1 European Covered bonds the French Flair Stockholm

1 European Covered bonds : the French Flair… Stockholm Thursday, March 29, 2007

History l 1767 : Introduction in Prussia (Landschaften) l 1900 : Codification of the modern Pfandbriefe market (“Hypotehkenbankgesetz”) l 1988 : European UCITS Directive: Definition of “Covered Bonds” n n n The issuer must be a credit institution The issuance of covered bonds has to be governed by a special legal framework The issuance of covered bond must be subject to special prudential public supervision The set of eligible cover assets must be defined by law The cover assets pool must provide sufficient collateral to cover bondholder claims throughout the whole term of covered bond Bondholders must have priority claim on the cover assets pool in case of default of the issuer l 1999 : Enforcement of the French Law Ø For over 200 years, no defaults have been documented 2

3 Globalisation of the covered bond market bn Legislation in countries of the EU/EEA/CH bn 1998 1995 1997 1999 European credit institutions liquidity gap 1993 1999 1995 1997

A strong predominance of specific domestic legislations 4 Legislation in countries of the EU/EEA/CH 19 bn bn 23 Legislation in future EU member and further countries in 4 2000 2006 2004 1998 2003 2002 Concrete legislation in preparation 4 Legislation under consideration 2 1998 1995 29 2004 1997 1995 1999 2005 1997 2004 2005 2003 2006 2007 1993 2004 2007 2006 Structured covered bonds 2007

5 The French flair…. l As of today, three existing « Société de Crédit Foncier » : Mixed assets: Public/Mortgage Public sector/Local authorities assets Mortgage assets via RMBS senior tranches Outstanding € 64 bn Outstanding € 48 bn Outstanding € 14 bn 2006 issuance € 17. 2 bn 2006 issuance € 12. 1 bn 2006 issuance € 2. 5 bn 2007 plan € 20/25 bn 2007 plan € 16 bn 2007 plan € 3 bn l And 2 structured Bonds models Structured covered bonds Assets: Mortgage Outstanding € 26 bn 2006 issuance € 7. 2 bn Assets: Mortgage Outstanding € 4. 5 bn 2006 issuance € 2. 5 bn 2007 plan € 5/6 bn Obligations foncières

6 The French model has proven its robustness l Performance against the others covered bonds assets classes n The OFs are the most expensive notes among European bonds l Strong stability in credit crisis or market volatility contexts n n n German banking crisis Flight to quality paper in case of credit crisis (GM) US and UK structured bonds suffered from US sub-prime market turmoil

The French Legal Framework: the best survivor l Exclusive purpose of SCF Specialisation l Geographical zone of assets: EEA countries, l Permanent the mandatory eligible over- collateralization Protection l Bankruptcy remoteness from the parent 1999 company and a legal Privilège l Satisfactory level of congruence of rate No ALM Position l Satisfactory level of congruence of maturities l Contrôleur spécifique (special external Strong Controls auditor) + Commission Bancaire Legal Auditors l Rating Agencies 7

2001 Enlargement of eligible assets (both public sector loans and mortgage / guaranteed housing loans to USA, Canada, Japan and Switzerland 2003 The transfer of receivables (including future receivables) on public debtors to an SCF is enforceable against third parties "notwithstanding the opening of insolvency proceedings against the originator". 2006 the French Legal Framework: a Darwinian model The law will change soon with the implementation of the "equity capital" directive (revised EC directive 2000/12), as the implementation text further extends § the definition of eligible public receivables to all types of "exposures to or guaranteed by" public entities. § and the share of guaranteed housing loans raise from 20 to 35% of SCF 8

9 A covered bond along UCITS directive definition Regulated covered Structured Covered bonds (Société de Crédit Bonds Foncier) Specific control / fiduciary supervision organized by law Yes No - no specific controller/trustee and no special regulatory supervision Eligible assets defined by a specific framework Yes strict legal framework No – pure contractual creation sui generis between the SPV and the borrower Legal priority and preferential payment Yes No – no specific provision in the law

10 Annex

11 European Covered Bonds Mix (1/3)

12 European Covered Bonds Mix (2/3)

13 European Covered Bonds Mix (3/3)

Disclaimer This document has been prepared by Société Générale for information purposes only. Société Générale does not guarantee the accuracy or completeness of information which is contained in this document and which is stated to have been obtained from or is based upon statistical services or other third party sources. 14