IFRS ADOPTION ON 2005 INCOME



                  +29                                                                                                   Total negative impact:
                                                                                                                             €291 million

                          - 84                            - 39                                                                    + 11
                                          - 45                                                                         + 83
                                                                                                          + 126
                                                                                          + 13

                                                                         - 385
    Net incom e
                                                                                                                                              Net
                                                                                                                                             incom e
     2,071
      French                                                                                                                                 1,780
       GAAP

                                                                                                                                              IFRS




                  Loans    Financial     Provision on Day one profit   Deferred taxes    Share in net     Business     RGBR    Other items
                          operations   regulated home                                     income of     combinations
                                           savings                                      companies at
                                          products                                          equity




Loans

IFRS application impacts
Loans and receivables are initially measured at their fair value; they are subsequently measured at
amortized cost using the effective interest method.
The effective interest rate is the rate that exactly discounts future cash flows to the fair value of the
loan at inception. This rate includes any discounts recorded in respect of loans granted at below-
market rates, as well as transaction costs and commissions from loans issued, which are treated as
an adjustment to the effective yield on the loan.

Financial impact for Groupe Caisse d’Epargne
In the case of retail banking, commissions included in the initial fair value of loans are mainly
commissions paid to intermediaries.




                                                                                                                                                       177
Financial operations

IFRS application impacts

Securities portfolio
Securities are classified into four categories as defined by IAS 39: financial assets at fair value
through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale
financial assets.
Available-for-sale financial assets are measured at their market value at the balance sheet date with
changes in fair value (excluding accrued income) recognized in a specific equity caption entitled
“Unrealized or deferred gains and losses (net of tax)”. Changes in fair value are taken to income upon
disposal of the securities or in the event of a prolonged decline in value. Impairment recorded against
an equity instrument may not be reversed.
Held-to-maturity investments are recognized at amortized cost using the effective interest method.
Hedging of the exposure to interest rate risk in respect of these assets does not qualify for hedge
accounting as defined by IAS 39.

Derivatives used for hedging purposes – Specific hedging strategy
Hedging relationships only qualify for hedge accounting if they are properly documented at inception
and meet strict eligibility criteria. The effectiveness of the hedge must be demonstrated at the
inception of the contract and subsequently verified.
The Group uses two types of hedge:
    ■ fair value hedges: changes in the fair value of the hedged item are recognized in income
        symmetrically with the remeasurement of the hedging instrument;
    ■ cash flow hedges: the portion of the gain or loss on the hedging instrument that is determined
        to be an effective hedge is recognized on a separate line in equity to be recycled to the
        statement of income, while the ineffective portion of the gain or loss on the hedging instrument
        is recognized in profit or loss.

Derivatives used for hedging purposes – Macro-hedging strategy
The Group applies the so-called “carve-out” from IAS 39 adopted by the European Union to macro-
hedging transactions carried out within the scope of managing its overall fixed interest rate exposure.
In particular, the carve-out allows the Group to hedge the interest rate risk on customer items (loans,
savings and demand deposits).
In a portfolio fair value hedging relationship, gains and losses on the remeasurement of the hedged
item are recorded in the balance sheet within “Remeasurement adjustment on interest-rate risk
hedged portfolios”.

Financial assets and liabilities accounted for under the fair value option
The amendment to IAS 39 adopted by the European Union on November 15, 2005 allows entities to
designate financial assets and liabilities on initial recognition at fair value through profit or loss.
However, an entity's decision to classify a financial asset or liability at fair value through profit or loss
under the fair value option may not be reversed. This option may only be applied in the following
circumstances:
    ■ if a financial instrument contains one or more embedded derivatives;
    ■ if this option eliminates or significantly reduces a measurement or recognition inconsistency
       (accounting mismatch);
    ■ if a group of financial assets, financial liabilities or both is managed and its performance is
       evaluated on a fair value basis.




178
Provision on regulated home savings products

IFRS application impacts
A provision must be set aside under liabilities when specific commitments arising on regulated savings
products (whether in the savings phase or the related loan phase) will have an unfavorable impact on
the Group.

Financial impact for Groupe Caisse d’Epargne
At January 1, 2005, a provision of €535 million (deducted from equity), net of deferred taxes, was
recognized for the difference between the regulated terms and conditions applicable to each of these
phases and market conditions.
   A charge (net of tax) to this provision of €45 million was recognized for 2005.


Day one profit

IFRS application impacts
In valuing certain structured products, the valuation model may use certain non-observable market
parameters. On initial recognition of such instruments, the transaction price is taken to reflect the
market price, and the margin generated when these instruments are traded (day one profit) is deferred
and taken to profit or loss over the life of the transaction, or over the period during which the valuation
parameters are expected to remain non-observable. When the valuation parameters applied become
observable, the portion of day one profit not yet recognized is taken to profit or loss.

Financial impact for Groupe Caisse d’Epargne
Margins previously recorded under French GAAP upon the inception of trading were deducted from
equity at January 1, 2005 and will be released to income over the residual life of the financial
instruments concerned, or over the period during which the valuation parameters remain non-
observable. Margins on transactions processed on or after October 25, 2002 were restated
prospectively.
This will help reduce the volatility of income relating to such operations. The related risks continue to
be tracked and managed in the same way.
   The non-recognition of day one profit had a negative €39 million impact on 2005 income


Deferred taxes

IFRS application impacts
The criteria for recognizing net deferred tax assets are broader under IFRS, which requires
recognition whenever it is more probable than not that taxable profit will be available against which
deductible temporary differences can be utilized.

Financial impact for Groupe Caisse d’Epargne
The main impact applies to the individual Caisses d’Epargne given their level of recognition of net
deferred tax assets, in particular in respect of the CGR pension fund1.
   There ensued a material negative impact of €385 million on net income in 2005.


Share in net income of companies accounted for by the equity method

IFRS application impacts
The non-recyclable, non-amortizable impacts of IFRS adoption on the equity of equity-accounted
insurance subsidiaries have been included on a separate line (“Investments in companies accounted
for by the equity method”). This caption mainly includes deferred tax recognized on the capitalization
reserve.
Financial assets held by insurance companies are recognized in the balance sheet within one of the
categories defined by IAS 39, and are measured in accordance with the prescribed treatment.

1
 Under the terms of the Fillon law relating to pension schemes in France, the CGRCE pension fund became an employee
benefit savings institution (institution de prévoyance) and a number of assets were transferred from Group entities to the
CGRCE with the aim of setting up provisions for the pension obligation in the CGRCE’s balance sheet. As these transfers
involved the release of non-taxable provisions, they gave rise to tax income under French GAAP.


                                                                                                                      179
Financial impact for Groupe Caisse d’Epargne
   The positive impact for net income in 2005 amounted to €13 million.


Business combinations

IFRS application impacts
Under IFRS 1, entities may choose not to restate business combinations that took place prior to the
IFRS transition date. However, assets and liabilities acquired as part of past business combinations
may only be recognized in the opening balance sheet provided that they meet the recognition criteria
set out in IFRS.
Goodwill is no longer amortized but is instead subject to periodic impairment tests. In the event of an
objective indication of impairment, an irreversible impairment charge is recognized in income.

Financial impact for Groupe Caisse d’Epargne
The Group has chosen the option offered by IFRS 1: business combinations arising prior to January 1,
2005 have not been restated.
Intangible assets acquired by the Group that are not recognized under IFRS have been reclassified as
goodwill.
The tax credit recognized in connection with the Nvest acquisition, which represents potential future
tax savings arising from the tax-deductibility of US goodwill, is not an identifiable asset under IFRS
and does not therefore appear in the opening balance sheet.
The Group does not anticipate any material impairment risk in relation to existing goodwill.
   The cancellation of goodwill amortization had a positive €126 million impact in 2005.


Reserve for General Banking Risks (IAS 37)

IFRS application impacts
The Reserve for General Banking Risks (RGBR) is not recognized under IFRS.

Financial impact for Groupe Caisse d’Epargne
   The positive impact for net income in 2005 amounted to €83 million.




2.2 EFFECTIVE DATE OF THE NATIXIS TRANSACTION: DECEMBER 31, 2006

2.2.1 Method of preparation of the published income statement

Note 4.3 – “Presentation of the consolidated financial statements and balance sheet date” to Groupe
Caisse d’Epargne’s consolidated financial statements sets out the accounting policies applied for the
preparation of the Group’s 2006 statement of income.

In particular, the statement of income reflects the sole activity of GCE entities prior to the Natixis
transaction since the constitution of Natixis took place with effect from December 31, 2006.

The statement of income therefore reflects the contribution for 12 months (and with no change in the
percentage control applying at June 30, 2006) of the entities contributed to Natixis, and excludes the
interest in Natexis Banques Populaires and the cooperative investment certificates in the regional
Banques Populaires received in return for assets contributed to Natixis.

As a result, the gains arising on assets contributed or sold to Natixis have been determined on the
basis of the shares in the underlying net assets as at December 31, 2006 of the entities contributed.
The gains relating to the entities contributed have been recognized in the statement of income while
the gains and increases in consolidated equity relating to the movements in cooperative investment
certificates have been recognized directly in equity.




180
2.2.2 Reporting by division

Until the end of 2006, Groupe Caisse d’Epargne had a matrix structure comprising two main operating
divisions, Commercial Banking and Investment Banking, as well as cross-functional divisions
providing services to the Group as a whole.

The Commercial Banking division comprises:
    ■ all operations relating to lending, savings and other banking services carried out by the
        individual Caisses d’Epargne and the Group subsidiaries, including Banque Palatine, OCÉOR
        and La Compagnie 1818;
    ■ activities concerning the management of customer deposits and capital funds, as well as any
        related refinancing;
    ■ the Group’s insurance subsidiaries, particularly CNP, Ecureuil Vie, Ecureuil Assurances IARD
        and GCE Garanties;
    ■ the specialized real estate and financial institutions, in particular Crédit Foncier1 and CEFI.
The Investment Banking division is structured around four business lines:
    ■ IXIS Corporate & Investment Bank, the Group’s capital markets and financing arm. This
        division operates on an international scale through its offices and subsidiaries in Europe (Paris,
        Frankfurt, London, Milan and Luxembourg), the US (New York) and Asia (Hong Kong and
        Tokyo). IXIS Corporate & Investment Bank has also recently opened a subsidiary in Dubai;
    ■ IXIS Asset Management Group, responsible for financial and real estate asset management in
        Europe, Asia and North America;
    ■ CACEIS (formerly IXIS Investor Services until June 30, 2005), the market leader in providing
        custody, fund management and institutional investor services in Europe;
    ■ IXIS Financial Guaranty (CIFG), specialized in financial guaranty operations, mainly in the US.
A holding structure completes the lineup, encompassing mainly:
    ■ central financing operations conducted by the CNCE for the entire network of the individual
        Caisses d’Epargne;
    ■ CNCE support functions, excluding those directly relating to management of the Group’s
        businesses;
    ■ management of investments in unconsolidated undertakings;
    ■ the Caisses d’Epargne’s own short-term portfolio operations;
    ■ oversight of investments made in connection with any surplus capital funds of the individual
        Caisses d’Epargne;
    ■ management of certain items of income or expense, such as impairment of goodwill or
        amortization of valuation differences, not directly related to the Group’s commercial or
        investment banking activity and sometimes of an exceptional nature: in particular, the charges
        relating to the CGR in 2005 and, in 2006, the provisions recognized in the context of the IT
        Efficiency Program and the gains recognized as a result of the Natixis and New Deal
        transactions.

The breakdown by division is aimed at providing a clearer picture of the results and profitability of
each of the Group’s divisions.

Reporting by division is based on the following rules and methods:



1
 Data excluding Foncier Assurance (fully consolidated at 100% in 2005, accounted for under the equity method at 40% in 2006)
and SICP (GCE Immobilier) in 2005 (accounted for under the equity method), presented as an insurance subsidiary and a
specialized financial subsidiary, respectively.


                                                                                                                        181
Net banking income
Net banking income by division includes revenues generated by the divisions concerned, excluding
certain non-recurring items. Net banking income for the Commercial Banking division also includes
the return on the equity allocated to the network of individual Caisses d’Epargne.

Total operating expenses
Total operating expenses of the divisions correspond to total expenditure of the legal entities within
each division, combined with the retail banking expenses of the individual Caisses d’Epargne
allocated to the Commercial Banking division, and direct costs borne by the CNCE in relation to
managing and monitoring each business segment (essentially impacting the Commercial Banking
division).
Operating expenses included under the holding structure comprise costs related to managing
proprietary portfolio transactions on behalf of the individual Caisses d’Epargne and the CNCE, as well
as exceptional expenditure and committed costs that cannot be directly allocated to the operating
divisions.

Cost of risk
Provisions are booked to cover the risks inherent in each division.

Net gains or losses on other assets
This item includes capital gains or losses generated by the businesses on the sale of investments in
consolidated companies, property, plant and equipment, and intangible assets (with the exception of
certain non-recurring capital gains).

Tax charge
The tax charge of the divisions represents the charge recorded at the level of the legal entities,
adjusted if necessary to take account of the income or expense relating to items included under the
holding structure. Tax savings generated in the framework of the Group’s tax consolidation
arrangements, as well as tax income and expense related to exceptional items, are recognized by the
holding structure.




2.3 AN EXCEPTIONAL LEVEL OF NET INCOME IN EXCESS OF €3.8 BILLION FOR 2006
                                                                       Groupe Caisse
                                                                                                          Change
                                                                         d'Epargne
                         in millions of euros                         2005            2006            Amount     %


                Net banking income                                        9,980         11,320          1,340      13%
                Total operating expenses                                (7,699)        (8,478)           -779      10%

                Gross operating income                                   2,281          2,842             561    25%
                Cost/income ratio                                       77.1%          74.9%          -2.2 pts        --
                Cost of risk                                              (150)            (23)           127    -85%
                Share in net income of companies
                accounted for by the equity method                          274            407            133      48%
                Net gains or losses on other assets                         137          2,009          1,872       nm
                Changes in value of goodwill                                 (1)            (3)            -2       nm

                Income before tax                                        2,541          5,232          2,691     106%

                Income tax                                                (683)        (1,281)           -598      88%
                Minority interests                                         (78)          (119)            -41      52%

                Net income attributable to equity
                holders of the parent                                    1,780          3,832          2,052     115%

                Return on equity (*)                                 10.4%           11.9%             1.5 pt    --


                (*) Ro E adjusted fo r no n-recurring items based o n average equity excluding OCI.



182
Thanks to steady growth in our businesses and the very positive impacts of the Natixis and New Deal
transactions, Groupe Caisse d’Epargne’s 2006 results doubled compared to 2005 and have reached
an all-time high.

The Group’s net banking income rose by 13.4% to €11.3 billion. There was a positive trend in both
Commercial Banking, which represents more than two-thirds of the total, and Investment Banking
which benefited from a very favorable economic environment. Underpinned by the significant increase
in net banking income, as well as by strict control of overheads despite a context of major
investments, the Group’s gross operating income increased by 25% to €2.8 billion and its cost/income
ratio improved by 2.2 points to 74.9%.

The Group’s low risk profile, the negligible rate of default and a reversal of provisions against large
corporate customers by IXIS CIB resulted in a very minor cost of risk, reined in at €23 million. The
Group’s overall level of provisions for credit risk has therefore reached the very comfortable amount of
€3 billion.

Net income attributable to equity holders of the parent rose to the exceptional level of €3.8 billion, an
increase of 115% over 2005, thanks to the impact of the Natixis and New Deal transactions which
notably resulted in approximately €2 billion of gains arising on asset sales and contributions.


2.3.1 A strong increase of 27% in recurring net income
The year’s non-recurring items mainly related to the Natixis and New Deal transactions which had the
following consequences:
     ■ Gains arising on the asset sales and contributions made to Natixis amounted to €1.3 billion
        after corporate income tax, including €0.9 billion relating to the contribution of IXIS AM Group.
     ■ Gains arising on the disposals involved in the New Deal with CDC, the most significant of
        which was the disposal of Ecureuil Vie by the CNCE to CNP generated an after-tax profit of
        €0.5 billion. The other disposals were made either by the CNCE (CDC ECI), the Crédit Foncier
        group (RIVP) or GCE Immobilier (Sagi).
     ■ Incidental costs of creating Natixis and implementing the new partnerships with CDC
        amounted to about €50 million.
The other non-recurring items were the IT Efficiency Program provision for the costs of convergence
of the computer platforms of the Caisses d’Epargne, whose accounts incurred a pre-tax charge in this
respect of €154 million recognized as part of operating costs, and the tax effects of the transformation
of CNCE’s tax consolidation regime.

After adjusting for these items net income would amount to €2,260 million, an increase of 27%
compared to 2005, and the Group would disclose a cost/income ratio of 73.1%.


2.3.2 A solid financial position
Thanks to the Group’s intrinsic strength, the separation from CDC was achieved without depleting the
level of equity which, at €20 billion as of December 31, 2006 remained stable in comparison with the
end of December 2005.
After adjusting for non-recurring items, after-tax profitability amounted to 11.9%, an increase of 1.5
point and a performance which must be assessed in the light of the Group’s Tier One ratio which, at
8.7%, is one of the highest within the French banking sector.




                                                                                                     183
2.3.3 Excellent performance of our businesses
                                                                                                                                                        Groupe Caisse
                                                              Commercial Banking             Investment Banking              Holding structure                                   Change
                                                                                                                                                          d'Epargne
                  in millions of euros                            2005            2006           2005           2006         2005         2006         2005       2006       Amount     %


      Net banking income                                              7,217         7,758           2,652         3,480           111          82         9,980     11,320     1,340      13%
      Total operating expenses                                      (5,398)       (5,550)         (1,875)       (2,329)         (426)       (599)       (7,699)    (8,478)      -779      10%

      Gross operating income                                         1,819         2,208                777      1,151         (315)       (517)         2,281      2,842        561    25%
      Cost/income ratio                                             74.8%         71.5%           70.7%          66.9%              nm          nm      77.1%      74.9%     -2.2 pts        --
      Cost of risk                                                    (140)         (123)               (18)       124                8         (24)     (150)        (23)       127    -85%
      Share in net income of companies
      accounted for by the equity method                                    264      392                   10           15                                 274        407        133      48%
      Net gains or losses on other assets                                    13        3                   29          (1)           95     2,007          137      2,009      1,872       nm
      Changes in value of goodwill                                                                                                  (1)        (3)          (1)        (3)        -2       nm

      Income before tax                                              1,956         2,480                798      1,289         (213)       1,463         2,541      5,232     2,691     106%

      Income tax                                                      (560)         (662)            (224)        (377)             101     (242)        (683)     (1,281)      -598      88%
      Minority interests                                               (22)          (25)             (56)         (94)               0         0         (78)       (119)       -41      52%
      Net income attributable to equity
      holders of the parent                                          1,374         1,793                518        818         (112)       1,221         1,780      3,832     2,052     115%

      Return on equity (*)                                           --           17%              --           27%            --          --          10.4%      11.9%       1.5 pt    --

      (*) Ro E:
      - at Gro up level, Ro E adjusted fo r no n-recurring items based o n average equity excluding OCI.
      - at divisio n level, regulato ry Ro E based o n allo cated equity.

Both of the Group’s operating divisions contributed significantly to the improvement in results.
Investment Banking turned in an excellent performance, with an increase in its net income of 58%
compared to 2005, while Commercial Banking also performed well with net income rising by 31%.

Setting aside the holding structure’s contribution, the Commercial Banking division, Groupe Caisse
d’Epargne’s historical business, represented 69% of both Group net banking income and net income
while the Investment Banking division represented 31%.




184
      COMMERCIAL BANKING: A STEADY INCREASE IN RESULTS

                                                         Commercial Banking          Change

                             in millions of euros          2005        2006      Amount     %


                  Net banking income                         7,217       7,758       541      7%
                  Total operating expenses                 (5,398)     (5,550)      -152      3%

                  Gross operating income                    1,819       2,208        389    21%
                  Cost/income ratio                         74.8%       71.5%    -3.3 pts       --
                  Cost of risk                               (140)       (123)        17    -12%
                  Share in net income of companies
                  accounted for by the equity method             264      392        128      48%
                  Net gains or losses on other assets             13        3        -10        nm

                  Income before tax                         1,956       2,480        524    27%

                  Income tax                                 (560)       (662)      -102      18%
                  Minority interests                          (22)        (25)        -3      12%

                  Net income attributable to equity
                  holders of the parent                     1,374       1,793        419    31%

                  Return on equity based on regulatory
                  capital requirements (*)                  --           17%           --       --

                  (*) Return o n allo cated equity.


The Commercial Banking division’s results for 2006 reflect its strong positive momentum:


    ■ Net banking income increased by 7.5% to €7.8 billion, a tribute to the branch network’s
       dynamism and quality and to the implementation of innovative policies (remuneration of current
       accounts, a broader-based product offering and the S’Miles customer loyalty program, among
       others).
    ■ Thanks to the division’s commercial success and cost control, gross operating income
       increased by 21%. The cost/income ratio shed 3.3 percentage points when compared with
       year-end 2005.
    ■ Cost of risk came in at a very low at €123 million, down 12% from 2005, due to favorable
       lending conditions and the Group’s low risk profile.
    ■ Income before tax increased by 27%, thus outstripping gross operating income: helped by the
       greatly improved share in net income of companies accounted for by the equity method, it
       amounted to almost €2.5 billion.
    ■ Net income attributable to equity holders of the parent for 2006 amounted to almost
       €1.8 billion, an increase of 31% compared to 2005.
At December 31, 2006, the Commercial Banking division had average allocated equity of €11.8 billion.
Return on allocated equity, determined based on regulatory capital requirements (equivalent to 6% of
risk-weighted assets for banking activities and 100% of the solvency margin for insurance business)
was 17% at year-end 2006.




                                                                                                     185
3.1 NET BANKING INCOME UP 7.5%

In 2006, the Commercial Banking division continued to enjoy very high volumes despite fierce market
competition. The division’s net banking income climbed 7.5% to nearly €7.8 billion. If the impact of
adjustments to the provision on regulated savings products due to changes in regulated borrowing
conditions are netted out (fall in new deposits due to the taxation of interest on regulated savings
products taken out over 10 years ago) net banking income would have risen by more than 5%.

3.1.1 Continuing success in winning new clients

The remuneration of current accounts launched on April 14, 2005, has accelerated the positive trend
in the development of the Group's customer base and bank card ownership. At the end of 2006, the
number of customers signed up to a service package stood at more than five million, and 400,000 new
service packages were sold during the year. Moreover, net sales of bank cards increased by 34% and
the total stock of cards reached 8.5 million by December 31, 2006.
In addition, the Natixis transaction triggered a fivefold increase in the Group’s new investment
accounts (255,000 accounts) compared to 2005, since 39% (for an amount of €932 million) of the
public flotation, the largest on Euronext in 2006, was subscribed via the Group’s own branch network.

3.1.2 An excellent year for loans

Loan activity was buoyant during the year with a dynamic market both for housing loans, in particular
during the first half of the year, and consumer credit. New loans granted in 2006 increased by 10%
compared to 2005, to €57 billion, including €33 billion for retail banking (up 4%) and €24 billion for
regional development banking (up 19%).

Loans outstanding (including under leasing arrangements) amounted to €197 billion at the end of
2006, an increase of 13% compared to end-December 2005. Housing loans increased by 10% and
other loans surged 34% thanks in particular to the buoyancy of consumer credit.




