Exposures secured by mortgages on immovable property 274 3 2 279
Exposures to institutions and corporates with a short-term credit assessment 17 34 11 103 166
pool-based exposures (acquired portfolios) and third parties grouped into homogeneous risk classes;V
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Natixis’ credit decision-making process is followed for all securitization transactions. Three criteria are used: amount, maturity and credit quality (including the rating [external if available]).
A counter-analysis is then carried out by the risk division and, if necessary, a quantitative analysis of the portfolio’s default risks. Transactions are examined, and decisions are made based on all the loan application’s parameters, including the expected profit margin on the loan, the capital burn and compliance with the current risk policy.
Natixis does not use the IAA (Basel Internal Assessment Approach) on its securitization positions.
Natixis relies on four external credit rating agencies, among others, for securitization transactions: Moody’s, DBRS, Fitch-IBCA and Standard & Poor’s.
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’ scope of regulatory consolidation: Versailles and Bleachers. 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.
Risk management 141NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020www.natixis.com approves and manages the pricing models (prices) and riskV measurement models used by front office management tools; defines and validates models and methodologies relating to theV institution’s internal model, which is primarily used to calculate regulatory capital requirements; introduces and manages changes in standards and proceduresV common to all entities (subsidiaries and branches) carrying market risks.
Different techniques are used to measure market risk: These measures enable to identify the risks incurred by the positions in the portfolio according to different shock waves: on a local basis, the sensitivity sets make it possible to identifyV potential losses resulting from small movements in the underlying risk factors; with unstressed daily shocks, the VaR is used to estimate aV potential loss on the positions of the current portfolio to which the most significant shocks of the past rolling year are applied; with stressed daily shocks, the stressed VaR makes it possible toV estimate a potential loss on the positions of the current portfolio on which the most significant shocks of recent past rolling years are applied; with shocks of greater magnitude through three day-shocks overV ten consecutive days, stress tests (specific and global) make it possible to estimate exceptional immediate potential losses.
This set of risk measures is governed by a global monitoring system and responds to Natixis ‘risk appetite, which is itself based on a system of specific limits.
To this end, a statistical model has been constructed to track the behavior of market parameters affecting portfolio value. The calculation method is based on an econometric model whose standard deviations are calculated as being the maximum (risk factor by risk factor) standard deviations calculated over rolling 12-month and 3-month periods. This method makes VaR more responsive if the markets suddenly become more volatile.
For the most complex products, VaR is measured by limited development via sensitivity.
VaR levels are managed by limits set at different levels of Natixis (desks, business lines) and thereby helping to reduce the bank’s risk appetite from an operating perspective.
Moreover, the reliability of the VaR is measured regularly through comparison with the changes in the daily trading results, a process also known as backtesting. This exercise allows an ex-post comparison of the potential losses, as projected ex-ante by the VaR, with the actual losses.
In the same way as the VaR, the stressed VaR is calculated by limited development through sensitivity by risk factor for the most complex products.
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To check that the calculation assumptions are respected, particularly the confidence interval of 99%, backtesting calculations are performed on the P&L on a daily basis.
The measurements are conducted on Natixis’ consolidated accounts and across all of its main activities.
The IRC is the capital charge required to cover rating migration risk and the default within one year of issuers for approved products in terms of specific interest rate risk. Calculated using a Monte Carlo internal simulation model, the IRC is a 99.9% value at risk which corresponds to the largest risk after eliminating the 0.1% of the worst outcomes over a period of one year.
In accordance with the provisions of IFRS 9, financial instruments are recognized at their fair value (see Chapter 5 for further information on fair value accounting methodologies).
The design, modification and ongoing management of the model are performed by the model designers on behalf of the model owner. Model Risk Management, an independent entity, is called upon for all new models as well as for all modifications or improvements to existing models. On an annual basis, the team in charge of designing internal or valuation models monitors the models’ performance, notably through an analysis of backtesting and usage tests.
Adjustments for market risks are divided into: adjustments for the cost of position reversals/liquidity positions;V
The shocks applied and methodologies used are updated on a continuous basis.
The VaR level for Natixis’ trading books averaged €11.4 million. It bottom out at €4.5 million on February 6, 2020 and peaked at €22.2 million on June 4, 2020, standing at €9.3 million at
The following chart shows the VaR trading history between December 31, 2019 and December 31, 2020 for the entire scope.
In the second half of the year, the drop in VaR results from the decrease in both exposures and shock amplitudes.
The following chart shows results of backtesting (ex-post comparison of potential losses, as calculated ex-ante by VaR (99%, 1 day), with hypothetical and actual P&L impacts) on the regulatory scope, and can be used to verify the solidity of the VaR indicator: 31/12/19 31/01/20 28/02/20 31/03/20 30/04/20 31/05/20 30/06/20 31/07/20 31/08/20 30/09/20 31/10/20 30/11/20 31/12/20
In 2020, four actual backtesting exceptions and four hypothetical backtesting events were noted at the Natixis regulatory level.
Change in regulatory VaR (1-day 99% VaR) and stressed VaR (1-day 99% SVaR).
This indicator covers the regulatory scope. Natixis’ IRC averaged €13.6 million. It bottom out at €9 million on March 18, 2020, and peaked at €26.5 million on September 25, 2020, and stood at €18.8 million at December 31, 2020.
The historical stress test replicating the sovereign debt crisis in 2011 gave the maximum loss (-€82 million at December 31, 2020).
Fa ll in s to ck m a rk et in d ic es
In cr ea se in In te re st r a te
As part of the definition of its risk appetite, and in accordance with article 98 of the French Ministerial Order of November 3, 2014, Natixis defined its operational risk tolerance policy with a view to limiting losses related to operational risks and regularly reviewing actions to reduce risks. The policy sets out the governance established, the quantitative and qualitative management framework, and the monitoring performed thus far.
It defines the operational risk management criteria, including: quantitative indicators: one historical indicator measuring the costV of risk, one individual indicator identifying the occurrence of major incidents to be reported to the regulator (Article 98), a specific individual indicator raising the alert on internal fraud events, and an operational risk management indicator measuring the progress of corrective actions; a qualitative indicator regarding the compliance of the governanceV of the system; specific indicators monitoring Information and CommunicationV Technology (ICT) risk, including cyber risk.
The operational risk management system identifies, measures, monitors and controls the level of operational risks for all the Company’s business lines and support functions in France and abroad.
The function in charge of operational risk ensures the monitoring and management of risks arising from failures attributable to operating procedures, employees and internal systems or arising from outside events.
mapping potential risks, both qualitatively and quantitatively, basedV on a risk self-assessment and audits carried out by the business lines; links with other control functions;V
The Operational Risk Committees of the business lines and support functions are offshoots of Natixis’ Operational Risk Committee, which closely manages the operational risk exposure of each scope. These Committees are organized according to the function’s governance matrix (location and business lines). They are facilitated by the Head of the Operational Risk Department acting as Committee secretary. Each Committee is chaired by the Head or manager of the Scope (business line or support function, depending on the entity) with the participation of operational managers, support function representatives and the dedicated compliance managers.
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S ce na ri o an al ys is o n m aj or r is ksRegulatory environment / Compliance Division Permanent control / Compliance Division
Analysis of changes in the risk profile of the businesses and support functions
Results of first level controls. Each control is associated with one or several risks
Recording and analyzing incidents the operational risk department) are reported immediately to the business line’s management and to Natixis’ chief risk officer.
Incidents are recorded as they occur, starting from an optional reporting threshold of €5,000 for the Corporate & Investment Banking and Asset Management business lines, and €1,500 for Payments, Insurance and Wealth Management. A single definition of “serious incident” is used, in compliance with Groupe BPCE standards (€300,000 gross). All serious incidents (above the defined threshold or deemed serious by the business line and the head of
Overall trend of reported incidents In 2020, 3,258 incidents that occurred in the year (representing 5,520 single incidents) were entered into the recording tool by the Natixis business lines. The application of the reporting threshold has contributed to the decrease in the number of reports since 2016.
Breakdown of reported incidents by net amount, date and Basel category
In 2020, a risk analysis was performed on all of Natixis’ business lines and support and control functions. Verifying consistency with the results from General Inspections and the results of permanent controls highlighted the most important risks for each scope and helped prioritize corrective measures to be implemented in order to improve the risk management mechanism. The Corporate & Investment Banking and Asset & Wealth Management business lines represent the majority of risks under review owing to the extensive nature of the division’s activities and operations in both France and internationally.
Natixis’ risk profile features two main risk categories in terms of high potential impact: business line risk, concentrated under Corporate & Investment Banking, and cross-functional risk (technology including cyber, regulatory or legal) to which the Company as a whole is exposed. Tailored risk management mechanisms have been introduced to cover these risks, including the safeguarding of procedures and controls, raising employee awareness, Business Continuity Plans, IT Systems Security and insurance policies.
Reporting to the Natixis Insurance division, the Groupe BPCE Corporate Insurance Department is responsible for: analyzing insurable operational risks; andV
Natixis and its subsidiaries benefit from the guarantees provided in the following main insurance programs: covering its insurable operational risks; andV
“Regulated Intermediation Civil Liability” (in three areas:B/ Financial Intermediation, Insurance Intermediation, Real Estate Transactions/Management) with a total maximum payout of €10 million per claim and per year.
“Operating Civil Liability” covering €100 million per claim, asC/ well as a “Subsidiary Owner Civil Liability”/“Post Delivery-Reception Civil Liability” coverage extension for up to €35 million per claim and per year of insurance.
“Protection of Digital Assets against Cyber-Risks” & theF/ consecutive “losses in banking activities”, for up to €140 million per claim and per year of insurance.
All the insurance policies mentioned above were taken out with reputable, creditworthy insurance companies. All the insurance policies mentioned above are purchased with deductibles (accepted retention level) in accordance with Natixis’ retention capacity.
Natixis’ structural balance sheet risks are managed and monitored under the authority of the ALM Committee, which is chaired by the Chief Executive Officer and composed of the members of the Senior Management Committee in charge of the finance, risk and the CIB division, the head of the joint refinancing pool, the head of financial management of Natixis, the head of the SBSR (Structural Balance Sheet Risk) and representatives of BPCE’s financial management division and risks division. The Committee meets every two months and is mainly responsible for: defining and monitoring Natixis’ ALM;V
approving the major principles in terms of structural balance sheetV risks (structure, delegation of authority, fund transfer pricing, etc.) in compliance with the standard ALM framework set up by BPCE; the pre-validation of the ALM agreements and assumptionsV underlying the calculations of structural risk management and monitoring indicators prior to examination by the Group Strategic ALM Committee of the central body; validating internal limits with respect to ALM indicators, the overallV Group limits being defined by BPCE; validating the overall funding policy in conjunction with the BPCEV ALM Committee; supervising structural balance-sheet risks, including managingV excessive leverage risk since 2015; supervising the main balance sheet aggregates and theirV development.
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.
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The aim of this Contingency Funding Plan (“CFP under Liquidity Stress”) is to ensure that, in the event of a liquidity crisis altering the Group’s ability to obtain funding, all resources are used in a coordinated and optimized manner to allow the Group to meet its current and future financial obligations and thus maintain business continuity.
Funding strategy Natixis’ funding structure relies 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 and allocation of liquidity within the Group in accordance with predefined rules, with the aim of limiting the use of market financing and reducing funding costs.
Short-term funding The year 2020 was very mixed on the short-term debt markets. It was marked by the COVID-19 pandemic that affected the financial markets, but also by the formidable reaction of the political and monetary authorities to provide the fastest and most appropriate response possible.
This movement was only very temporary, however, since the actions of central banks quickly led to a return of confidence and liquidity in the money markets. Companies were also able to benefit from a State-guaranteed loan scheme which reassured them that they would be able to maintain their cash flow during the crisis and some of them were able to reduce the amount of their reserves to reinvest in the money market via Asset Management companies.
(in millions of euros or euro equivalents) Deposit certificates Commercial papers
Outstandings at 31/12/2020 19,693 10,389 * For certificates of deposit, NEU CP program ceiling only.
Long-term funding The year 2020 was marked by the COVID-19 crisis which dramatically slowed down global economic activity.
The recovery plans put in place by states also helped to support economic activity.
Against this market backdrop, Natixis raised €11.7 billion in funding in 2020 (of which €520 million in self-held securities) under its medium- and long-term refinancing program. As the only long-term issuer in the public issues segment, BPCE provided Natixis with financing for a total euro-equivalent amount of €2.74 billion.
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In 2019 the system for measuring and monitoring interest rate risk was adapted to factor in the new July 2018 guidelines of the European Banking Authority (EBA), “EBA-GL-2018-02”. It dovetails with the implementation of the IRRBB framework within Groupe BPCE, and includes calculations and limits that are adapted to Natixis’ prudential banking scope.
joint refinancing pool, and the head of financial management of Natixis and his BPCE counterpart.
The interest rate risk of Natixis’ banking portfolio is managed and monitored under the authority of the ALM Committee, which is chaired by the Chief Executive Officer and attended by the members of the Senior Management Committee in charge of the finance division, risk division and the CIB division, as well as the head of the
Limits were approved by the Natixis ALM Committee for these indicators. They are part of the Groupe BPCE system but also into Natixis’ internal RAF system, with a low level of materiality.
The metrics are calculated by financial management with second-level control and monitoring of limits operated by the SBSR (Structural Balance Sheet Risk) Department of the risk division. They are reported to the ALM Committee and recorded in the risk dashboard.
Complementing this system is a set of operational interest rate risk calculations (interest rate sensitivity and stress tests) which are managed daily by the market risk department, and monthly for credit subsidiaries that have a management responsibility.
The table below shows the sensitivity of the economic value (ΔEVE) according to the various regulatory scenarios of interest rate and the interest margin (MNI) of Natixis’ consolidated banking book changes at the reporting dates.
floor) would lead to a variation of -€152 million in the economic value of the banking book (using the EBA’s currency offsetting rules) based on the upward yield curve scenario of +200 bps at
The stress scenarios set by the European Banking Authority (200 bps parallel upward or downward shift in yield curves, steepening, flattening, rise or fall in short rates with a progressive
Other financial liabilities held for trading purposes – excluding trading derivatives 131.8 4.3 81.0 8.9 2.4 4.0 2.0 4.3 4.2 20.6
Amounts due to credit institutions 84.7 12.8 3.7 17.5 10.1 14.1 7.9 17.4 1.1 0.1
Revaluation adjustment on portfolios hedged against interest rate risk 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2
Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 2 to 5 years Over 5 years Undated
Other financial liabilities held for trading purposes – excluding trading derivatives 129.9 8.1 72 11.5 3.7 4.9 2.4 4 4.8 18.6
Financial liabilities designated at fair value through profit or loss 30.7 - 1.5 6.7 2.1 4 4.1 8.8 3.4
Amounts due to credit institutions 72.9 8.8 10.1 15 5.6 7.6 8.7 16.1 1 0.1
Revaluation adjustment on portfolios hedged against interest rate risk 0.2 0.2
The Compliance Department is responsible for managing the risk of non-compliance, coordinating the first-level permanent control system and is responsible for carrying out second-level controls. It also includes the supervision of technological risk and business continuity (ISS-BC), as well as the protection of personal data. Its scope of action encompasses Natixis and its subsidiaries and branches in France and abroad, thanks to its functional structure.
The Compliance Department advises and assists all Natixis employees on how to prevent compliance risks when performing their duties. It plays a key role in implementing the principles set out in the Natixis Code of Conduct (see 6.2 The Natixis Code of Conduct), which have been adapted for compliance in the Compliance Manual.
The scope of the compliance function covers non-financial risks and, in particular, the legislative and regulatory provisions specific to banking and financial activities, as well as professional standards aimed at preventing any risk of non-compliance. It includes the compliance of the products or services provided, the integrity of the markets, financial security and the prevention of fraud, the supervision of technological risks and the processing of personal data.
The Compliance Department also monitors regulations and carries out training and awareness-raising actions on the numerous regulatory changes, particularly concerning the fight against money laundering and the financing of terrorism, tax evasion and information security.
The Compliance Department coordinates first-level permanent controls of compliance risks. In addition, it sets up and implements second-level permanent controls to ensure that procedures are applied within the business lines and that compliance risks are managed, as part of a risk-based approach (see 3.2.1 Natixis internal control system). To this end, Compliance maps non-compliance risks. Lastly, it ensures that any dysfunctions noted by the businesses concerned are corrected.
The Compliance Department performs its duties independently of the operational departments. It reports to the Secretary General of Natixis, a member of the General Management Committee, who is responsible for permanent control declared to the ACPR (French Prudential Supervisory Authority for the banking and insurance sector). Natixis’ Head of Compliance is a member of the Executive Committee.
The Compliance Department reports to the members of Natixis’ Senior Management Committee and the Board of Directors (Risk Committee) on the main risks detected, and on the implementation and effectiveness of the measures to address these risks. It participates in the preparation of various reports for the regulators.
The operating rules of the Compliance Department are set out in a charter approved by Natixis’ Senior Management Committee. This charter, updated in 2020, constitutes the minimum framework to be applied by the entire sector.
The compliance function is deployed across all Natixis entities, whether or not the activities or entities are regulated, provided that the entities concerned are under sole or joint control.
Whenever the risk of compromising a customer’s interests becomes unavoidable in spite of the internal procedures in place, Natixis informs the customer of the nature of the conflict of interest before taking action on the customer’s behalf. This allows the customer to make an informed decision on whether to proceed with the transaction.
Information barriers are put in place and reviewed each time the organizational structure changes in order to prevent the unwarranted circulation of confidential information. These barriers function as partitions between business lines and departments. They limit the circulation of information on a “need-to-know” basis, which means that information is transmitted only in the customer’s interest and only to employees who absolutely require the information to carry out their duties. These barriers may be organizational, physical or electronic and may be permanent or temporary. Natixis has set up a permanent information barrier separating its Asset Management business activities within Natixis Investment Managers from its other activities.
Pursuant to regulations in force, the entry of sensitive transactions into a special tool that allows Compliance to rapidly identify issuers to be placed on the watchlist or on the prohibition list, as well as employees to be placed on the insider list.
Accordingly, and in the interest of maintaining a high level of customer protection, Natixis strengthened its procedures and introduced additional controls.
This resulted in the implementation of various systems used to manage KYC and other information, establish governance for products offered to clients and preserve their assets. For more information on the GDPR and the protection of clients’ personal data see section 3.2.8.6 Protection of personal data.
There is a client information procedure encompassing all the MiFID 2 obligations with respect to client onboarding, as well as the pre- and post-trade information due to clients based on their status as non-professional clients, professional clients or eligible counterparty as defined by regulations.
The procedures for customer onboarding are in line with the various regulatory requirements governing the prevention of money laundering and terrorist financing and compliance with embargoes and sanctions (AML-CTF), the prevention of corruption (Sapin II) and the prevention of tax avoidance (FATCA, AIE, DAC6). The onboarding procedures are also designed to protect customers through compliance with MiFID, EMIR and the Dodd-Frank Act.
If financial instruments or funds belonging to clients are held, the clients’ ownership rights to these assets are maintained and guaranteed. The use of client-owned financial instruments for the institution’s own purposes is only permitted if clients have previously given their express consent. Similarly, regulations prohibit the signing of title transfer collateral arrangements with non-professional clients.
This framework ensures that: customers receive transparent information on how theirV complaints are being handled; complaints are handled effectively; andV
indicators used by the Financial Security Supervisory CommitteeV (AMLSOC) were harmonized for the parent company, subsidiaries and branches, both in France and abroad; increase the number of Natixis financial security teams;V
As part of its efforts to combat money laundering and terrorist financing, in 2020 Natixis enhanced its AML-CTF framework by integrating the new requirements from texts and reports issued by French, European and international authorities and public bodies.
