Adjustable rate mortgage (ARM)

A US variable-rate mortgage. ARMs include: hybrid ARMs which typically have a fixed-rate period followed by an adjustable-rate period; interest-only ARMs where interest only is payable for a specified number of years, typically for three to ten years; and payment-option ARMs that allow the borrower to choose periodically between various payment options.

ADR (American Depositary Receipt)

Negotiable certificates representing one or several shares. Their face value is stated in dollars and interest is also payable in dollars. ADRs allow American investors to buy shares in foreign-based companies that are not quoted on an American Stock Exchange.

Alt-A (Alternative A)

US mortgage loans with a higher credit quality than sub-prime loans but with features that disqualify the borrower from a traditional prime loan. Alt-A lending characteristics include limited documentation; high loan-to-value ratio; secured on non-owner occupied properties; and debt-to-income ratio above normal limits.


Activity that consists of attempting to profit by price differences on the same or similar financial assets. For example, in the case of a takeover bid, where the predator offers a price that exceeds the price at which the target’s shares are trading.


Aggregate of contractual payments due on a debt that have not been met by the borrower. A loan or other financial asset is said to be 'in arrears' when payments have not been made.

Assets under management (AuM)

Assets managed by the Group on behalf of clients.


 Debt security whereby the issuer undertakes to pay the lender a fixed capital sum at a specific future date, plus twice-yearly or annual interest payments. Interest payments — generally at fixed rates — may vary over the life of the bond. Debentures are unsecured bonds?.


Main subscriber or arranger of bond or equity issues, a bookrunner gathers and records the orders of the investors. It generally syndicates the issues to other financial institutions.

Call Option

Agreement that gives an investor the right, but not the obligation, to buy a stock, bond, commodity or other instrument at a specified price within a specific time period. The buyer of the option benefits from an increase in the value of the underlying instrument but the maximum loss is the premium paid.


Shareholder’s capital is amount of cash or assets contributed by shareholders, plus any profits, retained earnings or reserves transferred to the capital account. Banks are allowed to include some types of subordinated debt for their regulatory capital.

Capital increase

A method of increasing a company’s shareholders’ equity. The capital may be increased by issuing new shares for cash or in exchange for assets, such as shares in another company. Existing shareholders may have a pre-emptive right to subscribe for the new shares or this right may be cancelled. A capital increase may be carried out to give new investors an opportunity to become shareholders.


A pledge of cash or securities required by an intermediary to secure future transactions carried out by a client.

Collateralised Debt Obligation (CDO)

Asset-backed securities for which the underlying asset portfolios are debt obligations: either bonds (collateralised bond obligations) or loans (collateralised loan obligations) or both. The credit exposure underlying synthetic CDOs derives from credit default swaps. The CDOs issued by an individual vehicle are usually divided in different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). Losses are borne first by the equity securities, next by the junior securities, and finally by the senior securities; junior tranches offer higher coupons (interest payments) to compensate for their increased risk. Collateralised debt obligation squared (CDO-squared) is a type of collateralised debt obligation where the underlying asset portfolio includes tranches of other CDOs.

Collectively assessed loan impairment provisions

Impairment loss provisions in respect of impaired loans, such as credit cards or personal loans, that are below individual assessment thresholds (too small). Such provisions are established on a portfolio basis, taking account of the level of arrears, security, past loss experience, credit scores and defaults based on portfolio trends.

Commercial mortgage backed securities (CMBS)

Asset-backed securities for which the underlying asset portfolios are loans secured on commercial real estate.

Commercial paper (CP)

Unsecured obligations issued by a corporate or a bank directly or secured obligations (asset-backed CP), often issued through a commercial paper conduit, to fund working capital. Maturities typically range from 2 to 270 days. However, the depth and reliability of some CP markets means that issuers can repeatedly roll over CP issuance and effectively achieve longer term funding. Commercial paper is issued in a wide range of denominations and can be either discounted or interest-bearing.

Commercial paper conduit

A special purpose entity that issues commercial paper and uses the proceeds to purchase or fund a pool of assets. The commercial paper is secured on the assets and is redeemed

Commercial real estate

Freehold and leasehold properties used for business activities. Commercial real estate includes office buildings, industrial property, medical centres, hotels, retail stores, shopping centres, agricultural land and buildings, warehouses, garages etc.

Confidence Level

Measures the reliability of a statistical result expressed as a percentage probability that the result is correct.  A confidence level of 99% means that the result of an event will probably meet expectations 99% of the time.