                                                   Customer loans
                                                   (in billions of euros)
                                                          13%           196.8
                                         174.3
                                                                        43.8
                                           32.8

                                           37.8                         39.0




                                           103.7                        114.0




                                       Dec. 31, 2005                Dec. 31, 2006
                                    Home purchase loans     Equipment loans     Other loans



The Group has continued to grow its retail banking franchise1 across the board, while also building a
presence in regional development banking2.

1
 Encompassing private individuals and professionals.
2
 Including specialist markets (SMEs), social economy sector, public sector, subsidized housing bodies (HLM), and real estate
professionals.
186
Retail banking loans outstanding increased by 9% and now represent more than 60% of the total
loans outstanding. Retail banking has been taking full advantage of the dynamic real estate market
and has performed well in the professional customer segment, where the Caisses d’Epargne aim to
increase their customer base.

Regional development banking loans increased by 21% to reach €75 billion at the end of 2006.
Performance within the division’s various market segments was nevertheless contrasted with a
significant premium in favor of social initiatives (social economy, HLM and the local and regional
government sector) stimulated both by the Borloo law and by the diversification of the offering aimed
at local institutional bodies.


3.1.3 Rise in customer savings

At December 31, 2006, customer savings (excluding demand deposits) amounted to €296 billion, up
5.4% on the year-earlier figure.

Total savings, including demand deposits, reached €325 billion at the end of 2006, thus increasing by
5.7% over 2005.
The increase of almost €18 billion compared to the end of 2005 was mainly due to a significant
increase (€9.6 billion) in life insurance savings thanks in particular to an effective policy of recycling
customers’ home savings accounts into life insurance investments.

                                         Customer savings including demand
                                                      deposits
                                               (in billions of euros)
                                                         5.7%
                                                                      325.2
                                             307.6



                                                                       125.8
                                              113.0




                                              194.6                    199.4




                                          Dec. 31, 2005            Dec. 31, 2006

                                               Liquid savings   Investment savings

Liquid savings thus rose by 2.5% during 2006 to a total of €199 billion at the end of the year:
■ savings held in Livret passbook accounts increased by €3.6 billion, or 21%, to €21 billion, a
      significant leap attributable both to the Codevi1 (following the change in the rate of CDC
      centralization) and to an increase of 5.7% in savings deposited on Livret B passbooks;
■ savings held in Ecureuil accounts, savings certificates and term deposits posted a 14% (€3 billion)
      rise over the period, to €24 billion;
■ demand deposits increased steadily by 9% to reach almost €29 billion at the end of 2006, reflecting
      the continued increase in the bank’s customer base and in the number of service package
      customers benefiting from remuneration of their current accounts;


1
    Renamed the Livret développement durable as of January 1, 2007.


                                                                                                      187
■ in contrast, deposits held in regulated home savings products decreased by 6.4% compared to
      2005, ending the year at €43.4 billion. The outflows reported on these products was mainly
      attributable to the introduction of taxation on interest credited to PEL accounts taken out more than
      10 years ago;
■ deposits held in regulated savings funds deposited with Caisse des Dépôts edged down 1.2%
      compared to the end of 2005, to €82 billion at the end of December 2006. However, performance
      levels varied with an increase of 2.3% for the Livret A, marking the end of the period of net
      withdrawals following the increase (from 2.25% to 2.75%) in the rate of interest served with effect
      from August 1, 2006. In contrast, total Codevi deposits fell following the change in the rate of CDC
      centralization (see above).


Investment savings amounted to €125.8 billion, a strong increase of 11.3% from 2005 mainly
attributable to the 13% increase in life insurance savings fueled by the net outflow for home savings.
Mutual fund investments also advanced by 8% to reach €43 billion at the end of 2006.

The Commercial Banking division’s net inflows for 2006 rose to €5.6 billion, an increase of 23%
compared to the end of 2005.
The movement was particularly noticeable for retail banking which represented €5.2 billion of the net
inflows (an increase of 81% compared to 2005). Retail banking now accounts for more than 90% of
total net inflows, a performance attributable both to the success of the Natixis transaction and to the
two successive increases in the rates offered on regulated savings accounts, which stimulated a move
towards such liquid savings.

Moreover, life insurance (including PERP retirement savings plans) confirmed its potential to attract
savings with net inflows of €6.2 billion solely within the individual Caisses d’Epargne network, boosted
by the recycling of a portion of liquid savings into life insurance savings plans.

In addition, the Group continued to sell members’ shares in the individual Caisses d’Epargne to its
local customers; at year-end 2006, the amount outstanding in respect of shares purchased by
cooperative shareholders was €3.4 billion.


3.1.4 Net banking income up 7.5%
(in millions of euros)


                                      7.5%
                                                      7,758
                          7,217




                                                       4,445
                          3,942




                          3,275                        3,313




                           2005                        2006
               Net commission and fee income   Interest margin and other products




188
Interest margin and other products
The net interest margin jumped 13% year-on-year to more than €4.4 billion.

Interest margin and other products (excluding net insurance income)
Activity levels remained high at the individual Caisses d’Epargne, which increased their interest
margin thanks to the higher volumes outstanding, despite an erosion of margins under pressure from
a very competitive market. The enhanced net interest margin is also attributable to adjustments to
provisions for regulated home savings products: the Caisses d’Epargne reversed part of the provision
recognized in respect of PEL home savings accounts for which total deposits fell following the
decision to tax interest on the older generations of accounts (as described above), a risk for which
provision had already been made in 2005.

The main changes in interest margin and other products of other Group entities were attributable to
the Crédit Foncier and OCÉOR groups and reflected, on the one hand, changes in consolidation
scope (consolidation of Foncier Expertise, Serexim and Foncière d’Evreux within Crédit Foncier, and
of OCÉORANE, INGEPAR, GCE Maroc and BCP Luxembourg within the OCÉOR group), and on the
other hand, gains arising on the disposal of assets (Cofimab within Crédit Foncier’s accounts and the
Opéra Hanoï hotel within OCÉOR’s accounts).

Caisse d’Epargne Financement also performed well during the year and significantly improved its
interest margin, in particular in respect of the Teoz product which performed well in 2006.

Net insurance income
Net insurance income – which comprises the major item within “Income from other activities” –
increased by 11% over 2005 to €192 million, mainly as a result of growth in the provision of
guarantees and general insurance.

Insurance as a whole recorded a strong performance in 2006:
■ Non-life insurance performed strongly in the first six months of the year, particularly general
   insurance cover which saw revenues jump 24% to €271 million and the total portfolio swell to 1.55
   million contracts. Ecureuil Assurances IARD thus became France’s third largest bancassurance
   provider of general insurance.
■ Provision of guarantees was penalized by changes in mortgage regulations which resulted in a
   30% reduction in pricing with effect from July 1, 2006. GCE Garanties nevertheless slightly
   improved its revenue, by 2%, to €190 million.


Life insurance – which includes the income generated by Ecureuil Vie and is shown under "Share in
net income of companies accounted for by the equity method" – reported earned premiums of
€10.4 billion at year-end 2006, up 10% on year-end 2005, benefiting from the success of the multi-
support Nuance 3D range and private management products. The entity had total managed funds of
€79 billion at the end of 2006, thus maintaining its position as France’s second largest bancassurance
entity overall.




                                                                                                   189
Net commission and fee income(1)

                             Change in commission and fee income from Commercial Banking

          in millions of euros                                           2005         2006           Change


          Commissions from savings products                              1,734        1,742             8        0%

          Commissions from loans                                           473          511            38        8%

          Commissions from banking services                              1,068        1,060            -8       -1%


          Net commission and fee income                                 3,275        3,313            38        1%


Commissions and fees amounted to €3.3 billion and fell to 43% of net banking income compared to
45% in 2005, having in particular borne the brunt of the drop in Livret A passbook commissions
without which there would have been an increase of more than 4%.
■ Commissions and fees from savings products were broadly stable during 2006.
      ■ Commissions and fees from insurance products amounted to €754 million and rose by 14%
          thanks in particular to the life insurance commission earned by the Caisses d'Epargne which
          amounted to €565 million and also rose by 15% as a result of the strong growth in investment
          (+13%, driven in particular by the success of the flagship products Nuances and Initiatives
          Transmission) and the new basis of commissioning introduced during the second half of 2006
          (with retroactive effect from January 1, 2006). Other entities’ insurance commission rose by
          11% with a weighting of non-life insurance (represented by GCE Garanties and Ecureuil
          Assurances IARD) in excess of 85%.
      ■ Commissions and fees from mutual funds amounted to €257 million, an increase of 4% during
          the period with contrasting performances from one entity to another. The total amount of
          commissions earned by the individual Caisses d’Epargne dropped slightly under the combined
          effects of a significant drop in commissions on movements partly offset by the increased
          amount of managed assets. The drop in the commissions on movements was attributable to
          the non-renewal of certain measures specific to 2005 (termination of Ecureuil Gestion’s share
          of up-front commissions on new guaranteed mutual fund issues), as well as a level of
          placement €0.9 billion below the level of 2005 due in particular to the Natixis transaction at the
          end of the year. Other entities significantly increased their level of commissions and fees, in
          particular La Compagnie 1818, whose €10 million rise in income was attributable both to the
          high level of transactions and to the satisfactory level of managed assets.
      ■ Commissions and fees from regulated savings products dropped back 11% year-on-year to
          €730 million, in line with the fall in income received by the Group on Codevi accounts (50-euro
          cent reduction in July 2006) and on Livret A passbook accounts.
          Livret A passbook accounts contributed €643 million, down €71 million (10%) due to the impact
          felt in mid-2006 of two consecutive 10-euro cent reductions in the commission rate on the
          provision of Livret A passbook accounts in 2005. The contribution of Livret A passbook
          accounts to the Commercial Banking division’s net banking income was 8.3%, down from 9.9%
          at year-end 2005.


■ Commissions and fees from loans advanced 8% to €512 million in 2006.
      Payment protection insurance contributed €247 million (more than 48% of the total), representing a
      year-on-year increase of 29% – primarily driven by a vigorous real estate lending market and the
      renegotiation of the partnership with CNP. Early repayment loan penalties fell on the back of higher
      interest rates. Other miscellaneous commissions and fees grew by a modest 2% compared to
      2005.


(1)
  Income generated by the distribution of Livret A passbook accounts is included in commission and fee income for the
purposes of the management report.


190
■ Commissions and fees from banking services fell by 1% during the period and amounted to
   €1,060 million at the end of 2006. The increases in general banking fees, reflecting the rise in the
   average number of service packages and in bank current account charges, were not sufficient to
   fully offset the drop in the level of other invoiced services.


3.2 OPERATING EXPENSES UNDER CONTROL

                                                           2005        2006     Change
          in millions of euros

          Personnel costs                                (3,241)     (3,259)    -18        1%
          Taxes other than on income                       (162)       (158)      4       -2%
          External services                              (1,653)     (1,827)   -174       11%
          Depreciation, amortization and impairment        (342)       (306)     36      -10%

          Total operating expenses                      (5,398)      (5,550)   -152       3%


Personnel costs represented more than 58% of total operating costs and rose marginally by less
than 1% to €3.2 billion. This containment reflects:
         a volume effect: employee numbers rose throughout the Group’s brands, although the
         increase was limited to less than 2%;
         the absence of specific charges recorded in 2005 such as the Villepin bonus system (a
         negative €25 million), and specific measures taken by Crédit Foncier (offer to encourage
         voluntary retirement by providing for cash payments representing €9 million and the upward
         alignment of employee benefits following the merger with Entenial).
However, the OCÉOR group’s personnel costs surged by 15% following the consolidation of
OCÉORANE, GCE Maroc, INGEPAR and BCP Luxembourg.

Other operating expenses increased 6% to €2.3 billion. They included:
         taxes other than on income which fell 2% to €158 million;
         an increase of €174 million in external services to €1.8 billion (up 11%). The amounts paid
         by the individual Caisses d’Epargne for rent and market research, reflecting investments
         relating to regulatory commitments as well as risk monitoring and management. The rise in
         other operating expenses is also attributable to higher IT expenses incurred by entities such
         as Crédit Foncier, which have begun preparations for Group convergence;
         depreciation and amortization expense, which fell 10% over the year to €306 million.

A 21% jump in gross operating income

Gross operating income leapt 21% year-on-year, to €2.2 billion. The Commercial Banking division’s
cost/income ratio improved 3.3 percentage points on 2005 and ended the year at 71.5%. Similarly, the
average cost/income ratio for the aggregate Caisses d’Epargne improved by an impressive 3.5
percentage points and came in at 67.2% for 2006.




                                                                                                   191
3.3 COST OF RISK IS KEPT UNDER A TIGHT REIN

                                                   2005        2006             Change


           Cost of risk (€ millions)               (140)       (123)       17            -12%


           Performing loans (€ billions)            173         195        22            13%
           Non-performing loans (€ billions)         4           4          0            -3%


           Non-performing loans/performing loans   2.6%        2.2%         -        -0.37 pt
           Cost of risk/total outstanding loans    0.08%       0.06%        -        -0.02 pt




Cost of risk for 2006 amounted overall to €123 million, falling by 12% compared to 2005. The
decrease in provisions for individual recognized risks reflects the low risk profile of the Group’s
Commercial Banking entities as well as the reversal of impairment losses recognized against certain
loans (e.g., Crédit Foncier made a net reversal of €26 million in respect of five major accounts).
Portfolio-assessed provisions also fell significantly.

Non-performing loans represented 2.2% of total customer outstandings, down 0.4% on the year-
earlier figure. Cost of risk for the year as a proportion of aggregate outstanding customer loans
remained extremely low, at 0.06% at year-end 2006.


3.4 INCOME BEFORE TAX LEAPS 27%

Income before tax increased by 27%, outstripping the rise in gross operating income, to almost
€2.5 billion.
The strength of the increase is attributable to the reduced cost of risk and the growth in the Group’s
share in net income of companies accounted for by the equity method, factors which together
outweighed the lower level of gains on disposals of assets (notably in light of the €38 million gain
recognized in 2005 by Crédit Foncier on its sale of Capri).
The Group’s share in net income of companies accounted for by the equity method amounted to
€392 million in 2006, rising by 48% mainly as a result of the increase in net income of the life
insurance companies, CNP and Ecureuil Vie. In turn, those results reflected the positive impact of the
Finance Act voted at the end of 2006, which abolished the reduced rate of tax previously applicable to
capital gains of more than €22.8 million in respect of shareholdings of less than 5%, thus enabling the
Group to recognize a higher level of tax credits in respect of the impairment losses previously
recorded for certain securities. Ecureuil Vie also made gains following implementation of its new basis
of commissioning.



3.5 CONSOLIDATED NET INCOME AND RETURN ON EQUITY

Income tax expense rose 18% over the period to €662 million, in line with the rise in consolidated
income. Minority interests were broadly stable over the period and stood at €25 million at year-end
2006.
The Commercial Banking division contributed €1.8 billion to the Group’s net income in 2006 versus
€1.4 billion one year earlier (up 31%).
Regulatory return on equity for the Commercial Banking division stood at 17% after tax, based on
regulatory capital requirements equivalent to 6% of risk-weighted assets for banking activities and
100% of the solvency margin for insurance business.




192
   INVESTMENT BANKING: AN EXCEPTIONAL PERFORMANCE
Given a particularly propitious economic climate for investment banking in 2006 and the excellent
intrinsic performance of the Group’s entities, the Investment Banking division recorded strong results
for the year with a 31% increase in its net banking income. Operating costs reflected increased
variable remuneration given the sustained level of activity, as well as the pursuit of capital investment
and adaptation to the division’s new environment following the tie-up with Banques Populaires. These
factors, combined with a much lower cost of risk, drove a 58% surge in net income.

IXIS CIB’s capital markets and financing business reinforced its position as the division’s number one
contributor, providing 53% of the Investment Banking division’s net banking income and 68% of its net
income in 2006.


Net income attributable to equity holders of the parent: up 58% to €818 million


                                                         Financial
                                                       guaranty: 2.7%
                                                               3.4%
                            Investor services:
                                   6.0%
                                        4.9%




                        Asset
                     management:
                        23.4%
                        34.9%




                                                                        Capital markets
                                                                         and financing:
                                                                             68.0%
                                                                            56.8%




                           % in italics are for 2005




                                                                                                     193
4.1 Capital markets, financing and financial guaranty

4.1.1 Capital markets and financing


                                                       Capital markets and
                                                                                Change
                                                            financing
                 in millions of euros                    2005        2006       Amount %


                 Net banking income                        1,293       1,846        553       43%
                 Total operating expenses                  (842)     (1,123)       -281       33%

                 Gross operating income                     451        723         272        60%
                 Cost/income ratio                        65.1%      60.8%      -4.3 pts --
                 Cost of risk                               (17)        124         141        nm
                 Share in net income of companies
                 accounted for by the equity method             1           3          2       nm
                 Net gains or losses on other assets            1           0         -1       nm

                 Income before tax                          436        850         414        95%

                 Income tax                                (134)       (285)       -151         nm
                 Minority interests                          (7)         (9)         -2       35%

                 Net income attributable to equity
                 holders of the parent                      295        556         261        89%
                 Return on equity based on
                 regulatory capital requirements (*)            --     24%            --        --

                 (*) Return o n allo cated equity.


The capital markets and financing business achieved an historic result of €556 million, 89% higher
than 2005.

During 2006, IXIS CIB developed its business as follows:

      ■ international development: launch of IXIS Middle East in Dubai in March, creation of a branch
         in Madrid in July and sustained growth in staff numbers in London, Tokyo and Hong Kong;
      ■ acceleration of corporate offerings under the IXIS Corporate Solutions brand following the
         100% takeover of Nexgen in March;
      ■ structuring of third-party management services with the creation of a dedicated IXIS
         Environment and Infrastructures department.




194
Economic net banking income

IXIS CIB’s economic net banking income amounted to €1,771 million, reflecting an exceptional year
with overall growth of 31% compared to 20051.




                                                  30.9%           1,771
                                                                                       North
                                                                                       America
                                                                  458
                                        1,353


                                        412




                                                                  1,313
                                                                                       Europe and
                                        941                                            Asia




                                        2005                      2006


Economic net banking income for Europe and Asia amounted to €1,313 million in 2006 and rose
steeply (40%) compared to 2005. North America experienced lower growth which nevertheless
reached 11%. Europe and Asia remain the principal markets, generating 74% of total economic net
banking income.

All of IXIS CIB’s business lines achieved an excellent performance worldwide, in particular Equity &
Arbitrage and Financing & Credit, which together contributed more than 55% of total economic net
banking income:
                                                                                    Cross-functional
                                                                                  and holding structure
                                                                                           6%



        in millions of euros    2005    2006    Amount    %

                                                                              Corporate                Fixed
Fixed income                     273     274       1      0%
                                                                               finance                income
Equity & arbitrage               283     361      78     28%                      11%                   15%
Financing & credit               479     651     172      36%
Structured financing             142     181      39     27%
                                                                          Structured
Corporate finance                 56     197     141     252%
                                                                           financing                           Equity &
Cross-functional and holding                                                  10%                              arbitrage
structure                        120     107     -13     -11%                                                     20%

Economic net banking income     1,353   1,771    418     31%
                                                                                          Financing
                                                                                           & credit
                                                                                             37%




1
    2005 data reflects the full consolidation of 100% of Nexgen


                                                                                                                           195
■ The Fixed Income business line remained at a similar level to 2005, deriving more than 95% of its
      revenues from Europe and Asia. Derivative volumes were on the rise: plain vanilla products, which
      offer a large degree of stability compared to fluctuations in the underlying items (and so are used
      for fair value applications) were particularly in demand from customers in the context of IFRS
      implementation and their volume doubled compared to 2005. This business line also improved its
      positioning within the primary market for euro issues.

■ Equity & Arbitrage revenues surged by 28%, underpinned by all the components of the business.
      Arbitrage provides an increasingly significant contribution to the business line’s net banking income
      both in Europe/Asia and in North America, boosted by a buoyant market for directional options and
      mergers and acquisitions.
               o The IXIS Securities subsidiary won new market shares as its revenues increased
                   significantly both in France and abroad, in particular in Germany and Benelux. The
                   company also received 25 “top three” nominations for the prestigious Agefi/Extel
                   Focus France award, compared to 10 in 2005, and ranks among the top three French
                   brokerage firms.

■ The Financing & Credit business also surged by 36% compared to 2005:
      ■ Credit:
          The American subsidiary IXIS Capital Markets completed seven securitization transactions
          involving CMBS (Commercial Mortgage Backed Securities), for a total amount of more than
          US$3 billion, and five transactions involving ABS (Asset Backed Securities) for a total amount
          of more than US$4 billion.
          Europe and Asia also performed well both in terms of classic products such as CDO/CLO, for
          AXA or Commerzbank for example, and in terms of hybrid products.

      ■ Financing:
          Financing income rose 11% over the year while structured finance outstanding surged 71%.
          Throughout the year the business line was assigned numerous roles as lead arranger, sole
          arranger and book runner and is now the number eight mandated lead arranger in France.

■ Structured Finance had a very good year, progressing by 27% compared to 2005 and
      consolidated its positioning in structured products suitable for funds providing capital guarantees,
      in particular in France with the support of the French banking networks (Caisses d’Epargne and
      Crédit Agricole). The American subsidiary’s Structured Products business line expanded rapidly,
      reaping the benefits of a fully mature Wrappers activity and rolling out a new Hybrid Structured
      Products business.

■ Corporate Finance also had a very good year, multiplying its income by 3.5 times compared to
      2005. Equity Capital Markets obtained excellent results, reaping the fruits of the Lazard-IXIS
      partnership which acted as lead arranger and global coordinator for three stock exchange listings:
      Icade (the biggest property company listed in Paris), PARROT (a technology company) and EDF
      Energies Nouvelles. The same teams also managed Cap Gemini’s share capital increase, for the
      purpose of refinancing the group’s acquisition of the American company Kanbay, and coordinated
      the Natixis placement representing a total amount of €5.5 billion.
      IXIS Corporate Solutions, which benefited fully from the 100% integration of Nexgen, also
      performed well, particularly during the fourth quarter when it completed almost 20 new transactions
      or restructurings of existing transactions.


Total operating expenses

IXIS CIB’s operating expenses increased significantly, by 33%, due to several factors – relating in
particular to personnel costs:
■ a rise in headcount, in particular internationally (54 new hires in New York);
■ an increase in the company’s international locations, in line with its ambitious plans for
   development;
■ a higher variable portion of employee compensation resulting from the high level of business.
Other operating expenses also rose, partly as a result of changes in operating and management
systems (e.g., the introduction of a CRM system) and partly as a result of the tie-up with Banques
Populaires which involved a higher level of professional and research fees.
196
However, since operating expenses were outpaced by revenues, gross operating income increased
by 60% to €723 million. The cost/income ratio, which improved by 4.3 percentage points to 60.8%, is
one of the lowest in the industry.

The cost of risk saw a net reversal of €124 million of which €115.1 million related to a single major
corporate counterparty following an improvement in its credit rating and the receipt of certain
guarantees. A net charge of €3.2 million was made to individually-assessed provisions.

Income before tax amounted to €850 million.

Net income attributable to equity holders of the parent came in at €556 million for 2006, an impressive
89% leap on the year-earlier figure. Regulatory return on equity for the capital markets and financing
business was 24% after tax (based on an equity allocation equal to 6% of risk-weighted assets).