Natixis has a framework of internal policies and procedures, screening tools, training and permanent supervision controls ensuring compliance with the financial sanction and embargo regulations to which it is subject.
In 2020, Natixis continued to strengthen its compliance system with international sanctions, notably with the implementation of new changes to its screening tools and new processes for training and supervising the system.
The main corruption prevention program rules and procedures can be found in Natixis’ anti-corruption policy, available at www.natixis.com.
The risk-based approach was also used to help define the 2018-2020 strategic program. This program, named NewSec, is intended to convert the current model, which is mainly based on perimeter security, into an “airport”-type model. 2020 therefore saw the effective implementation of structuring projects to improve the protection of Natixis’ information assets and the detection of possible attacks. Given the scale of the transformation, residual work is expected to continue until 2022.
Natixis now has a large inventory of laptops that enable it to respond appropriately in the event of a slow-moving crisis (Seine flood, strikes, etc.) This enabled it to effectively manage the COVID-19 crisis by relying heavily and securely on remote working.
Natixis has a personal data register and procedures for key processes, such as handling data leaks, processing requests by individuals to exercise their rights, dealing with referrals to the authorities, updating and annually reviewing the register, carrying out the first and second-level control plan, managing training needs, conducting the regulatory watch and ensuring Privacy by Design/Default in projects. The processing register, as well as the first and second level controls, will be subject to a full review in 2021.
Internationally, in the EMEA and APAC regions, gap analysis and remediation projects related to GDPR and applicable local regulations were conducted and will continue in 2021.
As assessed at December 31, 2020, the financial consequences of litigation deemed likely to have, or which have in the recent past had, a material impact on the financial position of Natixis and/or Natixis and its consolidated subsidiaries as a whole, or on their profitability or their business, have been included in Natixis’ consolidated financial statements.
court’s extraterritoriality ruling. In August 2019, Natixis joined the group of defendants that filed a request for permission to appeal the Second Circuit Court’s ruling before the Supreme Court. In June 2020, the Supreme Court refused to hear the case. The case will be referred back to the Second Circuit Court of the bankruptcy court. The liquidator of BMIS seeks the suspension of outstanding actions for restitution pending the settlement of specific actions on the concept of good faith in the restitution request.
Irving H. Picard, the court-appointed trustee for Bernard L. Madoff Investment Securities LLC (BMIS), submitted a restitution claim concerning the liquidation of amounts received prior to the discovery of the fraud through a complaint filed with the United States Bankruptcy Court for the Southern District of New York against several banking institutions, including a $400 million claim against Natixis. Natixis denies the allegations made against it and has taken the necessary steps to defend its position and protect its rights. Natixis has launched appeals, including a motion to dismiss the case on a preliminary basis, or prior to any ruling on the merits, and a motion to withdraw the reference to transfer certain matters to the United States district court. These proceedings have been subject to numerous rulings and appeals and are still ongoing. A November 2016 ruling by the bankruptcy court dismissed a number of restitution claims initiated by the trustee on the grounds of extraterritoriality. In September 2017, the Second Circuit Court granted the BMIS liquidator and the defendants the right to appeal the bankruptcy court’s ruling on the grounds of extraterritoriality directly through the Second Circuit, thereby avoiding the need to file an intermediary appeal with the district court. In February 2019, the Court of Appeals for the Second Circuit overturned the bankruptcy
Furthermore, the liquidators of Fairfield Sentry Limited and Fairfield Sigma Limited have initiated a large number of proceedings against investors having previously received payments from these funds for redemptions of shares (over 200 proceedings have been filed in New York). Some Natixis entities have been named as defendants in some of these proceedings. Natixis deems these proceedings to be entirely unfounded and is vigorously defending its position. These proceedings have been suspended for several years, and in October 2016 the bankruptcy court authorized the liquidators to modify their initial claim. The defendants filed joint responses in May and June 2017. In August 2018, the bankruptcy court ruled on a motion to dismiss filed by the defendants (requesting that the case be dismissed on a preliminary basis and prior to any ruling on the merits). The judge only gave a ruling on one of the merits (that of personal jurisdiction), having found that the latter was missing from the claim made against the defendants. In December 2018, the judge ruled on the motion to dismiss, rejecting the liquidators’ common law claims (unjust enrichment, money had and received, mistaken payment and constructive trust) as well as contractual claims. However, it overturned the motion to dismiss in respect of claims founded on British Virgin Islands’ law, while reserving the right to file a plea for the application of the Section 546(e) Safe Harbor provision. In May 2019, the liquidators appealed the bankruptcy court’s ruling before the District Court. The defendants, including Natixis, submitted on March 9, 2020 a motion to dismiss this appeal and renewed this initial motion on March 16, 2020. The bankruptcy court asked the defendants to limit the motion to dismiss to arguments that can lead to the dismissal of all the actions of the liquidators (as per Section(e) 546 of the safe harbor provision or impropriety of the initial petition). In December 2020 the bankruptcy court dismissed the action brought under the law of the British Virgin Islands, considering that the defendants, including Natixis, are covered by Section 546 (e) safe harbor. This decision, which may result in the rejection of claw back requests, is subject to appeal.
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Through two complaints filed on November 20, 2013, Selcodis and EDA also brought claims before the Commercial Court of Paris against Natixis and two other banking institutions for unlawful agreements, alleging that such actions led to the refusal to grant a guarantee to EDA and to the termination of various loans.
On December 6, 2018, after consolidating these claims, the Commercial Court of Paris found them to have expired and deemed them closed. The plaintiffs filed an appeal against this ruling in January 2019.
In addition, UFC-QUE CHOISIR, in its capacity as a consumers’ rights non-profit, brought claims before the Paris District Court on March 5, 2018 against the Asset Management company to obtain compensation for the financial losses suffered by the holders of the formula funds in question. The case is ongoing.
In its decision of December 17, 2019, the Competition Authority ruled that Natixis had participated in two practices designed to keep new entrants out of the restaurant voucher market: the exchange of confidential information and the adoption of a series of agreements intended to lock up the market.
This decision was the subject of a press release from the Competition Authority dated December 18, 2019.
On June 7, 2019, the company Bucephalus Capital Limited (a UK law firm), together with other firms, brought claims against Darius Capital Partners (a French law firm, now operating under the name Darius Capital Conseil, and 70%-held subsidiary of Natixis Investment Managers) before the Paris Commercial Court, to contest the breach of various contractual obligations, particularly with respect to a framework agreement dated September 5, 2013 setting out their contractual relations and various subsequent agreements. Bucephalus Capital Limited claims a total of €178,487,500.
Darius Capital Partners consider these claims to be unfounded. The case is ongoing.
At the end of December 2019, Natixis was added as a defendant in a class action brought to the US District Court, SD New York, on allegations of violations in the market for European Government Bonds (EGBs) between January 1, 2007 and December 31, 2012. The class action was initially brought against several identified banks and banks of unknown identity (“John Doe”) in March 2019.
Natixis, like the other defendants in this case, requested the dismissal of the action on a preliminary basis and before any decision on the merits on multiple grounds, a request which was denied at this stage.
Natixis intends to continue to defend itself vigorously, both on the merits and procedurally, against these allegations that it considers unfounded.
Natixis is not dependent on any patent or license, or on any industrial, commercial or financial supply contract.
Credit risk Credit risk is monitored and managed in compliance with Natixis Assurances’ standards and internal limits. At December 31, 2020, 63% of the fixed-income portfolio is invested in securities rated equal to or higher than A.
Life insurance underwriting risk The main risk to which life insurance underwriting is exposed is linked to the Investment Solutions activity. In an especially low interest-rate environment, the biggest risk is that of fewer redemptions and/or excessive inflows in euro-denominated vehicles, as reinvestments in securities dilute the main fund’s return. To prioritize inflows in unit-linked policies, measures have been taken, such as the creation of unit-linked products and communication campaigns focused on unit-linked products.
Non-life insurance underwriting risk The non-life insurance underwriting risk to which Natixis Assurances is exposed is borne by its subsidiary BPCE Assurances: premium risk: to ensure that the premiums paid by the policyholdersV match the transferred risk, BPCE Assurances implemented a portfolio monitoring policy whereby each policy is given a score based on its track record over three years. Factored in are types of claims, number of claims, their cost and other variables specific to the activity in question (degree of liability and bonuses/penalties for auto insurance, for instance). This monitoring policy also contributes to detecting potential risks arising from large claims, and to arranging adequate reinsurance cover; risk of loss: each time inventory is taken, an actuarial assessmentV of the reserves for claims to be paid is conducted based on analytical methods recognized by the profession and required by the regulator; catastrophe risk: catastrophe risk is the exposure to an event ofV significant magnitude generating a multitude of claims (storm, civil liability risk, etc.). This risk is therefore reinsured either through the government in the event of a natural disaster or an attack, for example, or through private reinsurers, specifically in the event of a storm or a civil liability claim, or through reinsurance pools.
Counterparty risk The counterparty risk to which Natixis Assurances is exposed mainly concerns reinsurance counterparties. The selection of reinsurers is a key component of managing this risk: Natixis Assurances deals with reinsurers that are subject to aV financial rating by at least one of the three internationally recognized rating agencies, and that have a Standard & Poor’s equivalent rating of A- or higher; using several reinsurers ensures counterparty diversification andV limits counterparty risk.
monitoring at the risk underwriting level, which, above a given levelV of outstandings based on the DRA, generates an approval and the establishment of an overall budget by Coface’s underwriting department.
Diversification of the credit risk portfolio Coface maintains a diversified credit risk portfolio, in order to minimize the risk of debtor default, a slowdown in a given business sector, or an adverse event in a given country having a disproportionate impact on its overall claims expense. The insurance policies also contain clauses allowing credit limits to be changed mid-contract: the credit insurer may reduce or cancel its credit insurance cover for new sales to the debtor in question. As an exception to this rule, and depending on the policyholder’s expertise, Coface may grant certain policyholders a certain amount of autonomy in setting credit limits, for outstandings which do not exceed the amount set in the contract.
Underwriting decisions are made by groups of underwriters in various underwriting centers, who work in real time and on a network with the advanced ATLAS arbitration system. These underwriting decisions are part of the overall risk underwriting policy placed under the responsibility of the group underwriting department.
The overall quality of the insured receivables portfolio is monitored by an indicator which compares the volume of exposure weighted by the risk assessment with the estimated volume of premiums. This indicator is broken down by geographic area.
Furthermore, the fact that the vast majority of Coface’s risks are short-term (95% of total outstandings) allows it to reduce the risk covered for a debtor or a group of debtors relatively quickly and to anticipate a decrease in their solvency.
Level 2 controls are set up to ensure adherence to the Group’s credit risk standards.
The following chart shows the breakdown of debtors by total credit risk exposure incurred by Coface at December 31, 2020: €5M- €50M
liquidity risk: short-term exposure decreased slightly to 38.8%V (compared to 48% in 2019) of securities in the bond portfolio with
Excluding Coface exposure, consolidated by the equity method at December 31, 2020(a)
Senior Management is in charge of defining and steering Natixis’ strategy, with assistance from the Senior Management Committee.
The Pillar III report is prepared in accordance with the Capital Requirements regulation and the Capital Requirements Directive (CRR and CRD IV). In particular, Articles 431 to 455 of the CRR specify the framework requirements for Pillar III. The CRD IV legislative package entered into force on January 1, 2014. The information required under Pillar III has also been prepared in accordance with the “European Banking Authority Guidelines on materiality, proprietary ownership and confidentiality and frequency of disclosures under Articles 432(1), 432(2) and 433 of the CRR” and the EBA. “Guidelines on the disclosure obligations under Part Eight of Regulation (EU) No. 575/2013” as amended by Regulation (EU) 2019/876 in force at the time of declaration.
Finally, as of November 2014, the European Central Bank is directly responsible for supervising significant European banks. The implementation of this new supervisory framework has continued since then. 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 II Requirement (P2R) as well as Pillar II Guidance (P2G).
In the very specific context of the health crisis, the ECB intervened to make the regulatory framework more flexible, in particular by applying in advance certain provisions due to come into force with CRR2 and CRDV, as well as by reducing the requirement to be covered by CET1, which refers to Tier one and total capital.
At the end of the SREP process and after application of these new provisions, Natixis must therefore meet a CET1 ratio of 8.3%, of which 1.27% for Pillar II (excluding P2G), 2.5% for the capital conservation buffer and 0.03% for the countercyclical buffer.
Financial assets at fair value through profit or loss 210,378 210,472 26,419 134,838 642 180,330 -
Financial assets at fair value through other comprehensive income 13,194 13,194 13,194 - 526 - -
Debt instruments at amortized cost 1,930 1,901 1,901 - - - -
Revaluation adjustments on portfolios hedged against interest rate risk - - - - - - -
Accrual accounts and other assets 5,081 4,933 4,933 - - - -
Non-current assets held for sale 728 728 728 - - - -
Financial liabilities designated at fair value through profit or loss 208,467 207,837 497 145,687 497 157,143 40,904
Liabilities on assets held for sale 55 55 - - - - 55
Gains and losses recognized directly in equity 799 799 - - - - 799
Non-recyclable gains and losses recognized directly in equity (100) (100) - - - - (100)
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Name of entity Method of accounting consolidation Method of regulatory consolidation Description of the entity Country
FCT TULIP NOTE – compartment 1 Full consolidation Equity method Insurance investments
AAA Actions Agro Alimentaire Full consolidation Equity method Insurance investment mutualfund France
goodwill and intangible assets, in accordance with CRR2V provisions for the latter, in advance; recyclable unrealized gains and losses on hedging derivatives;V
expected loss on equity positions and shortfall of provisions onV expected losses on credit positions; revaluation adjustments on defined-benefit plan commitments;V
Detailed information on the debt instruments recognized in Additional Tier 1 capital and their characteristics at December 31, 2020, as required by Commission Implementing Regulation No. 1423/2013 (Annex II), is available on the Natixis website (www.natixis.com).
Detailed information on debt instruments recognized in Tier 2 capital and their characteristics at December 31, 2020, as required by Commission Implementing Regulation No. 1423/2013 (Annex II) is available on the Natixis website (www.natixis.com).
At December 31, 2020, the transition from shareholders’ equity to regulatory CET1 capital, Tier 1 capital and total capital after applying phase-in arrangements, is summarized in the table below.
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Transition from shareholder’s equity to prudential capital after applying phase-in arrangements
o/w portion not including tax loss carry-forwards and impact of netting 542
Pursuant to Commission Implementing regulation (EU) No. 1423/2013, the audit trail of regulatory capital as described in Appendix IV of the regulation is provided below.
5 Minority interests (amount allowed in consolidated CET1) 0 84 5a Independently reviewed interim profits net of any foreseeable charge or dividend 0 26 (2)
6 Common Equity Tier 1 (CET1) capital before regulatory adjustments 17,124 Sum of lines 1 to 5a
Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) (689) 36 (1) (C), 38 11 Fair value reserves related to gains or losses on cash flow hedges (13) 33 (1) (a)
12 Negative amounts resulting from the calculation of expected loss amounts (89) 36 (1) (d), 40, 159 13 Any increase in equity that results from securitized assets (negative amount) 0 32 (1)
15 Defined-benefit pension fund assets (negative amount) 0 36 (1) (e), 41 16 Direct and indirect holdings by an institution of own CET1 instruments (negative amount) (2) 36 (1) (f), 42
Direct, indirect and synthetic holdings by the institution of CET1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above the 10% threshold and net of eligible short positions) (negative amount) 0 36 (1) (h), 43, 45, 46, 49 (2) (3), 79
22 Amount exceeding the 17.65% threshold (negative amount) 0 48 (1)
27 Qualifying AT1 deductions that exceed the AT1 capital of the institution (negative amount) 0 36 (1) (j)
Additional Tier 1 (AT1) capital: instruments 30 Capital instruments and the related share premium accounts 1,717 51, 52 31 o/w classified as equity under applicable accounting standards 1,717 32 o/w classified as liabilities under applicable accounting standards 33 Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase out from AT1 356 486 (3)
Additional Tier 1 (AT1) capital: regulatory adjustments 37 Direct and indirect holdings by an institution of own AT1 instruments (negative amount) 0 52 (1) (b), 56 (a), 57
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42 Qualifying T2 deductions that exceed the T2 capital of the institution (negative amount) 56 (e)
Tier 2 (T2) capital: instruments and provisions 46 Capital instruments and the related share premium accounts 3,156 62, 63 47 Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase out from T2 45 486 (4)
Tier 2 (T2) capital: regulatory adjustments 52 Direct and indirect holdings by an institution of own T2 instruments and subordinated loans (negative amount) 0 63 (b) (i), 66 (a), 67
Direct and indirect holdings of the T2 instruments and subordinated loans of financial sector entities where the institution does not have a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) 0 66 (c), 69, 70, 79
Direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions) (negative amount) (1,110) 66 (d), 69, 79 56 Empty set in the EU
Capital ratios and buffers 61 Common Equity Tier 1 (as a percentage of total risk exposure amount) 11.57% 92 (2) (a)
62 Tier 1 (as a percentage of risk exposure amount) 13.52% 92 (2) (b)
63 Total capital (as a percentage of total risk exposure amount) 15.56% 92 (2) (c)
Institution specific buffer requirement (CET1 requirement in accordance with Article 92 (1) (a) plus capital conservation and countercyclical buffer requirements, plus systemic risk buffer, plus the systemically important institution buffer expressed as a percentage of risk exposure amount) 2.531% CRD 128, 129, 130, 131, 133 65 o/w capital conservation buffer requirement 2.500%
68 Common Equity Tier 1 available to meet buffer requirements (as a percentage of risk exposure amount) 5.31% CRD 128 69 (not relevant in EU Regulation)
Direct and indirect holdings by the institution of the CET 1 instruments of financial sector entities where the institution has a significant investment in those entities (amount below 10% threshold and net of eligible short positions) 609 36 (1) (i), 45, 48 74 Empty set in the EU
Deferred tax assets arising from temporary differences (amount below 10% threshold, net of related tax liability where the conditions in Article 38 (3) are met) 423 36 (1) (c), 38, 48
Applicable caps on the inclusion of provisions in Tier 2 76 Credit risk adjustments included in T2 in respect of exposures subject to standardized approach (prior to the application of the cap) 0 62 77 Cap on inclusion of credit risk adjustments in T2 under standardized approach 11,026 62
Capital instruments subject to phase-out arrangements (only applicable between January 1, 2013 and January 1, 2022)
80 Current cap on CET1 instruments subject to phase-out arrangements 0 484 (3), 486 (2) et (5)
81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) 0 484 (3), 486 (2) et (5)
82 Current cap on AT1 instruments subject to phase-out arrangements 363 484 (4), 486 (3) et (5)
84 Current cap on T2 instruments subject to phase-out arrangements 437 484 (5), 486 (4) et (5)
Changes in regulatory capital, regulatory capital requirements and ratios 3.3.1.4 in 2020
The 2020 CET1, Tier 1 and total ratios are presented below by major component. The same ratios for 2019 are shown by way of comparison.
In accordance with the Basel 3/CRR regulatory framework, under Pillar I these ratios must exceed the minimum limits of 4.5%, 6% and 8%, respectively, in addition to the cumulative safety buffers of 7.03%, 8.53% and 10.53%, respectively for 2020, and of 7.04%, 8.54% and 10.54%, respectively for 2021.
