INTERVIEW 2 11 PRESENTATION OF NATIXIS 5 Natixis Code of Conduct1.1 6 Business line presentation1.2 8 History and links with BPCE1.3 10 2017 Key figures1.4 12 Natixis’ businesses1.5 14 Natixis and its shareholders1.6 30 22 CORPORATE GOVERNANCE 35 Corporate governance at March 1, 20182.1 36 Additional information on the directors’ 2.2 positions 38 Management and oversight of corporate 2.3 governance 63 Policies and rules established for determining 2.4 compensation and benefits of any kind for corporate officers 84 333333333333333333333333333333333333333 RISKS AND CAPITAL ADEQUACY 99 Summary of annual risks3.1 100 Organization of Natixis’ internal control 3.2 system 109 Governance and risk management system3.3 113 Capital management and capital adequacy3.4 118 Credit and counterparty risks3.5 127 Securitization transactions3.6 139 Market risks3.7 140 Operational risks3.8 147 Overall interest rate, liquidity and structural3.9 foreign exchange risks 151 Non-compliance risk3.10 163 Legal risks3.11 167 Other risks3.12 170 At-risk exposures3.13 174 4444444444444444444444444444444444 OVERVIEW OF THE FISCAL YEAR 177 Management report at December 31, 20174.1 178 Post-closing events4.2 190 Information concerning Natixis S.A.4.3 190 55 FINANCIAL DATA 193 Consolidated financial statements and notes5.1 194 Statutory Auditors’ report on the consolidated 5.2 financial statements 338 Parent company financial statements 5.3 and notes 344 Statutory Auditors’ report on the parent 5.4 company financial statements 382 Internal control procedures relating 5.5 to accounting and financial information 387 66 ENVIRONMENTAL AND SOCIAL RESPONSIBILITY 391
2017 was a particularly active year for Natixis across all its businesses. Our main financial indicators , particularly in terms of commercial development, profitability and financial solidity, confirm this vitality.
Services business also continued to expand on the back of its payments and specialized financing activities.
There was growth in all our businesses. In Asset Management, Natixis is now one of the top ten asset managers by revenue. In Corporate & Investment Banking we continued to gain market share and outperformed our competitors in Europe and the United States. Buoyed by strong sales momentum, Insurance also emerged as a sustainable growth driver. The Specialized Financial
“With New Dimension, we will anchor our success over time by deepening the transformation of our business model and investing in digital. We are determined to differentiate ourselves by drawing on our teams’ widely recognized expertise to become a leading player and our clients' first point of reference.”
The global economic environment is favorable, with solid growth prospects around the world. However, we have observed renewed volatility on the markets in the opening months of 2018, which means we need to remain alert and continue to pay close attention to our risk management, as well as deepen our transformation so that we adapt even faster to change.
With New Dimension, we will anchor our success over time by deepening the transformation of our business model (Deepen) and investing in digital (Digitalize). We are determined to differentiate ourselves (Differentiate) by drawing on our teams’ widely recognized expertise to become a leading player and our clients' first point of reference.
Present in almost 40 countries, Natixis, together with all the companies it comprises, operates in a diverse range of businesses. It owes its growth to the trust it has instilled in its clients, teams, shareholders, regulators and in society as a whole.
In the interest of preserving and enhancing this asset, Natixis has decided to establish its Code of Conduct to affirm and formalize its commitment to act in accordance with the highest professional ethics, to put clients’ interests first and to act responsibly towards society. It is the result of the collective efforts by all the Natixis business lines and support functions, and was approved by the Senior Management Committee and the Board of Directors.
All the Natixis business lines and support functions are in charge of adapting, from an operational standpoint and with the assistance of the Compliance Department, the principles of the Code to the performance of their activities.
A Conduct Committee, comprising members of Natixis’ Senior Management Committee, is in charge of the oversight and
If you are unsure about the consistency of what you intend to do with the Code of Conduct guidelines, ask yourself: CONDUCT CHECKLIST
If the answer to one of these questions is no, or if you are unsure about it, please seek guidance from an appropriate authority: Ask for help from your line manager, or relevant teams (e.g., Compliance, Environmental and Social Responsibility (ESR), Human Resources, Legal).
Income Distinctive Equities Insurance Solutions Multi-Asset Solutions Innovative Alternatives and Real Assets Money Market
Financial Investment Management Wealth management advisory Corporate Advisory Life Insurance under
(1) Market shares: 21.6% in customer savings deposits, and 21.1% in customer loans (source: Banque de France Q3 2017 – for all non-financial customers).
With more than 17,000 employees in 38 countries, Natixis has a number of areas of expertise that are organized into four main business lines: Asset & Wealth Management, Corporate & Investment Banking, Insurance and Specialized Financial Services. A global player, Natixis has its own client base of companies, financial institutions and institutional investors as well as the client base of individuals, professionals and small and medium-size businesses of Groupe BPCE’s banking networks, the second-largest banking group in France(1).
1 PRESENTATION OF NATIXISBusiness line presentation 8 Natixis Registration Document 2017
LIFE INSURANCES Individual life insurance, savings, transfer of assets, retirement, death insurance, long-term care insurance and borrower’s insurance
SPECIALIZED FINANCING FACTORING NATIXIS FACTOR Management and optimization of customer receivables Factoring and financing Business information and collection
Design and development of multiple market surety and financial guarantee services
Equipment and real estate lease financing (equipment leasing, real estate leasing, operations leasing, leasing with option to buy, IT operational leasing, Sofergie loans and long-term leasing)
Employee savings schemes Pension plans Collective non-life and provident insurance Employee share ownership
SECURITIES SERVICES EUROTITRES DEPARTMENT Retail and private banking custody with back office functions
Natixis was formed in 2006 through the combination of Natexis Banques Populaires and various subsidiaries of the Groupe Caisse d’Epargne, notably Ixis Corporate & Investment Bank (Ixis CIB) and Ixis Asset Management (Ixis AM): Natixis Banques Populaires itself was created from thea contribution in July 1999 of the operating activities of the Caisse Centrale des Banques Populaires, founded in 1921, to Natexis S.A., a holding company that was formed from Crédit National, founded in 1919 and which had acquired a 100% stake in Banque Française du Commerce Extérieur, founded in 1946. At December 31, 2000, Groupe Banque Populaire held 79.23% of Natexis Banques Populaires following a capital increase largely taken up by retail investors; Ixis CIB and Ixis AM were originally part of CDC Ixis, itself parta of the Caisse des Dépôts. The Ixis CIB and Ixis AM businesses were then contributed to the Caisse Nationale des Caisses d’Epargne (CNCE) as part of the transformation of the Groupe Caisse d’Epargne into a major full-service banking group at the end of 2004.
Between November 18, 2006 and December 5, 2006, CNCE and BFBP (through SNC Champion) sold some of their Natixis shares on the market via a Retail Public Offering in France for retail investors and a Global Offering for institutional investors both in and outside France. Once the transaction was completed, CNCE and BFBP each held a 34.44% stake in Natixis.
Directors and the CNCE Supervisory Board. The last step in the formation of Groupe BPCE was completed on July 31, 2009, with the votes at the General Shareholders’ Meetings of BFBP, CNCE and BPCE.
The underlying principles of BPCE, the central institution ofa Groupe BPCE created by Law No. 2009-715 of June 18, 2009, were approved on June 24, 2009 by the BFBP Board of
With the formation of Groupe BPCE, BPCE took the place ofa CNCE and BFBP, becoming the majority shareholder of Natixis.
Natixis has been affiliated with BPCE since July 31, 2009 (nota inclusive), replacing the dual affiliation of Natixis with CNCE and BFBP.
On August 6, 2013, Natixis sold all the cooperative investment certificates (CCIs) that it held internally to the Banque Populaire and Caisse d’Epargne banks. This transaction was part of a move to simplify Natixis’ structure.
Groupe BPCE is the No. 2 banking group in France through its two flagship brands: Banque Populaire and Caisse d’Epargne. With 106,500 employees, it serves 31 million customers, of whom 9 million are cooperative shareholders. Groupe BPCE develops a broad range of banking and financial services for a wide variety of customers.
Pursuant to Article L.511-31 of the French Monetary and Financial Code (Code monétaire et financier), BPCE shall, as the central institution, take any measures necessary to guarantee the liquidity and solvency of Groupe BPCE. Natixis, in its capacity as an institution affiliated with BPCE, is covered by the Groupe BPCE financial solidarity mechanism. Thus, in the event Natixis encounters financial difficulty, (i) BPCE would firstly provide support using its own capital in accordance with its duty as a shareholder; (ii) should this prove insufficient, it would use the mutual guarantee fund created by BPCE, which at December 31, 2016 totaled €362.6 million in assets provided jointly by the Banque Populaire and Caisse d’Epargne networks, and which is increased through an annual contribution (subject to the amounts which would be used in the event of a call for funds); (iii) if BPCE’s capital and this mutual guarantee fund should prove insufficient, BPCE would call on (in equal proportions) both the Banque Populaire and Caisse d’Epargne networks’ own guarantee funds of €900 million in total and; finally (iv) if calls on BPCE’s capital and these three guarantee funds should prove insufficient, additional sums would be requested from all Banques Populaires and Caisses d’Epargne.
* Pro forma figures reflecting methodological and reporting changes as published on November 13, 2017 ( application/pdf/2017-11/natixis_pr___restated_quaterly_series.pdf)
** Reported figures including non-recurring items. Excluding non-recurring items, 2017 ROE of 13.8%, 2016 ROE 12.2%.
Corporate & Investment Banking Asset & Wealth Management Specialized Financial Services Insurance 1 PRESENTATION OF NATIXIS2017 Key figures 12 Natixis Registration Document 2017 2017 Key figures1.4
* After paying out the proposed dividend for the fiscal years in question.
Natixis operates in three key regions: the Americas (28% of net revenues(1)), Asia-Pacific (5% of net revenues(1)) and EMEA (Europe, Middle East and Africa, 67% of net revenues(1)).
Asset Management and Wealth Management continue to be centered on Natixis’ expertise in asset management, among the largest and most profitable asset managers worldwide.
In 2017, Natixis announced a series of strategic goals for its Asset Management division in line with its 2018-2020 New Dimension Plan, and its continued commitment to its global multi-affiliate model. To better align with its business model, the Asset Management business was rebranded and a new brand platform was introduced. The newly named Natixis Investment Managers includes 26 specialized investment managers in the US, Europe and Asia. Natixis Investment Managers’ new brand platform is based on the Active ThinkingSM concept, reinforcing its commitment to highly active, high-conviction investment management and highlighting its broad range of investment expertise.
Natixis Investment Managers ranks 15th globally by assets under management (Cerulli Associates: Global Markets 2017 report based on AuM as of December 2016; revenue and operating profit based on ranking of publicly traded asset managers).
Natixis Investment Managers is a multi-affiliate business with a portfolio of 26 autonomous asset managers providing a diversified suite of distinctive active investment management expertise, with the support of a value-adding holding company. Natixis Investment Managers supports the growth of each affiliate through its global distribution platform, financial support for innovation and global oversight to ensure the consistency of the operational risk management our clients expect.
For Natixis Investment Managers, 2017 featured solid investment performance, a meaningful increase in its asset base and significant new client wins, and strong financial results. Fund flows rebounded, driven by a well-diversified business mix. European and US affiliates generated €9 billion and €13.9 billion in net inflows respectively. By platform, the international distribution, US and Canadian platforms attracted a roughly equal proportion of net inflows. These inflows were also well-diversified across affiliates.
Strong net inflows and market action were offset by currency impacts and by the sale of its share in IDFC and the planned transfer of a portion of assets managed for CNP Life insurance. AuM at the beginning of the year stood at €831.5 billion and ended the year at €830.8 billion, a decrease of 6% at a constant euro basis.
Natixis Investment Managers also expanded its affiliate range with the acquisition of a majority ownership stake in Australian equities manager, Investors Mutual Limited (IML), a successful, well-respected manager with a long-term, conservative, qualityand value-based investment style. IML has a long-term performance record across a range of funds with a broad retail client base. The acquisition brings Natixis Investment Managers expertise in Australian equities and additional exposure to the Australian retirement savings market. Over the next decade, the Asia Pacific will be one of the fastest growing markets in the world in terms of assets under management, and the region is critical to the growth of Natixis Investment Managers.
See Chapter 5 of this registration document — Note 16.2 of the Appendices to the consolidated financial statements.(1)
Mirova (€8.7 billion): SRI equity and fixed income, infrastructure project financing;a
In 2017, Natixis decided to reposition its wealth management business by focusing on the High Net Worth Individuals / Family Office segment to better integrate this expertise within the Group, and by simplifying and digitalizing its business model.
With this in mind, the brand Banque Privée 1818 became Natixis Wealth Management, covering the business in France, Luxembourg and Belgium. Natixis Wealth Management brings together a full range of expertise based on Private Equity, structured products, real estate and asset management solutions offered by Natixis Investment Managers.
Since January 1, 2018, Seeyond – formerly the quantitative investment division of Natixis Asset Management – has become an investment* management company in its own right and an affiliate of Natixis Investment Managers. The AuM figures mentioned above are as of December 31, 2017, ie. before the Seeyond spin-off. Seeyond’s AuM are therefore included in Natixis Asset Management’s AuM.
At December 31, 2017, the Corporate & Investment Banking (CIB) business line comprised 2,984 employees (FTEs) in 30 countries around the world. 52.9% of the employees were located in France, and 47.1% internationally.
These areas of expertise are adapted locally across the three international platforms: Americas: Argentina, Brazil, Canada, Chile, Colombia,a Mexico, Peru and the United States; Asia-Pacific: Australia, China, Hong Kong, India, Indonesia,a Japan, Malaysia, Singapore, South Korea, Taiwan and Thailand; EMEA (Europe, the Middle East and Africa): France, Germany,a Italy, Kazakhstan, Russia, Spain, Switzerland, Turkey, the United Arab Emirates, and the United Kingdom.
In keeping with Natixis’ strategic ambitions for the green, sustainable economy, Corporate & Investment Banking has continued to consolidate the green franchise, particularly in renewable energy financing, SRI research, green bonds, and “climate equity” investment solutions.
In order to offer new opportunities to issuers and investors globally, in late July 2017, Corporate & Investment Banking set up a Green & Sustainable Hub to deliver a continuum of dedicated solutions and expertise. These include structuring and origination of financing solutions (bonds, credit, securitization), structuring and engineering of investment solutions (equities, rates, credit), market intelligence, and advice for investors and issuers that are clients of the bank.
On December 6, 2017, Natixis and ODDO BHF announced plans for a long-term partnership on the equity markets (cash equity, equity research, equity capital markets) with a view to delivering a unique solution for investors and issuers that is consistent with the regulatory changes associated with MiFID II.
The aim is to create a leading player on equity broking and equity capital markets in continental Europe. The combination of research and sales teams serving corporate and investors, the strength of Natixis’ Corporate & Investment Banking business and ODDO BHF’s distribution capabilities should enable them to gain market share.
In fixed income, credit, forex, commodities and equity markets, Natixis offers its corporate and institutional (both private and public sectors) clients and Groupe BPCE network clients a wide range of investment, financing and hedging products that tie into its widely recognized research.
A multi-underlying approach is being developed for clients, as shown by the creation of the Global Securities Financing team which operates in both the fixed income and equity markets. This approach is being applied in the international platforms, especially in Asia, where a number of specialists have been hired to develop the offer of multi-underlying solutions.
The prestigious “Structured Products House of the Year” award won in Asia for 2017 (source: AsiaRisk) reflects the bank’s strong position in this highly competitive market.
On the fixed income markets, our teams offer clients financing, investment and hedging products and solutions on the credit, fixed income and forex markets in OECD and emerging countries. The teams are located in Europe (Paris, London, Milan, Madrid and Frankfurt), the Middle East (Dubai), Asia (Singapore, Tokyo, Hong Kong, Shanghai and Taipei) and the Americas (New York, Houston and São Paulo).
engineering a key component of the fixed income business. The team is dedicated to driving the development and sale of innovative solutions for clients on the credit, fixed income and forex markets, while increasing the added value of those solutions among target clients.
In early January 2017, a cross-business European sales and financial engineering team was created, making financial 2017 saw a rise in the intensity and international reach of activities across the three geographical zones, leading to the expansion of the following teams: the sales teams in Germany, the United Kingdom (mainly fora the sale of securitization assets) and Eastern Europe (mainly for Russian clients); the financial engineering, sales and Global Structured Credit &a Solutions (GSCS) teams, in order to cover Asian and Australian customers; the sales teams for North American and Latin Americana clients.
The focus on the development of solutions is paralleled by the digitalization of activities, including the increasing electronization of flows. A new digital interface has also been developed to enhance the oversight of business development and ensure better client follow-up.
On the credit market, to address structural issues related to the growing disintermediation of financial markets, the GSCS teams offer clients solutions geared towards efficient asset and liability management, such as advisory and financing solutions for balance sheet reduction, arrangement of alternative financing or regulatory optimization. GSCS launched ABS/CLO trading activities in 2017. This new team complements the existing origination, structuring and syndication business, and means that Natixis is able to offer clients services right across the structured credit value chain.
Business in this market segment was brisk across the three international platforms in 2017. In Europe, the Merius investment platform, which was set up in 2016, reached over €1 billion in investments at the end of 2017, underlining investor interest in this innovative solution on the Dutch residential mortgage market. On the catastrophe (cat) bonds market, Natixis successfully co-arranged and placed an innovative bond issue (including a Rule 144A placement on the US market) worth €90 million, providing the Covéa group with three-year coverage against storm risks in Europe. Growing interaction between the international teams has also led to some major deals, including the BSL (broadly syndicated loan) CLO in early 2017 for US asset manager Voya. The CLO was distributed in the Americas, Europe and Asia, and its equity tranche, placed with Taiwanese investors, was named “Best Insurance Deal of the Year, APAC” (source: SRP Asia Pacific Awards 2017). A good example of our ability to innovate, this tranche was structured to comply with the specific regulatory constraints of Taiwanese insurers and allow them to invest in the equity tranche of this US-originated CLO.
Natixis is a recognized arranger and placement agent in the US CLO market, where it was the sixth largest CLO arranger in 2017 (source: Thomson Reuters). The bank participated in the entry of new issuers into this market, with inaugural deals such as the Nassau 2017-I Ltd CLO and the Pacific Asset Management CLO. It was also involved in a number of landmark transactions, such as the $1.5 billion Fortress Credit Opportunities IX CLO Ltd deal for a subsidiary of the Fortress Investment Group, in which Natixis acted as sole lead manager, and which was placed with US, Japanese, Danish, UK and Australian investors.
On the commodities and energy markets, the Global Markets Commodities (GMC) teams have, over the past three years, developed a selective range of flow products and base metals, precious metals and energy solutions for corporate and sovereign clients that specialize in these markets. Accordingly, Natixis has adopted a model that is resolutely focused on its clients in Asia, the Americas and Europe, and founded on the development of tailored and innovative solutions that meet clients’ risk management and financing needs. This approach leverages the expertise of the teams on the derivatives markets, combined with that of the financing and economic research teams.
Under the plans to establish sector-based teams, the GMC business will, in 2018, become a joint venture between the new Energy & Natural Resources business line and Global Markets. The objective is to enhance commercial efficiency in the marketing of commodities products and increase synergies with clients.
In 2017, the equity derivatives business grew substantially and boosted productivity and market share. These positive results are the result of an expanded range of solutions, intensified customer relations and the growing industrialization of our digital solutions, including training platforms such as Massive Online Open Courses (MOOC) for our distributor clients, the E-MAPS pricing platform and the E-TRANSAC portfolio management tool for the secondary market.
equity derivatives trading business was restructured to allow for the management of index and equity positions within two separate books. This new structure is fully in line with Global Markets’ strategy to develop innovative, tailor-made solutions for clients, while securing the trading books’ current exposures. By optimizing the recycling of solution book risks, the new structure encourages the development of Alternative Risk Transfer solutions that give targeted clients (institutional clients and hedge funds) privileged access to alternative asset class performance drivers.
