FACTS AND FIGURES (JANUARY 2008)B R U S S E L S . D U B A I . F R A N K F U R T . G R E N O B L E . H O N G K O N G . N E W Y O R K . PA R I S . S Ã O PA U L O . S E O U L . S I N G A P O R E . S Y D N E Y . WA R S A W

CONTENTS

FERMAT SOFTWARE .............................................................................................................................2� One of the few truly integrated software packages......................................................................2

SOLUTIONS.........................................................................................................................................4� Fermat CAD ..................................................................................................................................4� Fermat CAD RRT ..........................................................................................................................6� Fermat E-CAP ...............................................................................................................................7� Fermat GEM..................................................................................................................................8� Fermat ALM ................................................................................................................................10� Fermat IAS/IFRS .........................................................................................................................11� Fermat VAR .................................................................................................................................12� Fermat RAPM..............................................................................................................................13� Fermat OpRisk ...........................................................................................................................15

ARCHITECTURE & TECHNOLOGY .........................................................................................................16� Leading edge technology ...........................................................................................................16� Fermat architecture: a complete lifecycle for risk and performance management....................17� The Fermat toolkit: from a turnkey solution to full expertise transfer ........................................18� Volumes handling: the option to avoid aggregation ...................................................................18� A simplified integration and evolution that builds upon previous investments ..........................18� Local installation .........................................................................................................................19� Centralised installation at group level.........................................................................................20� Decentralised installations across banking groups ....................................................................21

EDUCATION.......................................................................................................................................23� Fermat Education........................................................................................................................22

1

Fermat is a leading provider of integrated risk and performancemanagement software solutions to the global banking industry.The company has achieved a market leadership position througha number of critical factors:

� Targeted, scalable solutions addressing real and pressing customerneeds

� Modular, building block solution architecture reducing barriers toadoption and enabling banks a validated step-by-step deploymentapproach

� A simplified integration and evolution that builds upon previousinvestments

� Respect of delivery commitments: we deliver on time, as testifiedby our track record

� Well-defined market focus and strong customer references supportinga capital-efficient growth momentum

� Strong intellectual property and highly educated, diverse humancapital

� Commercial leverage of successful technology, channel and deliverypartnerships Software Product of the Year

2FERMAT SOFTWARE

� may be used individually or integrated together to respond to specificclient requirements

� may be phased in, to upgrade the current scope of analysis

� offers a fully relevant and practical response to one clearly identifiedneed

� bundles Fermat’s core software components in order to meet thefunctional and technical approaches most frequently chosen by ourclients.

The core components upon which our software range relies on can becombined on a “pick and mix” basis to match exactly the scope of theanalysis and level of sophistication required. When used together, ourproducts generate a consistent and comprehensive assessment of therelevant business activities because they use the same informationsources, the same data processing environment and analytics and thesame reporting tools.

Each Fermat software package and its modules

One of the few truly integratedsoftware packages

Based on a robust and flexible architecture, the Fermat product

range has been designed from scratch by financial engineers and

software developers combining extensive academic and

professional knowledge in finance, mathematics and information

technology. Fermat’s software suite completes and capitalizes

upon the information systems of financial institutions.

It consolidates all business lines (e.g. capital markets, corporate

banking, commercial & residential mortgages, project financing,

retail and private banking, etc.), and is based on an enterprise-

wide “Financial Data Warehouse” (Fermat DataMart) which

represents the cornerstone of our modular product line.

Highly scalable, the Fermat software range can be used by a wide

range of financial institutions, from local organisations to large

head offices of multinational banks.

Market Risk Credit Risk OperationalRisk

Balance SheetManagement/

ALMIncome Financial Control

Fermat DataMart - (Dedicated Finance & Risk Data Warehouse and Data Management Platform)

Risk Management Revenue and Cost Management

PROFITABILITY ANALYSISPERFORMANCE MANAGEMENT

CAPITAL MANAGEMENT

ACTIVE BANK MANAGEMENT

Regulatory Reporting and Management Reporting

Static and Dynamic Simulation (Forecast)/Multi GAAP (Local, IAS)

� VaR

� Basel I & II

� Basel I & II

� Limits, collateral &credit workflow

� Economic CapitalMeasurement

� Data Management

– Risk AssessmentFramework /Loss Database

� Capital Calculation

– Basic/Std/AMA

� Interest Rate Risk

� Liquidity Risk

� Currency Risk

� Option Risk

� Funds Transfer Pricing

� Net Interest Income

� Net banking Income

� Income Statements

� Cost Allocation

3FERMAT SOFTWARE

Fermat has historically built its products, reputation andbusiness around advanced Risk Management Solutions forBanking Institutions and has continuously expanded itsoffering to address customer needs for Integrated Risk andPerformance Management.

