The dangers of sudden deflation subsided over the year, allowing central banks to proceed more confidently with the monetary policy normalization called for by the current economic environment. The Federal Reserve hiked its key rate on three occasions in 2017, raising it to 1.5%, while the Bank of England made do with just one 0.25% increase.
While the European Central Bank (ECB) has yet to start raising its key rates, it cut in half its asset purchasing program (to €30 billion a month) effective the beginning of 2018.
Investor interest in bank issues has remained strong in this context of regular and abundant liquidity. Search for yield in money market funds in the current low interest rate environment favors liabilities with maturities above six months. Natixis has scaled down the use of its refinancing programs. Outstandings on its short-term programs fell by €13.42 billion compared with the end of 2016 (a reduction of €5.45 billion on CDs and €7.97 billion on ECP), reflecting a reduction in its external financing requirements.
In the United States, the positive economic situation led the Federal Reserve to gradually raise interest rates (+25 bp in March and again in June and December). On the long end of the curve, 10-year US Treasuries dropped 4 bp to 2.41% in 2017. The near-stagnant performance of long rates is due to low inflation. The curve's flattening is attributable to doubts surrounding US policy and its effect on medium-term growth.
to September 2018 while reducing its monthly purchases from €60 billion to €30 billion. The yield on the 10-year Bund, which was at -0.18% at the start of the year, ended the year at 0.43%. There was high volatility in the 10Y yield in the first half of the year mainly due to France-related risk in the months preceding the presidential election.
On the European credit market, bank spreads on unsecured senior debt continued to narrow throughout the year. The five-year credit spread of French banks on senior unsecured preferred debt ended the year at Euribor3M+15 bp, a decline of 29 bp from 2017. For the first time, the volume of non-preferred debt (MREL/TLAC eligible) issued by European banks (€104 billion) exceeded that of preferred debt (€80 billion).
Against this market backdrop, Natixis raised a total of €22.3 billion in funding in 2017 under its medium- and long-term refinancing program. As the only long-term issuer in the public issues segment, BPCE provided Natixis with financing for a total euro-equivalent amount of €6.5 billion.
(in millions of euros or euro equivalents) EMTN NEU MTN USMTN Bond issues
In 2010, the Basel Committee introduced new liquidity risk measures: the Liquidity Coverage Ratio (LCR, January 2013) is aa short-term liquidity ratio whose aim is to ensure that, in stress scenarios, banks hold enough liquid assets to cover their net cash outflows for a 30-day period; the Net Stable Funding Ratio (NSFR, October 2014) is aa long-term structural liquidity ratio developed to strengthen the resilience of the banking sector by requiring banks to maintain a stable funding profile and by limiting maturity transformation to less than one year.
These rules were enacted in the European Union through Regulation (EU) No. 575/2013 of June 26, 2013, which laid down the filing obligations in force during the observation period from January 1, 2014, and set forth the conditions of implementation of these prudential requirements. For the LCR, Delegated Regulation (EU) No. 2015/61, published on October 10, 2014, entered into force on October 1, 2015. The NSFR, which the Basel Committee wished to establish as a minimum requirement as from 2018, is still in the observation period; a legislative proposal was submitted by the European Commission on November 23, 2016, to enact the NSFR within the European Union.
To date, European regulations require: compliance with the LCR as from October 1, 2015; requireda minimum ratio of 80% on January 1, 2017, and 100% from January 1, 2018; quarterly statements on stable funding, which are entirelya descriptive (amounts and terms) without any weighting applied.
3 RISKS AND CAPITAL ADEQUACYOverall interest rate, liquidity and structural foreign exchange risks 156 Natixis Registration Document 2017
The liquid asset buffer – in the regulatory sense – is the numerator of the LCR (HQLA) and predominantly consists of: Level 1 liquid assets, i.e. cash deposited with central banks;a central banks and public sector entities, and high-rated covered bonds; other Level 1 liquid assets consisting mainly of marketablea securities representing claims on, or guarantees by, sovereigns,
From an operational standpoint, Natixis has two liquidity reserves that contribute to Groupe BPCE’s reserves: a reserve of liquid assets eligible for central bank collateralizeda refinancing operations to secure intra-day settlements; this relatively stable reserve is made up of central bank loans and securities, and is located in Paris (about €4 billion in the 3G Pool) and New York (approximately $3 billion at the FRB discount window); a liquidity reserve established in advance to meet a liquiditya crisis similar to the one simulated by the LCR; the amount of this reserve ranges from €20 billion to €30 billion and is mainly reinvested with the ECB and the US Federal Reserve. Since 2015, a portion of assets in this reserve has been under “dedicated” management in special portfolios, with an allocation strategy focused on the list of financial instruments considered as Level 1 and Level 2 HQLA as defined by LCR
RISKS AND CAPITAL ADEQUACY Overall interest rate, liquidity and structural foreign exchange risks 157Natixis Registration Document 2017 regulations in force. The liquidity of the portfolios (mainly subject to delegated management by Natixis Asset Management from 2015 and managed directly under a Natixis mandate since 2017) and the assets reinvested with central banks ensure the reserve can be mobilized immediately if needed.
In June 2013, Natixis established a governance system for the management of the LCR (see section 3.9.2.5), having set an LCR limit higher than 100% from the end of 2013 (greater than the regulatory requirements in force). The oversight of the LCR is part of a Groupe BPCE framework under the aegis of the Groupe BPCE Finance division. Natixis’ LCR hedging is organized in close cooperation with BPCE and is managed by the Joint Refinancing Pool, acting with the authorization of the Financial Management Department on the basis of its forecasts. Within this framework, the strategy for the Natixis scope aims to hedge the LCR above 100% with a safety buffer of around €5 billion in order to deal with any last-minute contingencies, through BPCE adjustments.
Accordingly, Natixis established: a governance system under the authority of the ALMa Committee, chaired by the CEO, for managing and monitoring excessive leverage risk (see section 3.9.1); a dedicated risk policy for excessive leverage risk; notably, thea ALM Committee decided on early adoption of a target leverage ratio well above the 3% minimum requirement currently recommended by the Basel Committee, in keeping with the Bank’s transformation strategy towards an asset-light model, as advocated by the New Frontier plan; an overall limit and an alert threshold applied to Natixis’a leverage ratio, proposed by the ALM Committee and approved by the Risk Committee.
1 Total consolidated assets reported in the financial statements 519,987 527,860
Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation (94,937) (85,135)
Adjustment for off-balance sheet items (i.e. conversion of off-balance sheet exposures to credit equivalent amounts) 36,079 37,038 8 LEVERAGE RATIO EXPOSURE* 396,276 401,619 * o/w exposure related to affiliates 47,251 50,540 * Excluding exposure related to affiliates 349,025 351,079
3 RISKS AND CAPITAL ADEQUACYOverall interest rate, liquidity and structural foreign exchange risks 158 Natixis Registration Document 2017
Given the presence of risk-weighted assets in foreign currencies (mostly USD), the aim of Natixis’ structural foreign exchange risk policy is to protect the Common Equity Tier 1 ratio (CET 1) against exchange rate fluctuations. To this end, it establishes a “structural” foreign-exchange position that is restated for translation adjustments when it purchases foreign currencies to fund strategic long-term net investments in foreign entities, while non-strategic net investments in local currencies are funded with loans.
The Treasury Department, which centralizes most positions, also performs yield curve distortion stress tests which are also governed by limits.
Period from 12.31.2016 to 12.31.2017 (in millions of euros) 12.31.2017 12.31.2016 12.31.2017 12.31.2016 pro forma
3 RISKS AND CAPITAL ADEQUACYOverall interest rate, liquidity and structural foreign exchange risks 160 Natixis Registration Document 2017
Debt securities issued besides own secured bonds or own asset-backed securities 2,447
At December 31, 2017, Natixis’ encumbered assets amounted to €194,612 million, of which: €174,370 million in encumbered securities for corporate actions and issues of securities;a €4,936 million in encumbered receivables in mechanisms other than secured bonds;a €1,005 million in receivables securing secured bond issues;a €15,780 million in encumbered assets in respect of margin calls on derivatives.a
RISKS AND CAPITAL ADEQUACY Overall interest rate, liquidity and structural foreign exchange risks 161Natixis Registration Document 2017
3 RISKS AND CAPITAL ADEQUACYOverall interest rate, liquidity and structural foreign exchange risks 162 Natixis Registration Document 2017
The Compliance Department advises and assists all Natixis employees on how to prevent compliance risks when performing their duties. It plays a key role in implementing the principles set out in Natixis’ Code of Conduct (see Chapter 1), which are also included, as regards compliance, in the Compliance Manual.
Conflicts of interest are prevented by: setting up and monitoring of information barriers;a using risk maps to identify situations posing a risk of conflict ofa interest; checking compensation policies;a being compliant with the rules of good conduct applicable toa Natixis staff.
164 Natixis Registration Document 2017 an escalation process for mediating unresolved conflicts ofa interest as required.
Defending customers’ interests is a core concern of Natixis’ activities and is reflected in the policies of each entity in France and abroad. In all circumstances, employees are required to serve customers with diligence, loyalty, honesty and professionalism, and to offer financial products and services that are appropriate to customers’ abilities and needs. Accordingly, and in the interest of maintaining a high level of customer protection, in the fourth quarter of 2017 Natixis began a cross-functional review of its permanent control system covering this area for completion in the first half of 2018.
There is also a specific procedure on costs, expenses, and on key information documents for packaged products to be provided to non-professional customers before trade, thus ensuring Natixis’ compliance with PRIIPS obligations.
As regards counter-terrorist financing, heightened vigilance measures have been implemented in the form of behavioral analysis tools. These measures identify risk factors and enable the application of in-depth and adapted due diligence procedures.
Any transaction that is detected as potentially contributing to terrorist activities or potentially benefiting persons or entities linked to such activities warrants a suspicion report to the relevant financial intelligence unit.
A team focused on financial sanctions provide assistance and advice to the Bank’s business lines and entities.
More specifically, risk linked to Capital markets activities is closely monitored and subject to specific first- and second-level controls overseen and implemented by a dedicated team within CIB Compliance. Social engineering-type payment fraud is also subject to constant vigilance and specific prevention measures, as this continuously evolving fraud is particularly widespread and has evolved to impact the different commercial banking business lines. Lastly, the risk of information leakage, which has become a major risk, is subject to a specific control and investigation employing the expertise of fraud and IS security experts as well as the legal and HR functions as necessary.
To comply with the requirements set out in Article 17 of the law of December 9, 2016, on transparency, prevention of corruption and the modernization of the economy (“Sapin II”), in 2017 Natixis carried out a campaign to strengthen and align some of the rules and procedures of its compliance framework to the best international standards in corruption prevention.
Internationally, Natixis ensures strict compliance with local regulations, such as the UK Bribery Act and the Foreign Corrupt Practices Act.
The ITSS-BC Department coordinates its activities based on risks. It employs a method which identifies, in terms of operational risk, the risk situations of concern to the business lines and their IT assets that may be vulnerable. This method has since been adopted by Groupe BPCE. Risk assessments can be conducted during the annual review or can result from supporting a project. In 2017, the ITSS-BC monitored close to 300 business line projects, half of issued specific security requirements in order to better mitigate risks.
In addition, Natixis acquired a new tool for monitoring IT security incidents which also makes it easier to report serious incidents to the relevant regulators.
The 2017 second-level control plan covered most of the entities and critical IT infrastructures and was supplemented with a large-scale “Telework” test involving almost 700 staff and emergency drills.
The Seine Flooding (“Crue de Seine”) project was successfully completed: new protection measures have been installed and successfully tested; the Paris IT network was secured as was most of the access of the international platforms to the network; and a new fallback solution offering greater accessibility for staff was tested. Lastly, the new real estate strategy is being implemented as leases expire.
procedures have been distributed on what to do in case of known cyber attacks (ransomware, DDos, etc.), and we are currently reviewing ways of boosting our resilience to extreme shocks.
Natixis is committed to protecting the personal data of customers and employees alike. As such: processes involving the use of personal data are conducteda pursuant to the French Data Protection Act and, when necessary, are declared to the Commission Nationale de l’Informatique et des Libertés (CNIL – French Data Protection Authority) or the international equivalent; Natixis takes the necessary measures to guarantee thea confidentiality of such data and to keep the persons whose data are being processed informed so that they can fully exercise their rights of access and rectification.
Compliance with the General Data Protection Regulation (GDPR) is in progress: a body of procedures is being established, as is a register of personal data as well as an inventory – for each relevant operation – of security requirements to be compliant, and a deputy manager in charge of personal data protection has been recruited.
As assessed at December 31, 2017, the financial consequences of litigation deemed likely to have, or which have in the recent past had, a material impact on the financial situation of Natixis and/or Natixis and its consolidated subsidiaries as a whole, or on their profitability or their business, have been included in Natixis’ consolidated financial statements.
have been subject to numerous rulings and appeals and are still ongoing. A November 2016 ruling by the bankruptcy court dismissed a number of restitution claims initiated by the trustee on the grounds of extraterritoriality. The case is ongoing.
Furthermore, the liquidators of Fairfield Sentry Limited and Fairfield Sigma Limited have initiated numerous proceedings against investors having previously received payments from these funds for redemptions of shares (over 200 proceedings have been filed in New York). Some Natixis entities have been named as defendants in some of these proceedings. Natixis deems these proceedings to be entirely unfounded and is vigorously defending its position. These proceedings have been suspended for several years, and in October 2016 the bankruptcy court authorized the trustees to modify their initial claim. The defendants jointly responded in May and June 2017 and are awaiting the announcement of the hearing date.
In March 2009, the Paris public prosecutor’s office (Parquet de Paris) launched a preliminary investigation into a complaint filed by Natixis minority shareholders and coordinated by the Association de Défense des Actionnaires Minoritaires (ADAM – Association for the Defense of Minority Shareholders). As the plaintiffs have initiated civil proceedings, a judicial investigation opened in 2010. On February 14, 2017, Natixis came under investigation for two messages sent in the second half of 2007, at the beginning of the subprime crisis.
On January 19, 2016, the Commercial Court of Paris ordered a stay of proceedings on the merits of the case, pending a final decision by the Paris Court of Appeal as requested by AEW Europe in early July 2015 in the context of an appeal for annulment (“appel-nullité”) submitted against the ruling of the Commercial Court of July 1, 2015, which had declared the legal action by the claimants to be admissible. In an order dated July 17, 2017, the Paris Court of Appeal ruled the AEW Europe annulment to be inadmissible.
On October 25, 2016, the Commercial Court of Paris ordered the two insurance schemes involved to honor, in respect of AEW Europe, the sanctions covered by the policies that may be ruled in favor of UMR in connection with the litigation and to cover the defense costs incurred by AEW Europe. One of the insurers concerned appealed this decision on December 7, 2016.
before the New York Supreme Court to be without merit for multiple reasons, including that they are time-barred under applicable statute of limitations and that the claimants do not have the legal standing to file the suit, and intends to defend itself vigorously.
Three of these five proceedings have been brought against Natixis, purportedly on behalf of certificate holders, alleging that Natixis failed to repurchase defective mortgages from certain securitizations. Natixis considers the claims brought against it
Another lawsuit was filed before a US federal court against Natixis Real Estate Holdings LLC and several subsidiaries, alleging violations of the False Claims Act in RMBS activities. Natixis filed a motion to dismiss the case in January 2017. Its request was granted in September 2017; as such, the dispute is now closed.
In addition, UFC-QUE CHOISIR, in its capacity as a consumers’ rights non-profit, brought claims before the Paris District Court (Tribunal de Grande Instance de Paris) on March 5, 2018, against the asset management company to obtain compensation for the financial losses suffered by the holders of the formula funds in question.
On May 17, 2013, Société Wallonne du Logement (SWL) filed a complaint against Natixis before the Charleroi Commercial Court (Belgium), contesting the legality of a swap agreement entered into between SWL and Natixis in March 2006 and requesting that it be annulled.
Furthermore, on March 16, 2017, Natixis filed an appeal with the Paris Court of Appeal challenging the appeal ruling's legal enforceability in France, and on August 3, 2017, Natixis summoned the Walloon regional authority to appear before the Namur Court of First Instance regarding the appeal of its performance bond as part of the aforementioned swap agreement.
Natixis Assurances is the Insurance division of Natixis and is structured into two businesses: the personal Insurance business, focused on developinga portfolios in life insurance, savings and retirement capitalization, as well as provident insurance; the non-life insurance business, focused on developing portfoliosa for motor and multi-risk home insurance, personal accident insurance, legal protection, healthcare and property and casualty insurance.
Given the predominance of the Investment Solutions activity, the main risks to which Natixis Assurance is exposed are financial. The Company is also exposed to underwriting risks (life and non-life), as well as counterparty risk.
The general insurance underwriting risk to which Natixis Assurances is exposed is borne by its subsidiary BPCE Assurances: premium risk: in order to ensure that the premiums paid by thea policyholders corresponds to the transferred risk, BPCE Assurances implemented a portfolio monitoring policy whereby each policy is given a score based on its track record over three years. Factored in are types of claims, number of claims, their cost and other variables specific to the activity in question (degree of liability and bonuses/penalties for motor insurance, for instance). This monitoring policy also contributes to detecting potential risks arising from large claims, and to arranging adequate reinsurance coverage; risk of loss: each time inventory is taken, an actuariala assessment of the reserves for claims to be paid is conducted based on methods widely recognized by the profession and required by the regulator; catastrophe risk: catastrophe risk is the exposure to an eventa of significant magnitude generating a multitude of claims (storm, risk of civil liability, etc.). This risk is therefore reinsured either through the government in the event of a natural disaster or an attack, for example, or through private reinsurers, specifically in the event of a storm or a civil liability claim, or through reinsurance pools.
The counterparty risk to which Natixis Assurances is exposed mainly concerns reinsurance counterparties. The selection of reinsurers is a key component of managing this risk: Natixis Assurances deals with reinsurers who are subject to aa financial rating by at least one of the three internationally recognized rating agencies, and who have a Standard & Poor’s equivalent rating of A- or higher; using several reinsurers ensures counterparty diversificationa and limits counterparty risk.
Credit risk is defined as the risk of loss, due to non-payment by a debtor, of a receivable owed to a policyholder of the Group. Coface manages credit risk through a number of procedures, whose scope includes the approval of the terms of policies relating to products, pricing, monitoring of credit risk hedges and portfolio diversification. Credit risk can be exacerbated due to the concentration of exposure (country, sector, debtor, etc.) and is modeled as premium risk, reserve risk and disaster risk Traditionally, Coface makes a distinction between frequency risk and event risk:
Coface maintains a diversified credit risk portfolio, in order to minimize the risk of debtor default, a slowdown in a given business sector, or an adverse event in a given country having a disproportionate impact on its overall claims expense. The insurance policies also contain clauses allowing credit limits to be changed mid-contract. Furthermore, the fact that the great majority of Coface’s risks are short-term (95% of total outstandings) allows it to reduce the risk covered for a debtor or a group of debtors relatively quickly and to anticipate a decrease in their solvency.
Compagnie Européenne de Garanties et Cautions is the Group’s multiple business line security and guarantee platform. It is exposed to underwriting risk, market risk and the risk of the reinsurers defaulting, as well as operational risk.
In 2017 underwriting risk was managed effectively, reflected by a level of claims 26% of earned premiums. New committed risks on the balance sheet, particularly those on refinanced mortgage loans, made for a good risk profile.
As part of the Solvency 2 supervisory regime, which came into effect on January 1, 2016, CEGC submitted an application to certify its internal assessment model for underwriting risks on mortgage guarantees for retail customers. The ACPR (French Prudential Supervisory Authority for the Banking and Insurance Sector) approved the model in March 2017. CEGC’s partial internal model therefore meets the specific requirement applicable to mortgage loan guarantors to improve the robustness of the French banking system for home loans.
CEGC holds an investment portfolio of about €1.92 billion on its balance sheet as at December 31, 2017, hedging underwriting provisions. The portfolio is up 13.62% since the end of 2016. In 2017 CEGC set up an investment program in the real estate segment (which has an allocation target of 10%). Market risk from the investment portfolio is limited by the Company's investment choices.
