Compagnie de Financement Foncier

Regulatory overcollateralisation

Article L.515-20 requires that total SCF eligible assets always exceed the total amount of liabilities secured with a privileged claim. One of the Specific controller’s duties is to monitor compliance with this overcollateralization rule.

In addition to this regulatory safeguard, Compagnie de Financement Foncier also maintains a minimum level of overcollateralisation which is superior to the 102% required.

Compagnie de Financement Foncier permanently monitors its regulatory overcollateralization ratio to ensure that its assets are sufficient to fully cover all of its obligations foncières and that it goes beyond the legislative required.

On December 31, 2010, this regulatory ratio was 110.8%. Since the company’s inception in 1999, it has always been above 108%.

Economic overcollateralisation

This is the minimum legal requirement, under which some assets may be weighted less than 102%, is the first level of overcollateralization. But Compagnie de Financement Foncier has gone further than this to cover its risks and has chosen to maintain in any event a volume of non-privileged liabilities at least equal to 5% of the liabilities that benefit from the privilege.

Compliance with this additional overcollateralisation rule provides extra-security for investors in the company’s privileged debt. Compagnie de Financement Foncier thus requires overcollateralization above the minimum required ratio, and has adopted rules to minimize the following risks:

• credit and counterparty risk;
• interest rate risk; by systematically hedging variable-rate assets and liabilities;
• liquidity risk: by maintaining enough cash to meet 12 months of privileged debt obligations in a runoff scenario.

Compliance with these commitments is reported to credit rating agencies quarterly.

Compagnie de Financement Foncier engaged to maintain a particularly high and sustainable overcollateralisation ratio, at two levels:

For more information, please refer to the 2010 Reference Document Volume 1 pages 11 ; 16 to 18 and 25 to 28 & Volume 2 pages 10 to 12 (click here)

The loan-to-value ratio on residential mortgage loans (€34.83 billion at end-2009) is the ratio of the outstanding principal over the value of the underlying real estate. Collateral is revalued annually to monitor compliance with this ratio.

At December 31, 2010, the company’s LTV ratio on its mortgage portfolio was stable at 62.3% (vs. 59.5% at December 31, 2009).

The regulatory annual valuation of underlying assets is based on a prudent assessment of the property’s long-term characteristics, local market conditions, the current use of the property and other possible uses. All of this information is provided by Foncier Expertise, Crédit Foncier’s wholly-owned, Veritas-certified subsidiary. Their experts, who are either certified by a court or qualified as chartered surveyors (MRICS), conducted more then 10,000 appraisals in 2010. The Compagnie’s Specific controller monitors these appraisals each year to verify compliance with the real-estate market parameters used in the valuation process, as described in the risk report section of this document.

Compagnie de Financement Foncier is not liable for the calculation of the solvency ratio. Nevertheless, its technical simulation at 12/31/2010 was established according to the standard method, with the following calculation options, voluntarily conservator:

• the loan participating in the character of capital was not included in core capital, but in additional capital;
• Intra group guarantees made to Compagnie de Financement Foncier by the credit institutions of the group remain weighted at 20% instead of 0% for eligible members.

This simulation led to the following result: