Risk factors3.1 109 Risk management3.2 116 Basel 3 Pillar III disclosures3.3 166 44444444444444444444444444444444444 OVERVIEW OF THE FISCAL YEAR 219 Significant events of 20184.1 220 Management report at December 31, 20184.2 225 Main investments and divestments performed 4.3 over the period 234 Post-closing events4.4 235 Information concerning Natixis S.A.4.5 235 Outlook for Natixis4.6 237 Definitions and alternative performance 4.7 indicators 238 55 FINANCIAL DATA 239 Consolidated financial statements and notes5.1 241 Statutory Auditors’ report on the consolidated 5.2 financial statements 395 Parent company financial statements 5.3 and notes 403 Statutory Auditors’ report on the parent 5.4 company financial statements 442 Internal control procedures relating to 5.5 accounting and financial information 447 66 NON-FINANCIAL PERFORMANCE REPORT 451
Strategic outlines and organization of the ESR 6.1 policy 452 The Natixis Code of Conduct 6.2 and its implementation 460 Business line contributions to green 6.3 and sustainable growth 463 Managing environmental & social risks6.4 479 Managing our direct environmental impact6.5 485 Employee mobilization6.6 492 Reporting frameworks and methodology6.7 505 Report by one of the Statutory Auditor on the 6.8 consolidated Non-Financial Performance Report contained in the Management Report 508 77 LEGAL INFORMATION 511 Legal notices and practical information 7.1 relating to Natixis 512 Natixis bylaws7.2 512 General information on Natixis’ capital7.3 518 Distribution of share capital and voting rights7.4 523 Information from Article L.225-37-5 7.5 of the French Commercial Code 526 Draft resolutions of the Combined General 7.6 Shareholders’ Meeting of May 28, 2019 526 Statutory Auditors’ special report on 7.7 related-party agreements and commitments 555 88 ADDITIONAL INFORMATION 563 Statement by the person responsible 8.1 for the registration document 564 Documents available to the public8.2 565 Cross-reference table of registration document8.3 566 Cross-reference table for the annual financial 8.4 report 568 Cross-reference table 8.5 for the management report 569 Glossary8.6 570
This registration document was filed with the French Financial Markets Authority on March 15, 2019, in accordance with Article 212-13 of the general regulations of the French Financial Markets Authority. It may be used in connection with a financial transaction only if accompanied by a transaction note approved by the French Financial Markets Authority. The document has been prepared by the issuer and its signatories incur liability in this regard. This registration document includes all components of the annual financial report mentioned in Section I of Article L.451-1-2 of the French Monetary and Financial Code and Article 222-3 of the general regulations of the French Financial Markets Authority. A cross-reference table showing documents referred to in Article 222-3 of the general regulations of the French Financial Markets Authority and the corresponding sections of this registration document appear on page 566. The English language version of this report is a free translation from the original, which was prepared in French. All possible care has been taken to ensure that the translation is an accurate presentation of the original. However, the original language version of the document in French prevails over the translation.
CAN YOU GIVE US AN OVERVIEW OF NATIXIS’ BUSINESS IN 2018?
Our 2018 results show that we made the right strategic choices in our New Dimension plan, as all Natixis’ business lines achieved strong performances
Our asset and wealth management businesses model has demonstrated its value in volatile market one of the leading investment managers worldwide
Meanwhile, our Corporate & Investment Banking business made solid progress in Mergers & Acquisitions and in our four strategic sectors as we optimized our origination and distribution a deterioration of the Asian markets, the division
The crux of this new plan will be to give our business a new dimension as we take our chosen areas of expertise even further, push the digitalization of our products and services a step forward to support our clients, and differentiate our company by providing our clients with the right products.
We will rely on THREE PILLARS AND FIVE OVERARCHING LEVERS to achieve these aims.
Support and encourage the growth and accountability of our talents • Provide a diverse range of career track possibilities and growth opportunities
• Use our existing green and social capabilities as a foundation to expertise
• Complete roll out of our Beyond Banking brand platform and inclusive ways of working and interacting
Corporate & Investment Banking Asset & Wealth Management Specialized Financial Services Insurance 31/12/2017 31/12/2018 31/12/2017 31/12/2018
* Reported figures including non-recurring items. Excluding non-recurring items, ROE 2018 of 13,7%, ROE 2017 of 13,8%
Net dividend per share in 2018 o/w ordinary dividend** of €0.30 o/w special dividend*** of €0.48
* After paying out the proposed dividend for the fiscal years in question ** Proposal presented to the May 28, 2019 Shareholder’s Meeting 9Natixis Registration Document 2018
NATIXIS AND ITS 1.4 SHAREHOLDERS 32 Key share data at December 31, 20181.4.1 32
1 PRESENTATION OF NATIXISBusiness line Presentation 12 Natixis Registration Document 2018
Life & personal protection insurance Individual life insurance, savings, transfer of assets, retirement, death insurance, long-term care insurance and borrower’s insurance
Property & casualty insurance Car insurance, home insurance, home and leisure accidents insurance, health insurance, legal protection insurance and means of payment insurance
* EMEA: Europe, Middle East, Africa. Headcount - end of December 2018 (Excluding Coface, Private Equity, Natixis Algerie).
Groupe BPCE, the N°. 2 banking group in France, is formed from the merger of CNCE and Banque Fédérale des Banques Populaires
Natixis creates a unique insurance division, paving the way for Groupe BPCE to become a fully-fledged bancassurer
The first Banque Populaire Bank is established. The Banque Populaire banks are founded by and for entrepreneurs with the aim of pooling funds to finance their projects
jointly by the Banque Populaire and Caisse d’Epargne networks, and which is increased through an annual contribution (subject to the amounts which would be used in the event of a call for funds); (iii) if BPCE’s capital and this mutual guarantee fund should prove insufficient, BPCE would call on (in equalPursuant to Article L.511-31 of the French Monetary and proportions) both the Banque Populaire and Caisse d’EpargneFinancial Code (Code monétaire et financier), BPCE shall, as the networks’ own guarantee funds of €900 million in total and;central institution, take any measures necessary to guarantee finally (iv) if calls on BPCE’s capital and these three guaranteethe liquidity and solvency of Groupe BPCE. Natixis, in its funds should prove insufficient, additional sums would becapacity as an institution affiliated with BPCE, is covered by the requested from all Banques Populaires and Caisses d’Epargne.Groupe BPCE financial solidarity mechanism. Thus, in the event
It should be noted that the guarantee funds referred to above consist of a Groupe BPCE internal guarantee mechanism activated at the initiative of the BPCE Executive Board or the French banking regulator, which may request that it be used if deemed necessary.