Integrated Risk & Performance Management Software

4SOLUTIONS

Fermat CAD is a system that helps banks comply with both BaselAccords and provides the basis for Economic Capital assessment. It is amature and comprehensive solution offering an immediate response tothe requirements of the Basel Committee, the European CapitalRequirements Directive and to national banking supervisors’interpretations of the supra-national texts. With Fermat CAD, bankscan achieve Basel compliance in line with tight deadlines and maintainflexibility to adapt to the evolution of local regulations. The system isbeing used for over 40 supervisors.When facing the urgency of an implementation over a short period oftime, the bank can apply the “fast track” approach with a simplified datamodel allowing accelerated data mapping.Beyond that stage, Fermat has also translated its customers’ bestpractices into an extensive financial data model in order to takemaximum benefit from the comprehensive and flexible calculation enginewhen addressing the complexities of the banking business and whenoptimizing the RWA calculation. Other business requirements such asEconomic Capital and IAS compliance also benefit from this.With Fermat CAD, bank staff can pick and choose according to theirneeds:

Pillar I requirements� PD/LGD and other risk factor model generation through the RiskDrivers Analyzer module powered by KXEN™. In addition, the data andcalculation logic required by models determined outside of Fermat canbe integrated with Fermat CAD.� Credit Risk capital requirement assessment for all Basel I and IIapproaches and flavours. In addition, national discretion optionscovering most local regulation requirements in Europe, North America,Latin America, the Middle East and Asia-Pacific. The integration of

the Basel I calculation rules within the Basel II engine enablescompliance and comparison during parallel run periods. Several Basel IIapproaches can be applied to the same portfolio, thus facilitating thetransition period between Standardised and IRB approaches, or thecomparison of LGD models. Within a consolidated calculation, sub-portfolios can receive different calculation approaches, for instance retailexposures can be computed in the Advanced approach and sovereignbonds in the standardised approach.

� Market Risk capital requirement assessment for standard Basel Iand Basel II approaches with a coverage of all required risk factors,including option risk. The Internal Models Approach is also possibleusing Fermat VAR.

The capital requirement calculation takes into account nationaldiscretion options covering most major local regulation requirements inEurope, North America, Latin America, the Middle East and Asia-Pacific.

� Operational Risk capital requirement assessment (Basic Indicator,Standardized Approach incl. ASA). See other section for a widerdescription of Fermat Operational Risk.

� Reconciliation of economic and regulatory capital when FermatE-CAP is deployed alongside Fermat CAD or when economic capitalvalues are imported.

� Comprehensive regulatory reporting capability:– Producing COREP and other national statutory report equivalents forCooke & McDonough ratios for most of the major local regulations inEurope, North America, Latin America, the Middle East and Asia-Pacific.– Fully integrated with other regulatory capital calculation engines and/orany other external results’ sources.Please see the section on Fermat CAD RRT – Regulatory Reporting Tool.

Risk Capital Assessment – Basel I & IIIntegrated Risk & Performance Management SoftwareFermat CAD

5SOLUTIONS

Pillar II requirements� Banks need to know how much capital is required in response tochanges in business levels/strategy or changes in external factors out ofthe control of the bank.Fermat therefore proposes capital stress testing and scenarioanalysis capabilities to simulate capital requirements through userdefined scenarios implemented across various reporting dimensions.Factors such as PD, credit grades and external ratings, LGD, CCF,interest rates, exchange rates and collateral values can be modifiedthrough shifts and transition matrices. It’s also possible in the samescenario to simulate changing business volumes through for examplenew business or just simple increased facility utilisation. Within a singlerun, business volumes, market risk and credit risk factors can beimpacted (for instance, increased drawdowns, a shift of interest ratesplus a migration of obligor PD).For retail banks with exposures often in the tens of millions, changesare applied in the pool segmentation criteria (the true risk drivers)causing the reconstitution of pools as exposures shift due to changes inrisk profile.� A Back testing engine allows the validation of past estimates of riskfactors such as PDs linked to internal rating classes (through thecreation of internal ratings transition matrices), LGD, CCF and EADassociated with product types as well as the PD, EAD and effective LGDof retail transactions. This is done using real life credit and loss eventssuch as ratings defaults, ratings migration, watch-listing, recoverycashflows etc. A dedicated web client provides the bank with anoperational tool for related daily data input into Fermat.� Large Exposures/Risk Concentration calculations, reporting andanalysis tools. These features inherit expertise from the Fermat CADBasel I product and integrating new regulatory requirements which candiffer greatly from one supervisor to another, differences which are fullycatered for in the standard product.� Liquidity risk and interest rate risk in the banking book can be fullyassessed using Fermat ALM which enables income sensitivity analysis

according to market, customer-behaviour and business mix shifts.Fermat can also estimate the capital requirement at risk (EaR) due tointerest rate risk using advanced Monte Carlo simulation techniques.

� Economic Capital assessment of expected and unexpected creditlosses through a comprehensive range of industry standard analytical orsimulation credit portfolio models.Please see the section on Fermat E-Cap for further details.

� Capital Allocation: At a basic level, reporting dimensions and resultscan be easily sliced and diced to create views of the overall capital usage(both regulatory and economic) according to any subdivision of the bank’sactivity (e.g. business line, customer segment…). In addition to this,Fermat GEM can monitor risk capital limits and Fermat RAPM canbe used to identify where to allocate capital according to the bank’s totalrisk adjusted performance and target credit rating.