Consolidated shareholders’ equity (Group share) net of DSNs and PSNs 17,251 17,418
Geographical distribution of credit exposures used in the countercyclical buffer (CCYB1)
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Others (including irrevocable SRF (Single Resolution Fund) and FGDR (Deposit Guarantee and Resolution Fund) payment commitments) 23
Amount of Common Equity Tier 1 (CET1) at end of period 12,143
o/w impact of changes in phase-in rate 0 o/w other impact of changes in base (92)
o/w impact of changes in phase-in rate 0 o/w other impact of changes in base (470)
Common Equity Tier 1 (CET1) totaled €12.1 billion at December 31, 2020, up +€1.0 billion over the period. This increase is mainly due to the following changes: cancellation, pursuant to the decision of the Board of Directors, ofV the payment of the ordinary dividend in respect of the 2019 fiscal year following the recommendation of the ECB on March 27, 2020 for an increase of +€1.0 billion; profit for the fiscal year of €0.1 billion;V
changes in other items of comprehensive income (recyclable gainsV and losses directly recognized in shareholders’ equity and exchange rate effect relating to changes in the euro/dollar exchange rate) for -€0.1 billion; prudential deductions relating to goodwill and intangible assetsV (+€0.1 billion), the inadequacy of adjustments for credit risk compared to expected losses according to the internal approach on doubtful exposures (-€0.1 billion) and, following the decision of the European Court of Justice of September 9, 2020, the cancellation of the deduction of security deposits to the SRF and FGDR for (+€0.1 billion); proposed payment of a dividend of six cents per share, i.e.V -€0.2 billion.
Additional Tier 1 capital fell by -€0.1 billion to €2.1 billion due to a currency effect.
The +€3.9 billion increase in credit risk over the period was primarily due to the following factors: an increase in outstandings (+€4.8 billion) concentrated inV Corporate & Investment Banking; the impact of risk inputs (+€4.9 billion) mainly due to an increase inV calculation parameters; the impact from the appreciation of the dollar against the euroV (-€1.4 billion); the use of the equity method for accounting Coface’s factoringV activities following the announcement of its sale (-€1.9 billion); a guarantee impact of -€2.5 billion.V
The +€1.0 billion increase in CVA can primarily be attributed to changes in by lower exposures at end-2020.
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Including counterparty risk.(a) Including €6 million in settlement-delivery risk and €2,284 million in CVA RWA.(b) Including Treasury & Collateral Management.(c)
Accordingly, under the New Dimension strategic plan, the fully loaded CET1 ratio beat its 11.0% target by end-2020 by reaching 11.2% at the plan’s completion. The full CET1 ratio of 11.6 % as of December 31, 2020 is above this target.
Natixis calculates and publishes its leverage ratio (according to the rules set out in the Delegated Act) and to implement the actions needed to converge towards the target ratio under consideration.
Adjustment for off-balance sheet items (i.e. conversion of off-balance sheet exposures to credit equivalent amounts) 41,795 38,494
LEVERAGE RATIO EXPOSURE 370,669 381,876 o/w exposure related to affiliates 59,708 56,614
Under the French Ministerial Order of November 3, 2014 on internal control by companies in the banking, payment services and investment services sector subject to the supervision of the ACPR, the companies in question are required to set overall limits and establish policies and processes to detect, manage and monitor excessive leverage risk.
Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) 19,253 20,578
TOTAL DERIVATIVE EXPOSURES (SUM OF LINES 4 TO 10) 18,520 18,130
Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No. 575/2013
TOTAL SECURITIES FINANCING TRANSACTION EXPOSURES (SUM OF LINES 12 TO 15A) 85,741 79,836
Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off-balance sheet)
(Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No. 575/2013 (on and off-balance sheet)) (12,501)
Amount of derecognized fiduciary items in accordance with Article 429(11) of Regulation (EU) No. 575/2013
Regulations on the monitoring of large exposures were revised in 2014 and are now part of the CRR.
Of which the advanced IRB (A-IRB) approach 37,929 33,892 3,034 o/w equity IRB under the simple risk-weighted approach or the IMA 16,563 16,402 1,325 o/w mark to market 1,592 1,496 127 o/w original exposure o/w the standardized approach o/w internal model method (IMM) 4,191 3,037 335 o/w risk exposure amount for contributions to the default fund of a CCP 152 234 12
Securitization exposures in the banking book (after the cap)* 3,384 2,684 271 o/w SEC-ERBA external rating approach 643 * 51 o/w standardized approach (SEC-SA) 1,589 * 127 o/w default approach 329 * 26 o/w the standardized approach 5,975 5,378 478
Amounts below the thresholds for deduction (subject to 250% risk weight) 1,522 1,240 122
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SMEs treated in the category of exposures guaranteed by a mortgage on property
Exposures to institutions and corporates with a short-term credit assessment 89 4 4 1 1
IRB – internal rating – effect on RWA of credit derivatives used as CRM techniques (CR7)
Governments and central banks 37,058 31,251 o/w Specialized Lending 21,624 22,160
Central government or central banks 17,509 2,173 453 38 10 328 178 12,530 90 288 675 608 63 287 85 1,022 693 27 37,058
Sub-total IRB 31/12/2020 by geographic area 94,932 34,515 12,602 6,012 7,480 3,224 4,551 1,496 164,811
Sub-total IRB 31/12/2019 by geographic area 85,999 33,676 15,847 8,068 7,456 7,456 3,717 6,016 1,607 162,385
Secured by mortgages on immovable property 277 3 1 1 282
Sub-total SA 31/12/2019 by geographic area 63,513 1,100 5,089 2 5,089 89 1,222 1 34 71,051
Included in category A: Other countries for which the sum (Exposure + Provision) is less than €4 billion.
Exposures to institutions and corporates with a short-term credit assessment 85 8 93
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(in millions of euros) On demand < = 1 year > 1 year
Exposures to institutions and corporates with a short-term credit assessment 77 12 89
Financial assets to be at fair value through profit or loss
Of which collaterals and financial guarantees received on non-performing exposures to which forbearance measures have been extendedo/w defaulted o/w depreciated
Credit quality of performing and non-performing exposures by days past due (NPL3)
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Off-balance sheet amount On-balance sheet EAD Off-balance sheet EAD RWA RWA
Central governments and central banks 7,366 89 7,366 44 1,065 14%
Of which €48,293 million in exposure to Groupe BPCE affiliates and excluding exposures to the French Government at 31/12/2020.*
Exposures secured by mortgages on immovable property 100.0% 0% 0.0% 100% 0.0%
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Sub-total Central governments or central banks 553 553 0.0% 4 45% 1,358 357 64% 1
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Sub-total Central governments or central banks 39,119 1,728 74% 40,396 0.1% 321 8% 639 206 1% 50 52
Sub-total Corporates – Specialized Lending 10,592 7,938 64% 15,637 4.9% 862 14% 1,805 4,181 27% 144 221
Retail 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10 to <100 100.00 (default)
0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10 to <100 100.00 (default)
Type and nature of exposure (in millions of euros) Share Mutual funds Investments Total at 31/12/2020 Total at 31/12/2019
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RWAs as at the end of the previous reporting period (31/12/2019) 3,037 243
RWAs as at the end of the current reporting period (31/12/2020) 4,191 335
Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which 9,642 193
The securitization positions classified as Amortized cost are measured at amortized cost using the effective interest rate method as described in Note 5.1 to the accounting principles which can be found in Section 5.1 “Consolidated financial statements and notes” to Chapter [5] “Financial data” of the consolidated financial statements. They are tested for impairment at each reporting date and an impairment charge is recorded in the income statement under “Provision for credit losses”.
Synthetic securitization transactions in the form of Credit Default Swaps follow accounting rules specific to trading derivatives.
Includes securitization positions that do no require external valuation to calculate RWA.*
Securitization exposures in the banking book and associated capital requirements – Bank acting as originator or as sponsor (SEC3)
o/w retail underlying o/w re-securitization o/w senior debt o/w non-senior o/w retail underlying o/w re-securitization o/w senior debt o/w non-senior
Value at risk (Maximum of both values a and b) 2,240 179
Most recent IRC value (incremental default and migration risks calculated in accordance with Section 3 of Articles 370/371) 434 35
Average of the IRC number over the preceding 12 weeks 424 34
Average of the risk number for the correlation trading portfolio over the preceding 12 weeks 8% of the own funds requirement in the standardized approach on the most recent risk number for the correlation trading portfolio (Article 338 (4))
The operational risk control system is presented in section [3.2.6 “Risk management – Operational risks”].
Other equity instruments issued 15,583 11,891 10,797 6,203 of which: asset-backed securities 10 0 10 0 306 0 306 0 of which: issued by general governments 11,414 11,259 11,414 11,259 10,004 11,427 10,004 11,427 of which: issued by financial corporations 5,225 0 5,225 0 6,129 0 6,129 0 of which: issued by non-financial corporations 995 90 995 90 1,481 568 1,481 568
Fair value of collateral received or own debt securities issued available for encumbrance o/w theoretically-eligible
Other equity instruments issued 38,769 24,982 25,034 1,923 of which: covered bonds 1,534 1,008 590 385 of which: asset-backed securities 5,302 1,806 1,453 411 of which: issued by general governments 111,665 111,161 11,419 10,643 of which: issued by financial corporations 3,360 0 2,711 0 of which: issued by non-financial corporations 2,670 250 2,502 871
TOTAL ASSETS, COLLATERAL RECEIVED AND OWN ISSUED DEBT SECURITIES 214,622 140,749
Assets, collateral received and own debt securities issued besides secured bonds or securities backed by encumbered assets
Natixis considers that the following assets may not be encumbered in the normal course of its business: loans on demand, i.e. 12% of unencumbered assetsV (€38,263 million); derivatives, i.e. 17% of unencumbered assets (€53,952 million).V
In 2010, the Basel Committee introduced new liquidity risk measures: the Liquidity Coverage Ratio (LCR, January 2013) is a short-termV liquidity ratio whose aim is to ensure that, in stress scenarios, banks hold enough liquid assets to cover their net cash outflows for a 30-day period; the Net Stable Funding Ratio (NSFR, October 2014) is a long-termV structural liquidity ratio developed to strengthen the resilience of the banking sector by requiring banks to maintain a stable funding profile and by limiting maturity transformation to less than one year.
Liquid assets must meet a number of intrinsic requirements (issuer, rating, market liquidity, etc.) and operational requirements (availability of assets, diversification, etc.) in a 30-calendar day liquidity stress scenario.
Presentation of LCR at December 31, 2020 The data in the following table were calculated in accordance with European Banking Authority rules (EBA/GL/2017/11 guidelines), which the European Central Bank decided to enforce on October 5, 2017 by way of notification.
For the purposes of these rules, the data published for each quarter show the average monthly figures for the twelve preceding statements.
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Currency and unit: (in millions of euros) Total non-weighted value (average) Total weighted value (average)
Quarter ending on (day/month/year) 31/03/2020 30/06/2020 30/09/2020 31/12/2020 31/03/2020 30/06/2020 30/09/2020 31/12/2020
Number of points used to calculate average 12 12 12 12 12 12 12 12
Retail deposits and deposits from small business customers, of which: 2,796 2,788 2,740 2,599 280 279 274 260
Non-operational deposits (all counterparties) 40,318 41,866 39,161 40,198 32,224 32,860 29,359 29,555
Outflows related to derivative exposures and other collateral requirements 10,808 11,967 12,745 12,493 7,600 7,763 8,051 8,101
Collateralized lending transactions (o/w reverse repos) 107,305 97,767 86,195 77,667 11,457 10,154 8,943 8,139
(Excess of cash inflows from a related lending institution) 0 0 0 0
Cash inflows (subject to 75% cap) 134,698 130,587 122,961 118,446 57,466 58,932 59,100 59,049
In addition to these buffers, the aim of the internal policy governing the investment of residual surplus liquidity is either to reserve this liquidity for the deposit facility to ensure its continuous availability, with the result that this surplus liquidity is also included in the amount of assets reported in the LCR numerator, or to give it to the central body BPCE.
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Cross-reference table between Articles of the CRR, Basel Committee/EBA tables and statements, and the Pillar III report
Article 435 (a) (EBA) CRA – General information about credit risk 129
Article 435 (a) (EBA) CCRA – Qualitative disclosure related to counterparty credit risk 129-130
Article 436 (b) EU LI1 – Differences between accounting and regulatory scopes of consolidation and mapping of financial statements with regulatory risk categories 172
Article 436 (b) EU LI3 – Differences between consolidation scopes (entity by entity) 174
Article 458 (BCBS March 2016) CCyB1 – Geographical distribution of credit exposures used in the countercyclical buffer 179
Art. 438 (c), (d), (e) and (f) NX01 – EAD, RWA and EFP by approach and by Basel exposure class 137
Art. 444 (a), (b) and (c) NX11BIS – EAD by exposure class and by agency – Standardized approach 186
Article 442 (a) and (b) CRBA – Additional disclosure related to the credit quality of assets 280-300
Article 442 (c), (g) and (h) (EBA) EU CR1 – Credit quality of assets 188-190
Article 442 (e) (EBA) EU CRB-D – Concentration of exposures by industry or counterparty type 193
Article 444 (a) (d) (EBA) EU CRD – Qualitative disclosures on banks’ use of external credit ratings under the standardized approach for credit risk 198-199
Article 444 (e) (EBA) EU CR5 – EAD by asset class and risk weight 200
Article 452 (e) (h) and (j) (EBA) EU CR6 – IRB – Credit risk exposures by portfolio and PD range 203
Article 452 (e) (EBA) EU CCR4 – CCR exposures by portfolio and PD scale 208
Article 439 (e) and (f) (EBA) EU CCR8 – Exposures to CCPs 211
Article 449 (BCBS) SECA – Qualitative disclosure requirements related to securitization exposures 212
(BCBS) SEC3 – Securitization exposures in the banking book and associated regulatory capital requirements – bank acting as originator or as sponsor 215
Article 445 (EBA) EU MR1 – Market risk own funds requirements 216
Article 455 (g) (EBA) EU MR4 – Comparison of VaR estimates with gains/losses 216
(EBA) NPL 3: Credit quality of performing and non-performing exposures by days past due 196
Article 16 (3) (EBA) NPL 4: Performing and non-performing exposures and corresponding provisions 194
Geographical distribution of credit exposures used in the countercyclical buffer (CCYB1) 179
Changes in prudential capital after applying phase-in arrangements for the period 180
EAD, RWA and capital requirement by approach and by Basel exposure category (NX01) 137
Guaranteed exposures by type and internal rating of guarantor (NX17) 186
IRB – Effect on RWA of credit derivatives used as CRM techniques (EU CR7) 187
Total and average amount of net exposures (EU CRB – B) 191
Concentration of exposures by industry or counterparty type (EU CRB – D) 193
Risk weights used under SA by category of exposure and by rating grade (CRD-D) 198
Credit risk exposure and credit risk mitigation under S.A. (EU CR4) 200
IRB – Credit risk exposures by portfolio and PD range (EU CR6) 203
Analysis of exposure using counterparty credit risk approach (EU CCR1) 209
Credit derivatives exposures (CCR6) RWA flow statements of CCR exposures under Internal Model Method (IMM) (EU CCR7)
On and off-balance sheet EAD according to the role of Natixis in the banking book (NX31-A) 214
EAD according to the role of Natixis in the trading book (NX31-B) 214
Both global growth and monetary policies were deeply affected by the health crisis in 2020.
However, Europe and the United States faced a second wave of new cases in the autumn. Mobility and activity restrictions were gradually reintroduced in most countries, thereby affecting business. However, business losses in the fourth quarter will be much smaller than those recorded in the second quarter, as governments have attempted to minimize the economic impact of the restrictions imposed. As a result, growth was almost stable in Germany in the fourth quarter, while the decline in France would be limited to 1.3% based on the latest INSEE estimate. On a full-year basis, the euro zone’s GDP fell by 6.8% with a decrease of 8.3% for France.
In the United States, after an impressive increase between February and April when it reached 14.7%, the unemployment rate gradually fell in the second half of the year, from 11.1% in June to 6.7% in December. Nevertheless, the US labor market started to slow at the end of the year.
During the second half of the year, monetary policies remained very accommodative. In the United States, the Fed maintained the pace of its asset purchases ($80 billion per month in purchases of treasury securities and $40 billion in agency covered bonds). It maintained its key rates at zero. In Europe, the ECB eased the level of monetary accommodation several times over. After setting up the PEPP (Pandemic Emergency Purchase Program) in the first half of 2020, with an initial budget of €750 billion, the size of the program was increased twice (+€600 billion in June and +€500 billion in December) with purchases that will be extended until the end of 2022. Accordingly, the PEPP’s budget is €1,850 billion, of which around €700 billion were used at the end of 2020. In addition, the conditions of the TLTRO III have been eased, leading to an extension of the access period to subsidized financing conditions (up to -100bp) until June 2022. Finally, the ECB kept its main key rates unchanged.
However, 2020 ended with two pieces of good news: the arrival of vaccines against COVID-19 which are a real glimmer of hope and the conclusion at the last minute by European Heads of State of a trade agreement on post-Brexit relations.
Against this backdrop, in the first half of 2020, interest rates tumbled across the majority of developed countries, starting with the United States. By lowering of the Fed Funds rate from 1.75% to 0.25% (high end of the range) and proceeding with massive liquidity injections, the central bank of the United States took long rates to their lowest ever level. The ten-year US Treasury yield fell from 1.80% to 0.60%.
The limited change in the EUR/USD during the first half of the year (+0.1% to 1.1243 as of June 30) masked a large range with outermost points: 1.1522 on March 9; 1.0638 on March 23. The second half of the year was marked by a significant depreciation of the dollar. The proliferation of announcements of effective COVID-19 vaccines, vaccination campaigns and, in particular, the announcement of a fiscal stimulus in the United States fueled an appetite for risk that affected the dollar. This weakness of the dollar led to an average appreciation of 9.5% for G10 currencies in the second half of the year, 8.8% for Latin American currencies and 5.4% for Asian emerging currencies and 5.3% for emerging currencies in the EMEA region.
Against this backdrop, the euro rose by 8.7% in the second half of the year, increasing from a half-year low on July 1 (1.1185) to a high on December 30 (1.231), thus closing the year with an appreciation of 8.9%.
The main stock market indices rallied hard in the second quarter, with a hope of an economic bounce back and massive actions by governments and central banks, posting record highs for over 20 years. In the second quarter of 2020, the main stock market indices recorded significant increases with an increase in the S&P 500 of 20% (the best since 1998), the Dow Jones +20% (the best since 1987) and the Nasdaq +31%, while Europe saw an increase of 16% for the Eurostoxx 50.
Thus, the first half of 2020 will have been marked by an evolution of the US indices down by 4% for the S&P 500 and a Nasdaq showing exceptional performance of +16% driven by technology equities, while European indices were in difficulty, with performance of -13% to -14% for the Eurostoxx 50 and the EuroStoxx 600.
In the third quarter, equities overall rose with an MSCI World USD up 7.9%. Gains were recorded in July and especially in August, while the market remained supported by the reopening of economies. Lastly, the equity indices rose sharply in the last quarter of the year, with the US elections as supporting factors – suggesting a scenario deemed optimal of a Biden victory and a Republican Senate – and especially the announcement of effective COVID-19 vaccines. The MSCI World $ thus rose by 13.6% in the fourth quarter, closing the year at +16.2% compared to December 31, 2019.
Mirova received the award for best management team of theV year,
end of the collective termination program and further reduction inV headcount.