Consolidated financial statements

The consolidated financial statements present the results and financial situation of a group of companies, directly or indirectly controlled by one company (the parent company). Consolidation is said to be “full” for companies that are 50% or more owned by the “parent” company, and by the “equity method” for companies in which the parent company owns between 20% and 50% of the capital. The companies whose accounts are consolidated are included in the Group’s “consolidation scope”, which is presented in the annual report each year. The amount of net income attributable to minority shareholders is deducted from the consolidated net income in order to determine the “net income, group share”, the share of income or loss attributable to the parent company’s shareholders.

Consolidated net income

Net income of the Group after deducting the portion of the profits of subsidiaries attributable to minority shareholders.

Convertible bond

Bond convertible into the issuer’s shares on terms set at the time of issue.

Core Tier 1 capital

Ordinary or common shareholder’s capital, excluding all “hybrids”. Also called “Common equity Tier 1”. Called-up share capital and eligible reserves plus equity non-controlling interests, less intangible assets and other regulatory deductions.

Corporate governance

Series of principles and recommendations to be followed by the management of listed companies.

Cost/income ratio

General expenses/Net banking income. This ratio measures operating efficiency. The lower the ratio, the more efficient the operations.

Counterparty credit risk

Potential credit risk on an unsettled transaction in either securities, or spot or derivative transaction due to a counterparty default or failure. Counterparty risk is often used synonymously with PSR, but strictly counterparty risk includes both PSR and settlement or delivery risk. 


The coupon represents the right of the holder of a security to collect an amount corresponding to the revenue distributed on the security for a given year.

Covered bonds

Debt securities backed by a portfolio of mortgages that is segregated from the issuer's other assets solely for the benefit of the holders of the covered bonds

Credit Default Swap (CDS)

A swap designed to transfer the credit exposure of fixed income products between parties. A credit default swap is also referred to as a credit derivative contract, where the purchaser of the swap makes payments up until the maturity date of a contract. Payments are made to the seller of the swap. In return, the seller agrees to pay off a third party debt in the event of a credit event Credit events usually include bankruptcy and payment default but could also include restructuring and or rating downgrades. A CDS is considered insurance against non-payment. A buyer of a CDS might be speculating on the possibility that the third party will indeed default. The 5 year senior CDS spread (market reference) is the insurance premium which makes it possible to be covered during 5 years against the risk of default of a company. As an example, a spread of 100 basis points means that 100 euros must be paid per year to guarantee 10,000 euros of commitments during 5 years.

Credit derivative product company (CDPC)

A special purpose entity that sells credit protection under credit default swaps or certain approved forms of insurance policies. Sometimes they can also buy credit protection. CDPCs are similar to monoline insurers. However, unlike monoline insurers, they are not regulated as insurers.

Credit derivatives

Contractual agreements that provide protection against a credit event on one or more reference entities or financial assets. The nature of a credit event is established by the protection buyer and protection seller at the inception of a transaction, and such events include bankruptcy, insolvency or failure to meet payment obligations when due. The buyer of the credit derivative pays a periodic fee in return for a payment by the protection seller upon the occurrence, if any, of a credit event. Credit derivatives include credit default swaps, total return swaps and credit swap options.

Credit enhancements

Techniques that improve the credit standing of financial obligations; generally those issued by an SPE in a securitisation. External credit enhancements include financial guarantees and letters of credit from third-party providers. Internal enhancements include excess spread - the difference between the interest rate received on the underlying portfolio and the coupon on the issued securities; and overcollateralization - on securitisation, the value of the underlying portfolio is greater than the securities issued.

Credit Support Annex CSA

A credit support annex provides credit protection by setting forth the rules governing the mutual posting of collateral. CSAs are used in documenting collateral arrangements between two parties that trade privately negotiated (over-the-counter) derivative securities. The trade is documented under a standard contract called a master agreement, developed by the International Swaps and Derivatives Association (ISDA).  The two parties must sign the ISDA master agreement and execute a credit support annex before they trade derivatives with each other.

Credit valuation adjustments (CVA)

Adjustments to the fair values of derivative assets to reflect the creditworthiness of the counterparty.

Currency swap

An arrangement in which two parties exchange specific principal amounts of different currencies at inception and subsequently interest payments on the principal amounts. Often, one party will pay a fixed interest rate, while the other will pay a floating exchange rate (though there are also fixed-fixed and floating-floating arrangements). At the maturity of the swap, the principal amounts are usually re-exchanged.