4.1.2 Financial guaranty


                                                      Financial guaranty         Change

                         in millions of euros          2005        2006      Amount     %


                  Net banking income                         51         78         27     52%
                  Total operating expenses                 (28)       (41)        -13     46%

                  Gross operating income                      23       37         14      nm
                  Cost/income ratio                     54.9%       52.6%    -2.3 pts       --
                  Net income attributable to equity
                  holders of the parent                       17       22          5    27%


CIFG group enjoyed a sustained level of activity in 2006 in terms both of the number of transactions
and the volume of guarantees provided.

The year thus saw 625 transactions entered into compared to 367 in 2005, with a nominal gross
amount guaranteed rising 70% to US$36.1 billion, thus enabling the business line to approach
US$75 billion of net guarantees outstanding at the end of the year (up 75%).

CIFG’s presence in the financial guaranty market is also reinforced by the fact that its portfolio is well
diversified over the whole range of asset classes with 27% relating to US local government bodies,
44% comprising US structured products, 7% relating to European local government bodies and 22%
comprising European structured products. Almost two-thirds of the portfolio is rated above AA.

The Adjusted Gross Premium rose by 43% over the year to US$232.3 million.

Net banking income surged by more than 52% year-on-year to €78 million on the back of the growth in
guarantees written, particularly in the US structured products segment. Net income also leapt 27% to
€22 million.




                                                                                                      197
4.2 ASSET MANAGEMENT, CUSTODY AND INVESTOR SERVICES

4.2.1 Asset management

                                                              Asset management                Change

                          in millions of euros                 2005          2006         Amount     %


                Net banking income                               1,122         1,301          178      16%
                Total operating expenses                         (857)         (986)         -129      15%

                Gross operating income                            265              315         50    19%
                Cost/income ratio                               76.4%         75.8%        -0.6 pt       --
                Cost of risk                                       (3)               0           3      nm
                Share in net income of companies
                accounted for by the equity method                     9            12           3     33%
                Net gains or losses on other assets                   29             0         -28      nm

                Income before tax                                 300              327         28      9%

                Income tax                                        (71)             (54)         18      nm
                Minority interests                                (48)             (83)        -35     74%

                Net income attributable to equity
                holders of the parent                             181              190         10      5%




The asset management business put in a strong commercial performance in 2006.
Assets under management rose by €35.6 billion (up 8% at current euro rates, and up 13% at constant
euro rates) over the year to €468.2 billion, reflecting both the rise in net inflows, up 44% to €25.1
billion, and the buoyancy of the markets which provided an extra €28 billion in value. However, the
10% fall in value of the dollar against the euro during the period led to an adverse foreign exchange
impact of €17.4 billion.

in billions of euros




                                                                           -17.4
                                                       28.0                                  468.2



                                       18.1      US

                 432.6                           Europe and
                                       7.0       Asia




              Dec. 31, 2005          Net funds      Market effect Currency effect Dec. 31, 2006
                                      inflow

198
Total assets under management in Europe and Asia rose by €19.3 billion (7.4%) over the year to
€280.6 billion thanks to a significant increase in market valuation (€12.1 billion, up 4.6%) and a €7
billion net funds inflow. The chief vector for growth remains life insurance, which represents more than
60% of total managed assets, although fixed income securities and shares also performed
satisfactorily.

Total assets under management in North America rose to US$247.1 billion at the end of 2006, an
increase of US$44.4 billion (21.9%) since the beginning of the year thanks in part to a strong fund
inflow of US$23.8 billion mainly focused on bonds and alternative products. The increase in market
valuation was also strong (a rise of US$20.6 billion), mainly focused on shares and real estate
products. The increase in total assets under management was also driven by equities, buoyed by the
performance of Loomis Sayles (essentially with their large cap growth products during the first half of
the year) and the success of Global and Medium Grade fixed income products.

IXIS AM Group’s excellent performance won numerous industry awards, such as the first prize for
Ecureuil Harmonie in the three-year diversified euro category awarded by Agefi or the Talents de la
Gestion 2006 prize awarded for institutional management.

This remarkable level of activity, reinforced by the impact of transaction and performance
commissions, as well as the favorable trend in average commission rates, particularly in Europe,
enabled the asset management business line to increase its net banking income by 16% to €1.3
billion.


Total operating expenses progressed by 15% to €986 million, reflecting a 3% increase in the number
of employees and a jump in the amount of variable remuneration (both performance bonuses and
long-term incentives) in light of the level of activity.

Gross operating income thus rose by 19% to €315 million, with the cost/income ratio remaining
broadly stable at 75.8%.

Net income attributable to equity holders of the parent rose 5% to €190 million: this result is due to the
strong operating performance, a low tax charge (the impact of the reversal of a €35.5 million tax
provision), the increase in minority interests (following the acquisition of 5.9% of IXIS AM Group by
CNP in December 2005), as well as the non-recurring €29 million capital gain recognized in 2005.



4.2.2 Custody and investor services


                                                     Custody and
                                                                              Change
                                                  investor services
                        in millions of euros      2005       2006         Amount     %


                   Net banking income                  186        255           69     37%
                   Total operating expenses          (148)      (179)          -31     21%

                   Gross operating income              38         76           38    99%
                   Cost/income ratio               79.6%      70.2%       -9.4 pts       --
                   Cost of risk                          1            0         -1      nm

                   Income before tax                   39         75           36    92%

                   Income tax                         (13)       (23)          -11     86%
                   Minority interests                  (1)        (2)           -1      nm

                   Net income attributable to
                   equity holders of the parent        25         50           25    98%




                                                                                                      199
Pursuant to the partnership arrangement finalized on July 4, 2005, Groupe Caisse d’Epargne and
Crédit Agricole merged their respective investor service subsidiaries, IXIS Investor Services and
Crédit Agricole Investor Services, to form the joint venture CACEIS (Crédit Agricole Caisse d’Epargne
Investor Services).

Accordingly, the financial data reported for fiscal years 2005 and 2006 do not reflect a constant Group
structure:
■ in 2006: 50% of 2006 income for the newly created CACEIS group, accounted for by the
    proportional consolidation method;
■ in 2005: 100% of the first-half results for IXIS Investor Services (IXIS IS) and its subsidiaries (IXIS
    Urquijo, IXIS Administration de Fonds - IXIS AF - and Euro Emetteur Finance) and 50% of the
    second-half results of CACEIS (subject to proportional consolidation).

CACEIS, the market leader for institutional custody services, continued to develop its business in
2006 with:
■ the launch in February of CACEIS Corporate Trust, which provides services to issuers;
■ the creation in April of CACEIS Fastnet, combining Fastnet France and IXIS AF;
■ the formation of CACEIS Bank following the legal merger of CA-IS Bank and IXIS IS;
■ the acquisition in December of the fund administration activities of FidFund Management SA, a
   subsidiary of Banque Bénédict Hentsch & Cie SA, a transaction which has created value by
   expanding the range of services offered to the entity’s Swiss customers.
During 2006, CACEIS also carried out streamlining projects which were indispensable to its future
development: organizational restructuring, combining teams and IT convergence.

One and a half years following its creation, the CACEIS group thus reported an excellent
performance:
■ assets under custody amounted to €1,787 billion at the end of December, of which 91% in France,
   an increase of 16% compared to the end of 2005;
■ administered funds grew 15% over 2006 to €860 billion.
As a result, the business line’s net banking income grew by 37% to €255 million. The substantial
growth in custody fees, which contribute to the core revenue base, mirrored the rise in assets in
custody. This positive trend attests to a concerted marketing drive to win new business and market
growth.

Gross operating income totaled €76 million thanks to the increase in net banking income and
contained operating expenses, which were nevertheless inflated by restructuring costs (generated by
the internal reorganization of CACEIS). The cost/income ratio improved by 9.4 points to 70.2%.

Net income attributable to equity holders of the parent came in at €50 million, almost double the figure
for 2005.




200
     PRO FORMA CONSOLIDATED INCOME STATEMENT


Groupe Caisse d’Epargne’s pro forma income statement for 2006, presented in Note 14.4 to the
consolidated financial statements, was prepared to reflect the Group's income and expenses as if the
following transactions had taken place at January 1, 2006:
■ all transactions carried out in connection with the creation of Natixis;
■ all transactions regarding the partnership renegotiated with CDC.
The following assumptions were made when preparing the pro forma consolidated financial
statements:
■ capital gains generated on asset contributions and disposals were cancelled;
■ the impacts of transactions carried out prior to the creation of Natixis, in particular those relating to
   the share issue by IXIS Asset Management Group subscribed by the CNCE in order to finance its
   purchase of preferred shares issued by IXIS AM US Corp, were taken into account;
■ the contribution of subsidiaries as reported prior to the transactions was eliminated;
■ contributions were computed from entities under the new consolidation methods;
■ the impacts of interest on financial flows were taken into account based on an annual rate of 4.2%.




    ANALYSIS OF THE CONSOLIDATED BALANCE SHEET

                                                                                                           Change
                                                                             Dec. 31, 2005 Dec. 31, 2006
                                                                                                            (%)
          in billions of euros

          Cash and amounts due from central banks and post office banks           8.3            5.0        -39%
          Financial assets at fair value through profit or loss                  128.7          69.8        -46%
          Derivatives used for hedging purposes                                   3.7            3.3        -11%
          Available-for-sale financial assets                                     51.3          51.1         0%
          Loans and receivables due from credit institutions                     178.8         147.1        -18%
          Loans and receivables due from customers                               203.7         230.2         13%
          Remeasurement adjustment on interest-rate risk hedged portfolios        0.6            0.2        -71%
          Held-to-maturity financial assets                                       2.2            4.8          nm
          Deferred tax assets and other assets                                    34.0          24.2        -29%
          Property, plant and equipment and intangible assets                     3.3            4.0         20%

          Total assets                                                          614.6         539.7        -12%

          Due to central banks and post office banks                              0.1            0.3          nm
          Financial liabilities at fair value through profit or loss             131.8          53.1        -60%
          Derivatives used for hedging purposes                                   2.7            2.9         5%
          Due to credit institutions                                              98.8          71.9        -27%
          Due to customers                                                       218.6         206.2         -6%
          Debt securities                                                        102.5         134.4         31%
          Remeasurement adjustment on interest-rate risk hedged portfolios        0.3            0.2        -29%
          Deferred tax liabilities and other liabilities                         26.1           25.9         -1%
          Technical reserves of insurance companies                               1.5           11.3          nm
          Provisions for contingencies and charges                                3.2            2.9        -11%
          Subordinated debt                                                       8.5           10.2         20%
          Equity attributable to equity holders of the parent                    20.0           20.0         0%
          Minority interests                                                      0.5            0.4        -17%

          Total liabilities and equity                                          614.6         539.7        -12%




Groupe Caisse d’Epargne’s consolidated balance sheet at December 31, 2006 includes the Group’s
34.44% interest in the assets and liabilities of the Natixis group, and discloses total consolidated
assets of €539.7 billion.


                                                                                                                    201
The Natixis transaction has thus reduced total consolidated assets by approximately €95 billion1
(mainly relating to IXIS CIB).

Loans and receivables due from customers increased by 13% to €230.2 billion, compared to
€203.7 billion at December 31, 2005. The change reflects both an increase in housing loans (of €10.4
billion), reflecting the buoyancy of the real estate market, and a 33% jump in cash loans.
Outstanding customer loans now account for 42.6% of total consolidated assets.
Amounts due to customers decreased by €12.4 billion, compared to December 31, 2005, to
€206.2 billion, reflecting both an €8.8 billion decrease in assets sold under repurchase agreements
and a €4.5 billion fall in term deposits (of which €2.9 billion for home savings), only very partially
compensated for by the increase in credit balances on current accounts.
At December 31, 2006, loans and receivables due from credit institutions totaled €147.1 billion, down
€31.7 billion in large part in respect of the term portion (down by €28.2 billion) and to a lesser extent,
in respect of the demand portion (down €3.5 billion).

Amounts due to credit institutions decreased by €26.9 billion to €71.9 billion at the end of
December 2006. Both the term and demand portions decreased significantly by €15 billion and €12
billion, respectively.

Debt securities increased by €31.9 billion to €134.4 billion at the end of 2006, due both to the sharp
increase in interbank and money market securities, and the increase in bond issues.

The creation of Natixis has resulted in decreases of approximately €74.7 billion in the amount of
financial assets at fair value through profit or loss and of approximately €72.1 billion in the amount of
financial liabilities at fair value through profit or loss.

Equity attributable to equity holders of the parent amounted to €20 billion at December 31, 2006, a
level comparable with year-end 2005, mainly due to:
■ the impact of recurring operations in 2006 which amounted to €2.3 billion;
■ the positive impacts of the Natixis transaction (and other non-recurring items), in particular the
    realization of capital gains and the transfer of the €4.8 billion of Caisses d’Epargne cooperative
    investment certificates to Natixis;
■ the €7 billion cost of separation from CDC.
This cost was however fully absorbed by the above items thus underlining the Group’s financial
strength at December 31, 2006.




1
    Impact calculated on the basis of an unpublished internal pre-transaction CNCE balance sheet at December 31, 2006.



202
    REGULATORY CAPITAL AND CAPITAL ADEQUACY RATIO

                in millions of euros                        Dec. 31, 2005 Dec. 31, 2006
                                                            French GAAP       IFRS

                TOTAL CAPITAL                                  24,031         22,150

                of which Tier One capital                       18,994        18,344

                CAPITAL REQUIREMENTS                           15,756         16,915

                Credit risks                                    13,948        16,443
                Market risks                                    1,808          472

                Capital adequacy ratio                          153%          131%



In compliance with the provisions of rule 2000-03, as amended, of the Comité de réglementation
bancaire et financière (French Banking Regulations Committee – CRBF) and following approval by the
French Banking Commission, networks of entities with a central institution may establish a
consolidating entity as provided for by CRC regulation 99-07. In the case of Groupe Caisse
d’Epargne, this consolidating entity is the parent company which has been required to respect
management ratios on a consolidated basis since July 1, 2002.
The first calculation of the Group’s capital adequacy ratio was made on December 31, 2002.
As approved by the French Banking Commission, the consolidating entity and scope of the Group for
capital adequacy purposes are identical to those adopted for the consolidated accounts of Groupe
Caisse d’Epargne.
For the application of capital adequacy monitoring, the Group’s insurance companies are accounted
for by the equity method.

Three factors have had a profound impact on Groupe Caisse d’Epargne’s prudential data: the
adoption of IFRS, the constitution of Natixis and the withdrawal of CDC from the CNCE’s capital.

With regard to capital requirements, the sharp decline in market risk is a function of the narrower basis
used to measure this risk. A large portion of securities that were included in trading account securities
under French GAAP are classified in available-for-sale financial assets under IFRS and thus
contribute to credit risk. The Natixis transaction involves two opposite effects which broadly cancel
each other out: a decrease in requirements in respect of the exit from Groupe Caisse d’Epargne’s
consolidation scope of 65.56% of the entities contributed, and an increase in requirements in respect
of the entry of 34.44% of the former Natexis.

With regard to Tier One capital, the reduction arising from the departure of CDC and the application of
the prudential filters are offset by 2006 net income, which includes the capital gains related to the
Natixis transaction, as well as by the acquisition by Natixis of the Caisses d’Epargne cooperative
investment certificates only 34.44% of which are therefore eliminated on consolidation by GCE.

Prudential equity fell as a result of increased deductions particularly in respect of the inclusion of
34.44% of the Banques Populaires cooperative investment certificates within Groupe Caisse
d'Epargne’s consolidation scope.

As of December 31, 2006 the Group’s Tier One ratio remained at the high level of 8.7%, one of the
best in the industry.




                                                                                                     203
      RECENT DEVELOPMENTS AND OUTLOOK FOR 2007

In 2007, Groupe Caisse d’Epargne will press ahead with the development of its businesses, focusing
on three major principles: bolstering the Commercial Banking division's operations; efficiency and
performance; and consolidating its main partnerships.


8.1 BOLSTERING THE COMMERCIAL BANKING DIVISION'S OPERATIONS

In 2007, the Group intends to reinforce its historical business, through its Commercial Banking arm, by
focusing on both retail and regional development banking.

Within retail banking, Groupe Caisse d’Epargne will continue to enrich its product offering in
response to its customers’ requirements. One of the Group’s priorities is to improve customer
satisfaction, via the implementation of its Ecureuil Attitude scheme, and retain loyalty by intensifying
the S’Miles program.

Regional development banking must become a growth and profitability driver for the Group. 2007
will thus see the finalization of the business’s organization to help it meet its varied and ambitious
challenges: consolidating its position as the key player in social housing; becoming the number one
provider of local government financing; and within three years, establishing itself as the leader in the
social economy segment.

2007 will also be a key year for the real estate division, since the Group intends to create a strong
real estate division that can provide customers with a full product offering combining both financing
and services.
To this end, the Group is reviewing the possibility of a new partnership with the listed property
developer Nexity. The Caisse Nationale des Caisses d’Epargne and Nexity have therefore signed a
letter opening exclusive negotiations to pursue their discussions on the creation of a leading real
estate company. The exclusive negotiation period, which runs from February 12, 2007 through April
30, 2007, is designed to allow the parties to press ahead with detailed studies of this joint industrial
and managerial project, including its value creation potential.
In the field of real estate, the Group will also step up the development of Eurosic, a subsidiary in which
Banque Palatine owns more than 90% of the share capital. On March 7, Eurosic acquired a controlling
interest in Vectrane (a listed real estate company) with a view to enhancing its operations.


8.2 GROUP REORGANIZATION AND PERFORMANCE

In keeping with the Group’s growth and performance strategy, the process of integrating the
Caisses d’Epargne will be actively continued in 2007. Three new linkups were announced at the
beginning of the year: the Caisses d’Epargne de Haute-Normandie and Basse-Normandie; the
Caisses d’Epargne des Pays de l’Adour, Aquitaine-Nord and Poitou-Charentes; and the Caisses
d’Epargne de Bretagne and des Pays de la Loire. To date, nine merger processes have been
launched with the intention of creating an efficient, forward-looking Caisses d’Epargne network for
tomorrow’s world.

The quest for greater efficiency also involves implementation of the IT Efficiency Program to create a
single IT platform capable of meeting the evolving commercial and financial challenges. In commercial
terms, the intention is to migrate to a universal banking system from one that is currently essentially
focused on retail banking.


8.3 CONSOLIDATING EXISTING PARTNERSHIPS AND ENGAGING IN NEW ACQUISITIONS

The Group will continue to strengthen and consolidate its existing partnerships in 2007.

The partnership between Groupe Caisse d’Epargne, MACIF and MAIF, initiated at the end of
2004, will be reinforced in 2007 with the aim of strengthening the Group’s position in the fields of
insurance and personal care services.
204
To this end, at the beginning of the year, Groupe Caisse d'Epargne signed an agreement with the
MMA group defining the final provisions for the sale of MMA’s 35% interest in Ecureuil Assurances
IARD (ECA) by June. In order to give long-term substance to the new partnership, the Group is also
examining the terms on which MACIF and MAIF might enter the share capital of ECA.
The partnership has recently been extended to provision for senior welfare benefits with the
acquisition by both Macif and the CNCE of a 17% stake in the capital of DomusVi, a company
providing services to the elderly.


Finally, the Group will be concerned to capitalize on the Natixis transaction, particularly in terms of
synergies: initially by unlocking those already identified and then identifying and materializing
additional synergies by providing additional services and offers.




                      Information concerning the Group's corporate officers

Information concerning the remuneration, directorships and positions of the Group's corporate officers,
as required by article L.225-102 of the French Commercial Code (Code de commerce) pursuant to the
   New Economic Regulations (Nouvelles régulations économiques) of May 15, 2001, the Financial
 Security law (loi de Sécurité financière) of August 1, 2003, and order no. 2004-604 of June 24, 2004,
            is set out in section 5 – “Corporate Governance” of the Document de référence.




                                                                                                    205
      IFRS CONSOLIDATED FINANCIAL STATEMENTS
      OF GROUPE CAISSE D’EPARGNE


      CONSOLIDATED BALANCE SHEET




ASSETS
                (in m illions of e uros)              Note     De c. 31, 2006     De c. 31, 2005
Cash and amounts due from central banks and post
office banks                                                             5,048              8,288
Financial assets at fair value through profit or loss  8.1.1            69,831            128,694
Derivatives used for hedging purposes                   8.2              3,291              3,696
Available-for-sale financial assets                     8.3             51,115             51,310
Loans and receivables due from credit institutions     8.4.1           147,073            178,807
Loans and receivables due from customers               8.4.2           230,184            203,660
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                                 167                580
Held-to-maturity financial assets                       8.6              4,846              2,162
Current and deferred tax assets                                          1,485              2,182
Accrued income and other assets                        8.8.1            17,352             27,157
Investments in companies accounted for by the equity
method                                                  8.9               3,140             2,729
Investment property                                   8.10.1                808               447
Property, plant and equipment                         8.10.1              2,771             2,499
Intangible assets                                     8.10.2                402               379
Goodwill                                               8.11               2,198             1,983
TOTAL ASSETS                                                           539,711            614,573




206
LIABILITIES AND EQUITY
                 (in m illions of e uros)                    Note    De c. 31, 2006    De c. 31, 2005

Due to central banks and post office banks                                       258                47
Financial liabilities at fair value through profit or loss   8.1.2            53,122           131,833
Derivatives used for hedging purposes                         8.2              2,867             2,741
Due to credit institutions                                   8.5.1            71,908            98,798
Due to customers                                             8.5.2           206,241           218,633
Debt securities                                              8.7.1           134,396           102,533
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                                       238               333
Current and deferred tax liabilities                                             709               480
Accrued expenses and other liabilities                       8.8.2            25,107            25,470
Technical reserves of insurance companies                    8.12             11,291             1,506
Provisions for contingencies and charges                     8.13              2,870             3,211
Subordinated debt                                            8.7.2            10,245             8,509
Consolida te d e quity                                                        20,459            20,479
A ttributable to equity holders of the parent                                 20,032            19,965
Share capital and additional paid-in capital                                   3,955             6,069
Retained earnings                                                             10,425            10,351
Net income for the period                                                      3,832             1,780
Unrealized or deferred gains and losses                                        1,820             1,765
M inority interests                                                              427               514
TOTAL LIABILITIES AND EQUITY                                                 539,711           614,573




                                                                                                        207
      CONSOLIDATED STATEMENT OF INCOME

(in millions of euros)                                                              Note    2006         2005

Interest and similar income                                                         9.1        23,778       20,089
Interest and similar expense                                                        9.1      (19,515)     (16,006)
Commission income                                                                   9.2         5,265        4,609
Commission expense                                                                  9.2         (916)        (795)
Net gains or losses on financial instruments at fair value through profit or loss   9.3         1,628        1,200
Net gains or losses on available-for-sale financial assets                          9.4           641          525
Income from other activities                                                        9.5         1,379        1,255
Expense on other activities                                                         9.5         (940)        (897)
NET BANKING INCOME                                                                             11,320        9,980
Operating expenses                                                                   9.6      (8,058)      (7,257)
Depreciation, amortization and impairment of property, plant and equipment and
intangible assets                                                                    9.7        (420)       (442)
GROSS OPERATING INCOME                                                                          2,842       2,281
Cost of risk                                                                        9.8.2         (23)      (150)
OPERATING INCOME                                                                                2,819       2,131
Share in net income of companies accounted for by the equity method                 8.9           407         274
Net gains or losses on other assets                                                 9.9         2,009         137
Changes in value of goodwill                                                                       (3)         (1)
INCOME BEFORE TAX                                                                               5,232       2,541
Income tax                                                                          9.10      (1,281)       (683)
NET INCOME                                                                                      3,951       1,858
Minority interests                                                                              (119)         (78)
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT                                         3,832       1,780