� Origination: Pillar 2 requires to include risk capital calculations in thecredit decision making process. Fermat therefore provides dedicatedfeatures to help banks in this respect including risk capital limits checkingin real time (with Fermat GEM) and incremental deal analysis (withFermat RAPM). Deal analysis is not just at the risk capital calculationlevel but consists in a full customer/deal profitability analysis includingcost simulation and re-allocation, risk capital limits checking in real time.

Pillar III requirements� Fermat automates the reporting of the type of disclosures originallydescribed in the “Pillar III” section of the “International Convergence ofCapital Measurement and Capital Standards” document (Basel II).

Fermat addresses such market discipline requirements through makingavailable a very exhaustive set of reports. Each report is divided in twoparts. The first part is a qualitative part which generally describesstrategy and implementation methods. The second part is a quantitativepart which details the Basel II calculation results.

These reports can be easily adapted for either content or look and feel inorder to arrive at a final set of disclosures suitable to the tastes of eachbank.

6SOLUTIONS

Fermat CAD Regulatory Reporting Tool (RRT) produces banks’regulatory capital adequacy reports in commonly used formats oflocal supervisors. Although the solution can use results produced by thevarious Fermat CAD Basel II calculation engines, it is also designed toprocess and consolidate imported results coming from othersystems (e.g. some risk type capital requirements or some subsidiaryresults not being computed by Fermat). Fermat CAD RRT producescapital adequacy reports related to Pillar 1 calculations for:� Credit risk� Market risk� Operational risk� Own funds (including deductions from own funds)� Mac Donough ratioFermat CAD RRT is available for most of the major local regulations inEurope, Africa, the Middle East, Asia-Pacific, North America and LatinAmerica.

Regulatory Reporting ToolIntegrated Risk & Performance Management SoftwareFermat CAD RRT

7SOLUTIONS

Fermat E-CAP calculates expected and unexpected credit losses, with acomprehensive range of industry standard analytical or simulation creditportfolio models. It is a very operational tool.� Creditmetrics™, a well known simulation based calculationmethodology which evaluates the impact upon the portfolio of marketvalue shifts due to obligor rating migrations. Fermat enables todefine risk factors as a set of country/sector pairwises, correlationsbetween counterparties and those pairwises, correlations betweenpairwises and volatility for each pairwise. It then reprices the wholeportfolio with Monte Carlo simulations. Economic Capital is thendeducted from the portfolio market value distribution.� CreditRisk+™, a well known default only analytical approach takinginto account portfolio diversification. Input data are directly taken fromFermat’s Basel II engine (PD, secured EAD & LGD per obligor). Fermat’sCreditRisk+™ engine computes unexpected loss, risk contribution andeconomic capital at portfolio and transaction level. Fermat enables todefine up to 6 “sectors” – as defined by the methodology – anddependency levels for each counterparty against those sectors� Fermat Parametric approach: using standard mathematics basedon uncertain PD and LGD, known EAD and a sensitivity calibrationprocess, it then computes economic capital as the output of an analyticalformula. This method offers a rapid response to simulate the impact ofa new transaction.The unexpected loss and risk contribution of each obligor and transactionis identified at each aggregation level of the portfolio, enabling dynamicrisk selection. Particular attention has been paid to performances whentreating large portfolios.The three methods allocate capital at any level of the organization – e.g.contract level, portfolio or sub portfolio, business unit, division – takinginto account diversification effects. While Creditmetrics™ for example is

usually run as a global calculation in batch mode, Fermat Parametriccan be run in a real time mode thanks to its very fast computingmethodology.Fermat ECAP outputs are stored in dedicated results tables that arefully available for risk adjusted profitability computation. For instance,Economic capital is used as denominator of the RAROC while thenumerator comes from Fermat’s ALM Revenue module and Fermat’scost allocation engine. When using the Parametric approach it is thenpossible, when revenues and cost are available, to perform an on the flyRAROC calculation.

Economic CapitalIntegrated Risk & Performance Management SoftwareFermat E-CAP

8SOLUTIONS

Effective limits and collateral management is a key element withinthe overall risk management of a financial institution. In addition,the integration of credit approval, review and other workflowprocesses offers a key competitive advantage in terms of thespeed to implementation of important credit decisions. Fermat GEMprovides such an integrated system and the capability to effectivelylink the relationships between counterparties, facilities and riskmitigants which are at the heart of good risk management system.

