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Glossary

Direct acces: A B C D E F G H I - - L - N O P - R S T - V

Accretion

A transaction is described as “accretive” when it increases the portion of net asset value (e.g. net book value per share) or earnings (e.g. earnings per share) attributable to each share in the company.

ALM Asset and Liability Management

Management of the financial risks borne by an institution’s balance sheet (interest rate, currency, liquidity) and its refinancing policy in order to protect the bank’s asset value and/or its future profitability.

Asset management

Management of negotiable or other assets, for the manager’s own account or for third-party (institutional or retail) investors. In third-party asset management, assets are adapted via funds or in the framework of management mandates. Specialised products are offered to meet the range of customer expectations in terms of geographical and sector diversification, short-term or long-term investing and the desired level of risk.

Assets under management

Operating activity indicator not reflected in the Group’s consolidated financial statements, reflecting the assets marketed by the Group, whether they are managed, advised or delegated to an external fund manager. Assets under management are measured for each fund by multiplying net asset value per unit (as calculated by an external appraiser in line with the regulations in force) by the number of units/shares outstanding. Amundi fully consolidates all the assets under management by its joint ventures at 100% and not its share in the joint ventures.

AT1 (Additional Tier 1 capital)

Capital eligible under Basel 3 made up of undated debt instruments without any redemption incentive or obligation. It is subject to a loss absorption mechanism where the CET1 ratio falls below a given threshold, fixed in the issue prospectus.

Basel 3 (Agreements)

New development in the regulatory standards for banks, which replace the previous Basel 2 agreements by increasing the quality and quantity of the minimum capital that banks are required to hold against the risk they take. It also introduces minimum standards for liquidity risk management (quantitative ratios), defines measures attempting to curb the financial system’s pro-cyclicality (capital buffers varying according to the economic cycle) and tightens the requirements on institutions considered as systemically important. In the European Union, these regulatory standards were introduced under Directive 2013/36/EU (CRD4 - Capital Requirements Directive) and Regulation (EU) No. 575/2013 (CRR - Capital Requirements Regulation).

Benchmark rate

Interest rate set by a country’s or currency zone’s central bank to regulate economic activity. Principal tool in a central bank’s arsenal for fulfilling its role of regulating economic activity, which, for the European Central Bank (ECB) is inflation and, for the US Federal Reserve (Fed), is both inflation and growth.

CCA Cooperative member certificate (Certificat Coopératif d’Associés)

Unlisted securities, which may be traded over the counter and may be issued only by cooperative companies. They may be subscribed by members of the issuing Regional Banks and affiliated Local Banks. They do not carry voting rights but give their holders rights to a share of the net assets and to receive dividends.

CCI Cooperative Investment Certificate (Certificat Coopératif d’Investissement)

Securities quoted on the stock exchange that do not carry voting rights and may be issued only by cooperative companies. They give their holders rights to a share of the net assets and to receive a dividend payment.

Collateral

A transferable asset or a guarantee that provides security for the repayment of a loan, should the recipient of the loan fail to meet their repayment obligations.

Corporate governance

Any mechanism that can be implemented to achieve transparency, equality between shareholders and a balance of powers between management and shareholders. These mechanisms encompass the methods used to formulate and implement strategy, the operation of the Board of Directors, the organisation framework between different governing bodies and the compensation policy for Directors and senior executives.

Cost of risk

The cost of risk reflects allocations to and reversals from provisions for all banking risks, including credit and counterparty risk (loans, securities, off-balance sheet commitments) and operational risk (litigation), as well as the corresponding losses not covered by provisions.

Cost of risk/outstandings

Calculated by dividing the cost of risk (over four quarters on a rolling basis) by outstandings (over an average of the past four quarters, beginning of the period).

Cost/income ratio

The cost/income ratio is calculated by dividing expenses by revenues, indicating the proportion of revenues needed to cover expenses.

Credit rating

Measurement of credit quality in the form of an opinion issued by a rating agency (Standard & Poor’s, Moody’s, Fitch Ratings, etc.). The rating may apply to a specific issuer (business, government, public-sector authority) and/or specific issues (bonds, securitised notes, secured bonds, etc.). The credit rating may influence an issuer’s borrowing terms (interest rate it pays, its access to funding) and its market image (see Rating agency).

Credit spread

Actuarial margin (difference between a bond’s yield to maturity and that on a risk-free borrowing with an identical maturity).