208
      STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                                               Sha re ca pita l a nd
                                                                                                       Unre a lize d or de fe rre d ga ins                                              AC sum
                                                               a dditiona l pa id-in
                                                                                                          a nd losse s (ne t of ta x )                                                  SN3
                                                                     ca pita l

                                                                                       Re ta ine d                            Cum ula tive       Ne t incom e
                                                                                                                                                                   Equity
                                                                           Additiona l e a rnings      Cum ula tive           cha nge in fa ir   a ttributa ble
                                                             Sha re                                                                                                a ttributa ble to    Minority            Consolida te d
                      (in m illions of e uros)                             pa id-in                    tra nsla tion          va lue of          to e quity
                                                             ca pita l                                                                                             e quity holde rs     inte re sts         e quity
                                                                           ca pita l                   a djustm e nts         fina ncia l        holde rs of
                                                                                                                                                                   of the pa re nt
                                                                                                                              instrum e nts      the pa re nt

Equity a t De c. 31, 2004 unde r Fre nch GAAP                     5,018            878        8,372               (519)                                    1,785              15,534              665                 16,199

                                                                                              (819)                                                                             (819)                 (5)              (824)
Changes in accounting policies during 2005 (French GAAP)
                                                                  5,018            878        7,553               (519)                                    1,785              14,715              660                 15,375
Equity a t Ja n. 1, 2005 unde r Fre nch GAAP
                                                                                              1,229                493                   1,319                                 3,041            (247)                  2,794
Impact of the transition to IFRS
                                                                  5,018            878        8,782                (26)                  1,319             1,785              17,756              413                 18,169
Equity a t Ja n. 1, 2005 unde r IFRS

Appropriation of 2004 net income                                                              1,785                                                      (1,785)

Capital increase                                                     136            37                                                                                            173                                    173
Dividend paid in 2005 out of net income for 2004                                               (255)                                                                            (255)            (27)                  (282)
Total m ovem ents arising from relations with shareholders          136             37        (255)                                                                              (82)            (27)                  (108)

Change in fair value of financial instruments                                                                                              309                                   309                   4                 313
Net income for 2005                                                                                                                                        1,780               1,780                  78               1,858
Sub-total                                                                                                                                 309              1,780               2,089                  82              2,171

Impact of acquisitions and disposals on minority interests                                                                                                                                            11                     11
Other changes                                                                                    39                163                                                           202                  34                 236

                                                                  5,154            915       10,351                137                   1,628             1,780              19,965              514                 20,479
Equity a t De c. 31, 2005 unde r IFRS

Appropriation of net income for 2005                                                          1,780                                                      (1,780)

Capital increase                                                     542           160          (25)                                                                              676                                     676
Capital reduction                                                (2,087)         (729)       (4,184)                                                                          (7,000)                                 (7,000)
Dividend paid in 2006 out of net income for 2005                                               (294)                                                                            (294)             (57)                  (351)
Total m ovem ents arising from relations with shareholders      (1,545)          (569)      (4,504)                                                                          (6,618)             (57)                (6,675)

Change in fair value of financial instruments                                                                                              199                                   199              (1)                   198
Net income for 2006                                                                                                                                        3,832               3,832             119                  3,951
Sub-total                                                                                                                                 199              3,832               4,031             118                  4,149

Impact of transfer of CICs to Natixis                                                         2,863                                                                            2,863                                   2,863
Other changes                                                                                   (65)              (144)                                                        (209)            (148)                  (357)

Equity a t De c. 31, 2006 unde r IFRS                             3,609            346       10,425                     (7)              1,827             3,832              20,032              427                 20,459

See Note 15.1 for details of the impacts of the transfer of CICs from the Caisses d'Epargne et de Prévoyance, and the CNCE's capital reduction.


209
      CONSOLIDATED STATEMENT OF CASH FLOWS

The consolidated statement of cash flows is presented in accordance with the indirect method.

Investing activities represent cash flows arising from the acquisition and disposal of interests in
consolidated companies and held-to-maturity financial assets, as well as property, plant and
equipment and intangible assets.

Financing activities arise from changes resulting from transactions with equity instruments,
subordinated debt and bond debt.

Operating activities include all cash flows that do not fall into the other two categories, and mainly
comprise securities relating to strategic equity investments recorded within the “Available-for-sale
financial assets” portfolio.


(in millions of euros)                                                                               2006         2005
Income before tax                                                                                      5,232        2,541

Net depreciation and amortization of property, plant and equipment and intangible assets                   424          463
Net additions to/(reversals from) provisions for impairment                                                (20)     (1,032)
Share in net income of companies accounted for by the equity method                                      (470)        (123)
Net loss/gain from investing activities                                                                (2,457)        (417)
Income/expense from financing activities                                                                   413          331
Other movements                                                                                          8,733      (9,446)

Total non-monetary items included in net income before tax                                              6,623      (10,224)

Net increase in cash and cash equivalents arising from transactions with credit institutions             5,343        5,912
Net decrease in cash and cash equivalents arising from transactions with customers                    (30,391)      (6,683)
Net increase in cash and cash equivalents arising from transactions involving financial assets and
liabilities                                                                                             9,562        4,952
Net increase (decrease) in cash and cash equivalents arising from transactions involving non-
financial assets and liabilities                                                                         (139)       1,299
Taxes paid                                                                                               (581)       (546)

Net increase (decrease) in assets resulting from operating activities                                 (16,206)       4,934

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS GENERATED BY
OPERATING ACTIVITIES (A)                                                                               (4,351)      (2,749)

Net increase (decrease) in cash and cash equivalents related to financial assets and equity
investments                                                                                            10,580        1,353
Net increase (decrease) in cash and cash equivalents related to investment property                        37           20
Net increase (decrease) in cash and cash equivalents related to property, plant and equipment and
intangible assets                                                                                        (662)        (573)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ARISING FROM INVESTING
ACTIVITIES (B)                                                                                          9,955          800

Net increase (decrease) in cash and cash equivalents arising from transactions with shareholders       (2,515)         102
Other increases (decreases) in cash and cash equivalents generated by financing activities                 104          78

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ARISING FROM FINANCING
ACTIVITIES (C)                                                                                         (2,411)         180

Effect of movements in exchange rates on cash and cash equivalents (D)                                    119         (332)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C+D)                                          3,312       (2,101)

Cash and cash equivalents at the start of the year                                                      3,314        5,415
Cash and cash equivalents at the end of the year                                                        6,626        3,314

Net increase (decrease) in cash and cash equivalents                                                    3,312       (2,101)




210
ANALYSIS OF CASH AND CASH EQUIVALENTS

Net cash and cash equivalents correspond to cash, amounts due to/from central banks and post office
banks, as well as demand accounts (assets and liabilities) with credit institutions.
                                                          Dec. 31, 2006        Dec. 31, 2005
(in millions of euros)                                Receivables Payables Receivables Payables
Net balance of cash accounts                              1,106                    913
Net balance of accounts with central banks and post
office banks                                              3,943       257        7,374         47
Sub-total                                                 5,049       257        8,287         47
Net balance of accounts with credit institutions –
repayable on demand                                      20,805    18,970       25,853     30,779
Net balance of cash and cash equivalents                 25,854    19,227       34,140     30,826




        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
        OF GROUPE CAISSE D'EPARGNE

NOTE 1 – LEGAL AND FINANCIAL FRAMEWORK – SIGNIFICANT EVENTS IN 2006
         AND SUBSEQUENT EVENTS
         1.1 Legal framework
         1.2 Guarantee system
         1.3 Significant events in 2006
         1.4 Subsequent events

NOTE 2 – REGULATORY FRAMEWORK

NOTE 3 – FIRST-TIME ADOPTION OF IFRS

NOTE 4 – PRINCIPLES AND METHODS OF CONSOLIDATION
         OF GROUPE CAISSE D'EPARGNE
         4.1 Scope of consolidation
         4.2 Consolidation methods
         4.3 Presentation of the consolidated financial statements and balance sheet date
         4.4 Presentation of Natixis’ institutional business
         4.5 Consolidation principles
         4.6 Business combinations




                                                                                            211
NOTE 5 – ACCOUNTING POLICIES
         5.1 Foreign currency transactions
         5.2 Financial assets and liabilities
         5.3 Property, plant and equipment and intangible assets
         5.4 Leases
         5.5 Non-current assets held for sale and associated liabilities
         5.6 Provisions recorded under liabilities
         5.7 Distinction between debt and equity
         5.8 Employee benefits
         5.9 Share-based payment
         5.10 Deferred taxes
         5.11 Insurance businesses
         5.12 Use of estimates in the preparation of financial statements

NOTE 6 – IMPACTS OF THE TRANSITION TO IFRS
         6.1 Impact of IFRS adoption on equity
         6.2 Reconciliation of the balance sheet under French GAAP to the balance sheet
             under IFRS at January 1, 2005
         6.3 Reconciliation of 2005 income under French GAAP to 2005 income under IFRS
         6.4 Remarks on the impact of IFRS adoption

NOTE 7 – RISK EXPOSURE AND RISK MANAGEMENT
         7.1 Organization of risk management: overview of the main risk exposures
         7.2 Credit and counterparty risk management
         7.3 Asset/Liability Management risks
         7.4 Market and financial risks
         7.5 Intermediation risk (IXIS Securities)
         7.6 Settlement-delivery risk (IXIS CIB)

NOTE 8 – NOTES TO THE CONSOLIDATED BALANCE SHEET
         8.1 Financial assets and liabilities at fair value through profit or loss
         8.2 Derivatives used for hedging purposes
         8.3 Available-for-sale financial assets
         8.4 Loans and receivables
         8.5 Amounts due to credit institutions and customers
         8.6 Held-to-maturity financial assets
         8.7 Debt securities and subordinated debt
         8.8 Accrual accounts and other assets and liabilities
         8.9 Investments in companies accounted for by the equity method
         8.10 Property, plant and equipment and intangible assets
         8.11 Goodwill
         8.12 Technical reserves of insurance companies
         8.13 Provisions




212
NOTE 9 – NOTES TO THE CONSOLIDATED STATEMENT OF INCOME
         9.1 Interest and similar income and expense
         9.2 Commission income and expense
         9.3 Net gains or losses on financial instruments at fair value through profit or loss
         9.4 Net gains or losses on available-for-sale financial assets
         9.5 Income and expense on other activities
         9.6 Operating expenses
         9.7 Depreciation, amortization and impairment of property, plant and equipment
              and intangible assets
         9.8 Credit risk
         9.9 Gains or losses on other assets
         9.10 Income tax

NOTE 10 – EMPLOYEE BENEFITS
          10.1 Personnel costs
          10.2 Average number of employees
          10.3 Employee benefit obligations
          10.4 Share-based payment

NOTE 11 – SEGMENT INFORMATION
          11.1 Segment information: consolidated statement of income
          11.2 Segment information: consolidated balance sheet

NOTE 12 – COMMITMENTS GIVEN AND RECEIVED

NOTE 13 – OTHER INFORMATION
          13.1 Analysis of loans and borrowings by term outstanding
          13.2 Analysis of assets and liabilities by currency
          13.3 Related parties

NOTE 14 – PRO FORMA INFORMATION
          14.1 Basis of preparation
          14.2 Significant accounting policies and scope of consolidation
          14.3 Restatements
          14.4 Pro forma statement of income


NOTE 15 – SCOPE OF CONSOLIDATION
          15.1 Changes in the scope of consolidation in 2006
          15.2 Securitization transactions
          15.3 Mutual funds
          15.4 Scope of consolidation at December 31, 2006




                                                                                           213
NOTE 1 – LEGAL AND FINANCIAL FRAMEWORK – SIGNIFICANT EVENTS IN 2006 AND
SUBSEQUENT EVENTS

1.1 LEGAL FRAMEWORK
The Caisses d’Epargne et de Prévoyance together form a financial network organized around a
central institution, the Caisse Nationale des Caisses d’Epargne et de Prévoyance. Groupe Caisse
d'Epargne (GCE) consists of a varied body of subsidiaries contributing to the proper management and
enhanced sales performance of the network of individual Caisses d'Epargne et de Prévoyance. A
further body, the Fédération Nationale des Caisses d’Epargne et de Prévoyance, was set up pursuant
to the act of July 1, 1901 governing not-for-profit associations. This national federation’s terms of
reference are outlined in article L.512-99 of the Code monétaire et financier (French Monetary and
Financial Code).

Caisses d’Epargne et de Prévoyance
The Caisses d’Epargne et de Prévoyance are approved cooperative banks governed by ordinary law
whose capital is held by local savings companies. The Caisses d’Epargne et de Prévoyance are
limited liability companies (sociétés anonymes) with the status of financial institutions authorized to
operate as banks. Their capital is divided into members’ shares and Cooperative Investment
Certificates (CICs).

Local savings companies
The regionally-based local savings companies are cooperative structures with an open-ended capital
stock owned by cooperative shareholders. Within the framework of the general objectives defined by
the individual Caisses d’Epargne et de Prévoyance to which they are affiliated, the local savings
companies are tasked with coordinating the cooperative shareholder base. They are not entitled to
carry out banking business.

Caisse Nationale des Caisses d’Epargne et de Prévoyance (CNCE)
The CNCE is the central institution of Groupe Caisse d'Epargne as defined by French banking law,
and a credit institution authorized to operate as a bank. It is a limited liability company (société
anonyme) with a two-tier management structure (Management Board and Supervisory Board) whose
entire capital has been held by the individual Caisses d'Epargne et de Prévoyance since
January 29, 2007.

Specifically, the CNCE represents its various affiliates with regard to the supervisory authorities,
defines the range of products and services offered by them, organizes depositor protection, approves
senior management appointments and oversees the smooth functioning of the Group's institutions.

As the holding company, the CNCE performs the role of Group head, owning and managing the
interests in Group subsidiaries, and setting out its development strategy.

In respect of the Group's financial functions, the CNCE is notably responsible for the centralized
management of any surplus funds held by the individual Caisses d'Epargne, for carrying out any
financial transactions required to develop and refinance the Group, and for choosing the most efficient
counterparty for these transactions in the broader interests of the Group. The CNCE also provides
banking services to the other Group entities.

Subsidiaries
The French subsidiaries and investments are split into two major divisions, as follows:
■ Commercial Banking: Banque Palatine, Financière OCÉOR, along with real estate and specialized
  services (including Crédit Foncier);
■ Natixis, the Investment and Project Bank owned jointly by Groupe Caisse d'Epargne and the
  Banque Populaire group, which brings together both groups' corporate and investment banking
  activities (including IXIS Corporate & Investment Bank), asset management businesses (including
  IXIS Asset Management Group) and investor services (CACEIS) activities.

Specialized IT subsidiaries
Customer transaction processing is carried out by a banking information system organized around
three software publishers set up to develop and deploy IT application platforms, and a national IT
center (CNETI).



214
Direct subsidiaries of the Caisses d’Epargne
The individual Caisses d’Epargne et de Prévoyance are authorized to hold their own investments in
direct subsidiaries (Regional Development Corporations, finance companies, etc.).



1.2 GUARANTEE SYSTEM
Pursuant to article L.511-31 of the French Monetary and Financial Code, as amended by article L.512-
96 of the said Code, the CNCE, acting as the central institution, organized a network mutual
guarantee and solidarity mechanism within Groupe Caisse d'Epargne to ensure the liquidity and
solvency of each entity. The scope of this guarantee system includes not only the entities belonging to
the Caisses d’Epargne network as provided for by article L.512-95 of the French Monetary and
Financial Code, but also all the credit institutions subject to French law and affiliated to the CNCE
further to the CNCE's decision, in accordance with articles R.512-57 and R.512-58 of the French
Monetary and Financial Code. More generally, the guarantee system covers all Group entities by
virtue of the principle of responsibility based on shareholder links.

The terms of the relationship with Natixis – a credit institution under the common control of Banque
Fédérale des Banques Populaires (BFBP, the central institution of the Banques Populaires banks) and
the CNCE – is governed by a new provision introduced by article 42 of act no. 2006-1770 of
December 30, 2006, which supplements article L.511-31 of the French Monetary and Financial Code.
This provision allows credit institutions to be affiliated to several central institutions under direct or
indirect common control, and is therefore applicable to the subsidiaries of Natixis, including notably
IXIS Corporate & Investment Bank. Under the provision, the central institutions can draw up an
agreement setting out the conditions for exercising their respective control over the affiliated entity,
and for discharging their obligations towards it, in particular as regards liquidity and solvency.
Although this provision is not yet applicable, BFBP and the CNCE will, as required by legislation and
banking regulations, fulfill their respective duties as strategic shareholders of Natixis, in accordance
with the request from the Commission Bancaire (French Banking Commission). Consequently, BFBP
and the CNCE have entered into an irrevocable joint agreement under which, even in the event of a
dispute, they agree to act in accordance with the recommendations or injunctions of the French
Banking Commission, and provide the necessary funds in equal proportions, and if required jointly and
severally, to ensure that Natixis complies with the applicable legislation and banking regulations, and
honors any commitments made with regard to the banking authorities.

In the event that BFBP or the CNCE needed financial support as a result of assisting Natixis, their
internal network mutual guarantee and solidarity mechanisms would come into effect in accordance
with article L.511-31 of the French Monetary and Financial Code.

The individual Caisses d’Epargne participate in the guarantee system through a Fonds de garantie et
de solidarité du réseau (Network Mutual Guarantee and Solidarity Fund – FGSR), set up pursuant to
article L.512-96 of the French Monetary and Financial Code, and carried in the books of the CNCE.
The FGSR has €250 million worth of funds that can be used immediately if the need arises. This
amount is invested in a dedicated mutual fund. Should this prove insufficient to prevent the default of a
member, the Management Board of the CNCE can obtain the necessary additional resources via a
rapid decision-making process ensuring timely action.

The purpose of this fund is to promote solidarity between the individual Caisses d’Epargne. It may be
used by the CNCE, particularly where it has to intervene on behalf of one of its associated entities and
where the amount in question exceeds that entity’s financial capabilities.

The guarantee system’s objective of averting default complements the chiefly curative market
guarantee systems to which Groupe Caisse d’Epargne also subscribes.

1.3 SIGNIFICANT EVENTS IN 2006

Creation of Natixis
On June 6, 2006, Groupe Caisse d’Epargne and the Banque Populaire group signed a memorandum of
understanding setting out the conditions for the creation of a new jointly owned subsidiary, Natixis, which
brings together their corporate & investment banking and financial services businesses.



                                                                                                      215
The Ordinary and Extraordinary Shareholders' Meeting of Natexis Banques Populaires held on November
17, 2006 approved the asset contributions from the Caisse Nationale des Caisses d'Epargne et de
Prévoyance and SNC Champion (a subsidiary of Banque Fédérale des Banques Populaires), as well as
an issue of shares in consideration for these contributions. Natexis Banques Populaires' corporate name
was changed to Natixis.

To pave the way for the creation of Natixis, the CNCE transferred to Natexis Banques Populaires the
following assets for an approximate amount of €11 billion:
■ 100% of GCE Garanties, Gestitres, CIFG Holding, GCE Affacturage, GCE Bail, and GCE Financial
    Services;
■ 98.78% of IXIS CIB (the rest of the capital was contributed by SNC Champion after it had acquired
    the remaining shares from Sanpaolo IMI International);
■ 79.957% of IXIS AM Group (SNC Champion contributed 4.627% after it had acquired the
    remaining shares from Sanpaolo IMI International);
■ 67% of Caisse d’Epargne Financement (CEFi);
■ 60% of Foncier Assurances;
■ 57.85% of La Compagnie 1818 – Banquiers Privés;
■ 50% of CACEIS;
■ a portion of the CICs issued by the Caisses d’Epargne on June 30, 2004 (€1.5 billion). The
    remaining CICs were sold to SNC Champion and subsequently contributed to Natexis Banques
    Populaires.

Therefore, prior to the asset contributions, the CNCE had acquired the shares of companies contributed
by the individual Caisses d’Epargne et de Prévoyance (CEFi), as well as its subsidiaries (Banque
Palatine's interests in GCE Bail, GCE Affacturage and La Compagnie 1818 – Banquiers Privés, and
Crédit Foncier de France's stake in La Compagnie 1818 – Banquiers Privés).

As a result of the various asset contributions and disposals, Groupe Caisse d'Epargne and the Banque
Populaire group each held 45.5% of the capital of Natixis. At the same time, Natixis held a 20% stake in
each Caisse d’Epargne et de Prévoyance through its CICs.

In order to boost the liquidity and attractiveness of the Natixis share, the two shareholders agreed to
increase the free float of the new bank by making shares available for sale to investors and the public.
Accordingly, on November 17, 2006 – following the AMF’s approval of its prospectus under visa no. 06-
411, Banque Fédérale des Banques Populaires and the Caisse Nationale des Caisses d’Epargne made a
portion of the shares in their joint subsidiary available for sale through an Open Price Offer (OPO).

Lastly, the partnership between the two shareholders of Natixis is governed by a shareholder agreement
with an initial term of 15 years, which includes commitments to maintain an unchanged level of equity
investment for at least 10 years, tacitly renewable for successive five-year periods.

Following the successful completion of the OPO, at December 31, 2006 the CNCE and BFBP each held
a 34.44% stake in Natixis.

Agreements with Caisse des Dépôts et Consignations (CDC)
On July 7, 2006, CDC, CDC Holding Finance, the Caisses d’Epargne and the CNCE signed a
memorandum of understanding setting out the terms and conditions for the purchase of the CDC's entire
35% interest in the capital of the CNCE via CDC Holding Finance. This memorandum of understanding
also provides for the acquisition and subsequent cancellation by the CNCE of its own shares as part of a
capital reduction.

On December 18, 2006, the CNCE acquired the shares held by CDC Holding Finance for an amount of
€5.5 billion, thereby reducing CDC Holding Finance's stake in the CNCE to 10.34%. At December 31,
2006, CDC Holding Finance held 8.77% of the CNCE's capital following the €1 billion share issue
reserved for the Caisses d’Epargne.

The remaining shares were acquired on January 29, 2007, further to which the Caisses d’Epargne held
the entire share capital of the CNCE.




216
Within the scope of the above-mentioned memorandum of understanding, the parties revised their
partnerships in the fields of life insurance, real estate and private equity. In particular, the CNCE agreed
to sell Groupe Caisse d’Epargne's stake in the capital of Ecureuil Vie to CNP Assurances for €1.4 billion.

Mergers within the Caisses d’Epargne network
In 2006, a wave of mergers took place among Groupe Caisse d’Epargne's network banks. These
transactions are designed to give the regional banks the requisite human and financial resources to step
up the pace of their commercial development.

Accordingly, the Caisse d’Epargne de Bourgogne and the Caisse d’Epargne de Franche-Comté
completed their merger on May 19, 2006.