At December 31, 2018, BPCE held 70.70% of the share capital of Natixis (70.78% of voting rights) (see Section 1.2.2 Financial solidarity mechanism). The structure of Groupe BPCE at December 31, 2018 was as follows: NATIXIS
Natixis Investment Managers ranks 16th globally by assets under management (Cerulli Associates: Global Markets 2018 report based on AuM as of December 2017).
Natixis Investment Managers’ multi-affiliate structure encompasses a portfolio of more than 20 independent active asset managers providing a diversified suite of investment strategies with the support of a federation of shared services. The company supports the growth of each affiliate through its global distribution platform, offers financial backing for innovation and global oversight to ensure the consistency of operational risk management. Natixis Investment Managers covers over 20 countries with its main support functions operating from Boston, London and Paris.
2018 was another year of strong financial performance for Natixis Investment Managers, both in terms of revenue and profitability. It was also a year of deep transformation and active development to expand the company’s distribution capabilities, reinforce its product range and improve performance and operational efficiency.
Natixis Investment Managers strengthened it distributiona capabilities with the reinforcement of its international distribution platform which covers Europe, the Middle East, Latin America and Asia-Pacific, and the creation of Dynamic Solutions. This brings together its expertise in developing customized investment solutions within a single team in its multi-affiliate organization.
Natixis Investment Managers completed the roll out of itsa multi-affiliate model in Europe with the creation of a European centralized fund business platform, while Ostrum Asset Management, Mirova, Seeyond, H20 and Dorval Asset Management became stand-alone affiliates. Ostrum Asset Management—rebranded early in 2018—renewed its focus on its long-standing fixed-income and equity experience, and its renowned insurance expertise.
In 2018, Natixis Investment Managers strongly enhanced itsa brand visibility through strategic partnerships and by taking part in high-level thought leadership groups, each one an opportunity to showcase its distinctive asset management approach centered on active investing. In November, the first Natixis Investment Managers Summit gathered over 70 experts and leading from around the world, including five former heads of state or government, to discuss themes underlying “The New Geopolitical World Order”.
Natixis Investment Managers will continue to cement its position as a fully active player in the asset management industry, anchored by mature, market-leading businesses in the US and France, but growing its presence across Europe and in other critical regions, including Asia-Pacific, the Middle East and Latin America. By building on its current leading market position and its differentiating multi-affiliate business model, Natixis Investment Managers will further enhance the reach of its distribution network, continue to diversify its line-up of affiliate investment offerings, simplify its global operating model, and expand its global footprint.
Natixis Investment Managers: more than 20 specialized asset management companies in the US, Europe and Asia (assets under management in billions of euros at end-2018)
H2O Asset Management (€28.4 billion): global macro multi-strategy and international fixed incomej
The Wealth Management Division serves two types of clients: the wealth management customers of BPCE’s retail banking networks along with business from Natixis (Group sourcing); and direct clients (major private investors, business owners and their families). It provides its clients with a wide range of expertise based on private equity, structured products and real estate solutions offered in close cooperation with several Natixis entities. In addition, Natixis Wealth Management has developed its own expertise in wealth engineering, credit facilities and corporate advisory. Natixis Wealth Management also relies on its wholly-owned asset management subsidiary VEGA Investment Managers—which covers collective investment management, separately managed mandates, advisory and fund selection— and on all Natixis Investment Mangers’ affiliates to provide various products and services to its clientele. New accounts and new life insurance policies are now opened digitally via the Fronting Digital system. This system simplifies the process for new business relationships, while also ensuring transactions security and reliability. Staff can use the time saved on administrative formalities to spend more time to advising and supporting clients.
In 2018, excluding Sélection 1818, Natixis Wealth Management had net inflows of €2.2 billion, increasing managed assets to €26 billion, an increase of 3%.
Corporate & Investment Banking serves corporate clients, financial institutions, institutional investors, financial sponsors, public sector entities and the Groupe BPCE networks. It advises them and develops innovative tailor-made solutions to support their strategy, drawing on the full range of its expertise in Investment Banking and Mergers & Acquisitions, on the capital markets, in financing and in trade finance and treasury solutions. Its objective is to develop a strategic dialog with each of its clients over the long term, by building a close working relationship with them through a strong regional and international presence.
These areas of expertise are adapted locally across the three international platforms: Americas: Argentina, Brazil, Canada, Chile, Colombia, Mexico,a Peru and the United States; Asia-Pacific: Australia, China, Hong Kong, India, Indonesia,a Japan, Malaysia, Singapore, South Korea, Taiwan and Thailand; EMEA (Europe, the Middle East and Africa): France, Germany,a Italy, Russia, Spain, Switzerland, Turkey, the United Arab Emirates, and the United Kingdom.
In 2018, Corporate & Investment Banking continued to develop its strategic advisory services, particularly by expanding its M&A footprint (see section 1.3.2.4), ramp up its solutions approach on the Capital Markets and consolidate its status as a go-to bank in its four strategic sectors.
In keeping with Natixis’ strategic ambitions for a green, sustainable economy, Corporate & Investment Banking has consolidated its green franchise, particularly in renewable energy financing, SRI research, green bonds, and “climate equity” investment solutions. Natixis was named “Most Innovative Investment Bank for Climate & Sustainability” by The Banker in recognition of the pioneering role it plays in green finance with its innovative high added-value solutions.
In fixed income, credit, forex, commodities and equity markets, Natixis offers its corporate and institutional (both private and public sectors) clients and Groupe BPCE network clients a wide range of investment, financing and hedging products and solutions that tie into its widely recognized research.
This new structure is centered around four divisions: two Solutions divisions intended to encourage a closera commercial relationship with clients: Cross Asset Solutions providing distributors, family offices, mutual insurers and pension funds one-stop access to cross-asset solutions; Multi-Asset Solutions addressing the needs of major institutional investors, asset managers and corporates; a single financial engineering division to offer clients innovativea hedging, investment and financing solutions across all asset classes; a Multi-Asset Client Servicing & Execution (MACSE) division toa coordinate flow activities and digital offerings.
On the fixed income markets, our teams offer clients financing, investment and hedging products and solutions on the credit, fixed income and forex markets in OECD and emerging countries. The teams are located in Europe (Paris, London, Milan, Madrid and Frankfurt), the Middle East (Dubai), Asia (Singapore, Tokyo, Hong Kong, Shanghai and Taipei) and in North America.