This performance also reflects the trading team’s capacity to implement optimal risk management under which, in 2017, the
Natixis received a number of prestigious awards in 2017, underlining the dynamism and expertise of the equity derivatives teams. It was named “Most Innovative Investment Bank for Equity Derivatives” by The Banker magazine for the second year in a row (Investment Banking Awards 2017). This international recognition illustrates the bank’s ability to generate innovative solutions tailored to the market environment, evolving regulations and the needs of clients, such as solutions incorporating systematic strategies for equity portfolio hedging and investment solutions based on new market indices in Europe (Euronext, Stoxx, FTSE Russell, Standard & Poor’s and Sol active) and in Asia and the Americas. In Asia, after two years’ collaboration with Natixis, the Korea Exchange launched its first index designed for structured products. In the United States, the New York teams participated in the creation of the new Nasdaq-100 Target 25 Excess Return index. The collaboration with the Asian and US teams has given Natixis access to exclusive operating license for these two indices, demonstrating the bank’s expertise in innovative investment solutions.
Global Securities Financing: a joint venture between Fixed Income and Equity Derivatives
Created in late May 2017, Global Securities Financing is a new entity formed mainly from the merger of the Equity Finance (Equity Derivatives) and Securities Financing group (Fixed Income) teams. It aims to promote dialog with our clients in order to provide them with multi-underlying and multi-product solutions. With teams in Paris, London, Frankfurt, New York, Hong Kong and Tokyo, Global Securities Financing’s primary areas of expertise are collateralized funding and collateral management (repos, securities lending/borrowing, etc.), repo market-making and credit and sovereign securities lending/borrowing, and index (equity) market-making as well as a solutions department. The pooling of expertise facilitates the development of hybrid solutions as well as innovative products such as the Zephyr Max Violet Note, the alternative investment solution voted Deal of the Year, APAC by AsiaRisk (source: SRP Asia Pacific Awards 2017).
Global Markets has a centralized XVA management desk (CVA/DVA/FVA). Its core responsibilities are to measure and manage XVA exposures and hedge the main risks generated by these exposures.
Research complements Natixis’ sales strategy. Every day, the Research function publishes analyses to guide clients in their investment decisions and contributes to creating financial solutions tailored to clients’ needs.
In 2017, the team pursued its research across all asset classes to provide clients with an increasingly wide market perspective. The research function received a number of awards recognizing the expertise of its teams and their commitment to clients: “Best 2017 commodities and energy researcher” (source:a Energy Risk Awards 2017); “Best Credit Research in the Covered Bonds, Distribution anda Consumer Goods, Supranationals & Agencies and Utilities categories” and No. 5 in Fixed Income Research 2017 (source: Euromoney Fixed Income Research Survey 2017); No. 1 for equity research in France, including 11 awards ina seven different sectors: Food & Beverages, Automotive, Retail & Consumer Products, Construction, Energy & Chemicals, Healthcare, Utilities (source: Thomson Reuters Analyst Awards 2017); No. 2 in SRI/ESG research in Europe in 2017 (source: Extela 2017) and No. 3 in credit research in the ESG/green bonds category in 2017 (source: Euromoney Fixed Income Research Survey 2017).
Over the course of 2017, the teams structured and priced the research offer, and met with eligible clients to make them aware of Natixis’ research offering. To facilitate customer compliance, the level of security for access to publications and to the Global Markets research website has been increased for all Natixis clients, while enhancing the user experience of the website.
Natixis topped the league tables in a number of categories in 2017, including No. 1 bookrunner for syndicated real estate finance in the EMEA region (source: Dealogic, EMEA Real Estate Loans report at December 31, 2017), No. 6 MLA for infrastructure finance in Europe and No. 10 globally (source: IJ Global at December 31, 2017).
In October 2017, Natixis launched a Global Finance restructuring project as part of the New Dimension strategic plan, and in order to capitalize on its international, multiple business line expertise across four sectors. The project leads to the creation of two dedicated business lines: Energy & Natural Resources and Real Assets (see above).
At the same time, and in order to further consolidate the O2D model, the Global Portfolio Management business line is expected to incorporate syndication transactions and step up its role in the active management of the loan book.
In 2017, Natixis pursued its initiatives to digitalize commodity trading by creating, in conjunction with IBM and Trafigura, the first blockchain for oil and gas trading. In a sector environment that remains challenging due predominantly low commodity prices, Natixis consolidated its energy and commodities franchise in a highly selective way by supporting its longstanding clients with their financing needs and demonstrated strong resilience.
Natixis is a leader on the real estate finance market in Europe and the United States and boasts a comprehensive financing offering, including arrangement of corporate and structured financing across all asset classes, securitization (US), German mortgage covered bonds (Natixis Pfandbriefbank AG), etc.
Natixis was ranked No. 1 bookrunner in real estate syndicated financing in EMEA in 2017 (source: Dealogic, at June 30, 2017), reflecting the vitality of its business and its positioning as a major arranger in the sector. 2017 saw the completion of a
In the United States, Natixis issued the first ever “green” CMBS. The $72 million securitization is backed by the 85 Broad Street building in New York and refinances part of a first mortgage of $358.6 million. Activity was extremely buoyant across the United States and in all asset types, with high-profile transactions including the financing of the acquisition ($232 million) of the Crossroads III offices in Sunnyvale (California) by Tristar Capital, the refinancing ($270 million) of JW Marriott Chicago, $125 million in financing for the construction of a residential, office and retail complex at One Light Street in Baltimore, and the financing of the acquisition ($240 million) of a complex in Santa Clara (Silicon Valley) by a Hollywood producer and an investment fund.
Liquidity Management: Natixis offers corporate clients aa multi-bank, paperless centralized account statement service as well as automated multi-bank cash solutions.
Cash management for corporate clients: Natixis provides itsa clients with multi-channel and multi-format solutions to help them manage their transactional activities (payments/receipts/reporting). It complements these solutions with security arrangements to protect against the risk of fraud.
Cash management for financial institutions: Natixis supportsa financial institutions in all stages of transaction processing (centralization of payments to and from Europe, optimization and simplification of international payment circuits).
In 2017, Global Transaction Banking’s sales activity featured major trade finance deals including the setting up of supply chain finance (receivables finance) solutions in Dubai and New York. The New York GTB teams also set up three standby letter of credit issuance facilities for clients monitored by Insurance coverage.
It is also involved in the eBAM project to streamline customer bank authorization management.
The business grew substantially in 2017, with a 45% increase in the volume of acquisition financing arranged, after an already strong 2016. Natixis was ranked No. 6 bookrunner on sponsored loans in the EMEA region by value at December 31, 2017 (source: Thomson Reuters). It consolidated its position with a number of major acquisition finance deals for corporates and was also successful in arranging numerous leveraged buyouts for investment funds.
In the Asia-Pacific region, Natixis arranged the financing for the acquisition of the industrial company Saint Hubert by the Chinese group Fosun and the Chinese agribusiness firm Beijing Sanyuan Foods, a consortium for which Natixis acted as sole advisor.
In the Americas, having participated in the $12 billion leveraged buyout of Brand Energy by the fund CD&R in 2013, Natixis supported the company’s development in 2017 by participating in the $4 billion acquisition of the Safway group.
In 2017, Natixis strengthened its leading position in the corporate market in the EMEA region, particularly in Italy, and in Asia-Pacific. It was ranked No. 1 bookrunner on the primary bond market in all currencies by French corporate issuers in 2017 (source: Dealogic). It continued its expansion on the covered bond market among financial institutions, in the EMEA region among its Italian, German, Portuguese, Spanish and Belgian clientele and in the Nordic countries (Denmark and Sweden). To address its clients’ requirements regarding the Sapin II law, Natixis participated in new senior non-preferred debt instruments, leading large programs for major groups in France and Spain.
Finally, Natixis remained very active in emerging markets, including via the Slovak Republic’s €1 billion bond issue, in which it acted as joint lead manager.
In addition, Natixis helped Groupe BPCE access new sources of liquidity, by assisting it in its first Samurai social-impact bond on the Japanese market (¥58.8 billion).
On the covered bond market, Natixis acted as bookrunner in the programs of Banco Comercial Portugues in Portugal (€1 billion) and Swedbank (€1 billion) in Sweden.
Natixis continued to grow on the investment grade market with Safran’s €1 billion variable-rate bond issue and LVMH’s €4.5 billion issue.
Natixis acted as joint bookunner in the Sukuk issues of the Islamic Development Bank ($1.25 billion) and of Ezdan ($500 million).
ECM also maintains a Corporate Broking business that offers clients intermediation services for acquisitions and disposals on the equity market, share buybacks and liquidity contracts.
In order to strengthen its position as a leading player on the equity capital markets, Natixis is considering a long-term partnership with ODDO BHF (read earlier in the section), as reflected by the plans to merge the two entities’ equity capital markets activities in France under Natixis.
The Strategic Equity Transaction team, which specializes in equity-linked finance, develops solutions to help clients manage their equity positions. These transactions use financing tools, derivatives and other financial instruments for Natixis’ large European and international corporate clients, and aim to cover their equity-related issues such as equity interests, company-controlled stock and dilution/accretion.
This advisory business activity focuses on the analysis of financial structures and credit rating issues for Natixis’ corporate and financial institution clients. It aims to define the most appropriate equity and debt-based financing solutions for its clients. The internationalization and increasing disintermediation of the capital markets have increased clients’ reliance on ratings, giving this business line increasing strategic importance. The rating advisory expertise is applied to analyze and optimize the impact of major events on clients’ ratings, and even extends to assisting clients with obtaining their first rating.
In France, Natixis is currently a leader in Mergers & Acquisitions and is ranked No. 3 in M&A advisory services for mid caps by number of deals and by value (source: L’Agefi as at December 31, 2017) and No. 4 in M&A advisory services in France by number of deals (source: Merger Market as at
The drastic run-off of assets led to the closure of GAPC on June 30, 2014. Since June 30, 2009, a portion of the GAPC portfolios has been covered by a guarantee from BPCE. The monitoring system and guarantee mechanism remain strictly unchanged since June 30, 2014. Since June 30, 2016, in view of the current value of the Option (see “TRS” and “Option” below), Natixis has not recorded any capital savings on assets hedged by the TRS.
Pursuant to the terms of this financial guarantee, in the event of non-payment confirmed on the scheduled contractual payment date of sums due in respect of any of the assets in the guaranteed portfolio, Natixis will be paid by BPCE from the first euro up to 85% of the amount due. The payment will be made in the currency in which the defaulting asset is denominated. The expiry date of the financial guarantee is the date from which Natixis is no longer required to pay over to BPCE the sums recovered on assets in the guaranteed portfolio having defaulted. It post-dates the expiry date of the guarantee by 15 years.
The Insurance division consists of a holding company, Natixis Assurances, which owns various operating insurance subsidiaries that develop and manage a comprehensive range of insurance solutions for individuals and professionals. The division is structured around two large business lines as well as one activity common to all of Groupe BPCE: the Personal Insurance business, which focuses on thea development of portfolios for life insurance, investment and retirement savings and a very wide range of personal protection coverage (death benefit, work cessation and dependency) and payment protection solutions; the Non-Life Insurance business, focused on developinga portfolios for motor and multi-risk home insurance, personal accident insurance, legal protection, healthcare and property and casualty insurance; Insurance Solutions handles insurance segments fora Groupe BPCE that are not dealt with by its insurance subsidiaries, e.g. the Group’s insurance program.
The Insurance division is composed of several legal entities (excluding investment vehicles): Group company Legal form Location Share of voting rights Share of ownership
The Insurance division was created in 2014 in line with Groupe BPCE’s strategy of becoming a fully-fledged bancassurance player primarily serving clients from the two main banking networks of Groupe BPCE: the Banque Populaire banks and Caisses d’Epargne. This ambition resulted in three operations of structural importance: in March 2014, Natixis Assurances acquired 60% of BPCEa Assurances, a non-life insurance company created to serve customers of the Caisse d’Epargne network. Along with BPCE IARD (49.5%-owned, focused on serving Banque Populaire customers), this acquisition enabled the formation of the non-life insurance business, with BPCE Assurances in a central operational role; on November 16, 2017, Natixis Assurances purchased ana additional 40% stake in BPCE Assurances from Macif and Maïf. This operation, which made Natixis Assurances the sole shareholder of BPCE Assurances, was in line with the New Frontier strategic plan, which seeks to create a single insurance division within Natixis to serve Groupe BPCE’s strategy of becoming a fully-fledged and leading bancassurance player. It also contributed to keeping the value created in non-life insurance within the Company; in the first quarter of 2015, Groupe BPCE and CNP Assurancesa finalized the renegotiation of their partnership. As such, effective January 1, 2016, the distribution of life insurance policies for retirement savings and personal protection insurance, handled by the Personal Insurance business line, was extended to the Caisse d’Epargne network.
The activities of Natixis Assurances, which were initially developed for the segment of life insurance policies for retirement savings, have been expanded to incorporate personal and property protection insurance. Accordingly, the development of non-life and personal protection insurance was accelerated in 2011 with the launch of the ABA (“Bancassureur Ambition”) sales action plan, which was extended in 2014 through the ABA Pro plan, aimed at permanently establishing a genuine bancassurance culture. These ambitions gradually made the insurance business one of the core priorities for Groupe BPCE, which seeks to create customer loyalty by offering a range of insurance products in addition to developing commercial relations and generating stable revenues that are not correlated with financial risks and the banking business.
Macroeconomic and financial shifts have resulted in the implementation of monetary policies with significant impacts on life insurance policies for retirement savings, and, to a lesser extent, the non-life insurance business. In particular, historically low interest rates, which are the source of over 80% of revenues for life insurance players, have led to significant changes in product and investment strategies: life insurance products introduced since the plan’s launch havea been aimed at improving the sharing of risks and profits among the various stakeholders in order to guarantee the right balance between sustainable sales competitiveness and solvency protection in the medium term. Similarly, the Personal Insurance business line has responded to the sharp decrease of market interest rates by lowering the revaluations incorporated into its policies. This has allowed it to accumulate a significant profit-sharing reserve representing over a year of revaluations at the end of 2017. This reserve can be used as a significant cushion to supplement “policy” revaluations over the next eight years; a variety of commercial initiatives have been undertaken,a targeted at end-customers and the business provider networks, to increase the share of inflows and assets invested in unit-linked products; the continual decline in returns from traditional fixed-rate assetsa has led to a number of changes in asset management policy: the diversification of fixed-income investments toward morej direct loans and structures such as securitization funds, an increase in the share of bond issues by corporate entitiesj to the detriment of government bonds, whose returns have become very low, the maintenance of a relatively significant “equity bucket”,j while retaining a variety of management strategies.
In addition, the insurance business is monitored via prudential and regulatory oversight, a process that has seen significant changes: the Solvency II Directive came into effect on January 1, 2016,a resulting in changes in organizational structure, operating procedures and the assessment of minimum solvency as required for developed activities. In the current context of historically low interest rates, this change constitutes a major challenge. The division prepared for this challenge by modifying its governance and risk management processes; (easier early termination) are likely to result in changes to products and operating procedures; similarly, the entry into force of PRIIPs regulations and thea recent changes in the area of payment protection insurance finally, the upcoming entry into force of IFRS 9 and IFRS 17a (January 1, 2021) will force the Insurance division to modify its financial and technical steering. A project to achieve this was launched in 2017, upon the publication of IFRS 17.
Natixis Assurances’ strategy is to develop sustainable business activity across its operations by maintaining the right balance between price competitiveness and the preservation of fundamental technical parameters.
Growth was driven by auto (+12%) and multi-risk home insurance (+9%), primarily due to the positive impact of the Hamon Act (three new policies for each terminated contract in auto insurance, two new policies for each terminated contract in multi-risk home insurance) and the increase in real estate finance. The contract portfolio grew by more than 5% in 2017, totaling 5.6 million policies. This result reflects strong sales performance on both networks. A new multi-risk personal accident solution was launched in December 2017.
In 2017, Natixis Factor posted annual factored turnover of nearly €53 billion, up 18%, and had a market share of over 18% (source: ASF at September 30, 2017).
FACTORED TURNOVER OVER THE PAST 5 YEARS*■ (in billions of euros)
New leases were up by 4% to €3.5 billion. In 2017 Natixis Lease saw the addition of BatiLease and InterCoop, two leasing companies part of Crédit Coopératif, to strengthen its commercial footprint in the Hauts-de-France region and jump-start the leasing business in Belgium. Combined, they represent over 133,000 contracts and outstandings of €12.9 billion.
Equipment leasing in mainland France, overseas territories, Spain and Italy recorded a 15% increase with €2.5 billion in new leases. Front Lease, an equipment-leasing sales tool integrated into advisor workstations, contributed to this significant increase in the number of new leases.
New loans totaled €11.3 billion (of which nearly €1.1 billion for revolving credit and more than €10.2 billion for personal repayment loans).
Operating through the Natixis Coficiné subsidiary and holding market-leading positions in France and Europe, Natixis finances the full range of audiovisual professions and cultural industries.
Natixis Payment Solutions is a key payments player in France. In 2017, it managed 21 million cards and boasted 7.1 billion in trading flows, a 10% increase in card transactions, a 64% increase in PayPlug and Dalenys business volumes from retailers, and a 12% increase in restaurant vouchers issued.
Natixis Payment Solutions is pursuing an active policy of launching products that meet new customer uses, whether in e-services for retailers or by developing mobile payment and paperless prepaid solutions.
Created in April 2017 as part of the “Fit to Win” strategic plan, this department is tasked with maintaining the right balance between Coface’s sales ambitions and its risk management while contributing to improving customer service. It is structured around four divisions: commercial underwriting, which establishes policya underwriting standards for Coface and mediates in commercial decisions in cases regarded as exceptions; information, which handles the acquisition and production ofa relevant and useful information for the purposes of risk underwriting; risk underwriting, which establishes and implements the credita risk underwriting policy and ensures it is properly applied; disputes, which handles compensation and collections.a
By grouping these functions within a single department, Coface is equipping itself with the resources to streamline and accelerate decision-making processes that impact its policies, while also consolidating its ability to fulfill its commitments.
Coface should continue to operation in a favorable economic environment, with global GDP growth expected to reach 3.2% (Coface estimate). The positive trends observed in 2017 should continue into 2018, particularly in the first half of the year. However, price competition remains fierce, making it all the more necessary to improve the quality of service offered to the Group’s customers, an important differentiating factor.
This year, Coface will continue implementing the Fit to Win strategic plan with the same determination. The modernization of the Group’s culture and the mobilization of its teams around the new values embedded in the Fit to Win strategic plan (client focus, expertise, collaboration, courage and accountability) will be key to the plan's success of the plan.
Coface has already achieved €19 million in cost savings, which is ahead of plan, and maintains its objective of €30 million in savings in 2018. Coface intends to invest €19 million in long-term value creation during the year, with initiatives to boost commercial activity and improve client service, the digital transformation and renewed efforts at developing a partial internal model for the calculation of its required solvency level.
The Group maintains its objective of delivering a net combined ratio of around 83% through the cycle.
This estimated solvency ratio constitutes a preliminary calculation made according to Coface’s interpretation of Solvency II regulations. The result(2) of the definitive calculation may differ from the preliminary calculation. The estimated solvency ratio is not audited.
The proposed distribution of €0.34 per share is subject to approval by Coface S.A.’s General Shareholders’ Meeting of May 16, 2018.(3)
PRESENTATION OF NATIXIS Natixis and its shareholders 31Natixis Registration Document 2017
The average daily volume of Natixis shares traded on the market amounted to around 4.9 million in 2017 versus an average of around 6 million in 2016.
Natixis has established an individual shareholder relations and communication platform with three main access points: a toll-free number (from a landline in France: 0 800 41 41 41)a which shareholders can use to speak to an information officer, available Monday to Friday from 9. a.m. to 6 p.m. The interactive voice response system provides information on the share price, the Company’s financial calendar, the latest results and Shareholders’ Club events; a dedicated e-mail address for shareholders’ questionsa (actionnaires@natixis.com) managed directly by the Individual Shareholder Relations team; a website (www.natixis.com), which provides comprehensivea information about Natixis. In the “Investors & Shareholders” section, visitors can view or download press releases, key figures, Natixis’ calendar and financial news, while the “Shareholder Corner” contains comprehensive editorial content and documents for individual shareholders.