CVA (Credit Valuation Adjustment)

Expected loss arising from the risk of a counterparty default which aims at building in the possibility that the full market value of instruments may not be recovered. The methodology used to determine the CVA is based largely on the same type of market parameters that market participants use.

Deeply subordinated notes

Undated subordinated issue giving rise to perpetual returns. Their perpetual maturity arises from the fact that they do not have a contractual redemption date, with redemption taking place at the option of the issuer. Should the issuer be liquidated, these notes are redeemed after all the other creditors have been repaid.

Dilution

A transaction is described as “dilutive” when it reduces the portion of net asset value (e.g. net book value per share) or earnings (e.g. earnings per share) attributable to each share in the company.

Dividend

Portion of net income or reserves paid out to shareholders. The Board of Directors proposes the dividend to be voted on by shareholders at the Annual General Meeting, after the financial statements for the relevant financial year have been approved.

Doubtful loan

Loan on which the borrower has fallen behind with the contractually agreed interest payments or capital repayments, or for which there is a reasonable doubt that this could occur.

DVA Debit Valuation Adjustment

Symmetrical to the CVA and represents the expected loss from the counterparty’s perspective on passive valuations of financial instruments. It reflects the impact of the entity’s own credit risk on the valuation of these instruments.

EAD Exposure at Default

Value exposed to risk. This is the Group’s exposure should the counterparty default. The EAD includes on- and off-balance sheet exposures. Off-balance sheet exposures are converted into balance sheet equivalents using internal or regulatory conversion factors (draw-down scenarios).

EL Expected Loss

Loss likely to be incurred depending on the quality of the counterparty in view of the structure of the transaction and any risk mitigation measures, such as collateral. It is computed by multiplying the exposure at default (EAD) by the probability of default (PD) and by the loss given default (LGD).

EPS Earnings per share

Net income Group share divided by the average number of shares in issue excluding Treasury shares. It indicates the portion of profit attributable to each share (not the portion of earnings paid out to each shareholder, which is the dividend). It may decrease, assuming the net income Group share remains unchanged, if the number of shares increases (see Dilution).

FCP (Fonds commun de placement) - mutual fund

Type of UCITS that issues units and does not have legal personality. By acquiring units, investors gain co-ownership of the securities, but do not have any voting rights. They are not shareholders. An FCP mutual fund is represented and managed from an administrative, financial and accounting perspective by a single management company, which may delegate these tasks.

FCPE (Fonds commun de placement d’entreprise) - corporate mutual fund

Employee savings vehicle used by companies offering this type of arrangement to their employees. Savers hold units in FCP mutual funds that are allotted in return for their payments and any top-up payments made by their employer (employer contribution).

FinTech (Finance, technology)

A FinTech is a non-banking company which uses information and communication technologies to deliver financial services.

FReD (Fides, Respect, Demeter)

Initiative to implement, manage and measure the progress made by the CSR programme. FReD has 3 pillars with 19 commitments that aim to bolster trust (Fides), grow individuals and the corporate ecosystem (Respect) and protect the environment (Demeter). Every year since 2011, the FReD index has provided a measure of the progress made by the CSR programme being pursued by Credit Agricole S.A. and its subsidiaries. PricewaterhouseCoopers conducts an annual audit of this index.

Free float

Percentage of a listed company’s share capital held by non-core shareholders. Non-core shareholders means any shareholders likely to buy or sell the shares at any time without having to worry about the effects of their decision on the control of the business and not bound by a contract limiting their right of disposal (eg shareholders’ agreement). Shares held by retail investors (including employees) and by SICAV and FCP mutual funds are included in the free float. In contrast, the investment held by a majority shareholder is not included in the free float.

FSB (Financial Stability Board)

The Financial Stability Board’s remit is to identify vulnerabilities in the global financial system and establish principles serving as a basis for the regulation and oversight of financial stability. It is made up of the governors, finance ministers and supervisors of G20 countries. Its primary objective is to coordinate at international level the work of the national financial authorities and of the international standard-setters in the regulation and supervision of financial institutions. Founded at the G20 meeting in London in April 2009, the FSB is the successor to the Financial Stability Forum set up by the G7 in 1999.

Goodwill

Amount by which the acquisition cost of a business exceeds the value of the net assets revalued at the time of acquisition. Every year, goodwill has to be tested for impairment, and any reduction in its value is recognised in the income statement.