Service offered by a bank or broker to hold and service securities recorded in a securities account. Custody fees are usually payable annually in advance.

Debt securities

Transferable instruments creating or acknowledging indebtedness. They include debentures, bonds, certificates of deposit, notes and commercial paper. The holder of a debt security is typically entitled to the payment of principal and interest, together with other contractual rights under the terms of the issue, such as the right to receive certain information. Debt securities are generally issued for a fixed term and redeemable by the issuer at the end of that term. Debt securities can be secured or unsecured. They include commercial paper, certificates of deposit, bonds and medium-term notes.

Deferred tax asset

Income taxes recoverable in future periods as a result of deductible temporary differences - temporary differences between the accounting and tax base of an asset or liability that will result in tax deductible amounts in future periods - and the carry-forward of tax losses and unused tax credits.

Deferred tax liability

Income taxes payable in future periods as a result of taxable temporary differences (temporary differences between the accounting and tax base of an asset or liability that will result in taxable amounts in future periods).

Defined benefit plan

Pension or other post-retirement benefit plan whereby the company commits to pay a pre-agreed benefit to an employee on retirement e.g. a pension based on 60% of final salary.

Defined contribution plan

Pension or other post-retirement benefit plan where the employer's obligation is limited to its contributions to the fund.


A debt or other financial obligation is considered delinquent when one or more contractual payments are overdue. Delinquency is usually defined in terms of days past due. Delinquent and in arrears are synonymous.


A contract or agreement whose value changes with changes in an underlying index such as interest rates, foreign exchange rates, share prices or indices and which requires no initial investment or an initial investment that is smaller than would be required for other contracts with a similar response to market factors. The principal types of derivatives are: swaps, forwards, futures and options. types of contracts with a similar response to market factors. The principal types of derivatives are: swaps, forwards, futures and options.


Impact on the rights attached to a share of the issue of securities (in connection with a capital increase, a merger, a stock-for-stock tender offer or the exercise of rights), assuming that there is no change in the total income of the issuer.


Portion of net profit that the Annual General Meeting decides to distribute to shareholders. The amount of the dividend is recommended by the Board of Directors. It represents the revenue on the share and the amount can vary from one year to the next depending on the company’s results and policy.

Exposure at default (EAD)

Estimate of the expected level of utilisation of a credit facility at the time of a borrower's default. The EAD may be higher than the current utilisation (e.g. in the case where further drawings may be made under a revolving credit facility prior to default) but will not typically exceed the total facility limit.

Fannie Mae (Federal National Mortgage Association)

A US Government Sponsored Enterprise. It buys mortgages, principally issued by banks, on the secondary market, pools them, and sells them as residential mortgage-backed securities to investors on the open market. Its obligations are not explicitly guaranteed by the full faith and credit of the US Government.

FICO score

A credit score calculated using proprietary software developed by the Fair Isaac Corporation in the US from a consumer's credit profile. The scores range between 300 and 850 and are used in credit decisions made by banks and other providers of credit.

First/second lien

A lien is a charge such as a mortgage held by one party, over property owned by a second party, as security for payment of some debt, obligation, or duty owed by that second party. The holder of a first lien takes precedence over all other encumbrances on that property i.e. second and subsequent liens.


Term generally applied to an agreement with retail experiencing temporary financial difficulty, to a payment moratorium, to reduced repayments or to roll up arrears.

Forward contract

A contract to buy (or sell) a specified amount of a physical or financial commodity (e.g. foreign exchange), at an agreed price, at an agreed future date.

Freddie Mac (Federal Home Loan Mortgage Corporation)

A US Government Sponsored Enterprise. It buys mortgages, principally issued by thrifts, on the secondary market, pools them, and sells them as residential mortgage-backed securities to investors on the open market. Its obligations are not explicitly guaranteed by the full faith and credit of the US Government.

Futures contract

A contract which provides for the future delivery (or acceptance of delivery) of some type of financial instrument or commodity under terms established at the outset. Futures differ from forward contracts in that they are traded on recognised exchanges and rarely result in actual delivery; most contracts are closed out prior to maturity by acquisition of an offsetting position.

Ginnie Mae (Government National Mortgage Association)

A US Government Agency that guarantees investors the timely payment of principal and interest on mortgage-backed securities for which the underlying asset portfolios comprise federally insured or guaranteed loans - mainly loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Ginnie Mae obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the US Government.


Difference between the cost of shares and the Group's equity in the fair value of the underlying net assets.