On the credit market, to address structural issues related to the growing disintermediation of financial markets, the GSCS teams (Global Structured Credit & Solutions) offer clients streamlined asset and liability management solutions: advisory and financing solutions for balance sheet reduction, arrangement of alternative financing and regulatory optimization. The organizational structure of GSCS, which combines origination, structuring, syndication and trading services, enables Natixis to develop services for clients right across the structured credit value chain.
On the commodities and energy markets, the Global Markets Commodities (GMC) teams have, over the past four years, developed a selective range of flow products and base metals, precious metals and energy solutions for corporate and sovereign clients that specialize in these markets. Accordingly, Natixis has adopted a model that is resolutely focused on its clients in Asia, the Americas and Europe, and founded on the development of tailored and innovative solutions that meet clients’ risk management and financing needs. This approach leverages the expertise of the teams on the derivatives markets, combined with that of the financing and economic research teams.
In 2018, Natixis continued to enhance its offering with investment solutions such as the climate investment funds Magenta Climat and Transition Énergétique, an investment solution that is 90% guaranteed at all times, and whose performance driver is a Euronext index of 50 European stocks of companies committed to reducing carbon emissions (the ECO5E index). The Equity Derivatives teams were recognized for their expertise in solution design and distribution, as well as pre- and post-trade services, and the business received a number of awards in 2018: “Best Insurance Deal”, “Best Distributor, France & Benelux”, “Best Distributor, Italy” and “Best Training Initiative, Structured Products” (source: Structured Retail Products Europe Structured Products & Derivatives Awards 2018).
In addition, the bank was named “Most Innovative Investment Bank for Climate & Sustainability” by the prestigious magazine The Banker. This award recognizes the pioneering role Natixis has played in the industry, including developing the first OAT green repack, SRI financial products including the first green-certified commercial real estate loan, the first securitization of green commercial mortgage receivables and also the setting up of an integrated Green & Sustainable Hub, whose cross-business activities help bring a green element to the entire range of financing and investment offerings.
Global Markets research has developed recognized expertise in cross-asset, equity derivative, credit and macroeconomic research, investment strategies, and commodities, fixed income and forex research.
As part of Natixis’ ambition to be the go-to bank in this sector, 2018 was devoted to building teams and setting up governance. The objective for ENR is to offer clients the added value needed to foster strategic dialog and deliver tailored banking solutions with the input of all Corporate & Investment Banking teams.
The sectoral approach strategy for ENR clients in the development of investment banking solutions began to bear fruit in 2018 with Natixis actively involved in a number of market transactions. For example, in addition to Energean Oil & Gas Plc’s IPO, Natixis supported clients in a number of bond issues in 2018, including acting as joint bookrunner for Neptune Energy Plc.
In Asia, Natixis arranged and syndicated $485 million in prefinancing for Sinochem Hongrun, a refinery in the Chinese province of Shandong.
In the America’s region, ENR stepped up cooperation with PJ SOLOMON in the United States in order to develop the independent oil company M&A and financing business. PFI chose as its “Americas Mining Deal of the Year” the financing deal for the Mina Justa copper mine in Peru, for which the bank was MLA and Insurance and Marketing Agent.
Finally, Natixis was confirmed as a top-tier player in Commodity Trade Finance in a survey of 50 of its trader clients, who ranked it No. 2 Best Trade Bank in commodities and No. 1 in energy. The bank also continued its initiatives to digitize international commodity trade deals and participated in the development of the fintech Komgo alongside 14 other banks and industry players. Komgo is developing a blockchain to facilitate trade among all players across the value chain, including producers, traders, freight forwarders and banks. Finally, in line with the bank’s sustainable development policy, Natixis participated in the $650 million revolving facility for ECOM Agroindustrial Corp., the financial terms of which are conditional upon ISR objectives.
With over 1,100 projects financed in 25 years of business, Natixis’ expertise in the infrastructure sector draws on its in-depth knowledge of the sectors and assets financed. Natixis is a world leader in the area, ranking No. 9 MLA globally in 2018 (source: Project Finance International). It covers the four main infrastructure segments—electricity and renewable energy, telecoms, social infrastructure and transportation, and natural resources—and has a dedicated infrastructure M&A advisory team.
Drawing on its leading position in infrastructure debt vehicles, Natixis consolidated its joint investment platform by establishing partnerships with institutional investors. This platform allows them to invest in this asset class while offering borrowers a competitive source of liquidity. There are currently nine partners on the platform, with an investment capacity of €7 billion.
Natixis was also very active in Europe and the Middle East where, for example, it worked on the Çanakkale project (approximately €3.1 billion) in Turkey (“PFI Turkish Deal of the Year”), which includes building a highway and the longest suspension bridge in the world. It was also involved in the Sakaka Solar project, the first renewable energy project in Saudi Arabia (“PFI Middle East and Africa Power Deal of the Year”).
Drawing on its expertise in arranging, structuring and distributing Specialized Financing in these markets, including commercial loans, portfolio financing, financing with export cover and optimized loans (JOL, JOLCO, French lease, etc.), Natixis is developing a comprehensive investment banking, advisory (M&A, ratings) and hedging offering. For example, having begun its relationship with Avollon, the third biggest leasing company worldwide, as a senior secured lender, it now supports it across the continuum of expertise, including leading a $1 billion 5-year issue in 2018.
Natixis’ other high-profile, high added-value transactions included arranging the biggest commercial loan ($950 million) in Asia-Pacific in 2018, for a portfolio of 41 aircraft for Vermillion Aviation Holdings Limited. The deal was named “Asia-Pacific Portfolio Financing Deal of the Year” by Airline Economics, which also awarded the title of “Asia-Pacific Overall Deal of the Year” to the $4 billion financing deal in favor of Macquarie.
Natixis has been a leading player in the Real Estate & Hospitality sector for 30 years. It has offices in Europe, the United States and Hong Kong, and covers all asset classes: residential, office, retail, logistics and hospitality (hotels, clinics, retirement homes, etc.). Natixis relies on its own M&A advisory team in Europe, in addition to the bank's network of affiliated consulting firms.
Natixis stands out for the strength of its underwriting and distribution capabilities and is the only French bank with a Pfandbriefbank (Natixis Pfandbriefbank AG), which allows it to issue German-law mortgage bonds. In the United States, it is one of the main players in the CMBS market, ranked ninth as at December 31, 2018 (source: Commercial Mortgage Alert).
