2007 REGISTRATION DOCUMENT

More documents

Recommendations

Info

5 NotesCONSOLIDATED FINANCIAL STATEMENTSto the financial s tatements p repared in accordance with I nternational Financial Reporting S tandards as adopted by the European Union< Contents >To reduce the risk resulting from a deterioration in the inherent creditquality of a portfolio of financial instruments, BNP Paribas has developeda dynamic hedging strategy based on the purchase of market instrumentssuch as credit derivatives.4.b MARKET RISKS RELATED TO FINANCIALINSTRUMENTSMarket risk is the risk of gains or losses due to changes in marketparameters such as interest rates, exchange rates, and equity orcommodity prices. The main market risks faced by the Group are definedbelow:■ Interest rate risk covers potential fluctuations in the value of fixed-ratefinancial instruments or financial instruments indexed to a marketbenchmark due to changes in market interest rates, and in future cashflows on floating-rate financial instruments.■ Currency risk is the risk that the value of an instrument or of futurecash flows from that instrument will fluctuate due to changes inforeign exchange rates.■ Price risk arises from changes in market prices, whether caused byfactors specific to an individual instrument or issuer or by factorsaffecting all instruments traded on the market. This may relate, forexample, to changes in the price or volatility of shares, stock marketindices or commodities. Variable-income securities, equity derivativesand commodity derivatives are exposed to this risk.■ Credit spread risk on the trading book: BNP Paribas trades activelyin credit derivatives to meet the needs of its customers. Transactionsinclude trades in ordinary instruments such as credit default swaps,and structured transactions with complex risk profiles tailored totargeted strategies. As part of this trading activity, BNP Paribas buysand sells protection; the net position is subject to strict limits. Marketrisks generated by these products are tracked by the Capital MarketRisk unit, in the same way as for other derivatives risks. The underlyingcounterparty risk is also covered by normal risk managementprocesses.■ Options give rise to an intrinsic volatility and correlation risk, whoseparameters can be determined from observable prices of optionstraded in an active market.Market risks arise mainly from the trading activities carried out by theFixed Income and Equities teams within Corporate and InvestmentBanking.4.b.1Risk a cceptance p rocessThe trading book market risk acceptance structure is based on:■ general exposure limits. These take the form of GEaR (Gross Earnings atRisk) limits or “nominal” limits (limits on trading volumes and activitiesin financial instruments exposed to country risk, issuer risk limits, andsensitivity limits to contain certain specific risks not fully capturedby GEaR or stress tests);■ rolled-down exposure limits. These are derived from the powers ofthe Chief Executive Officer and the Capital Market Risk Committee.For secondary market trading, they are expressed in terms of GEaRor OYE (One year Equivalent); for underwriting activities, they referto a signature quality scale;■ decision-making rules. Risk acceptance involves a two-prongeddecision-making process, combining a validation process for newactivities or new risks with an approval process for transactionsarising from routine business. Large or complex transactions mustbe approved by the Executive Position Committee (EPC), an offshoot ofthe Capital Market Risk Committee. Responsibility for analysing creditrisk on trading activities lies with the Group Credit Committee.Risk monitoring is based on:■ daily calculation of the value of the Group’s trading positions andrelated exposures;■ daily monitoring of compliance with the limits set for each activity,with accidental or authorised temporary trading limit overruns loggedin a central database;■ periodic reviews of market risk measurement and managementmodels, with the measurement process subject to regular audits byindividuals from outside the business line who review and assess theeconomic validity of the models, check the prices and parametersused, and check observability criteria;■ a weekly report aggregating all significant positions by activity;■ the Capital Market Risk Committee, which meets monthly to approvethe main market risks incurred by the Group.4.b.2Measurement of m arket r isk on t radinga ctivitiesMarket risk on trading activities