The Shareholders’ Club website (clubdesactionnaires.natixis.com) contains comprehensive information about the Club and related services.
The program of activities for 2017 included four Natixis events and four themed events: two information meetings about Natixis: one in Lyon ina partnership with the Federation of Individual Investors and Investment Clubs (F2iC) and one in Strasbourg in partnership with the Investment magazine Le Revenu; two live online video chat sessions where individual investorsa could ask Natixis’ representatives questions about the Bank, its business lines, its financial results and its strategy; four themed presentations, in the form of web conferences anda video chats, which gave our shareholders the opportunity to talk to the economists from Natixis’ Economic Research team and to a representative from the École de la Bourse.
At the General Shareholders’ Meeting, there is a dedicated Shareholders’ Club stand where Club members or any shareholders can find information about Natixis or the Shareholders’ Club.
Nearly 400 shareholders attended in person and over 10,000 shareholders(1) voted prior to the meeting.
The meeting began with the screening of a film depicting Natixis’ economic environment, and questions were addressed from a preliminary survey in which over 200 shareholders participated.
After presenting Natixis’ corporate governance, François Pérol gave the floor to Compensation Committee Chairman, Nicolas de Tavernost, who presented the work of the Committee and detailed the compensation of the directors and the regulated population.
2017 Distinction — Natixis receives Le Revenu’s 2017 Silver Award for Services to shareholders Natixis’ Shareholder Relations team won an award in the SBF120 category (excluding CAC40) Silver for Services to shareholders at the Best Shareholder Relations awards held by Le Revenu group.
Shareholders had the option of voting online prior to the meeting using the Votaccess platform. This option was chosen by 10,058 shareholders,(1) representing nearly 128 million votes.
May 23, 2018 General Shareholders' Meeting (to approve the 2017 financial statements)
POLICIES AND RULES 2.4 ESTABLISHED FOR DETERMINING COMPENSATION AND BENEFITS OF ANY KIND FOR CORPORATE OFFICERS 84 Compensation and benefits of any kind for 2.4.1 members of the Board of Directors 84
Principles and criteria for determining, 2.4.3 distributing and awarding fixed, variable and non-recurring items making up the total compensation and benefits of any kind attributable to the Chairman of the Board of Directors and the Chief Executive Officer 87
This chapter partially corresponds to the Board of Directors report on corporate governance as required by the newly enacted Article L.225-37 of the French Commercial Code (refer to the cross-reference table for the management report in Chapter 8 of this registration document) and includes information on the composition of the Board and the conditions under which its work is prepared and organized, how its governance is structured, and its policy for compensating corporate officers.
2.1 Natixis Governance at March 1, 2018 STRUCTURE OF THE BOARD OF DIRECTORS
Chief Executive Offi cer, member of the Management Board in charge of Human Resources, Group Internal communications and the Corporate Secretary’s offi ce of BPCE SA
Member of the Steering and Supervisory Board of Caisse d’Epargne Ile-de-France
Beverly Bearden – Asset and Wealth Management – Natixis Investment Managers and Human Resources
Oliver Bilal – Asset and Wealth Management – Natixis Investment Managers – International Sales and Marketing
Matthieu Duncan – Asset and Wealth Management – Natixis Asset Management
David Giunta – Asset and Wealth Management – Natixis Investment Managers – U.S. and Canada
Anne Sallé-Mongauze – SFS – Compagnie Européenne de Garanties et Cautions
CORPORATE GOVERNANCE Corporate governance at March 1, 2018 37Natixis Registration Document 2017
Laurent Mignon has been Chief Executive Officer of Natixis since 2009 and a member of BPCE’s Management Board since August 6, 2013. His term of office was renewed on November 16, 2015.
Chairman of the Board of Directors of Natixis Investment Managersa (formerly Natixis Global Asset Management) (since 09.01.2010), Coface S.A. (1) (since 11.22.2012), Natixis Assurances (since 03.23.2017)
Member of the Board of: Arkema1 (since 10.27.2009), AROP (Associationa pour le Rayonnement de l’Opéra National de Paris) (since 12.10.2015)
Attendance rate in 2017 Board of Directors: Strategic Committee: François Pérol is a graduate of HEC and the Institut d’Études Politiques de Paris, and alumnae of the École Nationale d’Administration. He held various positions at the Ministry of the Economy and Finance, beginning with the Treasury Department (1994-2002), and then on the Cabinets of Ministers Francis Mer and Nicolas Sarkozy (2002-2004). He then left the administration to join Rothschild & Cie Banque as Managing Partner from 2005 to 2007. François Pérol was appointed Deputy Secretary General to the President of the French Republic from 2007 to 2009.
François Pérol has been President of the BPCE Management Board since 2009.
Permanent Representative of a BPCE, Manager of SCI Ponant Plus (since 08.04.2010) (until 12.03.2014) Permanent Representative of a BPCE, Chairman of Banque Populaire Création (since 04.08.2011) (until 12.28.2015) Chairman of the European Savings a Banks group (until 06.12.2015)
Member of the BPCE Management Board - Chief Executive Officer in charge of Group Finance, Strategy, Legal Affairs and Secretary's Office of the Governing Bodies
Marguerite Bérard-Andrieu : Born December 31, 1977 Nationality: French Natixis shares held: 0 Address: 50 avenue Pierre Mendès France 75201 Paris Cedex 13
From May 2016 to January 1, 2018, Marguerite Bérard-Andrieu has been the member of the BPCE Management Board and Chief Executive Officer in charge of Group Finance, Strategy, Legal Affairs and Secretary's Office of the Governing Bodies.
Member of the BPCE Management Board – Chief Executive Officer ina charge of Group Finance, Strategy Legal Affairs Departments, and Secretary's Office of the Governing Bodies (from 05.02.2016 to 01.01.2018)
CORPORATE GOVERNANCE Additional information on the directors’ positions 41Natixis Registration Document 2017
Permanent Representative of BPCE, a Chairman of SAS Issoria International Trading (from 2012 to 07.31.2013) then Chairman of SAS Issoria International Trading (until 06.10.2015) Member of the Board of Natixis a Coficiné (since 10.26.2012) (until 05.11.2016) Member of the Board of BPCE IOM a
Member of the BPCE Management Board in charge of Group Human Resources, Internal Communications and the Corporate Secretary's Office of BPCE
BPCE : Natixis shares held: 2,227,221,174 Address: 50 avenue Pierre Mendès France 75201 Paris Cedex 13
Catherine Halberstadt: Born October 9,1958 Nationality: French Natixis shares held: 1,097 Adresse : 50 avenue Pierre Mendès France 75201 Paris Cedex 13
Since January 1, 2016, Catherine Halberstadt occupies the roles of Member of the BPCE Management Board in charge of Human Resources, Internal Communications and the Corporate Secretary's Office of BPCE.
Member of the BPCE Management Board in charge of Humana Resources, Internal Communications and the Corporate Secretary's Office of BPCE (since 01.01.2016)
Member of the Board of Bpifrance Financement (since 07.12.2013),a Chairman of the Appointments Committee and the Compensation Committee, Member of the Audit Committee and the Risk Committee of Bpifrance Financement (since 09.24.2015)
CORPORATE GOVERNANCE Additional information on the directors’ positions 43Natixis Registration Document 2017
Member of the Supervisory Board a (since 04.04.2012) and Risk Committee of BPCE (since 2013) (until 11.16.2015) Chief Executive Officer a of Banque Populaire du Massif Central (BPMC) (since 09.01.2010) (until 03.25.2016) Permanent Representative of a BPCE, Chairman of SAS Sociétariat BPMC (since 2011) (until 03.25.2016) Permanent Representative of a BPMC, Member of the Board of: I-BP, Association des Banques Populaires pour la Création d’Entreprise (since 09.01.2010) (until 03.25.2016) Permanent Representative a of BPMC, Member of the Committee of Banques d’Auvergne (2) (since 2010) (until 03.25.2016)
Address: Immeuble le Concorde 4 quai Kléber - BP 10401 67000 Strasbourg Cedex
Chairman of the Board of Directors of Banque Populaire Alsacea Lorraine Champagne (since 09.30.2003)
Member of the Supervisory Board a of Banque Palatine (from 05.26.2010 to 02.05.2013)
Attendance rate in 2017 Board of Directors: Compensation Committee: Strategic Committee: Alain Condaminas has a degree in Economic Sciences and a DESS in Banking and Financial Techniques. He joined the Banque Populaire group in 1984. In 1992, he began working at Banque Populaire ToulousePyrénées as Head of Production, supervising the Human Resources Department, and subsequently as Head of Operations. In 2001, he became Chief Executive Officer of Banque Populaire Quercy-Agenais. He oversaw the merger with Banque Populaire du Tarn et de l’Aveyron in 2003, followed by another with Banque Populaire Toulouse-Pyrénées to form what is now Banque Populaire Occitane.
Permanent Representative of BP Occitane, Member of the Board ofa i-BP (since 2001)
Permanent Representative of BP Occitane, Member of the Investmenta Committee of Multicroissance (since 11.01.2016)
With a degree in Agricultural Economics from IAE de Paris (Sorbonne Graduate Business School), and a degree in Accounting Studies, Alain Denizot began his career at Crédit du Nord before moving on to SG Warburg France, followed by Société Marseillaise de Crédit. In 1990, he joined Caisse d’Epargne Île-de-France-Ouest as manager then Head of Financial Management. In 1995, he became a Member of the Management Board in charge of the Risk and Finance Department, then in 1999 a Member of the Management Board in charge of the Network and Development. He joined Caisse d’Epargne de Flandre in 2000 as Chief Executive Officer and Member of the Management Board in charge of the Network and Banking Development. In 2003, he was appointed Chief Executive Officer of Ecureuil Assurance IARD. He was later appointed Chairman of the Management Board of Caisse d’Epargne de Picardie in early 2008. In 2011, he joined Caisse d’Epargne Nord France Europe, now Caisse d’Epargne des Hauts de France (CEHDF), as Chairman of the Management Board. Before being elected on May 6, 2013, as a Member of the Supervisory Board and a Member of the Audit and Risks Committee of BPCE, Alain Denizot was a non-voting Member.
Chairman of the Management Board of Caisse d’Epargne des Hauts dea France (formerly CENFE) (since 08.06.2011)
Chairman of the Board of Directors of SIA Habitat (since 12.06.2016),a Chairman of the Compensation Committee and Member of the Audit Committee
Member of the Supervisory Board of Société Immobilière Granda Hainaut (SIGH) (since 10.16.2017)
Permanent Representative of CEHDF, Member of the Board of: Hainauta Immobilier S.A. (since 06.17.2014), Erilia (since 06.20.2016)
Permanent Representative of CEHDF, Member of the Supervisory Boarda of IT-CE (since 12.31.2011)
French Monetary and Financial Code: compliant * Member of the Appointments Committee until February 9, 2017.
Member of Supervisory Board of a Ecureuil Crédit (since 02.20.2008) (until 2014) Liquidator of Université du Groupe a Caisse d’Epargne (since 04.06.2010) (until 2014) Director of CE Holding Promotion a
a Permanent Representative of CENFE, Member of the Board of Finovam (since 12.24.2014) (until 09.19.2016)
First appointed: co-opted by the Board of Directors on August 1, 2017
Director of Crédit Maritime Mutuel a du Littoral Sud-Ouest (since 2012) (until 01.29.2015) Director of Crédit Commercial du a Sud-Ouest (since 2008) and Chairman of the Audit and Risks Committee (since 2011) (until March 2015) Elected member of the Bordeaux a Chamber of Commerce and Industry (2) (since 2006) (until 11.23.2016)
CORPORATE GOVERNANCE Additional information on the directors’ positions 49Natixis Registration Document 2017
Chairman of the Board of Directors of Banque Populaire Bourgogne Franche-Comté
Address: 5 avenue de Bourgogne - BP 63 21802 Quétigny Cedex
Attendance rate in 2017 Board of Directors: Compensation Committee: Strategic Committee: N/A
Holding a Master's Degree in Management Sciences from Université Paris 1, Michel Grass began his career in 1983, working in healthcare as a clinic director in Sens. From 1987 to 2010, he founded and ran a regional group of private clinics. In 2000, he became a director at Banque Populaire de Bourgogne, and served as a commercial court judge from 2009.
Member (since 05.22.2015) then Chairman of the Supervisory Boarda (since 05.19.2017), Chairman of the Risk Committee (from 05.22.2015 to 06.21.2017), Member of the Cooperative and CSR Committee of BPCE (since 06.21.2017)
Member of the Board of S.A. HLM Brennus Habitat (since 06.16.2014)a
a Member of the Board of Banque Palatine (since 02.14.2014) (until 09.13.2016)
a Deputy Mayor of the city of Sens (since 03.31.2014) (until 10.21.2016)
a Vice-Chairman of the Senonais Communauté de Communes (since 04.17.2014) (until 01.04.2016)
CORPORATE GOVERNANCE Additional information on the directors’ positions 51Natixis Registration Document 2017
First appointed: co-opted by the Board of Directors on February 18, 2015 and submitted for the approval of the AGM on May 19, 2015
Chairman of the Ethics and Quality Committee of Korian Medica S.A.(1)a (since 06.22.2017)
Chief Executive Officer of Nexity a Solutions(2) (since July 2011) (until May 2014) Member of the Supervisory Board a of Medica(2) (since March 2012) (until March 2014) Member of the Board of Kea & a Partners(2) (since December 2013) (until 02.09.2015) Member of the Supervisory Board a of Foncia Holding (since September 2011) (until September 2016)
Françoise Lemalle Chairman of the Steering and Supervisory Board of Caisse d’Epargne Côte d’Azur (CECAZ)
First appointed: co-opted by the Board of Directors on July 30, 2015
Key advisory skills: entrepreneurial experience, extensive knowledge accounting, finance and auditing.
Member of the Steering and Supervisory Board of Caisse d’Epargnea Côte d’Azur (since 2013) and then Chairman (since April 2015)
CORPORATE GOVERNANCE Additional information on the directors’ positions 53Natixis Registration Document 2017
In 2000, Bernard Oppetit founded Centaurus Capital, a hedge fund investment management company. Having sold its global investment business, Centaurus Capital is a holding company of which Bernard Oppetit remains Chairman.
(from 2009 to September 2013) Member of the Supervisory Board a of HLD(2) (since 2011) (until 02.12.2015)
a Member of the Board of Emolument Ltd(2) (from 09.25.2014 to 11.17.2014)
Stéphanie Paix Chairman of the Management Board of Caisse d’Epargne Rhône Alpes
A graduate of the IEP de Paris with a DESS in corporate tax law from the Université Paris Dauphine, Stéphanie Paix has been with Groupe BPCE since 1988.
She was Inspector and Head of Inspections at Banque Fédérale des Banques Populaires (1988-1994), and joined the Banque Populaire Rives de Paris as Regional Director and then Director of Production and Organization (1994-2002). In 2002, she joined Natexis Banques Populaires, where she was Director of Operations Management and then Director of Cash Management and Operations (2002-2005). In 2006, she became Chief Executive Officer of Natixis Factor, then Chief Executive Officer of Banque Populaire Atlantique (2008-2011).
Permanent Representative of CERA, Member of the Supervisory Board of IT-CEa (since 12.31.2011)
Permanent Representative of CERA, Treasurer of Fondation Belem (froma May 2013 to 03.01.2017)
Permanent Representative of CERA, Manager of SCI dans la ville (sincea 05.16.2014), SCI Garibaldi Office (since 05.16.2014), SCI Lafayette Bureaux (since 05.16.2014), SCI le Ciel (since 05.16.2014), SCI le Relais (since 05.19.2014)
Member of the Board of Crédit a Foncier (since 04.26.2010) (until 05.10.2016)
a Member of the BPCE Audit Committee (from 05.22.2015 to 12.16.2015)
None None None None * Chairman of the Audit Commitee since February 9, 2017.
A graduate of HEC Paris, Henri Proglio began his career in 1972 at the Générale des Eaux group (now Veolia Environnement), where he held various Senior Management positions. In 1990, he was appointed Chairman and CEO of CGEA, a subsidiary specialized in waste management and transport. In 2000, he became Chairman of Vivendi Environnement (Veolia Environnement), and, in 2003, Chairman and Chief Executive Officer.
From 2009 to November 2014, Henri Proglio was Chairman and Chief Executive Officer of EDF. He has been Honorary Chairman of EDF since 2015.
Member of the Board of: Dassault Aviation(1) (since 2008), ABRa Management Russia (since 2014), Akkuyu Nuclear JSC (Turkey) (since 2015), Atalian (since 09.01.2017)
French Monetary and Financial Code: compliant * Member of the Supervisory Board of Natixis from November 17, 2006, to April 30, 2009.
CORPORATE GOVERNANCE Additional information on the directors’ positions 57Natixis Registration Document 2017
Member of the Board of FCC (1) (2) a Spain (since 05.27.2010) (until 09.22.2014) Member of High Commission for a Transparency and Information on Safety in Nuclear Facilities (2)
Member of the Nationala Commission for Sectors of Vital Importance (2) (since 12.08.2009) (until 02.17.2014) Member of the Committee for a Atomic Energy (2) (since 11.25.2009) (until 11.22.2014) Chairman of EDF Energy Holdings a
Member of Board of Edison(2), then a Chairman of the Board of Directors (since 04.24.2012) (until 11.25.2014) Member of the Board of CNP a Assurances(1) (2)
Member of the Board of South a Stream Transport BV(2) (since 11.13.2012) (until 11.26.2014) Member of the Board of South a Stream Transport AG (2) (from 12.12.2012 to 06.30.2013) Vice-Chairman of Association a EURELECTRIC(2) (Belgium)(since 06.03.2013) (until 11.25.2014)
a Member of the Board of Dalkia(2) (from 07.25.2014 to 11.22.2014)
a Member of the Board of Thales (2) (since 12.23.2014) (until 05.13.2015)
a Member of the Board of Fennovoima Ltd(2) (Finland) (until November 2015)
Attendance rate in 2017 Board of Directors: Appointments Committee: Strategic Committee: Philippe Sueur holds a postgraduate degree in political science and history, a doctorate in law, and is an Associate Professor in Roman law and Institutional History. He began his career in 1974 as a Lecturer before becoming a Full Professor at Université d’Amiens and then at Université de Paris III - Sorbonne Nouvelle and Paris-Nord. From 1992 to 2002, he was Dean of the Faculty of Law, Political and Social Science at Université Paris XIII - Nord. As Mayor of Enghien-les-Bains since 1989, Philippe Sueur has also held various elected positions such as Regional Councilor until 2011, Councilor at Large for the Val d’Oise region since 1994, and was Vice-Chairman of CG95, the Val d’Oise regional council, between 2001 and 2008 and then again in 2011. Since April 2015, he is the first Vice-Chairman of the Val d’Oise Regional Council.
From April 29, 2014 to April 26, 2017, Philippe Sueur has been Vice-Chairman of the Steering and Supervisory Board of Caisse d’Epargne Île-de-France. Since April 26, 2017, he remains Member of the Steering and Supervisory Board of Caisse d'Epargne Île-de-France.
Chairman of the Steering and Supervisory Board of Caisse d’Epargnea Île-de-France (from 04.29.2014 to 04.26.2017)
(a) 2019 AGM called to approve the financial statements for the year ended December 31, 2018.
Member of the Board of the Football Club des Girondins de Bordeauxa (since 2001)
Member (since 12.18.2002) and Chairman of the Supervisory Board (sincea 10.02.2017) of Ediradio S.A. (RTL/RTL2/FUN RADIO).
Permanent Representative of Métropole Télévision, Managing Partner ofa SCI 107 avenue Charles de Gaulle (since 2001)
Representative of RTL group, Member of the Supervisory Board anda Vice-Chairman of the Compensation Committee of Atresmedia (formerly Antena3)(1) (since 10.29.2003)
Member of the Board of Médiamétrie as a Permanent Representative ofa Immobilière Bayard d’Antin S.A. (since 11.22.2017)
Member of the Board of GL Events S.A.(1) (since May 2008)a
(c) 2021 AGM convened to approve the financial statements for the year ending December 31, 2020.