CEGC hedges its liability portfolio by implementing a reinsurance program tailored to its activities.
In loan guarantees, reinsurance is used as a way to manage regulatory capital by protecting guarantee beneficiaries in the event of an economic scenario giving rise to a loss of up to 2% of outstanding guaranteed loans.
In the Corporate segments, the program is used to protect CEGC’s capital by covering high-severity risks. It has been calibrated to protect against three individual loss events (loss related to a counterparty or a group of counterparties) which could have a significant impact on the Corporate segment’s income statement.
Strategy risks are monitored by the Board of Directors, supported by its Strategic Committee, which examines the strategies
The membership of these various bodies is presented in Chapter 2 of the 2017 Natixis registration document. The Internal Rules of the Board of Directors, including the procedure for calling meetings, can be found in Chapter 2, paragraph 2.3.1, of the registration document.
The identification and management of risks linked to social and climate change are presented in Chapter 6 of 2017 Natixis registration document.
The identification and management of these risks are presented in Chapter 6 of 2017 Natixis registration document.
(These data form an integral part of the financial statements certified by the Statutory Auditors).
In 2017, value adjustments went down by €10 million (excluding the effect of the BPCE guarantee) to €63 million at December 31,
CMBS (in millions of euros) Net exposure as at 12.31.2016 Change in value in 2017 Other changes Net exposure at 12.31.2017
At December 31, 2017, exposure to non-government risk, in particular Greece and countries facing uncertainties (political, currency, etc.), directly held by Natixis stood as follows: (in millions of euros) Gross exposure at December 31, 2017 (a) Total gross exposure Provisions (b)
Exposure corresponds mainly to the “shipping finance” sector amounting to €81 million at December 31, 2017.(c)
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2017 178 Natixis Registration Document 2017
Starting from the publication of annual earnings for 2017, the presentation of the divisions as well as the standards used to assess their performance are those included in the New Dimension plan presented in November 2017.
Accordingly, the presentation of the divisions includes the following developments: Investment Solutions has been split into two divisions:a
In addition, the following changes to the standards used to assess the performance of the divisions have been factored in: regulatory capital allocated to the business lines was increaseda from 10% to 10.5% of Basel 3 average RWA; rate of return on capital was reduced from 3% to 2%.a
As a reminder, the earnings of the Natixis business lines have been presented in accordance with Basel 3 regulations. Capital is specifically allocated to the Insurance business lines based on the Basel 3 accounting treatment for investments in insurance companies, as enacted into EU law by CRD IV and CRR (“Danish compromise”). The capital allocated to CEGC takes into account its exclusion from the “Danish compromise”. It is based on a 250% risk weighting of the value of the securities held by CEGC, which is the prudential treatment under the threshold mechanism applied to holdings of equity instruments issued by financial entities.
The conventions used to determine the earnings generated by the various business divisions are as follows: the business divisions record the return on regulatory capitala allocated to them. By convention, the rate of return on regulatory capital is 2%; the return on share capital of the entities that form thea divisions is eliminated; the cost of Tier 2 subordinated debt is now charged to thea divisions in proportion to their regulatory capital; the divisions are invoiced for an amount representing the bulka of Natixis’ overhead. The uninvoiced portion accounts for less than 3%, excluding the Single Resolution Fund (SRF), of Natixis’ total overhead. The Single Resolution Fund contribution is covered by the Corporate Center and is not charged back to the divisions.
ROE and ROTE for Natixis and the business lines are calculated as follows: the profit measure used to determine Natixis’ ROE is neta income (Group share), minus the post-tax interest expense on DSNs. The equity used is average shareholders’ equity (Group share) under IFRS, after distribution of dividends, excluding average hybrid debt, and eliminating unrealized or deferred gains and losses recognized in equity; Business line ROE is calculated using:a as the numerator: the business line’s pre-tax profit, as perj the aforementioned rules, to which a normative tax is applied. The normative tax rate is determined for each of the divisions while taking into account the tax liability conditions of Natixis’ companies in the jurisdictions where they operate. It is determined once a year and does not factor in potential changes to the effective tax rate during the year; as the denominator: regulatory capital, calculated on thej basis of 10.5% of RWA assigned to the division, plus goodwill and intangible assets related to the division.
Against this backdrop, Natixis successfully completed its New Frontier strategic plan, having achieved or surpassed the key objectives set out four years ago. These were focused on growing revenues, managing its balance sheet and risks, and the improving the rate of return on equity through the implementation of its asset-light model.
The plan’s success provided a solid foundation for the launch of the New Dimension plan, which Natixis is now undertaking. New Dimension sets out three powerful initiatives aimed at developing solutions offering high added value to our clients: to deepen the transformation of our business models that we successfully began under the New Frontier plan, to allocate a significant portion of our investments to digital technologies and to differentiate ourselves by becoming a leading player in the areas where Natixis’ teams are recognized for their exceptional skills.
In 2017, Natixis consolidated its positions and continued to develop its main business lines, which cater to both the BPCE networks and its own clientele.
In addition, Asset Management pursued the development of its multi-boutique model. Highlights of Natixis IM's development included: at the end of March, Natixis IM sold its 25% stake in the IDFCa entities (India).
in late September, Mirova (a company in which Natixis IMa indirectly holds a 100% stake) acquired a 51% equity interest in Althelia, a London-based asset-management firm specializing in impact investing (investments with a strong social and environmental impact). The aim is to create a European natural capital investment platform managed by teams based in London and Paris.
in October, a 51.9% equity interest was acquired in Investorsa Mutual Limited (IML), an Australian value-focused equities fund manager. This significant purchase (over €6 billion in AuM) is in line with the business’s strategic development ambitions in Asia-Pacific.
Natixis IM earned the following distinctions: AGEFI/Global Invest Forum Awards: Vincent Chailley, Head ofa Investments at H2O Asset Management, a subsidiary of Natixis Investment Managers, won the award for “Best Manager in 2017”; Australian Fund Managers Foundation: The three Investorsa Mutual Limited (IML) small cap funds (IML Small Cap Fund, IML Smaller Companies Fund and IML Future Leaders Fund) won the Golden Calf at these awards;
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2017 180 Natixis Registration Document 2017
Gestion de Fortune - Service Provider Awards (Palmarès desa fournisseurs 2018) (January 2018): H20 won the special “Company of the Year” (all categories) award. H2O also won the award for “Best Asset Management Company” in the “AuM over €5 billion” category, while DNCA came second in the same category; at the Citywire France Awards 2017, H2O and Dorval werea recognized as follows: H2O Asset Management - Best Asset Management Firm,j Global Flexible Bonds category,
Bruno Crastes, H2O Asset Management - Best Fundj Manager, Global Flexible Bonds category,
Natixis Actions US Growth managed by Loomis took firstj prize in the “US Equities” category,
Natixis Wealth Management consolidated its operational foothold by bringing its sales teams together under a single department. Investments in digital projects, such as the go-live of a digital onboarding interface or online subscription to e-dédiance policies through the Caisses d’Epargne, completed the Bank’s adaptation to its current environment. Regulation-related projects, such as MiFID 2 or the implementation of IFRS 9, also took up resources in 2017.
The Asia-Pacific platform pursued its selective development strategy in all its areas of operation. Most notably, it converted its representative office in Taiwan into a branch in order to be more accessible to clients and offer a more comprehensive range of services. It was also granted a license in Hong Kong to offer M&A advisory services. It strengthened its expertise in financing and SRI investment solutions by creating a dedicated team and developing green bond issues.
In addition, Natixis and ODDO BHF announced plans for a long-term partnership on the equity markets (cash equity, equity research, equity capital markets) in order to implement a unique solution for investors and issuers that is consistent with the regulatory changes associated with MiFiD 2. As part of this partnership, Natixis’ equity research and equity brokerage businesses in France will be transferred to ODDO BHF, thereby creating a market leader in continental Europe, and the equity capital market activities of both entities will be merged under Natixis.
The new Global Securities Financing business, resulting mainly from the merger of the Equity Finance (Equity Derivatives) and Securities Financing group (Fixed Income) teams, aims to enhance dialog with clients by providing a multi-underlying and multi-product offering underpinned by the following expertise: collateralized funding and collateral management (repos, securities borrowing/lending, etc.), market-making for repos, credit and sovereign securities borrowing/lending and market making on indices (equities). The business also helps the bank adapt to changes in the market and regulatory constraints, and gives an overview of its equity and fixed income assets, helping to manage them more efficiently and comprehensively.
In 2017, Global Markets research continued its development in all asset classes, and received a number of awards recognizing the expertise of its teams and their commitment to clients. The teams also concerted their efforts to respond to the requirements of MiFID 2 by informing eligible clients of the new directive and providing them with Natixis’ new service fees.
Natixis remained committed to renewable energy financing where it was ranked No. 1 in the Middle East. It also launched its first green CMBS issue in the US, opening the way for new eco-responsible investment opportunities. Moreover, Natixis ramped up its investment in digital solutions by creating, with its client Trafigura and IBM, the first commodity trading blockchain for processing crude oil transactions in the US (named as one of Global Finance magazine's “The Innovators 2017 – Trade Finance”).
It also led a number of leveraged buyouts for investment funds in Europe and internationally.
In non-life insurance, the improvement of the customer experience transformed remote sales within the Banque Populaire and Caisse d’Epargne network, boosting the share of sales to 25%. Parallel to that, the project to overhaul the claims management system was launched with the aim of transforming claims management and converting it into a fully digital process.
In Personal Insurance, 2017 was the first full year that the new life and personal protection insurance line was marketed on the Caisse d’Epargne network, after being gradually introduced in 2016. Sales on the new offering in 2017 totaled €5,333 million for almost 380,000 policies sold in Investment Solutions, while in personal protection insurance sales totaled €23 million for nearly 371,000 policies.
In keeping with last year, several initiatives were run as part of the innovation and digital transformation program with the goal of designing the business models of tomorrow and improving operational efficiency in an environment of strictly controlled operating expenses.
Garmin Pay, a new contactless payment solution launchedj with Caisse d’Epargne Ile-de-France in partnership with Garmin, the first sports smartwatch manufacturer to offer this service, the October 2017 launch of SmartPOS, a comprehensivej payment and loyalty solution for retailers; Natixis Interépargne’s launch of the Amplus solution to help itsa corporate clients’ staff learn about and develop a personalized investment strategy for retirement while monitoring it in real time.
Lastly, in October Leasing acquired two real estate leasing companies, BatiLease and InterCoop, from Crédit Coopératif to strengthen its commercial footprint in the Hauts-de-France region and jump-start the leasing business in Belgium.
At €8,810 million, net revenues generated by the main business lines(1) were up 11.0% at constant exchange rates versus 2016. The different divisions posted higher revenues overall: an increase of 16% at constant exchange rates for Asset & Wealth Management, 10% for Corporate & Investment Banking; 12% for Insurance and 2% for the SFS division.
Recurring expenses totaled €6,632 million, up 7.0% at constant exchange rates compared to 2016. At constant exchange rates, costs increased 11% for the Asset & Wealth Management division, 8% for the CIB division, 16% for the Insurance division and 6% for SFS. Corporate Center expenses were down €883 million in 2017 compared to €948 million in 2016. They include €484 million in expenses for Coface and €121 million for the Single Resolution Fund contribution.
The provision for credit losses was €258 million in 2017, down 15.5% compared to 2016. The provision for credit losses of the main business lines as a percentage of assets amounted to 23 basis points in 2017 versus 34 basis points in 2016.
Under the New Dimension plan’s presentation of the divisions, the notion of “Net revenues generated by the main business lines” now includes(1) the Asset & Wealth Management, CIB, Insurance and SFS divisions, and no longer includes Coface.
Consolidated management ROE after tax (excluding non-recurring items) came to 9.9% in 2017, giving an accounting ROE of 9.6%.
Asset & Wealth Management posted a sharp revenue increase of 14.5% for the period to €3,113.2 million (+16.0% at constant exchange rates).
Gross operating income climbed substantially by 26.9% (+28.6% at constant exchange rates) to €935.7 million.
– Asset ManagementA Assets under management stood at €830.8 billion at end-December 2017, remaining stable at current exchange rates (+6% at constant exchange rates) year-on-year. These were driven by very favorable inflows and market effects, but penalized by the impact of exchange rates and the scope effect, chiefly the transfer of CNP’s AuM (-€22.7 million) and the disposal of IDFC in Asia (-€7.9 billion), which were partially offset by the purchase of IML in Asia (€6.0 billion).
CHANGE IN ASSETS UNDER MANAGEMENT ■ OVER THE YEAR (in billions of euros)
(a) 2017 scope effects: in Europe, the transfer of a portion of CNP’s life insurance assets underj management to Banque Postale (-€22.7 billion) in Q3 2017 and purchase of Althelia in Q4 2017; in Asia, the sale of IDFC in Q1 2017 (-€7.9 billion) and purchase of IMLj in Asia (€6.0 billion) in Q4 2017; in the US, the gradual disposal of Aurora (-€0.8 billion) that began inj April 2016 and the adjustment of methodology at Alpha Simplex (-€0.8 billion) in Q3 2017.
OVERVIEW OF THE FISCAL YEAR Management report at December 31, 2017 185Natixis Registration Document 2017
The business line recorded net inflows of €23.8 billion over the year, €27.2 billion of which in long-term products, with positive net inflows across the regions: in the US, net inflows totaled €13.9 billion, boosted by Harrisa Associates in equity products, Loomis in bond products and, to a lesser extent, Alpha Simplex in alternative products; net inflows in Europe totaled €9.0 billion, driven by diversifieda products (NAM, H2O, DNCA and Mirova), equities (DNCA, Mirova and Dorval) and bonds (H2O and DNCA), partially offset by outflows in life insurance and money market products (NAM); At €820.1 billion, average assets under management at December 31, 2017, were up (+5.9%) compared to 2016 (at constant EUR exchange rates).
The average rate of return on AuM gained 4.5% to reach 29.5bp, i.e. 1.3 bp higher compared to December 31, 2016, at constant exchange rates. At December 31, 2017, the AUM breakdown revealed a preponderance of bond products (28.4%), followed by equity products (25.4%) and life insurance (21.5%).
period, the rise in incentive fees of European asset management companies, and the increase in financial products.
In 2017 Corporate & Investment Banking’s net revenues totaled €3,581 million, up 10.4% compared to 2016 at constant exchange rates.
Capital market revenues totaled €1,921 million in 2017, up 8.6% compared to 2016.
Transfer of the business to Natixis IM Distribution as part of the Défi project in Q3 2016 (net revenues of €4.6 million and €4.8 million in(1) expenses).
€9.1 million in exceptional indemnities paid to the networks as part of the changes to the B2C (Business to Consumer) value sharing rules.(2)
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2017 186 Natixis Registration Document 2017
At €599 million, Equity revenues grew by 21.4% year-on-year at constant exchange rates, buoyed by Equity Derivatives, with strong performance from the Solutions activities, thanks to the consolidation and international roll-out of its offering and of Equity Finance.
In 2017 Corporate & Investment Banking’s expenses totaled €2,194 million, up 7.9% compared to 2016 at constant exchange rates.
new Sélectiz range. Premiums on unit-linked assets totaled €3.3 billion (+160%) and made up 35% of total gross inflows, up 14 points year-on-year and 7 points higher than the market rate
Premiums on Personal Protection and Payment Protection insurance (€820 million) continued to increase at a steady pace (+8%).
With €54.9 billion in factoring revenues in France, up 17%, the Factoring business boasted market share of 18.5% at
Leasing developed its business serving the Banque Populaire and Caisse d’Epargne networks. Its new business, more than half of which is in equipment leasing, was up 4% year-on-year.
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2017 188 Natixis Registration Document 2017
Specialized Financing revenues picked up by 3%. Sureties and Guarantees posted 5% net revenue growth. Consumer Finance and Leasing gained 3% and 2% respectively.
Revenues from the Payments business were up 2%, supported by the consistently strong Electronic Banking and Service Vouchers activities.
At €939 million in 2017, Specialized Financial Services expenses were up 6% compared to 2016, a result largely owed to scope changes for the Payments and Leasing business lines.
ROE stood at 13.0% in 2017, down 3.5 points, mostly as a result of acquisitions.
non-recurring items(1) related to the transfer of state guarantees to BPI France in the fourth quarter of 2016.
Net revenues from Coface in 2017 reached €624 million, down slightly on 2016 (-0.8%). The increase in net revenues came to 26% at constant exchange rates, corrected for scope effect and 2017 revenues slid 4% to €1.4 billion compared to 2016. Credit insurance, which accounts for 95% of revenues, was down 4% while factoring was up 2%. At constant scope and exchange rates, total revenue was stable (+0.3%).
The loss ratio net of reinsurance was 51.4% compared to 65.5% in 2016, i.e. an improvement of 14.1 points thanks to the efficiency of claims expense management plans and an improved economic climate.
Net revenues from the Corporate Center excluding Coface stood at €33 million versus €94 million in 2016. In this scope in 2017: exchange rate fluctuations of deeply subordinated notes issueda in dollars stood at -€104 million in 2017 compared to €9 million in 2016; the sale of the equity interest in Caceis in the last quarter ofa 2017 generated €74 million in capital gains; the net revenues of Corporate Data Solutions totaled €10a million, down €32 million compared to 2016 due to the full withdrawal from the business in June 2017.
Excluding these elements, net revenues stood at €53 million in 2017 versus €43 million in 2016, with improved revenues from Treasury and ALM operations, which benefited from more favorable refinancing conditions.
Expenses from the Corporate Center stood at €883 million in 2017 versus €948 million in 2016.
Expenses from Coface came to €484 million, down 9% compared to 2016 or a limited increase of 1% at constant scope and exchange rates, and restated for non-recurring costs(1) linked to the transfer of state guarantees to BPI France.
The provision for credit losses was -€258 million at December 31, 2017, of which -€237 million for specific risks and -€21 million in collective provisions. At December 31, 2016, the provision for credit losses totaled -€305 million.
Non-recurring net revenues of €77.2 million (indemnity) and non-recurring expenses of €21.7 million recorded in the fourth quarter of 2016.(1)
Refer to Note 14, “Post-Closing Events”, in Chapter 5.1, Consolidated Financial Statements and Notes.
Net gains/(losses) on fixed assets 320 (456) (3) 3 317 (443) (90) (3) (92)
At December 31, 2017, Natixis generated gross operating income of +€1,354 million, down -€250 million compared to December 31, 2016, due to a €147 million decrease in net revenues, plus an increase of €103 million in operating expenses.
Net interest income was stable (+€7 million). Net fee and commission income rose by €27 million, resulting from a +€11 million increase in business in Mainland France and an increase of +€16 million in business recorded by foreign branches. This change is mainly attributable to a +€20 million gain in net fee and commission income on futures and forward financial instruments, combined with a +€36 million increase in net fee and commission income on customer transactions, related to the development of the “Originate to Distribute” model and advisory services, minus a -€34 million decrease in net fee and commission income on securities transactions.
Dividends paid by Natixis subsidiaries fell by €307 million. €146 million of this decrease can be attributed to the reduced dividend paid by asset management subsidiary Natixis Investment Managers, €42 million to the reduced dividend paid by the Natixis Private Equity subsidiary and €23 million from the decrease on behalf of Coface S.A.
sale, the change in gains on trading book transactions amounted to +€4 million, i.e. -€22 million for Mainland France activity and +€18 million for transactions carried out by foreign branches.
Furthermore, once restated for the above-mentioned 2016 transaction, the change in net income/(loss) on securities held for sale totaled -€43 million, with no material impact on the 2017 fiscal year.
191Natixis Registration Document 2017 struggling counterparties in the oil & gas and commodity sectors, which ceased in 2017.
Net income after tax was €1,678 million versus €1,621 million in 2016.
The third resolution that will be put before the General Shareholders’ Meeting on May 23, 2018, proposes to: pay a total dividend of €1,160,823,288.06;a allocate the remaining distributable profits to retained earnings,a i.e. €1,624,726,311.14.