is measured and assessed by performingdetailed sensitivity analyses of each type of position, and global analyses,such as GEaR and stress tests that measure aggregate exposures.Analysis of sensitivity to market parametersIn the first instance, market risk is analysed by systematically measuringportfolio sensitivity to the various market parameters. The informationobtained is used to set tolerance ranges for maturities and for optionstrike prices. These sensitivity indicators, compiled at various aggregateposition levels, are compared with the market limits, and are reportedto Executive Management and to the heads of the trading units by theCapital Market Risk unit.Value at RiskBNP Paribas uses an internal Value at Risk (VaR) model, approved bythe banking supervisor, to estimate the potential loss arising from anunfavourable change in market conditions, the key element in marketrisk measurement.Potential losses are measured using “Value at Risk” (VaR). VaR takes intoaccount a large number of variables that could affect portfolio values,including interest rates, credit spreads, exchange rates, securities prices,commodity prices, and the volatility of and correlation between thesevariables.The system uses the latest simulation techniques and includes processingof non-linear (convex) positions, as well as the volatility risk generatedby options. Daily movements in the different variables are simulated toestimate potential losses on market transactions under normal marketconditions and normal market liquidity. VaR calculation methods arecontinually fine-tuned to better reflect the specific features of eachbusiness, especially as regards exotic products. The accuracy of the modelis constantly tested by comparing any daily losses with 1-day VaR.12345678910111442007 Registration document - BNP PARIBAS
CONSOLIDATED FINANCIAL STATEMENTS5Notes to the financial s tatements p repared in accordance with I nternational Financial Reporting S tandards as adopted by the European Union< Contents >The banking supervisor has approved this internal model and theunderlying methodologies, which include:■ capturing the correlation between interest rate, currency,commodity and equity risks, to factor in the knock-on effects of riskdiversification;■ capturing the specific interest rate risk arising from potentialfluctuations in credit spreads, to accurately and dynamically measurethe risk associated with trading in credit derivatives.The Values at Risk set out below were determined using the internalmodel, which uses parameters that comply with the methodrecommended by the Basel Committee for determining estimated valuesat risk (“Supplement to the Capital Accord to Incorporate Market Risks”).The main parameters are:■ change in the value of the portfolio over a holding period of 10 tradingdays;■ confidence level of 99% (i.e. over a 10-day holding period, any lossesshould be less than the corresponding VaR in 99% of cases);■ historical data covering one year (260 days) of trading.In 2007, total average Value at Risk was EUR 156 million (with aminimum of EUR 41 million and a maximum of EUR 378 million), aftertaking into account the EUR 152 million effect of netting the differenttypes of risk. These amounts break down as follows:Year to 31 Dec. 200731 DecemberYear to31 Dec. 2006Type of risk Average Minimum Maximum 2007 Average31 December2006Interest rate risk 61 26 110 82 42 45Credit risk 79 42 160 147 55 70Currency risk 17 3 41 41 7 8Equity price risk 134 38 323 152 55 66Commodity price risk 17 10 28 12 16 17Effect of netting (152) (189) (104) (142)TOTAL 156 41 378 245 71 644.c MARKET RISKS RELATED TO BANKINGINTERMEDIATION ACTIVITIES ANDINVESTMENTSInterest rate and currency risks related to banking intermediationactivities and investments mainly concern retail banking activities inFrance and abroad, the specialised financing and savings managementsubsidiaries, and investments made by the Group. They are managedcentrally by the Asset/Liability Management unit, which forms part of theAsset/Liability Management & Treasury (ALM-Treasury) Department.ALM-Treasury is part of the Corporate and Investment Banking Divisionand reports directly to one of the Chief Operating Officers. Strategicdecisions are made by ALM committees tasked with overseeing ALM-Treasury’s activities. These committees have been set up within eachdivision (AMS, FRB, CIB, BNL, IR FS) and at the level of the business linesand/or the main subsidiaries.4.c.1Interest r ate r iskInterest rate risk management structureInterest rate risk on the commercial transactions of the French andInternational Retail Banking divisions, the specialised financingsubsidiaries, and the savings management business lines in the AMSand Corporate Banking divisions are managed centrally by ALM-Treasurythrough the client intermediation book, with the exception of transactionsinitiated in the United States by BancWest Corp. subsidiaries. Interest raterisk on the Bank’s equity and investments is also managed centrally byALM-Treasury, in the equity intermediation and investments book.12345678910112007 Registration document - BNP PARIBAS 145