In 2018, Natixis continued its commitment to green and SRI finance. The €480 million loan it arranged to finance the development of the Duo towers in Paris was awarded Europe’s first green commercial real estate loan certification, the “Climate Bond Certified” label, from the Climate Bonds Initiative (“CBI”). The Curve project in Seine-Saint-Denis in the Paris region also received green certification for real estate lending in Europe, according to the LMA’s “Green Loan Principles”.
In 2018, Natixis was ranked No. 1 MLA and bookrunner in France and Europe (source: Dealogic), reflecting the vitality of its business and its positioning as a major arranger in the sector. 2018 saw the completion of a number of landmark transactions in France (€650 million in fully distributed financing for Foncière Vesta in the residential segment), Germany (financing of €335 million for the acquisition of an administrative complex in Frankfurt by Aroundtown and SOFA), Italy (total financing of €228 million for the healthcare sector) and Spain (acquisition of four shopping centers by Castellana Properties Socimi in the south of the country). Natixis Pfandbriefbank AG continued its development in 2018 and, in particular, issued €265 million in additional “Pfandbrief” bonds, bringing total issuance since the institution was established to €1.5 billion.
TTS is structured as two flagship businesses: Treasury Solutions and Trade Finance.
TTS also supports financial institutions at every stage of transaction processing (centralization of payments to and from Europe, optimization and simplification of international payment circuits).
Natixis received the “Greenwich Share Leader” award for 2018 in the “Large Corporate Trade Finance” category for France (source: Greenwich Associates).
Internationally, Natixis continued to develop its O2D strategy for TTS in Asia-Pacific and completed its first syndicated import loan with Taiwanese client TPK.
After a year of strong growth 2017, the business continued to enjoy solid business levels in 2018 by arranging a wide variety of innovative, landmark transactions.
As part of its commitment to the development of a sustainable global economy, Natixis helped to strengthen the growth and development strategy of French company Séché Environnement by acting as coordinator and active bookrunner for a bond issue (euroPP) and for the underwriting a line of credit with a renewable credit facility that incorporated innovative environmental, social and governance (ESG) performance criteria.
In Asia, Natixis acted as financing advisor and joint MLA/bookrunner for the Chinese semiconductor group Tsinghua Unigroup for its acquisition of Linxens.
Finally, Natixis arranged a long-term loan agreement for Générale de Santé, backed by a security trust relating to the shares of a real estate subsidiary that owns the buildings of a private hospital in the Greater Paris region.
Natixis was ranked No. 1 bookrunner for sponsored loans and No. 5 for leveraged loans in the EMEA region (source: Thomson Reuters).
In 2018, in a period of market volatility, Natixis/ODDO-BHF was ranked No. 1 (first equal) on the IPO market in France by number of deals and by volume as at December 31, 2018 (source: Bloomberg). Natixis also acted as global coordinator and joint bookrunner in the IPOs of 2CRSI, which specializes in the design and manufacture of computer servers, and Neoen, one of the biggest producers of exclusively renewable energy in the world. The Neoen deal was the biggest IPO on Euronext Paris in 2018 and among the 10 largest transactions in Europe.
Natixis and its six affiliates (Natixis Partners, Natixis Partners Spain, PJ SOLOMON, Vermilion Partners, Fenchurch Advisory Partners and Clipperton) are currently present across 12 locations: Berlin, Hong Kong, Houston, London, Madrid, Milan, Munich, New York, Paris, Beijing, Shanghai and Shenzhen.
In France, Natixis is a major player in mergers and acquisitions. Private Equity Magazine named Natixis Partners “Advisor of the year—M&A Large Cap” in 2018. Natixis and its affiliate Natixis Partners ranked fifth by number of deals as at December 31, 2018 (source: Mergermarket).
Internationally, Natixis strengthened its franchise across all three platforms: EMEA, the Americas and Asia-Pacific. By encouraging cooperation among the teams of its various offices, the bank is expanding support for French clients’ international operations and assisting international investors wishing to establish themselves on the markets covered by Natixis. In 2018, Natixis and Natixis Partners also advised the Chinese consortium comprising Fosun International Limited (“Fosun”) and Beijing Sanyuan Foods Co., Ltd. (“Sanyuan”) on the acquisition of a 100% stake in Group St Hubert. In the US, PJ SOLOMON assisted the Yves Rocher group in its acquisition of Arbonne International. Natixis also acted as Sole Underwriter and MLA/Bookrunner of the acquisition debt. It also carried out the currency hedging and part of the interest rate hedging.
As part of its strategy to concentrate its energies on strategic sectors (see Section 1.3.2.2), Natixis and its affiliates have deployed dedicated M&A teams to deliver optimum solutions to clients in these sectors.
Natixis’ Insurance division had 1,741 full-time equivalent (FTE) employees at the end of 2018, compared to 1,601 at the end of 2017. The Insurance business generated total revenue from direct sales of €12.0 billion in 2018.
The Group’s five biggest entities are: of the Insurance division with various resources necessary for operating insurance activities; BPCE Vie, a mixed life insurance company that offers aa comprehensive range of policies and agreements with commitments that are tied to the length of the policyholder’s life. BPCE Vie accounts for the majority of the Personal Insurance business’s workforce and provides the other entities
players, have led to significant changes in product and investment strategies: Over the last few years, the Insurance division has been operating in unprecedented market conditions: macroeconomic and financial shifts have resulted in the implementation of monetary policies with significant impacts on life insurance policies for retirement savings, and, to a lesser extent, the non-life insurance business. In particular, historically low interest rates, which are the main source of revenue for life insurance life insurance products have been aimed at improving thea sharing of outcomes among the various stakeholders in order to guarantee the right balance between sustainable business competitiveness and solvency protection in the medium term. Similarly, the Personal Insurance business line has responded to the sharp decrease of market interest rates by lowering the revaluations incorporated into its policies. This has allowed it to accumulate a significant profit-sharing reserve representing over a year of revalued outstandings at the end of 2018. This reserve could be used as a significant cushion to supplement “policy” revaluations over the next eight years; a variety of commercial initiatives targeted at end-customersa and the business provider networks, to increase the share of inflows and assets invested in unit-linked products; the steady decline in returns from traditional fixed-rate assetsa has led to a number of changes in asset management policy: the diversification of fixed-income investments towardsj private debt, the gradual reallocation of the equity compartment to sharesj generating recurrent dividends, taking advantage of entry points at end-2018, developing a compartment for unlisted investments inj private equity and real estate.