1.1 GEM Limits ManagementGEM Limits Management enhances portfolio analysis and control thanksto high level measurement and analysis features regardingexposures and limits.To achieve this goal, Fermat has designed an integrated solution whereexposures are aggregated over business dimensions (customer,counterparty, internal organization, product…) and compared to limitsthat are setup using either embedded automatic calculation functions,via manual entry or from external sources. Reports are provided todisplay outputs in a business view mode where users can drill down fromthe top level to the most detailed information. They are configurable touser-specific needs and can be published in private environments.GEM therefore offers rapid and relevant access to accurate portfoliodata and fits with the current trend in financial institutions to improve riskmanagement policies and team performance.Since GEM is also able to consolidate all branches, subsidiaries andbusiness lines, it is possible to centralize the overall position of theorganisation.GEM’s historical and analytical features allow the analysis of exposure,authorization and availability in order to define the relevant limits andto optimize capital allocation by business line. GEM provides tremendous

flexibility in implementing and monitoring corporate credit guidelines andoffers advanced operational workflow features such as limits lending,limits approval process and a “four eyes” principle for creation, validationand blocking of limits.GEM helps to optimise allocated resources by pointing out andforecasting available credit lines and through the setting or adjusting ofcorporate guidelines. An unlimited variety of exposure frameworksare possible, combining criteria such as counterparties, geographicareas, ratings, tenors, bilateral close-out netting contracts, add-oncalculation methods and any types of limits.Limits frameworks can be applied over exposures measured within GEMor over any other exposure measurement approaches used whenanother Fermat product is deployed alongside GEM. When doing so,GEM can for example position the retained regulatory or economiccapital calculation approaches at the centre of the risk controlprocess, enabling the monitoring of limits on Regulatory Capital,Exposure at Default, Expected Loss, Economic Capital, etc.

1.2 GEM Collateral ManagementSince effective and timely risk mitigation is increasingly important, GEMCollateral Management is proposed as an integrated module togetherwith GEM Limits Management. Collateral management is a consistentlyongoing activity in the overall credit process where lending value, statusand amount can change due to market or counterparty events:� Fermat DataMart stores all qualitative and quantitative information onany risk mitigant whatever its type – e.g. collateral, guarantee, marginagreement… Fermat can either perform on demand mitigation effectrevaluation or request revaluation from an external system� Fermat makes available pools of collaterals that can be used by thebank as security for its borrowings and enables users to link various

Limits and Collateral Management, Credit Approval ProcessIntegrated Risk & Performance Management SoftwareFermat GEM

9SOLUTIONS

collaterals to a facility – or group of facilities – in order to mitigate risk.Fermat then validates whether or not a facility has been releasedbased on different qualitative and quantitative criteria – e.g. coverageratio taking collateral haircut into account, collateral types regardingcontractual terms, documentation availability and expiry dates…� Fermat offers the capability to free up the collaterals when no longerrequired, if for example the facility has expired. Those collaterals whichare freed up thus rejoin the pool of available collaterals, subject tovalidity/eligibility, and increase the customer’s overall lendingcapacity in the event for example of a request for a new line of credit.� Fermat facilitates collateral reallocation through features that detectavailable collateral for reallocation and eases their selection and linking tofacilities – e.g. colour coding, popup menus to get additional information.� Fermat manages at any time potential impacts on the amount of anapproved limit which depends on the value or validity of collaterals –e.g. collateral valuation falls due to market movements – and triggersactions to counterparties – e.g. margin call, closing…� Since collateral recovery is a necessary activity in case of clientdefault, Fermat provides a credit event and loss data base thatprovides relevant features for recovery monitoring such as client defaultfile, client events as downgrading, recovery rates…

1.3 GEM Credit Approval Process (CAP)GEM CAP can manage the entire life cycle of the credit applicationand approval process from the initiation of the client relationship, thepreparation of the credit proposal, its cycle of approval and/orrejection, the management of the required documents all the waythrough to the facility release.Via a web based access, users of GEM CAP are able to carry out allthe necessary steps of the credit application cycle, for example theycan: input, verify and approve credit applications; sanction loans;perform collateral documentation management; escalate cases thatrequire attention; input comments related to credit applications;and manage special approval (e.g. those clients that have specific

management requirements or are too complex to be managed by thesystem).

A facility is typically released at the end of a credit approval processbased on three factors: counterparty, related facilities and relatedcollaterals. It represents an unblocking of funds and the creation of alimit for future drawdowns’ management. For a given counterparty,Fermat lists each single facility as well as groups of facilities issuedagainst this counterparty, whether facilities have been released or still inthe approval process.

Fermat GEM CAP is a web based tool that benefits from our in-housebuilt workflow management capability Fermat Workflow Services.

1.4 Fermat ‘Real Time Services (RTS)’ with GEMGEM can be enabled by Fermat Real Time Services after which themanagement of critical activities is performed via a real time RiskAuthorisation Server for the relevant business units.

Relationship Managers, Sales people or other Front Office staff cantherefore access GEM in real time mode which enables them forexample, before closing a deal to verify whether a credit line is available;forecast future line availability; reserve a credit line for a certain periodof time; and simulate the impact of a deal on all credit lines; and allthis in order to optimise the ratio between credit line consumption andreturn.

Pre-deal checking, real time alerts and exception handling thus helpprevent unexpected or unauthorized exposures from entering into thetrading and banking book activities.

In addition, by adding the Real Time Services capability to GEM, real-time intra-day book-keeping is possible whereby deals captured in areal time mode with different status levels (simulated, reserved…) areheld in intra-day positions. GEM can then be used via multiplecommunication channels to perfectly interface with the informationsystems used by each business line.

