Financial operations: a business model adapted to the new regulatory environment
Crédit Foncier’s fifth business line involves financial operations. It refinances loans that the bank has granted.
A substantial portion of refinancing is carried out by Compagnie de Financement Foncier, a société de crédit foncier and a wholly-owned subsidiary of Crédit Foncier. Its purpose is to refinance, by issuing obligations foncières (Covered bonds) residential mortgage lending activity as well as lending to local authorities.
Compagnie de Financement Foncier’s purpose is to grant or acquire guaranteed loans and finance them by issuing obligations foncières, a preferential covered bond.
Its ability to innovate in terms of products and financial innovation enabled it to quickly become a benchmark on the global markets. The obligations foncières issued by Compagnie de Financement Foncier are covered bonds, under French law, that are compliant with the European Directives UCITS 52-4 and CRD and with the Article 129 of the European Regulation CRR. They combine legal security (due, notably, to the French legal “privilege”, i.e. the priority right of repayment conferred to obligation foncière holders versus all other debtholders), economic security, because of the excellent quality of the underlying assets (public sector, first-rank mortgages) and permanent overcollateralisation.
Crédit Foncier has also developed alternative funding methods that complement the issuance of obligations foncières, in particular syndication and securitisation. The first deconsolidating securitisation transaction (CFHL-1) successfully carried out in May 2014 was awarded as the best structuring operation (IFR EMEA Award). In July 2015 Crédit Foncier carried out a second public deconsolidating securitisation of real estate loans to individuals (CFHL-2). These two transactions are part of Crédit Foncier’s 2012-2016 strategic plan, aimed at the funding sources’ diversification.