A number of other linkups between individual Caisses d’Epargne are under discussion or have been
announced, notably:
   ■ In July 2006, the Caisse d'Epargne des Alpes and the Caisse d'Epargne de Rhône Alpes Lyon
      signed a draft merger agreement paving the way for exclusive negotiations as regards the
      terms and conditions of a linkup between the two entities.
   ■ In early July 2006, the Caisse d'Epargne de Flandre, the Caisse d'Epargne de Pays du
      Hainaut and the Caisse d'Epargne du Pas-de-Calais signed a foundation agreement providing
      for the creation of a regional Caisse d’Epargne. The resulting linkup agreement was signed by
      the three Caisses d’Epargne in mid-November.
   ■ In November 2006, the Steering and Supervisory Boards of the Caisse d'Epargne de Provence
      Alpes Corse and the Caisse d'Epargne de Martinique approved a draft merger agreement, on
      the basis of the agreement adopted the previous June.
   ■ In mid-November 2006, the Caisse d'Epargne d’Aquitaine Nord and the Caisse d'Epargne de
      Poitou-Charentes officially announced that a memorandum of understanding had been signed
      in order to explore the potential terms and conditions of a linkup.
   ■ At end-November 2006, the Caisse d'Epargne de Lorraine and the Caisse d'Epargne de
      Champagne-Ardenne officially signed a foundation agreement paving the way for exclusive
      negotiations regarding the terms and conditions of a linkup between the two entities.
   ■ In mid-December 2006, the Steering and Supervisory Boards of three Paris-based Caisses
      d'Epargne (Ile-de-France Nord, Ile-de-France Ouest and Ile-de-France Paris) approved the
      start of exclusive negotiations regarding the creation of a single Caisse d'Epargne Ile-de-
      France. The foundation agreement for the new Caisse d'Epargne was signed on
      February 16, 2007.
   ■ In mid-December 2006, the Steering and Supervisory Boards of two Caisses d’Epargne from
      the central region (Centre - Val de Loire and Val de France - Orléanais), mandated their
      Management Boards to commence preliminary studies in view of a merger. The foundation
      agreement for the merged bank was approved on January 18, 2007.

IT systems convergence
In the second half of 2006, Groupe Caisse d’Epargne launched its IT Efficiency Program aimed at
improving the performance of information systems in the Caisses d’Epargne network, notably as
concerns quality of service and economies of scale.

The scope of this program covers the IT-related economic interest groupings Siris, Arpège, RSI and
CNETI. By the end of 2006, the preliminary phase of the program had been completed.

Organized on the basis of themes bringing together the requisite expertise, the aim of this phase was to
achieve a clear definition of the project's focus points, and to ensure that the specificity of each IT system
was taken into account in view of converging towards a single IT system for the entire Caisses d'Epargne
network.

The project breaks down into three phases – harmonization, construction and convergence:
   ■ harmonization consists in preparing the infrastructure and cross-disciplinary projects required
       to process the various mergers and migrations, and is set for completion by mid-2007;
   ■ the second stage involves constructing the convergence IT systems, slated for mid-2008;
   ■ the third stage is expected to be completed in 2010, and is designed to allow for the
       completion of the mergers and migrations while continuing with the construction of the target IT
       system.



                                                                                                       217
Regulated savings

The new tax regime that came into force on January 1, 2006 for two generations of regulated savings
plans (PEL) held for more than 10 years and 12 years led to significant outflows from these products for
all French banking networks.

These generations of PELs benefit from high interest rates (for example, the gross interest rate for PELs
taken out between May 1986 and February 1994 is 6%), and represent a significant proportion of the
overall provision set aside for regulated savings products. Provisions are raised for commitments that are
potentially unfavorable to the Group, such as the obligation to pay 6% interest on deposits at the present
time. The outflows reported on these older generations of PELs have therefore led to the release of a
portion of the corresponding provisions.



1.4 SUBSEQUENT EVENTS

Mergers within the Caisses d’Epargne network
Merger operations within the Caisses d’Epargne network continued in the early months of 2007:
   ■ In January 2007, the two Normandy-based Caisses d'Epargne (Haute-Normandie and Basse-
      Normandie) announced that they had begun negotiations aimed at exploring the terms and
      conditions of a potential linkup.
   ■ In mid-February 2007, the Caisse d'Epargne des Pays de l’Adour announced plans to
      commence discussions with the Caisse d'Epargne Aquitaine - Nord and the Caisse d'Epargne
      Poitou-Charentes with a view to drafting a three-way memorandum of understanding as the
      basis of a future merger.
   ■ At their meetings of February 27, 2007, the Steering and Supervisory Boards of the Caisse
      d'Epargne de Bretagne and the Caisse d'Epargne des Pays de la Loire authorized the
      Chairmen of their respective Steering and Supervisory and Management Boards to commence
      exclusive negotiations with a view to exploring the terms and conditions for a possible linkup.

Agreement reached between Groupe Caisse d’Epargne and Mutuelles du Mans Assurance
regarding Ecureuil Assurances IARD
On January 11, 2007, the two groups signed a memorandum of understanding which set out an
agreed valuation method for their jointly-held property and casualty insurance company Ecureuil
Assurances IARD, thereby setting the price for the 35% interest in that company held by Mutuelles du
Mans Assurance.
Pursuant to the memorandum of understanding, the groups announced in early March that they had
reached an agreement on the final terms and conditions governing the sale by Mutuelles du Mans
Assurance of its interest in Ecureuil Assurances IARD, including an agreement on the sale price.

Start of exclusive negotiations with Nexity
Nexity and the Caisse Nationale des Caisses d’Epargne signed a letter opening exclusive negotiations
to continue their discussions on the creation of a leading real estate company.
The exclusive negotiation period, which runs from February 12, 2007 through April 30, 2007, is
designed to allow the parties to press ahead with detailed studies of this joint industrial and
managerial project, including its value creation potential.



NOTE 2 – REGULATORY FRAMEWORK


With a view to improving the operation of the internal market, on July 19, 2002 the European
Parliament adopted EC regulation No. 1606/2002 requiring companies that are not listed in the
European Union but whose debt securities are traded on a regulated market to prepare their
consolidated financial statements in compliance with the international accounting standards drawn up
by the International Accounting Standards Board (IASB) as adopted for use by the European Union,
by 2007 at the latest.




218
The French Finance Minister’s order of December 20, 2004 (no. 2004/1382) authorizes unlisted
companies to prepare their consolidated financial statements using international accounting standards
prior to 2007.

Groupe Caisse d’Epargne has elected for early application and prepares its consolidated financial
statements under IAS/IFRS as adopted for use by the European Union with effect from
January 1, 2006.

Groupe Caisse d’Epargne’s date of transition to IFRS is therefore January 1, 2005.

Only those standards published in the Official Journal of the European Union, and applicable as at the
balance sheet date, have been used to prepare the opening balance sheet.

Consequently, IFRS 7 – Financial Instruments: Disclosures, and the amendment to IAS 1 relating to
capital disclosures, will be applied as from January 1, 2007. The application of these new standards
will only impact the information disclosed in the notes to the consolidated financial statements, and will
have no effect on the methods used for recognizing and measuring financial instruments.

However, IFRIC 8 – Scope of IFRS 2, and IFRIC 9 – Reassessment of Embedded Derivatives, have
both been early-adopted in 2006.


NOTE 3 – FIRST-TIME ADOPTION OF IFRS

IFRS 1 applies to entities preparing their consolidated financial statements for the first time in
accordance with International Financial Reporting Standards.

IFRS 1 provides for retrospective application of IFRS and for the recognition in opening equity at
January 1, 2005 (date of the Group’s transition to IFRS) of the impact of the new standards in relation
to French GAAP, applied by the Group up to December 31, 2004.

However, IFRS 1 provides for both optional and mandatory exemptions to retrospective application for
certain items. The Group has elected to use the following exemptions:

Business combinations
The Group has elected not to restate in accordance with IFRS 3 business combinations that took
place prior to January 1, 2005. In particular, residual goodwill at this date is not amortized but is tested
for impairment.

Assets and liabilities acquired within the scope of a business combination that took place prior to
January 1, 2005 must nevertheless meet the general criteria for recognition under IFRS in order to be
included in the opening balance sheet. For example, intangible assets acquired such as market share
do not qualify as intangible assets under IFRS and have therefore been reclassified under goodwill.

Measurement of property, plant, and equipment at fair value
The Group has elected to continue to carry investment property and property, plant and equipment
used in operations at cost, less depreciation and impairment, if applicable.

Employee benefits
In accordance with the option available under IFRS 1, the Group has elected to recognize cumulative
actuarial gains and losses in equity at the transition date.

Cumulative translation adjustments
The Group has transferred all adjustments arising on the translation of the accounts of foreign
subsidiaries at January 1, 2005 to retained earnings. As the reclassification is between two equity
accounts, it has no impact on opening equity at January 1, 2005. In the event that these entities are
subsequently sold, the gain or loss on disposal will not include translation adjustments prior to
January 1, 2005.

Share-based payment
The Group has elected to apply IFRS 2 for equity-settled plans set up after November 7, 2002 that
had not yet vested at January 1, 2005.


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Day one profit
The margin generated on structured instruments trading was restated on a prospective basis for
transactions entered into after October 25, 2002.

Fair value option
As permitted under the amendment to IAS 39, at the transition date the Group elected to recognize all
qualifying financial assets and liabilities at fair value.

Hedge accounting
As permitted by IFRS 1, the Group has elected to apply hedge accounting on a prospective basis with
effect from January 1, 2005.

Therefore, hedging relationships recognized as such under French GAAP but that do not qualify for
hedge accounting under IFRS are not recorded as hedges in the opening balance sheet and are
instead reclassified as trading transactions.

Existing hedging relationships that qualify for hedge accounting under IFRS have been recognized in
the opening balance sheet as hedging transactions.


NOTE 4 – PRINCIPLES AND METHODS OF CONSOLIDATION OF GROUPE CAISSE D'EPARGNE

4.1 SCOPE OF CONSOLIDATION

The consolidated financial statements of Groupe Caisse d’Epargne include the accounts of the
individual Caisses d’Epargne, the Caisse Nationale des Caisses d’Epargne, and all subsidiaries and
companies controlled by the Group or over which it exercises significant influence, the consolidation of
which is material to the Group.
In view of the Group's particular structure as described in Note 1, the consolidating entity is the
Caisses d’Epargne network and its central institution, the Caisse Nationale des Caisses d’Epargne.

Control
Exclusive control is the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities, and results from either the direct or indirect ownership of the majority of
voting rights; the power to appoint a majority of the members of the board of directors; or the right to
exercise a dominant influence by virtue of a management contract or under statute.

Joint control is the contractually agreed sharing of control over an economic entity involving a limited
number of associates or shareholders, such that the entity’s financial and operating policies are
determined by agreement between those partners, and exists only when the strategic financial and
operating decisions require the unanimous consent of the parties sharing control.

Significant influence is the power to participate in the financial and operating policy decisions of an
entity, but is not control or joint control over those policies. Significant influence may be exercised
through representation on the board of directors or equivalent governing body of the entity,
participation in policy-making decisions, material transactions between the Group and the entity,
exchanges of managerial personnel or provision of essential technical information. Significant
influence is presumed to exist when the Group holds, directly or indirectly, 20% or more of the voting
rights of an entity.

The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether control exists. These potential voting rights may result, for
example, from share call options traded on the market, debt or equity instruments that are convertible
into ordinary shares, or equity warrants attached to other financial instruments. However, potential
voting rights are not considered for the purpose of determining the Group’s ownership interest.




220
Special purpose entities
The Group consolidates special purpose entities (SPEs) formed specifically to manage a transaction
or a group of transactions with similar characteristics – even if the Group has no equity interest in the
entity – when in substance they are controlled by the Group.

Control is established if, in substance:
   ■ the activities of the SPE are being conducted exclusively on behalf of the Group, such that the
       Group obtains benefits from those activities;
   ■ the Group has decision-making and management powers over the ordinary activities or the
       assets of the SPE; or by setting up an "autopilot" mechanism, the entity has delegated these
       decision-making powers;
   ■ the Group has rights to obtain the majority of the benefits of the SPE;
   ■ the Group is exposed to a majority of the risks incident to the activities of the SPE.
However, entities operating in a fiduciary capacity and on behalf of third parties and in the interests of
all the parties involved are not consolidated.


Private equity businesses
IAS 28 and IAS 31 dealing with investments in associates and interests in joint ventures recognize the
specific circumstances of private equity businesses, and allow such entities to choose not to account
for investments representing between 20% and 50% of a company’s share capital by the equity
method, provided that these investments are classified within "Financial assets at fair value through
profit or loss".

The Natixis group's private equity subsidiaries have chosen to account for their investments in
accordance with this provision, on the grounds that it provides more relevant information for investors.

The review of investments held by the Natixis group's private equity businesses did not lead to the
consolidation of any majority investments, as no such investments represent a material amount.

4.2 CONSOLIDATION METHODS
Consolidation methods are based on the Group's ability to control an entity, irrespective of the nature
of that entity's business activities.

The accounts of entities under exclusive control – including entities with different accounting
structures – are carried in the Group’s accounts as fully consolidated subsidiaries.

Entities that the Group jointly controls with another investor are consolidated on a proportional basis.

Entities over which the Group exercises significant influence are accounted for by the equity method.



4.3 PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AND BALANCE SHEET DATE

Presentation of the consolidated financial statements
Since IFRS does not set out a model for the presentation of financial statements, the Group has used
the presentation proposed by the Conseil national de la comptabilité (French national accounting
board – CNC) recommendation 2004-R-03 of October 27, 2004.

Balance sheet date
The consolidated financial statements for the year ended December 31, 2006 were prepared based
on the scope of consolidation of Groupe Caisse d’Epargne, and were adopted by the Management
Board on March 12, 2007.

Preparation of pro forma financial information and effective date of the Natixis transaction
The transactions carried out in connection with the creation of Natixis are presented in the
consolidated financial statements of Groupe Caisse d’Epargne as if they had been effective at
December 31, 2006.


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The objective fixed by Groupe Caisse d’Epargne and the Banque Populaire at the outset of the
transaction was to set their interest in Natixis at approximately 35% each, thereby enabling their
subsidiary to maintain approximately one-third of its share capital as free float.

The scope and complexity of the transaction involved a number of successive and inseparable stages
that occurred within a very short timeframe. Natixis' inaugural Shareholders' Meeting of
November 17, 2006 was followed by the public offering for a portion of the shares held by the two
groups in December 2006, with the aim of reaching their agreed shareholding in the capital of Natixis.

Groupe Caisse d’Epargne's percentage interest in the capital of Natixis stabilized on
December 31, 2006 (the effective date of the transaction for accounting purposes), in accordance with
the objectives fixed at the outset of the transaction.

Accordingly, the statement of income published for 2006 reflects the results of the entities within the
scope of consolidation of Groupe Caisse d'Epargne prior to the Natixis operation. The statement of
income subtotals for 2006 are therefore directly comparable with those for 2005, with the exception of
"Gains and losses on other assets" which includes the gains on the sale of entities transferred to
Natixis (see Note 15 – Scope of consolidation).

In accordance with IFRS 3 – Business Combinations, a pro forma statement of income for 2006 has
been prepared reflecting the Group’s operations as though the public offering and the transactions
carried out further to the renegotiation of the partnership with CDC had taken place on
January 1, 2006. Items included in 2006 pro forma income and expense are described in Note 14.

Groupe Caisse d’Epargne's balance sheet at December 31, 2006 includes the Group's percentage
interest in the assets and liabilities of the Natixis group.



4.4 NATIXIS’ INSTITUTIONAL BUSINESS

Article 116 of the 2005 amended Finance Act (no. 2005-1720 of December 30, 2005), renewed the
mandate entrusted to Natixis and companies under its control to manage certain public procedures on
behalf of the French State. Operations carried out in relation with this mandate are recognized
separately in the consolidated financial statements and some of them may be guaranteed by the
French State. The French State and other related creditors have a specific claim over the assets and
liabilities allocated by the amended Act to these institutional activities.

Insurance transactions managed by Coface on behalf of the State are not recognized in the
consolidated financial statements. However, management fees received in this respect are recognized
in the income statement under the heading “Commission income”.

The amount of fees received and financing outstanding in connection with institutional activities is not
material. Accordingly, the related amounts have not been restated at amortized cost. Activities other
than financing, where Natixis acts as intermediary on behalf of the State, have been accounted for in
the IFRS financial statements using the treatment applied under French GAAP.



4.5 CONSOLIDATION PRINCIPLES

The consolidated financial statements are prepared using uniform accounting policies for reporting like
transactions in similar circumstances. Where material, consolidation adjustments are made to ensure
the uniformity of the measurement methods of consolidated entities.

Elimination of intragroup balances and transactions
The effect of intragroup transactions and balances on the consolidated balance sheet and
consolidated statement of income is eliminated on consolidation. Gains and losses on intragroup
asset disposals are also eliminated, while intragroup impairment losses are maintained.

Foreign currency translation
The Group’s consolidated financial statements are presented in euros.


222
Balance sheet items of foreign entities whose functional currency is not the euro are translated using
the exchange rate at the balance sheet date. Income and expense items are translated at the average
exchange rate for the period.

Differences arising on the translation of balance sheet and income or expense items are recorded in
shareholders’ equity under “Translation adjustments” for the portion attributable to equity holders of
the parent, and under “Minority interests” for the portion attributable to minority shareholders.



4.6 BUSINESS COMBINATIONS

All business combinations carried out after January 1, 2005 (date of the Group's transition to IFRS)
are accounted for by applying the purchase method, except business combinations involving two or
more mutual entities or entities under common control, because these transactions do not fall within
the scope of IFRS 3. The Group has opted to recognize these transactions as well as the mergers
between the Caisses d'Epargne at historical cost.

The cost of a business combination is the aggregate of the fair values, at the date of exchange, of
assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in
exchange for control of the entity, plus any costs directly attributable to the business combination.

At the acquisition date, all identifiable assets, liabilities, contingent liabilities and off-balance sheet
items of the acquiree are recognized at fair value. The provisional accounting for a business
combination may be adjusted within 12 months of the acquisition date.

Goodwill represents the difference between the cost of the business combination and the acquirer’s
interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill is
recognized in the acquirer’s balance sheet and negative goodwill is recognized immediately in profit or
loss.

In the event that the Group increases its interest in an entity it already controls, the transaction gives
rise to the recognition of additional goodwill, which is determined by comparing the cost of the shares
with the Group's interest in the net assets acquired.

Goodwill is recognized in the functional currency of the acquiree and is translated at the closing
exchange rate.

It is tested for impairment at least annually, or more frequently if events or changes in circumstances
indicate that it might be impaired.

At the acquisition date, goodwill acquired in a business combination is allocated to each of the cash-
generating units (CGUs), or groups of cash-generating units, expected to benefit from the synergies of
the combination. Cash-generating units have been defined within the Group’s core businesses, and
represent the lowest level within an activity used by management to monitor return on investment.
Impairment tests consist in comparing the carrying value of each CGU (including allocated goodwill)
with its recoverable amount (the higher of the fair value of the unit and its value in use).

Fair value is defined as the best estimate of the amount, less costs to sell, for which an asset could be
exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction,
on the basis of available market information and taking account of any specific circumstances. Value
in use is generally calculated using the estimated future cash flows method, unless another method is
deemed more appropriate.

An impairment loss is recognized in income if the carrying amount of the unit exceeds the recoverable
amount. Impairment losses recognized for goodwill may not be reversed in subsequent periods.




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NOTE 5 – ACCOUNTING POLICIES


5.1 FOREIGN CURRENCY TRANSACTIONS

The method used to account for assets and liabilities relating to foreign currency transactions entered
into by the Group depends upon whether the asset or liability in question is classified as a monetary or
a non-monetary item.

Monetary assets and liabilities expressed in foreign currencies are translated into euros, the Group's
functional currency, at the closing rate on the balance sheet date. All resulting translation differences
are recognized in income, except in the following circumstances:
    ■ only the portion of the translation difference calculated based on the amortized cost of
       available-for-sale financial assets is recognized in income; any additional translation difference
       is recognized in equity;
    ■ translation differences arising on monetary items designated as cash flow hedges or as part of
       a net investment hedge are recognized in equity.

Non-monetary assets carried at historical cost are translated using the exchange rate at the
transaction date, while non-monetary assets measured at fair value are translated using the closing
rate at the balance sheet date. Translation differences on non-monetary items are recognized in
income if gains and losses relating to the items are recorded in income, and in equity if gains and
losses relating to the items are recorded in equity.


5.2 FINANCIAL ASSETS AND LIABILITIES

5.2.1 – LOANS AND RECEIVABLES

Loans and receivables due from credit institutions and customers are generally recorded within
“Loans and receivables”.

Loans and receivables are initially recorded at fair value and subsequently measured at amortized
cost using the effective interest rate method.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
to the fair value of the loan at inception. This rate includes any discounts recorded in respect of loans
granted at below-market rates, as well as any fees and points paid or received and transaction costs
directly related to the issue of the loan, which are treated as an adjustment to the effective yield on the
loan.

Impairment of loans and receivables
An impairment loss is recognized when, after the inception of the loan, objective evidence of
impairment exists whose impact on future cash flows can be measured reliably.

Provisions assessed on an individual basis
Loans are first assessed for impairment on an individual basis. They are considered “at-risk” when it is
probable that the Group will not collect all or part of the sums due under the terms of the commitments
made by the counterparty, notwithstanding any guarantees or collateral. Loans and receivables are
classified as non-performing:
    ■ when one or more installments is at least three months past due (nine months past due in the
        case of loans to local authorities);
    ■ when the financial position of the counterparty presents a known risk, irrespective of whether
        the counterparty has defaulted;
    ■ in the event of litigation.
The amount of impairment is the difference between the carrying amount of the asset and the present
value of estimated future cash flows discounted at the original effective interest rate. Impairment is
calculated taking into account the impact of any collateral. The impairment charge is recorded in the
statement of income under “Cost of risk”, and the value of the financial asset is reduced by the same
amount.


224
Expected losses on portfolios composed of small loans with similar characteristics may be estimated
based on statistical methods.

Provisions assessed on a portfolio basis
Counterparties that are not individually impaired are risk-assessed on the basis of portfolios of loans
and receivables with similar characteristics. The existence of a known risk on a portfolio of loans with
similar characteristics leads to an impairment loss, even though the risk cannot at this stage be
allocated to individual counterparties.

The methodology implemented by the Group to identify at-risk portfolios draws upon a rating system
based on an analysis of incident rates and internal ratings based on historical data, combined where
necessary with an assessment of external credit ratings. The Group may also perform a business
segment or geographical analysis based on an advanced assessment taking account of various
economic factors intrinsic to the loans and receivables in question.

Portfolio-based impairment is calculated based on expected losses on the identified population. The
probability of default is calculated up to maturity.


5.2.2 – SECURITIES

Securities are classified into four categories as defined by IAS 39:
   ■ financial assets at fair value through profit or loss,
   ■ held-to-maturity financial assets,
   ■ loans and receivables,
   ■ available-for-sale financial assets.
Financial assets at fair value through profit or loss
This asset category includes:
    ■ financial assets held for trading, i.e., securities acquired principally for the purpose of selling
       them in the near term; and
    ■ financial assets that the Group has opted to recognize at fair value though profit or loss at
       inception using the fair value option available under IAS 39.

Securities in this category are measured at fair value at the balance sheet date. Changes in fair value
(excluding accrued interest on fixed-income securities) are presented in the statement of income
under “Net gains or losses on financial instruments at fair value through profit or loss”.

Held-to-maturity financial assets
Held-to-maturity financial assets are securities with fixed or determinable payments and fixed maturity
that the Group has the positive intention and ability to hold until maturity (other than those designated
by the Group on initial recognition as financial assets at fair value through profit or loss or available-
for-sale assets, and assets qualifying as loans and receivables).

IAS 39 does not permit the sale or transfer of such securities before maturity except in certain specific
circumstances. In the event that such securities are sold before maturity, the entity must reclassify all
held-to-maturity assets and may not classify any financial assets in the held-to-maturity portfolio for
two years.