Green Bonds

Bonds issued by an approved entity (business, local authority or international organisation) to finance an eco-friendly and/or sustainability-driven project or activity. These instruments are often used in connection with the financing of sustainable agriculture, the protection of ecosystems, renewable energy and organic farming.

GRI (Global Reporting Initiative)

An organisation consisting of stakeholders and partners (businesses, audit firms, human rights, environmental protection, labour organisations, and government representatives) which has created a joint framework for the development of sustainability reporting.

Gross operating income (GOI)

Calculated as revenues less operating expenses (general operating expenses, such as employee expenses and other administrative expenses, depreciation and amortisation).

HQLA (High Quality Liquid Assets)

Unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash in the event of a liquidity crisis.

Impaired loan

Loan which has been provisioned due to a risk of non-repayment.

Institutional investors

Businesses, public-sector bodies and insurance companies involved in securities investment and in particular in investing in the shares of listed companies. Pension funds and asset management and insurance companies come under this heading.

LCR Liquidity Coverage Ratio

This 1-month ratio aims to enhance the short-term resilience of a bank’s liquidity risk profile. The LCR obliges banks to hold sufficient risk-free, highly liquid assets to cover outflows (net of inflows) assessed under stressed assumptions, to see it through a crisis period of 30 days without relying on any support from Central banks.

Leverage ratio

A voluntarily simple ratio that is intended to control the size of banks’ total assets. The leverage ratio establishes a link between Tier 1 regulatory capital and on-/off-balance sheet assets, after restatement of given items.

LGD (Loss Given Default)

Ratio between the loss experienced on an exposure on a counterparty at default and the size of the exposure at default.

MREL (MREL ratio - Minimum Requirement for own funds and Eligible Liabilities)

Ratio defined in the European Bank Recovery and Resolution Directive indicating the minimum requirement for own funds and eligible liabilities that have to be available to absorb losses in the event of resolution (see Chapter 5 on Risk factors and Pillar 3/Regulatory indicators and ratios).

Mutual shareholders

Holders of mutual shares, which make up the capital of the Local Banks, and the Local Banks own the share capital of the Regional Bank with which they are affiliated. They receive returns in respect of their mutual shares, the interest rate on which is capped by law. The members come together once a year at the Annual General Meeting at which they approve the financial statements of the Local Banks and elect its Directors. Each individual member has one vote at these general meetings, irrespective of the number of mutual shares that she/he owns.

Mutual shares

Portion of the capital of a Local Bank or Regional Bank. Mutual shares receive an annual interest payment. Ownership units are reimbursed at their nominal value and give no right to reserves or to liquidation proceeds

NAV per share - Net asset value per share/NTAV per share - Net tangible asset value per share

One of the methods for calculating the value of a share. Net asset value per share represents the net equity Group share divided by the number of shares in issue at end of period.

Net tangible assets per share represents the tangible net equity Group share, i.e. after deduction of the Group share in intangible assets and goodwill, divided by the number of shares in issue at end of period (see calculation tables at the end of this glossary).

Net income Group share

Net income/(loss) for the financial year (after corporate income tax). Equal to net income less the share attributable to non-controlling interests in fully consolidated subsidiaries.

NPS Net Promoter Score

Index measuring how likely customers are to recommend their bank to their family and friends. Based on polling conducted every quarter, this index reflects the number of customers who are critical of, neutral on or willing to promote the bank.

NSFR (Net Stable Funding Ratio)

Ratio intended to promote longer-term resilience through the introduction of additional incentives for banks to fund their activities using more stable sources of finance (namely with longer maturities). This structural liquidity ratio covering a one-year period has been designed to provide a viable structure for asset and liability maturities.

Operating income

Calculated as gross operating income less the cost of risk.

P/E ratio (price/earnings ratio)

Ratio of the share price to earnings per share. For shareholders, it represents the number of years’ earnings needed to recoup their initial investment. It is an indicator used to compare different stocks within the same sector of activity, for example. A high P/E rating reflects expectations of strong earnings growth or a situation where a company’s value is not fully reflected in its earnings (e.g. it may have substantial cash holdings). If a company has a P/E of 15x, it is said to capitalise its earnings 15 times.

Rating agency

Organisation specialised in assessing the solvency of issuers of debt securities, i.e. their ability to honour their repayment obligations (principal repayments and interest payments over the contractual period).