French 04.30.2009 2019 AGM Managing large businesses, proficiency in strategic issues
French 01.28.2013 2019 AGM Proficiency in legal issues, particularly business law; extensive knowledge of banking businesses
French 05.29.2012 2020 AGM Extensive knowledge of retail banking and business financing; bank audits
AC: Audit Committee; App. Com.: Appointments Committee; BoD: Board of Directors; Comp. Com: Compensation Committee; RC: Risk Committee; SC: Strategic Committee.
The company refers voluntarily to the Corporate Governance Code for listed companies published by the Association Française des Entreprises Privées (Afep – French Association of Private Sector Companies) and the Mouvement des Entreprises de France (Medef – French Business Confederation), hereinafter referred to as the “Afep-Medef code”, which was revised in June 2013 and November 2015. The Afep-Medef code is available for consultation at the Company’s head office and on the Natixis website: www.natixis.com.
Natixis’ Board of Directors does not have a formal arrangement to hold a session without the executive director present. However, the Chief Executive Officer is not present at the part of the Board Meeting regarding the determination of his compensation and performance.
Since the Combined Shareholders' Meeting of April 30, 2009, Natixis changed its form of governance from a French société anonyme (a public limited company) with a Supervisory Board and a Management Board to a French société anonyme with a Board of Directors.
At its meeting of April 30, 2009, Natixis' Board of Directors opted to separate the positions of Chairman of the Board and Chief Executive Officer. This decision was a result of the Company's desire to comply with best practices in corporate governance and to make a clear distinction between the strategic direction, decision-making and control functions that come under the Board of Directors' responsibilities, and the operational and executive functions that fall to the Chief Executive Officer.
As indicated above, Natixis’ Board of Directors had 15 members at March 1, 2018. The members are divided up as follows: two members from BPCE, namely François Pérol and BPCEa represented by Catherine Halberstadt; four members from the Banque Populaire banks, namelya Sylvie Garcelon, Thierry Cahn, Alain Condaminas and Bernard Dupouy; four members from the Caisse d’Epargne, namelya Françoise Lemalle, Stéphanie Paix, Alain Denizot and Philippe Sueur; five independent members namely Anne Lalou,a Catherine Pariset, Bernard Oppetit, Henri Proglio and Nicolas de Tavernost.
As is the case every year, at its meeting of December 21, 2017, and following the report submitted by the Appointments Committee, Natixis’ Board of Directors examined each director’s expertise, judgment and freedom of thought and expression and, more specifically, compliance with the independence criteria recommended by the Afep-Medef code and incorporated into the Board’s Internal Rules (see 2.3.1.2 “Role and Powers of the Board of Directors”).
To this end, Natixis analyzes a range of indices, criteria and parameters including: the duration, extent and nature of the banking, trade or consulting relationships; the volume of commitments and the weight of Natixis compared to total indebtedness; and the company’s liquidity requirements.
In the last five years, be or have been: - an employee or executive corporate officer of Natixis; - an employee, executive officer, executive corporate officer or director of a company consolidated under the Company; - an employee, executive corporate officer or director of BPCE or of a company consolidated by BPCE
Is not an executive corporate officer of a company in which Natixis holds a directorship either directly or indirectly, or in which a designated employee of Natixis or an executive corporate officer of Natixis (currently or within the last five years) holds a directorship
Has no close family ties with a director OK OK OK OK OK
Has not been a Board member of the Company for more than 12 years (period after which the capacity of Board member ceases)
The term of office for Natixis directors was reduced from six to four years at the Combined General Shareholders’ Meeting of May 19, 2015. This change was applied not only to terms of office renewed at the General Shareholders’ Meeting but also to any new terms of office and terms in progress at that date.
In accordance with the Afep-Medef code’s recommendation that action plan in May 2018 at its General Shareholders’ Meeting terms of office be staggered in such a way so as to avoid whereby four directors resigned before being put forward to the reappointing large numbers of directors at once and to promote meeting for reappointment. the balanced re-appointment of directors, Natixis instituted an
Current term expiry: 2019 AGM BPCE, François Pérol, Thierry Cahn, Alain Denizot, Bernard Dupouy, Anne Lalou, Françoise Lemalle, Bernard Oppetit, Catherine Pariset, Henri Proglio, Philippe Sueur 2020 AGM Alain Condaminas, Sylvie Garcelon, Stéphanie Paix 2021 AGM Nicolas de Tavernost
In accordance with Article 9 of the Natixis bylaws, each director must own at least one hundred and forty (140) Company shares during their term of office. Furthermore, in accordance with the recommendations of the Afep-Medef code and the provisions of Article 3 of the Compliance Charter for members of the Board of Directors (see 2.3.1.2-B), the Directors are asked to hold at least one thousand (1,000) Company shares within 18 months of joining the Board.
In accordance with Article L.225-19 of the French Commercial Code, the number of directors who are over the age of 70 is limited to one-third of the number of directors in office. Only one Natixis director was over the age of 70 at December 31, 2017.
When a director is appointed, his résumé with a career summary and a list of corporate offices are sent to the other directors and to the shareholders.
The internal rules complete the legal and statutory dispositions by stipulating the rules governing the Board of Directors' operation and setting out the rights and duties of its members. These rules are available in full on the Natixis website (www.natixis.com).
Under the conditions defined in Article 15 of the Company bylaws, the Board of Directors may appoint a Chief Executive Officer from among the directors or otherwise, whom it may dismiss at any time.
At the proposal of the Chief Executive Officer and after consulting the Appointments Committee, the Board of Directors may, in accordance with the conditions defined in Article 16 of the bylaws, appoint five individuals, in charge of assisting the Chief Executive Officer, with the title of Deputy Chief Executive Officer. They have the same powers with respect to third parties as the Chief Executive Officer. Deputy Chief Executive Officers may be dismissed at any time by the Board of Directors on the proposal of the Chief Executive Officer;
CORPORATE GOVERNANCE Management and oversight of corporate governance 67Natixis Registration Document 2017 appoints the executive managers (“dirigeants effectifs”, asc) defined by Article L.511-13 of the French Monetary and Financial Code). The function of “executive manager” must be performed in a joint stock company (société anonyme) with a Board of Directors by the Chief Executive Officer and the Deputy Chief Executive Officer(s), or by a company director disposing the requisite powers to manage the business of the institution. (see Section 2.3.3 “Senior Management for more information on executive managers”); convenes all General Shareholders’ Meetings, sets thed) agenda and oversees the execution of all decisions taken; may, at the proposal of the Chairman, set up its owne) Committees to deliberate on those issues submitted for examination by the Board itself or its Chairman. It determines the structure and powers of these Committees, which conduct their activities under its responsibility.
It issues an opinion on the compliance of Natixis’ compensation policy with current regulation, particularly regarding the Company’s regulated staff.
It sets the rules for the distribution of directors’ fees allocated to the directors by the General Shareholders’ Meeting; verifies the implementation by the executive managers ofg) the supervisory mechanisms to guarantee the effective and prudent management of the Company, specifically the separation of duties and the prevention of conflicts of interest; reviews the governance provision as set out inh) Article L.511-55 of the French Monetary and Financial Code, periodically assesses its effectiveness, and ensures that corrective measures have been taken to remedy any shortcomings; regularly approves and revises the policies and strategiesi) governing the taking, management, monitoring and reduction of the risks to which Natixis is or could be exposed, including risks created by the economic environment; conducts the review and approval of the parent company andj) consolidated financial statements of the Company, ensuring their accuracy and fairness; it establishes the management report.
It approves the report, as set out in Article L.255-37 of the French Commercial Code. It reviews the draft budget for the following year; verifies the process of publishing and disclosing the qualityk) and reliability of the information intended for publishing and disclosure by Natixis; is informed of any resignation/appointment of the Company’sl) Chief Risk Officer.
Among these Internal Rules, which were last amended on February 9, 2017, particular attention should be drawn to the following provisions: circumstances requiring the Board of Directors’ priora authorization: the extension of Natixis’ activities to new core business linesj not currently exercised by the Company, the appointment or dismissal of the CEO or, wherej applicable, one or more Deputy CEOs, any acquisition or increase in shareholdings, as well as anyj investments, divestments or the formation of joint ventures by Natixis or any of its main subsidiaries, involving an amount in excess of €100 million, in the event that the Group’s structure is modified, any asset transfers, mergers or demergers in which Natixisj is involved; criteria used to qualify members of the Board of Directors asa “independent”: An independent director is a person who has no ties with the management, Company or Group of a nature liable to compromise their freedom of judgment or create a conflict of interest with the management, Company or Group.
In particular, the Internal Rules stipulate that, except for decisions related to the preparation of parent company and consolidated financial statements and management reports (Company and Group), directors participating in a Board Meeting by conference call or through the use of telecommunication facilities transmitting at least the member’s voice and whose technical characteristics allow for continuous and simultaneous streaming of the proceedings, shall be deemed present for the purposes of quorum and majority.
In addition, with respect to the assessment of the Board of Directors’ work, the Internal Rules specify that, at least once a year, an agenda item will be devoted to evaluating the Board’s operation, an account of which will be included in Natixis’ annual report (for 2017, see point 2.3.1.4 “Assessment of the Board’s work in 2017”).
The purpose of this Charter is to promote the effective application of corporate governance principles and best practices by the directors of Natixis.
All directors must devote sufficient time and attention to the performance of their duties and regularly attend the meetings of the Board and Committee(s) of which they are a member, as well as the General Shareholders’ Meeting. As such, they must ensure that with the number and commitment level of their directorships, they are available when required, especially if they also hold executive positions.
Each director represents all the shareholders and endeavors to act in the corporate interest of Natixis at all times. He undertakes to defend and promote the values of Natixis.
A director contributes to the collegiality and efficiency of the work of the Board and Special Committees. He makes recommendations that he feels will improve the Board’s operating procedures, specifically during the Board’s periodic evaluation.
Members of the Board of Directors and of the Committees, as well as any individual attending the meetings of the Board and the Committees, are bound by a general confidentiality obligation on their deliberations.
If the Board of Directors has received inside information on Natixis, the directors and any individual attending Board or Committee Meetings must refrain from: performing or attempting to perform any insider trades (thesea covering (i) the use of inside information by a person in possession of such information to buy or sell, for themselves or for a third party, directly or indirectly, financial instruments related to this information, and (ii) the use of the recommendations or inducements of a person in possession of inside information if the person using the recommendation or inducement knows, or ought to know, that it is based upon inside information); recommending or inducing on the basis of any insidea information received, another person to perform any inside trades; or unlawfully disclosing inside information.a
The duty to refrain also applies if inside information is held on the securities of listed companies in which Natixis holds or may come to hold a stake.
These same recommendations are valid for all listed companies on which the director receives inside information in the context of his work with the Board.
Directors are advised of the risk of the execution of transaction on the Natixis share by persons closely associated to them, and in particular: a spouse, or a partner considered to be equivalent to a spousea in accordance with national law; a dependent child, in accordance with national law;a a relative who has shared the same household for at least onea year on the date of the transaction concerned; a legal person, trust or partnership:a the managerial responsibilities of which are discharged by aj person discharging managerial responsibilities or by a person closely associated, which is directly or indirectly controlled by such a person,j which is set up for the benefit of such a person, orj the economic interests of which are substantially equivalentj to those of such a person.
Permanent insiders As per the MAR Regulation, Natixis places the names of directors on the list of permanent insiders made available to the AMF. A permanent insider is any individual or legal entity who, on account of the nature of their functions or position, has permanent access to inside information held by the issuing entity. Directors are individually informed that they are on this list by a letter from the Head of Compliance with a return receipt.
In respect of any transaction relating to Natixis shares or debt securities, as well as any other related derivatives or financial instruments, directors undertake to strictly observe and comply with the provisions of the Natixis S.A. Compliance Manual.
In particular, the director agrees not to perform any transaction during shutdown periods known as “negative windows,” which begin 30 calendar days before the publication dates of the quarterly, half-year and annual results and ending on the publication date of these financial statements.
Should this transaction or business relationship be submitted to the Board of Directors, the director or the non-voting in question must abstain from participating in the meeting of the Board of Directors or any one of its Committees regarding the plan in question. Consequently, he does not participate in the Board’s deliberations, or in voting on the plan in question, and the section of the minutes relative to the plan in question is not submitted to him.
Should one of Natixis’ directors no longer be in a position to perform his duties in compliance with the Charter, either for his own reasons or for any other reason including those specific to Natixis’ rules, he must notify the Chairman of the Board of Directors, seek measures to remedy the situation, and, if none are found, suffer the personal consequences with respect to performing his duties.
In accordance with current regulations, during fiscal year 2017, the Board of Directors authorized, prior to its signing, a so-called “related party agreement”, enrolling Natixis’ in the group insurance policy under Article 82 of the French General Tax Code that was entered into by BPCE with Arial CNP Assurances, for the benefit of its executive officers who are not covered by the “Pension scheme applicable to executive directors of Groupe BPCE” or the “Natixis pension guarantee” scheme.
At its meeting of February 13, 2018, the Board of Directors reviewed all related party agreements that have been authorized by the Board over previous fiscal years, and in particular the amendment to the protocol for compensation between Natixis and Banque Palatine, rejected by the General Shareholders' Meeting of May 23, 2017. This amendment was still in effect over the 2017 fiscal year, during which Natixis booked a total of €800,000 in expenses. The amount corresponds to the additional costs sustained by Banque Palatine which were not anticipated when the protocol for compensation was signed. It was drawn up by factoring in the financial impact resulting from the transfer of the investment services provided to Banque Palatine's clients to Natixis' retail and mutual funds business activities.
With regard to Article L225-37.4 2° of the French Code of Commerce which, in the management report, mentions the agreements entered into directly or through an intermediary by, on the one hand, the CEO, one of the directors or one of the shareholders with a voting right of more than 10% in a company and, on the other hand, another company in which the latter directly or indirectly holds more than half the capital, no agreement meets these criteria for fiscal year 2017.
The Board of Directors held a total of eight meetings in 2017. The attendance rate was nearly 95% for the year as a whole (versus 92% in 2016).
The Chief Executive Officer attended all meetings, thereby enabling the Board members to hear his opinion on important issues and to ask him any questions that they deemed to be relevant.
The Chief Finance and Risk Officer, then after October 1, 2017, the Chief Finance and Strategy Officer, the Corporate Secretary and, as and when required, one or more business heads were invited to provide further information on subjects raised in meetings. The Central Works Council representatives also attended the meetings.
In addition, Stéphanie Paix, a Natixis director, spoke at the Investor Day event held on November 20, 2017 during which the strategic plan for 2018-2020, "New Dimension" was presented.
CORPORATE GOVERNANCE Management and oversight of corporate governance 71Natixis Registration Document 2017
The main topics addressed by the Board of Directors in 2017 were as follows: Natixis’ financial, cash and commitment position
Economic and benchmark reviews / Business market review / Life of the stocka
Adoption of the Board’s management report on the use of capital increase authorizationsa
Submission of the work by the Risks and the US Risk Committeea
Oversight of the provisions of the French Ministerial Order of November 3, 2014: oversight of the a internal control governance system, monitoring of aggregate limits by risk type, monitoring of non-compliance risks
Review of whether the product and service prices offered to clients are in line with Natixis’ risk a strategy
Adoption of the Chairman’s report on the Board’s work and on internal control and risk management a procedures
Fixed compensation of the Chairman of the Board for fiscal years 2016 and 2017a
Determining the fixed and variable compensation of the Chief Executive Officer for fiscal year 2016, a setting the fixed compensation of the Chief Executive Officer for fiscal year 2017, and setting the criteria for determining the variable compensation of the Chief Executive Officer for fiscal year 2017
Allocation of free performance shares to members of the Senior Management Committeea
Capital increase reserved for members of the Mauve 2018 savings plana
Approval of the New Dimension strategic plan for 2018-2020 and review of strategic projectsa
Other items Renewal of bond and warrant issue authorizations for fiscal years 2017 and 2018a
This assessment covered six areas: Review of the structure, operation, and composition of the1. Board of Directors; Verification of the appropriate preparation and discussion of2. major issues; Evaluation of the relationship between the directors and the3. executive officers; Assessment of the work of the Special Committees;4.
They believe that it is a high-quality Board where directors are engaged and mindful.
With respect to the operation of the Board of Directors, there could be more regular monitoring of external growth opportunities and training content could be further adapted to the businesses.
Finally, with respect to the operation of the Special Committees, the holding of one US Risk Committee per year in New York was requested.
In 2017, Natixis renewed its training program for Board members that was started in 2016. The resulting training program is also consistent with the existing one for members of the BPCE Supervisory Board.
To assist it in its review process and prepare some of its deliberations, and to comply with the French Monetary and Financial Code, Natixis’ Board of Directors has surrounded itself with five Special Committees: an Audit Committee, a Risk Committee, a Compensation Committee, an Appointments Committee, and a Strategic Committee, each chaired by an independent director.
Two-thirds of the Audit Committee are not independent members, as recommended by the Afep-Medef code, in order to represent the different components of the Company’s main shareholders (members from the Caisse d’Epargne and the Banque Populaire banks, plus a representative of BPCE). (See summary table on compliance with Afep-Medef code recommendations in Section 2.3 of this chapter).
Changes made to the Audit Committee in 2017 and sincea January 1, 2018: Director Capacity Date of change Replaced by
– Role and powersB Natixis’ Audit Committee has internal rules specifying its powers and its operating procedures, the latest version of which was approved by the Board of Directors on February 9, 2017.
Under the Natixis Board of Directors’ responsibility, the Audit Committee’s primary duties are: checking the clarity of information published by Natixis anda assessing the relevance of the accounting methods adopted for the creation of Natixis’ individual and consolidated financial statements; and
reporting regularly to the Board of Directors on thea performance of its duties. It also reports on the results of the certification of the financial statements, the way in which this duty contributed to the integrity of the financial information and the role it played in this process. Any difficulty encountered is reported without delay.
Each director’s attendance at the Audit Committee’s Meetings appears in Section 2.2 of this chapter (see directors’ individual fact sheets).
Within a reasonable amount of time before a Board meeting, each director receives a file listing the items on the agenda, via a secure website, for review and analysis of the issues to be addressed.
Depending on its agenda, the Audit Committee also benefited from the presence at its various meetings of the Natixis Chief Finance and Risk Officer, then from October 1, 2017 the Chief Finance and Strategy Officer and the Chief Risk Officer, as well as the Head of Accounting and Ratios, the Heads of Internal Audit for Natixis and BPCE, the Corporate Secretary.
In 2017, the Audit Committee’s duties focused on the following items in particular: Financial position
Results of the sharing arrangements for the US affiliates of Natixis Investment Managersa
Presentation by the Statutory Auditors of the new report from the Barnier reforma
– OrganizationA During 2017, the Risk Committee comprised five members. At March 1, 2018 these members were: Bernard Oppetit Chairman
Alain Denizot (position previously held by Sylvie Garcelon until February 9, 2017)
Over the course of the 2017 fiscal year, and in compliance with the US regulation, the Dodd-Frank Act, the Risk Committee met five times as the US Risk Committee. The US Risk Committee has the same composition as the Risk Committee. It is tasked with monitoring the management of risks related to Joint US Activities.
– Role and powersB Natixis’ Risk Committee has internal rules specifying its powers and its operating procedures, the latest version of which was approved by the Board of Directors on November 7, 2017.