Business in Employee savings remained very dynamic in 2020, as evidenced by the increase of 4% in assets under management year-on-year to €28.2 billion. Business activity in the large corporate client segment was strong with several material calls for tenders won in 2020. Sales of the BPCE networks, which were shut down from mid-March to May 2020, recovered at a satisfactory pace until the end of the year. The reform of the retirement savings market, brought in by the PACTE law, remained a top priority in the past year. Natixis Interépargne and ARIAL CNP Assurances, the first insurance company entirely dedicated to supplementary collective pension savings, announced in early July the pooling of their expertise to offer companies a comprehensive range of employee and retirement savings solutions incorporating the new company retirement savings plans (PER). Through this partnership, Natixis Interépargne gives companies of all sizes – from very small businesses to the largest corporations – complete access to a comprehensive range of employee and retirement savings solutions.
Corporate & Investment Banking’s 2020 highlights included the continued roll-out of New Dimension strategic plan targets aimed at achieving the following goals: to be recognized as a bank that offers innovative solutions, be an active player in new societal trends, and offer increased support to its clients in this exceptional environment.
In the first half of 2020, the COVID-19 crisis triggered a new dynamic in the responsible investment market, bringing social issues to the same level as environmental issues.
Natixis supported various French public institutions such as Unédic and CADES in charge of maintaining social protection systems.
Natixis received several awards for its expertise and capacity for innovation in the “green” sector.
The EMEA platform enjoyed strong business volumes in particular in the Real Assets sector, and was very active in energy and real estate infrastructure projects through the distribution of its assets to a variety of investors and partners. The London branch continued to refocus its business on UK customers.
In Germany, the bank established a long-term partnership with a large regional Landesbank for the distribution of indexed insurance with a sustainable investment strategy to tackle climate change. Natixis provides an innovative solution that is the first indexed insurance product on the market to fight against climate change.
In the Middle East Natixis was recognized for the IJ Global operation “MENA MLA of the year 2019” and was nominated several times for key green transactions with Acwa Power (Taweelah sustainable desalination loan) or Dewa V (IPP solar PV project).
The Real Assets business lines (which include the Aviation, Infrastructure, and Real Estate & Hotels/Tourism sectors) proved very resilient.
Lastly, the Real Estate and Hospitality sector continued to support its clients in all the geographic areas where it operates, and to develop Green and Sustainable financing arrangements.
Trade & Treasury Solutions underwent transformation in 2020, now grouped with export credit and commodity trading activities with a view to better serve our clients by providing them with more comprehensive support in their working capital requirements and business development, particularly internationally.
Among the highlights in 2020, ENR Trade stepped up support for customers in their energy transition, with innovative products such as the Green Repo for aluminum with Trafigura.
In France, Natixis Partners advised Sagard on the sale of Ipackchem to SK Capital. In the United Kingdom, Fenchurch Advisory advised Hastings group plc on the takeover bid by a consortium of Sampo and RMI. In the United States, PJ Solomon advised Mood Media, first on its restructuring under Chapter [11] and later on its sale to Vector Capital. In France, Natixis and Natixis Partners jointly rank No. 1 by number of deals with midcaps (source: L’Agefi Hebdo). In the United Kingdom, Fenchurch Advisory ranks No. 1 in the FIG sector by number of transactions (source: Mergermarket).
Despite a reduction in volumes in the leveraged financing for investment funds segment, Natixis recorded some major achievements. In France, Natixis arranged and coordinated (Sole Sustainability Coordinator and Facility Agent) for IK Partners in connection with the acquisition of Kersia, a leader in biosafety and food safety, the first sustainability-linked LBO for a French bond.
In these exceptionally volatile market conditions, Natixis benefited from its strong expertise in the convertible bond market to manage five large-scale transactions in 2020, including the issues of Accor, Safran, STMicroelectronics, and Worldline on two occasions.
Natixis also continued to roll out its sustainable finance strategy by positioning itself in a variety of green and social bond transactions, with a total of 56 mandates executed, including issues aimed at supporting activities affected by the health crisis (e.g. COVID Bonds) for the Corporate, Sovereign, Supranational and Financial segments.
For life and health insurance, the financial effects from the crisis are under control due in particular to the protection mechanisms in place: in particular, the impact of the downturn in the equity market in the first quarter was mitigated by the equity coverage taken out in 2019 and few impacts were observed on Payment Protection Insurance and Personal Protection Insurance.
The first lockdown led to the closure of bank branches, which weighed on activity levels, particularly in savings. While revenue was affected in the first half, it then returned to a level close to that of 2019 over the rest of the year.
The ambition to become a fully-fledged bancassurance specialist and create a distinct Non-Life Insurance business model for individual and business customers within Natixis Assurances was realized after it was agreed, in May 2019, to renew the partnership with Covéa from January 1, 2020. The #INNOVE2020 program was rolled out throughout the year in the Banque Populaire and Caisse d’Epargne banks, with strong momentum in the production for the new Car and Multi-Risk Home Insurance offering in the Banque Populaire banks and the new Multi-Risk Home Caisse d’Epargne banks. Now all Banque Populaire and Caisse d’Epargne banks benefit from the strengths of the program: newly-designed experiences, new offerings and new information system.
This unprecedented context did not slow the launch of major projects: the Processing Business Unit (BU) launched a number of projectsV with a view to its transformation to become a leading player in the Payments industry in terms of innovation and competitiveness: the roll-out of the Group Payments Program (PPG) in the BanqueV Populaire network (and in the first half of 2020 for the Caisse d’Epargne banks), the progress of the Oney project (payment processing,V acquisition, digital banking) which makes Natixis the payment partner of Oney, the deployment of product management and the agileV development of projects, the launch of its operational efficiency plan (Next Stage);V
This alliance of performance and innovation made the division particularly attractive over the last twelve months: nearly 200 new employees (all entities combined) have thus joined to supplement its range of skills to support technological developments in its offerings.
This development of the business lines went hand-in-hand with: a 5% increase in liquidity needs year-on-year;V
the consumption of Basel 3 RWA up 6% year-on-year to reachV €105.0 billion.
Natixis’ net revenues stood at €7,306 million at December 2020, down 13.2% from 2019 at constant exchange rates.
Corporate Center net revenues, which now include Natixis Algérie and Natixis Private Equity run-off activities, stood at -€54 million in 2020 versus +€120 million in 2019. They include -€86 million for the return of foreign-currency DSNs to the historic exchange rate, versus +€19 million in 2019.
At €851 million in 2020, provision for credit losses was up sharply compared with 2019 where it totaled €330 million. The provision for credit losses of the main business lines as a percentage of assets amounted to 128 basis points in 2020 versus 50 basis points in 2019.
Gains or losses on other assets totaled -€42 million in 2020, of which -€48 million was attributable to the loss on the disposal of H20, versus €685 million in 2019, of which €697 million was attributable to the disposal of the retail banking activities to BPCE S.A. in the first quarter of 2019.
Pre-tax profit therefore totaled €579 million in 2020 versus €2,745 million in 2019.
The contribution of Coface, now presented separately on the income statement, totaled -€192 million of net income in 2020, which includes the one-off impacts related to its disposal (-€147 million in gains or losses on other assets and -€57 million in revenue from Associates in 2020 versus +€62 million in 2019.
Consolidated management ROE after tax (excluding non-recurring items) came to 2.4% in 2020, giving an accounting ROE (including non-recurring items) of -0.1%.
Consolidated management ROTE after tax (excluding non-recurring items) came to 3.0% in 2020, giving an accounting ROTE (including non-recurring items) of -0.1%.
The revenues of the Asset & Wealth Management division shrank 13% compared to 2019 at constant exchange rates (-14% at current exchange rates) to €3.2 billion.
At 10.0%, the division’s ROE was down 4.8 points from December 31, 2019.
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2020 234 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
Assets under management at the end of December 2020 were to LBPAM contributions, the market effect (+€58.9 billion or €1,135.5 billion up by 22% at current exchange rates (+27% at +€63.6 billion excluding the H2O impact) and net inflows constant exchange rates) compared to December 31, 2019, driven by (+€5.1 billion or +€12.5 billion restated to include H2O) partly offset the very favorable scope effect (+€177.7 billion) mainly related to by a negative exchange rate effect (-€40.3 billion).
(*) AUM correction (+€0.5 billion) in Private Equity in Q1 2020, integration of LBPAM AUM (+€177.2 million) in Q4 2020 in Europe.
The business line recorded net inflows of €5.1 billion at current exchange rates.
Management report at December 31, 2020 235NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020www.natixis.com
Assets under management totaled €30.7 billion, representing an increase of 1% year-on-year, driven by inflows that more than offset the negative market effect (extremely defavorable market effect recorded in first quarter).
At the same time, outstanding loans increased by 6% to reach €2.2 billion with an increase concentrated in France.
Expenses amounted to €153.7 million, down 2% compared to 2019, reflecting the actions implemented to control costs.
Assets under management at the end of December 2020 amounted to €28.2 billion, up by €1.2 billion, or 4% compared to December 31, 2019, driven by a positive market effect (+€0.7 billion) and a favorable investment effect (+€0.5 billion).
PERCO assets under management at €3.3 billion, increased by 13% compared to the end of December 2019, with a higher number of savers (+9%), confirming the role of retirement savings as a driver for the continued growth of the employee savings market.
In 2020, Corporate & Investment Banking net revenues amounted to €2,803 million, down 15.3% compared to 2019 at constant exchange rates.
The Strategic financing and acquisitions revenue was up by 4.7%, driven by strong demand for loans, notably through State Guaranteed Loans (EMP), from Corporate customers, which helped offset the slowdown experienced in the primary market, particularly in the United States.
Revenues from Investment Banking, including M&A activities, were up 8.3% year-on-year at constant exchange rates for cumulative revenues of €424 million. M&A activity remained dynamic in 2020, particularly in the second half of the year, with annual revenues of €208 million, up 7.5% at constant exchange rates.
In 2020 Corporate & Investment Banking’s expenses totaled €2,099 million, down 6.1% at current exchange rates and down 5.4% compared with 2019 at constant exchange rates. Excluding Transformation & Business Efficiency costs classified as a non-recurring item in financial communication for €11 million in 2020 and €27 million in 2019, expenses were down 4.7% at constant exchange rates thanks to the decrease in variable expenses and stricter cost control.
ROE after tax was negative at -1.2% in 2020 compared to ROE of
The year was marked by the COVID-19 pandemic with the consequence of a significant slowdown in commercial activity during the first lockdown, between March and May.
Income of associates was affected by: the default in payment in Lebanon: a loss to the value of €23.1 millionV was recognized from the bank-insurer ADIR (34%-owned); a BPCE IARD contribution of €4.9 million, in comparison toV €6.7 million in 2019, mainly due to the deterioration of claims expenses for operating loss guarantees for restaurant owners following the public health crisis.
Activity in 2020, penalized by the health crisis linked to COVID-19, was mixed, the various lockdowns having impacted consumption.
The pandemic has nevertheless accelerated the underlying trends already present in the Payments market with the continued acceleration of contactless payments, which accounted for 43% of card transactions in Q4 2020 (compared to 31% in Q1 2020), a sign of the stepping-up in digitization, which is also reflected in the development of e-commerce activities, with business volumes up by 20% for Natixis Payment Solutions and Fintechs Dalenys and Payplug compared to 2019.
The resilience of the Payments business is mainly illustrated by: the contained decline in Natixis Payment Solutions’ legacy e(i) banking activities of 4% in the volume of card payments (after the 19% drop in Q2 2020 compared to Q2 2019); the limited decline in Natixis Intertitres’ historic restaurant(ii) voucher issuance activity (-2% of the volume of securities issued compared to 2019), which continued to ramp up the digitization of its APETIZ offering and accelerated its business development (+13% new beneficiaries compared to 2019), while the other entities (Titres Gifts, Comitéo, Lakooz) showed good resistance and posted a decline in the overall sales of business generated by the Prepaid & issuing business unit at -3%; the outperformance of the Merchant Solutions Business Unit’s(iii) FinTech e-commerce Payplug, which recorded growth of 125% in its sales volumes thanks to strong business development and synergies achieved with the Banque Populaire and Caisse d’Epargne networks.
Expenses of the Payments division, at €391.4 million, were up 6% (+€21 million), in line with the human and IT investments made, with in particular the launch of strategic projects (PPG Group Payments Program) in 2020, combined with the actions implemented to control costs.
Corporate Center net revenues totaled -€54 million at end-December 2020 versus +€120 million at end-December 2019.
At constant exchange rates, short-term average outstanding loans fell 11% while medium- and long-term outstanding loans decreased by 4% compared to 2019, penalized by the COVID-19 impact and the economic and political situation in Algeria. In the same period, customer deposits increased by 5% due to increased current account inflows as well as new term deposit subscriptions.
Net revenues stood at €2.6 million and was up €12.9 million compared to 2019 (mostly distribution of carried interest of the EMZ 6 fund in the amount of €11 million in the first half of 2020).
FVA hedging was valued at +€10 million at end-2020 compared toV +€17 million at end-2019.
Excluding these items, net revenues reached -€38 million in 2020 compared with +€23 million in 2019; it essentially comprised: revenues from Treasury and ALM operations were down, as theV amortizations of the balance ended, and also due to exchange and interest rate effects; rebilled expenses from the support functions to entities for theV most part linked to Groupe BPCE.
Corporate Center expenses totaled €460 million at the end of 2020 versus €540 million at the end of 2019.
Gains or losses on other assets 6 (48) 0 (42) (146) (187)
Reportable net income Group share 517 (81) (8) (33) (5) (86) (203) 101 101
Asset Management Acquisition of a minority stake in US Asset Management company WCM Investment Management (WCM) and conclusion of an international distribution agreement.
Asset Management Conclusion of a strategic partnership agreement with Fiera Capital, the leading publicly-traded independent distribution platform in Canada, and acquisition of a minority stake of 11% in its capital.
CIB Strategic investment in Fenchurch Advisory Partners in the United Kingdom as part of the strategic enhancement of Natixis’ expertise in Mergers & Acquisitions advisory services.
CIB Strategic investment in Clipperton in France as part of the strategic reinforcement of Natixis’ expertise in Mergers & Acquisitions consulting.
Payments Acquisition of 46% of the remaining shares in Dalenys, following a takeover bid and squeeze-out.
Payments Acquisition of a majority stake (70%) in Comitéo, a prepaid payments company (software platform for works councils).
Natixis Sale of a 29.5% stake in Coface to leading US insurance firm Arch Capital Group. Completion of the transaction is subject to the usual conditions, in particular mandatory regulatory approval.
On February 9, 2021, the Board of Directors approved the 2020 financial statements. Since then, several announcements have been made: Filing by BPCE SA of a simplified takeover bid for Natixis shares.V
Completion of the agreement to sell 29.5% of Coface’s shareV capital between Natixis and Arch Capital Group Ltd.
These two transactions have no impact on Natixis' consolidated financial statements at December 31, 2020.
Gains/(losses) on fixed assets (100) (108) (10) (1,100) (110) (109) 1,258 1 1,259
At December 31, 2020, Natixis’ gross operating income stood at +€736 million, a -€556 million decrease compared with December 31, 2019, due to a €785 million decrease in revenues, and despite a +€229 million decrease in operating expenses.
Net interest income rose by +€225 million: +€354 million for business in Mainland France and -€129 million for foreign branches, this net increase was attributable to the Revolving Credit Facilities (RCF) drawdowns and the sustained production of vanilla financing during the year. Net fee and commission income increased by +€49 million, resulting from a +€107 million increase in Mainland France and a decrease of -€58 million in business recorded by foreign branches. This change in fee and commission income can be broken down into +€165 million in net fee and commission income on off-balance sheet transactions, -€56 million on transactions with customers, -€53 million in securities transactions, and -€15 million in financial service or payment instrument transactions.
Gains on investment portfolio transactions decreased by €298 million, of which -€224 million attributable to operations in Mainland France and -€74 million to the branches.
Operating expenses fell €229 million, including -€114 million in payroll costs (-€116 million in variable compensation), -€109 million in external services net of rebilling, attributable to cost-cutting programs and -€7 million in costs and taxes.
Together, these items brought operating income to +€42 million, down -€821 million.
Natixis’ financial statements at December 31, 2020, showed positive net income of €142,691,880.31 and, taking into account retained earnings of €3,250,193,296.65, showed distributable earnings of €3,392,885,176.96.
The third resolution that will be put before the General Shareholders’ Meeting on May 28, 2021, proposes to: pay an ordinary dividend of €189,357,090.12;V
In accordance with the provisions of Articles 223 quater and 223 quinquies of the French General Tax Code, please note that the financial statements for the past financial year do not include sumptuary expenses that are not deductible from taxable income.
In accordance with Article D.441-4 of the French Commercial Code, supplier invoices that have been received but remain unpaid at the reporting date (for a total amount including tax of €45.1 million) are as follows: Late payment tranches 0 day (indicative) 1 to 30 days 31 to 60 days 61 to 90 days 91 days and over
Total amount of invoices concerned incl. tax (in millions of euros) 43.8 0.8 0.1 0.1 0.3 1.3
With regard to Natixis' business, a number of strategic developments were announced in the third quarter of 2020, ahead of the presentation of a new medium-term plan that should potentially take place during the year 2021.
In order to free up the necessary room for maneuver for the development of its business lines, Natixis has also announced an operational efficiency plan targeting nearly €350 million in cost savings by 2024 (~€120 million achieved over 2021, ~€250 million in 2022, ~€310 million in 2023 and ~€350 million in 2024) for an amount of investments classified as exceptional items of around €270 million (spread out until 2023).
In terms of solvency, the disposals of 50.01% of the share capital of H2O AM and of 29.5% of the share capital of Coface (finalized on February 10, 2021) should make it possible to absorb the remainder of the regulatory impacts expected in 2021 (TRIM Banks, SA-CCR) which are estimated at around 20 bps after mitigation.
Pursuant to Article 19 of Regulation (EU) 2017/1129, the following information is included as reference: the overview of the 2019 fiscal year on pages 211 to 229 of theV 2019 universal registration document submitted on March 6, 2020.
As a reminder, to comply with the requirements of the French law on the separation of banking activities, the Short-Term Treasury and Collateral Management activities, which used to be part of Global Markets, were transferred to the Finance Department on April 1, 2017. However, to ensure comparability, in this management report CIB refers to CIB and the Short-Term Treasury and Collateral Management activities.
In addition, the standards used to assess the performance of the divisions are those defined for the New Dimension plan: regulatory capital allocated to the business lines on the basis ofV 10.5% of Basel 3 average RWA; 2% rate of return on capital.V
Deeply subordinated notes (DSNs) are classified as equity instruments; interest expense on those instruments is not recognized in the income statement.
as the numerator, the business line’s pre-tax profit, as per theV aforementioned rules, to which a normative tax is applied. The normative tax rate is determined for each of the divisions by factoring in the tax liability conditions of Natixis’ companies in the jurisdictions where they operation. It is determined once a year and does not factor in potential changes over the year linked to deferred taxes, as the denominator, normative capital, calculated on the basis ofV 10.5% of RWA assigned to the division, plus goodwill and intangible assets related to the business line; Natixis ROTE is calculated by taking as the numerator net incomeV Group share excluding DSN interest expenses on preferred shares after tax. The equity used is average shareholders’ equity (Group share) under IFRS, after payout of dividends, excluding average hybrid debt, average intangible assets and average goodwill.