Percentage of the total amount of puchases, including tax, for the period 1.67% 0.30% 0.03% 0.02% 0.16% 0.51%
CONSOLIDATED FINANCIAL 5.1 STATEMENTS AND NOTES 194 Consolidated balance sheet – Assets 194
STATUTORY AUDITORS’ REPORT 5.2 ON THE CONSOLIDATED FINANCIAL STATEMENTS 338 Opinion 338
Audit of the management report and other documents addressed to shareholders 385
Statutory Auditors’ responsibilities for the audit of the parent company financial statements 386
Customer loans and receivables 6.5 136,768 140,303 o/w institutional operations 779 758
Financial liabilities at fair value through profit or loss 6.1 144,885 146,226
Net income/(loss) for the period 1,861 1,465 o/w: Group sharea 1,669 1,374
Net income/(loss) attributable to shareholders (see Note 5.24) – Group share – per share, calculated on the basis of the average number of shares over the period, excluding treasury shares and including shares that could be issued on the exercise of stock options and free shares. 0.50 0.41
Gains and losses recognized directly in items of comprehensive income (net of tax) (728) 210
Shareholders' equity at December 31, 2015 after appropriation of income 5,005 5,864 1,213 (12) 6,173 Initial application of IFRS 9 for financial liabilities designated at fair value through profit or loss(c) (32) Capital increase 14 12
Equity component of share-based payment plans 5 2015 dividend paid in 2016 (1,094)
FINANCIAL DATA Consolidated financial statements and notes 199Natixis Registration Document 2017
Changes in cash generated by operating activities consist of cash flows generated by Group activities, with the exception of those
FINANCIAL DATA Consolidated financial statements and notes 201Natixis Registration Document 2017
+/- Net charge to depreciation and amortization of property, plant and equipment and intangible assets 320 304
+/- Net charge to other provisions (including insurance companies’ technical reserves) 7,536 4,493
+/- Decrease/(increase) in non-financial assets or liabilities (5,551) 1,662 - Income taxes paid (213) (488)
Cash flow on assets and liabilities held for sale (1) (6)
Impact of exchange rate fluctuations on cash and cash equivalents (1,981) 887
cash flows related to investments in non-consolidated affiliates in the amount of +€416 million, including +€380 million for the disposal of our 15% stake in CACEIS.-
Cash flows received from/(paid to) shareholders included dividends paid to BPCE in the amount of -€780 million and dividends paid to non-group entities for -€396 million.(b)
IFRS standards and 1.1 IFRIC interpretations applied by the Group 204 Presentation of the consolidated 1.2 financial statements 209
Consolidation scope2.1 210 The notion of control 2.2 and consolidation methods 210
Change in consolidation scope2.3 211 Treatment of put options granted 2.4 to minority shareholders 212
Institutional operations2.9 216 Currency conversion 2.10 of the statements of foreign subsidiaries and branches 216
Interests in subsidiaries3.3 219 Interests in partnerships 3.4 and associates 220
Fair value of financial instruments5.6 233 Guarantee mechanism for former 5.7 GAPC assets 238 Property, plant and equipment, 5.8 intangible assets (excluding goodwill) and investment property 238 Non-current assets held for sale and 5.9 discontinued operations 240 Financial liabilities at fair value 5.10 through profit or loss 240
Share-based payments5.17 243 Treasury shares and treasury share 5.18 derivatives 243
Financial assets and liabilities at fair 6.1 value through profit and loss 248
Held-to-maturity financial assets6.6 256 Other information relating 6.7 to financial assets 256
Gains or losses on other assets7.8 290 Reconciliation of the tax expense in 7.9 the financial statements and the theoretical tax expense 291
Change in gains and losses recorded 8.1 directly in other comprehensive income 292 Breakdown of tax on gains and 8.2 losses recognized in other comprehensive income 292
Net revenues, pre-tax profit, taxes 16.2 and headcount by country at December 31, 2017 329
As required by European regulation 1606/2002 of July 19, 2002, Natixis has prepared its consolidated financial statements for the year ended December 31, 2017, in accordance with IAS/IFRS standards and IFRIC interpretations as adopted by the European Union and applicable on that date(1).
The amendment to IAS 7 “Statement of Cash Flows” entitleda “Disclosure Initiative” adopted by the European Commission on November 6, 2017, with mandatory application from January 1, 2017, to Natixis’ financial statements. This amendment is intended to enhance the disclosures made regarding changes in debt arising from financing activities, whether or not these changes result from cash flows. This amendment had no impact on Natixis’ financial statements; The amendment to IAS 12 “Income Taxes” entitleda “Recognition of deferred tax assets for unrealized losses” adopted by the European Commission on November 6, 2017, with mandatory application from January 1, 2017, to Natixis’ financial statements. This amendment is intended to clarify the accounting on deferred tax assets for unrealized losses on debt instruments measured at fair value. This amendment had no impact on Natixis’ financial statements; Natixis did not opt for early application of the following standards adopted by the European Union at December 31, 2017, but which had not yet entered into force: The new standard, IFRS 9 “Financial instruments,” wasa adopted by the European Commission on November 22, 2016 and will be applicable retrospectively as of January 1, 2018. However, as permitted by the standard, Natixis has opted for early application of the provisions relating to financial liabilities designated at fair value through profit or loss in Natixis’ financial statements as of January 1, 2016 (see below).
On initial recognition, financial assets were classified at amortized cost, at fair value through other comprehensive income, or at fair value through profit or loss. For debt instruments, this depended on how the entity managed its financial instruments (its business model) and the characteristics of their contractual cash flows (Solely Payments of Principal & Interest – “SPPI”).
Business model The entity’s business model represents the way in which it manages its financial assets to produce cash flow. The entity must exercise judgment to determine the business model used.
The choice of business model must take into account all information regarding the manner in which cash flows were generated in the past, along with all other relevant information. For example: the way in which the performance of financial assets isa assessed and presented to the main executive officers; risks which have an impact on the business model’sa performance, in particular the way in which these risks are managed; the way in which executive officers are paid (for example, ifa pay is based on the fair value of assets under management or on the contractual cash flows received); the frequency, volume and purpose of sales.a
The standard uses three business models: a business model for which the objective is to hold financiala assets in order to receive contractual cash flows (“hold to collect” model); However, classification under this model, under which the concept of “holding” is relatively similar to holding to maturity, remains valid if disposals occur under the following conditions: the disposals are due to an increase in credit risk,j the disposals occur just before maturity and at a price thatj reflects the contractual cash flows that are still owed,
The SPPI test A financial asset is considered as basic if its contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest on the outstanding amount due.
Basic assets (i.e., those with SPPI cash flows) are debt instruments such as fixed-rate loans, variable-rate loans without an interest rate tenor mismatch or that are not linked to a security or to a market index, and fixed-rate or variable-rate debt securities.
Debt instruments (loans, receivables or debt securities) may be valued at amortized cost or at fair value through other comprehensive income or at fair value through profit and loss.
Finally, if a renegotiation or other modification of a contract does not result in derecognition, the standard requires that it be identified. In the event of modification, any profit or loss must be recognized as income. The gross carrying amount of the financial asset must be recalculated so that it is equal to the renegotiated or modified contractual cash flows discounted to their present value using the original effective interest rate.
Under “Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss”, Natixis recognized €144.5 million in gains and losses in non-recyclable other comprehensive income for fiscal year 2016 (gross amount) and €180 million for fiscal year 2017 (gross amount).
IFRS 9 requires a single impairment model that is forward-looking and based not on incurred credit losses but on expected credit losses calculated across all portfolios recognized at amortized cost or at fair value through other comprehensive income (recyclable), as well as on finance lease receivables under IAS 17 and on contract assets under IFRS 15. This single impairment model will also apply to the provisioning of financing commitments that fall outside the current standard’s scope (for their evaluation) and the provisioning of financial guarantee commitments, except for those measured at fair value through profit or loss.
FINANCIAL DATA Consolidated financial statements and notes 207Natixis Registration Document 2017
Reclassification between financial assets at amortized cost and financial assets at fair value have a net impact on Natixis’ consolidated shareholders’ equity due to the difference in the method used to measure these assets. Nevertheless, as these reclassifications are limited or affect assets whose fair value does not vary significantly from their value at cost due notably to the residual maturity of the transactions in question, these reclassifications are not expected to have a material impact on Natixis’ opening equity at January 1, 2018.
Regarding the implementation of new impairment provisions: from the current risk monitoring system and is adapted to the characteristics of the portfolios. Measurement of material impairment will take into account: Material impairment will mainly be measured using a combination of historical internal data, most of which comes for loans and financing and guarantee commitments: changesa to the counterparty’s rating between the grant date and the reporting date, the counterparty’s status within Natixis’ credit risk monitoring framework (including “forbearance” status), the non-technical unpaid amount, and the internal rating of the sector or country to which the counterparty belongs; for debt securities: IFRS 9 allows us to assume that the credita risk of a financial instrument has not increased materially since its initial recognition if this risk is considered to be low at the end of the fiscal year. This provision could be applied to certain investment grade debt securities.
For non-investment grade debt securities, criteria identical to those mentioned above for loans and financing and guarantee commitments will be applied.
To calculate impairment, Natixis will use regulatory capital requirement calculation models and the projection models used for regulatory stress tests.
The impairment calculation method will be based on three major parameters: probability of default (PD), loss given default (LGD) and exposure at default (EAD). Impairment losses will be the product of PD, LGD and EAD over the life of the instrument (Tier 2) or over a one-year horizon (Tier 1). Impairment loss calculations will include a discounting factor at the reporting date based on the effective interest rate or an approximation of it.
Committees will be established as part of the impairment calculation and control framework. They will be composed of members of various Natixis departments, including the Finance Department and Risk Department, along with experts. The purpose of these committees will be to propose parameters and macroeconomic scenarios for approval and to ensure that assumptions are consistent.
The new provisioning model could lead the amount of impairments for credit risk to increase insofar as all financial assets will be assessed based on expected credit losses over a horizon of at least 12 months. Furthermore, the volume of financial assets to which lifetime expected credit losses are applied will be greater than the volume of financial assets for which objective evidence of impairment exists as set out in IAS 39.
In terms of hedge accounting: Like Groupe BPCE, Natixis has chosen the option offered by IFRS 9 of not applying its provisions relating to hedge accounting and of continuing to apply IAS 39 for hedge accounting transactions. Considering the limited number of asset reclassifications, the majority of hedge accounting transactions recognized according to IAS 39 will continue to be recognized in the same manner as of January 1, 2018.
Furthermore, information included in the notes to the financial statements will comply with the provisions of IFRS 7 as amended by IFRS 9.
As a financial conglomerate, Natixis intends to apply this provision for its insurance entities, which will continue to be covered by IAS 39. The main entities concerned by this measure are CEGC, the Coface insurance subsidiaries, Natixis Assurances, BPCE Vie and its consolidated funds, Natixis Life, ADIR, BPCE Prévoyance, BPCE Assurances and BPCE IARD.
IFRS 15 will replace current standards and interpretations on revenue recognition and imposes a single model for accounting for revenue arising from contracts with customers.
Under IFRS 15, the entity must recognize income arising from ordinary activities at an amount that reflects the consideration that the entity expects to receive in exchange for the transfer of goods and services promised to customers.
IFRS 15 thus introduces a new five-stage general approach for the recognition of income: identification of contracts with customers;a identification of specific performance obligations (or items) toa be recognized separately from one another; determination of overall transaction price;a allocation of transaction price to the various specifica performance obligations; recognition of revenue when performance obligations are met.a
This work confirmed that Natixis is only very slightly affected by certain issues related to first-time application of IFRS 15 that have been identified within other banking institutions such as real estate development, loyalty programs and telephony.
FINANCIAL DATA Consolidated financial statements and notes 209Natixis Registration Document 2017
The right to use the asset will be amortized on a straight-line basis and the financial liability will be calculated an actuarial basis over the duration of the lease contract. The interest expense on the financial liability and amortization expense on the right of use will be recognized separately in income. In contrast, under existing IAS 17, operating leases are not recorded in the balance sheet and only the related lease income is recognized in the income statement.
For the first-time application of this standard, Natixis has chosen the modified retrospective method, which recognizes the cumulative impact at January 1, 2019, with no comparison with 2018, and listing in the Notes to the financial statements any of the standard’s impacts on the various items in said financial statements.
The consolidated financial statements have been prepared in accordance with the assessment and presentation principles set out in Notes 2 and 5 below.
Materiality is determined based on specific thresholds for each of the Group’s business lines and on a qualitative assessment of the relevance of each entity’s contribution to the consolidated financial statements of Natixis. The main thresholds applicable are as follows: Business line (in millions of euros) Total balance sheet Net revenues Net income
By way of exception to the thresholds described above, and in order to comply with Article 19 of (EU) regulation No. 575/2013, the consolidation threshold was reduced to €10 million (total balance sheet and off-balance sheet commitments excluding derivatives) for entities that meet the definition of financial institutions or ancillary services undertakings.
In terms of mutual funds and real estate holdings within the scope of Natixis Assurances, the materiality threshold used for inclusion in the consolidation scope is as follows: total assets or book value of the mutual funds higher thana 0.5% of Natixis Assurances’ investments; the total amount of entities excluded from the scope does nota represent more than 5% of total investments.
In determining whether it exercises control or significant influence, Natixis considers all current voting rights and any potential voting rights to the extent that they are currently exercisable or convertible and to the extent that they have influence over relevant activities of the entity. Potential voting rights arise from stock options on ordinary shares or from the conversion of bonds into new ordinary shares. However, potential voting rights are not taken into account when determining the percentage of ownership except if it is concluded that these voting rights provide access to economic benefits attached to the underlying shares.
The entities controlled by Natixis are consolidated using the full consolidation method, in accordance with IFRS 10. This standard defines a single audit model applicable to all entities, whether they are traditionally governed entities or structured entities (see Note 4). The control of an entity will be analyzed using three cumulative criteria: influence over relevant activities of the entity;a exposure or entitlement to variable returns by virtue of itsa relations with the entity; the ability to exercise its power over the entity to influence thea variable returns obtained.
If, after reviewing these criteria, Natixis concludes that its decision-making rights over the management of the entity’s relevant activities enable it to influence the variable returns obtained, therefore Natixis does have control pursuant to IFRS 10 and the entity in question will be subject to full consolidation.
Joint-ventures are partnerships in which the parties exercisinga joint control over the company have rights to that company’s net assets. They are consolidated using the equity method. Consolidation by the equity method involves replacing the book value of the investments in the owner’s account by Natixis’ interest in the shareholders’ equity and income of the owned entity. Investments are recognized at this reassessed value on the asset side of the consolidated balance sheet in “Investments in associates”. The difference between the investments’ historical value and their reassessed value is recognized on the liabilities side of the balance sheet under “Shareholders’ equity (Group share” and in income under “Share in income of associates” in the consolidated income statement and under “Share in gains/(losses) of associates recorded directly in equity” in the statement of net income/(loss) and other comprehensive income. Goodwill related to joint-ventures is included in the book value.
Joint operations are partnerships in which the parties exercisinga joint control of the arrangement have rights to the assets, and obligations for the liabilities, related to the arrangement. An investment in a joint operation is recorded by incorporating all the interests held in the joint operation, i.e. its share in each of the assets, liabilities and other comprehensive income to which it is entitled. These interests are broken down by type across the various items on the consolidated balance sheet, consolidated income statement and statement of net income/(loss) and other comprehensive income.
Significant influence is the power to participate in the financial and operating policy decisions of the corporate entity owned without having control over such policies. Significant influence is presumed to exist when Natixis directly or indirectly owns at least 20% of the voting rights of the company in question. IAS 28 defines companies over which significant influence is exercised as associates. These are consolidated using the equity method in accordance with the same terms as those applicable to joint-ventures (see above), with the exception of Private Equity investments which Natixis classifies under assets designated at fair value through profit and loss, pursuant to the option available under IAS 28.
Furthermore, in terms of Natixis’ stake in EFG Hermès, held through DF EFG 3 Limited, although the share of voting rights held represents 12.9%, it was analyzed as subject to consolidation according to the equity method due in particular to the number of seats held by Natixis on the company’s Board of Directors. Nevertheless, it is not consolidated in the December 31, 2016 or December 31, 2017 financial statements as the company’s financial statements are not consolidated in IFRS format. The stake was acquired for $85 million. It is recognized in “Available-for-sale financial assets” at a value of €87.5 million at December 31, 2017, compared to €96.4 million at December 31, 2016.
The granting of put options to minority shareholders which do not transfer to Natixis the risks and benefits associated with the underlying shares prior to exercise, result in the recognition of a liability for the estimated present value of the option’s exercise price. The corresponding receivable is booked to equity, deducted in part from minority interests in the amount of their book value, with the rest deducted from consolidated reserves (Group share). Subsequent changes in the liability related to adjustments to the exercise price of the put option are recorded in consolidated reserves (Group share).
Application of IFRS 3R to business combinations carried outa after January 1, 2010: for each business combination, Natixis chose to determinej minority interests: either based on their share in the identifiable net assets ofj the acquired entity, measured at their fair value at the purchase date, and therefore without recognizing goodwill on the minority interests (partial goodwill method), or based on their fair value at the purchase date, resultingj in the recognition of goodwill, both for the group share and the minority interests (full goodwill method); Hence, goodwill is a residual item determined as thej difference between (i) the sum of the purchase price, the fair value at the purchase date of the share of interest held in the acquired entity prior to the purchase date, and the amount of minority interests (determined using the partial or full goodwill method) and (ii) the net amount of the assets and liabilities assumed, measured at their fair value at the purchase date.
Positive goodwill is recorded on a separate line on the asset side of the balance sheet if it relates to a controlled entity. It is allocated at the purchase date to one or more cash-generating units (CGUs) expected to benefit from the acquisition and is not amortized. It is tested for impairment at least once per year, and more often where there is objective evidence of impairment. The impairment test consists of comparing the carrying amount of the CGU or group of CGUs including goodwill with its recoverable amount.
Principles adopted for measurement and recognition of transactions resulting in the creation of Natixis in 2006: The assets contributed by the CNCE to Natixis fall into two categories: shares in the Corporate & Investment Banking and servicea subsidiaries; a portion of the cooperative investment certificates (CCIs)a conferring entitlement to the share capital of the Caisses d’Epargne.
“Investments in associates” relating to the Caisse d’Epargne CCIs (€190 million) and the Banque Populaire CCIs (€36 million).
In 2017, goodwill increased by +€202 million, excluding translation losses (-€201 million).
All items of goodwill are impaired, based on the value in use of the cash-generating units (CGUs) to which they have been allocated. For the Coface CGU, a listed entity since June 2014, which is not one of Natixis’ core businesses and which is managed on an asset basis, as in previous years, value in use was supplemented by other approaches using market data including market multiples, stock market prices and brokers’ target prices. An average valuation was determined by weighting the different approaches, with the respective weighting of each approach unchanged compared with the previous fiscal year.
At December 31, 2016, the former Corporate Data Solutions CGU was made up of only Ellisphere and IJCOF. As these entities were disposed of in the first half of 2017 (see Note 3.1), CDS no longer had any assets and its related goodwill was no longer included on the consolidated balance sheet at
Value in use is determined principally by discounting the expected future cash flows from the CGU (Discounted Cash Flows (DCF) method) on the basis of the five-year medium-term business plans drawn up by Natixis.
Similarly, the sensitivity of future business-plan cash flows to variations in key assumptions does not significantly affect the recoverable amount of CGUs: for Asset & Wealth Management, a 10% decline in the equitya markets (uniform decline across all years) would have a -8% negative impact on the CGU’s recoverable value and would not lead to the recognition of an impairment loss; for Insurance, the main vector of sensitivity for Life Insurancea is interest rates but various steps are being taken to reduce their impact (diversification of investments, reserves, etc.). Accordingly, the impact on the income statement is limited and would not significantly impact the CGU’s value.
