Consequences of the Agreement of September 13, 1993 on the Accounts and Financial Information

General principles relating to pensions

According to the French accounting rules and regulations, namely Article 9, paragraph 2 bis of the Commercial Code ("Code de Commerce"), the value of the commitments in terms of pensions, complementary pension schemes, retirement indemnities and comparable benefits must be mentioned in the notes to the financial statements. Moreover, "companies may decide to account for all or part of these obligations in the form of accruals on the balance sheet".

Regulation No. 91.01 of the Banking Regulation Committee ("Comité de la Réglementation Bancaire"), which refers to Article 9 of the Commercial Code, provides that the commitments with respect to pensions which are not entered in the balance sheet (commitments which are not the subject of provisions) must appear in the notes to the financial statements. On the other hand, the information required by Article 9, paragraph 2 bis of the Commercial Code concerns all the commitments, whether or not they have been the subject of provisions.

However, the French Stock Exchange Commission ("Commission des Opérations de Bourse, COB") recommends that the amount relating to retired employees should be the subject of a provision, as it is a liability for which a provision has to be made, without it being possible to spread it out over a period. This is also the position adopted by the Legal Commission of the National Accounting Board ("Conseil National de la Comptabilité), although it has not issued an official opinion to this effect. Finally, the Association of Chartered and Independent Accountants ("Ordre des Experts-Comptables et Comptables Agréés"), the IASC and the foreign norms (in particular, the SFAS 87 norm) recommend that a provision be set up with respect to the commitment concerning active employees as soon as they join the establishment.

In this context, most of the financial institutions have today set up provisions for retirement indemnities as well as for the "additional" pensions (complementary pensions generally allocated to senior executives and paid directly by the banks themselves).

Specific treatment of commitments resulting from the agreement of September 13, 1993

As confirmed by the National Board of Statutory Auditors ("Compagnie Nationale des Commissaires aux Comptes) in a letter of February 18, 1994, approved by the Banking Commission ("Commission Bancaire"), and in light of the general principles concerning the treatment of pensions, the commitments resulting from the agreements of September 13, 1993 should at least be mentioned in the notes to the financial statements, both for banks with their own funds and for banks who were members of the CRPB. "In addition to this information, the banks obviously have the possibility to set up provisions with respect to these commitments".

For banks which chose to set up provisions in this way for their commitments during the 1994 financial year, the date on which it was possible to estimate them precisely, it appears possible that they could be the subject of a deduction from the beginning net equity instead of profit and loss, with the prior agreement of the regulatory authorities. It seems to be possible to accept this set-off in the circumstances, even though it departs from the principle of intangibility of the beginning net equity, by comparing it to the recording of a pension commitment in the accounts for the first time, which the COB had considered, in its bulletin No. 189 of February 1986, could be set off against the available reserves on the balance sheet.

The other solution would be to spread the cost of these pension commitments, generated by numerous prior years' activity, over the remainder of the effective period of employment of the active employees participating in the scheme or over the average remainder of the retired employees' life span. Such a solution would not however comply with the principles laid down by the COB.

Finally, it should be specified that the appropriation of all or part of these commitments to the Fund for General Banking Risks ("Fonds pour Risques Bancaires Généraux ,FRBG") would not constitute a real provision as such. In effect, such a provision is intended to cover general bank risks which have not yet been identified and cannot therefore be used to cover specific risks which are clearly identified, such as pension commitments.

For more information, please contact Patrice Cardon or Jean-Claude Lallau at +33-1 49 01 32 41.

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