Statutory Auditors’ report 5.4 on the parent company financial statements 450
Net gains or losses on financial instruments at fair value through profit or loss 6.3 1,002 1,986
Net gains or losses arising from the derecognition of financial assets at amortized cost 6.5 (12) (10)
Net income/(loss) attributable to shareholders (see Note 5.23) Group share – per share, calculated on the basis of the average number of shares over the period, excluding treasury shares (0.01) 0.56
Net income/(loss) attributable to shareholders (see Note 5.23) Group share – per share, calculated on the basis of the average number of shares over the period, excluding treasury shares and including shares that could be issued on the exercise of stock options and bonus shares (0.01) 0.56
Share of gains and losses recognized directly in the equity of associates recyclable to income (1) 7
Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss (21) (226)
Revaluation of equity instruments recognized at fair value through other comprehensive income 138 47
Gains and losses recognized directly in other comprehensive income (after income tax) (201) 302
Revaluation of equity instruments recognized at fair value through other comprehensive income 138 (45) 93 47 (12) 34
Revaluation adjustments on defined-benefit plans 32 (9) 23 (51) 13 (38)
TOTAL CHANGES IN UNREALIZED OR DEFERRED GAINS OR LOSSES (104) (97) (201) 346 (44) 302
Financial assets at fair value through other comprehensive income 7.4 13,194 12,076
Loans and receivables due from banks and similar items at amortized cost 7.6.1 44,691 48,115
Revaluation adjustments on portfolios hedged against interest rate risk 0 0
Amounts restated in relation to the financial statements published in 2019 (see Note 5.4).*
Financial liabilities at fair value through profit or loss* 7.1 208,467 209,951
Accrual accounts and other liabilities* 7.9 6,265 8,060 o/w institutional operations 8 0
Total activity related to relations with shareholders 4 (4) 0 (13) (2,443)
Shareholders’ equity at December 31, 2019 after appropriation of income 5,045 5,991 1,978 (40) 5,542
Total activity related to relations with shareholders 5 (5) 0 38 (6)
Appropriation to a reserve of income from the sale of equity instruments at FV through other comprehensive income that cannot be reclassified completed during the period (13)
Share premiums, legal reserve, contractual reserves, long-term capital gains reserve and other Natixis reserves.(a) Other equity instruments issued: these are undated deeply subordinated notes (see Note 12.3).(b) Changes in the fair value attributable to the own credit risk of financial liabilities designated at fair value through profit or loss recognized in equity (unrealized and realized) are disclosed in Note 7.1.2.1.(c) The effects on shareholders ‘equity Group share at December 31, 2019 and December 31, 2020 are presented in Note 3.2.(d)
Revaluation of debt instruments at FV through OCI recyclable to income Hedging derivatives
= Total non-cash items included in pre-tax profit and other adjustments 4,406 11,260
+/- Decrease/(increase) in financial assets and equity interests (a) 88 2,652
+/- Decrease/(increase) in property, plant and equipment and intangible assets (384) (204)
Cash flows related to financial assets and investments in associates, including in particular:a) - cash flows related to consolidated equity investments for -€194.2 million; - cash flows related to non-consolidated equity investments for +€90.3 million; - cash flows related to assets held to maturity for +€191.6 million The Natixis Board of Directors decided to follow the recommendations made by the European Central Bank (ECB) on March 27, 2020 to not distribute dividends given the uncertainty over the financial impacts (b) of the COVID-19 crisis.
Non-consolidated structured entities 4.3 in which Natixis is involved only as a sponsor
Impairment of assets at amortized cost 5.3 and at fair value through other comprehensive income and provisions for financing and guarantee commitments
Gains and losses on financial assets 6.4 at fair value through other comprehensive income
Net gains or losses resulting 6.5 from the derecognition of financial instruments at amortized cost
Fair value of financial assets 7.5 and liabilities carried at fair value in the balance sheet
Net banking income, pre-tax income, tax 16.2 and headcount by country at December 31, 2020
The financial statements presented for comparative purposes were published by Natixis in the 2019 Universal registration document filed with the Autorité des Marchés Financiers (AMF – French Financial Markets Authority) on March 6, 2020. In accordance with Regulation (EU) 2017/1129 relating to the publication of prospectuses and Commission Delegated Regulation (EU) 2019/980 relating to the information contained in prospectuses, the financial statements for the year ended December 31, 2018, which were published in the 2018 registration document filed with the AMF on March 15, 2019, are included for reference in this Universal registration document.
Pursuant to the implementing regulation of November 3, 2017, Natixis took the necessary measures to prohibit any transfer of financial instruments between its insurance operations and the rest of the group that would have a derecognizing impact for the transferring entity, although this restriction is not required for
The complete set of standards adopted within the European Union can be consulted on the European Commission website at the following address: (1)
In addition: regarding the standard IFRS 16 “Leases”, the IFRS AccountingV Interpretation Committee (IFRS IC) provided details on the methods used to assess the enforceable term to be used for leases at its meeting of November 26, 2019. On July 3, 2020, the Autorité des Normes Comptables published a statement of conclusions relating to the measurement of lease assets and liabilities in accordance with IFRS 16, relating to French commercial leases. This statement of conclusion replaces the one published on February 16, 2018. The application of this set of details and considerations did not have a material impact on Natixis’ consolidated financial statements; regarding the identification of defaulted outstandings, Natixis hasV taken into account the clarifications provided by the European Banking Authority (see New definition of default).
The guidelines of the European Banking Authority (EBA) on the application of the definition of default under Article 178 of European Regulation No. 575/2013, applicable from January 1, 2021, and the provisions of European Regulation 2018/1845 of the European Central Bank relating to the threshold for assessing the importance of arrears on credit obligations, applicable no later than December 31, 2020, are intended to strengthen the consistency of financial statements. practices of European credit institutions in identifying defaults.
The details provided for the identification of loans in default remain consistent with the criteria for assessing the doubtful nature of loans classified as Level 3 in application of the provisions of IFRS 9 relating to the recognition of expected losses due to credit risk. The changes brought about by the application of the new provisions relating to defaulted loans did not have a significant impact on Natixis’ consolidated financial statements.
IFRS 17, “Insurance Contracts”, published by the IASB on May 18, 2017, which will replace IFRS 4, “Insurance Contracts”, has not yet been adopted by the European Union.
Initially applicable on January 1, 2021, with a comparison at January 1, 2020, this standard is now only expected to come into force from January 1, 2023. Indeed, at its meeting of March 17, 2020, the Board of the IASB decided to postpone its application for two years. It also decided to align the schedule for the temporary exemption from IFRS 9 for insurers so that it coincides with the application of IFRS 17 from January 1, 2023.
IFRS 17 establishes the principles of recognition, measurement, presentation and disclosure for insurance contracts and investment contracts with discretionary participation.
At December 31, 2020, the loss of exclusive control led Natixis to recognize in its financial statements: the gain or loss on disposal at the date of loss of control (i.e.V January 1, 2020), plus the impact of the price adjustment described above, which amounted to -€145.6 million presented on the line “Gains or losses on other assets” of Natixis’ consolidated net income; the 29.5% share of capital sold to Arch Capital group, valued on theV basis of its sale price minus selling costs directly related to the transaction, is recognized in accordance with IFRS 5 and is entered on a separate line of the Natixis balance sheet, “Non-current assets held for sale”, equal to €446,3 million; the residual share of 12.7%, which is not affected by the saleV agreement, is still recognized using the equity method and presented in the balance sheet under the line “Investments in companies accounted for under the equity method”. For €158.5 million at December 31, 2020 after recognition of a depreciation of -€57.4 million based on Coface’s closing share price (€8.21 per share). This impairment is included in the “Share in income of associates” line on the income statement.
After obtaining the required regulatory approvals, Natixis and La Banque Postale were able to finalize the merger on October 31, 2020, of the fixed income and insurance-related management activities of Ostrum Asset Management and La Banque Postale Asset Management announced in 2019. This transaction resulted in the contribution of LBP AM’s activities to Ostrum.
With regard to the provisions of IFRS 10, Natixis exercises exclusive control over the Company, which is therefore fully consolidated in Natixis’ financial statements.
LBP AM also has a promissory agreement granted by Natixis in relation to all its shares. As such, a put on non-controlling interests was recognized as a liability for an amount of €79.5 million at
The impact of the crisis on Natixis’ financial statements as of December 31, 2020 are detailed in Note 1.4.
On February 9, 2021, BPCE S.A. announced its intention to acquire the shares in the capital of Natixis S.A. that it did not hold, i.e. around 29.3% as at December 31, 2020, and to file a simplified takeover bid with the Company. of the Autorité des Marchés Financiers (AMF).
Natixis is no longer represented on the Board of Directors of Coface, as Arch occupies four of the seats of Natixis. Natixis will hold its residual stake of 12.7% in Coface as a financial investment.
Natixis announced on November 5, 2020, during the presentation of its quarterly results, the launch of a transformation and operational efficiency program generating approximately €350 million in long-term cost savings at the end of 2024 (~€270 million in associated exceptional costs over the period), including in particular the transformation of the Corporate Banking activity.
This would consist of: continuing the development in Porto of the support functionsV already established there, in particular Technology & Transformation – with Data & Technology, COO-CIB and Global Business Management & Transformation, Human Resources and Risks; positioning other support functions in Porto: Finance, WorkplaceV and Communication, as well as certain Corporate Banking activities within Coverage and Distribution Portfolio Management.
In this environment, many companies are experiencing cash problems, and Natixis is helping its customers get through this crisis, particularly by participating in the implementation of certain government-directed economic support measures (see Note 1.4.1).
The spread of the health crisis to the real economy as well as the financial sector has also affected the valuation of some products (see Note 1.4.3).
Furthermore, the COVID-19 pandemic had an impact on the earnings for the 2020 fiscal year of BPCE IARD, a 50% equity method consolidated company, due to the worsening of the operating loss ratio for restaurant owners. As a result, and taking into account the impact of reinsurance, the entity’s contribution to the consolidated net income for the year is limited to +€4.9 million.
For eligible companies, the amount of the GBL is generally capped at 25% of the Company’s revenue. The GBL is 70% to 90% guaranteed by the government, depending on the size of the Company, with the banks assuming the rest of the risk. The government guarantee covers a percentage of the principal, interest, and related costs still owed on the debt until it reaches maturity, unless it is called in earlier upon the occurrence of a credit event.
The government guarantee meets the IFRS definition of a financial guarantee because it follows the principle of indemnification and is considered as an integral part of the terms of the contract. The guarantee commission paid when the loan is awarded by Natixis to the government is booked on the income statement over time for the initial term of the GBL using the Effective Interest Rate method, and is booked under “Interest margin”.
Commitments not yet drawn down totaled €75 million, all relating to the press and publishing sector.
In the context of the COVID-19 crisis, Natixis granted concessions in various forms (temporary suspension of maturities, rescheduling, etc.) to some of its customers, to help them overcome the temporary cash flow difficulties caused by the crisis. A case-by-case analysis was carried out in order to determine whether the financial difficulties encountered by the client were purely fleeting and of the moment, and whether the resulting restructuring would enable the counterparty to get through the crisis without jeopardizing its ability to honor its contractual agreements at maturity.
The classification of these outstandings as “loans restructured due to the debtor’s financial situation” is carried out according to the general principles defined in Note 5.1.3.
Furthermore, it is noted that Natixis did not grant any “en masse” (or “general”) moratoria, meaning moratoria offered on a wide scale to a set of clients with no specific conditions.
As of December 31, 2020, 245 loans had received moratoria for a total gross loan value of €3,339.2 million (of which €1,342.5 million was for the real estate finance sector, €258.3 million was for the nonferrous metal producers sector, €129.7 million for the cosmetics and drugstore sector and €105 million was for the road transportation sector).
With this in mind, Natixis has revised its macroeconomic forecasts and adapted them to take into account the specific context of COVID-19 and measures to support the economy.
Natixis used three main scenarios to calculate the IFRS 9 provisioning parameters with projections for the year 2023: the central scenario was updated based on the scenariosV determined by its economists and validated by Natixis’ governance bodies in September 2020; a pessimistic scenario, corresponding to a more degradedV realization of the macroeconomic variables defined in the framework of the central scenario; an optimistic scenario, corresponding to a more favorableV realization of the macro-economic variables defined under the central scenario.
The three-year projections of the main macroeconomic variables used on the basis of the Natixis economists’ scenario for the central terminal are presented below: Fed ref rate 0.25 0.25 0.25
The weightings of the scenarios used make it possible to reflect the deterioration of several economic variables following the restrictive measures implemented, but also the positive impact on the financial markets of the announcements related to the vaccination last November. The weightings applied at December 31, 2020 are 5% for the pessimistic scenario, 85% for the median scenario and 10% for the optimistic scenario.
The sectoral adjustment of the probabilities of default, carried out during the financial year 2020, replaces the use of the change in the rating of the sector as a criterion for monitoring the deterioration of the risk. This more accurate approach makes it possible to better account for sector-specific aspects when assessing credit risk while strengthening the discrimination related to counterparty rating. It makes it possible to mitigate the pro-cyclical impact of the previous methodology, which consisted of always downgrading to Status 2 all counterparty contracts in a sector whose rating had fallen below a certain threshold.
Thus, a weighting of the probability of occurrence of the pessimistic scenario at 100% would have resulted in the recognition, at December 31, 2020, of an additional provision of €42.6 million. Conversely, a weighting of the probability of occurrence of the 100% optimistic scenario would have resulted in a reversal of provisions of +€94.3 million.
Fair value of financial assets affected 1.4.3 by the health crisis
Given the effects of the COVID-19 health crisis on financial markets, the valuation of some products was affected by market illiquidity in fiscal year 2020.
Natixis’ revenues in fiscal year 2020 were affected by this situation (see Note 1.4.4) with, however, a decrease in the level of remarking in the second half of the year.
In addition, in the context of the health crisis, the Asset Management business line carried out a comprehensive review of its portfolio which resulted in the recognition of impairment losses during the 2020 fiscal year (see note 1.4.4.).
Summary table of the main impacts of the COVID-19 health crisis1.4.4
Seed money portfolio mark-downs Asset Management 30 listedV 36 unlistedV (6)
Net income of the XVA desk, including changes in the value of hedging instruments.(a) Share of the FVA impact hedged by Financial Management.(b) Provision For credit losses due to the effects of the COVID-19 crisis such as the impact of IFRS 9 provisions on healthy loans, fraud provisioning, (c) and counterparties operating in the aviation sector.
By way of exception to the thresholds described above, and in order to comply with Article 19 of Regulation (EU) No. 575/2013, the consolidation threshold was €10 million (total balance sheet and off-balance sheet commitments excluding derivatives) for entities that meet the definition of financial institutions or ancillary services undertakings.
In terms of mutual funds and real estate holdings within the scope of Natixis Assurances, the materiality threshold used for inclusion in the consolidation scope is as follows: total assets or carrying amount of the mutual fund greater thanV 0.5% of Natixis Assurances’ investments; the total amount of the entities excluded from the scope does notV represent more than 5% of total investments.
The consolidation scope includes all of the material entities over which Natixis exercises exclusive control, joint control or significant influence. The IFRS standards stipulate three types of control: exclusive control, joint control and significant influence. Determining the type of control that exists is not limited to identifying the voting rights held, but also involves an analysis of the economic and legal relations existing between the various entities being analyzed.
The scope of Natixis’ consolidated entities is provided in Note 17 to the financial statements.
Control of an entity2.2.1 The entities controlled by Natixis are consolidated using the full consolidation method, in accordance with IFRS 10. This standard defines a single audit model applicable to all entities, whether they are traditionally governed entities or structured entities (see Note 4). The control of an entity will be analyzed using three cumulative criteria: power over the entity’s relevant activities;V
The share of non-controlling interests in shareholders’ equity and in income appear separately on the balance sheet, the income statement and the statement of net income/(loss) and other comprehensive income.
IFRS 11 distinguishes between two types of partnerships: joint ventures and joint operations. Joint ventures are partnerships in which the parties exercising joint control over the Company have rights over that company’s net assets. They are consolidated using the equity method. Consolidation using the equity method involves replacing the carrying amount of investments in the owner’s financial statements with Natixis’ interest in the shareholders’ equity and income of the entity owned. Investments are recognized at this reassessed value on the asset side of the consolidated balance sheet in “Investments in associates”. The difference between the investments’ historical value and their reassessed value is recognized on the liability side of the balance sheet under “Shareholders’ equity Group share”, and in income under “Share in income of associates” in the consolidated income statement, and under “Share of gains/(losses) of associates recognized directly in equity” in the statement of net income/(loss) and other comprehensive income. Goodwill related to joint ventures is included in the carrying amount.
These investments are subject to an impairment test wheneverV there is objective evidence of impairment. If the recoverable value of the investment is lower than its carrying amount, an impairment is recorded under “Share in income of associates” in the consolidated income statement.
The granting of put options to minority shareholders has no impact on Natixis’ percentage interest in the subsidiary in question unless the put option is associated with the holding of a call option by Natixis, and the call and put options give immediate entitlement to the economic benefits attached to the underlying shares.
The granting of a put option to minority shareholders which does not transfer the risks and benefits associated with the underlying shares to Natixis prior to the option’s exercising, results in the recognition of a liability equal to the estimated present value of the option’s exercise price. The corresponding receivable is booked to equity, the carrying amount is deducted from minority interests and the remainder is deducted from consolidated reserves (Group share). Subsequent changes in the liability related to adjustments to the exercise price of the put option are recorded in consolidated reserves (Group share). Income generated from minority interests subject to put options is presented in “Net income/loss for the period – share attributable to minority interests” in the consolidated income statement.
Principles adopted for the measurement and recognition of the transactions resulting in the creation of Natixis in 2006 The assets contributed by the former CNCE to Natixis fall into two categories: shares in the Corporate & Investment Banking and serviceV subsidiaries; a portion of the cooperative investment certificates (CCIs)V conferring entitlement to the share capital of the Caisses d’Epargne.
An amount of €3,170 million was charged against the share premium in this respect at December 31, 2006.
Since then, goodwill relating to the former IXIS CIB has been fully written-down.
Market data is now calculated on a historical depth of five years (vs. ten years previously) in order to take into account a period that is more representative of the current operating conditions of the various CGUs, in particular due to the constant decline in the number of CGUs interest rate since the eurozone crisis. This methodological adjustment mainly explains the decrease in discount rates between the two fiscal years.
For CIB, the fact that goodwill comes exclusively from the M&A activity on the one hand, and the work in progress within the division in view of the next strategic plan on the other hand led to the completion of the business unit. Valuation exercise on the sole scope of M&A while enriching the valuation methods used (multi-criteria approach including a DCF approach as well as methods of valuation by market multiples and comparable transactions) compared to the tests conducted previously.
A 50 bp increase in discount rates (assumption based on the historical annual variability observed over one year using 2012-2020 historical data) combined with a 50 bp reduction in perpetual growth rates would reduce the value in use of CGUs by: -13% for the Asset & Wealth Management CGU;V
The assets and liabilities of controlled entities which Natixis intends to sell within a maximum period of 12 months, and for which it is actively seeking a buyer, are identified separately on two specific lines of the consolidated balance sheet as non-current assets and liabilities.
The primary changes in scope that have taken place since January 1, 2020 are as follows: Corporate and investment banking3.1.1 Deconsolidated entities
The Natixis Grand Cayman branch was closed in the third quarterV of 2020.
The shareholding rate in EDF Investissement Group increasedV from 6.1% to 7.5% following two capital reductions in the second half of 2020.
In order to develop its distribution activity in Europe, the LuxembourgV entity Natixis Investment Managers S.A. created a branch in Belgium, Natixis Investment Managers S.A., Belgian Branch, which has been consolidated since the third quarter of 2020.
Consolidation of the Teora entity in the fourth quarter of 2020.V Natixis Wealth Management will transfer its life insurance brokerage activity to this subsidiary.