Hedges contracted to protect assets in this category against interest rate risk do not qualify for hedge
accounting under IFRS.

Held-to-maturity financial assets are measured at amortized cost using the effective interest method,
including any premiums, discounts and acquisition fees, where material.
An impairment loss is recognized when objective evidence of impairment exists, and is calculated as
the difference between the carrying amount of the asset and its recoverable amount, discounted at the
original effective interest rate.




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Loans and receivables
The loans and receivables portfolio comprises non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Certain securities may be classified in
this portfolio under exceptional circumstances, and must then comply with the rules for recognition,
measurement and impairment applicable to loans and receivables.

Available-for-sale financial assets
Available-for-sale financial assets are all securities not classified within the previous three categories.
In particular, available-for-sale financial assets comprise securities classified under French GAAP as
held-for-sale securities, long-term investments and investments in unconsolidated subsidiaries.

Available-for-sale financial assets are recognized at purchase cost, including transaction costs and
accrued interest.

They are remeasured at fair value at the balance sheet date, with changes in fair value (excluding
accrued interest) shown on a separate line in equity under “Unrealized or deferred gains and losses
(net of tax)”. Changes in fair value are taken to income upon disposal of the securities or in the event
of a prolonged decline in value.

Impairment recorded against an equity instrument cannot subsequently be reversed. Interest income
accrued or receivable on fixed-income securities is recorded under “Interest and similar income”, while
income from variable-income securities is included within “Dividends received”.

Impairment
An impairment loss is recognized against securities when there is objective evidence of impairment,
with the exception of securities classified as financial assets at fair value through profit or loss.

The Group uses the same impairment indicators for debt securities as those used for individually
assessing the impairment risk on loans and receivables, irrespective of the portfolio to which the debt
securities are ultimately designated.

A prolonged decline as well as a material decrease in the value of an equity instrument constitute
objective indications of impairment.

Determination of fair value
Securities designated as financial assets at fair value through profit or loss and available-for-sale
financial assets are measured at fair value.

Quoted market prices in an active market, if available, provide the most reliable estimate of fair value.
However, when no quoted market price is available, fair value corresponds to the most recent
transaction price, provided that no significant changes in economic conditions have occurred between
that transaction and the measurement date.

If the market for a financial instrument is not active, the Group uses valuation models based on
objective and verifiable estimates and assumptions consistent with generally accepted valuation
techniques used for financial instruments. Such valuation models may be based on recent transaction
prices, the price of an instrument with similar characteristics, the discounting of future cash flows, or
revalued net assets.

Date of recognition
Securities are recorded in the balance sheet on the settlement/delivery date.




226
5.2.3 – DEBT SECURITIES

Financial instruments issued by the Group qualify as debt instruments if the issuer has a contractual
obligation to deliver cash or another financial asset to the holder of the instrument, or to exchange the
instrument under conditions that are potentially unfavorable to the Group.

Issues of debt securities (which are not classified as financial liabilities at fair value through profit or
loss) are initially recognized at the issue value including transaction costs, and at each balance sheet
date are remeasured at amortized cost using the effective interest method.


5.2.4 – DERIVATIVE INSTRUMENTS AND HEDGE ACCOUNTING

All derivative instruments are recognized in the balance sheet on the trade date and measured at fair
value at inception. They are remeasured to fair value at each balance sheet date regardless of
whether they were acquired for trading or hedging purposes.

Changes in the fair value of derivatives are recognized in profit or loss for the period, except for
derivatives qualifying as cash flow hedges for accounting purposes.

Derivative financial instruments are classified into two categories:

Derivatives held for trading
Derivatives held for trading are recorded in the balance sheet under “Financial assets and liabilities at
fair value through profit or loss”. Realized and unrealized gains and losses on derivatives held for
trading are taken to income on the line “Net gains or losses on financial instruments at fair value
through profit or loss”.

Derivatives used for hedging purposes
A hedging relationship qualifies for hedge accounting if, at the inception of the hedge, there is formal
documentation of the hedging relationship identifying the hedging strategy, the type of risk covered,
the designation and characteristics of the hedged item and the hedging instrument. In addition, the
effectiveness of the hedge must be demonstrated at inception and subsequently verified.

Derivatives contracted as part of a hedging relationship are designated according to the purpose of
the hedge:

Fair value hedges
Fair value hedges are intended to reduce exposure to changes in the fair value of an asset or liability
carried in balance sheet, or a firm commitment, in particular the interest rate risk on fixed-rate assets
and liabilities.

The gain or loss on the remeasurement of derivative instruments is recognized in profit or loss
symmetrically with the gain or loss on the hedged item attributable to the risk being hedged. The
ineffective portion of the hedge, if any, is therefore reflected directly in income.

Accrued interest on the hedging instrument is taken to income symmetrically with the accrued interest
on the hedged item.

Where identified assets or liabilities are hedged, the remeasurement of the hedged component is
recognized in accordance with the classification of the hedged item.

If a hedging relationship ceases (because the derivative or hedged item is sold before maturity or no
longer fulfils the effectiveness criteria), the hedging instrument is transferred to the trading book. The
remeasurement adjustment recorded in the balance sheet in respect of the hedged item is amortized
over the residual life of the hedge.




                                                                                                        227
Cash flow hedges
Cash flow hedges are hedges of the exposure to variability in cash flows of a financial instrument, in
particular the interest rate risk on variable-rate assets and liabilities.

The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is
recognized on a separate line in equity to be recycled to the statement of income, while the ineffective
portion of the gain or loss on the hedging instrument is recognized in profit or loss.

Accrued interest on the hedging instrument is taken to income symmetrically with the accrued interest
on the hedged item.

The hedged items are accounted for using the treatment applicable to their specific asset category.

If a hedging relationship ceases (because the hedge no longer meets the effectiveness criteria, or the
derivative is sold or ceases to exist) the cumulative amounts recognized in equity are transferred to
the statement of income as and when the hedged item impacts profit or loss, or immediately if the
hedged item ceases to exist.

Hedges of a net investment in a foreign operation
Net investment hedges are accounted for in the same manner as cash flow hedges.

Unrealized gains and losses initially recognized in equity are taken to income when the net investment
is sold in full or in part.

Macro-hedging
The Group favors the so-called “carve-out” from IAS 39 adopted by the European Union to macro-
hedging transactions carried out within the scope of managing its overall fixed interest rate exposure.

In particular, the carve-out allows the Group to hedge the interbank interest rate risk on customer
items (loans, savings accounts and demand deposits). The Group chiefly uses interest rate swaps
designated as fair value hedges of fixed-rate deposits in macro-hedging.

Macro-hedging derivatives are accounted for in the same way as derivatives used to hedge specific
transactions, i.e., as fair value hedges or cash flow hedges, as appropriate. Where possible, however,
the Group uses fair value hedges. For each maturity band, the instruments correspond to a portion of
the overall interest rate exposure.

In a fair value hedging relationship, gains and losses on the remeasurement of the hedged item are
recorded in “Remeasurement adjustment on interest-rate risk hedged portfolios”. The effectiveness of
the hedging relationship is prospectively demonstrated by the fact that at inception, all derivatives are
required to reduce the interest rate risk of the underlying portfolio.

If a hedging relationship ceases to qualify for hedge accounting, the remeasurement adjustment is
amortized on a straight-line basis over the residual life of the hedge, or is taken directly to income if
the hedged item is no longer recorded in the balance sheet (notably in the case of prepayment).
Derivatives used for macro-hedging are disqualified from hedge accounting when the nominal amount
of the hedged instruments falls below the nominal amount of the hedges (notably in the case of the
prepayment of loans or the withdrawal of deposits).

Embedded derivatives
An embedded derivative is a component of a financial or non-financial hybrid (combined) instrument
that qualifies as a derivative. It must be separated from the host contract and accounted for as a
derivative if the hybrid instrument is not measured at fair value through profit or loss, and if the
economic characteristics and risks associated with the derivative are not closely related to those of the
host contract.




228
5.2.5 – DETERMINATION OF FAIR VALUE

Fair value is generally defined as the amount for which an asset could be exchanged or a liability
settled between knowledgeable, willing parties in an arm's length transaction.
The fair value of a financial instrument on initial recognition is normally the transaction price (i.e., the
fair value of the consideration given or received).

IFRS sets out a hierarchy for calculating fair value:
   ■ The best evidence of fair value is a quoted price in an active market.
   ■ If the market for a financial instrument is not active, fair value is determined by using valuation
      techniques drawing on mathematical calculation methods reflecting accepted financial
      theories, and valuation parameters derived from market conditions at the balance sheet date,
      or is determined using statistical estimates or other methods.

A market for an instrument is regarded as active if quoted prices are readily and regularly available
from an exchange, broker, dealer, pricing service or regulatory authority, and those prices represent
actual and regularly occurring market transactions conducted at arm’s length. If quoted prices are
available, they are used to determine fair value, as is notably the case for securities and derivatives
traded in organized markets.

In accordance with IAS 39, the initial margin generated when a financial instrument is set up cannot
be recognized in profit or loss unless the financial instrument can be measured reliably at inception.
Financial instruments that can be measured reliably include those traded in active markets and
instruments valued using accepted models drawing only on observable market data.

Instruments not traded in an active market
When internal valuation models are based on standard models, and the valuation method draws on
observable market data, the margin generated when these financial instruments are traded is
immediately recognized in profit or loss.

Valuation models used to price generally made-to-measure structured products may use certain
parameters that are partially non-observable on active markets. On initial recognition of such
instruments, the transaction price is taken to reflect the market price, and the margin generated when
these instruments are traded (day one profit) is deferred and taken to profit or loss over the period
during which the valuation parameters are expected to remain non-observable, or until maturity.

When these parameters become observable, or when the valuation technique used becomes widely
recognized and accepted, the portion of day one profit not yet recognized is taken to profit or loss.

Day one profit on instruments considered non-observable was restated on a prospective basis for
transactions entered into after October 25, 2002.


5.2.6 – FINANCIAL ASSETS AND LIABILITIES ACCOUNTED FOR UNDER THE FAIR VALUE OPTION

The amendment to IAS 39 adopted by the European Union on November 15, 2005 allows entities to
designate financial assets and liabilities on initial recognition as at fair value through profit or loss.
However, an entity's decision to classify a financial asset or liability at fair value through profit or loss
under the fair value option may not be reversed.

This option may only be applied in the following circumstances:

Elimination or significant reduction of a measurement or recognition consistency
(accounting mismatch)
The option allows:
    ■ the elimination of accounting mismatches stemming from the application of different valuation
      rules to instruments managed in accordance with a single strategy (e.g., to limit equity volatility
      in the case of an available-for-sale financial asset where a liability considered related is
      measured at amortized cost, or within the scope of insurance activities, to ensure consistent
      accounting treatment for financial assets representing unit-linked policies and the related
      liabilities);



                                                                                                         229
      ■ the elimination of restrictions concerning the designation, monitoring and analysis of hedge
         effectiveness in the case of fair value hedges, as the opposite changes in fair value are
         automatically offset in income (e.g., for a fixed-rate bond combined with a fixed-rate borrower
         swap).

Harmonization of accounting treatment and performance management and measurement
This option applies in the case of a group of assets and/or liabilities managed and valued on a fair
value basis, provided that it is based on a formally documented risk management or investment
strategy, and that the internal reporting mechanism is based on fair value measurements.
This option is mainly used in connection with the Group's capital markets activities.

Hybrid financial instruments containing one or more embedded derivatives
The fair value option may only be applied when the embedded derivatives substantially modify the
cash flows of the host contract and when the separate recognition of the embedded derivatives are
not specifically prohibited by IAS 39 (e.g., an early redemption option at cost embedded in a debt
instrument). This option permits the measurement of the entire instrument at fair value, and therefore
avoids the need to extract, recognize and separately measure the embedded derivative.
This accounting treatment applies in particular to structured debt issues containing significant
embedded derivatives and structured loan contracts.
As described in Note 4.1, the private equity subsidiaries of the Natixis group have chosen to measure
equity investments representing less than 50% of share capital using the fair value option, on the
grounds that this provides investors with more relevant information.


5.2.7 – FINANCIAL GUARANTEES AND FINANCING COMMITMENTS

Financial guarantees
A financial guarantee contract qualifies as an insurance contract when it requires the issuer to make
specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to
make payments when due in accordance with the original or modified terms of a debt instrument.

These contracts are initially measured at fair value, deemed to equal the premium received (generally
nil at inception). A provision is subsequently recorded under liabilities if an outflow of resources
embodying economic benefits is probable.

However, guarantees that give rise to a payment resulting from fluctuations in financial variables or
other variables (based on credit ratings, for example) must be treated and accounted for as
derivatives.


Financing commitments
Financing commitments are not accounted for as derivative instruments and are not recorded in the
balance sheet.

A provision for contingencies and charges is booked if it becomes probable that the counterparty will
default over the term of the commitment.


5.2.8 – DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

A financial asset (or group of financial assets) is derecognized when the contractual rights to the
asset's future cash flows expire or when such rights are transferred to a third party, together with
substantially all of the risks and rewards associated with ownership of the asset.

An asset or liability reflecting rights and obligations created or retained as a result of the transfer of the
asset (or group of assets) is recorded on a separate line in the balance sheet.

When a financial asset is derecognized in full, a gain or loss on disposal is recorded in profit or loss
reflecting the difference between the carrying amount of the asset and the consideration received.




230
If the Group has retained control of the financial asset, the asset continues to be recognized in the
balance sheet to the extent of the Group's continuing involvement.

The Group only removes a financial liability (or a part of a financial liability) from its balance sheet
when it is extinguished – i.e., when the obligation specified in the contract is discharged or canceled or
expires.

Repurchase agreements

Assignor
Securities sold are not derecognized. The Group recognizes a liability representing the commitment to
return the funds received, which is recorded under “Securities sold under repurchase agreements”.
This financial liability is recorded at amortized cost, not at fair value.

Assignee
Securities acquired are not recognized but a receivable on the assignor representing the funds lent is
recognized. The amount disbursed in respect of the asset is recorded under “Securities received
under repurchase agreements”.

At subsequent balance sheet dates, the securities continue to be accounted for by the assignor in
accordance with the rules applicable to the category in which they were initially classified. The
receivable continues to be recorded at face value under loans and receivables.

Securities lending
Securities lending/borrowing transactions do not qualify as transfers of financial assets within the
meaning of IFRS. Accordingly, these operations do not lead to derecognition of the securities loaned.
Loaned securities are not identified under IFRS. They continue to be recognized in the category in
which they were initially classified and valued accordingly. Borrowed securities are not recognized in
the borrower's balance sheet.


5.2.9 – INCOME AND EXPENSE RELATING TO FINANCIAL ASSETS AND LIABILITIES

Interest income and expense is recognized on all financial instruments measured at amortized cost
using the effective interest method.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument to the net carrying amount of the financial asset or
financial liability.

The effective interest rate calculation takes account of all transaction fees paid or received as well as
premiums and discounts. Transaction fees paid or received that are an integral part of the effective
interest rate of the contract, such as loan set-up fees and commissions paid to financial
intermediaries, are treated as additional interest.

Commissions are recorded in the statement of income by type of service provided, and according to
the method used to recognize the associated financial instrument:
    ■ commissions payable on recurring services are spread over the period in which the service is
       provided (payment processing, securities deposit fees, etc.);
    ■ commissions payable on occasional services are recognized in full in the statement of income
       when the service is provided (fund transfers, payment penalties, etc.);
    ■ commissions payable on execution of a significant transaction are recognized in full in the
       statement of income on completion of the transaction.




                                                                                                      231
5.3 PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

Property, plant and equipment and intangible assets are held for use in the production or supply of
goods and services, or for administrative purposes. Investment property is property held to earn
rentals or for capital appreciation, or both.

Property, plant and equipment and intangible assets are initially recognized at cost plus any directly
attributable acquisition costs. Software developed internally that fulfils the criteria for recognition as an
asset is recognized at its production cost, which includes external charges and the labor costs of
employees directly assigned to the project.

The Group applies the component-based approach to all buildings. The depreciable amount of the
asset takes account of its residual value where this is material and can be measured reliably.

After initial recognition, property, plant and equipment and intangible assets are measured at cost less
any accumulated depreciation, amortization or impairment losses.

Property, plant and equipment and intangible assets are depreciated or amortized in order to reflect
the pattern in which the asset's future economic benefits are expected to be consumed by the entity,
which generally corresponds the asset's useful life. Where an asset consists of a number of
components that have different uses or patterns of consumption of economic benefits, each
component is recognized separately and depreciated over a period appropriate to that component.

The depreciation and amortization periods used by the Group are as follows:
■ buildings: 20 to 50 years
■ fixtures and fittings: 5 to 20 years
■ furniture and special equipment: 4 to 10 years
■ computer equipment: 3 to 5 years
■ computer software: not more than 5 years
Property, plant and equipment and intangible assets are tested for impairment if there is an indication that
they may be impaired at the balance sheet date. The new recoverable amount of the asset is compared
with the carrying amount, and if the asset is found to be impaired, an impairment loss is recognized in the
statement of income.
This loss is reversed in the event of a change in the estimated recoverable amount or if there is no longer
an indication of impairment.


5.4 LEASES

Leases are analyzed to determine whether in the substance of the transaction and financial reality,
they are finance leases or operating leases.

Finance leases
A finance lease is a lease that transfers to the lessee substantially all the risks and rewards incidental
to ownership of an asset. It is treated as a loan granted by the lessor to the lessee in order to finance
the purchase of an asset.

In the lessor's financial statements, a receivable is recorded representing the present value of future
lease payments (plus the residual value in certain cases). Lease payments received are spread over
the lease term, and are treated as repayment of principal and finance income, so as to reflect a
constant rate of return on the lessor's net investment in the lease. The interest rate used is the rate
implicit in the lease.

Impairment losses recognized on these receivables are determined in the same way as for other loans
and receivables.

In the lessee's financial statements, finance lease contracts with purchase options are treated as the
purchase of an asset financed by a loan.




232
Operating leases
An operating lease is a lease under which substantially all the risks and rewards of ownership of an
asset are not transferred to the lessee.

In the lessor's financial statements, the asset is recognized under property, plant and equipment and
depreciated on a straight line basis over the lease term. The depreciable amount does not take into
account the residual value of the asset. Lease payments are recognized in income over the lease
term.

The operating lease is not recognized in the balance sheet of the lessee. Lease payments are
expensed on a straight-line basis over the lease term.


5.5 NON-CURRENT ASSETS HELD FOR SALE AND ASSOCIATED LIABILITIES

Where the Group decides to sell non-current assets and it is highly probable that the sale will occur
within 12 months, these assets are shown separately in the balance sheet on the line "Non-current
assets held for sale". Any liabilities associated with these assets are also shown separately in the
balance sheet on the line "Liabilities associated with non-current assets held for sale".

Once classified in this category, non-current assets are no longer depreciated/amortized and are
measured at the lower of the carrying amount and fair value less costs to sell.


5.6 PROVISIONS RECORDED UNDER LIABILITIES

Provisions recorded under liabilities (other than those relating to employee benefit obligations,
provisions on regulated savings products, off-balance sheet commitments, and insurance contracts)
mainly consist of provisions for restructuring, claims and litigation, fines and penalties, and tax risks.

Provisions are liabilities of uncertain timing or amount. They represent legal or constructive obligations
for the Group with regard to third parties, which are likely or certain to result in an outflow of resources
embodying economic benefits, with no equivalent consideration in return.

A liability is only recognized in the event that the amount can be measured with sufficient reliability.
The amount recognized in provisions is the best estimate of the expense required to extinguish the
present obligation at the balance sheet date.
Provisions are discounted when the impact of discounting is material.
Subsequent additions to and reversals from provisions are dealt with through the statement of income
on the line corresponding to the type of expense for which the provision was booked.

Provisions on regulated savings products
Regulated savings accounts (Comptes d’épargne logement – CEL) and regulated savings plans
(Plans d'épargne logement – PEL) are retail products sold in France regulated by the 1965 French
home savings law, and subsequent enabling decrees.

Regulated savings products generate two types of obligations for the Group:
■ an obligation to provide a loan to the customer in the future at a rate set on inception of the
  contract (for PEL products); or at a rate contingent upon the savings phase (for CEL products);
■ an obligation to pay interest on the savings in the future at a rate set on inception of the contract for
  an indefinite period (for PEL products); or at a rate set on a six-monthly basis according to an
  indexing formula regulated by law (for CEL products).

Where the sum of the Group's estimated future obligations for each generation of regulated savings
plans and for all regulated savings accounts indicates a potentially unfavorable situation for the Group,
a provision is recognized for the associated risks by discounting future potential earnings from at-risk
outstandings:
■ at-risk savings correspond to the uncertain future level of savings for plans in existence at the date
   the provision is calculated. This is estimated on a statistical basis for each future period taking
   account of historical customer behavior patterns, and corresponds to the difference between the
   probable outstandings and the minimum expected savings;



                                                                                                        233
■ at-risk loans correspond to the outstanding loans granted but not yet due at the calculation date
      and statistically probable loan outstandings based on historical customer behavior patterns as well
      as earned and future rights relating to regulated savings accounts and plans.

Earnings for future periods from the savings phase are estimated for a given generation of contracts,
as the difference between the regulated rate offered and the expected interest accruing on a
comparable savings product on the market.

Earnings for future periods from the loan phase are estimated as the difference between the fixed rate
agreed at inception for PEL contracts or a rate contingent on the savings phase for CEL contracts,
and the expected interest rate accruing on home loans in the non-regulated sector.

Where the sum of the Group's estimated future obligations in respect of the savings and loan phases
of any generation of contracts indicates a potentially unfavorable situation for the Group, a provision is
recognized, with no offset between the different generations. The obligations are estimated using the
Monte Carlo method in order to reflect the uncertainty of future interest rate trends and their impact on
customer behavior models and at-risk outstandings.

These provisions are recognized under liabilities in the balance sheet and changes are recorded in
net banking income.


5.7 DISTINCTION BETWEEN DEBT AND EQUITY

Financial instruments issued are classified as either debt or equity according to whether or not the
issuer has a contractual obligation to deliver cash or another financial asset to the holders.

Members’ shares
IFRIC 2 – Members’ Shares in Co-operative Entities and Similar Instruments, clarifies the provisions
of IAS 32. In particular, the contractual right of the holder of a financial instrument (including members’
shares in co-operative entities) to request redemption does not, in itself, automatically give rise to an
obligation for the issuer. Rather, the entity must consider all of the terms and conditions of the
financial instrument in determining its classification as a financial liability or equity.

Based on this interpretation, members’ shares are classified as equity if the entity has an
unconditional right to refuse redemption of the members’ shares or if local laws, regulations or the
entity’s bylaws unconditionally prohibit the redemption of members’ shares.

Based on the existing provisions of the Group’s bylaws relating to minimum capital requirements,
members’ shares issued by Groupe Caisse d’Epargne are considered as equity.


Undated super-subordinated notes
Based on the conditions laid down in IAS 32 for analyzing the substance of these instruments and in
light of their intrinsic characteristics, undated super-subordinated notes issued by the Group qualify as
debt instruments.

Commitments to buy back minority interests (written puts)
The Group has entered into commitments with minority shareholders of certain fully consolidated
companies to buy back their shares. In accordance with IAS 32, these commitments represent written
puts whose exercise price can be determined based on a predefined formula which takes account of
possible changes in the value of the entities concerned, and therefore should be recorded as debt and
not equity.