10SOLUTIONS

Fermat ALM analyses the exposure of the bank to interest rate,liquidity, foreign exchange and inflation risks with indicators suchas gap analysis and net economic value sensitivity. The system isused to monitor risk and performance and is increasingly figuring inbanks’ controlling and budgeting activities.Calculations are performed over the whole or any part of the balancesheet structure, based on current or simulated data, taking into accountALM conventions (for example on accounts or prepayment).Interest rate risk and liquidity risk are measured in full compliancewith Pillar II of the Basel II Capital Accord.Past and future net interest income (NII) calculations in FermatALM enable managers to assess retail business profitability based onappropriate calculation methodologies according to portfolio strategies.Funds transfer pricing (FTP) transfers risk to the interest rate riskmanagement experts. FTP is estimated for products with or withoutcontractual maturity. For the latter, sophisticated replicating models areused. Net interest margin can be broken down into commercial margin,transformation margin, liquidity margin, etc., assigning each margin toprofit centres.Banks can model the entire organization’s future balance sheet tofully quantify expected performance, profits and related risks. Futurenet banking income and income statements are produced anddelivered in compliance with IAS/IFRS standards.� Static simulations capture the impacts of customer behaviour (pre-payment and loan renegotiation, etc.) and changes in market conditions(interest rates, foreign exchange, economic indexes such as inflation,etc.) on the current balance sheet.� Dynamic simulations are aimed at modelling the evolution of thebalance sheet structure over time according to different scenarios such

as market data, customer and bank behaviour shifts according to volumegrowth, target setting, or roll-over conditions. State of the art newproduction generation fully responds to the complexities inherent toretail banking. Past budget forecast scenarios can be back-tested whencompared to current calculated results.� Interest rate risk and inflation risk on new production can behedged with dynamic hedging functionality. The related cost of suchhedging on the future income is calculated and incorporated. Marketrisk scenarios are either user-definable (stress scenarios) or simulatedbased on a Monte Carlo engine.In this latter case, it is possible to calculate a global VaR and an Earnings-at-Risk to evaluate the stability of the expected results by month, quarteror other accounting period.

Balance Sheet Management/Asset and Liability ManagementIntegrated Risk & Performance Management SoftwareFermat ALM

11SOLUTIONS

Fermat IAS enables Banks to comply, through limited changes in theirinformation systems, with the regulatory and operational requirementsresulting from the application of IAS 39/32 and FAS 133/157.The system completes but does not replace existing informationsystems. It centralises all the required data and substitutes for missingitems, providing any missing processes required to issue adequatereporting and account postings.

It offers financial institutions a reliable, automated, and industrialapproach to the production process.

Fermat IAS enables the recognition and classification of all on and off-balance sheet items, including embedded derivatives. It providesindicators such as fair value, effective interest rate, interest income,amortised cost, collective and individual evaluation for impairment, etc.and makes them available for disclosure reporting under IAS 32 (fairvalue, credit risk, etc.) as well as for accounting purposes.

Impairment tests are performed according to IAS/IFRS principles.Fermat IAS estimate cash flows, individually or collectively assessed.

Industry standard pricing libraries are used for the evaluation ofderivatives and other market instruments. Other banking products, suchas loans with/without prepayment options, are processed by Fermat’sown calculation libraries, which optionally use estimated streams of cashreceipts, including prepayments and default models, rather than relyingon contractual cash flows.

Fermat IAS also provides full support for “hedge accounting”:management of the hedging relationship life cycle, designation of microor macro hedging relationships, re-evaluation and effectiveness testing(both retrospective and prospective), change of scope (cash flow hedgebecoming fair value hedge) and termination.

Fermat IAS enables banks to generate balance-sheet and incomestatement adjustment values between any local GAAP (GenerallyAccepted Accounting Principles) and IAS GAAP. This is done attransaction level. Adjustment values can then be exported either attransaction level or at the level of aggregation required by the GeneralLedger. Using these values, the bank can generate the appropriateaccount postings in order to publish IAS 39 compliant balance sheetand income statements.

Highly scalable, Fermat IAS can be used by a wide range of FinancialInstitutions, from local organisations to large head offices of multinationalbanks.

International Financial Reporting Standards/US GAAP complianceIntegrated Risk & Performance Management SoftwareFermat IAS/IFRS

12SOLUTIONS

In addition to operational market risk indicators, Fermat offers, on thesame platform, a full set of Value at Risk methodologies. Fermat VARestimates a value-at-risk either using parametric models (Asset Normalapproach) or simulation models (Monte Carlo or Historicalscenarios).Fermat VAR offers a full coverage of market risk factors with InterestRate Risk, Foreign Exchange Risk, Equity Risk, Commodity Risk as well asVolatility Risk. Therefore Fermat can complement its global VaRmeasure of the portfolio with specific risk factors VaR, incremental andcomponent marginal VaR.

Several techniques enable to optimize performance such as variancereduction techniques or sensitivity based pricing.

Fermat can be also used to consolidate the risks of the bank on a singleplatform. In fact Fermat VAR can aggregate results that are computedin parallel with other systems used on more limited scopes in the dailymonitoring of risk sensitive activities.

