2007 REGISTRATION DOCUMENT
2007 REGISTRATION DOCUMENT 2007 REGISTRATION DOCUMENT
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 >The derivative instruments included in the trading book mostly relateto transactions initiated for position management purposes, and maybe contracted in connection with market-making or arbitrage activities.BNP Paribas actively trades in derivatives so as to meet the needs of itscustomers. Transactions include trades in ordinary instruments such ascredit default swaps, and structured transactions with tailored complexrisk profiles. The net position is in all cases subject to limits.Trading account derivative instruments also include derivatives contractedto hedge financial assets or financial liabilities but for which the Grouphas not documented a hedging relationship, or which do not qualifyfor hedge accounting under IFRS. This applies in particular to creditderivative transactions which are primarily contracted to protect theGroup’s loan book.The positive or negative fair value of derivative instruments classified inthe trading book represents the replacement value of these instruments.This value may fluctuate significantly in response to changes in marketparameters such as interest rates or exchange rates.Modelwith nonobservableparametersThe total notional amount of trading derivatives was EUR 29,510,170 millionat 31 December 2007, compared with EUR 24,354,680 million at31 December 2006. The notional amounts of derivative instruments aremerely an indication of the volume of the Group’s activities in financialinstruments markets, and do not reflect the market risks associatedwith such instruments.Derivatives traded on organised markets represented 42% of the Group’sderivatives transactions at 31 December 2007 (43% at 31 December2006).Breakdown o f f inancial i nstrumentsby t ype of f air p rice m easurementThe breakdown of financial instruments by type of fair value measurementgiven in the following table has been prepared in accordance withcategories defined in note 1.c.9 “Determination of fair value”.31 December 2007 31 December 2006Modelwith nonobservableparametersMarket priceModel withobservableparametersMarket priceModel withobservableparametersIn millions of euros at (cat 1) (cat 2) (cat 3) Total (cat 1) (cat 2) (cat 3)FINANCIAL ASSETSFinancial assets held fortrading purposes at fairvalue through profi t or loss 624,082 250,518 3,643 878,243 516,399 173,257 2,569 692,225Financial assets at fairvalue through profi t or lossunder the fair value option 46,790 6,673 - 53,463 46,171 6,462 - 52,633FINANCIAL LIABILITIESFinancial liabilities held fortrading purposes at fairvalue through profi t or loss 481,831 229,788 7,828 719,447 434,873 152,915 5,869 593,657Financial liabilities at fairvalue through profi t or lossunder the fair value option 451 76,227 - 76,678 - 59,671 - 59,671Total12345678910111542007 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 >Day one profitChanges in the margin not taken to the profit and loss account and contained in the price of derivatives sold to clients and measured using internalmodels based on non-observable parameters («day one profit») can be analysed as follows over years 2006 and 2007:In millions of euros Year to 31 Dec. 2007 Year to 31 Dec. 2006Deferred margin at 1 January 731 708Deferred margin on transactions during the year 411 503Margin taken to the profi t and loss account during the year (469) (480)Deferred margin at 31 December 673 73112This deferred margin is recorded in “Financial assets held for tradingpurposes at fair value through profit or loss held for trading purposes”or “Financial liabilities held for trading purposes at fair value throughprofit or loss”, which are measured by models based on non-observableparameters.Sensitivity to reasonable changes in assumptionsThe fair value of certain complex derivatives is determined usingmeasurement techniques or internally-developed models based onassumptions which do not rely directly on currently-observable marketdata. These models are based on methods widely used in the financialcommunity, are subject to a internal approval procedure and are regularlyreviewed by Risk Management.5.b DERIVATIVES USED FOR HEDGING PURPOSESThe table below shows the fair values of derivatives used for hedging purposes.The uncertainty inherent to the use of these models is quantified throughanalyses of sensitivities to non-observable parameters as well as throughcomparison with valuations resulting from alternative models. Given thisuncertainty, the Group uses reserves to adjust the carrying amount ofthe instruments concerned.Day one profit is calculated net of these reserves, and is taken to theprofit and loss account over the period during which the valuationparameters are expected to remain unobservable (note 1.c.9). Theunamortised amount is included in the balance