Government Sponsored Enterprises (GSEs)

A group of financial services corporations created by the US Congress. Their function is to improve the efficiency of capital markets and to overcome statutory and other market imperfections which otherwise prevent funds from moving easily from suppliers of funds to areas of high loan demand. They include Fannie Mae and Freddie Mac.

Home equity loan

A type of loan in which the borrower uses the equity in their home as collateral. A home equity loan creates a charge against the borrower's house.

Impaired loans

IFRS definition of loans for which an impairment provision has been established; for collectively assessed loans, impairment loss provisions are not allocated to individual loans and the entire portfolio is included in impaired loans.

Impairment provisions

Impairment provisions are made against losses incurred on impaired financial assets measured at amortised cost. The provisions can be individually or collectively assessed. The impairment provision is an annual charge to the income statement. The cumulative impairment provisions (or reserves) are deducted from the respective assets on the balance sheet and represent the difference between carrying value and the present value of estimated future cash flows discounted at the asset's original effective interest

Individually assessed loan impairment provisions

Impairment loss provisions for individually significant impaired loans assessed on a caseby-case basis, taking into account the financial condition of the counterparty and any guarantor and the realisable value of any collateral held.

Interest rate swap

A contract under which two counterparties agree to exchange periodic interest payments on a predetermined monetary principal, the notional amount.

International Accounting Standards Board (IASB)

Independent standard-setting body of the IASC Foundation. Its members are responsible for the development and publication of International Financial Reporting Standards (IFRS) and for approving Interpretations of IFRS as developed by the International Financial Reporting Interpretations Committee (IFRIC).

Investment grade

A credit risk profile similar to a rating of BBB-/Baa3 or better, as defined by independent rating agencies.

ISDA Master netting agreement

An agreement between two counterparties that have multiple derivative contracts with each other that provides for the net settlement of all contracts through a single payment, in a single currency, in the event of default on, or termination of, any one contract. ISDA is the International Swaps and Derivatives Association.


Leveraged Buy Out. Company acquisition financed primarily by debt. In practice, a holding company is set up to take on the debt used to finance the acquisition of the target. The interest payments due by the holding company are covered by ordinary or exceptional dividends received from the acquired target.

Leveraged loans / finance

Funding provided to a business resulting in an overall level of debt that exceeds that which would be considered usual for the business or for the industry in which it operates. Leveraged finance is commonly employed to achieve a specific, often temporary, objective: to make an acquisition, to effect a buy-out or to repurchase shares.

Loan-to-value ratio

Amount of a secured loan as a percentage of the appraised value of the security e.g. the outstanding amount of a mortgage loan as a percentage of the property's value.

Loss given default (LGD)

Economic loss that may occur in the event of default i.e. the actual loss - that part of the exposure that is not expected to be recovered - plus any costs of recovery.

Market capitalization

Value attributed to a company by the stock market. Market capitalisation corresponds to the share price multiplied by the number of shares outstanding.


Market-makers commit to maintaining firm bid and offer prices in a given security by standing ready to buy round lots at publicly-quoted prices.

Medium term notes (MTNs)

Debt securities usually with a maturity of five to ten years, but the term may be less than one year or as long as 50 years. They can be issued on a fixed or floating coupon basis or with an exotic coupon; with a fixed maturity date (non-callable) or with embedded call or put options or early repayment triggers. MTNs are most generally issued as senior, unsecured debt.

Monoline insurers

Entities that specialise in providing credit protection against the notional and interest cash flows due to the holders of debt instruments in the event of default. This protection is typically in the form of derivatives such as credit default swaps.

Mortgage servicing rights

Rights of a mortgage servicer to collect mortgage payments and forward them, after deducting a fee, to the mortgage lender.

Mortgage vintage

The year in which a mortgage loan was made to the customer.

Mortgage-backed securities

Asset-backed securities for which the underlying asset portfolios are loans secured on property.

Negative equity mortgages

Mortgages where the value of the property mortgaged is less than the outstanding balance on the loan.

Net interest margin

Net interest income - is the difference between interest receivable on financial assets classified as loans and receivables or available-for-sale and interest payable on financial liabilities carried at amortised cost. Net interest margin is net interest income as a percentage of average interest-earning assets.

Non-conforming mortgages

Mortgage loans that do not meet the requirements for sale to US Government agencies or US Government sponsored enterprises. These requirements include limits on loan-to value ratios, loan terms, loan amounts, borrower creditworthiness and other requirements.