Fermat complements its VAR offering with Stress testing capabilities,a flexible simulation engine to estimate risks under severe crisisscenarios. This simulation engine can independently measure the effectof market factors and credit factors on the risk profile of the bank.Fermat VAR can also be used for the internal model approach formarket risk capital requirements in compliance with Basel II. For thatpurpose, Fermat offers along with its VaR calculation, a backtestingcapability with either hypothetical or realized P&L calculation.

Thanks to its coverage of market risk capital requirements in bothstandard and internal approaches, Fermat is the perfect solution tohandle on a single platform the transition between standardizedand internal model for part or the complete scope of the trading book.

Fermat offers an extensive coverage of financial instruments. Industrystandard pricing libraries are used for the evaluation of derivatives, exoticoptions, structured products and other financial instruments.

Fermat VAR encompasses all financial instruments not only in the tradingroom but also in the banking book. Therefore Fermat VAR can assessthe global VaR of the whole financial institution.

Integrated Risk & Performance Management SoftwareValue-at-Risk

Fermat VAR

13SOLUTIONS

Fermat RAPM empowers banks with a calculation and reportingframework built upon a single source of profitability andperformance information. In particular after a period during whichmost financial Institutions have invested significant time and resourcefor regulatory compliance with Basel II, making the additional step toperformance management completes the business case forBasel II, more fully leveraging investment and positioning for futuregrowth. Banks which have a culture of integrated risk and profitabilitymanagement are better positioned to maximize return on, and use ofcapital for competitive growth.

RAPM is a solution for measuring and managing a bank’s profitabilityand other performance metrics. This is done through a series of KPIs,such as Economic Profit/Risk Adjusted Return /RAROC/EVA, etc.)measured on either past, current or forecasted data and availableat transaction level where needed.

RAPM facilitates a better understanding of the shape of a bank’sbusiness. It has been designed for use by business managers, with afocus on profitability business measures and levers such as revenue,facility utilization, interest margins, cost dynamics, limit and collateralchanges.

Since RAPM provides a bottom-up analysis across many dimensions, itcan provide performance dashboards at a very granular level whichcan be used at various levels of the bank, for example by:

� senior management for measuring and monitoring the past and futureprofitability of various divisions, country or business units and thenallocating/budgeting capital and resources to the most productive partsof the business

� product managers in order to forecast the results from a choice ofpotential marketing campaigns

� relationship managers in order to more effectively manage the bank’sactivity with individual or strategic accounts

� managers at all levels of the organisation as a basis for setting targetsand reward schemes

RAPM therefore proposes a multi-faceted view of under and overperformance across many dimensions. It offers transparency oncapital allocation ensuring that management clearly identifies businesssynergies and it encourages healthy competition between business unitsand distribution channels. As such, Fermat RAPM is intended to assistthe Bank with its conformance under the use test requirement ofBasel II Pillar 2.

The calculation of KPIs is enabled by a thorough modeling of the bank’sprocesses and their related costs, risks and incomes at transactionlevel. Although Fermat RAPM is a stand-alone product, it is fullyintegrated with, and fully leverages off, other Fermat productswhich can be used to source the inputs required by RAPM at transactionlevel (these can of course be externally sourced:

� Fermat’s Regulatory and Economic Capital products can provideinput data for provisions, unexpected loss and capital charges (cost ofdoing business)

� Fermat ALM can provide past, current and future revenue and FTP

� Fermat’s Cost Allocation Engine manages product, sales &marketing and overhead costs via a flexible rules based engine andreconciliation features. It’s then possible to allocate each costagainst individual transactions and roll that back up to customersand products for example.

� Fermat IAS/IFRS can provide economic provisions data.

Risk Adjusted Performance Management

Integrated Risk & Performance Management SoftwareFermat RAPM

14SOLUTIONS

RAPM vs. traditional performance measurementOver the past decade, financial institutions have placed a significantamount of time and resources into developing ways of measuring andimproving risk and return.Traditional performance indicators however, such as Return on Assets,Return on Equity etc., focus on an accounting vision of profitability. Asa result of this:� measures of risk and performance were often developed independently,involving little co-ordination between risk and finance� capital management initiatives negatively impacted businessrelationships whilst businesses expanded without due recognitionof changing risk profiles on capital requirements� a financial, regulatory view was created rather than one aligned tobusiness imperativesTrue shareholder value is realized when earnings on capital investedis greater than the minimum required by investors to compensatefor taking on underlying risk. Banks therefore strive to maximizereturns within the boundaries of defined risk limits. Risk adjustedperformance measurement offers more advanced performanceindicators using risk measures derived from regulatory & economiccapital which answer questions such as:� how much capital is needed to support the bank’s total risk and targetcredit rating?� how much capital is needed to support a given level of profitability/business mix?