The Group records in goodwill the difference between the amount of the commitment and the value of
the minority interests (representing the corresponding adjustment to the debt).




234
5.8 EMPLOYEE BENEFITS

Groupe Caisse d’Epargne grants its employees a variety of benefits that fall into four categories:

Short-term employee benefits
Short-term employee benefits mainly include wages, salaries, paid annual leave, incentive plans,
profit-sharing, and bonuses payable within 12 months of the end of the period in which the employee
renders the service.

They are recognized as an expense for the period, including amounts remaining due at the balance
sheet date.

Long-term employee benefits
Long-term employee benefits are generally linked to long-service awards, accruing to current
employees and payable 12 months or more after the end of the period in which the employee renders
the related service. Long-term employee benefits mainly include jubilee bonuses.

A provision is set aside for the value of these obligations at the balance sheet date, which is assessed
using the same actuarial method as that applied to post-employment benefits.

Termination benefits
Termination benefits are granted to employees on termination of their contract before the normal
retirement date, either as a result of a decision by the Group to terminate a contract or a decision by
an employee to accept voluntary redundancy. A provision is set aside for termination benefits.
Termination benefits payable more than 12 months after the balance sheet date are discounted.

Post-employment benefits
Post-employment benefits include lump-sum retirement bonuses, pensions and other post-employment
benefits, and fall into two categories: defined-contribution plans, which do not give rise to an obligation for
the Group; and defined-benefit plans, which give rise to an obligation for the Group and are therefore
measured and recognized by means of a provision.

The Group records a provision in liabilities for employee benefit obligations that are not funded by
contributions charged to income and paid out to pension funds or insurance companies.

Post-employment benefit obligations are valued using an actuarial method that takes account of
demographic and financial assumptions such as age, length of service, the likelihood of the employee
being employed by the Group at retirement and the discount rate. It also takes into consideration the
value of plan assets and unrecognized actuarial gains and losses, and allocates the costs over the
working life of each employee (projected unit credit method).

Actuarial gains and losses on post-employment benefits, arising as a result of changes in actuarial
assumptions (early retirement, discount rate, etc.) or experience adjustments (return on plan assets, etc.)
are recognized for the portion that exceeds the greater of (i) 10% of the present value of the defined-
benefit obligation and (ii) 10% of the fair value of any plan assets (corridor method).

The annual expense recognized in respect of defined-benefit plans includes the current service cost,
interest cost (the effect of discounting the obligation), the expected return on plan assets and the
amortization of any unrecognized items.


5.9 SHARE-BASED PAYMENT

Share-based payment transactions are payments based on shares issued by the Group, regardless of
whether transactions are settled in the form of equity or cash, the value of which fluctuates in line with
price trends for the Group's shares.

The Group has elected to apply IFRS 2 for plans set up after November 7, 2002 that had not yet
vested at January 1, 2005.




                                                                                                        235
The cost to the Group is calculated on the basis of the fair value at the grant date of the share
purchase or subscription options granted by certain subsidiaries. The total cost of the plan is
determined by multiplying the value of the option by the estimated number of options that will be
vested at the end of the vesting period, taking account of the likelihood that the grantees will still be
employed by the Group, and of any off-market performance conditions that may affect the plan.

The cost to the Group must be recognized through profit or loss from the notification date, without
waiting for the vesting conditions, if any, to be satisfied (for example, in the case of a subsequent
approval process) or for the beneficiaries to exercise their options.

The corresponding adjustment for the expense recorded on equity-settled plans is an increase in
equity.

For cash-settled plans, the Group recognizes a liability; the expense, equivalent to the fair value of the
liability, is taken to income over the vesting period with a corresponding adjustment to a debt account.
This debt is remeasured to fair value, with changes in fair value taken to profit or loss until the debt is
settled.


5.10 DEFERRED TAXES

Deferred taxes are recognized when temporary differences arise between the carrying value of assets
and liabilities in the balance sheet and their tax base.

Deferred taxes are calculated by the comprehensive method, which takes into account all temporary
differences, irrespective of when the tax is expected to be recovered or settled.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period
when the asset is realized or the liability settled based on tax rates (and tax laws) that have been enacted
or substantively enacted by the balance sheet date.

Deferred tax liabilities and assets are offset at the level of each consolidated entity. Deferred tax assets
are recognized only to the extent that it is probable that the temporary difference will reverse in the
foreseeable future.

Deferred taxes are recognized as tax income or expense in the statement of income, except deferred
taxes relating to unrealized gains or losses on available-for-sale assets and to changes in the fair value of
derivatives used as cash flow hedges, which are taken to equity.


5.11 INSURANCE BUSINESSES

The financial assets of insurance companies fall within the scope of IAS 39: they are each classified
within one of the categories set out in this standard, and are subject to the measurement and
recognition rules applicable to the related category.

Pending amendments to IFRS 4, insurance liabilities continue to be measured broadly in line with
French GAAP.

In accordance with Phase I of IFRS 4, insurance contracts are classified into three categories:
■ Contracts that expose the insurer to a significant insurance risk within the meaning of IFRS 4: this
    category comprises policies covering personal risk insurance, pensions, property and casualty
    insurance, and unit-linked savings policies carrying a minimum guarantee. These contracts will
    continue to be measured under the rules provided under French GAAP for measuring technical
    reserves.
■ Investment contracts such as savings schemes that do not expose the insurer to a significant
    insurance risk are recognized in accordance with IFRS 4 if they contain a discretionary
    participation feature (contracts in euros or with-profit unit-linked policies also providing access to
    funds in euros), and will continue to be measured in accordance with the rules for measuring
    technical reserves provided under French GAAP.




236
■ Investment contracts without a discretionary participation feature such as contracts invested
    exclusively in units of accounts and without a minimum guarantee, are accounted for in
    accordance with IAS 39.

The discretionary participation feature grants life insurance policyholders the right to receive a share in
the financial income realized, in addition to guaranteed benefits. The reserve for amounts payable in
respect of policyholders’ surpluses on such contracts is adjusted to include the policyholders’ share in
the unrealized profits or losses on financial instruments measured at fair value in accordance with
IAS 39. The share in the profits attributed to the policyholder is determined based on the
characteristics of contracts likely to benefit from them.

Most investment contracts issued by Group entities contain with-profit discretionary participation
features.

In addition, the Group assesses at each balance sheet date whether its recognized insurance
liabilities are adequate, based on the present value of future cash flows from its insurance contracts
and investment contracts containing a discretionary participation feature. The liability adequacy test
shows the economic value of the liabilities corresponding to the average derived from stochastic
analyses. If the sum of the surrender value and policyholders’ surplus is lower than the fair value of
the technical reserves, the shortfall is recognized against income.

Under IFRS, the capitalization reserve set up in the parent company accounts on the sale of
amortizable securities in order to defer part of the associated net realized gain and hence maintain the
yield-to-maturity of the portfolio, gives rise to a deferred tax liability.


5.12 USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

Preparation of financial statements requires management to make estimates and assumptions with
regard to uncertain future events, based on their own judgment and the information available at the
balance sheet date.

The actual outcome of future events depends on a wide range of factors, including interest and foreign
exchange rate fluctuations, the general economic climate, and the changing regulatory or legal
environments.

The following areas require the use of assumptions and estimates:

■ Financial instruments that are not listed on organized markets and that are mostly traded over-the-
    counter are measured using models that draw on observable market data. The measurement of
    certain hybrid financial instruments that are not traded in an active market is based on valuation
    techniques that may incorporate non-observable parameters.
■   Financial assets and liabilities that are recognized at cost and whose fair value must be disclosed
    in the notes to the financial statements.
■   Credit risk valuations: individually-assessed provisions are estimated on a discounted basis
    drawing on a range of parameters (e.g., estimated timing of collection), or based on economic
    factors. Portfolio-based provisions require estimates of the probability of default and generally
    require the advice of independent experts.
■   The cost of pensions and future employee benefits is calculated based on various assumptions
    including discount rates, staff turnover and wage trends. Rates of return on plan assets are also
    based on estimates.
■   Estimates are also involved in determining provisions for contingencies and charges, since they
    are liabilities of uncertain timing and amount, and an outflow of resources embodying economic
    benefits is probable or certain in order to settle the obligation, with no equivalent consideration in
    return.
■   Provisions on regulated savings products are assessed based on assumptions relating to historic
    customer behavior patterns that may be at variance with actual outcomes.
■   Impairment tests on goodwill inherently incorporate a certain number of assumptions.




                                                                                                       237
NOTE 6 – IMPACTS OF THE TRANSITION TO IFRS


6.1 IMPACT OF IFRS ADOPTION ON EQUITY

The Group’s transition to International Financial Reporting Standards (IFRS) has a number of impacts on
equity, which can be either permanent or temporary.

■ The permanent impacts result from the retrospective application of IFRS, whereby:
       ■ certain items included in the balance sheet under French GAAP are no longer recognized;
       ■ a number of items specific to IFRS are now reported in the balance sheet.
■ The impact of fair value adjustments recorded against “Cumulative change in fair value of financial
      instruments” can be recycled to the income statement.
■ The impact of adjustments to the period over which income and expenses are recognized in line
      with IFRS is said to be “amortizable”.


6.1.1 – IMPACT OF IFRS ADOPTION AT JANUARY 1, 2005

                                                                    Unre a liz e d or
                                                                    de fe rre d ga ins            Othe r re se rve s
                                                                      a nd losse s                                                     Equity
                      (in m illions of e uros)                                                                                   a ttributa ble to
                (a m ounts ne t of de fe rre d ta x )                Im pa cts to be
                                                                                                           Non-a m ortiz a ble , e quity holde rs
                                                                    re cycle d to the    Am ortiz a ble                           of the pa re nt
                                                                                                            non-re cycla ble
                                                                         incom e          im pa cts
                                                                                                               im pa cts
                                                                       sta te m e nt
E quity attributable to equity holders of the parent at Dec. 31,
2004 under French GA A P                                                                                                                  15,534
Reserve for General B ank ing Ris k s at Dec . 31, 2004 under
Frenc h GA A P                                                                                                                              2,488
Equity a ttributa ble to e quity holde rs of the pa re nt
                                                                                                                                          18,022
(including RGBR) a t De c. 31, 2004 unde r Fre nch GAAP
E m ploy ee benefits                                                                                                      (633)             (633)
Credit ris k - Im pact of disc ounting individually -ass es sed
provis ions                                                                                                               (123)             (123)
P roperty , plant and equipm ent and intangible as s ets -
Com ponents approach                                                                                (63)                                     (63)
Im pa ct of cha nge s in a ccounting policie s in 2005                               0              (63)                  (756)             (819)
Equity a ttributa ble to e quity holde rs of the pa re nt
                                                                                     0              (63)                  (756)           17,203
(including RGBR) a t Ja n. 1, 2005 unde r Fre nch GAAP
Rem eas urem ent of available-for-s ale s ec urities                              953                                                         953
Rem eas urem ent of derivatives used as c as h flow hedges                         46                                                          46
Loans and c om m is sions                                                                          (185)                                    (185)
Restatem ent of day one profit                                                                     (134)                                    (134)
Deferred tax es                                                                                      493                                      493
P rovis ion on regulated s avings products                                                                                (535)             (535)
P rovis ions for perform ing loans                                                                                          120               120
P rovis ions for im pairm ent of s ecurities                                     (164)                                      121              (43)
Reclass ific ation to the trading book of non-qualify ing
derivatives                                                                                                               (128)             (128)
Financial as s ets and liabilities ac c ounted for under the fair
value option                                                                                                                 86                86
Com m itm ents to buy bac k m inority interes ts (written puts )                                                          (145)             (145)
B usines s c om binations                                                                                                 (164)             (164)
S hare in net inc om e of c om panies ac c ounted for by the
equity m ethod - Ins uranc e bus ines s                                           484                                     (343)               141
Other item s                                                                                        (33)                     40                 7
Group/m inority interests share of im pacts                                                                                  41                41
Im pa ct of IFRS a doption                                                      1,319               141                   (907)               553
Equity a ttributa ble to e quity holde rs of the pa re nt a t
Ja n. 1, 2005 unde r IFRS                                                                                                                 17,756




238
6.1.2 – IMPACT OF IFRS ADOPTION AT DECEMBER 31, 2005


                          (in millions of euros)
                                                                    Dec. 31, 2005

  French     Reserve for General Banking Risks                                 2,572
   GAAP      Equity attributable to equity holders of the parent              16,844

             Unrealized or deferred gains and losses                           1,628

            Credit risk                                                          116
            Loans                                                              (156)
            Day one profit                                                     (173)
            Deferred taxes                                                       108
 Transition Provision on regulated savings products                            (580)
            Financial operations                                                  (5)
            Commitments to buy back minority interests                         (145)
            Business combinations                                               (38)
            Share in net income of companies accounted for by the
            equity method                                                      (258)
            Other items                                                           52

             Equity attributable to equity holders of the parent
   IFRS
             under IFRS                                                       19,965




                                                                                        239
6.2 RECONCILIATION OF THE BALANCE SHEET UNDER FRENCH GAAP TO THE BALANCE
    SHEET UNDER IFRS AT JANUARY 1, 2005
                                                             Balance
                                                              sheet                          Balance sheet                  Balance
(in millions of euros)                                        under     Reclassifications         after       Restatements   sheet
                                                             French                         reclassifications              under IFRS
                                                              GAAP
ASSETS
Cash and amounts due from central banks and post
office banks                                                                       6,962              6,962                      6,962
Financial assets at fair value through profit or loss                            111,613            111,613          (186)     111,427
Derivatives used for hedging purposes                                              1,415              1,415          3,873       5,288
Available-for-sale financial assets                                               41,456             41,456          1,376      42,832
Loans and receivables due from credit institutions            186,517             (7,048)           179,469             292    179,761
Loans and receivables due from customers                      192,368               3,853           196,221           (475)    195,746
Securities portfolio                                          114,008           (114,008)
Investments by insurance companies                              1,644             (1,644)
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                                                                             693         693
Held-to-maturity financial assets                                                   2,437             2,437            (50)      2,387
Current tax assets                                                                    369               369                        369
Deferred tax assets                                                                   803               803          1,041       1,844
Accrued income and other assets                                39,769            (18,170)            21,599          (720)      20,879
Investments in unconsolidated subsidiaries, affiliates
accounted for by the equity method and other long-term
investments                                                     4,603             (4,603)
Investments in companies accounted for by the equity
method                                                                              2,301             2,301              21      2,322
Investment property                                                                   330               330            (21)        309
Property, plant and equipment                                   2,929               (299)             2,630            (46)      2,584
Intangible assets                                               1,194               (802)               392             (5)        387
Goodwill                                                          879                 768             1,647               6      1,653
TOTAL                                                         543,911              25,733           569,644          5,799     575,443

LIABILITIES AND EQUITY
Due to central banks and post office banks                                             11                11                         11
Financial liabilities at fair value through profit or loss                       112,092            112,092        (1,066)     111,026
Derivatives used for hedging purposes                                               1,566             1,566          2,034       3,600
Due to credit institutions                                     91,364             (1,154)            90,210          1,888      92,098
Due to customers                                              214,103               (188)           213,915             (6)    213,909
Debt securities                                               142,579            (45,364)            97,215          2,014      99,229
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                                                                             485         485
Current tax liabilities                                                               196               196                        196
Deferred tax liabilities                                                              134               134             162        296
Accrued expenses and other liabilities                         64,948            (41,174)            23,774           (477)     23,297
Technical reserves of insurance companies                       1,106                  35             1,141              (1)     1,140
Negative goodwill                                                  35                                    35             (35)         0
Provisions for contingencies and charges                        3,375               (500)             2,875           1,358      4,233
Subordinated debt                                               7,714                  79             7,793             (39)     7,754
Reserve for General Banking Risks                               2,488                                 2,488         (2,488)          0
Minority interests                                                665                                   665           (252)        413
Equity attributable to equity holders of the parent
(excluding RGBR)                                               15,534                                15,534          2,222      17,756
TOTAL                                                         543,911              25,733           569,644          5,799     575,443




240
6.2.1 – DETAILS OF RECLASSIFICATIONS

                                                                                                                     Property, plant and
                                                                 Standard                 Fair value
(in millions of euros)                                                         Securities              Derivatives      equipment and      Other     Reclassifications
                                                             reclassifications             option
                                                                                                                      intangible assets
ASSETS
Cash and amounts due from central banks and post
office banks                                                           6,962                                                                                      6,962
Financial assets at fair value through profit or loss                             54,896     13,290         44,549                         (1,122)             111,613
Derivatives used for hedging purposes                                                                        1,415                                                1,415
Available-for-sale financial assets                                               47,165     (4,993)                                         (716)              41,456
Loans and receivables due from credit institutions                    (6,962)                  (552)                                           466              (7,048)
Loans and receivables due from customers                                           11,812    (7,745)                                         (214)                3,853
Securities portfolio                                                            (114,008)                                                                    (114,008)
Investments by insurance companies                                                                                                         (1,644)              (1,644)
Held-to-maturity financial assets                                                  2,437                                                                          2,437
Current tax assets                                                                                                                            369                   369
Deferred tax assets                                                                                                                           803                   803
Accrued income and other assets                                                   21,345                  (45,964)                          6,449             (18,170)
Investments in unconsolidated subsidiaries, affiliates
accounted for by the equity method and other long-
term investments                                                                  (4,603)                                                                      (4,603)
Investments in companies accounted for by the
equity method                                                                      2,301                                                                        2,301
Investment property                                                                                                                  330                          330
Property, plant and equipment                                                                                                      (330)        31              (299)
Intangible assets                                                                                                                  (739)      (63)              (802)
Goodwill                                                                                                                             739        29                768
TOTAL                                                                       0     21,345           0             0                     0    4,388              25,733

LIABILITIES AND EQUITY
Due to central banks and post office banks                                                                                                     11                   11
Financial liabilities at fair value through profit or loss                        21,345     45,987         44,766                             (6)            112,092
Derivatives used for hedging purposes                                                                        1,566                                               1,566
Due to credit institutions                                                                     (728)                                        (426)              (1,154)
Due to customers                                                                               (371)                                          183                (188)
Debt securities                                                                             (44,888)                                        (476)             (45,364)
Current tax liabilities                                                                                                                       196                  196
Deferred tax liabilities                                                                                                                      134                  134
Accrued expenses and other liabilities                                                                    (46,332)                          5,158             (41,174)
Technical reserves of insurance companies                                                                                                      35                   35
Provisions for contingencies and charges                                                                                                    (500)                (500)
Subordinated debt                                                                                                                              79                   79
TOTAL                                                                       0     21,345           0             0                    0     4,388               25,733




                                                                                                                                                                241
6.2.2 – DETAILS OF RESTATEMENTS
                                                                                                                                                                                                                             Share in net
                                                                                                                                                                                                                              income of
                                                                          Credit risk -    Property, plant
                                                                                                              Remeasurem Remeasureme                                                                                         companies
                                                                           Impact of       and equipment                                                                          Provision on    Provisions
                                                                                                                 ent of            nt of                Restatement                                                           accounted
                                                             Employee     discounting      and intangible                                    Loans and                 Deferred    regulated          for     Financial                        Business
(in millions of euros)                                                                                        available-for-    derivatives              of day one                                                     RGBR  for by the                     Other       Restatements
                                                              benefits    individually-       assets -                                      commissions                 taxes       savings       performing operations                      combinations
                                                                                                                   sale      used as cash                   profit                                                              equity
                                                                           assessed         Components                                                                             products         loans
                                                                                                               securities     flow hedges                                                                                      method -
                                                                           provisions        approach
                                                                                                                                                                                                                              Insurance
                                                                                                                                                                                                                               business
ASSETS
Financial assets at fair value through profit or loss                                                                                                                                                            (186)                                                            (186)
Derivatives used for hedging purposes                                                                                                112                                                                         3,761                                                            3,873
Available-for-sale financial assets                                                                                  1,318                                                                                          79                                         (21)               1,376
Loans and receivables due from credit institutions                                   (3)                                                             1                                                             293                                            1                 292
Loans and receivables due from customers                                           (169)                                                         (116)                                                 (269)        85                                          (6)               (475)
Securities portfolio                                                                                                                                                                                                                                                                  0
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                                                                                                                                                                         693                                                              693
Held-to-maturity financial assets                                                                                                                                                                                  (51)                                              1              (50)
Current tax assets                                                                                                                                                                                                                                                                     0
Deferred tax assets                                                363                59                 28          (398)           (24)           80           70         493            281          105          22                              (202)     164                1,041
Accrued income and other assets                                     42              (10)               (10)                             1        (149)                                                  (16)      (952)                                 97     277                (720)
Investments in companies accounted for by the equity
method                                                                                                                 474                                                                                                           (343)           (102)      (8)                   21
Investment property                                                                                                                                                                                                                                            (21)                 (21)
Property, plant and equipment                                                                          (82)                                                                                                                                                      36                 (46)
Intangible assets                                                                                         1                                                                                                                                                     (6)                  (5)
Goodwill                                                                                                                                                                                                                                                          6                    6
TOTAL                                                              405             (123)               (63)          1,394            89         (184)           70         493            281         (180)     3,744          0    (343)           (207)     423                5,799

LIABILITIES AND EQUITY
Financial liabilities at fair value through profit or loss                                                                                                                                                      (1,066)                                                          (1,066)
Derivatives used for hedging purposes                                                                                                 43                                                                          1,991                                                            2,034
Due to credit institutions                                                                                                                                                                                        1,726                                        162                 1,888
Due to customers                                                                                                                                     1                                                               (7)                                                              (6)
Debt securities                                                                                                                                                                                                   2,028                                        (14)                2,014
Remeasurement adjustment on interest-rate risk hedged
portfolios                                                                                                                                                                                                         485                                                               485
Deferred tax liabilities                                                                                                                                                     68                                                                                 94                   162
Accrued expenses and other liabilities                                                                                                                          204                                             (1,242)                               340      221                 (477)
Technical reserves of insurance companies                                                                                                                                                                                                                       (1)                   (1)
Negative goodwill                                                                                                                                                                                                                                     (35)                           (35)
Provisions for contingencies and charges                          1,038                                                                                                    (68)            816         (300)       (90)                                        (38)                1,358
Subordinated debt                                                                                                                                                                                                  (39)                                                              (39)
Reserve for General Banking Risks                                                                                                                                                                                          (2,488)                                               (2,488)
Minority interests                                                                                                                                                                                                                                   (248)      (4)                (252)
Equity attributable to equity holders of the parent
(excluding RGBR)                                                  (633)            (123)               (63)          1,394            46         (185)         (134)        493           (535)          120       (42)     2,488    (343)           (264)       3                2,222
TOTAL                                                               405            (123)               (63)          1,394            89         (184)            70        493             281        (180)     3,744          0    (343)           (207)     423                5,799