For non-life insurance, the main vector of sensitivity is the loss ratio, which is notably measured via the combined ratio. Natixis’ new strategic plan, New Dimension, sets this ratio at below 94%. A one-point deterioration in this ratio each year from 2018 in relation to the assumptions used for to value the CGU would lead to a limited fall of 3% in this value, with no impact on impairment; for Specialized Financial Services, a one-point rise in thea three-month EURIBOR applied to Factoring and recreating a “2008-2009” (drop in production and increased cost of risk) type crisis on Leasing would have an -6% negative impact on the recoverable amount of the CGU and would have no impact in terms of impairment; for Corporate & Investment Banking, sensitivity to the dollar ora to the performance of the CAC would have a limited impact on net revenues and would not lead to any impairment being recorded; for Coface, the primary sensitivity vector is the loss ratio. Thea projected level of this ratio is below 54% (net of reinsurance) for 2017. A one-point increase in the loss ratio, relative to the assumptions used for the DCF calculation over all years from 2018, would impact the average multi-criteria value by less than 5% and would not lead to the recognition of impairment on the CGU. Furthermore, a valuation at the lowest price in 2017 would lead to a limited impact on the weighted average valuation of the various methods (-2%).
The assets and liabilities of subsidiaries which Natixis intends to sell within a maximum period of 12 months, and for which it is actively seeking a buyer, are identified separately on two specific lines of the consolidated balance sheet as non-current assets and liabilities (see Note 5.9).
The following rules are applied to consolidate the financial statements of insurance subsidiaries: income and expenses are classified by type in accordance witha banking accounting principles and not as a function of expense; balance sheet items are included under the corresponding linea items of the financial statements presented in the banking format.
payable, a provision is set aside for unknown claims, calculated on a statistical basis by reference to the final amount of claims to be paid following settlement of risks and after any debt recovery measures.
Application of the shadow accounting mechanism resulted in the recognition of a deferred profit-sharing liability on December 31, 2017 as on December 31, 2016.
In accordance with Article 41 of the Amended Finance Act for 1997 (No. 97-1239 of December 29, 2007), amended by Article 121 of the Amended Finance Act for 2008 (No. 2008-1443 of December 30, 2008), of Article 5 of the Amended Finance Act for 2014 (No. 2014-1655 of December 29, 2014) and the agreement signed with the French State on May 10, 2017, Natixis manages certain public procedures on behalf of the French State, mainly consisting of loans and gifts to foreign States conferred in the framework of Public Development Aid, non-concessional loans to foreign States, gifts to the “Fund for Private-Sector Aid and Studies” and the stabilization of interest rates for export credit guaranteed by the State. The related transactions, some of which may be guaranteed by the State, are recognized separately in the financial statements. The State and other related creditors have a specific right over the assets and liabilities allocated to these institutional operations. The bank’s assets and liabilities relative to these operations are identified on the balance sheet under each of the headings concerned with these operations.
The management of state export guarantees represented approximately 4% of Coface’s consolidated revenues in 2016.
As a reminder, for this activity, premiums paid by customers, claims covered and amounts recovered as a result of these guarantees were paid over to the State. Accordingly, they were not included in the Group’s consolidated financial statements. Expenses relating to public procedures management were mainly incurred in delivering State guarantees, managing claims, and recovering debts covered by the guarantees.
On December 31, 2016, Coface received, in return for this transfer, an indemnity which corresponded to a non-recurring gain of €77 million (gross amount) and which was recognized in the financial statements. The net gain, after taking into account direct and indirect costs, totaled €75 million (gross amount).
Natixis elected to use the option available under IFRS 1 on first-time adoption, namely to transfer the cumulative balance of translation adjustments existing at January 1, 2004, to consolidated reserves. If a foreign entity is subsequently sold, the gain or loss on the disposal will include only those translation gains or losses arising after January 1, 2004.
FINANCIAL DATA Consolidated financial statements and notes 217Natixis Registration Document 2017
In 2017, Natixis acquired the 100% stake held by BPCE in S-Money and its subsidiary Lakooz in two stages (51% in the first half of 2017 and 49% in the second half of the year). These two companies specialize in new online payment methods.
As the acquisition took place between entities under the same ownership structure, the assets and liabilities of the acquired entities were recorded at their book value in Natixis’ consolidated financial statements and the difference between the price paid and Natixis’ share in the book value of the acquired entity’s assets and liabilities was deducted from shareholders’ equity in the amount of €19.8 million.
The acquisition of the remaining 49% stake in the second half of 2017 was treated like the impact of changes to the percentage of ownership in consolidated entities without loss of control. Its impact on equity was a decrease in the amount of €18.6 million.
The past goodwill recorded in BPCE’s consolidated financial statements, calculated using the full goodwill method, which would have been recognized when Groupe BPCE entered Lakooz’ capital, was recorded in Natixis’ financial statements for the amount recorded by BPCE, i.e. €11.8 million.
Following the capital increase carried out immediately after the acquisition, Natixis held 78.54% of PayPlug’s share capital as at
The company’s management holds shares alongside Natixis and exit provisions are in place which, if exercised, allows Natixis to acquire all the remaining capital. The promise to buy/sell shares led to the recognition of put options on minority shareholders, for €5.8 million.
This transaction generated goodwill of €14.3 million as at December 31, 2017, as determined using the partial goodwill method.
Via Natixis Belgique Investissements, Natixis exercises control over Dalenys within the meaning of IFRS 10, and fully consolidates the entity.
Natixis, via Mirova, a subsidiary of Natixis Investment Managers, also finalized the acquisition of Althelia Ecosphère, an asset management company specialized in impact investing in natural capital (global warming and protection of local regions, biodiversity, ground resources and maritime resources).
Through Mirova, Natixis held 51% of Althelia Ecosphère’s capital at December 31, 2017. Natixis exercises control over this entity within the meaning of IFRS 10, and fully consolidates it.
Furthermore, Natixis, via Natixis Investment Managers, acquired a majority stake (51.9%) in the Australian investment management company Investors Mutual Limited (IML).
Via Natixis Investment Managers, Natixis exercises control over IML within the meaning of IFRS 10, and fully consolidates the entity.
This transaction generated goodwill of €100.4 million as at December 31, 2017, as determined using the partial goodwill method.
Finally, in terms of the activities of Corporate Data Solutions, Natixis sold Ellisphere and its subsidiary IJCOF Corporate in the first half of 2017. Since 2016, these entities had been treated under IFRS 5 owing to ongoing negotiations for their disposal. The full sale of these entities outside Natixis generated a capital gain (excluding the tax impact) of €21.5 million. After these disposals, the Corporate Data Solutions Division no longer held any assets and its holding company Natixis HCP was absorbed by Natixis (via a total transfer of assets and liabilities) in June 2017. This transfer had no impact on the consolidated financial statements as it was an internal restructuring operation.
Acquisition via Mirova of 51% of Althelia Ecosphère, whicha specializes in natural capital investment, on October 9, 2017. After the transaction, Althelia Ecosphère was renamed Mirova-Althelia and opened a branch in France.
Consolidation of AEW Europe Global Lux in the third quarter ofa 2017. This previously non-consolidated interest was consolidated as part of implementing group AEW Europe’s seed money financing mechanism. Indeed, after La Banque Postale acquired a stake, this entity should bring in new seed money investments with funding from Natixis Investment Managers and LBP.
Following the restructuring of AEW Europe’s businesses ina France in the third quarter of 2017, NAMI AEW Europe and AEW Europe SGP were absorbed by AEW CILOGER.
In the first quarter of 2017, the ownership interest in DNCAa Finance, DNCA Courtage and DNCA Luxembourg fell from 75% to 72% following the increase in Société de Cadres’ percentage of ownership in DNCA Finance from 3% to 6%.
Following the restructuring of AEW Europe’s businesses ina France in the third quarter of 2017, Ciloger was renamed AEW CILOGER and AEW Europe was renamed AEW SA.
In the fourth quarter of 2017, Banque Privée 1818 changed itsa registered company name and is now called Natixis Wealth Management.
Consolidation of SCI Duo Paris in the third quarter of 2017.a
Deconsolidation of ABP Alternatif Offensif in the first quarter ofa 2017 as the percentage interest fell below eligible levels.
FINANCIAL DATA Consolidated financial statements and notes 219Natixis Registration Document 2017
Acquisition of 95% of Bati Lease, a real estate leasinga company, on October 2, 2017. An additional 2% stake was purchased from minority shareholders in the fourth quarter of 2017, taking the ownership interest in the company to 97%.
Acquisition of 100% of Inter-Coop, a real estate leasinga company, on October 2, 2017.
Natixis Consumer Finance was absorbed into Natixis S.A. bya total transfer of assets and liabilities on April 30, 2017.
SCI Champs-Elysées, SCI La Boétie and SCI Saccef werea deconsolidated in the fourth quarter of 2017 after the percentage interest fell below eligible levels.
In the first quarter of 2017, Coface’s ownership interest ina Coface Central Europe Holding increased from 75% to 100% following the reimbursement of capital to minority shareholders. This transaction modified the ownership interests in Coface Poland CMS and Coface Romania CMS.
Natixis HCP was absorbed into Natixis S.A. by total transfer ofa assets and liabilities on June 27, 2017.
At December 31, 2017, the main material subsidiary in which the group had a non-controlling interest was Coface. At December 31, 2017, the main subsidiaries in which the group had a non-controlling interest were Coface and BPCE Assurances.
H2O data have been added since the disclosure made in 2016.*
Impact of changes to percentage holdings in subsidiaries still under control 3.3.2 at December 31, 2017
The Group’s % interest at the end of the period Impact of changes in the percentage on Equity
Natixis is subject to liquidity risk supervision, which requires it to establish a liquidity pool limiting the use of the assets constituting it (see Note 3.9.2 “Management of liquidity and funding risk” of Chapter 3, “Risks and Capital Adequacy, of the registration document).
Assets representative of unit-linked policies from insurance activities measured under the fair value through profit or loss option are held for the benefit of policyholders.
Types of partnerships and associates with 3.4.1 which Natixis has dealings
The data for EIG established at December 31, 2017 and December 31, 2016 comply with IFRS as adopted by the European Union on that date and with the accounting principles and valuation methods applied to Natixis’ consolidated financial statements as presented in Note 5.
In accordance with IFRS 12, Natixis discloses information for all the structured entities in which it holds interests and for which it acts in one or more of the following roles: originator/structurer/arranger;a placement agent;a manager of relevant activities;a or any other role in which it has a decisive impact on thea structuring or management of the transaction.
Interest in an entity is understood to mean a contractual or non-contractual relationship that exposes the entity to the risk of variable returns associated with the performance of another entity. Interests in other entities may be evidenced by, among others, the ownership of equity instruments or debt securities as well as by other links, such as financing, cash loans, credit enhancement and the issuance of guarantees or structured derivatives.
In order to meet financing requirements for movable assets (involving air, sea or land transportation), real estate, corporate acquisitions (LBO financing) or commodities, Natixis may be required to create structured entities around a specific financial transaction on behalf of a customer.
FINANCIAL DATA Consolidated financial statements and notes 223Natixis Registration Document 2017
1. Non-guaranteed mutual funds: In the context of mutual funds, relevant activities are investment and divestment activities involving securities in fund assets. These activities are managed in a discretionary manner on behalf of investors by the management companies of Natixis Investment Managers and Natixis Wealth Management.
The compensation of Natixis Investment Managers and Natixis Wealth Management as managers is marginal compared to the returns generated for investors. Indeed, the management and incentive fees are obtained on the market and are consistent with the services rendered, since the asset management activity takes place on a competitive and international market.
In the absence of rights held by third parties (e.g. withdrawal or fund redemption/liquidation rights), the control of mutual funds managed by Natixis Investment Managers and Natixis Wealth Management is assessed according to the combined interests held by the entities and business lines within Natixis’ consolidated scope: as managers, Natixis Investment Managers and Natixis Wealtha Management do not invest in the funds and generally own only several shares; Natixis Assurances may take out interests in mutual fundsa managed by Natixis Investment Managers via its insurance subsidiaries. These interests are subscribed in the form of euro-denominated or unit-linked insurance policies: Euro-denominated policies are policies under which thej insured party receives a minimum guaranteed return plus the major share of the surpluses generated by the insurance company’s main fund. Any shortfall between the fund’s return and the minimum guaranteed return is borne by the insurer, which thus incurs the risks,
Unit-linked policies are policies under which the insured partyj selects the funds in which the insurer invests on its behalf. The value of the insurer’s interest in such funds is reflected in the insurance policies. Invested funds representing unit-linked policies are consolidated under IFRS 10 if all the control criteria are met cumulatively and if the funds have a material impact; other Natixis entities and business lines may hold minoritya interests, intended mainly to meet cash investment needs.
Just as for non-guaranteed mutual funds, guaranteed mutual funds are subject to consolidation under IFRS 10 whenever Natixis acts as principal (e.g. Natixis acts as an irrevocable manager and holds a material interest). Guaranteed mutual funds subject to consolidation but not consolidated due to their materiality are listed in Note 17.1.
With regard to compensation, the returns received by Natixis include income received by Natixis as a management company (management fees, incentive fees, etc.) and as an investor (dividends).
A fund is subject to consolidation if Natixis acts as principal (e.g. Natixis is a manager and is non-revocable by a limited number of persons and holds material variable returns). Real estate funds subject to consolidation but not consolidated due to their materiality are listed in Note 17.1.
The analysis criteria for IFRS 10 consolidation applied to Private Equity funds are the same as those applied to real estate funds. A fund is subject to consolidation if Natixis acts as principal (e.g. Natixis is a manager and is non-revocable by a limited number of persons and holds material variable returns). Private Equity funds subject to consolidation but not consolidated due to their materiality are listed in Note 17.1.
Natixis is mainly involved in these entities in its capacity as: structurer/arranger of securitization transactions;a originator of securities or loans held as assets and pendinga securitization; credit risk intermediary between the market and thea securitization entity.
In 2017, Natixis also completed various securitization transactions for commercial real estate financing originated by Natixis Real Estate Capital LLC.
Natixis Investment Managers is involved in such funds as manager of the underlying portfolio for third-party investors. Its role is strictly defined by the portfolio management agreement, which never provides it with effective control of the structure but rather with the role of agent. Furthermore, neither Natixis Investment Managers nor any other Natixis entity holds a material interest in these funds. Therefore, Natixis is not significantly exposed to the variability of returns.
The Coface sub-group’s credit enhancement operations consist of insuring receivables securitized by a third party for investors via a structured entity for losses in excess of a predefined amount. A distinction must be made between the policies taken out by the German branch Coface Deutschland and those taken out by Compagnie Française d’Assurance pour le Commerce Extérieur: coverage provided by Coface Kredit via these policies is similar to “Natural disaster” type coverage. An analysis of these structures shows that the amount of the first loss is systematically higher than the expected loss, namely the average losses expected over the year. Furthermore, the activity of the structured entity is not conducted on behalf of the credit insurer, which is only a protection seller. Coface Kredit does not sponsor the securitization structures. Coface Kredit does not play any role in determining the activity of the structured entity, nor in its operational or administrative management. Coface Kredit has no power over the relevant activities of the securitization vehicle (selecting receivables comprising the portfolio, managing receivables, etc.). As the criteria for powers and significant exposure to returns are not met, these funds are not subject to consolidation; under the German policies, the credit insurer is only liable fora losses in excess of a deductible termed the Aggregate First Loss. This first loss tranche contractually defines the amount of first losses that are not covered by the credit insurer. The the French policies taken out by Coface rarely includea non-covered “first losses”. However, the policies only cover a small portion of the receivables held by the SPE. Furthermore, the quality of portfolio risk covered by Coface, compared to that borne by the other stakeholders (other insurers, sponsors, sellers) is not such as to significantly transfer the structure’s risks to Coface. In addition, Coface does not play any role in determining the activity of the structured entity, nor in its operational or administrative management. In the event of a guarantee activation, Coface only has powers corresponding to its protective rights. Indeed, Coface does not have any power over activities relevant to the securitization vehicle. Accordingly, such funds do not require consolidation.
The Natixis Lease sub-group owns a certain number ofa structured entities which own real estate assets. Two of them are consolidated to the extent that Natixis has power over the relevant activities and is significantly exposed to the variability of returns. Entities subject to consolidation but not consolidated due to their lack of materiality are listed in Note 17.1.
Natixis Coficiné has relationships with:a structured entities created by producers to host a filmj production. Coficiné is involved only as a lender. It has no stake in the entity, which is wholly owned by the producer. Coficiné does not participate in managing the entity, as activity falls within the remit of the producer. Coficiné, and therefore Natixis, has no power over the relevant activities of these structured entities and has no control under IFRS 10; Film Industry Financing companies (SOFICA). Natixis holds aj non-material stake in these SOFICAs and receives management fees at market rates consistent with the services rendered. Natixis does not hold any other interests in these structured entities. Therefore, they are not subject to consolidation under IFRS 10.
The size of structured entities equates: for Securitization, to the total issues under balance sheeta liabilities; for Asset Management, to the fund’s net assets;a for Structured Financing, to the amount of remaining loansa outstanding due to banks in the pool (drawn outstandings); for other activities, to the total assets.a
Notional amount of sales of options and CDS 1,709 116 2,716 726 5,267
Natixis contributes to the entity’s success by transferringa assets to it or by managing the structured entity’s relevant activities.
FINANCIAL DATA Consolidated financial statements and notes 227Natixis Registration Document 2017
Net gains or losses on instruments at fair value through profit or loss - 5 5
Book value of the assets transferred from the entity over the year (a) 1,797 - 1,797
The book value of assets transferred to these vehicles corresponds to assets sold by Natixis during 2016, where the information on the sold (a) amounts by all investors is not available.
Financial assets at fair value through profit and loss are measured on initial recognition at market value, with transaction costs recognized in the income statement.
An outstanding is no longer considered as restructured once the following conditions are met: a period of two years has passed since the date of thea restructuring; the outstanding is recognized as a performing loan at thea reporting date; defaults on payment have occurred in the past 30 days;a regular and material repayments (principle and interest) havea been made over a period of at least one year.
For restructured loans either fully or partially converted into a substantially different asset (such as an equity instrument) or giving rise to a change of counterparty: the new instruments are booked at fair value;a the difference between the book value of the derecognizeda loan (or portion of the loan) and the fair value of the assets received in exchange is entered as a loss under provision for credit losses; any previous provision created on the loan is adjusted on thea basis of the discounting of the new recoverable flows from the non-derecognized portion of the loan and is reversed in full if the loan is converted into new assets.
The fair value of listed non-consolidated investments corresponds to their last listed price prior to the reporting date. The fair value of unlisted non-consolidated investments is obtained using the P/E (price/earnings) ratio or DCF (discounted cash flow) valuation methods or share in (revalued on non-revalued) equity.
Gains or losses arising from changes in the fair value (excluding revenues) of available-for-sale financial assets that are not hedged are recognized directly in equity under “Gains and losses recorded directly in equity”. Accrued or earned income is recognized in the income statement under “Interest and similar income” using the effective interest rate method.
Determining whether there is objective evidence of impairment is based on a multi-criteria approach and independent expert opinions, particularly in the case of debt instruments. Evidence of impairment includes: for debt instruments: default on interest or principal payments,a existence of mediation, warning or legal reorganization procedures; counterparty bankruptcy and any other indicator pointing to a material decline in the counterparty’s financial position, such as losses on completion projected by discounted cash flow models; for equity instruments (excluding investments in unlisteda companies): any item suggesting that the entity will not be able to recover all or part of its initial investment. Securities presenting an unrealized capital loss of over 30% on their face value, or presenting an unrealized capital loss for a period of more than six months, are systematically tested for impairment. The test involves a qualitative analysis considering a variety of factors such as share price performance over a given period or information relating to the issuer’s financial position. Where necessary, an impairment loss is recognized based on the market price at the reporting date. Irrespective of this analysis, an impairment loss is systematically recognized when securities present an unrealized capital loss of over 50% at the reporting date, or an unrealized capital loss on their face value for a period of more than 24 months; for investments in unlisted, non-consolidated companies:a unrealized capital losses of over 20% on their face value for a period of more than 18 months, or significant changes in the technological, market, economic or legal environment having an unfavorable impact on the issuer, suggesting that the amount invested in the equity instrument may not be recoverable; shares in private equity investment funds (FCPRs), net asseta value alone is not enough to determine whether there is any evidence that the initial investment might not be recovered. This is because net asset value during the investment phase is reduced by start-up costs (structuring and brokerage fees, etc.). Accordingly, for investments of this type which are not quoted on an active market, the following impairment principles apply: impairment is recognized if, at the reporting date, thej position and results of the fund are in line with the business plan, if this is not the case, the business plan must be revised inj order to determine whether the securities should be impaired.