15SOLUTIONS

Integrated Risk & Performance Management SoftwareOperational Risk

Fermat OpRisk

Fermat OpRisk is a proven solution with over twenty customer sitesthroughout Europe, Asia and the United States. It is a leader both interms of Standardized Approaches and the Advanced MeasurementApproach and easily integrates within existing IT infrastructures thanksto its open architecture. The solution is proposed in collaboration withList Group S.p.A.Fermat OpRisk consists of six integrated inter-dependent modules:� Loss Data Collection (including Action Plans)� Risk & Control Self Assessments� Key Risk Indicators� Quantitative Analysis (Capital Modelling)� Scenario Analysis� Bayesian IntegrationFermat OpRisk has been instrumental in cost and operational lossreduction leading to substantial returns on investment. It delivers aunique combination of flexibility, performance and user-friendliness in asingle software suite:� Flexiblity: thanks to several key features such as a totally dynamic datamodel, or to parameterization through the User Interface for workflowdesign (as opposed to customization), customers achieve a high level ofindependence from Fermat, ensuring their system is evolutive and easyto maintain� Performance: the offering is based upon many years of experience inbuilding powerful calculation engines with unrivalled performance andproposes world class parallel Monte Carlo processing, a ScenarioAnalysis assessment engine and comprehensive statistical tools forCapital Modeling

� User-friendliness: thanks to a deep experience in web-based portals,customers can tailor the multiple user preferences (e.g. in audit trailfeatures) critical in the success of a distributed applicationFermat OpRisk is developed and maintained as a single product whichadapts itself to various customer needs, and ensures that all softwarefeatures are available to all its customers, thus maximizing the efficiencyof support and maintenance.

16ARCHITECTURE & TECHNOLOGY

Leading edge technology

Each of the software packages of the Fermatrange meets a high level of performance inresponding to a specific perimeter of a financialinstitution’s requirements. All software packagesrun within a common architecture, fully designedand developed, and as such fully mastered, bythe in-house expertise of Fermat. As aconsequence of this common architecture,financial institutions can benefit from a global,truly coherent and comprehensive solution.

The Fermat’s software suite is built on an 3-tierarchitecture.

The solution’s main components are:

THE DATABASE SERVER

Fermat operates on an Oracle RelationalDatabase Management System. Clients canchoose the most appropriate hardware andoperating system for their environment, includingplatforms such as Windows, Linux, Unix.

THE CALCULATION ENGINE

The calculation engine is written in C++ and runson Windows XP/2003/2000.

In case of multiple simultaneous calculations orvery large volumes of exposures to beprocessed, several calculation servers can sharethe workload and compute data in parallel. The

calculation servers can be departmentallydedicated servers or enterprise-wide with time-shared utilization.

An industry standard financial library, FinCAD toprice financial products, is embedded in additionto which Fermat has developed its owncalculation libraries to assess certain specificfinancial instruments.

THE CLIENT APPLICATION

The client application is available as thick, thinor true web client.

Fermat client workstations are dedicated topresentation (GUI). No calculations or datastorage are performed locally. Thecommunication channel between the clientworkstation and the Oracle Database is providedby oracle*net native technology. Standardmachines are therefore required running onWindows 2003/2000/XP.

Optional ComponentsFermat deployment can also include severaloptional machines to address specificrequirements:

� One or several application servers to providedistant access to the platform through a thinclient with full functionalities to distant users.

This is particularly relevant in an environment oflow bandwidth. This service can be providedthrough Citrix application server technology, orMicrosoft Terminal Server.

� J2EE server: required in case the end-usersaccess Fermat through the Web Client, in whichcase Fermat components are deployed on a javaJ2EE server (such as websphere, weblogic) andthe users desktop only require a standard webbrowser (Internet Explorer, Mozilla). It is alsorequired when using the Bank’s ownauthentication directory, since the FermatAuthentication Server uses J2EE components tocommunicate via LDAP or Active Directory.

17ARCHITECTURE & TECHNOLOGY

Fermat architecture: a complete lifecycle for riskand performance management

FERMAT’S DATAMART ARCHITECTURE

All software packages in the Fermat productrange have been built on a shared and fullyintegrated data and service infrastructure. Allmodules benefit from the same functional datamodel that is technically implemented as anoriginal feature in the Fermat DataMart, with afocus given to performance and handling largevolumes of data.

As a consequence, Fermat’s risk andperformance management product rangeenables financial institutions to operate a trulyconsistent enterprise-wide software solutionwithin a single, open operating environment andworkflow.

� Data model which reflects bank practices.Deliberately designed to represent bankpractices, the Fermat data model addressestransaction classification, credit risk mitigation,counterparties classes, ratings, credit events andlosses, market rates, client behaviour, generalledger, assessment of accounting consistencybased on balance sheet reconciliation…

� Single data flow. Data are importedasynchronously from multiple data sources intothe Data Mart using Fermat’s import platform ora market ETL. Imported data sets are thenchecked for technical integrity and consistency,edited and corrected by users, or automatically,and made available for calculation. Moreover,simulated transactions and market data can begenerated based on forecasted scenarios of thebank’s activity and environment.

� Single and modular workflow. Calculationoutputs are segmented in workspaces that storemultiple functional setups. Workspaces hold allthe historical snapshots of the bank’stransactions, imported at different reportingdates into the DataMart. Therefore, historicalcalculations remain available to the user fortrend analysis at both aggregated results leveland concerning detailed transactioncharacteristics.