As part of its expansion on the European continent, Loomis SaylesV has created a branch in the Netherlands (Loomis Sayles & Company, LP, Dutch Branch) in order to develop its fixed income expertise in the Eurozone. Loomis Sayles has also created a new entity, Loomis Sayles Alpha Luxembourg LLC, to facilitate the management of certain funds in Luxembourg. These two structures are consolidated in the fourth quarter of 2020.
Deconsolidation of the Thematics Meta Fund in the first quarter ofV 2020. The seed money invested in the fund was partially repaid, bringing Natixis IM’s stake below the 20% mark, corresponding to the deconsolidation threshold.
During the second quarter of 2020, within the buyback windowV scheduled for 2020, the managers of DNCA exercised the put options on a portion of their DNCA Finance and DNCA Management shares. Following these transactions, Natixis IM’s ownership stake in DNCA Finance and its subsidiaries (DNCA Courtage, DNCA Luxembourg, and DNCA Finance’s Milan branch) reached 85%, and its ownership stake in DNCA Management 100%.
As a reminder, Vauban IP was cofounded in late 2019 by itsV partner-managers (who owned 18.6% of the capital) and Natixis IM (owing 81.4% of the capital) as a spin-off of Mirova’s Infrastructure business. During the first quarter of 2020, the share held by the partner-managers grew by 20%, reaching the target ownership structure of the transaction. This lowered Natixis IM’s share in Vauban from 81.4% to 61.4%.
During the third quarter of 2020, within the planned buybackV window, the managers of Thematics AM exercised the put options on a portion of their shares, representing 10% of the share capital of Thematics AM.
On January 1, 2020,, Natixis US Holdings, Inc. absorbed Natixis Investment Managers LLC, a holding company with an insignificant stake (1%) in Natixis Investment Managers LP, a company whose residual capital (99%) was also wholly owned by Natixis US. Holdings Inc. As part of this transaction, Natixis US Holdings Inc. was transformed into a limited liability company (LLC), then renamed Natixis Investment Managers US Holdings LLC.
On March 15, 2020, Natixis ASG Holdings Inc. absorbed Alternative Strategies Group LLC, its wholly-owned subsidiary. Alternative Strategies Group LLC had until then served as the holding company of AlphaSimplex Group LLC, whose capital it fully owned.
In the second quarter of 2020, the stake in Payplug increased fromV 99.1% to 99.4% following the buyback of shares from the founders.
Coface3.1.5 Since January 1, 2020, Coface has been consolidated using the equity method (see Key Events).
Acquisition of the Coface GK Forsikring AS entity in the thirdV quarter of 2020. This entity manages a short-term export credit insurance portfolio on the Nordic market.
Impact of changes in the percentage 3.3.2 of ownership in subsidiaries that remain under control
Following this asset contribution, Natixis retains 55% of the capital of Ostrum (compared to 100% before the transaction), while La Banque Postale now holds a 45% stake. LBP AM also has a promissory agreement granted by Natixis in relation to all its shares.
The signing of the Coface disposal agreement (see note 1.2.1) led Natixis to reassess the nature of the control exercised by it over this entity. Although it retains its interest in Coface, it was considered that Natixis no longer exercised control, as from February 25, 2020.
Some entities are also subject to local regulations concerning liquidity and solvency.
Partnerships (joint operations and joint ventures) Natixis does not have interests in partnerships (joint operations and joint ventures) that have an impact on Natixis’ consolidated financial statements.
Nature and scope of restrictions3.4.3 Natixis did not encounter significant restrictions on interests held in associates and joint ventures.
limited or non-existent equity that is insufficient to allow it toV finance its activities without subordinated financial support; financing in the form of multiple contractually linked instrumentsV that create concentrations of credit or other risks (tranches); few or no employees.V
Scope of the structured entities 4.1 with which Natixis has dealings
Consequently, the following are not included in the consolidation scope (IFRS 10) or in the scope applicable to the disclosure of additional information (IFRS 12): structured entities linked to Natixis solely through an ongoingV transaction. This corresponds to an unstructured financial instrument which does not generally have a material impact on the variability of the structured entity’s returns and which may be concluded by Natixis with structured entities or with traditionally-governed entities alike. Ongoing transactions are most commonly: vanilla fixed-income/currency derivatives, derivatives with otherV underlying assets, the lending/borrowing of securities and repos, guarantees and plain vanilla financing granted to family SCIs orV certain holding companies.
These structures are, for the most part, self-managed. In the case of lease contracts, the transaction must be structured such that its income always amounts to zero. This means that only default events are able to modify the structured entity’s income, by leading to the disposal of the rights over the assets once the guarantees have been exercised. Natixis has the power to have the assets sold in the case of a default event, acting either alone or via the bank syndicate’s agent. This right equates to a protective right because Natixis would never benefit from the income from the sale beyond the amount of the balance due under the loan agreement. Natixis does not therefore have power over such entities’ relevant activities.
If auto-pilot mechanisms are not in place for these structures, it is generally the sponsor who oversees activities which are relevant and which generate returns. As previously, Natixis’ rights as lender are protective rights limited to the amount of its receivable. Natixis does not therefore have power over such entities’ relevant activities.
In addition, Natixis is rarely a shareholder in such entities and, when it is, it generally holds a non-controlling interest. The entities for which Natixis is the majority shareholder are limited in number and do not have a material impact on the consolidated financial statements.
A fund is subject to consolidation: if Natixis acts as principal, i.e. if Natixis is a manager and is notV revocable by a limited number of people and if Natixis holds a large enough material interest to conclude that it controls the fund; or if Natixis is not a manager but owns virtually all of the units.V
As with non-guaranteed mutual funds, guaranteed mutual funds are subject to consolidation under IFRS 10 whenever Natixis acts as principal (e.g., Natixis acts as a non-revocable manager and holds a material interest). Guaranteed mutual funds subject to consolidation but not consolidated due to their materiality are listed in Note 18.1.
originator of securities or loans held as assets pendingV securitization; credit risk intermediary between the market and the securitizationV entity.
The Versailles conduit is consolidated, with Natixis holding power over activities relevant to the conduit enabling it to influence its returns, given its prominent role in choosing and managing acquired receivables as well as managing the issuance program.
Credit insurance (Coface) Given the equity method of Coface’s equity investment (see Note 1.2 Significant events), Natixis no longer has any interest in structured entities held by Coface as of December 31, 2020.
At December 31, 2019, Natixis had the following interests in Coface’s structured entities: The Coface sub-group’s credit enhancement operations consist of insuring receivables securitized by a third party for investors via a structured entity for losses in excess of a predefined amount. A distinction must be made between the policies taken out by the German branch Coface Deutschland and those taken out by Compagnie Française d’Assurance pour le Commerce Extérieur: under the German policies, the credit insurer is only liable forV losses in excess of a deductible termed the Aggregate First Loss. This first loss tranche contractually defines the amount of first losses that are not covered by the credit insurer. The coverage provided by Coface Kredit via these policies is similar to “Natural disaster” type coverage. An analysis of these structures shows that the amount of the first loss is systematically higher than the expected loss, namely the average losses expected over the year. Furthermore, the activity of the structured entity is not conducted on behalf of the credit insurer, which is only a protection seller. Coface Kredit does not sponsor the securitization structures. Coface Kredit does not play any role in determining the activity of the structured entity, nor in its operational or administrative management. Coface Kredit has no power over the relevant activities of the securitization vehicle (selecting receivables comprising the portfolio, managing receivables, etc.). The criteria of power and significant exposure to returns are not met. These funds have not been consolidated in Natixis’ financial statements at December 31, 2019; the French policies taken out by Coface rarely include non-coveredV “first losses”. However, the policies only cover a small portion of the receivables held by the SPE. Furthermore, the quality of portfolio risk covered by Coface, compared with that borne by the other stakeholders (other insurers, sponsors, sellers) is not such as to significantly transfer the structure’s risks to Coface. In addition, Coface does not play any role in determining the activity of the structured entity, nor in its operational or administrative management. In the event of a guarantee activation, Coface only has powers corresponding to its protective rights. As Coface does not have powers over the relevant activities of the securitization vehicle, these funds have not been consolidated in Natixis’ financial statements as of December 31, 2019.
structured entities created by producers to host a filmV production. Coficiné is involved only as a lender. It has no stake in the entity, which is wholly owned by the producer. Coficiné does not participate in managing the entity, as activity falls within the remit of the producer. Coficiné, and therefore Natixis, has no power over the relevant activities of these structured entities and has no control under IFRS 10.
Financial assets at fair value through profit or loss 127 1,690 1,308 592 3,717 622 1,565 1,224 598 4,009
Financial assets at fair value through other comprehensive income - - 3 0 3 - - 3 0 3
Financial assets at amortized cost 6,241 975 11,315 824 19,355 6,368 1,248 11,370 708 19,695
Available-for-sale financial assets 498 4,975 - - 5,472 557 3,809 - - 4,366
Held-to-maturity financial assets - - - - - - - - - -
Non-consolidated structured entities in which Natixis is involved 4.3 only as a sponsor
With respect to information that must be disclosed under IFRS 12, Natixis sponsors a structured entity when both of the following indicators are met: Natixis is involved in the creation and structuring of the structuredV entity; and
Natixis contributes to the entity’s success by transferring assets toV it or by managing the structured entity’s relevant activities.
Natixis plays the role of sponsor for: mutual funds initiated by a Natixis management company and inV which Natixis holds no stake or any other interest. Reported income includes management and incentive fees received by Natixis, as well as profits and losses resulting from ongoing transactions with these funds; a US activity consisting of originating and selling real estate loansV to securitization vehicles, created by Natixis with third parties and in which Natixis holds no interest. Reported income includes structuring fees as well as capital gains and losses on the assignment of receivables.
Revenues drawn from the entities 8 126 134 3 185 188
Revenues net of fees and commissions 0 139 139 1 142 143
Net gains or losses on instruments at fair value through profit or loss 5 (13) (8) 1 43 44
The carrying amount of assets transferred to these vehicles corresponds to the assets sold by Natixis during 2020 and 2019, if the information on the amounts * sold by all of the investors is not available.
Natixis did not grant any financial support to consolidated or non-consolidated structured entities.
the disposals occur just before maturity and at a price thatV reflects the contractual cash flows that are still owed, other disposals may also be compatible with the “hold to collect”V model’s objectives if they are infrequent (even if their value is significant) or if their value is insignificant when considered both individually and overall (even if they are frequent). Natixis has established procedures requiring the reporting, prior analysis and regular monitoring of all major plans to sell financial assets held under the Hold to Collect model to ensure that the conditions required to classify assets under this business model are met at all times.
The “principal” amount is defined as the financial asset’s fair value at its acquisition date. “Interest” is the consideration for the time value of money and the credit risk incurred on the principal amount, as well as other risks such as liquidity risk, administrative costs and the profit margin.
If a clear determination cannot be made through qualitative analysis, quantitative analysis (a “benchmark test”) is carried out. This test involves comparing the contractual cash flows for the asset in question with the contractual cash flows of a benchmark asset.
They are measured at amortized cost if they meet the following two conditions: the asset is held in a business model whose objective is to collectV contractual cash flows; and the contractual terms of the financial asset give rise to cash flowsV that are solely payments of principal and interest on the outstanding amount due, on specific dates. In this case, the asset is considered basic and its cash flows are categorized as SPPI.
They are initially recorded at fair value plus or minus transaction costs. In the case of loans, transaction costs include fees and any expenses directly attributable to setting up the loan.
Interest accrued or received on debt instruments is recorded in income under “Interest and similar income” using the effective interest rate method. If the instruments are sold, the gain or loss is recorded in the income statement under “Net gains or losses resulting from the derecognition of instruments at amortized cost”.
Financial difficulties are determined by observing a number of criteria such as amounts past due for more than 30 days or an at-risk rating. The implementation of “restructuring” does not necessarily mean the counterparty concerned by the restructuring is to be classified in the Basel defaults category. The default classification of the counterparty depends on the result of the viability test carried out during the restructuring of the counterparty.
A loan is no longer considered as restructured once the following conditions are met: a period of two years has passed since the date of theV restructuring; the loan is recognized as a performing loan at the reporting date;V
Financial assets at fair value 5.1.4 through recyclable and non-recyclable other comprehensive income
A debt instrument is valued at fair value through other comprehensive income if it meets the following two conditions: the asset is held in a hold to collect and sell business model withV the objective of both collecting contractual cash flows and selling financial assets; and the contractual terms of the financial asset give rise to cash flowsV that are solely payments of principal and interest on the outstanding amount due, on specific dates. In this case, the asset is considered basic and its cash flows are categorized as SPPI.
Debt instruments at fair value through other comprehensive income are initially recognized at their market value, including any transaction costs.
Specific case of equity instruments Equity instruments may be measured at fair value through other comprehensive income under an irrevocable option. This irrevocable option applies on a case-by-case basis and only to equity instruments not held for trading purposes.
Non-consolidated investments in associates for which the irrevocable option of measurement at fair value through non-recyclable other comprehensive income has not been adopted are also classified in this category (see Note 7.1.1).
The market value is reviewed at each subsequent reporting date in line with the principles outlined in Note 5.6 “Fair value of financial instruments”. Changes in value, including coupons, are recorded under “Gains or losses on financial instruments at fair value through profit and loss” in the consolidated income statement, with the exception of interest accrued and due on non-SPPI financial assets, which is recorded under “Interest income”.
Reverse transactions are also recognized on the settlement date. For repurchase and reverse repurchase transactions, a financing commitment respectively received or given is recognized between the transaction date and the settlement date when these transactions are recognized in “Liabilities” and “Loans and receivables” respectively.
The lease contracts taken out by Natixis are recognized on the balance sheet under “right-of-use” on the asset side and under “financial liabilities” on the liabilities side in respect of rents and other payments made over the duration of the lease, unless the lease term is 12 months or less or the underlying asset has a low value, as provided for under IFRS 16. Natixis used the indicative threshold of US$ 5,000 provided by the IASB (in the Basis of Conclusions) to define low-value assets and elected to exclude certain contracts where such exceptions have a non-material impact on its financial statements.
Lease term The use of rights is amortized on a straight-line basis and financial liabilities are amortized on an actuarial basis over the term of the lease. In accordance with IFRS 16, the lease term corresponds to the non-cancellable lease period plus any periods covered by termination options that the lessee is reasonably certain not to exercise. In general, the term is 9 years for “3/6/9” real estate leases under French law. For contracts subject to tacit extension, the lease term is determined, firstly, on the basis of the establishment’s judgment in view of its real estate strategy, and secondly, in the absence of ad hoc information, by limiting the duration on the basis of the timeframe set by Natixis’ Medium-Term Plan (MTP), namely three years.
Outside France, and particularly in English-speaking countries (e.g., Natixis’ US subsidiaries), the term of real estate leases may range from 10 to 15 years. It is stipulated that a lease is no longer enforceable when the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty.
Natixis assesses whether it is reasonably certain to exercise an option by considering all relevant facts and circumstances that create an economic incentive for it to exercise, or not to exercise, the option, such as: contractual terms and conditions for the optional periodsV compared with market rates (amount of payments for the lease including payments resulting from termination penalties and residual value guarantees); significant leasehold improvements undertaken;V
Measurement of lease liabilities At the lease commencement date, payment taken into account to determine lease liabilities include payments for the right to use the underlying asset during the lease term that are not paid at the commencement date, i.e.: fixed payments (including in-substance fixed payments), less anyV lease incentives receivable. In-substance fixed lease payments are payments that may, in form, contain variability but that, in substance, are unavoidable; variable lease payments that depend on an index or a rate, initiallyV measured using the index or rate as at the commencement date; and where applicable, any amounts expected to be payable by NatixisV to the lessor under residual value guarantees, purchase options or payments of penalties for terminating the lease.
Payments taken into account to determine lease liabilities exclude value added tax and housing tax, which fall under the scope of interpretation of IFRIC 21 “Levies”, as well as property tax and insurance premiums charged (where applicable) by the lessor, which constitute variable lease payments (where the amounts reimbursed are not contractually predetermined).
In accordance with IFRS 16, lease payments are discounted at the interest rate implicit in the lease, i.e. the lessee’s incremental borrowing rate, which is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Natixis applies the marginal rate to its lease payments. This marginal rate depends on the contract term and currency. It also takes into account Natixis’ credit spread and the entities being refinanced by Natixis.
These financial assets will be divided into three categories depending on the increase in credit risk observed since their initial recognition. An impairment charge shall be recorded on outstanding amounts in each category, as follows: Stage 1 (or S1) These are performing loans for which credit risk has not increased materially since initial recognition. Impairment or provision for credit risk on these loans is recorded in the amount of 12-month expected credit losses. Interest income on these loans is recognized in profit or loss using the effective interest rate method applied to the gross carrying amount of the instrument before impairment.
Stage 2 (or S2) Performing loans for which credit risk has increased materially since initial recognition are transferred to Stage 2. The impairment or the provision for credit risk is determined on the basis of the instrument’s expected credit losses at maturity (lifetime ECL). Interest income on these outstandings is recognized in income using the effective interest rate method applied to the gross carrying amount of the instrument before impairment.
The carrying amount of a financial asset is reduced when Natixis no longer has a reasonable expectation of recovery of all or part of the contractual cash flows remaining on this asset. This is a derecognition (total or partial) of the financial asset, which may take place prior to the completion of legal proceedings against the borrower.
When, in view of the status of the case, it is reasonably certain that all or part of the receivable will not be recovered, the amount to be written off is determined on the basis of the most objective possible external and internal factors.
The impairment or provision for credit risk is calculated according to the losses expected over the instrument’s residual lifetime (expected losses at maturity) based on the recoverable value of the receivable, i.e. the present value of the estimated recoverable future cash flows after taking the impact of any collateral into account. Interest income is recognized in income based on the effective interest method rate applied to the net carrying amount of the asset after impairment.
For debt instruments recognized on the asset side of the balance sheet against recyclable other comprehensive income, impairments are carried on the liability side of the balance sheet in recyclable other comprehensive income, with a corresponding entry on the income statement under “Provision for credit losses” (irrespective of whether the asset is S1, S2, S3 or POCI).
More specifically, the change in credit risk is measured on the basis of the following criteria: for Large Corporates, Banks and Sovereigns loan books: anV increase in credit risk is measured based on a combination of quantitative and qualitative criteria. The quantitative criterion is based on the change in rating since initial recognition. The additional qualitative criteria make it possible to classify as Status 2 all contracts, whether 30 days past due (i.e. the assumption that payments are more than 30 days past due is not refuted), or recorded as assets on a non-S3 “Watch list”, i.e. undergoing financial hardship (forbearance). Additional criteria based on the sector rating and level of country risk in the fiscal year 2019 are also used (see below); Individual Customer, Professional Customer, SME, Public SectorV and Social Housing loan books: an increase in credit risk is measured based on a combination of quantitative and qualitative criteria. The quantitative criterion is based on the measurement of the change in 12-month probability of default (measured as a cycle average) since initial recognition. The additional qualitative criteria make it possible to classify as Status 2 all contracts, whether more than 30 days past due (i.e. the assumption that payments are 30 days past-due is not refuted), or recorded as assets on a non-S3 Watch List, i.e. in a situation of redevelopment whilst undergoing financial hardship (forbearance).
Since the fiscal year 2020, a sectoral adjustment of the probabilities of default has been made and replaces the use of the change in the rating of the sector as a criterion for monitoring the deterioration of the risk. This more accurate approach makes it possible to better account for sector-specific aspects when assessing credit risk while strengthening the discrimination related to counterparty rating. It makes it possible to mitigate the pro-cyclical impact of the previous methodology, which consisted of always downgrading to Status 2 all counterparty contracts in a sector whose rating had fallen below a certain threshold.