Under the Natixis Board of Directors’ responsibility, the Risk Committee’s core duties are: to advise the Board of Directors on the bank’s overall strategya and risk appetite, both current and future; to assist the Board of Directors when it checks thea implementation of that strategy by the executive managers and by the Head of Risk Management.
to issue an opinion on the procedures established by Natixisa that are used to ensure compliance with regulations as well as risk monitoring and control; to that end, it receives the reports of Natixis’ Risk Committees and those of its subsidiaries, as well as the reporting on risks, specifically operational, market or counterparty risks, performed at the behest of the Company’s CEO; to monitor the effectiveness of the internal control and riska management systems; to assist the Board of Directors in determining the guidelinesa and controlling the implementation by executive managers of the supervisory mechanisms to guarantee the effective and prudent management of the Company, specifically the separation of duties and the prevention of conflicts of interest; to review, pursuant to its remit, whether the prices of productsa and services proposed to clients are compatible with Natixis’ risk strategy. If these prices do not correctly reflect the risks, it presents the Board of Directors with an action plan to remedy it; to review, without prejudice, the duties of the Compensationa Committee, if the incentives set out by Natixis’ compensation policy and practices are compatible with this latter’s situation with regard to the risks to which it is exposed, its capital, its liquidity and the probability and time phasing of the expected benefits; to assist the Board of Directors in reviewing thea aforementioned governance mechanism, in assessing its effectiveness and ensuring that corrective measures have been taken to remedy any shortcomings; to regularly examine the strategies and policies governing thea taking, management, monitoring and reduction of the risks to which Natixis is or could be exposed, including risks created by the economic environment. To that end, at least once a year the Risk Committee analyzes the documents used to define and monitor Natixis’ risk appetite, namely the Risk Appetite Statement and the Risk Appetite Framework. The Risk Committee studies all limit changes that took place between two annual reviews, including to industry-based limits.
– Work of the Risk Committee in 2017C The Risk Committee met seven times in fiscal year 2017. Its members’ attendance rate was 89% for the year as a whole (vs.
Each director’s attendance at the Risk Committee’s Meetings appears in Section 2.2 of this chapter (see directors’ individual fact sheets).
Within a reasonable amount of time before each Committee Meeting, each director received a file via a secure website containing the items on the agenda for review and analysis in preparation for the meeting.
Review of the business risk system of the Specialized Financial Services (SFS) divisiona
Monitoring implementation of recommendations made by the Internal Audit Departments of Natixis and BPCEa
Presentation of reports on internal control and risk measurement and monitoringa
Presentation of the follow-up letters from BPCE to Natixis and Natixis’ response to these lettersa
CORPORATE GOVERNANCE Management and oversight of corporate governance 77Natixis Registration Document 2017
As of March 1, 2018, those members were as follows: Nicolas de Tavernost Chairman
Three of the five members are independent (Anne Lalou, Henri Proglio and Nicolas de Tavernost). In accordance with Article 17.1 of the Afep-Medef corporate governance code, a majority of the Compensation Committee is composed of independent directors, and the Committee is chaired by an independent director.
The Compensation Committee reviews proposals related to the employee savings plan, including plans for a capital increase reserved for Natixis employees, and, where applicable, plans for a stock subscription or purchase, or for an allocation of free shares to be submitted to the Board of Directors or the General Shareholders’ Meeting for approval.
Natixis’ CEO provides the Compensation Committee with any documents that may assist it in performing its duties and to ensure it is fully informed.
Approving the variable compensation factors for 2016 after assessing the quantitative and strategic a criteria of the annual variable compensation of executive corporate officers and validating the compensation principles for fiscal year 2017 put to a vote of the Annual General Shareholders’ Meeting on May 24, 2017
Reviewing Natixis’ compensation policy, including of the deferred income rules and conditions for paying a variable compensation as well as the amounts of variable compensation for each business line
Reviewing specific Risk and Compliance targets (2016 review & presentation of 2017 targets)a
Analyzing the compensation of the heads of control functions for 2016a
No change has been made to the Appointments Committee ina 2018.
Qualification as an independent director is discussed by the Appointments Committee, which prepares a report for the Board. Each year, based on this report and before the publication of the annual report, the Board of Directors reviews the situation of each of its members based on independence criteria set out in Article 2.3.2 of the Board of Directors’ Internal Rules (see Section 2.3.1.1 of this registration document).
The Appointments Committee met once in fiscal year 2017. Its members’ attendance rate was 100% (identical to that of 2016).
– OrganizationA The Strategic Committee is made up of all the directors as well as the members of the Senior Management Committee of Natixis.
In addition, the meetings of this Committee allow the Board of Directors to get to know the management team that works with the Chief Executive Officer better and improve the Board’s work methods.
The Chief Executive Officer is responsible for the Natixis’ senior management, in accordance with the Board of Directors’ decision of April 30, 2009 to separate the offices of Chairman of the Board and Chief Executive Officer.
On April 30, 2009, the Board appointed Laurent Mignon as Chief Executive Officer starting May 14, 2009 for a six-year term. Laurent Mignon’s term of office was renewed by Natixis’ Board of Directors on February 18, 2015 for a period of four years, ending after the 2019 General Shareholders’ Meeting called to approve the financial statements for the fiscal year ending on
The Chief Executive Officer subsequently set up a Senior Management Committee (CDG), which he chairs, made up of the heads of Natixis' main businesses (Asset & Wealth Management, Corporate & Investment Banking, Insurance and Specialized Financial Services) and support functions.
At March 1, 2018, the members were: Gils Berrous (Specialized Financial Services), Norbert Cron (Operations and Information Systems), Pierre Debray (Risks), Anne Lebel (Human Resources), Jean-François Lequoy (Insurance), Nicolas Namias (Finance and Strategy), André-Jean Olivier (Corporate Secretary), Jean Raby (Asset & Wealth Management), Pierre-Antoine Vacheron (SFS – Payment Activities) and Marc Vincent (Corporate & Investment Banking).
As Natixis’ decision-making body, the Senior Management Committee’s remit consists of reviewing and approving the Company’s core strategy, overseeing its management, notably as regards the effective application of the Company’s strategy and budget, all major projects and investments, its organization and Human Resources, the performance of its business lines and its results, and the control of its activities.
executive managers: Laurent Mignon, Chief Executive Officer, Gils Berrous, Head of Specialized Financial Services, and Marc Vincent, Head of Corporate & Investment Banking.
In this capacity, Laurent Mignon, Gils Berrous and Marc Vincent stand surety and assume full liability toward the supervisory authorities, specifically the Autorité de Contrôle Prudentiel et de Résolution (ACPR – French Prudential Supervisory Authority for the Banking and Insurance Sector) and the European Central Bank (ECB) for the following activities: the bank’s effective management, within the meaning ofa Article L.511-13 of the French Monetary and Financial Code; disclosure to the ACPR of any accounting or financiala document that the ACPR may request, as well as a response to any request for information or any question, per Articles L.571-4 to L.571-9 of the same Code; periodically evaluating and checking the effectiveness of thea mechanisms and procedures set up to comply with the French Ministerial Order of November 3, 2014 on internal control of banking sector businesses; determining own fund requirements.a
In the event of the absence of the Chief Executive Officer, the other executive managers will ensure business continuity until the Board of Directors appoints a new Chief Executive Officer, on the proposal of the Appointments Committee.
In accordance with Article 15 of the bylaws, the Chief Executive Officer is vested with the broadest powers to act on behalf of the Company under all circumstances. He exercises those powers within the limits of the corporate purpose and subject to the powers expressly reserved for Shareholders’ Meetings and the Board of Directors by law and to the provisions and restrictions stipulated by the Internal Rules. He represents the Company in its relations with third parties.
On the Chief Executive Officer’s recommendation, the Board of Directors may appoint one to five Deputy Chief Executive Officers from among the directors or otherwise to assist the Chief Executive Officer.
CORPORATE GOVERNANCE Management and oversight of corporate governance 81Natixis Registration Document 2017
In this context, the Senior Management Committee studied the opportunities for external growth in Asset Management, M&A and Specialized Financial Services and supervised various projects or initiatives. More broadly, the Senior Management Committee analyzed and approved all the strategic operations conducted by Natixis, before presenting them to the Company’s Board of Directors, such as the acquisition of PayPlug, the harmonization of Natixis and Dalenys in the field of payment solutions, the acquisition of a majority stake in Investors Mutual Limited in Australia, the defining between Natixis and ODDO BHF of a long-term partnership project to create an equity markets leader in Continental Europe, and the sale of its stake in CACEIS.
At the same time, the Senior Management Committee, throughout the fiscal year, oversaw the creation of and defined the new strategic plan “New Dimension”, a long-term value creation plan for fiscal years 2018, 2019, and 2020, which was officially launched on November 20, 2017.
Beyond the strategic plan, the Senior Management Committee oversaw Natixis’ adaptation to changes in the economic and regulatory environment in the banking and insurance sectors. It monitors regulatory changes (MiFID II, Volcker rule, Market Abuse Regulation, FRTB, etc.) on a regular basis and makes proposals.
The Committee will be tasked with making decisions on HR situations or challenging situations, regularly overseeing the Natixis conduct system, and making decisions on ESR policies (for more detailed information on the Code of Conduct, see Chapter 1 of this registration document).
Pursuant to Article R.225-85 of the French Commercial Code, those shareholders who can prove their shares are in a custody account (pursuant to Section seven of Article L.228-1 of the French Commercial Code) in their name or in the name of an intermediary acting on their behalf, either in the registered share accounts held by the Company or in the bearer share accounts held by their authorized intermediaries, no later than two working days before the date of the meeting (by midnight Paris local time hereinafter referred to as D-2), may attend the meetings.
With respect to holders of bearer shares, proof of their status as a shareholder must be provided directly to the centralizing body of the meeting by their authorized intermediaries that hold their bearer share accounts. The intermediaries do so by producing a certificate that must be attached to the voting form or admission card request in the name of the shareholder or the name of the registered intermediary acting on behalf of the shareholder. A certificate is also delivered to shareholders who wish to attend the meeting in person and who have not received an admission card by D-2, 12 midnight, Paris time.
Under the terms and conditions set forth by law and regulations, shareholders may send their proxy and absentee voting ballots, either in paper format or, on the decision of the Board of Directors published in the notices of meeting, through remote transmission. The Board of Directors may also decide that shareholders may participate and vote at any General Shareholders’ Meeting by conference call or electronic transmission under the terms and conditions set by the regulations.
An authorized proxy (namely the shareholder’s spouse or another shareholder, a partner with whom the shareholder has a civil partnership, or any other individual or legal entity of his choice) may always represent a shareholder at Shareholders’ Meetings. This proxy may not represent another person.
In line with the provisions of Article 25 of the bylaws, and exceptionally in the case of granting double voting rights to any fully paid-up shares for which a registered entry for two years under the same shareholder name is demonstrated under Article L.225-123 Section 3 of the French Commercial Code, each member of the meeting has a right to as many votes as they hold or are represented by shares.
To the best of Natixis’ knowledge, none of the members of the Board of Directors or Senior Management has been convicted of fraud, subject to bankruptcy, liquidation or receivership, convicted or punished by official or regulatory bodies, disqualified from acting as a member of administrative, management or supervisory bodies of an issuer, or from participating in the management or conduct of the business of an issuer within at least the previous five years.
During fiscal year 2017, two members of the Natixis Senior Management Committee performed transactions involving Natixis shares: Marc Vincent, Co-Director of Corporate & Investment Bankinga at the time, sold 72,986 shares of Natixis at the unit price of 6.4581 euros, on May 15, 2017; Jean Cheval, Chief Finance and Risk Officer at the time, solda 55,316 shares of Natixis at the unit price of 6.4760 euros, on
Policies and rules established for 2.4 determining compensation and benefits of any kind for corporate officers
COMPENSATION AND BENEFITS 2.4.1 OF ANY KIND FOR MEMBERS OF THE BOARD OF DIRECTORS
Compensation and benefits 2.4.2.1 of any kind for the Chairman of the Board of Directors, François Pérol, in 2017
Compensation and benefits 2.4.2.2 of any kind for Laurent Mignon in connection with his duties as Chief Executive Officer of Natixis in 2017
BREAKDOWN OF ANNUAL VARIABLE COMPENSATION ■ FOR THE 2017 FISCAL YEAR BY VESTING DATE
In keeping with the principle of the admissibility of allocating performance shares to the Chief Executive Officer, at its meeting of May 23, 2017, the Board of Directors of Natixis allocated 29,911 performance shares under the 2017 Plan for the Natixis Senior Management Committee, i.e., 0.00095% of share capital at the allocation date, to the Chief Executive Officer of Natixis, with a vesting period of four years. This allocation corresponds to 20% of his gross annual fixed compensation.
30% of the shares delivered to the executive corporate officer at the end of the vesting period will be subject to a lock-in period ending with the termination of the office as Chief Executive Officer of Natixis.
CHANGES TO THE CHIEF EXECUTIVE OFFICER’S ■ COMPENSATION SINCE 2013 (FIXED PORTION + ANNUAL VARIABLE COMPENSATION AWARDED + PERFORMANCE-RELATED FREE SHARE PLAN)
As a reminder, at its February 10, 2016 meeting the Board of Directors approved a change to the personal protection insurance and supplemental health insurance of CEO Laurent Mignon, with the intention of bringing his situation into line with that of the other members of BPCE’s Management Board. Of particular note is the implementation of a scheme to maintain compensation for a period of 12 months in the event of temporary incapacity to work, a scheme benefiting the other members of the BPCE Management Board. In 2017, benefits in kind related to this plan amounted to €17,157.
Pension Plan Like all the staff, Laurent Mignon is covered by the mandatory pension plans. He does not have the kind of supplementary pension plan described in Article 39 or Article 83 (in reference to the French General Tax Code). In accordance with the undertakings given by Laurent Mignon during the past fiscal year, in 2017 the Chief Executive Officer paid €140,800 net (corresponding to €160,000 gross of his annual compensation) into an “Article 82” type life insurance policy (in reference to the French General Tax Code), put in place by Groupe BPCE. The premiums on this policy will be paid by Laurent Mignon and not by Natixis.
Severance payments and consideration for non-compete agreement It should be noted that, at its February 19, 2014 meeting, the Board of Directors approved a change to its agreement on severance payment, and the establishment of a non-compete agreement. These obligations and agreements were submitted to a vote by the shareholders and approved during the Ordinary General Shareholders’ Meeting of May 20, 2014 (5th resolution). At its February 18, 2015 meeting, the Board of Directors approved the renewal of the severance payment and the non-compete agreement upon the Chief Executive Officer’s reappointment.
Furthermore, in line with the provisions of the Afep-Medef corporate governance code, the right to a benefit is contingent on meeting performance criteria and requirements, such as net income, group share, ROE and the cost/income ratio reported for the two years prior to leaving the Company. The fulfillment of these criteria will be verified by the Board of Directors.
All of these commitments were approved by the General Shareholders’ Meeting on May 19, 2015 when Laurent Mignon was re-appointed as Chief Executive Officer.
No specific compensation is provided for the position of Chairman of the Natixis Board of Directors which is exercised by the Chairman of the BPCE Management Board, as these duties fall within the scope of his responsibility and are thus included in the definition of his compensation components as Chairman of the BPCE Management Board.
The Chairman remains, however, eligible for directors’ attendance fees, but in accordance with the rules applicable within Groupe BPCE, the portion of directors’ fees going to BPCE directors (including that of the Chairman) is paid to BPCE and not to the directors.
Furthermore, the compensation of the Chief Executive Officer is closely tied to the Company’s performance, especially through annual variable compensation that is contingent upon the achievement of predetermined targets. Details regarding these targets and the extent to which they have been achieved at the end of the period, as assessed by the Board of Directors after consulting with the Compensation Committee, are then submitted to a vote at the General Shareholders’ Meeting. The criteria include both quantitative targets related to the financial performance of BPCE and Natixis. As a reminder, Natixis is deeply embedded in Groupe BPCE in this regard, with intertwined strategic plans aimed at their mutual success. These plans also include targets linked to Natixis' performance as well as strategic targets.
For fiscal 2018, the criteria for determining the annual variable compensation approved by the Board of Directors on February 13, 2018, following a review by the Compensation Committee, and which will be put to a vote at the General Shareholders’ Meeting on May 23, 2018, are as follows: Rules for determining variable compensation for 2018
Target set at 120% of fixed compensation, with a range of between 0 and 156.75% of the target, i.e. a maximum of 188.1% of fixed compensation.
Natixis’ financial performance 45% 11.25% net revenuesa 11.25% net income, group share*a 11.25% cost/income ratioa 11.25% ROTE*a
Methods for paying the Chief Executive Officer’s annual variable compensation comply with applicable regulations, especially regulatory provisions relating to control over compensation as set out in European Directive CRD IV of June 26, 2013, and its enactment into French law in the French Monetary and Financial Code, by the Ordinance of February 20, 2014, and the Ministerial Decree and Order of November 3, 2014. In particular, the payment of a fraction of variable compensation awarded is deferred over time and is conditional. This payment is spread over at least the three fiscal years following the year in which the variable compensation is awarded and is contingent upon meeting presence and performance criteria.
The deferred component of the variable compensation awarded represents at least 40% of the variable contribution granted, while 50% of the annual variable compensation is awarded in the form of shares or equivalent instruments. This rule applies to both the deferred and conditional component of variable compensation awarded and the non-deferred portion of the variable compensation.
As a reminder, the CEO is prohibited from using hedging or insurance strategies, both during the vesting period for
The Chief Executive Officer is eligible to receive 20% of his gross annual fixed compensation as performance shares under the long-term compensation plans for members of the Natixis Senior Management Committee. The vesting of these shares is contingent upon continued service and the achievement of performance conditions. The total of the annual variable compensation and performance share grants in favor of the Chief Executive Officer during the fiscal year cannot exceed twice his fixed gross annual compensation.
The Chief Executive Officer also receives social protection benefits whose terms are identical to those applicable to Natixis' employees or implemented by Groupe BPCE for its executive officers.
Compensation due or granted for the fiscal year €2,623,242 (a) €1,754,761
Value of performance shares granted during the fiscal year €192,000 (b) €160,000 (b)
AMF TABLE NO. 2R Summary of the compensation granted to each executive corporate officer
Laurent Mignon, Chief Executive Officer (office held since May 14, 2009)
CORPORATE GOVERNANCE Policies and rules established for determining compensation and benefits of any kind for corporate officers 89Natixis Registration Document 2017
strictly positive. As this condition was met for the 2017 fiscal
Benefits in kind in respect of BPCE (company car, housing, other) 44,080 (7) 44,080 (7) N/A N/A
In respect of BPCE and its subsidiaries 22,050 0 22,050 22,050
In respect of BPCE and its subsidiaries 25,000 0 23,250 23,250
In respect of BPCE and its subsidiaries 1,800 1,800 2,400 2,400
In respect of BPCE and its subsidiaries 7,500 7,500 1,000 1,000
In respect of BPCE and its subsidiaries 26,800 1,800 24,450 25,050
In respect of BPCE and its subsidiaries 26,800 1,800 26,550 32,550
CORPORATE GOVERNANCE Policies and rules established for determining compensation and benefits of any kind for corporate officers 91Natixis Registration Document 2017
Amount paid in 2017 for the variable compensation for fiscal year 2016, i.e. €278,850, for the deferred portion of the variable compensation for (10) fiscal year 2015, i.e. €184,655, for the deferred portion of the variable compensation for fiscal year 2014, i.e. €211,414 and for the deferred portion of the variable compensation for fiscal year 2013, i.e. €236,701.
Variable compensation for fiscal year 2016, of which €278,850 (40%) paid in 2017 and the balance (60%) deferred over three years in equal (11) shares of €139,425.
Amount paid in 2016 for the variable compensation for fiscal year 2015, i.e. €330,983, for the deferred portion of the variable compensation for (12) fiscal year 2014, i.e. €189,470, for the deferred portion of the variable compensation for fiscal year 2013, i.e. €212,146 and for the deferred portion of the variable compensation for fiscal year 2012, i.e. €122,561.
Shares allocated to Laurent Mignon by Natixis and every Natixis group company for his duties as CEO of Natixis.(a)
No free shares became transferable for Laurence Mignon in fiscal year 2017.
Options granted during the fiscal year by the issuer and any company included in the scope of allocation, to the top ten salaried employees of the issuer and of any company included in this scope holding the highest number of options granted 0 n/a n/a
No subscription or call options were granted or exercised by Natixis employees in fiscal year 2017.
AMF TABLE NO. 10R Record of the allocation of free shares for each executive corporate officer
30% of the vested shares are subject to a lock-in requirement for the full term of office as Chief Executive Officer of Natixis or any other(c) executive office at Natixis, including as a Member of the Natixis Senior Management Committee.