� User administration features such as LDAPcompatible authentication, access rights andactivity audits ensure that Fermat can beoperated in a flexible and manageable manner.

18ARCHITECTURE & TECHNOLOGY

In order to empower each institution to fine-tune the software package to its particular objectivesand profile, the entire Fermat software suite comes with a powerful toolkit. Relying on a widelyavailable technology, the toolkit enables to adapt the system to your business model, and to laterexpand features coverage:� expanding data warehousing features (data storage, historical data management, editing and audittrail) to handle data not managed by default� customising the user interface by adding bespoke screens and reports� implementing the required set of rules and calculation functions to meet your specific businessrules, such as the required credit risk practices within Fermat CAD when using the A-IRB approachunder Basel II.

As a first step upon purchase you can take advantage of a turnkey solution out of the box.At a later stage, and if relevant to your needs, Fermat will perform a full expertise transfer of thetoolkit. Fine-tuning performed with the toolkit does not alter the core of the packages and bearsascending compatibility with future releases; in other words, customers benefit from upgradesin the package while taking advantage of their own stable bespoke environment.

The Fermat toolkit:from a turnkey solution to full expertise transfer

Volumes handling: the option to avoid aggregation

Thanks to their particular architecture and to an effective and efficient use of the chosen technology,all Fermat modules are able to handle large volumes of data if needed. This enables banks to keepcontract level details and the possibility of setting customised parameters according to bank specificbusiness models without irrelevant aggregation in the interfaces. As a result, analysis can beperformed, on either a detailed (transaction) level or at an aggregate level, by choosing theappropriate level of aggregation (done inside or outside of Fermat) needed for a specific analysis.Aiming at the most efficient processing possible for large volumes of data, multidimensional analysiscan be performed when required, using the embedded OLAP features (on line analytical processing)through which reports can be designed and calculated dynamically using many different reportingdimensions with drill down available to individual contract details, or up to a consolidated overview.

Customers can progressively set-up anintegrated and comprehensive enterprise-wide risk and performance managementsystem:� Each functional module just taps into therelevant area from the financial DataWarehouse;� This modular approach has theadvantage of strictly limiting the integrationprocess to current functional needs;� Software extension builds on previouslyimplemented interfaces

A simplified integrationand evolution that buildsupon previousinvestments

19ARCHITECTURE & TECHNOLOGY

Local installation

Thanks to its innovative architecture, Fermat’ssoftware range is a fully scalable solution thatservices local, regional and international banks.

� The architecture is a perfect fit for a singleinstallation at a local bank.

This installation enables users to share a workenvironment benefiting from the same operationaldata and parameterisation sets.

Users can independently launch different calculationsat different reporting dates using different sets ofdata, perform simulations and enrich their ownparameterisation sets.

20ARCHITECTURE AND TECHNOLOGY

� Global international banking groups can opt for acentralised implementation at group level, servingboth parent company and numerous business unitsand/or subsidiaries.

Thanks to Fermat’s technical and functionalarchitecture, banks can centralise data andparameterise calculations at the consolidated level.At the same time, business units or subsidiaries canperform their own calculations and reporting in theirown workspaces as well as benefiting fromparameterization sets maintained at head office.

Centralised installationat group level

21ARCHITECTURE AND TECHNOLOGY

Decentralised installationsacross banking groups

Thanks to its innovative architecture, Fermat’ssoftware range is a fully scalable solution thatservices local, regional and international banks.

� The architecture is a perfect fit for a singleinstallation at a local bank.

This installation enables users to share a workenvironment benefiting from the same operationaldata and parameterisation sets.

Users can independently launch different calculationsat different reporting dates using different sets ofdata, perform simulations and enrich their ownparameterisation sets.

22EDUCATION

Fermat Education

As a way to assist our clients in the implementation and usage of Fermat,we have developed a set of training packages. These are presented in acatalogue downloadable as a PDF file at www.fermat.eu.

Each package, dedicated to a Fermat Module, consists in a 3-level trainingpath:� short discovery sessions, providing a quick overview of a Fermat Module� a main session, bringing to the attendees the necessary understanding andpractice to implement and configure a Fermat Module� short focus sessions, bringing to the attendees the understanding of aspecific aspect of a Fermat Module

These different levels enable to build individual and differentiated trainingpaths, adapted to each need. This ensures that contents, methods anddurations fit the purpose defined for each session.

Besides the options that appear in the catalogue, training programs can betailored to very specific requirements.

Fermat Education provides a solution to two of the company’s strategies. Itsaims are to share knowledge of Fermat’s products with as many as possibleso as to facilitate its implementation. It also has to ensure that in-housepersonnel develop necessary skills. Fermat Education is therefore a vitalcomponent in the success of the firm.

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� All other trademarks are the trademarks of their respectiveowners.

Designed by: implica – February 2008info@fermat.eu

www.fermat.eu

with respect to the trademarks.

Fermat and product names are trademarks of Fermat SAS.Fermat SAS asserts all its trademarks and other property rights