Page 1 and 2:
2007REGISTRATION DOCUMENT
Page 3:
2007 Registration documentThis docu
Page 6 and 7:
1 TheTHE BNP PARIBAS GROUPBNP Parib
Page 9 and 10:
THE BNP PARIBAS GROUP1The Group’s
Page 11 and 12:
Page 13 and 14:
Page 15 and 16:
Page 18 and 19:
1 ShareholderTHE BNP PARIBAS GROUPi
Page 20 and 21:
Page 22 and 23:
Page 24 and 25:
Page 26 and 27:
Page 28 and 29:
Page 30 and 31:
2 BoardCORPORATE GOVERNANCEof Direc
Page 32 and 33:
Page 34 and 35:
Page 36 and 37:
Page 38 and 39:
Page 40 and 41:
Page 42 and 43:
2 ReportCORPORATE GOVERNANCEof the
Page 44 and 45:
Page 46 and 47:
Page 48 and 49:
Page 50 and 51:
Page 52 and 53:
Page 54 and 55:
Page 56 and 57:
Page 58 and 59:
Page 60 and 61:
Page 62 and 63:
Page 64 and 65:
Page 66 and 67:
2 StatutoryCORPORATE GOVERNANCEAudi
Page 68 and 69:
Contents >1234567891011662007 Regis
Page 70 and 71:
3RISK MANAGEMENT< Contents >3.4 Ris
Page 72 and 73:
3 RiskRISK MANAGEMENTfactorsLIQUIDI
Page 74 and 75:
3 RiskRISK MANAGEMENTfactorsDETERIO
Page 76 and 77:
3 RiskRISK MANAGEMENTmanagement fra
Page 78 and 79:
Page 80 and 81:
Page 82 and 83:
3 RiskRISK MANAGEMENTexposure in 20
Page 84 and 85:
3 RiskRISK MANAGEMENTexposure in 20
Page 86 and 87:
3 RiskRISK MANAGEMENTmitigation tec
Page 88 and 89:
Contents >1234567891011862007 Regis
Page 90 and 91:
4 Consolidated2007 REVIEW OF OPERAT
Page 92 and 93:
4 Core2007 REVIEW OF OPERATIONSbusi
Page 94 and 95:
4 Core2007 REVIEW OF OPERATIONSbusi
Page 96 and 97: 4 Core2007 REVIEW OF OPERATIONSbusi
Page 98 and 99: 4 Core2007 REVIEW OF OPERATIONSbusi
Page 100 and 101: 4 Balance2007 REVIEW OF OPERATIONSs
Page 102 and 103: 4 Balance2007 REVIEW OF OPERATIONSs
Page 104 and 105: 2007 REVIEW OF OPERATIONS4 Outlook<
Page 106 and 107: 2007 REVIEW OF OPERATIONS4 OutlookA
Page 108 and 109: Contents >12345678910111062007 Regi
Page 110 and 111: 5CONSOLIDATED FINANCIAL STATEMENTS<
Page 112 and 113: 5 ProfitCONSOLIDATED FINANCIAL STAT
Page 114 and 115: 5 StatementCONSOLIDATED FINANCIAL S
Page 116 and 117: 5 StatementCONSOLIDATED FINANCIAL S
Page 118 and 119: 5 NotesCONSOLIDATED FINANCIAL STATE
Page 196 and 197:
5 NotesCONSOLIDATED FINANCIAL STATE
Page 198 and 199:
Page 200 and 201:
Page 202 and 203:
Page 204 and 205:
Page 206 and 207:
Page 208 and 209:
Page 210 and 211:
Page 212 and 213:
Page 214 and 215:
Page 216 and 217:
Page 218 and 219:
Page 220 and 221:
Page 222 and 223:
Page 224 and 225:
5 StatutoryCONSOLIDATED FINANCIAL S
Page 226 and 227:
6INFORMATION ON THE PARENT COMPANY
Page 228 and 229:
6 BNPINFORMATION ON THE PARENT COMP
Page 230 and 231:
6 ChangesINFORMATION ON THE PARENT
Page 232 and 233:
6 BNPINFORMATION ON THE PARENT COMP
Page 234 and 235:
6 SubsidiariesINFORMATION ON THE PA
Page 236 and 237:
6 SubsidiariesINFORMATION ON THE PA
Page 238 and 239:
Contents >12345678910112362007 Regi
Page 240 and 241:
7 TheSOCIAL AND ENVIRONMENTAL INFOR
Page 242 and 243:
7 ClearlySOCIAL AND ENVIRONMENTAL I
Page 244 and 245:
Page 246 and 247:
Page 248 and 249:
Page 250 and 251:
Page 252 and 253:
Page 254 and 255:
Page 256 and 257:
7 NRESOCIAL AND ENVIRONMENTAL INFOR
Page 258 and 259:
Page 260 and 261:
Page 262 and 263:
Page 264 and 265:
Page 266 and 267:
Contents >12345678910112642007 Regi
Page 268 and 269:
8 DocumentsGENERAL INFORMATIONon di
Page 270 and 271:
8 FoundingGENERAL INFORMATIONdocume
Page 272 and 273:
8 FoundingGENERAL INFORMATIONdocume
Page 274 and 275:
8 YearGENERAL INFORMATIONended 31 D
Page 276 and 277:
Contents >12345678910112742007 Regi
Page 278 and 279:
9 StatutorySTATUTORY AUDITORSAudito
Page 280 and 281:
Contents >12345678910112782007 Regi
Page 282 and 283:
10 PersonPERSON RESPONSIBLE FOR THE
Page 284 and 285:
11TABLE OF CONCORDANCE< Contents >H
Page 286 and 287:
Contents >12345678910112842007 Regi
Page 288:
HEAD OFFICE16, boulevard des Italie
show all

2007 REGISTRATION DOCUMENT

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?