If the fair value of an available-for-sale financial asset increases during a subsequent period, and this increase can be objectively linked to an event occurring after the impairment loss was charged to income: reversals of impairment losses on equity instruments area recorded in equity rather than in the income statement; reversals of impairment losses on debt instruments area recorded in the amount of the previously recorded impairment loss.
Leases are classified as finance leases when substantially all the risks and rewards incidental to ownership are transferred to the lessee. All other leases are classified as operating leases.
Leased assets are depreciated in the same way as owned assets of the same nature.
Credit risk on assets classified as loans 5.3 and receivables a) Assets individually assessed for impairment
At each reporting date, Natixis reviews assets classified as loans and receivables to determine whether there is any objective evidence of impairment arising from one or more events occurring after initial recognition and having an impact on estimated future cash flows. This generally concerns receivables for which an event of default has been identified as defined in
Loans in default are reclassified as performing loans once a normal business relationship has resumed with the counterparty. However, this may not occur before the end of the observation period during which payments may have resumed.
Financial assets are grouped according to three characteristics: credit rating for loans to individual and small business customers, and sector risk and geographic risk for corporate, sovereign and other similar counterparties.
For geographic risk, the analysis takes into account the sovereign rating, which itself includes a number of inputs such as the country’s political situation, its ability to withstand a severe shock, and the fundamentals of the economy (e.g. GDP per capita, external debt), government efficiency, economic performance and economic outlook. In turn, each of these inputs is itself measured by one or more indicators. Qualitative information from specialist independent agencies is also considered.
FINANCIAL DATA Consolidated financial statements and notes 231Natixis Registration Document 2017
Loans on the watch list, for which a Basel default has been identified, are written down collectively unless they are already subject to specific write-downs.
Where a group of financial assets is found to be impaired, the impairment loss is calculated based on the expected losses arising on each exposure within the Group, in accordance with Basel provisions.
Derivatives separated from host contracts in this way are included in assets and liabilities at fair value through profit or loss.
Derivative financial instruments used for hedging purposes cash flow hedges, fair value hedges and hedges of a net investment in a foreign operation.
Cash flow hedging is used to hedge future cash flows from an existing or highly probable future transaction.
Hedging of variable-rate loans Natixis uses plain vanilla interest rate swaps lending at fixed rates to fix future variable-rate borrowing costs.
Retrospective hedge effectiveness tests are used to verify whether the hedge was effective at different reporting dates. At each such date, changes in the fair value of hedging instruments (excluding accrued interest) are compared with changes in the fair value of the hypothetical derivative instruments hedged (synthetic instruments representative of hedged assets or liabilities and management intentions). To be effective, changes in the fair value of hedging instruments must offset changes in the fair value of hedged items in a range of 80%-125%. Outside these limits, the hedge would no longer qualify.
If a hedging relationship is discontinued, for example when hedge effectiveness is outside the 80%-125% range, the derivative must be reclassified in financial instruments at fair value through profit or loss, while the cumulative amount relating to the effective portion of the hedge that has been carried directly in equity under “Unrealized or deferred gains or losses” is recycled to income when the hedged item itself affects income.
Documentation of fair value hedges Prospective hedge effectiveness tests involve verifying that the financial characteristics of the hedged item and the hedging instrument are virtually identical: value date, maturity date, notional amount, fixed rate, and payment frequency.
Net investment hedges are used to hedge the exchange risk arising on net foreign currency investments (consolidated subsidiary or investment). They are accounted for in the same way as cash flow hedges. The effective portion of changes in the fair value of hedging instruments (monetary derivative or liability denominated in foreign currency) is recognized in equity. These changes in fair value offset translation adjustments recognized when the entity is consolidated (see Note 2.10). The ineffective portion of changes in fair value is recognized in income. Unrealized gains or losses recognized directly in equity are transferred to income when all or part of the net investment is sold.
In subsequent measurements, the estimated fair value of assets and liabilities must be based primarily on observable market data, while ensuring that all inputs used in the fair value calculation are consistent with the price that market participants would use in a transaction.
In this case, fair value consists of a mid-market price and additional valuation adjustments determined according to the instruments in question and the associated risks.
Adjustment for model uncertainty not considered, even when observable market inputs are available. This is the case where risks inherent to various instruments differ from those considered by the observable inputs used to value them.
For fair values determined using valuation models, the control system consists of the independent validation of model construction and of the inputs incorporating these models.
It involves verifying that the model is consistent with and relevant to its intended function (price setting, valuation, coverage, measurement and control of risk) and the product to which it applies, based on: the theoretical approach: the financial and mathematicala foundations of the model; the application of the model: the pricing models used toa generate risk and earnings data; the stability of the model under parametric stress;a an assessment of the stability and consistency of thea numerical methods used; the independent re-implementation of the model as part ofa algorithm validation; the comparative analysis of the calibration of modela parameters; an assessment of the modeling risk, particularly thea comparative analysis of the model with other valuation models, in order to ensure the adequacy of the model and the payoff (the Formula of positive or negative flows attached to the product at maturity); the implementation of an adjustment in respect of modelinga risk to account for potential deficiencies in the model or its calibration; integration of the model in information systems.a
The methods for determining fair value are monitored by a number of bodies including the Observability and Inputs Committee, the Valuation Committee, the Impairment Committee and the Model Validation Committee, which comprise representatives of the Risk Department, the Finance Department, and the Market Data and Valuations Control Department.
This mainly includes securities listed on a stock exchange or traded continuously on other active markets, derivatives traded on organized markets (futures, options, etc.) whose liquidity can be demonstrated, and shares of UCITS whose NAV is determined and reported on a daily basis.
The Pskew model is similar to the Tskew model. It is used in particular for simple ratchet equity products such as capped or floored ratchet products.
Level 3 comprises instruments measured using unrecognized models and/or models based on non-observable market data, where they are liable to materially impact the valuation. This mainly includes: unlisted shares whose fair value could not be determined usinga observable inputs; Private Equity securities not listed on an active market,a measured at fair value with models commonly used by market participants, in accordance with International Private Equity Valuation (IPEV) standards, but which are sensitive to market fluctuations and whose fair value determination necessarily involves a judgment call; structured or representative of private placements, held by thea insurance business line; hybrid interest rate and currency derivatives and credita derivatives that are not classified in Level 2; instruments with a deferred day-one margin;a shares of UCITS for which the fund has not published a recenta NAV at the valuation date, or for which there is a lock-up period or any other constraint calling for a significant adjustment to available market prices (NAV, etc.) in respect of the low liquidity observed for such shares; instruments carried at fair value on the balance sheet and fora which data are no longer available due to a freeze in trading in the wake of the financial crisis, which were not reclassified as “Loans and receivables” pursuant to the amendment to IAS 39 and IFRS 7 published on October 13, 2008 (see below). When there is a significant drop in trading in a given market, a valuation model is used based on the only available relevant data.
In accordance with the decree of February 20, 2007, amended by the decree of November 23, 2011, relating to regulatory capital requirements applicable to credit institutions and investment firms, and in accordance with the European Capital Requirements Regulation (CRR) of June 26, 2013 on requirements resulting from Basel 3, a description of crisis simulations and ex-post controls (validation of the accuracy and consistency of internal models and modeling procedures) is provided for each model used in Section 3.7 of Chapter 3, “Risk and Capital Adequacy”.
Under IAS 39, day-one profit should be recognized only if it is generated by a change in the factors that market participants would consider in setting a price, i.e. only if the model and parameters input into the valuation are observable.
If the selected valuation model is not recognized by current market practices, or if one of the inputs significantly affecting the instrument’s valuation is not observable, the trading profit on the trade date cannot be recognized immediately in the income statement, but is taken to income on a straight-line basis over the life of the transaction or until the date the inputs become observable. Any losses incurred at the trade date are immediately recognized in income.
At December 31, 2017, instruments for which the recognition of day-one profit/loss has been deferred included: multi-underlying structured equity and index products;a synthetic loans;a options on funds (multi-asset and mutual funds);a structured fixed-income products;a securitization swaps.a
CDOs, Index tranche Technique for estimating defaults given correlation effects and recovery modeling
Securitization swaps Discounted cash flow expected based on the underlying portfolio’s early redemption assumption
FINANCIAL DATA Consolidated financial statements and notes 237Natixis Registration Document 2017
A review is undertaken for any instrument that ceases to meet these criteria or once again complies with the criteria. Transfers to and from Level 3 are subject to validation.
At December 31, 2017, in accordance with this procedure, certain foreign currency options, along with volatility caps and floors, were transferred to Level 3 of the fair value hierarchy depending on in their liquidity horizons, determined by underlying currencies. At December 31, 2017, the net impact on the balance sheet of foreign currency options transferred to Level 3 was €226 million in liabilities (see Notes 6.7.5.2 and 6.18.2). The income statement was not impacted.
Since December 31, 2015, the valuation model used to measure write-downs on CDS contracted with monoline insurers has moved more in line, in terms of method, with the adjustment made for counterparty risk (Credit Valuation Adjustment – CVA).
As CDPC positions reached maturity in 2017, reserves previously recorded (adjusted reserve and general reserve) using the above-mentioned method were fully reversed.
Trust Preferred Securities (TruPS) CDOs The valuation model is based on projected future cash flows and default rates determined according to a statistical approach that deduces the default probability of banks according to their financial ratios. For other sectors, default rates are estimated considering the current ratings of assets.
Private Finance Initiative CDS (PFI CDS) The valuation model used, for Private Finance Initiative (PFI) CDS, is based on an approach calibrated to the market prices of underlying PFI bonds and the use of a uniform collection rate.
The fair value of loans with an initial term of less than one year is considered to be their book value. This is also generally the case for financial assets with a term of one year or less and current accounts. The corresponding receivables are classified in Level 2 of the fair value hierarchy. Loans and receivables granted to affiliates are also classified in Level 2 of the fair value hierarchy.
The measurement of the fair value of Natixis’ borrowings and debt securities is based on the discounted cash flow method using inputs at the reporting date such as the underlying’s interest-rate curve and the spread applied to lending/borrowing between Natixis and Group entities. The fair value of debts maturing in less than one year is considered to be the book value; these debts are classified in Level 2 of the fair value hierarchy, as are debts payable to affiliates.
Investment property recognized at cost: The fair value of investment property (excluding investment property held by insurance companies) is determined by reference to the capitalization of rents, a method widely used by real estate professionals. The capitalization rate applied to the property depends on a number of factors such as location, the quality and type of building, use, type of ownership, quality of lessee and characteristics of the lease, the interest rate and competition in the real estate market.
Guarantee mechanism for former 5.7 GAPC assets vehicle with retroactive effect at July 1, 2009. With this guarantee mechanism, Natixis was able to free up a significant portion of its equity allocated to segregated assets and to protect itself against the risk of loss from these portfolios subsequent to June 30, 2009. This protective arrangement is based on two mechanisms: On November 12, 2009, an arrangement was made by BPCE to protect a portion of the portfolios of the former GAPC hive-off a sub-participation with the characteristics of a financiala guarantee, covering 85% of the face value of assets recognized in “loans and receivables” and “available-for-sale financial assets”. Under this guarantee, Natixis is protected from the very first euro in default up to 85% of the default amount; two Total Return Swaps (TRS), one in euros and one in US$,a transferring to BPCE 85% of unrealized and realized gains and losses on the portfolio of instruments at fair value through profit or loss (cash and derivatives) since July 1, 2009. TRS are derivatives and are therefore carried at fair value on the balance sheet, with a matching entry to income. At the same time, Natixis purchases an option from BPCE which, if exercised, allows it to recover the net gains on this portfolio after a ten-year period in return for the payment of a premium estimated at €367 million. The premium is also recognized at fair value.
The amount of the premium paid in 2009 by Natixis in return for the financial guarantee amounted to €1,183 million.
Property, plant and equipment, 5.8 intangible assets (excluding goodwill) and investment property
After initial recognition, assets are measured at cost less accumulated depreciation, amortization and impairment losses. Investment property held by insurance companies is measured at fair value through profit or loss in accordance with IAS 40 and IFRS 4.
Purchased software is amortized on a straight-line basis over its estimated useful life, which in most cases is less than five years. Internally generated software is amortized over its estimated useful life, which cannot exceed fifteen years.
The expense incurred from the scrapping of a fixed asset is booked to “Depreciation, amortization and impairment of property, plant and equipment and intangible assets” on the consolidated income statement.
At December 31, 2016, Natixis had entered into a sale agreement related to one of its life insurance portfolios and securities representing these commitments. The completion of this sale was subject to approval by the ACPR (French Prudential Supervisory Authority). Securities representing insurance commitments initially recognized as “Available-for-sale financial assets” and “Financial assets and liabilities under the fair value through profit or loss option” were reclassified as “Non-current assets held for sale”. In accordance with IFRS 5, the reclassified securities were valued according to the provisions of IAS 39 and the technical provision of insurance commitments was discounted. At December 31, 2017, since Natixis had not yet obtained the above-mentioned approval, their classification under
Financial liabilities in this category are carried at fair value at the reporting date and shown in the balance sheet as “Financial liabilities at fair value through profit or loss”. Changes in fair value are recognized in income for the period under “Net gains or losses on financial instruments at fair value through profit or loss”, except for changes in fair value attributable to own credit risk on financial liabilities at fair value through profit or loss, as such recognition does not create or increase an accounting mismatch. These are recognized in “Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss” under “Gains and losses recognized directly in other comprehensive income” in accordance with IFRS 9, for which this component was applied early by Natixis as of January 1, 2016 (see the Statement of changes in shareholders’ equity).
Debt originated by Natixis that is not classified within financial liabilities at fair value through profit or loss is measured using the amortized cost method and recognized in the balance sheet under “Deposits from banks”, “Customer deposits”, “Debt securities in issue” or “Subordinated debt”.
FINANCIAL DATA Consolidated financial statements and notes 241Natixis Registration Document 2017
In accordance with IAS 39, Natixis derecognizes all or part of a financial asset if the contractual rights to the cash flows from the financial asset expire. Natixis also derecognizes all or part of a financial asset if these contractual rights or substantially all the risks and rewards of ownership are transferred.
a) Provisions for restructuring A provision for restructuring costs is recognized when the following standard criteria for recognizing provisions and the two following conditions are met: There is a detailed formal plan for the restructuring on thea closing date, identifying at least: the operations or part of the operations concerned;j the principal locations affected;j the location, function, and approximate number ofj employees who will be compensated upon termination of their services; the expenditures that will be undertaken;j and the date the plan will be implemented.j
b) Provisions for risks and litigation A description of the main risks and litigation to which Natixis is exposed is given in Section 3.11 of Chapter 3, “Risk and Capital Adequacy”.
Provisions booked on the liabilities side of Natixis’ financial statements as at December 31, 2017 and as at December 31, 2015, are discussed in Note 6.16.2 “Contingency reserves” and possible allocations are specified in Note 7.5 “Other income and expenses”, Note 7.6 “Operating expenses” and Note 7.7 “Provision for credit losses”.
In accordance with the principles of recognition set out in IAS 19, Natixis has identified the following types of post-employment benefit: defined contribution plans, under which an entity has noa obligation to pay a specified benefit amount; defined benefit plans, under which Natixis has a legal ora constructive obligation to pay a specified benefit amount.
Contributions paid under defined contribution plans are expensed in the period in which the employee rendered the service in exchange for said contributions.
However, if an instrument is considered equity:a its compensation is treated as a dividend and thereforej affects equity, as do the taxes related to this compensation, if issued in foreign currencies, it is fixed at its historical valuej resulting from converting it to euros on the date it was initially classified under equity; The share of third party investors in the net assets of dedicateda mutual funds included in Natixis’ consolidation scope comprises a financial liability recorded on the balance sheet under “Financial liabilities at fair value through profit or loss”. The share of third party investors in the profits of the mutual funds is recorded in “Net gains or losses on financial instruments at fair value through profit or loss” in the consolidated income statement; The units held by third party investors in dated funds, whicha are fully consolidated by Natixis, entitling the unit-holders to the repayment of a share of the fund’s net assets upon its liquidation, are classified in liabilities on the consolidated balance sheet under “Accruals and other liabilities”. The share of third party investors in the fund’s profits is recorded under “Interest and similar expenses” on the consolidated income statement.
Employee retention and performance plans settled in shares: Under IFRS 2 “Share-based payment”, employee free share awards give rise to an expense representing the fair value of the goods or services received at the grant date. This payroll expense is recognized against equity. The fair value of the services received is calculated by reference to the fair value of the shares at the grant date, less the present value of dividends forfeited by employees during the vesting period, taking into account the presence conditions.
Under IFRS 2, the services acquired and the liability incurred are measured at fair value. Until the liability is settled, debt is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognized in income for the
Other tax reforms passed in 2017 include the US tax cuts, which apply to income for fiscal years starting on or after January 1, 2018. The implementation of federal income tax reductions also includes a measure limiting the deduction of tax loss carryforwards and the implementation of a tax similar to corporate tax (Base Erosion and Anti-abuse Tax [BEAT] payment). Neither of these changes were deemed likely to have a significant impact on the income gained from the reduction in the federal tax rate.
The value-added contribution, or “Cotisation sur la Valeur Ajoutée des Entreprises” (CVAE), is recorded in the accounts as
The Employment Competitiveness Tax Credit (CICE) was considered to fall under IAS 19 – Employee Benefits. As a result, this tax credit is presented as a deduction from the related payroll costs.
On October 6, 2017, the French Constitutional Council declared Article L.235 ter ZCA of the French General Tax Code in its version resulting in Law No. 2015-1786 of the December 29, 2015 Amended Finance Act for 2015 to be unconstitutional. This article introduced an additional 3% contribution on distributed earnings.
Until 2016, in accordance with IAS 12, the expense related to this contribution was recorded under tax for the period during which the payout decision was made. This amounted to €20.9 million for the 2016 fiscal year. In 2017, reimbursements received for the 2012 to 2016 fiscal years were recognized under tax for a total of €105.6 million.
In accordance with paragraph 43 of the amendment to IAS 39 and IFRS 4 (published by the IASB in August 2005 and adopted by the European Union), financial guarantees given are carried at their fair value plus any transaction costs directly attributable to the issuance of the guarantees. For independent agreements entered into at market rates, fair value at the inception of the agreement is equal in theory to the amount of premium(s) received. All financial guarantees issued within Natixis are entered into at market rates.
All financial guarantees issued by insurance subsidiaries that also meet the definition of an insurance contract were accounted for in line with the requirements of IFRS 4 “Insurance Contracts”, as permitted by paragraph AG64 (a) of the amendment.
FINANCIAL DATA Consolidated financial statements and notes 245Natixis Registration Document 2017
b) Financing commitments All financing commitments granted by Natixis give rise to loans granted at market rates at the grant date. The drawn-down portion of these commitments is classified in “Loans and receivables”. These financing commitments are contingent liabilities and are recognized in accordance with IAS 37. On initial recognition, they are not entered in the balance sheet. A provision is recognized in liabilities if the cost of the commitment exceeds the associated revenues.
Directive 2014/59/EU (BRRD - Bank Recovery and Resolution Directive) which establishes the framework for the recovery and resolution of banks and investment firms and European regulation 806/2014 (SRM regulation) established the introduction of a resolution fund as of 2015. In 2016, this fund became a Single Resolution Fund (SRF) between the member States participating in the Single Supervisory Mechanism (SSM). The SRF is a resolution financing mechanism available to the resolution authority (Single Resolution Board). The latter may use this fund when implementing resolution procedures.
In accordance with Delegated Regulation 2015/63 and Implementing Regulation 2015/81 supplementing the BRRD Directive on ex-ante contributions to financing mechanisms for the resolution, the Single Resolution Board set the level of contributions to the Single Resolution Fund for 2017. Contributions paid to the fund may be made in cash security
Accounting estimates which require assumptions to be made are mainly used to measure the items set out below: Financial instruments recorded at fair value
The fair value of hybrid market instruments not traded on an active market is calculated using valuation techniques. Valuations produced using valuation models are adjusted, depending on the instruments in question and the associated risks, to take account of the bid and ask price for the net position, modeling risks, assumptions regarding the funding cost of future cash flows from uncollateralized or imperfectly collateralized derivatives, as well as counterparty and input risks. The fair values obtained from these methods may differ from the actual prices at which such transactions might be executed in the event of a sale on the market.