242
6.3 RECONCILIATION OF 2005 INCOME UNDER FRENCH GAAP TO 2005 INCOME UNDER IFRS

                                                                                                                                   Income
                                                                 Income under
(in millions of euros)                                                                 Reclassifications Restatements               under
                                                                 French GAAP
                                                                                                                                     IFRS
Net banking income                                                          10,301                        (21)               (300)     9,980
Operating expenses                                                          (7,115)                      (208)                  66 (7,257)
Depreciation, amortization and impairment of
                                                                               (428)                      (28)                  14       (442)
property, plant and equipment and intangible assets
Gross operating income                                                        2,758                      (257)               (220)       2,281
Cost of risk                                                                  (192)                         44                 (2)       (150)
Operating income                                                              2,566                      (213)               (222)       2,131
Share in net income of companies accounted for by
                                                                                261                                             13         274
the equity method
Net gains or losses on other assets                                               37                       34                   66         137
Change in value of goodwill                                                     (62)                                            61          (1)
Exceptional items                                                              (178)                      179                   (1)
(Additions to)/releases from the Reserve for General
                                                                                (83)                                            83
Banking Risks
Income before tax                                                             2,541                         0                    0       2,541
Income tax                                                                    (390)                                          (293)       (683)
Net income                                                                    2,151                         0                (293)       1,858
Minority interests                                                              (80)                                             2         (78)
Net income attributable to equity holders of the
                                                                              2,071                         0                (291)       1,780
parent




6.3.1 – DETAILS OF RECLASSIFICATIONS

                                                          Reclassification of the    Reclassification
                                                         addition to the pension      of net gains or                            Total
(in millions of euros)                                                                                       Other
                                                         provision set up under      losses on other                        reclassifications
                                                              the Fillon law              assets

Net banking income                                                                                 (6)               (15)                (21)
Operating expenses                                                           (149)                                   (59)               (208)
Depreciation, amortization and impairment of property,
                                                                                                  (28)                                   (28)
plant and equipment and intangible assets
Gross operating income                                                       (149)                (34)               (74)               (257)
Cost of risk                                                                                                           44                  44
Operating income                                                             (149)                (34)               (30)               (213)
Net gains or losses on other assets                                                                 34                                     34
Exceptional items                                                             149                                     30                  179
Income before tax                                                               0                   0                  0                    0
Net income                                                                      0                   0                  0                    0
Net income attributable to equity holders of the
                                                                                0                   0                  0                   0
parent




                                                                                                                                         243
6.3.2 – DETAILS OF RESTATEMENTS

                                                                                                    Share in net
                                                                        Provision
                                                                                                     income of                   (Additions
                                                                            on      Day
                                                              Financial                    Deferred companies      Business      to)/releas                      Total
(in millions of euros)                                 Loans            regulated   one                                                       Other
                                                             operations                     taxes accounted for combinations      es from                    restatements
                                                                         savings   profit
                                                                                                    by the equity                  RGBR
                                                                         products
                                                                                                       method
Net banking income                                        (41)     (121)      (69)    (61)        0              0          (21)          0             13           (300)
Operating expenses                                          85                                                                                        (19)              66
Depreciation, amortization and impairment of
                                                                                                                                                       14              14
property, plant and equipment and intangible assets
Gross operating income                                     44      (121)      (69)   (61)        0              0            (21)        0              8            (220)
Cost of risk                                                         (3)                                                                                1              (2)
Operating income                                           44      (124)      (69)   (61)        0              0            (21)        0              9            (222)
Share in net income of companies accounted for by
                                                                                                              13                                                       13
the equity method
Net gains or losses on other assets                                  (2)                                                      70                       (2)             66
Change in value of goodwill                                                                                                   62                       (1)             61
Exceptional items                                                                                                                                      (1)             (1)
(Additions to)/releases from the Reserve for General
                                                                                                                                        83                             83
Banking Risks
Income before tax                                           44     (126)      (69)   (61)         0           13             111        83              5                0
Income tax                                                (15)        41        24     21     (385)                           20                        1            (293)
Net income                                                  29      (85)      (45)   (40)     (385)           13             131        83              6            (293)
Minority interests                                                     1                1                                     (5)                       5                2
Net income attributable to equity holders of the
                                                           29       (84)      (45)   (39)     (385)           13             126        83             11            (291)
parent




244
6.4 REMARKS ON THE IMPACT OF IFRS ADOPTION


6.4.1 – IMPACT OF CHANGES IN ACCOUNTING POLICIES IN 2005 (FRENCH GAAP)

Over the past few years, under the auspices of the CNC, French generally accepted accounting
principles have gradually been brought into line with IFRS.

Several significant changes in accounting policy came into effect at January 1, 2005:

Property, plant and equipment and intangible assets
The main impact on property, plant and equipment and intangible assets results from the application
of Comité de la réglementation comptable (French accounting standard setter – CRC) regulation
2002.10, amended by CRC regulation 2003.07, which sets out new rules for charging depreciation,
amortization and impairment. In particular, major building components are now accounted for
separately and depreciated over their respective useful lives.

Credit risk
In application of the requirements of CRC regulation 2002.03, impairment relating to expected losses
on non-performing and doubtful loans must now be discounted to present value.

Employee benefits
Commitments in respect of post-employment benefits and long-term employee benefits are measured
in accordance with CNC recommendation 2003.R.01 relating to the recognition and measurement of
pension commitments and other post-employment benefits. Commitments are measured using an
actuarial method that takes account of the age, length of service and the likelihood of personnel being
employed by the Group until retirement, and of the value of plan assets. Actuarial gains and losses
are amortized in accordance with the corridor method.


6.4.2 – IMPACT OF IFRS ADOPTION

Reserve for General Banking Risks (RGBR)
Under IAS 37 dealing with provisions and contingent liabilities, the Reserve for General Banking Risks
does not meet the criteria for recognition as a liability. Amounts recorded under this caption are
therefore credited to equity at January 1, 2005. Any additions to or releases from the reserve are
eliminated from the income statement.

Loans and commissions
Loans and receivables are initially recorded at fair value and subsequently measured at amortized
cost using the effective interest rate method.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
to the net carrying amount of the financial asset. This rate includes any discounts recorded in respect
of loans granted at below-market rates, as well as any fees and points paid or received, and
transaction costs, which are treated as an adjustment to the effective yield on the loan.

Opening equity was adjusted for the unamortized portion of fees and discounts relating to transactions
outstanding at the opening balance sheet date.

Provisions assessed on a portfolio basis
IAS 39 requires impairment to be assessed on the basis of portfolios of loans with similar
characteristics which present objective evidence of collective impairment where it is not possible to
identify impaired loans individually.

The general provisions previously recorded by Groupe Caisse d’Epargne are no longer compatible
with IFRS. However, provisions for credit risks on performing loans are not materially affected by the
adoption of the new accounting rules.




                                                                                                     245
Provision on regulated savings products
A provision must be set aside under liabilities when specific commitments undertaken in connection
with regulated savings products (whether in the savings phase or borrowing phase, if any) will have an
unfavorable impact on the Group.

At January 1, 2005, a €535 million provision was charged against equity, representing the difference
between the agreed terms applicable to each of these phases and market conditions.

Securities portfolio

Analysis of the securities portfolio
IAS 39 introduces new criteria for classifying securities. The bulk of the reclassifications were made
according to the following principles:
   ■ “Financial assets at fair value through profit or loss” includes financial assets held for trading,
       as well as the non-derivative financial assets that the Group has elected to measure at fair
       value in accordance with the option available under IAS 39. Application guidance regarding the
       fair value option was provided in the amendment to the standard issued in June 2005.
   ■ “Held-to-maturity financial assets” includes certain securities previously classified as
       investment securities. However, unlike under French GAAP, these securities may not be
       hedged against interest rate risk.
   ■ “Available-for-sale financial assets” is the default category that includes securities previously
       classified as held-for-sale securities and certain investment securities as well as portfolio
       equity investments, other long-term investments and investments in unconsolidated
       subsidiaries.

Remeasurement of available-for-sale securities
Changes in the fair value of available-for-sale securities are recorded with a corresponding adjustment
to a specific equity account, entitled “Cumulative change in fair value of financial instruments”. These
amounts are only taken to the income statement under net banking income upon disposal of the
securities or whenever the securities are deemed to have suffered a prolonged decline in value.
Impairment recorded against an equity instrument may not be reversed.

Hedge accounting
The impacts of IFRS adoption on hedging are split between: “Remeasurement of derivatives used as
cash flow hedges”, “Reclassification to the trading book of non-qualifying hedging derivatives” and
“Ineffective portion of hedges”.

Under IAS 39, all derivative financial instruments must be carried in the balance sheet at fair value.
Derivatives only qualify for hedge accounting if there is formal documentation of the hedging
relationship. The effectiveness of the hedge must be demonstrated at the inception of the contract,
and subsequently assessed retrospectively.

The Group has opted to maintain the existing classification of specific hedging relationships (micro
hedges) as defined under French GAAP in order to reflect the initial purpose of the hedge and
common business practices with regard to IFRS. However, pursuant to the rules set out in IFRS 1
concerning the treatment of hedging operations at the date of first-time application of IFRS, certain
specific hedging derivatives have been reclassified at fair value through profit or loss, particularly
those used to hedge investment securities, since IAS 39 prohibits hedging of held-to-maturity financial
assets.

In a fair value hedging relationship, the portion relating to the hedged risk will be remeasured at fair
value through profit or loss, symmetrically to the remeasurement of the hedging instrument. At
January 1, 2005, these adjustments will be recognized in equity, while the ineffective portion of the
hedge will be taken to income.

Assets and liabilities accounted for under the fair value option
The Group has opted to use the exception available under IFRS 1 whereby all financial assets and
liabilities meeting the criteria defined by IAS 39 (as amended) may be designated at fair value at the
transition date.



246
Restatement of day one profit
The initial margin generated when a financial instrument is set up cannot be taken to profit unless the
valuation parameters are observable.

In valuing certain structured products, non-observable market parameters are sometimes used. The
margin generated when these complex financial instruments are traded (day one profit) is deferred
and taken to income over the period during which the valuation parameters are expected to remain
non-observable.

Margins previously recorded under French GAAP upon the inception of trading were recognized in
equity at January 1, 2005 and will be released to income over the residual life of the financial
instruments concerned, or over the period during which the valuation parameters are expected to
remain non-observable. Margins on transactions processed on or after October 25, 2002 were
restated prospectively.


Commitments to buy back minority interests (written puts)
The Group has entered into commitments with minority shareholders of certain fully consolidated
companies to buy back their shares. In accordance with IAS 32, these commitments represent written
puts whose exercise price can be determined based on a predefined formula which takes account of
possible changes in the value of the entities concerned, and therefore should be recorded as debt and
not equity.

In accordance with IFRS 1, the minority interests concerned have been reclassified as debt, and
equity was reduced accordingly.

The largest put was written for an amount of €340 million.


Business combinations and goodwill
Under IFRS 1, entities may choose not to restate business combinations that occurred under French
GAAP, prior to the date of transition to IFRS. However, assets and liabilities acquired as part of past
business combinations may only be recognized in the opening balance sheet provided that they meet
the recognition criteria set out in IFRS.

Accordingly, certain intangible assets such as market share that were acquired within the scope of a
business combination but that do not qualify for recognition as intangible assets under IFRS, have
been reclassified within goodwill. Assets that do not meet the identifiability criteria prescribed by IFRS
are not reported in the opening balance sheet.

Positive goodwill is no longer amortized but tested for impairment at least once a year, or whenever
there is an indication that it may be impaired.


Scope of consolidation
The definition of control under IFRS is similar to that provided by French GAAP. Consequently, the
application of IFRS does not have a material impact on the scope of consolidation.


Insurance
The non-recyclable, non-amortizable impacts of IFRS adoption on the equity of equity-accounted
insurance subsidiaries have been included on a separate line (“Share in net income of companies
accounted for by the equity method”).

This caption includes mainly deferred tax recognized on the capitalization reserve.

Financial assets held by insurance companies are recognized in the balance sheet within one of the
categories defined by IAS 39, and are measured in accordance with the prescribed treatment.




                                                                                                      247
In accordance with Phase I of IFRS 4, contracts classified as insurance contracts under French GAAP
fall into two categories:
      ■ contracts that generate significant insurance risk within the meaning of IFRS 4 will continue to
         be accounted for under French GAAP, pending Phase II of IFRS 4. The Group will therefore
         continue to use the rules for measuring technical reserves set out in French GAAP;
      ■ investment contracts that do not generate significant insurance risk, such as savings schemes,
         are recognized under IFRS 4 if they contain a discretionary participation feature; otherwise
         they are accounted for in accordance with IAS 39.

Most investment contracts issued by Group entities contain with-profit discretionary participation
features; as such, the provision for amounts payable on with-profit policies is adjusted to include the
policyholders’ share in the unrealized profits or losses on financial instruments measured at fair value
under IAS 39.



NOTE 7 – RISK EXPOSURE AND RISK MANAGEMENT


7.1.ORGANIZATION OF RISK MANAGEMENT: OVERVIEW OF THE MAIN RISK EXPOSURES


7.1.1 – GENERAL FINANCIAL RISKS

Groupe Caisse d’Epargne’s business involves exposure to the following main risks:
■  credit or counterparty risks;
■  liquidity, interest rate and currency risks, arising primarily from retail banking operations;
■  capital market risks;
■  operational risks;
■  legal risks;
■  compliance risks.

As the network’s central institution, the CNCE is responsible for establishing and maintaining
consistent risk management processes across the entire organization, by:
■ setting exposure limits for each Group entity and for all significant counterparties representing
   exposures in excess of the entity-level limit. These limits are decided by a number of special
   committees and formally set down in writing;
■ monitoring entities’ compliance with these limits and tracking any overruns;
■ approving and implementing the internal methods and tools used to rate and compute all types of
   risk throughout the Group;
■ defining risk control, processing and oversight structures and procedures to be applied by all
   entities, and monitoring their application on an ongoing basis.

Most of these functions are performed by Group Risk Management.


7.1.2 – ROLE AND RESPONSIBILITIES OF THE RISK MANAGEMENT FUNCTION

Group Risk Management reports to the CNCE Management Board in compliance with regulatory
principles, in particular regulation 97-02 (as amended). The department has set up a risk management
function spanning all Group entities and based on a common organizational structure, as well as
common risk analysis, tracking and control procedures.

Group Risk Management’s responsibilities cover two main areas:
■ defining and implementing risk control, monitoring and management processes across the Risk
      Management function, as defined in CRBF regulation 97-02 (as amended),
■ developing procedures to comply with the new Basel II requirements, as incorporated in the
      European directive and French enabling legislation, and integrating them in the risk monitoring and
      management process.
248
7.1.3 – ORGANIZATION OF THE RISK MANAGEMENT FUNCTION

The risk management function comprises Group Risk Management and the risk management units of
the Group (Caisses d’Epargne and subsidiaries).

Group Risk Management
Group Risk Management is responsible for monitoring and managing credit, capital market, financial
and operational risks, as well as the Group’s overall interest rate and liquidity risk exposure.
Group Risk Management ensures that assumed risks are compatible with the entities’ financial,
human and IT resources, as well as with the Group’s profitability and ratings targets. It also
recommends overall limits on credit, market and other risk exposures, to be assigned to the individual
entities and business lines, as well as the levels of authority to be assigned to subsidiaries, in line with
the Group’s risk policies.

Risks are managed, monitored and controlled by several committees reporting to Group Risk
Management:
■ the Group Risk Committee, which meets at monthly intervals to set the overall framework for
   dealing with risk issues, as well as for the development and upgrading of risk management
   processes;
■ the Group Major Counterparties and SME Credit committees, which meet at least twice a month to
   review commitments in excess of the entities’ exposure limits and to set maximum exposures;
■ the Group Watchlist & Provisions committees, which meet at quarterly intervals. The Watchlist
   Committee is tasked with the quarterly monitoring of sensitive commitments relating to major
   counterparties (revenues of over €500 million) for which a provision may be required;
■ the Group Market Risks and Investment Funds committees, which meet on a monthly basis;
■ the Group Operational Risk Committee, which meets every quarter;
■ the New Products and Financial Operations Committees, which meet at monthly intervals.
The head of Group Risk Management is a voting member of the Group ALM Committee, the
Commercial Banking ALM Committee and the CNCE Investment and Finance committees.

Group Risk Management is also responsible for consolidated credit, capital market and operational
risk reporting to Groupe Caisse d’Epargne’s corporate governance structures and the banking
regulator.

Ongoing monitoring procedures performed by the Standard & Procedures unit are designed to
oversee entities’ application of groupwide risk standards, encourage take-up of the standards and
report to the Group’s corporate governance structures.

At the end of 2006, Groupe Caisse d’Epargne’s governance structures were adapted and expanded to
cover the Natixis group:
■ the head of risk at Natixis reports to the risk managers at the CNCE and the Banque Fédérale des
    Banques Populaires;
■ the risk managers of Natixis, the CNCE and Banque Fédérale des Banques Populaires approve
    the risk charter drawn up by Natixis;
■ the coordination of risk management efforts across the three groups (Natixis, Groupe Caisse
    d’Epargne and Banque Populaire) is the responsibility of three permanent committees: Standards
    & Procedures, Risk Information Systems and Global Risk.

Entity-level risk management units
The organization of risk monitoring and control processes at the Caisses d’Epargne and subsidiaries
is based on guidelines issued by Group Risk Management.
Each entity’s Risk Management unit covers all risk exposures, including credit and counterparty risks,
market and financial risks, overall interest rate and currency risks, and liquidity and settlement-delivery
risks. The units perform ex-ante risk analyses based on the exposure limits assigned to the entity, as
well as ex-post analyses and controls. They lead the activities of their entity’s Risk Committee,
Commitments Committee, Financial Management Committee and Operational Risk Committee, and
also participate in meetings of the entity’s ALM Committee. They represent Group Risk Management’s
local contact and are responsible for rolling out to their entity the national procedures and projects
developed or initiated by Group Risk Management.


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The Risk Management units ensure that Basel II standards are applied within their entity, and monitor
their correct application on an ongoing basis. Basel II standards are an integral part of the Group’s risk
measurement, monitoring and oversight structure.


7.2 CREDIT AND COUNTERPARTY RISK MANAGEMENT

7.2.1 – Credit risk management and measurement

Group Risk Management organizes consolidated credit risk measurement and management
processes by:
■ setting exposure limits for all significant counterparties representing exposures in excess of entity-
   level limits. These limits are defined by a number of special committees, such as the Group Major
   Counterparty Credit and Group SME Credit committees, and are formally set down in writing;
■ developing and maintaining the Group’s rating systems;
■ approving internal ratings-based methodologies;
■ defining standards and procedures to be applied by all entities.

7.2.2 – RISK OVERSIGHT AND MANAGEMENT OF EXPOSURE LIMIT OVERRUNS

Standard procedures
Group Risk Management coordinates the committees and prepares the performance charts used to
monitor GCE’s credit risks.

The Major Counterparties Credit Analysis unit performs or oversees expert analyses of credit risks
associated with sovereign, bank, insurance, corporate and securitization issuers for the entire Group.
These analyses are presented and discussed during meetings of the Major Counterparties Committee
or the Risks Committee, as appropriate, providing a basis for the attribution of a rating and Group-
level exposure limit to each counterparty. These exposure limits are then communicated to the entities
and incorporated in the system used to monitor exposures and exposure limits.

The SME Credit Analysis unit reviews the internal ratings already attributed to SMEs by the Anadefi
application for statutory accounts, and devises a consolidated internal rating for the groups
concerned. It then presents its own comparative assessment of the credit risk to the Group SME
Credit Committee in line with the allocations of authority.

The Credit Risk Controls & Reporting Department is responsible for developing and enhancing credit
risk control procedures, as well as for producing risk monitoring reports submitted to the risk
committees and the Management Board.

The Commercial Banking Rating Systems unit monitors the quality and pertinence of qualitative and
score-based internal ratings.

Lastly, the Credit Risk System Implementation & Maintenance unit is tasked with developing and
tracking the Group’s Fermat exposure limit monitoring and management system.


Dedicated SME procedures

A dedicated system has been developed to manage risks associated with SMEs. It is organized
around:
■ risk analysis and selection processes;
■ a system of exposure limits and thresholds for referral to the CNCE, resulting in monthly reports on
   entities’ compliance with these limits;
■ entity-level risk selection, acceptance and monitoring procedures;
■ a risk management structure at the level of the CNCE.



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7.3 ASSET/LIABILITY MANAGEMENT RISKS

7.3.1 – ORGANIZATION OF THE ALM UNIT

Group-level organization
To reflect the change in the structure of Groupe Caisse d’Epargne towards a full-service, universal
bank, the CNCE in its role as the central institution set up a Group ALM unit tasked with monitoring
and managing ALM risks on a consolidated basis. This extends the work carried out previously to
monitor ALM risks at the level of the individual Caisses d’Epargne et de Prévoyance and the
Commercial Banking subsidiaries.

Chaired by the CNCE Management Board member responsible for the Finance and Risks division, the
quarterly Group ALM Committee comprises several other Management Board members, the Finance
directors of the main subsidiaries and the officers of the Caisses d’Epargne et de Prévoyance. It
should be noted that each Group company already had its own local ALM Committee. There is also a
specific CNCE ALM Committee covering Commercial Banking activities.

To monitor consolidated risks in compliance with the applicable regulations, the Group ALM unit uses
ALM simulation and consolidation software to process data generated by the various Group entities.


Organization of ALM for Commercial Banking
Asset-liability management risks for the 28 Caisses d’Epargne, Financière OCÉOR and Banque
Palatine are monitored by a Commercial Banking ALM Committee, which meets at quarterly intervals
to review interest rate and liquidity exposures of entities falling within its remit. Currency risk does not
represent a major exposure for the Commercial Banking division.

Since December 2005, a new financial management charter defines the role, organization and
supervisory framework of asset/liability management and other financial activities carried out by the
Group’s Commercial Banking subsidiaries. This charter sets out the specific rules governing
exposures and the monitoring of interest rate, liquidity and currency risks. These rules are then taken
up in the ALM charters of the Commercial Banking entities and monitored by the local ALM
committees.

The main Commercial Banking entities use a common ALM management application (ALM SIS). This
software has an identical configuration for each entity and allows for entity-level management of ALM,
while overall risk exposure is monitored by the CNCE.


7.3.2 – LIQUIDITY RISK MANAGEMENT

Organization of refinancing within the Group
As the Group’s central institution, the CNCE is responsible for the Group’s overall liquidity exposure.
Around 75% of the refinancing needs of the Caisses d’Epargne are met by customer deposits. The
refinancing raised by the Group on the market to satisfy its residual funding requirements is managed
and coordinated by the CNCE, as follows:
■ the CNCE is responsible for providing the Caisses d’Epargne with the additional funds necessary
   to finance their activities. The CNCE is also the Group’s sole issuer of subordinated notes and
   hybrid regulatory capital instruments;
■ Compagnie de Financement Foncier issues covered bonds to refinance a portion of the eligible
   assets of CFF and particularly of GCE (mortgage loans and loans to local public borrowers).

The overall liquidity position of the Group and the liquidity positions of each individual entity are
monitored at the level of the CNCE. Annual financing plans approved by the Group ALM Committee
are drawn up covering the entities’ short- and medium-term financing requirements based on business
forecasts. Short-term financing is allocated to each Commercial Banking entity based on the CNCE’s
ability to raise short-term funds on the market.




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Since the creation of Natixis on November 17, 2006, the third segment comprising the activities
carried out by IXIS CIB is now part of the Natixis group and is therefore no longer directly monitored
by the CNCE. However, as the strategic shareholder alongside Banque Fédérale des Banques
Populaires (BFBP), and in its capacity as the central institution of Natixis in its dual management
structure, the CNCE co-guarantees the liquidity of Natixis in the last instance.
A process has been set up in order to ensure that the information reported to the CNCE is adequate to
allow it to monitor its commitment.

Monitoring liquidity risk for the main Group entities
Liquidity risk is the risk that the Bank is unable to meet its payment obligations as they fall due and
replace funds when they