A contract that gives the holder the right but not the obligation to buy (or sell) a specified amount of the underlying physical or financial commodity, at a specific price, at an agreed date or over an agreed period. Options can be exchange-traded or traded over-the counter.

P/E Price/Earnings ratio.

Ratio between the share price and earnings per share. The p/E serves to determine the multiple of earnings per share represented by the share price.

Preference shares

Preference shares are shares that pay dividends at a specified rate and have a preference over ordinary shares in the payment of dividends and the liquidation of assets. They do not carry voting rights.


Prime mortgage loans generally have low default risk and are made to borrowers with good credit records and a monthly income that is at least three to four times greater than their monthly housing expense (mortgage payments plus taxes and other debt payments). These borrowers provide full documentation and generally have reliable payment histories.

Prime brokerage

Activity consisting of providing a wide range of services to hedge funds, including financing, securities settlement/delivery, custody, securities lending/borrowing, etc.

Private equity

Equity investments in operating companies not quoted on a public exchange. Capital for private equity investment is raised from retail or institutional investors and used to fund investment strategies such as leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.

Pro forma

An accounting presentation that enables comparison between two financial years by harmonising variable elements such as exchange rates or changes in the consolidation scope.

Probability of default (PD)

Likelihood that a customer will fail to make full and timely repayment of credit obligations. Banks using internal models for their Basel II capital calculations estimate PD over a one year time horizon. Rating agencies calculate historic PDs over multiple time horizons.

Public tender offer

Offer to buy shares of a company, usually at a premium above the shares’ market price, for cash or securities or a combination of both. Where only a small proportion of the company’s shares are traded on the market and the offer is followed by a compulsory buyout, the process is known as a “squeeze-out”.

Repurchase agreement (Repo)

A form of short-term borrowing used primarily by dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.  For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.

Residential mortgage backed securities (RMBS )

Asset-backed securities for which the underlying asset portfolios are residential mortgages.

Risk-weighted assets

Assets adjusted for their associated risks using weightings established in accordance with the Basel Capital Accord. Certain assets are not weighted but deducted from capital.


A process by which assets or cash flows are transformed into transferable securities. The underlying assets or cash flows are transferred by the originator or an intermediary, typically an investment bank, to a special purpose entity which issues securities to investors.

Special purpose entity or vehicle (SPE or SPV)

An entity created by a sponsor, typically a major bank, finance company, investment bank or insurance company. An SPE can take the form of a corporation, trust, partnership, corporation or a limited liability company. Its operations are typically limited for example in a securitisation to the acquisition and financing of specific assets or liabilities.

Structured Investment Vehicle (SIV)

A limited-purpose operating company that undertakes arbitrage activities by purchasing highly rated medium and long-term, fixed-income assets and funding itself with short term, highly rated commercial paper and medium-term notes.

Structured notes

Securities that pay a return linked to the value or level of a specified asset or index. Structured notes can be linked to equities, interest rates, funds, commodities and foreign currency.


Sub-prime mortgage loans are designed for customers with one or more high risk characteristics, such as: unreliable or poor payment histories; loan-to-value ratio of greater than 80%; high debt-to-income ratio; the loan is not secured on the borrower's primary residence; or a history of delinquencies or late payments on the loan.

Subordinated debt

Liabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositors and other creditors of the issuer. Under Basel capital adequacy regulations subordinated debt is counted as Tier 2 capital.


Property loans extended to US households with poor solvency, and often extended without any proof of income. As these loans represent a high risk, they carry high floating interest.

Tier 1

Definition of core equity under Basel I and II representing ordinary (common) shareholder’s capital plus hybrid preference share capital less goodwill and other adjustments. Under Basel III, the ratio has been further defined and limited – see Core Tier 1.

Tier 2 capital

Qualifying subordinated debt and other Tier 2 securities in issue, eligible collective impairment allowances, unrealised available-forsale equity gains and revaluation reserves less certain regulatory deductions.

Tier 3 capital

Short dated subordinated debt plus interim trading gains and losses. Eligible to cover market risk only and will be phased out under Basel III.

Treasury shares

Shares held by the issuer. Treasury shares are stripped of voting and dividend rights and are not taken into account in the calculation of earnings per share.

TSDI (Titre Subordonné à Durée Indéterminée)

French acronym for perpetual subordinated notes.

TSR Total Shareholder Return

Total Shareholder Return: corresponding to return on the capital invested by shareholders, including dividends and unrealised gains on the shares.

Value at Risk VaR

A technique that produces estimates of the potential change in the market value of a portfolio over a specified time horizon at given confidence levels.