Unlisted equity instruments classified as available-for-sale financial assets primarily consist of investments in non-consolidated companies. The fair value of investments in unlisted non-consolidated companies is obtained principally by using valuation methods based on multiples or DCF (discounted cash flow). Use of these methods requires certain choices and assumptions to be made in advance (in particular, projected expected future cash flows and discount rates).
In the event of a deferred profit-sharing asset, a recoverability test is carried out to verify that liquidity requirements arising from an unfavorable economic environment do not force the sale of assets and generate unrealized losses. This recoverability test relies on projected future cash flows based on different economic assumptions about historical redemptions and inflows (see Note 2.8).
Net earnings/(loss) attributable to the Group (in millions of euros) 1,669 1,374
Net income/(loss) attributable to shareholders (in millions of euros) (a) 1,575 1,296
Average number of ordinary shares issued and outstanding over the period 3,137,311,715 3,132,934,277
At December 31, 2017, financial assets at fair value primarily comprised securities and derivative instruments.
Loans and receivables at fair value through profit and loss 6.1.1.1 and 6.1.1.2 7,524 7,254
The information presented takes into account the impact of offsetting carried out in accordance with IAS 32 (see Note 6.3).(b)
Natixis did not purchase protection to hedge against credit risk associated with loans and receivables classified as fair value instruments through profit or loss for the 2017 and 2016 fiscal years.
Financial assets measured under the fair value through profit or loss option consist primarily of long-term structured repos indexed to a basket of equities whose risks are managed globally and dynamically, as well as financial assets representative of unit-linked policies from insurance activities and, to a lesser extent, assets with embedded derivatives for which the principle of separation was not adopted.
FINANCIAL DATA Consolidated financial statements and notes 249Natixis Registration Document 2017
Loans and receivables due from customers 5,425 2,303 544 2,577 5,461 1,643 269 3,549
At December 31, 2017, financial liabilities at fair value through profit or loss primarily comprised derivatives not used as hedging instruments.
Securities classified as instruments held for trading essentially comprise short sales of financial assets.
Instruments designated at fair value through profit or loss 6.1.2.1 and 6.1.2.2 58,948 57,439
of which €3,436 million for insurance activities at December 31, 2017, and €1,470 million at December 31, 2016.(b)
The carrying amount of financial liabilities designated at fair value through profit or loss corresponds to their fair value shown on the balance sheet.
Financial liabilities under the fair value option for which the related credit risk is recognized in “Other comprehensive income”
Cumulative changes in the fair value of financial liabilities, designated at fair value through profit or loss, attributable to credit risk (b)
Difference between book value and amount contractually due at maturity Book value
Conditions for classification of financial liabilities under 6.1.2.2 the fair value option through profit or loss
Financial liabilities are designated at fair value through profit and loss when this choice provides more pertinent information or when the instruments incorporate one or more significant and separable embedded derivatives (see Note 5.1).
Liabilities valued using the fair value through profit or loss option consist mainly of long-term structured repos indexed to a basket of equities whose risks are managed globally and dynamically, as well as issues originated and structured for customers whose risks and hedges are managed collectively. These issues include significant embedded derivatives for which changes in value are neutralized, except for those allocated to own credit risk, by those of the derivative instruments hedging them.
Natixis has contracted Total Return Swaps (TRS) with BPCE. These instruments are used to hedge changes in the fair value recognized since (a) July 1, 2009 on instruments previously linked to the former GAPC hive-off carried at fair value through profit or loss at December 31, 2017 and are included on this line for an amount of €4.5 million in assets (versus €24.7 million at December 31, 2016) and €10.3 million in liabilities (versus €2.4 million at December 31, 2016).
Natixis has contracted a call option with BPCE for the purpose of recovering in 10 years time any net gains in fair value transferred to BPCE via (b) TRS. The call option was recognized on this line in assets for €559.5 million at December 31, 2017 versus €553.6 million at December 31, 2016.
Financial liabilities at fair value through profit or loss 97,428 23,310 74,118 103,696 23,874 79,822
In 2017, permanent impairment of variable-income securities stood at €27 million compared with €58 million in 2016. This expense involves insurance portfolios for (b) €15 million (€40 million for 2016), the impact of which is neutralized at 89% and 87.0% respectively for 2017 and 2016 given the profit-sharing mechanism. The 2017 expense is divided between an additional impairment on previously-impaired securities for €18 million, including €7 million related to the insurance portfolios (€21 million in 2016, including €5 million on insurance portfolios), newly-impaired provisions on securities tied to the application of analysis criteria as defined in accounting principles and methods for €9 million mainly related to insurance portfolios (€37 million in 2016 mainly related to insurance portfolios).
FINANCIAL DATA Consolidated financial statements and notes 255Natixis Registration Document 2017
The fair value of customer loans and receivables is provided in Note 6.7.6.
of which €10,850 million for insurance activities at December 31, 2017, and €11,587 million at December 31,2016.(a)
The following table lists the financial assets (excluding assets held for trading) and financing commitments subject to amendments to original contract terms or refinancing constituting a concession granted due to the debtor’s financial situation (see Note 5.1).
Provisions for impairment of non-performing outstandings (104) (42) (146) (48) (23) (71)
At December 31, 2017, non-performing loans include all positions with defaulting counterparties, even though Natixis owns the assets subject to the contracts. In 2016, non-performing loans only included unpaid amounts in respect of counterparties in default.
“Held-to-maturity financial assets” are exclusively recognized by fully-consolidated insurance companies at December 31, 2017 and December 31, 2016.
A financial asset is partially or wholly transferred if Natixis transfers the contractual rights to collect cash flow from the financial asset or retains the contractual rights to collect cash flow from the financial asset but assumes a contractual obligation to pay those cash flows to one or more beneficiaries.
Transferred financial assets that are not derecognized are essentially composed of the following instruments: repurchased securities;a securities lending backed by cash remittals;a dry securities lending;a securitization for which the counterparties to the associateda debts have recourse only to the transferred assets.
Financial assets at fair value through profit or loss 14,215 13,524 10,979 10,741
SECURITIZATION FOR WHICH THE COUNTERPARTIES TO THE ASSOCIATED DEBTS HAVE RECOURSE R ONLY TO THE TRANSFERRED ASSETS
The fully derecognized transferred financial assets for which Natixis maintains continuing involvement include transfers of assets to a deconsolidated securitization vehicle in which Natixis has an interest or an obligation, where these latter do not compromise the transfer of virtually all the advantages and risks attached to the transferred assets.
At December 31, 2017 (as at December 31, 2016), there is no material impact from continuing involvement in a securitization vehicle maintained by Natixis.
The fair value of financial assets received as security that were resold or reused as security was €143 billion at December 31, 2017, versus €128 billion at December 31, 2016.
The data reported in 2017 includes late payments identified by the factoring entities amounting to €1,596 million. These data refer to all outstandings rather than the unpaid amount alone.
FINANCIAL DATA Consolidated financial statements and notes 259Natixis Registration Document 2017
The table below presents the fair value of all financial assets, whether or not they are recognized at fair value in the balance sheet.
The fair value of financial assets carried at fair value in the balance sheet is broken down according to the hierarchy of inputs used to value the assets, as described in Note 5.6.
Financial assets designated under the fair value option through profit or loss 70,882 14,438 53,110 3,334 68,887 11,088 54,908 2,891
Securities under the fair value option through profit or loss 18,664 14,417 1,712 2,535 14,593 11,088 1,226 2,280
Available-for-sale securities - Equity investments 660 91 0 569 979 100 0 879
Financial assets at fair value through profit and loss - Trading 4,549 146 (101) Fixed-income securities held for trading 257 (3) (1) Derivative instruments not eligible for hedge accounting (positive fair value) 2,949 141 (123)
Other financial assets held for trading 735 5 3 Financial assets under the fair value option through profit or loss 3,353 9 48 Fixed-income securities under the fair value option through profit or loss 1,409 (5) 2 Variable-income securities under the fair value option through profit or loss 939 (5) 14 Other financial assets under the fair value option through profit or loss 1,006 19 32 Hedging derivatives Available-for-sale financial assets 3,681 33 5 (7) Available-for-sale securities - Equity investments 880 31 3 (4) Other available-for-sale securities 2798 1 2 (3)
TOTAL FINANCIAL ASSETS RECORDED AT FAIR VALUE 10,967 917 (329) (7)
Derivative instruments not eligible for hedge accounting (positive fair value) 15 8 1,103 24 o/w interest rate derivatives 35 13 o/w currency derivatives 1,054 3 o/w credit derivatives 4
Derivative instruments not eligible for hedge accounting (positive fair value) 135 315 o/w interest rate derivatives 135 315 o/w currency derivatives o/w credit derivatives o/w equity derivatives o/w other
Financial assets desginated under the fair value option through profit or loss 135
Securities under the fair value option through profit or loss o/w fixed-income securities o/w variable-income securities
Other financial assets under the fair value option through profit or loss 135
FINANCIAL DATA Consolidated financial statements and notes 267Natixis Registration Document 2017
Positive amounts represent sources of deferred tax giving rise to deferred tax assets, while negative amounts represent sources giving rise to (a) deferred tax liabilities.
The change in deferred taxes on items whose variation is recorded directly in reserves is presented in Note 8.2 “Breakdown of tax on gains and losses recognized in other comprehensive income”. At December 31, 2017, this amount was +€14 million compared to -€37 million at December 31, 2016. Other changes in deferred taxes for the period are booked to profit or loss.
This heading corresponds to technical accounts, details of which are given below: Other assets and liabilities6.9.1
Including the outstanding non-amortized amount of the margin not recognized in income on the transaction date (“Day One Profit”) of €76 million (a) at December 31, 2017 versus €74 million at December 31, 2016 (see Note 6.9.2).
FINANCIAL DATA Consolidated financial statements and notes 269Natixis Registration Document 2017
- €180 million at December 31, 2017 and €193 million at December 31, 2016 for the Asset & Wealth Management Division; - €105 million at December 31, 2017 and €113 million at December 31, 2016 for the Corporate & Investment Banking Division; - €139 million at December 31, 2017 and €157 million at December 31, 2016 for the Insurance Division; - €241 million at December 31, 2017 and €214 million at December 31, 2016 for the Specialized Financial Services Division; - €64 million at December 31, 2017 and €61 million at December 31, 2016 for Coface; - €2 million at December 31, 2017 and €6 million at December 31, 2016 for the Corporate Center.
December 31, 2017, intangible assets reclassified as assets held for sale pursuant to IFRS 5 totaled €0 million compared to €11 million at At
FINANCIAL DATA Consolidated financial statements and notes 271Natixis Registration Document 2017
Insurance company investments. Changes in fair value give rise to the symmetrical recognition of a deferred profit-sharing reserve equal to 89% (a) of the related base amount on average at December 31, 2017 compared to 87.0% at December 31, 2016 (see Note 2.8).
Under the new strategic plan, New Dimension (see Note 9), and in line with the creation of the new Insurance business line, the Investment (a) Solutions CGU was split into two separate CGUs: “Asset & Wealth Management” and “Insurance”. Goodwill associated with the entities comprising the “Asset & Wealth Management” and “Insurance” Divisions was mainly reallocated to these two new CGUs according to the entities to which they report, with each entity assigned to only one CGU; Including €3.2 million for the goodwill recorded on the acquisition of Althelia Ecosphere.(b)
Including €100.4 million for the goodwill recorded on the acquisition of Investor Mutual Limited.
Including €11.8 million in goodwill recorded on the acquisition of Lakooz by S-Money, €14.3 million on the acquisition of PayPlug and €72.3 million (c) on the acquisition of Fintech Dalenys. These four companies specialize in new online payment methods.
Goodwill on entities consolidated using the equity method amounted to €3.2 million at December 31, 2017.
Certain goodwill recorded on the United States gives rise to a tax amortization over 15 years due to the difference between the book value of the goodwill and its fiscal value. This difference in treatment generated a deferred tax liability of €310.8 million as at December 31, 2017.
FINANCIAL DATA Consolidated financial statements and notes 273Natixis Registration Document 2017
Amounts due to banks and customer deposits are presented by type of deposit (demand or term deposits). They are measured in accordance with IAS 39 within other financial liabilities using the amortized cost method.
In order to reflect their obligations toward policyholders, insurance companies record under liabilities technical reserves determined on the basis of statistical calculations.
The deferred profit-sharing reserve represents the portion of unrealized gains or losses on investments potentially attributable to policyholders.
At December 31, 2017, net deferred profit-sharing liabilities amounted to €3,275 million, compared with deferred profit-sharing liabilities of (a) €3,108 million at December 31, 2016 (see Note 2.8).
FINANCIAL DATA Consolidated financial statements and notes 275Natixis Registration Document 2017
Impairment losses taken on available-for-sale financial assets 563 37 (1) (75) (0) (2) (7) 515
The amounts shown in the above table include write-downs of assets held by life insurance companies. They are shown without the impact of changes in insurance company technical reserves.
Of which €10 million in reversals not used following disposals of receivables made during the year.(b)
Provisions for impairment deducted from assets 3,334 749 (320) (406) 21 15 (108) 3,285
Provisions for loans and receivables 2,320 588 (296) (302) 18 (144) 2,185
Of which: a €53 million change in actuarial assumptions for employee benefits recorded directly in other comprehensive income with no (c) recycling.
Real estate developments 0 0 0 of which €388.8 million in provisions at December 31, 2017 in respect of exposure to outstanding Madoff assets, net of insurance. The amount of (a) insurance was €123 million for disputes pertaining to the case (see Chapter [3], Section [3.11], “Risk and Capital Adequacy”).
of which €2 million at December 31, 2017 in respect of the workforce adjustment plan completed in 2015.(b)
Reversal (surplus provisions) Translation adjustments Changes in scope Other 12.31.2016 of which €479.9 million in provisions at December 31, 2016 in respect of outstanding Madoff assets, net of insurance.(a)
The main features of subordinated notes issues are outlined in the Chapter [14] of the Pillar III report.
the expiry of an EMTN issued in 2006 on January 20, 2017, for -€500 million;the repayment of a loan from BPCE on December 7, 2017 for €40 million.-
The table below presents the fair value of all financial liabilities, whether or not they are recognized at fair value in the balance sheet.
Securities under the fair value option through profit or loss 20,535 20,162 373 18,564 18,471 93
Financial liabilities at fair value through profit and loss - Trading 830 (306) (13) Securities issued for trading purposes 0
Derivative instruments not eligible for hedge accounting (negative fair value) 830 (306) (13)
Derivative instruments not eligible for hedge accounting (negative fair value) 1,536 (14) (408)
TOTAL FINANCIAL LIABILITIES RECOGNIZED AT FAIR VALUE 2 272 45 (456) (0)
Financial liabilities designated under the fair value option through profit or loss 51
Securities under the fair value option through profit or loss 51
Derivative instruments not eligible for hedge accounting (negative fair value) 53 42 o/w interest rate derivatives 1 11 o/w currency derivatives o/w credit derivatives 53 3 o/w equity derivatives 0 28
Financial liabilities designated under the fair value option through profit or loss 3
FINANCIAL DATA Consolidated financial statements and notes 285Natixis Registration Document 2017
“Interest and similar income” and “Interest and similar expenses” comprise interest on fixed-income securities recognized as available-for-sale financial assets, and interest on loans and receivables to and from banks and customers.
Negative interest is deducted from interest income when income from a financial asset debt instrument is negative and is deducted from interest expenses when income from a financial liability debt instrument is positive.
Of which €1,371 million of NII in December 2017 versus €1,330 million in December 2016 for insurance activities.(a)
The method of accounting for fees and commissions received in respect of services or financial instruments depends on the ultimate purpose of the services rendered and the method of accounting for the financial instruments to which the service relates. Fees and commissions for one-off services, such as business provider commissions, are recognized in income as soon as the service is provided. Fees and commissions for ongoing services such as guarantee commissions or management fees are recognized over the service period.
FINANCIAL DATA Consolidated financial statements and notes 287Natixis Registration Document 2017
Financing, guarantee, securities and derivative commitments(a) 275 (138) 137 225 (141) 84
This item includes gains and losses on financial assets and liabilities at fair value through profit or loss, whether held for trading or designated at fair value through profit or loss, including interest.
Net gains/(losses) on financial assets and liabilities held for trading(a) 2,351 1,983 o/w derivatives not eligible for hedge accounting (2,373) 1,791
Net gains/(losses) on other financial assets and liabilities under the fair value option through profit or loss(b) 495 41
“Net gains/(losses) on financial assets and liabilities held for trading” include:(a)
- impairments taken against the fair value of CDS entered into with monoline insurers: a decrease of €7 million in cumulative impairments was recognized (income) during 2017, versus income of €18.6 million at December 31, 2016 (excluding the currency impact and the impact of the BPCE guarantee), bringing cumulative impairments to €63.2 million at December 31, 2017 versus €72.9 million at December 31, 2016; - a reversal of the full portfolio-based provision recorded on exposures in respect of CDPCs (Credit Derivative Product Companies) was recorded at December 31, 2017 in the amount of €0.6 million.
December 31, 2016, a €3.8 million reversal was carried out, bringing the cumulative balance of the portfolio-based provision to €0.6 million;At - at December 31, 2017, recognized own credit risk adjustments to derivatives (debit valuation adjustments or DVA) stood at -€54.7 million versus an expense of -€22.1 million at December 31, 2016.
Furthermore, credit risk adjustments related to the valuation of counterparty risk (credit valuation adjustments or CVA) on financial assets amounted to €78.2 million (income) at December 31, 2017 versus an expense of -€20.6 million at December 31, 2016; - the Funding Valuation Adjustment (FVA) used on uncollateralized derivatives or imperfectly collateralized derivatives is also recognized on this line in the amount of €24.7 million (income) at December 31, 2017 versus income of €67.6 million at December 31, 2016.
Income of €47.1 million was recorded at December 31, 2016 corresponding to the recycling of foreign exchange gains and losses arising on the (b) reimbursement by certain entities of capital in foreign currencies or equity items treated as capital.
of which €891 million for insurance activities at December 31, 2017, versus €253 million at December 31, 2016.(d)
Net gains or losses on available-for-sale financial assets principally comprise: gains or losses on sales of available-for-sale financial assets and financial assets recognized at their amortized cost;a permanent losses in value and dividends payable on variable-income securities, charged to “Available-for-sale financial assets”.a
Of which €309 million for insurance activities at December 31, 2017, and €119 million at December 31, 2016.(b)
Income and expenses from other operations mainly comprise income and expenses relating to finance leases and investment property.
Other insurance income and expenses 7.5.2 10,578 (5,649) 4,929 19,943 (5,061) 14,882
Of which +€86.1 million at December 31, 2017 versus +€72.9 million at December 31, 2016 resulting from the purchase and resale activity of (a) commodity stocks on behalf of clients carried out by the entity Contango, which economically hedges its exposure to price changes using futures carried under “Gains or losses on financial instruments at fair value through profit or loss”.
The amount recognized for 2017 in respect of the retention and performance plans includes an expense of €76 million (versus €59 million at December 31, (b) 2016) for the portion of compensation paid in cash and indexed to the Natixis share price and an additional expense of €9 million (versus €5 million at December 31, 2016) for the portion of compensation settled in Natixis shares.
Of which €1.5 million in income at December 31, 2017 versus €19 million in expenses at December 31, 2016 for the Coface restructuring plan.(c)
Including a contribution of €121.4 million to the Single Resolution Fund (SRF) at December 31, 2017, versus €114.5 million at December 31, 2016;(d)
Including the tax of €24.3 million on systemic banking risks (SBT) at December 31, 2017 versus €29.1 million at December 31, 2016; Including the Social Security and Solidarity Contribution (C3S) for €47.4 million at December 31, 2017 (€27 million at December 31, 2016), of which a non-recurrent additional expense of €19 million for the Investment Solutions Division linked to a partnership with CNP Assurances.