Shares allocated as part of the deferred component of annual variable compensation in respect of 2015 and 2016.(d)
Term of Office began: Term of office ended: after the May 2019 General Shareholders’ Meeting X X (b) X X
Laurent Mignon, like all staff, is covered by the mandatory pension plan. He is not covered by the kind of supplementary pension plans described(b) in Article 39 (defined benefit plan) or Article 83 (voluntary defined contribution plan) of the French General Tax Code. In accordance with the undertakings given by Laurent Mignon during the past fiscal year, in 2017 the Chief Executive Officer paid €140,800 net (corresponding to €160,000 gross of his annual compensation) into an “Article 82” type life insurance policy (in reference to the French General Tax Code), put in place by Groupe BPCE. The premiums on this policy will be paid by Laurent Mignon and not by Natixis.
Components of compensation due or granted in respect of the fiscal year ended which are subject to approval or have been approved by the General Shareholders’ Meeting relating to related-party agreements and commitments procedures Amount Comments
Fixed compensation €960,000 Laurent Mignon’s gross annual fixed compensation in respect of his office as CEO, which had been unchanged since he took office in 2009, was adjusted for fiscal year 2017 to €960,000, given its substantial gap with market practices.
Annual variable compensation in respect of 2017 €1,660,863 The variable compensation in respect of fiscal year 2017 was calculated on the basis of quantitative and strategic criteria first reviewed by the Compensation Committee then validated by the Board of Directors, then submitted to a shareholder vote in May 2017.
Variable compensation consists of: quantitative targets (70%), of which 25% is based on the financial performance ina relation to the Groupe BPCE budget (net revenues [4.2%], net income group share [12.5%] and cost/income ratio [8.3%]) and 45% is based on the financial performance of Natixis (net revenues [11.25%], net income group share [11.25%], cost/income ratio [11.25%] and Return on Tangible Equity [11.25%]); individual strategic targets (30%) related to the development and launch of thea 2018-2020 Strategic Plan and continuation of the digital transformation of Natixis and its businesses. Each of these targets has been assigned a weight of 10%, with 5% tied to the following two criteria: the development of Natixis’ collaboration with the Groupe BPCE networks and managerial performance.
The amount of annual variable compensation for 2017 that will be put to a shareholder vote at the next General Shareholders’ Meeting therefore totals €1,660,863, i.e., 144.17% of the annual variable compensation target.
€520,879 will be paid in 2018, 50% of which will be indexed to the Natixis sharea price and paid in October 2018; €1,140,074 will be deferred over three years, 50% of which will be indexed to thea Natixis share price, and will be paid in 2019 (100% in cash), 2020 (50% in cash and 50% indexed to the Natixis share price or in shares) and 2021 (100% indexed to the Natixis share price or in shares), provided that the presence and performance conditions are met.
This plan aligns the Natixis Chief Executive Officer, along with the other members ofa the Senior Management Committee, with the relative performance of the Natixis share and the consistency of this performance. The annual performance of Natixis shares versus the Euro Stoxx Banks index will be compared every year over the four years covered by the plan, i.e. fiscal years 2017, 2018, 2019 and 2020, for each of the annual tranches, each representing 25% of the shares allocated. Based on the relative performance of Natixis’ TSR compared with the average TSR of the Euro Stoxx Banks index, a ratio will be applied for each annual tranche, as follows: – performance below 90%: no vesting of shares allocated out of the annual tranche,
– performance equal to 90%: 80% of the shares of the annual tranche shall vest,
Finally, 30% of the shares delivered to the director at the end of the Vesting Period will be subject to a lock-in period ending with the termination of the office as Chief Executive Officer of Natixis.
Rules for calculating severance payment: The monthly reference compensation is equal to one-twelfth of the sum of the fixed compensation paid in respect of the last calendar year of employment and the average variable compensation paid over the last three calendar years of employment.
Furthermore, in accordance with the provisions of the Afep-Medef corporate governance code, the right to severance pay is subject to a number of criteria and performance conditions, such as net income group share, ROE and the cost/income ratio over the two years preceding the departure. Satisfaction of these criteria will be verified by the Board of Directors as necessary.
CORPORATE GOVERNANCE Policies and rules established for determining compensation and benefits of any kind for corporate officers 97Natixis Registration Document 2017
Benefits of any kind €2,379 On February 6, 2015, Laurent Mignon relinquished his right to a company car. Laurent Mignon received payment of a family allowance, in accordance with the plan in force for Natixis’ employees.
SUMMARY OF ANNUAL RISKS3.1 100 Key risks figures3.1.1 100 Risk factors3.1.2 101
GOVERNANCE AND RISK 3.3 MANAGEMENT SYSTEM 113 General organization3.3.1 113 Risk culture3.3.2 114 Risk appetite3.3.3 114 Risk typology3.3.4 115 Stress tests3.3.5 117
CAPITAL MANAGEMENT AND 3.4 CAPITAL ADEQUACY 118 Regulatory framework3.4.1 118 Prudential consolidation scope3.4.2 118 Composition of capital3.4.3 121 Changes in regulatory capital, regulatory 3.4.4 own fund requirements and ratios in 2017 123 Capital planning3.4.5 125 Other regulatory ratios3.4.6 126
CREDIT AND COUNTERPARTY 3.5 RISKS 127 Targets and policy3.5.1 127 General principles of approval3.5.2 127 Counterparty risk management3.5.3 128 Rating system3.5.4 128 Validation of internal models3.5.5 130 Credit risk mitigation techniques3.5.6 133 Commitment monitoring framework3.5.7 133 Quantitative disclosures3.5.8 135
MARKET RISKS3.7 140 Targets and policy3.7.1 140 Organization of market risk management3.7.2 140 Methodology for measuring market risk3.7.3 140 Market risk management quantitative 3.7.4 disclosure 143
OTHER RISKS3.12 170 Risks related to Insurance activities3.12.1 170 Strategy risk3.12.2 173 Climate risk3.12.3 173 Environmental and social risks3.12.4 173
This chapter presents information regarding risks and capital adequacy in accordance with the following regulatory requirements: requirements in respect of accounting standards (IFRS 7, etc.);a requirements in respect of the European regulation ofa June 26, 2013 (CRR) and the European CRD IV Directive implementing the Basel 3 reforms in Europe.
In addition, since 2013 Natixis has been working to implement all the recommendations of the working group organized by the Financial Stability Board (FSB) for the purpose of improving banks’ financial communication about risks (Enhanced Disclosure Task Force, EDTF). A table cross-referencing the EDTF's
At December 31, 2017, Natixis’ main shareholder, BPCE, held 71% of its share capital (and 71.02% of its voting rights). BPCE is therefore in a position to exercise significant influence over the appointment of Natixis’ directors and executive officers, and on any other corporate decisions requiring shareholder approval. BPCE’s interests in relation to these decisions may differ from those of other Natixis shareholders.
Natixis is part of Groupe BPCE, a major French mutual banking group. Under French law, BPCE, as the central institution of Groupe BPCE, is required to ensure that all of Groupe BPCE complies with regulations in force governing the banking sector in France in areas such as regulatory capital adequacy, risk appetite and risk management requirements. As a result, BPCE has been vested with significant rights of approval over important aspects of Natixis’ risk management policies. In particular, BPCE has the power to approve the appointment or removal of Natixis’ Chief Risk Officer, as well as certain aspects of risk management such as the approval of credit limits and the classification of loans granted to joint Natixis and Groupe BPCE customers as non-performing loans. BPCE’s own interests concerning risk management may differ from those of Natixis.
On the whole, the economic conditions of the markets in which Natixis operates are favorable. There is no guarantee, however, that such conditions will continue. European markets may be affected by a number of factors, including ongoing uncertainty regarding commercial and other relationships between the United Kingdom and the European Union following the UK's decision to leave the EU. Markets in the United States may be affected by recently enacted tax reforms or by a tendency towards political stalemate, which has resulted in government shutdowns and affected credit and currency markets. Asian markets could be impacted by factors, such as slower-than-expected rates of economic growth in China or by geopolitical tensions on the Korean peninsula. Share prices could fall from their current historically high levels, the impact of which could be exacerbated if the correction is particularly rapid or if broad groups of market participants withdraw assets from share-based products at the same time. Credit markets and the value of fixed income assets could be adversely affected if interest rates were to rise sharply as the European Central Bank, the Federal Reserve Bank and other central banks begin to scale back the extraordinary support measures they put in place in response to recent adverse economic conditions. Commodity prices could be impacted by unpredictable geopolitical factors in regions such as the Middle East and Russia. More generally, increased volatility of financial markets could adversely affect Natixis’ trading and investment positions in the debt, currency, commodity and equity markets, as well as its positions in other investments. Severe market disruptions and extreme market volatility have occurred in recent years and may occur again in the future, which could result in significant losses for Natixis’ Capital markets activities. Such losses may extend to a broad range of trading and hedging products, including swaps, forward and future contracts, options and structured products. Volatility of financial markets makes it difficult to predict trends and implement effective trading strategies; it also increases the risk of losses from net long positions when prices decline and, conversely, from net short positions when prices rise. Such losses, if significant, could have an adverse effect on Natixis’ results of operations and financial condition.
It is difficult to predict when economic or market downturns will occur, and which markets will be most significantly impacted. If economic or market conditions in France or elsewhere in Europe, or global markets more generally, were to deteriorate or become more volatile, Natixis’ operations could be disrupted, and its business, results of operations and financial condition could be adversely affected.
An economic environment characterized by sustained low interest rates could adversely affect the profitability and financial condition of Natixis
During periods of low interest rates, Natixis may be unable to lower its funding costs sufficiently to offset reduced income from lending at such rates. Low interest rates may also negatively affect the profitability of the Insurance activities of Natixis because Insurance affiliates may not be able to generate an investment return sufficient to cover amounts paid out on certain of their Insurance products. Low interest rates may also adversely affect commissions charged by Natixis Asset Management affiliates on money market and other fixed income products. Furthermore, if market interest rates were to rise in the future, a portfolio featuring significant amounts of lower interest rate loans and fixed income securities as a result of an extended period of low interest rates would be expected to decline in value at a time when Natixis’ cost of funding could increase. If Natixis’ hedging strategies are ineffective or provide only a partial hedge against such a change in value, Natixis could incur losses.
Legislative action and regulatory measures in response to the global financial crisis may materially impact Natixis and the financial and economic environment in which it operates
Legislation and regulations have recently been enacted or proposed with a view to introducing a number of changes, some permanent, in the global financial environment. While the objective of these measures is to avoid a recurrence of the global financial crisis, the new measures have changed substantially, and may continue to change, the environment in which Natixis and other financial institutions operate.
The measures that have been or may be adopted include more stringent capital and liquidity requirements, taxes on financial transactions, limits or taxes on employee compensation over specified levels, limits on the types of activities that commercial banks can undertake (particularly proprietary trading and investment and ownership in private equity funds and hedge funds), new ring-fencing requirements relating to certain activities, restrictions on the types of entities permitted to conduct swaps activities, restrictions on certain types of activities or financial products such as derivatives, mandatory write-downs or conversions into equity of certain debt instruments, enhanced recovery and resolution regimes, revised risk-weighting methodologies (particularly with respect to Capital markets, financing and Insurance businesses), periodic stress testing and the creation of new and strengthened regulatory bodies. Moreover, the general political environment has evolved unfavorably for banks and the financial industry, resulting in additional pressure on legislative and regulatory bodies to adopt more stringent regulatory measures, despite the fact that these measures can have adverse consequences on lending and other financial activities, and on the economy.
Changes in the fair value of Natixis’ securities and derivatives portfolios and its own debt could have an impact on the carrying value of such assets and liabilities, and thus on its net income and shareholders’ equity
The carrying values of Natixis’ securities and derivatives portfolios and certain other assets are adjusted as of each financial statement date. The valuation adjustments include a component that reflects the credit risk inherent in Natixis’ own debt. Most of the adjustments are made on the basis of changes in fair value of the assets or liabilities during an accounting period, with the changes recorded either in the income statement or directly in shareholders’ equity. Changes that are recorded in the income statement, to the extent not offset by opposite changes in the fair value of other assets, affect net revenues and, as a result, net income. In certain cases, fair value adjustments affect shareholders’ equity and, as a result, Natixis’ capital adequacy ratios. More generally, fair value adjustments may be required as a result of inherent uncertainty in the models and parameters used in the valuation of Natixis’ securities and derivatives portfolios. This is particularly true where securities or derivatives are complex or do not have publicly quoted market prices, and valuation is based on internally-generated or otherwise non-standard modeling that ultimately relies to some degree on Natixis’ estimates and judgment.
Demand for Asset Management products and services, which represents a significant share of the overall net revenues and net income of Natixis, can be significantly affected by numerous factors beyond management’s control. Adverse developments can reduce the amount of new funds invested by Natixis’ clients, and can cause investors to withdraw assets from the funds and portfolios that Natixis manages. The factors beyond the control of Natixis that can significantly impact demand for its Asset Management products and services include the following elements: the macroeconomic climate, globally and, more specifically, ina the countries in which Natixis markets its products, which impacts the capacity of individuals to save money and to invest (directly or indirectly) in Asset Management products and which can also affect demand of institutional investors for these products; the level of equity markets globally and in the principal regionsa in which Natixis’ products are distributed, which can impact the attractiveness of Asset Management products for investors and thus affect the level of investments in Natixis’ funds; the level of interest rates in financial markets generally, anda yield on products that compete with Natixis’ Asset Management products, such as bank savings deposits and bonds; tax incentives that favor other investment products; ora regulatory initiatives in the financial markets, which maya provide incentives to banks to distribute Asset Management products or, conversely, to seek to increase deposits at the expense of Asset Management products.
The earnings of the Insurance affiliates of Natixis depend significantly on the extent to which the actual claims or annuities paid (in the case of life insurance) are consistent with the assumptions used to set the prices for their products and establish the technical provisions. Natixis uses its own experience and industry data to make actuarial and loss ratio estimates, including to determine the pricing of insurance products and establishing the related actuarial liabilities. However, there can be no assurance that actual experience will match these estimates, and unanticipated risks such as pandemic diseases or natural disasters could result in loss experience inconsistent with the relevant pricing and reserving assumptions. To the extent that the actual benefits paid by Natixis to policyholders are higher than the underlying assumptions used in initially establishing the future policy benefit reserves, or events or trends cause Natixis to change the underlying assumptions, Natixis may be exposed to greater than expected liabilities, which may adversely affect Natixis’ Insurance business, results of operations and financial condition.
Natixis’ risk management policies and procedures may not be effective in limiting its exposure to all types of market environments or all types of risk, including risks that Natixis has not been able to identify or preempt. Furthermore, the risk management procedures and policies used by Natixis do not guarantee effective risk reduction in all market configurations. These procedures may not be effective against certain risks, particularly those that Natixis has not previously identified or anticipated. Some of Natixis’ qualitative tools and metrics used to manage risk are based on its use of observed historical market behavior. Natixis then carries out a mostly statistical analysis to quantify its risk exposure. The tools and metrics used may provide inaccurate conclusions on future risk exposures, mainly because of factors that Natixis has not anticipated or correctly assessed in its statistical models, or because of unexpected and unprecedented market trends. This inaccuracy would limit Natixis’ ability to manage its risks. Consequently, the losses borne by Natixis could prove far
Natixis’ employees are one of its most important resources and across the Financial Services industry, competition to attract qualified employees is intense. Natixis’ results depend on its ability to attract new employees and to retain and motivate existing employees.
Natixis’ primary business lines contend with fierce competition in France and in other areas of the world where it is firmly established. Heightening this competition is consolidation, whether in the form of mergers and acquisitions or through alliances and cooperation. Consolidation has created a number of firms that, like Natixis, have the ability to offer a wide range of products and services. Natixis competes with other entities on many levels, including transaction execution, products and services offered, innovation, reputation and price. If Natixis is unable to maintain its competitiveness in France or in its other major markets with attractive and profitable product and service offerings, it may lose market share in important areas of its business or incur losses on some or on all of its operations. In addition, downturns in the global economy or in the economies of Natixis’ major markets are likely to increase competitive pressure, as increased price pressure lowers business volumes for Natixis and its competitors. New and more competitive competitors could also enter the market. Subject to separate or more flexible regulation, or to other requirements relating to prudential ratios, these new market participants may be able to offer more competitive products and services.
Natixis is exposed to emerging risks, including risks relating to cyber security
Like most of its competitors, Natixis relies heavily on its communication and information systems to process high volumes of increasingly complex transactions for its businesses. Any breakdown, interruption or failure of these systems could result in errors or interruptions to customer relationship management, general ledger, deposit, transaction and/or loan processing systems. If, for example, Natixis’ information systems failed, even for a short period, it would be unable to meet customers’ needs in a timely manner and could thus lose transaction opportunities. Likewise, a temporary breakdown of Natixis’ information systems, despite back-up systems and contingency plans, could result in considerable information retrieval and verification costs, and even a decline in its business if, for instance, such a breakdown occurred during the implementation of hedging transactions. The inability of Natixis’ systems to accommodate an increasing volume of transactions could also undermine its business development capacity. Natixis is also exposed to the risk of an operational failure or interruption by one of the clearing agents, foreign exchange markets, clearing houses, custodians or other financial intermediaries or external service providers it uses to execute or facilitate its securities transactions. With growing interconnectivity with customers, Natixis may also be increasingly exposed to the risk of operational failure of its customers’ information systems. Natixis cannot guarantee that such breakdowns or interruptions in its systems or in those of other parties will not occur or, if they do occur, that they will be adequately resolved.
The tax regime applied to Natixis’ operations, intra-group transactions or reorganizations (past or future) managed by Natixis or its affiliates and financial products sold to customers,
Furthermore, tax laws and regulations may change, and there may be changes in their interpretation and application by the relevant authorities, especially in the context of international and European initiatives.
Natixis’ reputation is essential in attracting and retaining its customers. The use of inappropriate means to promote and market its products and services and the inadequate management of potential conflicts of interest, legal and regulatory requirements, compliance issues, money laundering laws, information security policies and sales and trading practices may damage Natixis’ reputation. Its reputation could also be harmed by any inappropriate employee behavior, fraud or misappropriation of funds committed by participants in the financial sector to which Natixis is exposed, any decrease, restatement or correction of its financial results and any legal or regulatory action that has a potentially unfavorable outcome. Any damage caused to Natixis’ reputation could be accompanied by a loss of business likely to threaten its results and its financial position.
Holders of Natixis securities may suffer losses if Natixis undergoes resolution proceedings
The use of these powers by a resolution authority could result in the full or partial write-down or conversion to equity (or other instruments) of shares or other securities of Natixis. In addition, the BRRD provides resolution authorities with broader powers to implement other resolution measures, which may include, among other things, the sale of the institution’s business to a third party or a bridge institution, the separation of assets, the replacement or substitution of the institution as obligor in respect of debt instruments, modifications to the terms of debt instruments (including altering the maturity and/or the amount of interest payable and/or imposing a temporary suspension on payments) and discontinuing the listing and admission to trading of financial instruments.
RISKS AND CAPITAL ADEQUACY Organization of Natixis’ internal control system 109Natixis Registration Document 2017
to risk within the framework of the control exercised by the shareholding group.
The Control Functions Coordination Committee (CFCC) is chaired by the Natixis Chief Executive Officer or his substitute, the Corporate Secretary. Its members are the Heads of Risk, Compliance, Internal Audit, as well as the Head of the Regulatory and Accounting Review Team, the Corporate Secretary of the Risk Department, Compliance and Permanent Controls of BPCE and, as required, certain operational or functional managers. The CCFC coordinates the entire internal control system by: addressing all issues pertaining to the organization anda planning of control services; highlighting areas of emerging or recurring risk within thea scope under consideration and report any significant anomalies observed to the executive body (for example, monitoring the backlog of the main corrective measures); and providing the executive body with updates on ongoinga controls performed by internal or external control functions, or by regulators, and ensure that the conclusions from these undertakings are taken into account by the operational business lines.
The conclusions of controls carried out under this system, supplemented with the results of external audits (carried out by BPCE's Internal Audit Department, the Statutory Auditors, the regulators/supervisors, etc.) are reported to the Board of Directors via its extensions, the Audit Committee and the Risk Committee.