In addition, the insurance business is monitored via prudential and regulatory oversight, a process that has seen significant changes: the Solvency II Directive came into effect on January 1, 2016,a resulting in changes in organizational structure, operating procedures and the assessment of minimum solvency as required for developed activities. In the current context of historically low interest rates, this change constitutes a major challenge. The division prepared for this challenge by modifying its governance and risk management processes; similarly, 2018 saw new regulations come into force in thea insurance sector (PRIIPS, IDD, GDPR, easier termination of payment protection insurance), all of which are likely to lead to changes to products and operating procedures; finally, the upcoming entry into force of IFRS 9 and IFRS 17 willa oblige the Insurance division to adapt its financial and technical management. A project to achieve this was launched in 2017. On November 14, 2018, the International Accounting Standards Board voted in favor of postponing the entry into force of IFRS 9 and IFRS 17 from 2021 until 2022. IFRS 17 will be submitted for public consultation in 2019. Natixis Assurances is pushing ahead with efforts in preparation for the application of this standard.
Total revenue from direct sales climbed 1.3% relative to 2017, to €10.5 billion, driven by the Caisse d’Epargne network, strong momentum in personal protection insurance, and healthy trends in payment protection insurance. Assets under management were up 9.8% to €60.1 billion. Revenue from the personal protection insurance and payment protection insurance businesses totaled €886 million in 2018, up 8% compared to the previous year.
Specialized Financial Services at Natixis comprises two major business categories: Specialized Financing and Financial Services, with similar industry and distribution strategies.
Specialized Financing offers retail, professional and corporate customers a range of services to optimize their cash management or support their investment projects: Factoring, Sureties & Financial Guarantees, Leasing, Consumer Finance, and film and audiovisual financing.
In 2018, Natixis Factor posted annual factored turnover of nearly €59 billion, up 11%, and had a market share of close to 19% (source: ASF, September 30, 2018).
With nearly 2,400 new contracts signed this year, Natixis Factor affirmed its leading position and consolidated its historical development strategy: to support companies, from professionals to major corporate clients. Its client satisfaction rate was 89% at the end of 2018.
ProZen, a simple, à la carte, commitment-free way for professionals to access factoring, was launched in 2018 to meet changing customer expectations in an increasingly digital world.
The insurance company Compagnie Européenne de Garanties et Cautions (CEGC) is Natixis’ guarantee and surety platform for multiple business lines.
Bank loan sureties secure financing for individuals (mortgage guarantees), professionals (business start-ups or transfers, equipment, commercial property) and social economy and social housing operators (medium- and long-term loan sureties). The contractual, tax or regulated financial guarantees are used to help companies in their development. Financial guarantees to real estate businesses protect consumers or secure transactions in accordance with regulations that are specific to certain trades: guarantees to single-family home builders and real estate developers, guarantees to property managers and real-estate agents.
CEGC ranks second in the French market for mortgage guarantees for individuals (source: internal CEGC survey) and guaranteed over €30 billion in loans in 2018 in a declining market despite persistently low interest rates. Banque Populaire retail customers can now take out guarantees on their mortgages online.
CEGC is a leading player in the property administration, third-party management of retail and office space, and residential sector market, issuing over 7,000 guarantees in 2018 with a volume of nearly €7.9 billion. In 2018, it also guaranteed the completion of more than 19,000 individual homes in France. In addition, a new “construction insurance” product for single-family home builders was developed in 2018 for launch in January 2019.
CEGC is also present on the business market thanks to its digital offering in market sureties management solutions, with more than 104,000 guarantees issued in 2018, up 13%.
New leases were up by 12% to €4.0 billion, resulting in an average outstanding amount of €13.1 billion (up 7%).
With over €353 million in leases arranged, Energeco completed many innovative deals on the French market.
At December 31, 2018, outstanding loans stood at €24.6 billion, up 8% year-on-year, consolidating the Company’s No. 3 spot on the French market (source: internal Natixis Financement survey).
New financing totaled €520 million in 2018. In descending order, the loans mainly went towards financing cinematographic works,
The employee savings offer tailored to SMEs and professionals, distributed by the Banque Populaire and Caisse d’Epargne networks, delivered another strong performance with 15,480 new contracts. To further optimize the client experience, Natixis Interépargne has based its innovation approach on feedback from companies and PERCO clients and on the co-creation of new services. As part of its firm commitment to the digital transformation of its processes and offerings, Natixis Interépargne offers PERCO clients a comprehensive range of digital services and online tools (virtual advisor, simulation tools, smartphone and tablet applications enabling mobile transactions, etc.). In 2018, it set up a new website for savers that is clearer and easier to navigate and is trialing personalized online savings management advice with a small number of pilot customers.
Its adaptive, secure products and services are built using more than 30 years of payment industry experience and the innovative ability of fintechs that Natixis Payments has created, acquired or selected as partners. Its activities are organized into three business lines: Merchant Solutions, Prepaid & Managed Consumer Solutions and Services & Processing.
and developing the B2B business of its fintech Lakooz (Le Pot Commun).
The SNCF group chose to partner with Natixis to develop its Personal Mobility Assistant App aimed at providing its customers with a single payment solution. As a major player in connected payment services across the entire payment value chain, Natixis Payments provides a critical component for the Personal Mobility App, which will allow customers to research, book and approve all their transport needs in one app.
Finally, Natixis Payments has adopted Nexo’s international payment acceptance standards. These free, universally applicable standards make it possible for Natixis to quickly design new services, such as in-flight mobile payment for airlines.
Coface, a global expert in trade risk prevention and guarantees for corporate clients 70 years of experience and a dense geographic network have made Coface a benchmark in credit insurance, risk management and the global economy. The experts at Coface, which aims to become the most agile credit insurance partner in its industry, operate in the heart of the global economy. They help their 50,000 customers build successful, dynamic, and growth-oriented companies by protecting them from the risk of financial default by their clients. Coface’s services and solutions protect companies and help them make the necessary credit-related decisions to strengthen their ability to sell their products on both domestic and export markets.
Speaking at its Country Risk Conference in Paris, on January 23, 2018, Coface introduced a new corporate slogan: Coface For Trade.
At a meeting of Coface S.A.'s Board of Directors on June 15, 2018, the CEO of Natixis, François Riahi, was co-opted as Director and subsequently elected Chairman of the Board. He replaces Laurent Mignon, who is leaving Coface S.A.'s Board of Directors to focus on his new responsibilities at Groupe BPCE.