This line item mainly reflects net risk recorded on lending transactions: net provisions for reversals of individual and collective provisions, loans and receivables written off during the period and recoveries on bad debts written off.
Provisions for impairments of financial assets (396) 246 (53) 6 (196) (532) 258 (51) 22 (303)
Net capital gains/(losses) on disposals 53 (4) 48 48 127 175
Including +€21.5 million on the disposal of Ellisphère and IJCOF, +€9.9 million on the disposal of the two Caspian Private Equity companies, and (a) +€18.1 million from the liquidation of Nexgen Financial Holding.
At December 31, 2016, disposals mainly related to the sale of operating property by the Specialized Financial Services Division for €30 million (d) (gross amount) and by the Corporate center for €96.7 million (gross amount).
Reconciliation of the tax expense in the financial statements 7.9 and the theoretical tax expense
= Consolidated taxable income/(loss) 2,825 2,570 x Theoretical tax rate 33.33% 33.33%
Of which: tax savings of +€80.2 million resulting from the offset of previously unrecognized tax losses against 2017 profits (€5 million at (d)
Natixis S.A. was subject to an audit covering the 2008 to 2013 fiscal years. Following this audit, Natixis S.A. received a reassessment notice dated December 19, 2016. Natixis S.A. intends to contest the majority of the proposed adjustments and has recorded a provision for the estimated risk.
The audit which initially covered the 2010 and 2011 fiscal years was extended to 2012 to 2014. Natixis Investment Managers P1 (formerly NGAM P1) received an audit proposal on December 23, 2016.
Following an appeal at a higher level, the proposed adjustments were partially abandoned.
Share of gains and losses recognized directly in the equity of associates recyclable to income (3) 3
Revaluation of available-for-sale financial assets (58) 51 (7) 273 (89) 183
FINANCIAL DATA Consolidated financial statements and notes 293Natixis Registration Document 2017
The entity has since been organized around four core businesses: Asset & Wealth Management, which includes asseta management within Natixis Investment Managers and wealth management; Corporate & Investment Banking, which advises businesses,a institutional investors, insurance companies, banks and public sector entities and offers them a diversified line of financing solutions as well as access to the capital markets. Its duties are threefold: to strengthen the bank’s customer orientation, to serve as a meeting place between issuers and investors and to roll out the “Originate to Distribute” model to optimize the rotation of the bank’s balance sheet via active management of the loan book; Insurance, which is Groupe BPCE’s single platform for thea distribution of personal insurance and non-life insurance products; Specialized Financial Services, which combines Paymentsa and Specialized Financing with Factoring, Leasing, Consumer Finance, Sureties & Financial Guarantees, and Film Industry Financing; and Financial Services with Employee Savings and Securities. These business lines are the key growth drivers for the retail banking business of Groupe BPCE.
The Equities, Fixed Income, Credit, Forex, Commodities and “Global Structured Credit and Solutions” businesses remain part of the Global Markets business line and the Trade Finance and the developing of the flow offering are combined under “Global Transaction Banking”.
This business line combines a number of service-oriented businesses primarily serving the Caisse d’Epargne and Banque Populaire networks, as well as Natixis customers: Payments: This business line provides tools, infrastructure,a and services for payments: electronic banking, issuance and collection of mass electronic transfers, check processing, e-commerce, etc. Under the “New Dimension” plan, Payments is designed to become a pure player on the payment segment in Europe and accelerate its digital transformation. Thus, the business line recently acquired several start-ups specializing in electronic payment and e-commerce, namely: Payplug, S Money, and Dalenys; Factoring: provides companies with credit managementa solutions such as financing, insurance, and collection. Natixis Factor uses the Banque Populaire and Caisse d’Epargne networks, which account for a significant portion of its business; Sureties & Financial Guarantees: this business line isa operated by Compagnie Européenne de Garanties et Cautions (CEGC). It notably includes: guarantees for mortgage loans granted to retail and business customers by the Caisse d’Epargne and Banque Populaire networks, along with legal guarantees and financial guarantees; services for personal loans. These activities are operated by Natixis Financement, which manages revolving loans granted by the Groupe BPCE networks and manages personal loans granted by the Caisse d’Epargne and by the Banque Populaire banks; Consumer Finance: this Natixis business line includes a broada range of activities across the entire value chain for revolving loans (marketing, origination, administrative management, out-of-court collection, etc.) and administrative management
The Corporate Center operates alongside the operating divisions. It combines Natixis’ non-strategic business lines: Coface, of which the main activities are credit insurance, factoring abroad, corporate information and rating and accounts receivable, proprietary private equity activity, Natixis’ stake in certain sponsored funds that is not meant to be kept within Natixis, as well as the Natixis subsidiary in Algeria.
FINANCIAL DATA Consolidated financial statements and notes 295Natixis Registration Document 2017
- Net revenues : €139.6 million ; - Expense : -€62.7 million ; - Gross operating income: €76.9 million ; - Provision for credit losses: €0.1 million ; - Pre-tax profit: €77.1 million.
Including €1,916 million excluding net revenues of the XVA desks, which break down into €1,317 million in net revenues for FICT and €599 million for Equities.(a)
This information is presented according to the new business line structure adopted by Natixis at December 31, 2017.(a)
Net revenues: €2,582 million; Expenses: -€1,843 million; Gross operating income: €739 million; Provision for credit losses: €0 million; Pre-tax profit: €747 million.
Including €1,753 million excluding net revenues of the XVA desks, which break down into €1,219 million in net revenues for FICT and (a) €534 million for Equities.
Loans and receivables due from banks 1,114 36,010 460 401 423 20,375 58,783
FINANCIAL DATA Consolidated financial statements and notes 299Natixis Registration Document 2017
Assets at fair value through profit or loss 167,368 19,005 0 73 122 1,059 187,628
The information on capital adequacy required under IAS 1 is presented in Section [3.4] of Chapter [3], “Risk and Capital Adequacy”.
The information on risk management required under IFRS 7, with the exception of the disclosures given below, is presented in Section [3.5] of Chapter [3], “Risk and Capital Adequacy.”
(in millions of euros) Performing loans Non-performing loans Write-downs Net outstandings
The disclosures on the management of market risk, overall interest rate risk, liquidity risk and structural foreign exchange risk required under IFRS 7 are presented in Sections [3.7] and [3.9] of Chapter [3], “Risk and Capital Adequacy”.
An itemized headcount is shown in Note 6.3.1 “Change in headcount” in Chapter 6 “Corporate social responsibility”.
Compensation and employee benefits include wages and salaries net of rebilled expenses paid within twelve months of the end of the reporting period in which the services were rendered, deferred cash-settled or equity-settled variable compensation, employee incentives and profit-sharing for the period, the cost of pensions, other employee benefit obligations such as long-service awards and benefits related to capital increases reserved for employees.
Short-term employee benefits11.2.1 are expensed in the period in which the employees render the services giving rise to such benefits.
Coface has had share-based compensation plans in place since 2014. As the impact of these plans is not material for Natixis at the consolidated level, the characteristics of these plans are not outlined in the paragraphs that follow.
FINANCIAL DATA Consolidated financial statements and notes 305Natixis Registration Document 2017
Valuation inputs used to calculate the expense of these plans: Share price 6.60 5.36
Year of plan Expenses Grant date Acquisition dates Expense for 2017
Contributions paid under defined-contribution plans are expensed for the period in which the services were provided.
Including the €83 million contribution made for outsourcing management of end-of-career awards.
a) Amounts recognized on the balance sheet at December 31, 2017 The amount of the recognized provision on the liabilities side of the balance sheet corresponds to the value of the actuarial liabilities under the defined benefit plans, less the market value of the assets to hedge these benefit liabilities.
Fair value of separate assets(a) (171) (43) 0 0 (214) (167) (38) 0 0 (205)
Changes recognized directly in other comprehensive income with no recycling 23 4 0 0 27 56 19 0 0 75
308 Natixis Registration Document 2017 c) Changes in recognized amounts on the balance sheet (Change in hedging assets)
Fair value of assets at start of period 267 9 277 423 7 430 o/w amounts paid out in respect of plan liquidation (3) 0 (3) (4) 0 (4)
Changes recognized directly in other comprehensive income with no recycling 25 (0) 25 6 (0) 6
Total Supplementary pension benefits and other End-of-career awards Total Supplementary pension benefits and other End-of-career awards
Fair value of assets at start of period 167 38 205 0 39 39 o/w amounts paid out in respect of plan liquidation (7) 0 (7) (7) 0 (7)
Total revaluation adjustments at start of period 266 24 291 207 5 211
Revaluation adjustments over the period 8 3 11 60 20 80
Total revaluation adjustments at end of period 275 27 302 266 24 291
Revaluation adjustments over the period 19 (0) 19 (21) (0) (21)
Total revaluation adjustments at end of period 61 0 61 42 0 42 o/w effect of ceiling on assets (7) 0 (7) (6) 0 (6)
Total revaluation adjustments at start of period o/w effect of ceiling on assets 44 1 45 2 0 2
TOTAL EXPENSE FOR THE YEAR(A) (33) 26 7 46 46 50
g) Main actuarial assumptions at December 31, 2017 The amount of the provision for post-employment defined-benefit plans is calculated on an actuarial basis using a number of demographic and financial assumptions.
Rate of increase in salaries 2.27% 2.55% 4.00% 2.42% 2.39% 4.00%
Rate of increase in healthcare costs 4.18% 1.60% 5.00% 4.10% 4.40% 5.00%
FINANCIAL DATA Consolidated financial statements and notes 311Natixis Registration Document 2017
Rate of increase in salaries (incl. Inflation) 2.85% 2.25% 2.25% 3.08% 2.96% 2.29% 2.48% 3.25%
three-year average. A rate of 0% is used for employees aged 60 and over.
For end-of-career awards and long-service awards, employee turnover is calculated by age bracket and grade based on a
+1% change in rate of increase in healthcare costs 1.50% 6.12%
Other share-based plans11.2.4 a) Employee stock option plans under the Company employee savings plan
Total subscribed amount (in millions of euros) €23.6m €40.2m €2.1m €45m €26m
Market participant’s borrowing rate (five years) 6.72% 5.47% 5.47% 4.45% 3.93%
The capital increase in 2017 is linked to the award of free shares to some Natixis employees under the 2012 and 2013 Retention and Performance Plans, for which payment is share-based (see Note 5.17 and Note 11.2.2.).
Natixis adapts the management of its capital structure in line with changes in economic conditions and in the risk profile of its operations. Its objectives, policies and procedures remained unchanged in 2017.
Note that the gross amount of exchange rate fluctuations in deeply subordinated notes in foreign currencies recorded in income at December 31, 2017 amounted to €103.9 million, or €68.1 million after tax, compared with €9.4 million at December 31, 2016, or €6.1 million after tax.
The main features of undated deeply subordinated notes are outlined in the Chapter [14] of the Pillar III report.
This authorization is based on the twelfth resolution of the General Shareholders’ Meeting of May 23, 2017. It authorizes Natixis to acquire, at a maximum price of €10 per share, a number of shares not exceeding 10% of the shares making up the capital of Natixis.
Guarantee commitments13.1 holder incurs because a debtor fails to make payment when due. The exercise of these rights is subject to the occurrence of an
The amounts shown represent the nominal value of the commitment undertaken: (in millions of euros) 12.31.2017 12.31.2016
In accordance with IAS 39 (paragraph 2), financing commitments outside the scope of IAS 39 are recognized in accordance with IAS 37, “Provisions, contingent liabilities and contingent assets”.
The following financing commitments fall within the scope of IAS 39: commitments classified as financial liabilities at fair valuea through profit or loss. If an entity has a practice of reselling or securitizing loans immediately after they are issued, these loans are accounted for in accordance with IAS 39 as from the date the loan commitment is undertaken; commitments which are settled net (i.e. sold);a commitments which result in a loan granted at below-marketa interest rates.
Financing commitments received from banksa 4,303 9,289 from customersa 6,182 4,209
Total< 1 year 1-5 years > 5 years < 1 year 1-5 years > 5 years
Present value of minimum lease payments receivable 2,227 5,911 3,252 11,390 2,020 5,328 2,956 10,303
Minimum payments receivable under irrevocable leases 51 152 50 252 46 147 46 239
Unsecured residual value accruing to lessor 569 11 580 612 8 620
Assets at fair value through profit or loss 17,755 2,967 4,444 14,407 3,416 5,817
Loans and receivables due from banks 29,046 381 86 38,281 573 137
Net fee and commission income 6 (353) (130) 21 (310) (20)
In 2017 and 2016, directors’ fees paid to members of the Board of Directors included a fixed portion (€8,000 per person) and a variable portion (a) (€2,000 per Board Meeting, per person). Members of the Audit Committee and the Risk Committee received a fixed payment of €3,000 (€17,000 for its Chairman) and a variable payment of €1,000 per Board Meeting and per person (€2,000 for its Chairman). Members of the Appointments Committee and Compensation Committee received a fixed payment of €2,000 (€15,000 in 2015 for its Chairman) and a variable payment of €1,000 per Board Meeting and per person (€2,000 for its Chairman). The members of the Strategic Committee received a variable payment of €2,000 and the Chairman of the Strategic Committee received a fixed payment of €12,000.
Value of performance shares granted during the fiscal year €192,000(b) €160,000
Natixis’ Chief Executive Officer enjoys the retirement benefits plan offered to upper management officers (“hors classification”): Social Security contributions in tranche A(1);a mandatory ARRCO contributions in tranche A(1)(14.06%);a additional ARRCO contributions in tranche B(2) (5.63%);a
The Monthly Reference Compensation is equal to one-twelfth of the sum of the fixed compensation paid in respect of the last calendar year in activity and the average variable compensation paid over the last three calendar years of activity.
The Chief Executive Officer will not receive severance payments in the event of gross negligence or willful misconduct, if he leaves the Company at his initiative to take another position or changes his position within Groupe BPCE.
The non-compete agreement is limited to a period of six months and carries an indemnity equal to six months of fixed compensation, as in force on the date on which the CEO leaves office.
Tranche A corresponds to the fraction of annual compensation between €0 and €39,228.(1)
Tranche C corresponds to the fraction of annual compensation between €156,921 and €313,824.(3)
Investment income (net of expenses) 2,588 2,625 (12) 2,612 (24) 2,588
Other recurring operating income and expenses (316) (72) (242) (316) (1) (316)
Capital gains and losses on disposal of investments (net of reversals, write-downs and amortization) 125 85 85 40 125
FINANCIAL DATA Consolidated financial statements and notes 321Natixis Registration Document 2017 15.3.2 Insurance company contributions to the consolidated income statement
Depreciation, amortization and impairment on property, plant and equipment and intangible assets (55) (53)
PricewaterhouseCoopers Audit was appointed in replacement of KPMG by the shareholders at the General Shareholders’ Meeting of May 2016, for a term of six years ending as of the General
Deloitte & Associés – 185, avenue Charles-de-Gaulle – 92524a Neuilly-sur-Seine Cedex represented by signatory partners Charlotte Vandeputte and Jean-Marc Mickeler; Mazars – Immeuble Exaltis 61, rue Henri-Régnault – 92075a La Défense Cedex, represented by signatory partners Charles De Boisriou and Emmanuel Dooseman; PricewaterhouseCoopers Audit – 63 rue de Villiers 92208a Neuilly-Sur-Seine Cedex, represented by signatory partners Agnès Hussherr and Patrice Morot.
The Statutory Auditors and their networks were paid the following amounts in return for their duties: Deloitte & Associés PWC MAZARS TOTAL
Services other than the certification of accounts 3,889 31% 5,301 41% (27)% 2,469 27% 3,413 37% (28)% 1,088 22% 1,854 38% (41)% 7,446 39% 10,568 39% (30)%
FINANCIAL DATA Consolidated financial statements and notes 323Natixis Registration Document 2017
FINANCIAL DATA Consolidated financial statements and notes 331Natixis Registration Document 2017
NATIXIS INVESTMENT MANAGERS S.A*(y) Retail FC 100 100 100 100 Luxembourg
FINANCIAL DATA Consolidated financial statements and notes 333Natixis Registration Document 2017
NATIXIS Investment Managers Uruguay S.A.*(y) Retail FC 100 100 100 100 Uruguay
NATIXIS Investment Managers Korea Limited*(y) Retail FC 100 100 100 100
AEW Ciloger Dependant Branch Germany Retail FC 60 60 60 60 Germany
NATIXIS Investment Managers Distribution France * (y) Retail FC 100 100 100 100 France
NATIXIS Investment Managers, Nordics filial*(y) Retail FC 100 100 100 100 Sweden
Natixis Investment Managers S.A, Succursale Italiana*(y) Retail FC 100 100 100 100 Italy
FINANCIAL DATA Consolidated financial statements and notes 335Natixis Registration Document 2017
COFACE POLAND CMS Financial data FC 41 41 41 31 Poland
Credit insurance and related services Equity 15 15 15 15 France
Credit insurance and related services FC 41 41 41 41 France
COFACE SVERIGE - BRANCH (COFACE KREDIT) Insurance FC 41 41 41 41 Sweden
Credit insurance and related services FC 41 41 41 41 Portugal
Credit insurance and related services FC 41 41 41 41 Spain
COFACE SWITZERLAND - BRANCH (COFACE Europe) Insurance FC 41 41 41 41 Switzerland
COFACE NEDERLAND - BRANCH (COFACE KREDIT) Insurance FC 41 41 41 41 Netherlands
Credit insurance and related services FC 41 41 41 41 Canada
COFACE HUNGARY - BRANCH (COFACE AUSTRIA) Insurance FC 41 41 41 41 Hungary
COFACE LATVIA INSURANCE -BRANCH (COFACE AUSTRIA) Insurance FC 41 41 41 41 Latvia
Credit insurance and related services FC 41 41 41 41 Singapore
Credit insurance and related services FC 41 41 41 41 Taiwan
Credit insurance and related services FC 41 41 41 41 Italy
Credit insurance and related services FC 41 41 41 41 Germany
Deconsolidated in the first quarter of 2017 as the percentage interest fell below eligible levels.(b)
Drop in percentage interest on January 1, 2017 following the increase in Société de Cadres’ holding in DNCA Finance from 3% to 6%.(f)
Business activities of the entity taken over by Natixis S.A. in the second quarter of 2017.(g)
Business activities of the entity taken over by Natixis Financement in the second quarter of 2017.(h)
Change in ownership interest following the buyout of an additional 14% minority interest (10% in the second quarter and 4% in the fourth (j) quarter) in accordance with the Euro Private Equity acquisition protocol.
Following the restructuring of AEW Europe’s businesses in France in the third quarter of2017, CILOGER was renamed AEW CILOGER and AEW (r) Europe was renamed AEW SA. In addition, NAMI AEW Europe and AEW Europe SGP were absorbed by AEW CILOGER.
Acquisition of these two entities, formerly held by Crédit-Coopératif, on October 2, 2017.(t)
Banque Privée 1818 changed its registered company name and is now called Natixis Wealth Management.(x)
The NAM activities dedicated to volatility management products and structured products were carried to NAM Austerlitz 1, previously presented (ff) as investments in non-consolidated affiliates in Group Natixis IM’s financial statements. As part of this transaction, NAM Austerlitz 1 was renamed Seeyond and is now a consolidated entity.
Non-consolidated investments at December 31, 2017 representing 10% or more of the capital with a net book value of €5 million or more: Entities Country Share of equity held(a)
In compliance with the assignment entrusted to us by your General Shareholders’ Meeting, we carried out the audit of the Natixis group’s consolidated financial statements for the year ended December 31, 2017, as appended to this report.
Furthermore, the non-audit services that we provided to your Company and its controlled undertakings during the fiscal year that are not disclosed in the management report or the notes to the consolidated financial statements are as follows: PricewaterhouseCoopers Audit: the main engagementsa conducted in fiscal year 2017 related to the issuance of comfort letters and reviews of compliance procedures.
Pursuant to the provisions of Articles L. 823-9 and R. 823-7 of the French Commercial Code (code de commerce) relating to the justification of our assessments, we draw to your attention the key audit matters relating to risks of material misstatement that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period, as well as how we addressed those risks.