Resolution

Shortened form of “resolution of crises and bank failures”. In practice, two types of plan need to be drawn up for every European bank: 1) a preventative recovery plan prepared by the bank’s senior managers, and 2) a preventative resolution plan put in place by the competent supervisory authority. Resolution is before bankruptcy of the bank, to plan its ordered dismantling and avoid systemic risk.

Revenues

Difference between banking income (interest income, fee income, capital gains from market activities and other income from banking operations) and banking expenses (interest paid by the bank on its funding sources, fee expenses, capital losses arising on market activities and other expenses incurred by banking operations).

Risk appetite

Level of risk that the Group is willing to assume in pursuit of its strategic objectives. It is determined by type of risk and by business line. It may be stated using either quantitative or qualitative criteria. Establishing the risk appetite is one of the strategic management tools available to the Group’s governing bodies.

RoE - Return on Equity

Indicator measuring the return on equity, calculated by dividing a company’s net income by its equity.

RoTE - Return on Tangible Equity

Measures the return on tangible equity (the bank’s net assets restated to eliminate intangibles and goodwill).

RWA - Risk-Weighted Assets

Assets and risk commitments (loans, etc.) held by a bank weighted by a prudential factor and based on the risk of loss and used, when added together, as the denominator for various capital ratios.

SICAV (Société d’investissement à capital variable) - open-ended investment company

A type of UCITS which enables investors to invest in a portfolio of financial assets without holding them directly and to diversify their investments. It manages a portfolio of stocks or other assets and may specialise in a specific market, an asset class, an investment profile, or a specific sector. From a tax perspective, a SICAV unit is like a share.

Solvency

Measures the ability of a business or an individual to repay its debt over the medium to long term. For a bank, solvency reflects its ability to cope with the losses that its risk profile is likely to trigger. Solvency analysis is not the same as liquidity analysis. The liquidity of a business is its ability to honour its payments in the normal course of its business, to find new funding sources and to achieve a balance at all times between its incomings and outgoings. For an insurance company, solvency is covered by the Solvency 2 Directive, see Solvency 2.

Solvency 2

European directive on insurance and reinsurance undertakings intended to ensure that they comply at all times with their commitments towards policyholders in view of the specific risks incurred by such businesses. It aims to achieve an economic and prospective assessment of solvency based on three pillars – quantitative requirements (Pillar 1), qualitative requirements (Pillar 2) and information for the public and the supervisor (Pillar 3). Adopted in 2014, it was enacted into national law in 2015 and came into force on 1 January 2016.

SRI (Socially Responsible Investing)

Systematic and clearly documented incorporation of environmental, social and governance criteria in investment decisions.

Stress tests

Exercise simulating extreme economic and financial conditions to study the ramifications on banks’ balance sheets, profit and loss and solvency in order to measure their ability to withstand these kinds of situations.

Subordinated notes

Issues made by a company, the returns on and/or redemption of which are contingent upon an event (conditional upon payment of a dividend or achievement of an outcome).

Systemically important bank

Crédit Agricole Group appears on the list of the 30 global systemically important banks (G-SIBs) published by the Financial Stability Board (FSB) in November 2012 and updated in November 2016. A systemically important bank has to put in place a basic capital buffer of between 1% and 3.5% in relation to Basel 3 requirements.

TLAC (TLAC ratio) - Total Loss Absorbing Capacity

Designed at the G20’s request by the Financial Stability Board. It aims to provide an indication of the loss-absorbing capacity and of the ability to raise additional capital of the systemically important banks (G-SIBs) (see Chapter 5 on Risk factors and Pillar 3/ Indicators and regulatory ratios).

Treasury shares

Shares held by a company in its own capital. Shares held in treasury do not carry a voting right and are not used in EPS calculations as they receive no dividend and have no right to reserves.

UCITS - Undertakings for Collective Investment in Transferable Securities

Portfolio of negotiable securities (equities, bonds, etc.) managed by professionals (management companies) and held collectively by retail or institutional investors. There are two types of UCITS – SICAVs (open-ended investment companies) and FCPs (mutual investment funds).

VaR - Value-at-Risk

Synthetic indicator used to track on a day-to-day basis the market risks taken by the Group, particularly in its trading activities (VaR is calculated using a 99%-confidence interval, over one day, in line with the regulatory internal model). Reflects the largest exposure obtained after eliminating 1% of the most unfavourable occurrences over a 1-year history.