It should be noted that the granting of an GBL or an individual moratorium in the context of the health crisis are not, in themselves, criteria for the deterioration of the risk resulting in a transition to status 2 or 3 (see Note 1.4.1).
Natixis’ liquidity reserve, as defined by Basel 3 regulations. “Investment grade” status refers to securities with a rating of BBB- or higher and equivalent at Standard and Poor’s, Moody’s or Fitch.
Provision recording method Calculating expected losses on Stage 1 or Stage 2 assets Expected credit losses on Stage 1 or Stage 2 assets are calculated using the following formula: Σ t
As indicated above, since the fiscal year 2020, a sector adjustment on the PD is calculated based on the assessment of the rating of the economic sectors over 6-12 month forecasts. The average sector-weighted forward-looking PD, produced from the transition matrices, is compared and adjusted to converge toward the equivalent PD in anticipation of the sector’s rating.
Parameters are adjusted to economic conditions by defining three economic scenarios developed over a three-year period. For the purpose of consistency with financial management processes, the central scenario corresponds to the budget scenario of the next strategic plan. Two variants – an optimistic view and a pessimistic view – are also developed around this scenario based on observations of macroeconomic parameters.
Calculating expected credit losses on Stage 3 assets Impairments for expected credit losses on Stage 3 financial assets are determined as the difference between the amortized cost and the recoverable value of the receivable, i.e. the present value of estimated recoverable future cash flows, whether these cash flows come from the counterparty’s activity or from the potential execution of guarantees. For short-term assets (maturity of less than one year), there is no discounting of future cash flows. Impairment is determined globally, without distinguishing between interest and principal. Expected credit losses arising from Stage 3 financing or guarantee commitments are taken into account through provisions recognized on the liability side of the balance sheet. Specific impairment is calculated for each receivable on the basis of the maturity schedules determined based on historical recoveries for each category of receivable.
Before the application of this amendment, the amounts of the premiums remaining to be received and the premiums remaining to be paid were respectively presented in the balance sheet under deferred income and other assets and accrued income and other liabilities, separately from the headings of assets and liabilities. financial liabilities in which the derivative instruments to which they relate are presented.
As these premiums are inseparable from these derivative instruments, their presentation on the balance sheet has been modified: the amount of premiums remaining to be paid and the amount of premiums remaining to be received are now included in the value of the conditional derivative instruments purchased or sold to which they relate (headings financial assets and liabilities at fair value through profit or loss).
At December 31, 2020: the amount of premiums remaining to be paid which was includedV in the value of the contingent derivatives classified as “Financial assets at fair value through profit or loss” was €7.6 billion compared with €8.1 billion at December 31, 2019; the amount of the premiums remaining to be received which hasV been included in the value of the contingent derivatives classified as “Financial liabilities at fair value through profit and loss” is €7.9 billion compared to €8.3 billion at December 31, 2019.
Accrual accounts and other assets 13.6 (8.3) 5.3 13 (7.9) 5.1
Accrual accounts and other liabilities 16.1 (8.1) 8 13.9 (7.6) 6.3
IAS 39 recognizes three types of hedging relationship: cash flow hedges, fair value hedges and hedges of net investments in foreign operations.
Cash flow hedging Cash flow hedging is used to hedge future cash flows from an existing or highly probable future transaction.
Retrospective hedge effectiveness tests are used to verify whether the hedge was effective at different reporting dates.
Outside these limits, the hedge no longer qualifies for hedge accounting under IFRS.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the spot rate prevailing at the reporting date. Exchange differences resulting from this conversion are recognized in profit or loss. There are two exceptions to this rule: only the portion of the foreign exchange gains and lossesV calculated based on the amortized cost of financial assets at fair value through other comprehensive income is recognized in income, the remainder being recognized in “Gains and losses recognized directly in equity”; foreign exchange gains and losses from monetary itemsV designated as cash flow hedges or part of a net investment in a foreign entity are recognized in “Gains and losses recognized directly in equity”.
Input uncertainty adjustment Observing certain prices or inputs used in valuation techniques may be difficult or the price or input may be too regularly unavailable to determine the selling price. Under these circumstances, an adjustment may be necessary to reflect the probability of different values being used for the same inputs when evaluating the fair value of the financial instrument adopted by the market participants.
Financial assets and liabilities categorized according to the fair value hierarchy and a description of the key models are presented in Note 7.5.
Fixed assets recognized on the balance sheet include property, plant and equipment, intangible assets, and investment property. The rights of use in respect of leased assets (of which the main items are described in Note 5.2) are presented under fixed asset lines corresponding to similar assets owned of which Natixis has full ownership.
Investment property, shown separately from other on the balance sheet, consists of property held with the aim of generating leasing revenues rather than for operating purposes.
Expenses incurred during the development phase are capitalized if they meet the criteria for recognition as intangible assets set out in IAS 38: these include technical feasibility, the intention to complete the asset and use or sell it, the probability that the asset will generate future economic benefits, the availability of resources, and the ability to reliably measure the expenditure attributable to the asset’s development. Costs incurred during the research phase are not capitalized but are recognized in expenses.
When the fixed assets relate to a leased building, their depreciation period is made consistent with that of the leases.
Depreciation of fixed assets is presented under “Depreciation, amortization and impairment of property, plant and equipment and intangible assets” in the consolidated income statement.
Impairment value in use, which is the present value of future cash flows. If the recoverable value of the asset or CGU is lower than its carrying amount, an impairment loss is recognized in income under “Depreciation, amortization and impairment of property, plant and equipment and intangible assets”.
A sale is highly likely if: a plan to sell the asset (or group of assets) involving activeV marketing is made by management; a non-binding offer has been submitted by at least one potentialV buyer; it is unlikely that significant changes will be made to the plan orV that it will be withdrawn.
A group held for sale may be a group of CGUs, a CGU or part of a CGU. The group may include the entity’s assets and liabilities, including current assets, current liabilities and assets that are outside the scope of the measurement provisions under IFRS 5. If a non-current asset within the scope of the measurement provisions under IFRS 5 is part of a group held for sale, the measurement provisions under IFRS 5 apply to the group as a whole, which means that the group is measured at the lower of its carrying amount or its fair value net of selling costs.
Cash guarantee deposits and margin calls with collateral status set up in connection with repurchase agreements and derivative transactions recognized in instruments at fair value through profit or loss are also included in financial liabilities held for trading, as they are closely linked to the activities or instruments that they cover and are an integral part of the business model of the activity to which they relate.
Financial liabilities in this category are carried at fair value at the reporting date and shown in the balance sheet as “Financial liabilities at fair value through profit or loss”. Changes in fair value are recognized in income for the period under “Net gains or losses on financial instruments at fair value through profit or loss”, except for changes in fair value attributable to own credit risk on financial
If Natixis has neither transferred the contractual rights nor substantially retained all of the risks and rewards, Natixis then determines whether it has transferred control of the asset. If control is considered to have been relinquished, the financial asset is derecognized. If the Group retains control of the asset, it remains on the balance sheet to the extent of Natixis’ “continuing involvement”.
b) Assignee Securities bought are not recognized but a receivable due from the assignee is recorded representing the funds lent. The amount disbursed in respect of the asset is recognized under “Securities acquired under repurchase agreements”.
the location, function, and approximate number of employeesV who will be compensated upon termination of their services, the expenses that will be incurred, andV
Provisions recognized as liabilities in Natixis’ financial statements at December 31, 2020 and December 31, 2019, are presented in Note 7.16 “Summary of provisions” and eventual charges are described in Note 6.6 “Other income and expenses”, in Note 6.7 “General operating expenses” and in Note 6.8 “Cost of risk”.
In accordance with IAS 19, employee benefits are classified in one of four categories: “short-term benefits”, including salaries, social securityV contributions, annual leave, employee profit-sharing, incentive plans, top-up contributions and bonuses payable for the period; “severance payments”, comprising employee benefits granted inV return for termination of a staff member’s employment before the normal retirement age, resulting from a decision by the entity, or a decision by the employee to accept a severance package in exchange for terminating their employment; “post-employment benefits”, such as pensions, otherV supplementary retirement benefits applicable to the banking industry, end-of-career awards and other contractual benefits payable to retirees; “other long-term benefits”, Including long-service awards,V amounts due under the Time Savings Account and deferred compensation paid in cash as part of loyalty and performance plans.
A provision is accrued for termination benefits when the employer is demonstrably committed to providing such benefits, or when the employer recognizes the costs of restructuring providing for the payment of such benefits.
A provision is set aside for defined benefit plans based on an actuarial assessment of the benefit obligation using the projected unit credit method. This method draws on demographic and financial assumptions reviewed annually (specifically the discount rate based on the AA Corporate bond rate curve). The value of plan assets is deducted from the actuarial debt. This valuation is carried out on a regular basis by independent actuaries.
In accordance with IAS 32, issued financial instruments are classified as debt or equity depending on whether or not they incorporate a contractual obligation to deliver cash to the holder: deeply subordinated notes and preference shares are classified inV equity in light of the 2009 renegotiation of a clause making the payment of interest non-optional in the event of positive consolidated income and which has since become discretionary.
The change over the fiscal year is presented in Note 7.15 “Changes in subordinated debt over the period”, and in Note 12.3 “Equity instruments issued”; however, if an instrument is classified as equity:V
payments on that instrument are treated in the same way asV dividends. However, the tax consequences of these distributions are recognized, depending on the origin of the amounts distributed, in the consolidated reserves, as gains or losses recorded directly in equity or in income, in accordance with the amendment to IAS 12 of December 2017 entering into force on January 1, 2019. Accordingly, when the distribution corresponds to the IFRS 9 definition of dividends, the tax consequences are recorded in income. This provision is to be applied to any interest income from deeply super subordinated notes treated as dividends for accounting purposes, it is fixed at its historical value resulting from converting it toV euros on the date it was initially classified under equity; financial liability recorded on the balance sheet under “Financial liabilities at fair value through profit or loss”. The share of third party investors in the profits of the mutual funds is recorded in “Net gains or losses on financial instruments at fair value through profit or loss” in the consolidated income statement; the share of third party investors in the net assets of dedicatedV mutual funds included in Natixis’ consolidation scope comprises a the units held by third party investors in dated funds, which areV fully consolidated by Natixis, entitling the unit-holders to the repayment of a share of the fund’s net assets upon its liquidation, are classified in liabilities on the consolidated balance sheet under “Accruals and other liabilities”. The share of third party investors in the fund’s profits is recorded under “Interest and similar expenses” on the consolidated income statement.
Cash-settled employee retention and performance plans indexed to the value of the Natixis share The accounting treatment applicable to cash-settled share-based payments is governed by IFRS 2 “Share-based payment”.
A contract obligating Natixis to buy its own shares creates a liability in the amount of the discounted acquisition price, regardless of how the derivative is classified, with a corresponding entry in equity.
This approach applies to all contracts with customers except for leases (covered by IFRS 16), insurance contracts (covered by IFRS 4) and financial instruments (covered by IFRS 9). If specific stipulations relating to revenue or contract costs are specified under a different standard, these will be applied first.
Fees for services are analyzed to separately identify their various components (or performance obligations) and assign to each component the share of income due to it. Each component is then recognized in income, according to the type of services rendered and the method of accounting for the financial instruments to which the service rendered is attached: fees and commissions for ongoing services, such as guaranteeV fees or management fees, are deferred over the period during which the service is provided; fees and commissions for one-off services, such as businessV provider fees, are recognized in income as soon as the service is provided.
Any mismatch between the date of payment and the date of implementation of the service will generate an asset or liability depending on the type of contract and the nature of the mismatch and will be recorded under “Other assets” and “Other liabilities”.
Commitments given Financial guarantee commitments not classified as derivatives are contracts requiring the issuer to make specific payments to repay the business guaranteed for a loss that it has incurred owing to the failure of a debtor to make the contractual installments due. The exercise of these rights is subject to the occurrence of an uncertain future event.
Financial guarantees given are stated initially at fair value, then subsequently at the higher of: the amount initially recognized upon inception less, whereV appropriate, the amount of amortization recorded in line with the principles outlined in IFRS 15 “Revenue from Contracts with Customers”. This amortization represents the deferred recognition of the fees received over the period covered by the guarantee; and the amount of the provision determined according to theV provisions of the expected credit loss model (see Note 5.3).
In accordance with delegated regulation 2015/63 and implementing regulation 2015/81 supplementing the BRRD Directive on ex-ante contributions to financing mechanisms for the resolution, the Single Resolution Board set the level of contributions to the Single resolution Fund for 2019. Contributions paid to the fund may be made in cash security deposits recognized as assets on the balance sheet (15% in cash security deposits) and in contributions recorded in income as “Taxes and regulatory contributions” (see Note 6.7).
Some of the unlisted equity instruments categorized under IFRS 9 as “Financial assets at fair value through profit or loss” or “Financial assets at fair value through non-recyclable other comprehensive income” consist of investments in non-consolidated companies. The fair value of investments in unlisted non-consolidated companies is obtained principally by using valuation methods based on multiples or DCF (discounted cash flow). Use of these methods requires certain choices and assumptions to be made in advance (in particular, projected expected future cash flows and discount rates).
All goodwill is assigned to a CGU so that it may be tested for impairment. The tests conducted by Natixis consist in comparing the carrying amount of each CGU (including goodwill) with its recoverable value. Where the recoverable value equals the value in use, it is determined by discounting annual free cash flows to perpetuity. Use of the discounted cash flow method involves: estimating future cash flows. Natixis has based these estimatesV on forecasts included in its business units’ medium-term plans; projecting cash flows for the last year of the plan to perpetuity, at aV rate reflecting the expected annual growth rate; discounting cash flows at a specific rate for each CGU.V
Insurance technical reserves are calculated using assumptions and estimates that may lead to adjustments in amounts reported over the subsequent period: for personal protection insurance, claims reserves are calculatedV by modeling claims experience; for life insurance, underwriting reserves are computed based onV economic and financial assumptions, mortality and morbidity tables, and behavioral statistics, for example concerning surrenders; for non-life Insurance, technical reserves comprise provisions forV unearned premium income (calculated on an accrual basis and representing the portion of premiums issued during the period that relate to a period after the reporting date) and reserves for claims to be paid, corresponding to known and unknown claims that have occurred but not yet paid at the reporting date.
In accordance with IFRS 4, insurance technical reserves are calculated using methods stipulated by local regulations. A liability adequacy test is carried out in order to ensure that the insurance liabilities as presented in the consolidated financial statements are sufficient to cover future cash flows estimated at that date. The test is based on a stochastic modeling of discounted future flows. If the liability is inadequate, potential losses are fully booked in net income.
In the event of a deferred profit-sharing asset, a recoverability test is carried out to verify that liquidity requirements arising from an unfavorable economic environment do not force the sale of assets and generate unrealized losses. This recoverability test relies on projected future cash flows based on various economic assumptions about historical redemptions and inflows (see Note 8.2.5).
To that end, Natixis prepares tax business plans based on the medium-term plans for the business lines.
Natixis discloses uncertainty over income tax treatments in its financial statements where it concludes that it is not probable that the tax authority will accept them. To determine if a tax position is uncertain and assess its impact on the amount of the Group’s income tax, Natixis assumes that the tax authority will verify all reported amounts with comprehensive knowledge of all available information. It bases its judgment in particular on administrative doctrine, legal precedence and the history of rectifications carried out by the tax authority on similar uncertainties. Natixis reviews the estimate of the amount it expects to pay to or receive from the tax authority in respect of tax uncertainties, in the event of changes in associated events and circumstances, which may arise, for example, from changes in tax laws, the end of a limitation period, or the outcome of controls and initiatives conducted by the tax authorities.
In the eurozone, most of the uncertainties surrounding the definition of new benchmark rates were cleared up in the first of half 2019. Indeed, the work done to propose new indices was finalized in the case of Eonia, which became a €STER tracker on October 1, 2019 and will continue to be one until December 31, 2021. The latter will replace the so-called “recalibrated” Eonia from January 1, 2022.
As regards the Euribor, a new calculation methodology (recognized by the Belgian regulator as complying with BMR requirements), aimed at switching to a “hybrid” Euribor, was finalized in November 2019. At this stage, there is moderate uncertainty as to the sustainability of the Euribor, resulting from the limited number of banks contributing to the determination of the index. Two consultations were launched in November 2020 by the European working group on alternative reference rates, in order to support the entities in the drafting of fallback clauses. These consultations concern, in this respect, the determination of the events triggering the permanent termination of the Euribor and the methods for determining the rate, based on the euro ster, which will then replace the Euribor.
During 2019, work focused on the reform of the Euribor, the transition from the Eonia to the €STR and the strengthening of contractual clauses regarding the termination of indices. A new, more operational phase began in 2020 on the transition and the reduction of exposure to benchmarks that may disappear. It includes the use of new indices, the identification and implementation of inventory remediation plans as well as active communication with the bank’s customers. The vast majority of contracts affected by the reform will, however, be remedied with alternative rates during the year 2021.
In terms of accounting: the IASB published the amendments to IFRS 9, IAS 39 and IFRS 7,V in respect of hedging-related issues, in September 2019. The amendments to IAS 39 and IFRS 9 provide for temporary exceptions to the requirements set forth by these standards in terms of hedge accounting, while the amendments to IFRS 7 require that, in respect of the hedging relationships to which these exceptions apply, information be provided on the entities’ exposure to the IBOR reforms, the way they manage the transition to alternative benchmark rates, and the assumptions or judgments made in order to apply these amendments. Through these amendments, the IASB aims to prevent entities from having to discontinue hedging relationships due to uncertainties associated with the IBOR reform during the period preceding the transition to alternative benchmark rates. Natixis believes all of these hedging contracts, which have either a Bor or Eonia component, are affected by the reform and may therefore benefit from said amendments for as long as uncertainty remains with regard to the contractual changes to be implemented as a result of the regulations, the replacement index to be applied or the period of application of provisional interest rates. Hedging derivatives are presented in Note 7.18. Almost all interest rate swaps used in a hedging relationships are indexed to a Bor or Eonia index; on August 27, 2020, the IASB published a draft document to handleV topics resulting from the replacement of traditional benchmark rates with their alternative benchmark rates. This overview aims to amend the provisions of IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 with respect to the modifications of financial assets and financial liabilities (including debts related to leases) whether or not they are connected with the enactment of existing contractual clauses (fallback clauses), hedge accounting, or disclosures. This text, adopted by the European Commission on January 13, 2021 will be applicable from January 1, 2021 with early application allowed. Natixis has chosen to apply these amendments early as of
In more detail, these include: concerning the changes in financial assets and liabilities directlyV induced by the reform and for which the basis for calculating contractual cash flows is economically equivalent to the basis of calculation used immediately before the change, to apply the provisions of IFRS 9 and IFRS 16 to re-estimate the cash flows of financial instruments indexed to a variable rate. This means, for financial assets and liabilities (excluding lease debts), a forward-looking revision of the effective interest rate, and for financial liabilities related to leases, a forward-looking revision of the rental debt including a modification of the discount rate to take into account the switch to the alternative benchmark. The application of these provisions will therefore have no effect, as of the transition date, on the income statement; with respect to hedge accounting, the draft amendment introducesV new exceptions to the hedge accounting application criteria set out by IFRS 9 and IAS 39 aimed at avoiding a breakdown in hedging relationships; with regard to the information to be published, the communicationV of information on the nature and extent of the risks associated with the IBOR reform to which the entities are exposed, for the scope of all financial instruments (see Note 7.18).