Net exposure to credit and counterparty risk totaled €462,482 million at December 31, 2017 including €182,057 million in respect of loans and receivables. Individual impairment losses amounted to €1,620 million at
We therefore considered provisions for legal and compliance risks to be key point of the audit given the sensitivity of these provisions to the assumptions and options adopted by management.
We took note of the status of ongoing proceedings and the main risks identified by the Group, mainly through regular discussions with management (and more specifically Natixis S.A.'s legal, compliance and tax departments) and by reviewing the documentation made available to us.
We considered financial instruments classified in Level 3 of the fair value hierarchy to be a key audit matter due to the material nature of the exposures and the use of judgement in determining fair value.
At December 31, 2017, Level 3 financial instruments represented assets of €12,114 million and liabilities of €3,414 million.
Please refer to Notes 5.6, 5.23, 6.7.5 and 6.18 to the consolidated financial statements for more details.
We tested the controls we considered relevant to our audit, particularly those related to: the validation and periodic review, by the Risk Division, ofa valuation models, the independent verification of the valuation inputs,a the determination of the main valuation adjustments, as wella as the value adjustments made.
We also examined, on a sample basis, any variances in margin calls with Natixis' market counterparties, which helped us assess the appropriateness of the valuations.
We considered the valuation of these reserves to be a key audit matter insofar as they represent a significant amount in the Group’s accounts and since some of these reserves require the exercise of judgement in determining the assumptions (e.g. experience tables and behavioral statistics) or calculation models used.
Testing on the basis of reconciliation, recurrence tests, ora samples, the reliability of information relating to insurance policies recorded in the management systems and used to assess technical reserves,
Carrying out an independent recalculation of certain reserves,a based on a sample of policies if necessary,
Assessing calculation methods and the result of the liabilitya adequacy test, as required under IFRS 4.
We also verified the information on insurance liabilitiesa disclosed in the notes to the Group’s consolidated financial statements.
FINANCIAL DATA Statutory Auditors’ report on the consolidated financial statements 341Natixis Registration Document 2017
At December 31, 2017, €1,585 million was recognized on Natixis’ consolidated balance sheet in respect of deferred tax assets, including €1,084 million in tax loss carryforwards.
Please refer to Notes 5.20, 5.23 and 6.8 to the consolidated financial statements for more details
We acquired information on how budgetary data is compiled to estimate future taxable profits and assessed the reliability of the process of drawing up the tax business plans that are the basis of our assessment of the probability of the Group recovering its deferred tax assets by: examining how the last business plan used as a basis of thea estimates was developed and approved; checking projected results of previous years against the actuala results for those years; assessing the reasonableness of the forecast assumptions anda the inputs used by management to estimate future profits and the recoverability of recognized deferred tax assets, based on our experience and knowledge of the Group’s activities and strategy.
Based on projections made by management, we carried out tests to check that deferred tax asset bases are properly calculated and that the right tax rates are used. In particular, with the help of our specialists, we checked that account had been taken of legislative developments during the year involving changes in tax rates in France and the United States.
We have also performed, in accordance with applicable professional standards in France, the specific verification required by law of information about the Group disclosed in your Board of Directors’ management report.
audit of procedures for preparing and processing accounting and financial information.
The Audit Committee is responsible for monitoring the financial reporting process and the effectiveness of internal control and risk management systems and, where applicable, the internal
FINANCIAL DATA Statutory Auditors’ report on the consolidated financial statements 343Natixis Registration Document 2017 evaluates the overall presentation of the consolidated financiala statements and assesses whether these statements represent the underlying transactions and events in a manner that achieves fair presentation.
Report to the Audit Committee terms of procedures for preparing and processing accounting and financial information.
Our report to the Audit Committee includes the risks of material misstatement that, in our professional judgement, were of most significance in the audit of the parent company financial statements of the current period and which therefore constitute key audit matters, which we are required to describe in this report.
See Note No. Year ended December 31 2017 2016 3 Cash and balances with central banks 36,453 26,532 5 Government securities and equivalent 24,334 23,431 3 Advances to banks 98,612 105,564 5 Bonds and other fixed-income securities 22,789 24,801 5 Shares and other variable-income securities 45,057 41,359 6 Investments in associates and other long-term investments 156 443 6 Investments in subsidiaries and affiliates 13,971 13,931 10 Property, plant and equipment 137 130
See Note No. Off-balance sheet items – Commitments received 2017 2016
See Note No. Year ended December 31 2017 2016 23 Interest and similar income 6,216 4,884 23 Interest and similar expenses (5,314) (3,989)
Gross operating income 1,354 1,604 30 Cost of risk (248) (261)
Funding/reversal of funding for general banking risks and regulated provisions 0 7
INVESTMENT IN SUBSIDIARIES AND NOTE 6 AFFILIATES, ASSOCIATES, OTHER LONG-TERM INVESTMENTS AND TREASURY SHARES 358
STATEMENT OF ASSETS, LIABILITIES NOTE 22 AND COMMITMENTS RELATED TO MANAGEMENT OF PUBLIC PROCEDURES 372
ESTABLISHMENTS AND OPERATIONS IN NOTE 39 NON-COOPERATIVE STATES OR TERRITORIES WITHIN THE MEANING OF ARTICLE 238-0A OF THE FRENCH GENERAL TAX CODE 381
Natixis’ separate financial statements have been prepared and are presented in accordance with Regulation No. 2014-07 of the Autorité des Normes Comptables (ANC – French accounting standards setter) dated November 26, 2014 relating to the financial statements of companies in the banking sector and Regulation No. 2016-07 dated November 4, 2016 relating to the French General Accounting Plan (PCG – Plan comptable général).
Loans that have been granted on an irrevocable basis but have not yet given rise to any transfer of funds are included in off-balance sheet items under “Financing commitments given”.
Restructured loans correspond to loans with modified terms under which Natixis grants a concession to borrowers facing or likely to face financial difficulties. They are a combination of a concession granted by Natixis and financial difficulties experienced by the borrower.
Each group of assets is assessed for objective evidence of impairment based on observable data indicating a likely decrease in the estimated recoverable cash flows for that group of assets. A collective write-down in the balance sheet liabilities is taken against any group of assets showing objective evidence of impairment. Assets belonging to that group, which are subsequently specifically identified as impaired (specific risk), are removed from the collective write-down calculation base.
Provisions for sector and country risk are shown under liabilities in the balance sheet.
Securities are, in accordance with Book II - Title 3 “Accounting treatment of securities transactions” of Regulation No. 2014-07 of the ANC, classified according to: their type: government securities (treasury bills and similara securities), bonds and other fixed-income securities (negotiable debt securities and interbank market instruments), shares and other variable income securities; the economic purpose for which they are held, into one of thea following categories: held for trading, held for sale, held for investment, other long-term securities, investments in associates and investments in subsidiaries and affiliates.
At each balance sheet date, they are measured at market value and the grand total of any valuation difference is recognized on the income statement under the heading, “Balance of transactions on securities held for trading”.
securities held for sale: securities which are not classified ina any other category are considered as securities held for sale.
They are valued at year end at the lower of their carryinga amount and their market value. Unrealized losses give rise to the recognition of an impairment loss, whose calculation factors in gains from any hedging transactions conducted. Unrealized gains are not recognized.
Investment securities, shares in affiliates and othera long-term securities: other long-term securities: investments made by Natixis inj the form of securities, with the intention of forging lasting professional relationships and creating a special relationship with the issuing company, but without any influence over the management of the corporate entities in which investments were made due to the low percentage of voting rights held.
They are recognized at their acquisition date at the purchase price excluding acquisition costs.
These securities are valued individually at the lower of their value in use at the reporting date and their acquisition cost. Unrealized losses are subject to a provision for impairment.
The DCF method for measuring future cash flows is based on the establishment of business plans prepared by the management of the subsidiaries in question and approved by Natixis’ senior management. The discount rate on future cash flows is the result of: an average rate of return on an investment deemed to bea risk-free; an average credit spread on the market in which the subsidiarya is listed; an average beta as reflected in a sample of equivalenta companies.
These transactions are carried out for four purposes: micro-hedging (hedging of specific transactions or positions);a macro-hedging (overall asset and liability management);a speculative position-taking;a specialized management of a trading portfolio.a
For non-hedging activities, positions in a class of options or forward contracts are revalued on situation in the market value. When these financial instruments are not sides on active markets, this value is generally determined from internal models integrating if necessary valuable adjustments determined according to the concerned instruments and the associated risks
They fall into four categories: “Short-term benefits” including salaries, social security contributions, annual leave, employee profit-sharing, incentive plans, top-up contributions and bonuses payable in the 12 months after they are attributed are expensed in the period in which the corresponding services were rendered.
FINANCIAL DATA Parent company financial statements and notes 353Natixis Registration Document 2017
Cash-settled employee retention and performance plans indexed to the value of the Natixis share
A provision of €134,000 was recorded in the financial statements at December 31, 2017 in respect of plans to be settled in shares (allocation of existing shares), against an identical expense in this respect in 2016.
On November 12, 2009, an arrangement was made by BPCE to protect a portion of the portfolios of the former GAPC(1) hive-off vehicle with retroactive effect at July 1, 2009. With this guarantee mechanism, Natixis was able to free up a significant portion of its equity allocated to segregated assets and to protect itself against the risk of loss from these portfolios subsequent to June 30, 2009. This protective arrangement was based on two mechanisms: a sub-participation in terms of risk which acted as a financiala guarantee on 85% of the nominal value of assets recognized as “securities held for investment”, “securities held for trading”, “securities held for sale” and “receivables”. Under this guarantee, Natixis is protected from the very first euro in default up to 85% of the default amount; two total return swaps (TRS), one in euros and another ina dollars, which transferred to BPCE 85% of the profit or loss recognized as from July 1, 2009. The instruments hedged by these TRS were mostly represented by “securities held for trading” and to a lesser extent by “securities held for sale”. At the same time, Natixis bought an option from BPCE which, if exercised, would allow it to recover in 10 years’ time any net positive performance by the portfolio in exchange for payment of a premium.
There were no changes to accounting methods in respect of the 2017 fiscal year.
For fiscal year 2017, Natixis has recognized the total transfer of -€76.4. Moreover, Natixis disposed of its remaining stake in assets and liabilities of Natixis Consumer Finance which had an CACEIS for a gross impact before taxes of €84.6 million. impact of €61.5 million on gross capital gains. It also recognized the total transfer of assets and liabilities of Natixis HCP, with all of Corporate Data Solutions’ activities sold, for an impact of
Interbank and similar transactions 135,065 132,096 *o/w subordinated loans 0 40 o/w reverse repurchased securities 42,622 43,248 o/w accrued interest 77 96
Non-performing loans amounted to €63 million at December 31, 2017, compared with €71 million at December 31, 2016. At
The amount of perpetual subordinated loans totaled €875 million at December 31, 2017 versus €816 million at December 31,
Restructured loans as defined in Note 1 amounted to €81 million in performing loans at December 31, 2017 versus €289 million at
Restructured loans as defined in Note 1 recorded as non-performing or irrecoverable loans amounted to €1,575 million before impairment at December 31, 2017 versus €2,240 million at December 31, 2016. The amount after impairment amounted to €1,151 million at December 31, 2017 versus €1,672 million at December 31, 2016.
Non-performing loans amounted to €2,839 million at December 31, 2017 versus €3,479 million at December 31, 2016 (of which €247 million at December 31, 2017 relating to irrecoverable loans versus €282 million at December 31, 2016).
Of which securities loaned for €17,079 million at December 31, 2017 versus €15,695 million at December 31, 2016.(b)
Of which Shares and other listed variable-income securities for €44,705 million at December 31, 2017 versus €40,128 million at December 31, (d) 2016.
There were no transfers of securities between categories in 2016 or 2017.
the valuation of Nushi shares for +€103 million;the valuation of Natixis Algérie shares for +€14 million.-
Natixis Algérie Immeuble El Ksar – Zone d’affaires Mercure – Lot 34/35 Bab Ezzouar – 16311 Alger U 10,000,002 DZD 11,466,227 DZD 100.00%
Natixis Asia Limited Suite 1911-1922-19 F Two 88 Queensway Pacific Place - Hong Kong U 632,395 HKD -159,989 HKD 100.00%
FINANCIAL DATA Parent company financial statements and notes 361Natixis Registration Document 2017
A - BREAKDOWN OF INVESTMENTS WITH A GROSS VALUE OF OVER 1% OF THE REPORTING COMPANY’S CAPITAL Subsidiaries and investments (holdings in excess of 10%) Natixis Private Equity 5-7 rue de Monttessuy
Nushi 399 Boylston St 13th Floor Ma 02116 Boston United States Of America U 1,227,285 USD 3,390,447 USD 15.00%
Of which subsidiaries and investments not covered under A.* Excluding income of the year.(A) 2017 fiscal year.(a)
FINANCIAL DATA Parent company financial statements and notes 365Natixis Registration Document 2017
INTERBANK AND SIMILAR TRANSACTIONS 124,254 118,718 * o/w repurchased securities 38,314 36,249 o/w accrued interest 125 185
CUSTOMER TRANSACTIONS 108,125 121,330 * o/w repurchased securities 66,235 78,272 o/w accrued interest 58 80
(in millions of euros) 01.01.2017 Charges Reversals Translation adjustments Other(a) 12.31.2017
(in millions of euros) 01.01.2016 Charges Reversals Translation adjustments Other(a) 12.31.2016
The remaining average working lives of employees, for all benefits, is 12.8 years versus 15.7 years at December 31, 2016.
FINANCIAL DATA Parent company financial statements and notes 369Natixis Registration Document 2017
Unrecognized actuarial gains and losses 7 (10) 13 10 (3) (22) 7 (18)
Total net obligation at January 1 47 96 32 111 286 33 81 29 93 236
Benefits paid over the period (3) (5) (2) (38) (48) (1) (4) (1) (27) (33)
Payments to the fund during the period (4) (67) (71) (2) (2)
Recognized actuarial gains and losses over the period 1 13 14 1 (1) 1 1
Actuarial gains and losses on benefit obligations 1 4 6 11 22 11 1 6 40
Change in actuarial gains and losses not recognized (5) 3 0 6 4 10 11 1 6 28
06.27.2014 06.27.2026 EUR 900,000,000 Quarterly Euribor 3M+2% No redemption clause 900,000,000.00 900,000,000.00 Non-convertible Unsecured creditors
Interest normally due on deeply subordinated notes is mandatory once a dividend has been paid on Natixis shares. However, for any other period, the contractual conditions of deeply subordinated notes state that the issuer may suspend the payment of this interest as non-paid coupons are not deferred.
Following approval by the banking supervisory authority and at the initiative of the issuing company, redeemable subordinated debt may be subject to early redemption through repurchasing on the stock market, or over the counter in the case of private debt, as of a date set in the issue notice or purchase agreement or in the event of changes to current tax and regulatory rules. In all cases, these redemptions are subject to the approval of the banking supervisory authorities.
At December 31, 2017, the share capital was composed of 3,137,360,238 shares, each with a par value of €1.60. All shares confer the same rights on their holders, except for treasury shares, which have no voting rights.
within the scope of Retention and performance plans, and the subscription of 7,989,447 shares relating to the share issue reserved for employees under the employee shareholding plan.
Of which -€202 million in interest expense on subordinated debt at December 31, 2017 versus -€229 million at December 31, 2016.
Of which pension costs for €149 million at December 31, 2017 versus €74 million at December 31, 2016.(a)
Of which a net provision reversal for the Workforce Adaptation Plan of €4 million at December 31, 2017 versus €9 million at December 31, 2016.(b)
Including a contribution of €116 million to the Single Resolution Fund (SRF) at December 31, 2017, versus €110 million at December 31, 2016.(c)
Any tax savings or expense generated by consolidation is recognized by Natixis as the parent company.
Natixis was subject to an audit covering the 2008 to 2013 fiscal years. Following this audit, Natixis S.A. received a reassessment notice dated December 19, 2016. Natixis S.A. intends to contest the majority of the proposed adjustments and has recorded a provision for the estimated risk.
FINANCIAL DATA Parent company financial statements and notes 377Natixis Registration Document 2017
The European Court of Justice has ruled the application of aa share of costs and expenses, fixed at 5% of dividends received from subsidiaries based in another European Union Member State which, if they had been residents of France, could have belonged to a tax consolidation group, contrary to the freedom of establishment principle (EJC 2-9-2015, Case C-386/14, Groupe Steria SCA). Natixis, as the head of the tax consolidation group in France, thus received a reimbursement of the tax unduly paid on the 5% share of costs and expenses for a total of €6 million.
stake was bought back in August 2013. All dividends paid on the CCIs and all net proceeds from the 2013 buyback were subject to corporate tax in application of Article 145, 6 b ter of the French General Tax Code, which limits the application of the investment income exemption scheme to equity securities carrying voting rights. This condition was ruled unconstitutional by the ruling of July 8, 2016 of the French Constitutional Court (Natixis Ruling n° 2016-553 QPC). The French Council of State then canceled the doctrine of administrative law (CE Natixis No. 397316 dated October 5, 2016) and the Finance Minister amended it in the October 5 Official Bulletin. On this basis, which makes a tax gain almost certain, the latter was recorded in the financial statements at December 31, 2016 for previousThe Taxation of Dividends and CCI redemption proceeds froma fiscal years in the amount of €326.0 million plus interest onprevious fiscal years: until 2013, Natixis held a 20% stake in arrears.the Banque Populaire and the Caisse d’Epargne banks, in the form of cooperative investment certificates (CCIs). This entire
Fee and commission income and expenses 239 64 175 51 529 229 36 191 46 502
At December 31, 2017, in accordance with the above-mentioned article, Natixis hereby reports that it has: in the Marshal Islands, €78 million in outstanding financing (neta of provisions) and €7 million in loan commitments given.
in Panama, €119 million in outstanding financing (net ofa provisions), €3 million in loan commitments given and €19 million in financial commitments given.
Income after tax, but before depreciation, amortization and provisions 0.66 0.29 0.32 0.45 0.42
Income after tax, depreciation, amortization and provisions 0.75 0.42 0.36 0.52 0.53
In our opinion, the parent company financial statements give a true and fair view of the assets and liabilities and of the financial position of the Company as at December 31, 2017 and of the results of its operations for the year then ended in accordance with French accounting principles.
The opinion expressed above is consistent with the content of our report to the Audit Committee.
We conducted our audit engagement in compliance with the independence rules applicable to us, for the period from January 1, 2017 to the date of our report and in particular we did not provide any services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014 or under the French Code of Ethics (code de déontologie) for statutory auditors.
Furthermore, the non-audit services that we provided to your Company and its controlled undertakings during the fiscal year that are not disclosed in the management report or the notes to the parent company financial statements are as follows: PricewaterhouseCoopers Audit: the main engagementsa conducted in fiscal year 2017 related to the issuance of comfort letters and reviews of compliance procedures.
Deloitte & Associés: the main engagements conducted ina fiscal year 2017 concerned reviews of reporting compliance, either as required by regulations or requested by the regulators, the independent third-party body engagement on the CSR information in the management report, comfort letters in connection with issuance programs and certification.
Mazars: the main engagements conducted in fiscal year 2017a related to the issuance of certificates and comfort letters, and reviews of internal control systems for regulatory projects or regulated processes.
These matters were addressed in the context of our audit of the parent company financial statements as a whole, and in forming our opinion expressed above, and we do not provide a separate opinion on specific items of the parent company financial statements.
FINANCIAL DATA Statutory Auditors’ report on the parent company financial statements 383Natixis Registration Document 2017
Exposures to credit and counterparty risks from transactions with customers totaled €112,390 million at December 31, 2017, including €51,645 million in respect of credit transactions. Individual impairment losses amounted to €969 million at December 31, 2017.
We therefore considered provisions for legal and compliance risks to be key audit matter given the sensitivity of these provisions to the assumptions and options adopted by management.
We took note of the status of ongoing proceedings and the main risks identified by Natixis S.A., including through regular discussions with management (and more specifically Natixis S.A.'s legal, compliance and tax departments) and by reviewing the documentation made available to us.