The new organization system is based on three pillars: a new Business Technology (BT) Department, created from thea merger of the IT Services Department and the Operations Management Department, headed by Keyvan Shamsa; the creation of a Transformation Office for project planning anda Lean management, headed by Nicolas de Buttet, who will report to Thibault Surer, Director of Strategy and Business Development; and the introduction of the new roles of sponsor (at Managementa Committee level and for each field of operations) and product owner, tasked with linking projects to strategic targets.
Bolstered by its investments in risk management, Coface will be pushing forward with its disciplined underwriting policy, while bearing in mind the sensitivity of its credit insurance business to major claims, which can account for a sizable share of quarterly profit.
Coface still has its sights set on filing for registration of its internal required solvency model in the summer of 2019. Talks are now underway with the regulator regarding this issue.
This estimated solvency ratio constitutes a preliminary calculation made according to Coface’s interpretation of Solvency II regulations. The result(1) of the definitive calculation may differ from the preliminary calculation. The estimated solvency ratio is not audited.
Natixis and its shareholders1.4 KEY SHARE DATA AT DECEMBER 31, 20181.4.1
The program of activities for 2018 included three Natixis events and four themed events: an information meeting about Natixis in Nantes in partnershipa with the Federation of Individual Investors and Investment Clubs (F2iC); two live online video chat sessions where individual investorsa could ask Natixis’ Director of Investor Relations questions about the Bank, its business lines, its financial results and its strategy; four themed presentations, in the form of web conferencesa and video chats, which gave our shareholders the opportunity to talk to the Chief economists from Natixis Global Market Research and Ostrum Asset Management Economic Research and to a representative from the École de la Bourse.
As part of the bank’s Sponsorship and Patronage Program, members of the Shareholder Club were invited to attend sporting and cultural events throughout the year, with nearly 500 tickets awarded for rugby matches in nine French cities. They also had the opportunity to visit the backstage of the Garnier Opera House and attend a concert by the Paris Orchestra at the Paris Philharmonic Hall.
In 2018, following the changes in Natixis’ executive officersa on June 1, 2018, namely the appointment of François Riahi as Chief Executive Officer to replace Laurent Mignon who became Chairman of the Board of Directors, the CCAN met the Natixis Board Secretary, Aline Braillard, who gave an overview of governance at Natixis. She described the organization and duties of the Corporate Governance Department.
Afep-Medef Corporate Governance Code, which Natixis refers to, and the participation of employees or foreign directors on the Board.
Call for applications Throughout the year, interested shareholders are invited to put forward their application.
Laurent Mignon gave a presentation on the accomplishments of the New Frontier strategic plan, which was completed in late 2017. His discussion focused on the strategic ambitions of the New Dimension plan for 2018-2020 which is intended to sustain the success achieved by the New Frontier plan through differentiation from other banks through its expertise that will generate long-term added value. Mr Mignon concluded his presentation with a statement on Environmental and Social Responsibility, one of the pillars of the New Dimension plan. Natixis’ strategy is to manage the environmental and social risks arising from its activities and to support its clients in their long-term transition to a sustainable model.
PRESENTATION OF NATIXIS Natixis and its shareholders 35Natixis Registration Document 2018
Laurent Mignon then presented the financial statements and the highlights of 2017, followed by the results for the first quarter of 2018.
After presenting Natixis’ corporate governance and the work carried out by the Board of Directors in 2017, François Pérol explained his reasons for resigning as Chairman of the Groupe BPCE Management Board and Chairman of the Natixis Board of Directors after nearly 10 years in office. He will be replaced by Laurent Mignon who will in turn be replaced by François Riahi as Chief Executive Officer of Natixis. Mr Riahi was introduced to the shareholders.
After the presentation on Natixis’ corporate governance, François Pérol gave the floor to Compensation Committee Chairman, Nicolas de Tavernost, who reported on the work of the Committee and detailed the compensation of the directors and the regulated population. Among other things, he presented information on executive officers’ compensation under Sapin II and changes in governance.
Environmental and Social Responsibility (ESR);a the impact of softer US banking and tax regulations ona Natixis; the financing of projects involving oil derived from oil sands;a
The webcast and presentation of the General Shareholders’ Meeting are available for five years on the Natixis website’s Investors & Shareholders section under the heading “Shareholders’ Meetings”.
Two awards in 2018—Agefi’s Shareholder Democracy Award and Le Revenu’s Gold Trophy for Best Shareholder Services Natixis’ Individual Shareholder Relations team received two awards in 2018.
Natixis was also awarded Le Revenu magazine’s Gold Trophy for Best Shareholder Services in the SBF 120 Companies category (excluding the CAC 40) (after winning the Bronze Award in 2016 and the Silver Trophy in 2017).
The award recognizes new, creative and proactive solutions developed by shareholder services teams to continuously improve shareholder relations and facilitate contact.
Both of these awards recognize the efforts made by Natixis’ Shareholder Relations team to serve its individual shareholders.
The Investor Relations Department provides information and resources to analysts and investors. To this end, a variety of sources is used: formal informational meetings during major events (publication of annual, interim and quarterly financial statements, etc.), road shows, conference calls and one-on-one interviews. The materials used in these meetings (press releases, presentations, etc.) as well as any other additional information (financial calendar, regulated information, corporate governance, Annual General Shareholders’ Meeting, etc.) are available on Natixis’ website in the Investor Relations section.
POLICIES AND RULES 2.4 ESTABLISHED FOR DETERMINING COMPENSATION AND BENEFITS OF ANY KIND FOR CORPORATE OFFICERS 89 Compensation and benefits of any kind for 2.4.1 members of the Board of Directors 89
Compensation and benefits of any kind for 2.4.2 the Chairman of the Board of Directors and the Chief Executive Officer 89
Principles and criteria for determining, 2.4.3. distributing and awarding fixed, variable and non-recurring items making up the total compensation and benefits of any kind attributable to the Chairman of the Board of Directors and the Chief Executive Officer 93
This chapter partially corresponds to the Board of Directors report on corporate governance as required by the Article L.225-37 of the French Commercial Code (refer to the cross-reference table for the management report in Chapter 8 of this registration document) and includes information on the composition of the Board and the conditions under which its work is prepared and organized, how its governance is structured, and its policy for compensating corporate officers.