At December 31, 2017, 2,152 level 1.2 controls were reported (mostly on a quarterly basis).
In terms of IT Systems Security and Business Continuity (ITSS-BC), the department’s main role is to define and monitor security standards (see section 3.10.5). The second-level control plan has two parts, one shared with Groupe BPCE and another specific to Natixis, and is the result of a risk-based approach. The controls are carried out based on the first-level controls reported by the contributors (Information Systems Security Department or the appropriate security representatives for authorizations). ITSS-BC performs around 6,000 second-level controls every year.
The Risk Division performs controls on credit risk, counterparty risk, market risk, liquidity and overall interest rate risk, and operational risk. Specific risks related to the Insurance and Asset Management activities are included in these controls, and its scope of action extends to all the entities within Natixis’ consolidation scope. (For more detailed information, see
The Regulatory and Accounting Review team within the Accounting and Ratios Division reports functionally to the Compliance Department. This team plays a role in improving the accuracy of accounting and financial information through the implementation of control systems covering the accounting, tax declarations and regulatory reports produced by the Finance Department. (See Chapter 5 section 5.5 – Internal control procedures relating to accounting and financial information)
The reports are sent to Natixis' Chairman and Senior Management, to the audited units and to the Internal Audit Department of BPCE.
The Internal Audit Department monitors the implementation of recommendations and presents its findings to the Management Board, the Risk Committee and the Board of Directors. To this end, it performs due diligence and carries out follow-up audits.
The Audit Plan may be revised during the year at the request of Senior Management or if required by circumstances. In addition to conventional audit assignments, the Internal Audit Department is also able to carry out ad hoc audits in order to address issues arising during the year and not initially included in the Audit Plan.
In 2017, the Internal Audit Department conducted audit assignments on all risk classes to which Natixis’ activities are exposed. It dedicates a significant share of its resources to assignments of a regulatory nature, by working with Natixis on its new obligations (Basel internal models, US regulations), as well as assignments conducted in Natixis’ subsidiaries pursuant to audit agreements entered into with them.
Lastly, Natixis’ Internal Audit Department collaborated with its BPCE counterpart on a number of areas. Accordingly, the two departments held seven meetings in 2017. These meetings provided a forum for addressing issues related to auditing programs and practices, as well as topics associated with risk assessment and assignment evaluation (General Inspections Coordination Committee).
RISKS AND CAPITAL ADEQUACY Governance and risk management system 113Natixis Registration Document 2017
Under the Natixis Board of Directors’ responsibility, the Risk Committee’s primary duties are: to advise the Board of Directors on the bank’s overall strategya and risk appetite, both current and future; to assist the Board of Directors when it checks thea implementation of that strategy by the executive managers and by the Chief Risk Officer.
In addition, and since July 2016, the Risk Committee meets as the US Risk Committee as per the US regulatory requirements of the Dodd Frank Act. The US Risk Committee has the same structure as the Risk Committee, and is responsible for the supervision of the risks linked to Natixis’ activities on US soil (“Combined US Operations”).
At least one of the bank’s executive managers chairs the Bank’s main Special Committees on risk: the Global Risk Committee (GRC), the Credit Committee, thea Market Risk Committee, the Operational Risk Committee, the Watchlist and Provisions Committee; the ALM Committee;a the Control Functions Coordination Committee;a the Natixis Investment Committee.a
The Board of Directors is regularly kept informed, by the Executive Managers, of all significant risks, risk management policies and changes made thereto.
The Internal Audit Department reports to the Chief Executive Officer and performs audits by reviewing existing control points in the audited processes and in assessing the risks incurred by the businesses under review.
The Human Resources Department is involved in the compensation policy and oversees its application.
Natixis is defined by its strong risk culture at every level of its organization.
Furthermore, the new Code of Conduct adopted by Natixis in December 2017 is an effective means of inculcating the risk culture, as it defines the rules of conduct applicable to all employees and encourages greater involvement and accountability. Four guiding principles serve as the building blocks of Natixis’ DNA and are adapted to each profession and function. The rules are divided into the following themes: be client-centric;a behave ethically;a act responsibly towards society;a protect Natixis' and Groupe BPCE’s assets and reputation.a
A Conduct Committee was also formed at the top-most level of the Bank and involves members of the Senior Management Committee.
Lastly, Natixis’ compensation policy is structured to encourage the long-term commitment of the Company’s employees while ensuring the appropriate risk management.
Natixis’ risk appetite is defined as the nature and the level of risk that the bank is willing to take within the bounds of its business model and strategy.
Natixis’ risk appetite principles result from the selection and control of the types of risks that the bank is prepared to take in pursuit of its business model, and ensure consistency between Natixis’ overarching strategic guidelines and its capacity to manage risks.
The bank seeks sustainable and consistent profitability in balance with its consumption of scarce resources (capital, liquidity, balance sheet). It declines any engagement with activities that it does not master.
Natixis incurs risks intrinsically as part of its Corporate & Investment Banking, Asset Management, Insurance and Specialized Financial Services activities: credit risk generated by Corporate & Investment Banking,a lending activities from Specialized Financial Services is managed under specific risk policies adapted by business and subsidiary, concentration limits defined by counterparty, sector and country, and through extensive monitoring of portfolio. Natixis ensures the selective management of issuance commitments through independent analyses and various credit Committees;
RISKS AND CAPITAL ADEQUACY Governance and risk management system 115Natixis Registration Document 2017 leverage and liquidity risk are included in Groupe BPCE’sa framework. As BPCE provides a liquidity and capital adequacy guarantee, Natixis applies BPCE's risk policies to its own organization. These two risks give rise to specific objectives which contribute to the management of scarce resources with a dedicated framework and management objectives. Natixis oversees the strategy to diversify its sources of financing as well as those of Groupe BPCE, and manages its solvency ratio in order to be able to cope with stress situations; market risk is incurred from Natixis’ market activities within thea CIB, which aim to meet the needs of its clients, with the exception of proprietary trading. This risk is managed according to a body of risk policies and specific qualitative and quantitative indicators; operational risk is intrinsic to all the Bank’s business lines anda functions and is managed using a shared data collection tool. The framework, which has been rolled out across the business lines and geographic regions, is used to map risks and implement corrective and preventive actions plans accordingly; Natixis is committed to strictly observe the laws, regulationsa and norms governing its activities, in France and internationally, in the realm of financial security (anti-money laundering, terrorism, corruption and fraud), compliance and client protection; Natixis’ most important asset is its reputation and itsa relationship with its clients. The interest of the client is therefore put first, and the bank – irrespective of the activity, entity or geographic region – is dedicated to operating at the highest level of ethical standards, and in line with the best standards of transaction execution and security. Together with Groupe BPCE, Natixis closely monitors its reputation risk using indicators that combine an ex-ante/ex-post approach.
The risk appetite framework forms part of Natixis main processes, especially regarding: risk identification: every year risks are mapped in order to havea an overview of the risks to which Natixis is or could be exposed. With this approach it is possible to identify material risks, the indicators of which are included in the risk appetite framework; in the budget process and overall stress tests.a
Credit risk is the risk of financial loss due to a debtor’s inability to honor its contractual obligations. Assessing the probability of a debtor’s inability to repay and, in this event, the projected recovery is a key component of measuring credit quality. The debtor may be a bank, an industrial or a commercial company, a sovereign State and its various entities, an investment fund, or a natural person. Credit risk increases in periods of economic uncertainty, insofar as such conditions may lead to a higher rate of default.
Counterparty risk on market transactions is a component of credit risk and represents a potential loss in the event of counterparty default. Counterparty risk evolves as market parameters fluctuate.
Securitizations are transactions involving credit risk inherent in a set of exposures housed in special-purpose entities (usually a securitization fund or “conduit”), which is then divided into tranches, usually for the purpose of selling them to investors. The special-purpose entity (SPE) issues units that may in some cases be subscribed for directly by investors, or by a multi-seller conduit which refinances the purchases of its shares by issuing short-maturity notes (treasury notes or commercial paper).
Market risk is the risk of loss in value caused by any adverse fluctuations in market parameters. These parameters include, in particular, bond prices, interest rates, securities and commodities prices, derivatives prices and prices of all other assets, particularly foreign exchange rates.
Asset liquidity is also an important component of market risk. In the event of insufficient or non-existent liquidity (for example, because of a reduced number of transactions, or a major imbalance in the supply and demand of certain assets), a financial instrument or any other tradable asset may be unable to be traded at its estimated value.
The lack of liquidity may lead to reduced access to capital markets, unforeseen cash or capital requirements, or legal restrictions.
Operational risk is the risk of loss due to inadequate or failed internal processes, human resources, information systems, or external events with financial, regulatory, legal or reputational impacts.
Natixis’ overall interest rate risk is defined as the risk of losses on the banking portfolio stemming from mismatches between interest rates on assets and on liabilities.
Structural foreign exchange risk is defined as the risk of transferable equity loss generated by an adverse fluctuation in exchange rates against the Group currency used in the consolidated accounts due to mismatches between the currency of net investments refinanced by purchases of currency and the currency of equity.
Non-compliance risk is defined in French regulation as the risk of a legal, administrative or disciplinary penalty, accompanied by significant financial losses or reputational damage, that arises from a failure to comply with the provisions specific to banking and financial activities, whether these are stipulated by national or directly applicable European laws or regulations, or instructions from the executive body, notably issued in accordance with the policies of the supervisory body. This risk is a sub-category of operational risk, by definition.
Within the Compliance Department, the IT Systems Security Department’s Risks and Controls team forms the second line of defense, and assesses the risk borne by each entity. It also supports the businesses’ initiatives to ensure their full compliance with security requirements.
Natixis has also begun the overhaul of its information security model for 2020, with the aim to adapt the security framework to current developments, strengthen the protection of our most sensitive assets and improve the SOC’s detection capabilities.
RISKS AND CAPITAL ADEQUACY Governance and risk management system 117Natixis Registration Document 2017
Legal risk is defined in French regulation as the risk of any legal dispute with a third party, arising from an inaccuracy, omission or deficiency that may be attributable to the Company’s operations.
Environmental and social risks: Natixis’ environmental and social risks arise from the operations of the clients and companies in which Natixis invests.
Natixis has developed a comprehensive stress test mechanism to dynamically monitor and manage risks.
Natixis’ stress test mechanism is structured as follows: global internal and external exercises;a periodic regulatory exercises;a specific exercises by scope.a
Since January 1, 2014, the Capital Requirements Directive (CRD) IV and the Capital Requirements Regulation (CRR) have applied Basel 3 regulations in Europe with immediate effect. The CRD IV was enacted into French law by the French Ministerial Order of November 3, 2014.
As under Basel 2, the Basel 3 regulatory provisions are divided into three pillars: Pillar I: a set of rules defining the measurement of risks anda capital based on various possible methodologies and minimum observable requirements; regulatory capital requirements for each institution in accordance with their risks and internal governance and oversight systems; Pillar II: a mechanism governing the role of the bankinga supervisory authorities, allowing them to define specific
Finally, as of November 2014, the European Central Bank is directly responsible for supervising significant European banks. The implementation of this new supervisory framework continued in 2016. Drawing on the Supervision Review and Evaluation Process (SREP), the ECB is setting ratio levels for each institution to observe. Each institution under its purview is assigned a Pillar 2 Requirement (P2R) as well as Pillar 2 Guidance (P2G).
As a result of the SREP 2017 process, Natixis must observe a phased-in CET1 ratio of 8.375% in 2018, 2% of which in respect of Pillar II (excluding P2G) and 1.875% in respect of the capital conservation buffer. These items do not include the level of the contracyclical capital buffer, which was very low at December 31, 2017, and the measurement of which is based on exposures to countries applying non-zero contracyclical capital buffers.
DIFFERENCES BETWEEN ACCOUNTING AND REGULATORY SCOPES OF CONSOLIDATION AND THE MAPPING OF FINANCIAL R STATEMENT CATEGORIES WITH REGULATORY RISK CATEGORIES (EU LI 1)
Financial assets at fair value through profit or loss 184,497 161,725 13,712 104,709 818 142,838
Financial liabilities at fair value through profit or loss 144,885 142,710 94,646 588 108,167 21,383
Other instruments to be reclassified as Additional Tier 1 capital 2,232
Own credit risk: liabilities and derivatives net of deferred taxes 181
o/w portion not including tax loss carry-forwards and impact of netting 700
Regulatory capital and capital adequacy ratio: The 2017 CET1, Tier 1 and total ratios are presented below by major component. The same ratios for 2016 are shown by way of comparison.
Deferred tax assets that rely on future earnings (excluding temporary differences) 325
Amount of Common Equity Tier 1 (CET1) at end of period 11,975
Other, including prudential adjustments and phase-in arrangements 57 o/w impact of changes in phase-in rate (98)
Amount of Additional Tier 1 (AT1) capital at end of period 2,297
o/w impact of changes in phase-in rate 104 o/w other impact of changes in basis (390)
The following changes in Basel 3/CRR regulatory capital were recorded in 2017, after applying phase-in arrangements.
CET1 capital included a provision for 2017 dividends payable in cash in the amount of €1.16 billion (i.e. €0.37 per share) and was impacted by goodwill on acquisitions (-€0.2 billion). Even though the phase-in period for deductions is coming to an end, the
Aside from the items above, Additional Tier 1 capital rose by €0.5 billion, primarily due to two issuances worth $500 million each for a total of €833 million and the exercise of a call option in October 2017 (€364 million of euros). The balance was primarily due to the change in the phase-in rate applied on items deducted from AT1 capital, as well as the items subject to these provisions.
At €110.7 billion, risk-weighted assets decreased €4.8 billion over the year.
Market risk fell -€1.4 billion due to changes in risk inputs and positions.
As a result, under the New Frontier strategic plan, the target fully loaded CET1 ratio, without taking into account phase-in measures except for those concerning deferred tax assets, ranged from 9.5% to 10.5%, with the target fully loaded CET1 ratio for the end of the plan (i.e. December 31, 2017) set at 10.5%.
With a fully loaded CET ratio without taking into account phase-in measures (before impact of IFRS 9), Natixis exceeded this target.
implementing a system for analyzing the capital consumptiona of the businesses and their profitability on the basis of Basel 3/CRR risk-weighted assets; allocating capital to the business lines, within the framework ofa strategic plan and annual budget procedures, taking into account business requirements, profitability and balance between the core business divisions.
The European MREL ratio introduced by the BRRD directive is applicable to Natixis, unless otherwise stipulated, according to the methods still to be defined by the Single Resolution Board
SRB in 2017. As the BRRD directive is currently under review, the mechanisms for managing and preparing for this new ratio are not yet finalized.
Together with Groupe BPCE as a whole, Natixis contributed to collecting detailed information on liabilities, as required by the
Regulations on the monitoring of large exposures were revised in 2014 and are now part of the CRR. They aim to prevent an excessive concentration of risks for sets of counterparties that are related in such a way that if one encountered financial problems, the others would also be likely to experience funding or repayment problems. The standard is based on a standing obligation: all risks associated with a single counterparty may not exceed 25% of the bank's total capital. Natixis complied with this requirement in 2016.
RISKS AND CAPITAL ADEQUACY Credit and counterparty risks 127Natixis Registration Document 2017
The qualitative framework is for its part structured around the following criteria: business sectors: preferred sectors, banned sectors;a targets: customers to be targeted or excluded based ona various criteria (size, rating, country of operation, etc.); structuring: maximum durations, financial ratios, contractuala clauses, collateral arrangement, etc.
The principles of counterparty risk management are based on: measuring exposure to counterparty risk;a counterparty risk limits and allocation procedures;a a value adjustment in respect of counterparty risk (credit valuationa adjustment); counterparty risk mitigation;a factoring in specific wrong-way risk.a
Natixis uses an internal model to measure and manage its own counterparty risk. Based on Monte Carlo-type simulations for the main risk factors, the model values the positions for each counterparty and for the entire lifespan of the exposure, taking into account the netting and collateralization criteria.
General wrong-way risk is covered in the wrong-way risk stress tests defined by asset class.
The internal rating mechanism is based on: internal rating methodologies specific to the various Basela asset classes and consistent with Natixis’ risk profile; there is a unique rating procedure and methodology for each asset class; an IT system used for managing the successive stages of thea rating process, from the initiation of the process to the approval and logging of the complete process; procedures and controls that place internal ratings at the hearta of the risk-management system, from transaction origination to ex post analysis of defaulting counterparties and the losses incurred on the relevant loans; periodic reviews of rating methodologies, the method fora calculating the LGD and the underlying risk parameters.
Since September 30, 2010, Natixis has used internal rating methods specific to the different asset classes approved by the Autorité de Contrôle Prudentiel et de Résolution (ACPR — French Prudential Supervisory Authority), and that use the advanced internal ratings-based method (A-IRB) to rate “corporate”, “sovereign”, “bank”, “Specialized Financing institutions” and some categories of consumer finance exposures.
The rating scale varies according to the type of counterparty and includes 21 notches for major corporations, banks and Specialized Financing institutions. It should be noted that internal ratings are also one of the criteria used to determine the level of authority required to approve credit applications.
Method for calculating prudential ratios within the CRD IV (Capital Requirements Directive IV).
In accordance with regulatory requirements, Natixis has established internal model validation policies and procedures for evaluating credit and counterparty risk. This independent validation of models is part of the broader framework of model risk management.
Within the Model Risk & Risk Governance Department, which reports to the Chief Risk Officer, the Model Risk Management team is in charge of model life cycle governance and standards. The various stages of a model’s life cycle (design, IT development, validation and use) are clearly documented and the roles and responsibilities of everyone involved in the model are specified in detail.
Internal rating models are validated by the validation team of the Groupe BPCE Risks, Compliance and Permanent Control division or, acting with the authorization of the Groupe BPCE Group Modeling Committee, by the Natixis Risk division’s Model Risk Management team. In accordance with Groupe BPCE’s validation charter, validation covers a review of the relevance, consistency and integrity of models as well as the accuracy of input and output data used. The validation process comprises four steps: quantitative analysis: analysis of proxies, sizing methods, riska indicators, aggregation rules, etc.; performance and governance analysis: model backtesting anda benchmarking analysis, precision and consistency analysis, stress tests; analysis of data quality and implementation of the model:a analysis of the quality and representativeness of data, integrity of controls, error reports, comprehensiveness of data, etc.; use test: the validation team ensures that the internal modelsa are used by qualified staff, that usage procedures are documented and up to date, that ex post controls are performed, etc.
Risk Governance Department, while the Model Risk Management Committee is chaired by Natixis’ Chief Risk Officer, who is a member of the Senior Management Committee.
The rating methods are periodically checked and undergo external benchmarking to ensure the consistency of ratings produced using expert appraisal-based approaches, as well as their robustness over time according the regulatory requirements. The monitoring methods are defined through a backtesting procedure tailored to each type of model.
The backtesting procedure, which draws on these data (and sometimes external data in the case of backtesting of the banking model or the Major Corporate rating grids particularly), consists of two stages: an analysis of the absolute performance, which is based on the default rate and internal migrations, and an analysis of the relative performance, which is based on a comparison with external ratings. Alerts are triggered by performance rules and indicators as necessary.
LGD, CCF and ELBE are backtested by the Risk division’s teams to: verify that the model is correctly calibrated;a assess the model’s discriminating power;a assess the model’s stability over time.a
The parameters of the models for the Specialized Financing and collateral (financial or otherwise) scope are regularly updated, so that they reflect actual conditions as accurately as possible. Both the market parameters and the recovery parameters are updated.
The indicators defined for backtesting are used both to validate the model and measure its performance. Two types of indicators are used; population stability indicators: these analyses are used to verifya that the population observed is still similar to the population that was used to build the model. The model may be called into question if the segmentation variables or the LGDs result in excessively large distribution differences. All of these indicators are compared against the benchmark indicators (usually those calculated when the model was built or those issued by external data or agencies). These analyses are applicable to both expert appraisal-based models and statistical models; model performance indicators: the model’s performance isa measured to validate the segmentation and also to quantify, overall, the differences between the forecast and actual figures. This is achieved by using statistical indicators, which are compared against those calculated during modeling.