sheet as a reduction inthe fair value of these complex transactions.At 31 December 2007, the sensitivity of the values resulting fromreasonable alternative assumptions likely to be used to quantify theparameters used can be estimated at approximately EUR 270 million.31 December 2007 31 December 2006In millions of euros Negative fair value Positive fair value Negative fair value Positive fair valueDERIVATIVES USED AS FAIR VALUE HEDGES OF NON-DERIVATIVE FINANCIAL INSTRUMENTSCurrency derivatives - 22 4 1Interest rate derivatives 655 1,487 771 2,134Other derivatives 14 43 7 8FAIR VALUE HEDGES 669 1,552 782 2,143DERIVATIVES USED AS CASH FLOW HEDGES OF NON-DERIVATIVE FINANCIAL INSTRUMENTSCurrency derivatives 162 173 86 243Interest rate derivatives 418 428 463 416Other derivatives 2 - - 1CASH FLOW HEDGES 582 601 549 660DERIVATIVES USED AS NET FOREIGN INVESTMENT HEDGESCurrency derivatives 10 1 4 -NET INVESTMENT HEDGES 10 1 4 -DERIVATIVES USED FOR HEDGINGPURPOSES 1,261 2,154 1,335 2,8033456789The total notional amount of derivatives used for hedging purposesstood at EUR 371,339 million at 31 December 2007, compared withEUR 328,354 million at 31 December 2006.Derivatives used for hedging purposes are primarily contracted on overthe-countermarkets and are measured using models based on observableparameters.10112007 Registration document - BNP PARIBAS 155
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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 >Day one profitChanges in the margin not taken to the profit and loss account and contained in the price of derivatives sold to clients and measured using internalmodels based on non-observable parameters («day one profit») can be analysed as follows over years 2006 and <strong>2007</strong>:In millions of euros Year to 31 Dec. <strong>2007</strong> Year to 31 Dec. 2006Deferred margin at 1 January 731 708Deferred margin on transactions during the year 411 503Margin taken to the profi t and loss account during the year (469) (480)Deferred margin at 31 December 673 73112This deferred margin is recorded in “Financial assets held for tradingpurposes at fair value through profit or loss held for trading purposes”or “Financial liabilities held for trading purposes at fair value throughprofit or loss”, which are measured by models based on non-observableparameters.Sensitivity to reasonable changes in assumptionsThe fair value of certain complex derivatives is determined usingmeasurement techniques or internally-developed models based onassumptions which do not rely directly on currently-observable marketdata. These models are based on methods widely used in the financialcommunity, are subject to a internal approval procedure and are regularlyreviewed by Risk Management.5.b DERIVATIVES USED FOR HEDGING PURPOSESThe table below shows the fair values of derivatives used for hedging purposes.The uncertainty inherent to the use of these models is quantified throughanalyses of sensitivities to non-observable parameters as well as throughcomparison with valuations resulting from alternative models. Given thisuncertainty, the Group uses reserves to adjust the carrying amount ofthe instruments concerned.Day one profit is calculated net of these reserves, and is taken to theprofit and loss account over the period during which the valuationparameters are expected to remain unobservable (note 1.c.9). Theunamortised amount is included in the balance sheet as a reduction inthe fair value of these complex transactions.At 31 December <strong>2007</strong>, the sensitivity of the values resulting fromreasonable alternative assumptions likely to be used to quantify theparameters used can be estimated at approximately EUR 270 million.31 December <strong>2007</strong> 31 December 2006In millions of euros Negative fair value Positive fair value Negative fair value Positive fair valueDERIVATIVES USED AS FAIR VALUE HEDGES OF NON-DERIVATIVE FINANCIAL INSTRUMENTSCurrency derivatives - 22 4 1Interest rate derivatives 655 1,487 771 2,134Other derivatives 14 43 7 8FAIR VALUE HEDGES 669 1,552 782 2,143DERIVATIVES USED AS CASH FLOW HEDGES OF NON-DERIVATIVE FINANCIAL INSTRUMENTSCurrency derivatives 162 173 86 243Interest rate derivatives 418 428 463 416Other derivatives 2 - - 1CASH FLOW HEDGES 582 601 549 660DERIVATIVES USED AS NET FOREIGN INVESTMENT HEDGESCurrency derivatives 10 1 4 -NET INVESTMENT HEDGES 10 1 4 -DERIVATIVES USED FOR HEDGINGPURPOSES 1,261 2,154 1,335 2,8033456789The total notional amount of derivatives used for hedging purposesstood at EUR 371,339 million at 31 December <strong>2007</strong>, compared withEUR 328,354 million at 31 December 2006.Derivatives used for hedging purposes are primarily contracted on overthe-countermarkets and are measured using models based on observableparameters.1011<strong>2007</strong> Registration document - BNP PARIBAS 155