2.1 Natixis Governance at March 1, 2019 STRUCTURE OF THE BOARD OF DIRECTORS
(1) The term “Chief Executive Officer” is not used as it is defined in Article L.225-66 of the French Commercial Code.Directors Attendants to the BoardIndependent Director
David Giunta – U.S. and Canada/Natixis Investment Managers (Asset and Wealth Management)
All directors are members of the Strategic Committee, which is chaired by Anne Lalou.
A graduate of the Ecole Centrale de Paris school of engineering, Sciences Po and the Stanford Executive Program, François Riahi began his career as an inspecteur des Finances (auditor) in the French government's Inspection Générale des Finances from 2001 to 2005, before joining the government’s Budget Department. In 2007 he was appointed Advisor on the Reform of State Institutions and Public Finances to the President of the French Republic. He joined Groupe BPCE in March 2009, becoming its Deputy Chief Executive Officer in charge of Strategy. In May 2012 he took over as head of the Asia-Pacific platform of Natixis' Corporate & Investment Banking division based in Hong Kong. In February 2016 he was appointed a member of Natixis' Senior Management Committee as Global co-head of Corporate & Investment Banking. In January 2018 François Riahi was appointed to the Groupe BPCE as the member in charge of Finance, Strategy, Legal Affairs and Secretary’s Office of the Governing Bodies.
Member of the Board of Peter J. Solomon Company LLC (sincea 01/06/2018)
Chairman of the Supervisory Board of Natixis Pfandbriefbank AG (froma 01/06/2016 to 28/02/2018)
Member of the Board of: Natixis North America LLC (from 31/05/2016 toa 15/01/2018), Peter J. Solomon Securities Company LLC (since 31/05/2018)
Permanent Representative of Natixis, Director of Natixis Coficiné (froma 09/01/2017 to 07/02/2018)
Permanent Representative of BPCE, Member of the Board of: Crédita Foncier de France (from 01/01/2018 to 31/05/2018), CE Holding Participations (from 01/01/2018 to 31/05/2018)
Member of the Board of: Natixis Asia Limited a (since 04/09/2012) � (until 23/09/2016)
Permanent Representative of a BPCE, Member of the Supervisory Board of Banque Palatine (from 14/06/2011 to 14/02/2014)
CORPORATE GOVERNANCE Additional information on the directors’ positions 41Natixis Registration Document 2018
François Pérol is a graduate of the HEC business school and Sciences Po and alumnus of the École Nationale d’Administration who started his career at the French government's Inspection des Finances. He held various positions at the Ministry of the Economy and Finance, beginning with the Treasury Department (1994-2002), and then on the Cabinets of Ministers Francis Mer and Nicolas Sarkozy (2002-2004). He then left the administration to join Rothschild & Cie Banque as Managing Partner from 2005 to 2007. François Pérol was appointed Deputy Secretary General to the President of the French Republic from 2007 to 2009.
Key advisory skills: expertise in strategy for banking and financial institutions, and in the French and international economic and financial environment.
Chairman of CE Holding Participations (formerly CE Holding Promotion)a (from 30/06/2010 to 06/06/2018)
Member of the Board of Directors of Sopassure (from 23/03/2009 toa 18/06/2018)
Permanent Representative of BPCE Maroc, Member of the Board ofa Banque Centrale Populaire(1) (from 2012 to 31/05/2018)
Member of the Board of CNP Assurances(1)(2) (from 21/04/2009 toa 01/06/2018)
Member (since 2009) then a Vice-Chairman (since September 2013) of the Executive Committee of the Fédération Bancaire Française then Chairman (since 01/09/2014) � (until 31/08/2015)
Chairman of the European Savings a and Retail Banking group � (until 12/06/2015)
First appointed: Co-opted by the Board of Directors and appointed Chairman of the Board on June 1, 2018
Chairman of the Board of Directors of: Natixis Investment Managersa (from 01/09/2010 to 01/06/2018), Coface SA(1) (from 22/11/2012 to 15/06/2018), Natixis Assurances (from 23/03/2017 to 07/06/2018)
Member of the Board of: Arkema(1) (since 27/10/2009), AROPa (Association pour le Rayonnement de l'Opéra National de Paris) (since 10/12/2015), CNP Assurances(1) (since 01/06/2018)
Member of the Board of Lazard a Ltd(1) (2) (since 28/07/2009) � (until 19/04/2016)
CORPORATE GOVERNANCE Additional information on the directors’ positions 43Natixis Registration Document 2018
Member of the Groupe BPCE Management Board in charge of Human Resources
Strategic Committee: Catherine Halberstadt has a postgraduate degree in Accounting and another in Business, Administration and Finance from the École Supérieure de Commerce de Clermont-Ferrand. In 1982, she joined Banque Populaire du Massif Central, where she was successively Head of Human Resources, Chief Financial Officer, Chief Operations Officer and, as of 2000, Deputy Chief Executive Officer. In 2008, Catherine Halberstadt became Chief Executive Officer of Natixis Factor.
Key advisory skills: expertise in Human Resources issues, extensive knowledge of retail banking and business financing.
Chairwoman of the Audit a Committee of Bpifrance Financement(2) (since 2013) � (until 24/09/2015)
Member of the Supervisory Board a (since 04/04/2012) and Risk Committee of BPCE (since 2013) � (until 16/11/2015)
Chief Executive Officer of Banque a Populaire du Massif Central (BPMC) (since 1/09/2010) � (until 25/03/2016)
Permanent Representative of a BPMC, Member of the Board of: I-BP, Association des Banques Populaires pour la Création d’Entreprise (since 1/09/2010) � (until 25/03/2016)
CORPORATE GOVERNANCE Additional information on the directors’ positions 45Natixis Registration Document 2018
Thierry CAHN Chairman of the Board of Directors of Banque Populaire Alsace Lorraine Champagne
First appointed: co-opted by the Board of Directors on January 28, 2013 and ratified at the AGM of May 21, 2013
Thierry Cahn holds a Professional Lawyers’ Certificate (Certificat d’Aptitude a la Profession d’Avocat – CAPA) and joined the firm Cahn et Associés in 1981. In 1984, he joined the General Council of the Colmar Bar (Conseil de l’Ordre des Avocats de Colmar) of which he is still a member. In 1986, he was named Secretary General to the National Lawyers’ Association (Confédération Nationale des Avocats), which he chaired from 1995 to 1996, before becoming Chairman of the Colmar Bar Association from 1998 to 1999. In addition, since 1985 he has been Head Tutor at the Institut Universitaire de Technologie (IUT) de Haute Alsace and the CRFPA d’Alsace.