Diluted earnings/(loss) per share corresponds to net earnings/(loss) for the period Group share, divided by the weighted average number of shares, adjusted for the maximum impact resulting from the conversion of dilutive instruments into ordinary shares. Stock options issued are taken into account in calculating diluted earnings/(loss) per share. The conversion of these instruments does not impact net income/(loss) used to calculate diluted earnings/(loss) per share.
Average number of shares used to calculate diluted earnings/(loss) per share 3,160,085,143 3,158,161,981
Interest income also consists of interest on non-SPPI debt instruments not held under a trading model (classified by default as instruments at fair value).
Financial assets at fair value through other comprehensive income 70 (0) 70 104 104
For certain funds managed by affiliates of Natixis Investment Managers, the contractual provisions of the prospectus stipulate the payment of a “performance fee” for any fund outperformance.
Financing, guarantee, securities and derivative commitments 313 (141) 172 235 (117) 118
Of which performance fees in the amount of €314 million (of which €286 million for Europe) at December 31, 2020, versus €627 million (a) (of which €537 million for Europe) at December 31, 2019.
Of which net fee and commission income of -€1,125 million at December 31, 2020, versus -€1,243 million at December 31, 2019, for insurance activities, (b) for which the related income is presented as “Net income from insurance activities”.
Gains and losses on financial assets and liabilities at fair value 6.3 through profit or loss
Net gains/(losses) on financial assets and liabilities held for trading (b) 1,601 5,275 o/w derivatives not eligible for hedge accounting 3,722 (463)
Net gains/(losses) on financial assets to be valued at fair value through profit or loss 66 268
Insofar as the expenses and income presented in the income statement are classified by type and not by function, the net income of activities on financial (a) instruments at fair value through profit and loss should be considered as a whole. The results presented above do not include the refinancing cost of these financial instruments, which is recorded in interest income or expenses. “Net gains/(losses) on financial assets and liabilities held for trading” include:(b) - reductions applied to the fair value of the CDS concluded with the monoline companies: an increase in the reduced inventory was recorded during fiscal year 2020 of €4.7 million compared to an increase in the reduced inventory of €1.8 million (expense) at December 31, 2019 (excluding the impact of foreign exchange and the effect of the BPCE guarantee), bringing the total reduced stock to €29.8 million at December 31, 2020 compared with €25.1 million at December 31, 2019; - at December 31, 2020, recognized own credit risk adjustments to derivatives (debit valuation adjustments or DVA) stood at +€11.8 million (income), versus -€35.4 million (expense) at December 31, 2019.
In addition, the value adjustment concerning the valuation of the counterparty risk (CVA) of financial assets is -€39.8 million (expense) at December 31, 2020 compared to an expense of -€1.2 million at December 31, 2019; - the Funding Valuation Adjustment (FVA) used on uncollateralized derivatives or imperfectly collateralized derivatives is also recognized on this line in the amount of -€3.3 million (expense) at December 31, 2020 versus €12.8 million (income) at December 31, 2019.
Gains and losses on financial assets at fair value 6.4 through other comprehensive income
Net gains or losses resulting from the derecognition of financial 6.5 instruments at amortized cost
The amount recognized for 2020 in respect of the retention and performance plans includes an expense of -€13 million (versus -€44 million at December 31, (a) 2019) for the portion of compensation paid in cash and indexed to the Natixis share price and an additional expense of -€6 million (versus -€10 million at December 31, 2019) for the portion of compensation settled in Natixis shares. Of which a contribution of -€165.3 million to the Single resolution Fund (SRF) at December 31, 2020, versus -€169.7 million at December 31, 2019.(b) Of which the Social Security and Solidarity Contribution (C3S) for -€41.1 million at December 31, 2020, versus -€33.8 million at December 31, 2019. As of December 31, 2019, Coface contributed -€480.1 million to operating expenses.
Additionally, depreciation, amortization and impairment on property, plant and equipment and intangible assets include -€7.1 million in accelerated repayments for building arrangements that are to be released.
This line item primarily includes income related to the recognition of credit risk as defined by IFRS 9: cash flows on provisions and impairments for 12-month andV lifetime expected credit losses related to: debt instruments recognized at amortized cost or at fair valueV through other comprehensive income, lease receivables,V
Impaired financial assets – Lifetime expected credit losses (860) 156 (3) 7 (700) (554) 234 (9) 4 (325)
Financing commitments – 12-month expected credit losses (75) 50 0 0 (25) (29) 26 0 0 (3)
Impaired financing commitments – Lifetime expected credit losses (25) 42 0 0 16 (75) 50 (0) 0 (25)
Net capital gains/(losses) on disposals (187) 0 (187) 627 60 687
Reconciliation of the tax expense in the financial statements 6.10 and the theoretical tax expense
= Consolidated net income/(loss) before tax, goodwill amortization and share in income of associates 439 2,919
+ Losses for the period not recognized for deferred tax purposes 16 (7)
+ Tax on prior periods and other tax items (2) 80
The permanent differences include the impact of the loss of control of the Coface division (+€145.6 million), the effect of the recognition of projected losses (a) related to the sale of H2O by Natixis Investment Managers (+€49 million) as well as the impact of non-tax-deductible regulatory contributions in the amount of +€114.7 million at December 31, 2020 compared to +€130 million at December 31, 2019. In 2019, the permanent differences include the portion of the non-taxable long-term capital gain related to the sale of SFS entities to BPCE (-€454 million) and the non-deductible capital loss on the disposal of Natixis Brasil (+€14.7 million). In 2020, the standard corporate tax rate fell to 32.02%.(b)
Financial instruments that must be measured at fair value through profit or loss include debt instruments and non-SPPI loans (for which the classification criteria are provided in Note 5.1.2), and equity instruments that we have opted not to recognize in equity.
Derivative instruments not eligible for hedge accounting (a)* 49,897 0 49,897 51,390 0 51,390
Balancing payments relating to the early redemption of Natixis issues recognized in shareholders’ equity over the 2020 fiscal year totaled €0.2 million versus (a) -€2 million over the 2019 fiscal year. The fair value, determined using the calculation method described in Note 7.5, recorded in respect of internal credit risk on Natixis issues, totaled (b) -€134.9 million at December 31, 2020 versus -€113.5 million at December 31, 2019.
Besides changes in the outstanding amount, this difference reflects changes in the Natixis spread since the close of the previous year’s accounts.
Difference between carrying amount and amount contractually due at maturity Carrying amount
Derivatives not eligible for hedge accounting7.1.3 Derivative financial instruments not eligible for hedge accounting are classified as held for trading, irrespective of the period over which they are expected to be held.
Cash flow hedges are mainly used by Natixis to hedge the overall interest rate risk.
Cash flow hedging – Analysis of other items of comprehensive income7.2.3.1
The hedged portion still to be deferred came to €41 million at December 31, 2020 and €59 million at December 31, 2019.
The net amount of financial assets and financial liabilities recognized (including amounts not offset on the balance sheet which may or may not be subject to master netting arrangements or similar agreements), after deducting the gross offset amounts, correspond to the gross balances presented on the balance sheet.
The gross offset amounts reflect repurchase agreements and derivative transactions, most of which carried out with clearing houses, for which the criteria set out in IAS 32 are met: for listed derivatives, the positions recorded under the respectiveV asset and liability items for: index options and futures options are offset by maturity and byV currency, equity options are offset by ISIN code and maturity date;V
for OTC derivatives, the information is presented in considerationV of the effects of the currency offset between asset valuations, liability valuations of the derivatives and variations in margin; as regards repurchase agreements, Natixis records on its balanceV sheet the net value of repurchase and reverse repurchase agreements that: are entered into with the same clearing house, andV
involve the same custodian (unless the custodian has signedV up to the T2S platform), are made in the same currency,V
These tables also show the impacts of master arrangements or similar agreements corresponding to derivative amounts or outstanding repos covered by master netting arrangements or similar agreements under which the net settlement criterion or the simultaneous settlement of assets and liabilities cannot be demonstrated or for which the right to set-off cannot be exercised except in the event of the default, insolvency or bankruptcy of one or more counterparties. These amounts are not offset on the balance sheet.
Financial assets at fair value through profit or loss 151,481 17,703 133,777 198,941 48,090 150,851
Including guarantees received in the form of securities.(a) Amounts non restated in relation to the financial statements published in 2019 (see Note 5.4).*
Reconciliation table for financial assets at fair value through recyclable other 7.4.1 comprehensive income
Changes in contractual cash flows not giving rise to derecognition 1 1
Contracts fully repaid or sold during the period (775) 0 (775) 0
Variations linked to changes in credit risk parameters (excluding transfers) 677 (1) 677 (1)
Variations linked to changes in exchange rates (312) 0 (312) 0
Equity instruments derecognized during the period Fair value on date of sale
Investments in unlisted and unconsolidated companies 644 50 0 13 0 513 30 0 4 1
Fair value of financial assets and liabilities carried 7.5 at fair value in the balance sheet
Financial assets held for trading 152,322 48,143 102,117 2,062 163,461 47,785 112,452 3,224 o/w debt instruments in the form of securities 18,833 15,848 2,887 98 15,004 11,870 2,793 341
Derivative instruments not eligible for hedge accounting (positive fair value) 53,664 1,048 50,859 1,757 60,880 924 57,749 2,207
Financial assets designated under the fair value option 23 2 21 45 45 o/w debt instruments in the form of securities 21 21 43 43
Financial assets at fair value through other comprehensive income 13,194 11,963 739 490 12,076 11,171 585 321 o/w debt instruments in the form of securities 12,550 11,811 739 11,563 10,987 576 0 o/w loans and receivables
Financial liabilities held for trading 36,722 20,567 16,154 0 33,825 18,534 15,291 0 o/w securities issued for trading purposes 20,877 20,567 310 0 18,840 18,534 306 0
Other financial liabilities held for trading 95,276 94,702 574 96,044 95,235 809
Level 1: Fair value measurement a) using prices quoted on liquid markets
the payoff, i.e. a calculation of positive or negative cash flowsV attached to the product at maturity, a model of changes in the underlying asset.V
The main models used to value and manage fixed-income products are the one-factor (HW1F) and two-factor (HW2F) Hull & White models, or the one-factor Hull & White stochastic volatility model (HW1FVS).
The HW1VS model makes it possible to jointly model the Gaussian factor representing the yield curve and its volatility (like the LSV model for the Equity scope).
currency products: currency products generally have specificV characteristics which justify the choice of model.
The main models used to value and manage currency products are local volatility and stochastic models (like the LSV model for the equity scope), as well as the hybrid models combining an underlying currency model with two one-factor Hull & White models to understand domestic and foreign economies’ fixed-income curves.
Inputs relating to all such Level 2 instruments were demonstrated to be observable and documented. From a methodology perspective, observability is based on four inseparable criteria: inputs are derived from external sources (primarily a recognizedV contributor, for example); they are updated periodically;V
their characteristics are identical to the characteristics of theV transaction. If necessary, a proxy may be used, provided that the relevance of such an arrangement is demonstrated and documented.
Level 3 comprises instruments measured using unrecognized models and/or models based on non-observable market data, where they are liable to materially impact the valuation. This mainly includes: unlisted shares whose fair value could not be determined usingV observable inputs; Private Equity securities not listed on an active market, measuredV at fair value with models commonly used by market participants, in accordance with International Private Equity Valuation (IPEV) standards, but which are sensitive to market fluctuations and whose fair value determination necessarily involves a judgment call. At December 31, 2020, in view of the health crisis, Natixis carried out an exhaustive review of its portfolio (see Note 1.4.3).
mutual fund units for which the fund has not published a recentV NAV at the valuation date, or for which there is a lock-up period or any other constraint calling for a significant adjustment to available market prices (NAV, etc.) given the low liquidity observed for such securities; debt issues measured under the fair value option which areV classified in Level 3 where the underlying derivatives are classified in Level 3. The associated “issuer credit risk” is deemed observable and thus classified in Level 2; CDS contracted with monoline insurers, for which the valuationV model used to measure write-downs has moved more in line, in terms of method, with the adjustment made for counterparty risk (Credit Valuation Adjustment – CVA). It also takes account of the expected depreciation of exposures and the counterparty spread implied from market data; plain vanilla derivatives are also classified as Level 3 in the fairV value hierarchy when exposure is beyond the liquidity horizon determined by underlying currencies or by volatility surface (e.g., certain foreign currency options and volatility caps/floors).
At December 31, 2020, instruments for which the recognition of day-one profit/loss has been deferred included: multiple equity and index underlying structured products;V
For these instruments, the following table provides the main unobservable inputs as well as value ranges.
Forex Forex derivatives Forex options valuation model Forex volatility [7.3%; 12.739%]
Correlation between forex rates and interest rates as well as long-term volatility levels
Correlation between the assets, base spread between the cash asset and derivative asset, recovery rate
Transfers between fair value levels are reviewed and validated by the Valuation Committee, predominantly including representatives of the Finance, Risk and Business Lines functions. The Committee considers various indicators of market activity and liquidity as described in the General Principles.
A review is undertaken for any instrument that ceases to meet these criteria or once again complies with the criteria.
The main reclassifications carried out at December 31, 2020 (see Note 7.5.1.), concern: Bermudan accreters (in Australian dollars), with a residual maturityV of between 10 and 20 years, which have been transferred to fair value Level 2 due to the non-materiality of the accreting factor parameter (see table above); Mono-underlying structured products indexed on equity which areV transferred to level 3 following the review of the observability horizon of the valuation inputs (volatility, repo, dividends) of the underlying assets.
As a reminder, the main reclassifications in the 2019 fiscal year consisted of Bermuda accreter swaptions (in EUR and AUD), certain complex multi- or mono-underlying derivatives indexed to indices, and associated liabilities measured under the fair value option. These instruments were reclassified from Level 2 to Level 3 of the fair value hierarchy subsequent to the observability review conducted during the period, which found a lack of observed prices for the corresponding inputs and products, serving as a basis for their reclassification to Level 3 of the fair value hierarchy.
Financial assets held for trading 3,224 (55) 432 9,342 (11,211) (12) 485 (51) (93) 2,062 o/w debt instruments in the form of securities 341 (110) 410 4,066 (4,626) (12) 52 9 (34) 98 o/w equity instruments 60 (60)
Derivative instruments not eligible for hedge accounting (positive fair value) 2,207 (9) 28 515 (363) (312) (3) (226) (80) 1,757 o/w other
Financial assets to be valued at fair value through profit or loss 1,308 (24) (4) 179 (275) 0 0 39 (7) (14) 1,205 o/w debt instruments in the form of securities 647 (22) 0 (24) (25) 0 0 (9) 568
Financial assets designated under the fair value option (19) 40 21 o/w debt instruments in the form of securities (19) 40 21 o/w equity instruments o/w loans and receivables
Financial assets at fair value through other comprehensive income 321 43 0 158 14 (44) 28 (30) 490 o/w debt instruments in the form of securities o/w loans and receivables
Derivative instruments not eligible for hedge accounting (negative fair value) 1,898 163 (242) 297 (202) (238) 162 (266) (94) 1,477
Other financial liabilities held for trading 809 15 (26) 499 (723) (0) 574
Derivative instruments not eligible for hedge accounting (positive fair value) 2,548 841 (343) 446 (1,488) (339) 486 0 55 2,207 o/w other
Amounts non restated in relation to the financial statements published in 2019 (see Note 5.4).*
Debt issues were reclassified to Level 3 of the fair value hierarchy along with the underlying derivative instruments, both for instruments deemed unobservable during the period and for issues related to instruments already (a) classified in Level 3 at December 31, 2018 (the latter are recorded under “other reclassifications”). Amounts non restated in relation to the financial statements published in 2019 (see Note 5.4).*
Sensitivity analysis of the fair value of financial instruments measured according to Level 3 – Assets and Liabilities Sensitivity of the fair value of financial instruments measured using unobservable inputs was estimated at December 31, 2020. With the aid of probable assumptions, this sensitivity was used to estimate the impacts of market fluctuations in uncertain economic environments. This estimate was established using assumptions about additional adjustments to the valuation of interest rate, currency, credit and equity instruments.
Derivative instruments not eligible for hedge accounting (positive fair value) 113 27 (3) 312 16 111 486 339
Financial assets at fair value through other comprehensive income 252 414 273 588 o/w equity instruments o/w debt instruments in the form of securities 252 414 273 588 o/w loans and receivables
Derivative instruments not eligible for hedge accounting (negative fair value) 40 0 162 238 12 116 598 401 o/w interest rate derivatives 55 302 15
Financial liabilities designated under the fair value option 505 556 4,975 o/w securities under the fair value option 503 556 4,975 o/w other financial liabilities under the fair value option 2
Loans and receivables due from banks at amortized cost 44,691 45,002 44,313 688 48,115 48,580 48,276 303
Loans and receivables due from customers at amortized cost 67,939 68,312 46,199 22,113 71,089 71,281 49,262 22,019
Loans recognized at “amortized cost” The majority of Natixis’ loans are variable-rate loans, and their fair value is determined on the basis of discounted future cash flows. The discount rate applied for a given loan is the rate at which Natixis would grant a loan with similar characteristics to a similar counterparty at the reporting date. As these are primarily variable-rate loans, the contractual rate is adjusted according to the trend in market lending rates and in counterparty risk.
Borrowings and savings The measurement of the fair value of Natixis’ borrowings and debt securities is based on the discounted cash flow method using inputs at the reporting date such as the underlying’s interest-rate curve and the spread applied to lending/borrowing between Natixis and Group entities. The fair value of debts maturing in less than one year is considered to be the same as their carrying amount; these debts are classified in Level 2 of the fair value hierarchy.
Value adjustments for credit losses (5) (29) (34) (3) (48) (51)
Comprises unimpaired financial assets for which value adjustments are calculated based on 12-month expected credit losses (Stage 1) or lifetime expected credit losses (Stage 2).(a) Impaired financial assets (Stage 3) are assets for which a default event has been identified as defined in Article 178 of the EU Regulation of June 26, 2013 on regulatory requirements for credit institutions.(b) As of December 31, 2019, Coface contributed €313.8 million to “Loans and receivables due from banks at amortized cost”.(c)
Reconciliation of loans and receivables due from banks at amortized cost
Loans and receivables due from banks at amortized cost at 31/12/2020
Transfer to non-current assets held for sale 0 0 0 0 0 0 0 0
Changes in contractual cash flows not giving rise to derecognition 0 0 0 0 0 0 0 0
Transfer to non-current assets held for sale (c) (99) 0 0 0 0 0 (99) 0
Contracts fully repaid or sold during the period (19,522) 0 (24) 0 (1) 1 (19,546) 1
Comprises unimpaired financial assets for which value adjustments are calculated based on 12-month expected credit losses (Stage 1) or lifetime expected credit losses (Stage 2).(a) Impaired financial assets (Stage 3) are assets for which a default event has been identified as defined in Article 178 of the EU Regulation of June 26, 2013 on regulatory requirements for credit institutions.(b) As of December 31, 2019, Coface contributed €2,345.8 million to “Loans and receivables due from customers at amortized cost”.(c)
Loans and receivables due from customers at amortized cost at 31/12/2020
Unimpaired assets for which expected credit losses are measured on a lifetime basis (S2 bucket)
Variations linked to changes in exchange rates 454 0 173 (1) 9 (8) 5 (1) 641 (9)
Changes in the model used 0 0 0 0 0 0 0 0
New originated or acquired contracts 17,899 (22) 3,533 (9) 0 0 116 (33) 21,548 (63)