This table provides a general summary of the system’s over an extended period and for a significant, representative performance but differs from the annual backtesting performed percentage of each exposure class. The results come from data within the Group, which is conducted on a model-by-model basis warehouses used for modeling. This is based on all performing and not overall by portfolio. However, this table allows a customers for default rates and PD, and on all customers in comparison of estimates and actual results for each internal input default for LGD.
Corporates (incl. SMEs) 12 Expert analysis-based rating models by business sector for Corporates and statistical models for SMEs (scores)
Specialized Financing 4 Models used to assess assets on resale. Assumptions of asset disposals are based on adverse scenarios to determine a conservative LGD assessment
Leasing 3 Statistical models (decision trees) by type of financed asset. The safety buffers included in the LGD models serve to cover periods of decline (primarily via bootstrap techniques).
Financial and other collateral 5 Stochastic models based on historical market prices with assumptions based on internal data and expertise.
Collateral eligibility is governed by the following process: validation by the Legal Department of the documents relatinga to the collateral and the enforceability of the collateral; validation by the Risk division.a
The bank also performs the valuation of collateral in accordance with regulatory provisions and periodically reviews these valuations should any adjustments be required.
Natixis may take steps to reduce commitments in order to lower concentration risk by counterparty, sector and geographic area. Concentration risk is rounded out with an analysis, based on stress test methodologies (migration of ratings according to macroeconomic scenarios). Natixis may buy credit-default swaps and enter into synthetic securitization transactions in order to reduce all or part of the credit risk exposure attached to some assets by transferring the risk to the market. CDS-protected loans remain on Natixis’ balance sheet, but bear the counterparty risk attached to the credit-default swap sellers, which are generally OECD banks. Transactions with non-bank third parties are fully collateralized in cash. These transactions are subject to decision-making and monitoring procedures that apply to derivative transactions.
As regards to limit breaches, the dedicated monthly committee analyzes changes in limit breaches using specific indicators (number, notional, duration, business lines concerned, etc.), and examines major breaches and monitors their correction.
Corporate & Investment Banking risks are monitored by the Restructuring and Special Affairs Department (DRAS), which intervenes in difficult cases where necessary. The Litigation Department handles collections of loans in litigation.
This Committee is organized by the Risk division and chaired by the Chief Executive Officer and assembles the Chief Risk Officer, members of the Senior Management Committee in charge of the business lines, the Accounting and Ratios division and the heads of the relevant support functions.
Sector provisions are determined at a quarterly meeting of the Sector Provision Committee, whose role is to decide, as appropriate, whether to recognize provisions for new sectors or reverse provisions for sectors for which provisions have previously been recognized, based on the market trends in each sector and on the market reviews.
The system is a true risk management tool, with scenarios that are regularly introduced and revised. New subsidiary scopes and models have therefore been added to the stress scenarios since the stress test program was first introduced. The Risk division regularly works on improving the methods used and adding to the scopes defined for the stress scenarios, with particular attention paid to the market stress requirements.
New scenarios were reviewed in 2017 and presented to the Global Risk Committee and the Senior Management Committee. These internal credit stress test scenarios are defined based on: macroeconomic assumptions prepared in collaboration witha the economic research and country risks teams and with Groupe BPCE, and comprising three scenarios for the 2018-2020 period: a reference scenario (i.e., a central scenario of economic recovery in a context of rising oil prices) and two credit scenarios (a crisis in the Italian and French economies and a scenario of prolonged low interest rates); specific business line scenarios to factor in risks that would nota have been covered by the macroeconomic scenarios. Standard scenarios are therefore defined (an average of three per business line) based on business line types (Banks, Corporates, Insurance, Aerospace, etc.).
The scenarios, as well as the models and methods selected to assess their impact, are documented, and this documentation is reviewed on each update.
RISKS AND CAPITAL ADEQUACY Credit and counterparty risks 135Natixis Registration Document 2017
EAD, RWA AND OWN FUNDS REQUIREMENTS BY BASEL APPROACH AND CATEGORY OF EXPOSURE (NX01)R
Central governments or central banks 47,832 601 48 36,305 748 60
Exposure secured by mortgages on immovable property 1,025 498 40 221 97 8
Pro forma 12.31.2016 CCP default fund exposure is transferred to counterparty risk.*
Category of exposure 12.31.2017 o/w off-balance sheet 12.31.2017 o/w off-balance sheet 2017 average
Exposures to institutions and corporates with a short-term credit assessment 653 271 652 270 1,149
The figures published at December 31, 2016, have been adjusted for the reclassification of the Banque de France counterparty from AA+ to AA.(**)
Natixis acts as sponsor in ABCP-type securitization transactions through three vehicles, namely Versailles, Bleachers and Magenta. Of these vehicles, only two are consolidated in Natixis’ regulatory consolidation scope: Versailles and Bleachers/ Mountcliff. For both vehicles, Natixis plays a predominant role in the selection and management of acquired receivables as well as the management of the issuance program, thus giving it power over the conduits’ relevant activities and influence over the amount of their returns. In contrast, given that Natixis is not part of the governing body holding the power to decide on Magenta's relevant activities, this conduit is not consolidated in Natixis’ regulatory consolidation scope.
The model is based on a calculation by computer simulation, based on Monte Carlo-type methodology, taking into account a portfolio’s possible non-linear characteristics with respect to different risk factors.
These measurements give a snapshot of VaR and help identify potential losses in each business, based on a pre-determined confidence level (99%) and time period (one day).
For the calculation of VaR, the portfolio’s holding horizon is set at one day for risk monitoring and 10 days for the calculation of capital. The 10-day holding period involves extrapolating from the one-day VaR by multiplying it by the square root of 10.
The calibration of the transition matrix is based on Standard & Poor's historical transition data. For both corporates and sovereigns, the historical depth exceeds 20 years. For issuers not rated by S&P, restatements are performed internally.
Correlation assumptions are based on the rating of each issuer's creditworthiness within the IRC horizon (one year). The simulation process is based on intra-sector correlation parameters.
In addition to VaR, SVaR and IRC measures, stress tests are used to simulate the impact of extreme market conditions on the value of Natixis’ portfolios. Operational indicators are also used to measure and manage activity risks: stress tests to measure potential losses on portfolios in1) extreme market conditions. Natixis’ mechanism is based on two categories of stress tests: overall stress tests and dedicated stress tests for each business.
hypothetical stress tests are used to simulate changes inj market parameters for all the activities, based on plausible assumptions regarding one market’s predicted response compared with another’s, depending on the nature of the initial stress. Stresses are determined through a joint effort involving the Risk Division, the front office and Economic Research. A series of seven scenarios has been defined: fall in stock market indices combined with a flattening of. the yield curve and an increase in credit spreads, strong rise in European interest rates in an inflationary2. environment, failure of a financial institution with a rise in credit3. spreads and interest rates and a moderate fall in equity markets,
142 Natixis Registration Document 2017 commodity crisis based on a scenario of disruption to4. supply due to geopolitical events, emerging market crisis reflecting the consequences of a5. sudden withdrawal of capital from an emerging country during a global economic downturn (higher refinancing costs, stock market crash and depreciation of the currency against the US dollar), failure of a high-profile corporate based on a credit market6. shock, liquidity crisis characterized mainly by a sharp widening of. European interbank spreads, a widening of the liquidity spread and a rise in “peripheral” yields.
In addition, reverse stress tests are used to highlight the most high-risk scopes and market environments as well as concentration and contagion links. This mechanism is based on plausible scenarios drawn from extremely adverse assumptions on the fulfillment of risk factors leading to the breach of a loss threshold, and allows Natixis to implement a new risk monitoring and steering tool, identify circumstances that may trigger this loss and adapt the appropriate action plans where necessary.
All stress test mechanisms are defined by the Risk division, which is responsible for defining principles, methodology and calibration and scenario choices. The Stress Test Committee is responsible for the operational implementation of stress tests and meets on a monthly basis. The Committee approves work to be carried out, its workload and determines the annual IT budget.
Independent price verification is carried out by the "Service des Résultats" department’s IPV (Independent Price Verification) teams, which, in accordance with the division’s Charter, control the market inputs used in the valuation process for the bank’s transactions. The review of market inputs may lead to valuation adjustments recognized in economic results and the financial statement.
IPV governance is based in particular on: a supervision mechanism overseen by committees (Observabilitya and Inputs Committee, Valuation Committee, Market Risk Committee); a policy and set of procedures, explaining the validation anda escalation system; comprehensive reporting;a the mapping and internal classification of data;a dedicated tools.a
Moreover, the Market Risk Department’s teams carry out level two monthly controls of market inputs.
These models may be subject to backtesting and monitoring in terms of quality and solidity to ensure that the applied risk parameters correspond to the value ranges projected upon their validation. These models also undergo a periodic review; the depth of the review and the period covered depend on the materiality of the model. The outcomes of the validation work are presented at meetings of the Valuation Models Oversight Committee, at which the designers and validators of models come together on a quarterly basis to possibly debate matters from their respective viewpoints. The Committee’s findings are brought to the attention of the Model Risk Management Committee, chaired by the Chief Risk Officer, who is a member of the Senior Management Committee. The role of this Committee is to oversee model risk for all of Natixis' activities by approving validation reports and associated remedial plans on the one hand and by tracking consolidated model risk indicators on the other.
Adjustment amounts are updated on a monthly basis and reported to Natixis' Senior Management. Changes in methodology applied to the calculation of adjustments are submitted to the Model Risk & Risk Governance teams for independent valuation.
The VaR level for Natixis’ trading portfolios averaged €6.9 million. It peaked at €8.7 million on May 17, 2017, and bottomed out at €5.2 million on April 6, 2017, standing at €5.3 million at
The Stressed Regulatory VaR level averaged €13.2 million. It peaked at €27.3 million on January 5, 2017, and bottomed out at €8.7 million on July 14, 2017.
The historical stress test replicating the sovereign debt crisis in 2011 gave the maximum loss (-€64 million at December 29, 2017).
Fa ll in s to ck m ar ke t i nd ic es
It defines six operational risk management criteria: four quantitative indicators: one historical indicator measuringa the cost of risk, one forward indicator measuring the risk exposure, one individual indicator identifying the occurrence of major incidents to be reported to the regulator, and an operational risk management indicator measuring the progress of corrective actions; a qualitative indicator measuring the compliance of thea framework; a new indicator for cyber risk.a
The Operational Risk function is responsible for monitoring and managing risks arising from failures attributable to operating procedures, employees and internal systems or arising from outside events.
The mechanism is managed by Natixis’ Operational Risk Committee, a specialized body that oversees operational risk policy, monitors Natixis’ exposure and makes final decisions on hedging and reduction. It is the operational extension of the executive body and, as such, possesses full decision-making powers for issues within its area of responsibility. This Committee meets quarterly and is attended by Compliance, ITSS-BC and the Internal Audit Division. It is chaired by the Chief Executive Officer or his substitute the Chief Risk Officer, with the Head of the Operational Risk Department acting as secretary.
Overseeing this framework is a single overarching information system that has been deployed across the Company’s entities, business lines and support functions in France and internationally. It is available in French and English and hosts all the components of the operational risk oversight system (incidents, mapping of quantified potential risks, risk management systems, key risk indicators, corrective actions, Committees, etc.). The accuracy of the information entered or approved by the operational risk managers is ensured through reconciliation with information from other functions (accounting, compliance, legal, IT Systems Security, data quality, insurance, etc.).
The capital requirements for operational risk are calculated using the standardized approach for all of Natixis’ operational divisions. However, Natixis uses an internal methodology to obtain an overall estimation of its level of exposure to operational risk by business line entity, geographic region and certain major risk situations. The methodology relies on a VaR calculation based on risk mapping, factoring in identified incidents for backtesting and known external losses.
S c e n a ri o a n a ly si si s
Analysis of the change in risk profile of the business lines and support functions
frequency. Also factored in are assumptions on unrealized net revenue items and the effectiveness of risk management mechanisms, as well as contingency and business continuity plans.
In addition to risk mapping, there are over 700 key risk indicators (KRIs) in place with corresponding limits, and which are monitored regularly. KRIs dynamically detect any changes in the operational risk profile, and cover the seven Basel categories of loss-generating events. They apply either to Natixis (overall indicators), to the business lines, or to the support functions that, with the operational risk manager, set the indicators as relevant early warning indicators during the mapping process. These indicators are submitted to the Operational Risk Committee for approval. Any breach of their thresholds, that is the subject of a systematic alert, may trigger action to be carried out immediately or requiring Committee approval.
monitor their progress. The entities and business lines can decide to apply these measures to their own threshold, which is lower than that of Natixis and consistent with its activity and level of risk.
Following an investigation involving all relevant parties, the operational risk manager of the business line compiles a standardized full report, including a factual description of the event, the analysis of the initial cause, the description of the impact and the proposed corrective actions. At all levels of the Bank, the business line Operational Risk Committees review their serious incidents, decide on the corrective actions to be implemented, propose the relevant deadlines and targets, and
In 2017 over 5,300 reported incidents (a single incident potentially comprising several individual incidents) were entered into the collection tool by the business lines. The Specialized Financial Services division makes up close to half of the number of reported incidents, but accounts for only 11% of impacts. However, Corporate & Investment Banking activities in France and abroad account for more than 80% of the amount of losses and provisions reported in 2017, with these activities representing only 10% of the listing in number.
Natixis has implemented measures in every business line and support function to monitor the corrective actions to reduce the Bank’s exposure to operational risks. These corrective actions are actively managed by the designated implementation managers (of more than 500 corrective actions set up in 2017, nearly 60% have been completed) and monitored by the business line and central Operational Risk Committees. They are also assigned one of three levels of priority reflecting the risks incurred and whether or not they are associated with a serious incident. An alert system has been set up to prompt assessment by the Natixis Operational Risks Committee of any delays in implementing first-level corrective actions.
The Groupe BPCE Insurance Department is tasked with: analyzing insurable operational risks;a taking out appropriate insurance coverage (direct insurancea and/or transfer).
A combined “Global Banking (Damages to Valuables andj Fraud)” & “Professional Liability” policy with a total maximum payout of €148 million per year of insurance (of which €133 million has been pooled with Groupe BPCE), of which: €15 million per year, combined “Fraud/Professional Civila) Liability” insurance available, subordinate to the amounts guaranteed set out in b) and/or c) and/or d) below; €38 million per claim and per year, solely reserved forb) “Global Banking” risk; €25 million per claim and per year, solely reserved forc) “Professional Civil Liability” risk; €70 million per claim and per year, combined “Globald) Banking/Professional Civil Liability” insurance available in addition to or after use of the amounts guaranteed set out in b) and/or c) above.
“Operating Civil Liability” covering €100 million per claim,j as well as a “Subsidiary Owner Civil Liability”/”Post Delivery-Reception Civil Liability” coverage extension for up to €30 million per claim and per year of insurance.
“Company Directors Liability” for up to €200 million perj claim and per year of insurance.
“Property Damage” to Buildings and their contentsj (including IT equipment) and the consecutive “losses in banking activities”, for up to €300 million per claim.
This coverage extends worldwide for initial risk or umbrella risk, subject to certain exceptions, mainly in terms of “professional civil liability” where the policy does not cover permanent institutions based in the United States (or the coverage is obtained locally by Natixis’ US subsidiaries or branches).
All the insurance policies mentioned above were taken out with reputable, creditworthy insurance companies.
Natixis’ asset and liability management (ALM) risks are managed and monitored under the authority of the Asset/Liability Management Committee (ALM Committee), which is chaired by the Chief Executive Officer and composed of the members of the Senior Management Committee in charge of Finance and Strategy, Risks and the Corporate & Investment Banking division, the Head of the Joint Refinancing Pool, the Head of Financial Management and BPCE’s Head of Asset/Liability Management. The Committee meets every two months and is mainly responsible for: defining and monitoring Natixis’ ALM;a approving the major principles in terms of structural balancea sheet risks (structure, delegation of authority, fund transfer pricing, etc.) in compliance with the standard ALM framework set up by BPCE; validating ALM assumptions and conventions underlyinga calculations for metrics used to manage and monitor ALM risks; validating limits related to liquidity, overall interest rate(1) anda structural foreign exchange indicators; validating the overall funding policy in conjunction with BPCEa ALM; supervising structural balance-sheet risks and compliance witha limits, including managing excessive leverage risk since 2015; supervising the main balance sheet aggregates and theira development.
In the interest of fulfilling its duties and to be able to apply the main principles of asset-liability management and ALM control, the ALM Committee delegates certain operational tasks to: the Financial Management Department:a the ALM Department is responsible for updating ALMj principles, standards, conventions and limits. It submits them to the ALM Committee for approval under the oversight of the Risk Department and supervises structural ALM risks on a consolidated basis while verifying the overall consistency of the ALM system. The department is also in charge of ALM, regulatory liquidity ratios and the leverage ratio (see Section 3.9.2.6 and the following sections); the Treasury Department and the joint refinancing pool,j which came under the authority of the Financial Management Department in 2017 (see Section 3.9.2.1), are responsible for covering the funding requirements of the business lines, providing operational management of liquidity risk in accordance with applicable risk mandates and limits, implementing the Natixis medium-term refinancing policy adopted by the ALM Committee and operationally managing compliance with the regulatory liquidity ratio; the Risk division, in charge or reviewing ALM conventionsa and limits, keeping the Market Risk Committee informed of the validation of overall interest rate risk limits applied to Capital markets activities within the banking scope, and performing Level 2 controls of ALM and the Treasury Department’s indicators; subsidiaries afforded a measure of leeway in terms ofa management and which implement local governance and a dedicated ALM mechanism, such as a local ALM Committee, and oversee their structural ALM risks, placed under the general supervisory authority of the ALM Committee.
Natixis is affiliated with the central institution of the Caisses d’Epargne and the Banques Populaires banks (BPCE), as defined by the French Monetary and Financial Code.
Article L.511-31 of the French Monetary and Financial Code stipulates that central institutions are credit institutions and, as such, they must oversee the cohesion of their network and ensure the proper operation of affiliated institutions and companies. To this end, they take any necessary measures notably to guarantee the liquidity and capital adequacy of all such institutions and companies as well as the network as a whole.
Natixis’ liquidity risk management policy is an integral part of the Group’s policy. It sets out to optimize Natixis’ activities within a clear, shared and standardized framework in terms of governance and ALM regulations, and in line with the Group’s risk constraints.
Furthermore, since mid-2011, Natixis’ funding structure has relied on a Joint Refinancing Pool shared by Natixis and BPCE. Placed under the authority of the Group ALM Committee, this platform was implemented in order to secure the Group’s financing and optimize the management of collateral and allocation of liquidity within the Group in accordance with pre-defined rules, with the aim of limiting the use of market financing and reducing funding costs.
A governance system (dedicated teams and Committees, activation and de-activation rules, reporting and communication procedure, etc.) and remediation plans to enhance liquidity and reduce funding requirements are defined and documented. In addition, the BCP is regularly tested to ensure that it is operational, in accordance with regulations.
2017 saw the consolidation of the diversification strategy undertaken in recent years, as liquidity spreads fell and the business lines’ refinancing needs stabilized. The favorable market environment made it possible to focus on optimizing the efficiency of refinancing and the cost of the resources raised (due to its impact on other ALM constraints), rather than seeking asset growth. This led to: increased growth and rotation of structured issues in privatea placement, particularly in Asia, supporting the strategy of distributing “solution” Global Markets offers that generate greater value; the establishment of a strategy for the circulation of liquiditya raised through private placements within the Group, aimed at improving asset/liability matching; the consolidation of “corporate” liquidity inflows througha various product offers (account administration, accounts, open deposits with notice dates, “Natixis Deposit” specialized professional fund, EETCs, etc.).
GROSS WEIGHT OF ON-BALANCE SHEET FUNDING ■ SOURCES, BY MAJOR CATEGORY OF VEHICLE AND/OR BY CUSTOMER SEGMENT AT END-2017 REPORTING DATE
The stock markets rose throughout the year, boosted by prospects of lower taxes and deregulation by the US administration.