Chairman of the Board of Directors of Banque Populaire Alsacea Lorraine Champagne (since 30/09/2003)
Born April 6, 1957 Nationality: French Natixis shares held: 1,000 Address: 33-43 avenue Georges Pompidou 31135 Balma Cedex
Alain Condaminas has a Master’s Degree in Economics and a postgraduate degree in Finance and Banking Techniques. He joined Groupe Banque Populaire in 1984. In 1992, he began working at Banque Populaire Toulouse-Pyrénées as Head of Production, supervising the Human Resources Department, and subsequently as Head of Operations. In 2001, he became Chief Executive Officer of Banque Populaire Quercy-Agenais. In 2003, he oversaw a merger with Banque Populaire du Tarn et de l’Aveyron, then a second merger in 2006 with Banque Populaire Toulouse-Pyrénées to create today’s Banque Populaire Occitane.
Permanent Representative of BP Occitane, Member of the Board of:a i-BP (since 2001), BP Développement (since 19/06/2018)
Permanent Representative of BP Occitane, Manager of SNC Immocarsoa (from 2007 to 29/10/2018)
Permanent Representative of BP a Occitane, Vice-Chairman of the Board of Directors of CELAD S.A.(2) (from 2008 to 01/06/2014)
Born October 1, 1960 Nationality: French Natixis shares held: 1,001 Address: 116 Cours Lafayette - BP 3276 69404 Lyon Cedex 03
With a degree in Agricultural Economics from IAE de Paris (Sorbonne Business School) and a degree in Accounting Studies, Alain Denizot began his career at Crédit du Nord before moving on to SG Warburg France, followed by Société Marseillaise de Crédit. In 1990, he joined Caisse d’Epargne Île-de-France-Ouest as manager then Head of Financial Management. In 1995, he joined the Management Board as the Member in charge of the Risk and Finance Department, then became the Member of the Management Board in charge of the Network and Development in 1999. He joined Caisse d’Epargne de Flandre in 2000 as Chief Executive Officer and Member of the Management Board in charge of the Network and Banking Development. In 2003, he was appointed Chief Executive Officer of Ecureuil Assurance IARD. He was later appointed Chairman of the Management Board of Caisse d’Epargne de Picardie in early 2008. In 2011, he joined Caisse d’Epargne Nord France Europe, now Caisse d’Epargne des Hauts de France (CEHDF), as Chairman of the Management Board. From May 6, 2013 to May 22, 2015, Alain Denizot was a Member of the Supervisory Board and a Member of the Audit and Risks Committee of BPCE.
Chairman of the Management Board of Caisse d’Epargne des Hauts dea France (formerly CENFE) (from 06/08/2011 to 11/11/2018)
Chairman of the Board of Directors of Banque du Léman (Switzerland)a (since 30/11/2018)
Member of the Supervisory Board and Risk Committee of BPCE (sincea 20/12/2018)
Member of the Board of: Natixis Factor (since 13/10/2010), FNCE (sincea 02/05/2017)
Permanent Representative of CEHDF, Member of the Board of: Hainauta Immobilier SA (from 17/06/2014 to 11/11/2018), BPCE IT (from 17/07/2015 to 11/11/2018), Erilia (from 20/06/2016 to 11/11/2018),
Permanent Representative of CEHDF, Member of the Supervisory Boarda of IT-CE (from 31/12/2011 to 11/11/2018)
Member of the Board of SA Euratechnologies (from 29/06/2017 toa 11/11/2018)
Permanent Representative of CEHDF, Member of the Board of Finorpaa SCR and Finorpa Financement (from 30/06/2016 to 11/11/2018)
Member of the Supervisory Board a of Ecureuil Crédit (from 20/02/2008 to 2014)
Liquidator of Université du Groupe a Caisse d’Epargne (from 06/04/2010 to 2014)
Chairman of the Supervisory a Board of Immobilière Nord France Europe (since 29/11/2000) � (until 30/12/2015)
Permanent Representative of CE a Holding Promotion, Member of the Board of Habitat en Région Services and Valoénergie � (until 01/09/2015)
Permanent Representative of a CENFE, Chairman of: Finorpa Conseil(2), Finorpa Financement(2) (Regional Board transition since 14/12/2015) � (until 30/06/2016)
Member of the Board and a Treasurer of Fondation Caisses d’Epargne pour la Solidarité (since 16/12/2015) � (until 18/10/2016)
CORPORATE GOVERNANCE Additional information on the directors’ positions 49Natixis Registration Document 2018
Born September 19, 1955 Nationality: French Natixis shares held: 1,000 Address: 10 quai des Queyries 33072 Bordeaux Cedex
A graduate of the École Supérieure de Commerce, d’Administration et des Entreprises de Bordeaux, Bernard Dupouy became a Member of the Board of Directors of Banque Populaire du Sud-Ouest (BPSO) in 1996. He was appointed Secretary in 2006, then Vice-Chairman in 2009. In November 2011, BPSO became Banque Populaire Aquitaine Centre Atlantique (BPACA). Bernard Dupouy subsequently became Deputy Vice-Chairman, then Chairman of the Board of Directors in January 2015.
In addition, Bernard Dupouy served as a Member of the Board of Crédit Maritime Mutuel du Littoral Sud-Ouest from 2012 to 2015, then became a Permanent Representative of BPACA, member of the Board of Crédit Maritime and, starting in 2012, Chairman of the Audit, Risk and Accounting Committee until June 4, 2018, when that entity was merged into BPACA.
A well-known entrepreneur in the Aquitaine region, Bernard Dupouy is the Chief Executive Officer of DUPOUY S.A., a company specialized in exports and distribution in French overseas territories. He is also Member of the Board of Congrès et Exposition de Bordeaux and of Union Maritime du Port de Bordeaux.
Chairman of the Board of Directors of Banque Populaire Aquitainea Centre Atlantique (BPACA) (since 27/01/2015)
Member of the Supervisory Board, the Appointments Committee anda the Compensation Committee of BPCE (since 02/08/2018)
Elected member of the Bordeaux Chamber of a Commerce and Industry(1) (since 2006) � (until 23/11/2016)
First appointed: co-opted by the Board of Directors on December 20, 2018
Key advisory skills: in-depth knowledge of retail banking, IT concerns and securities.
Permanent Representative of CELC, Chairwoman of the Board ofa Directors of: BPCE Trade (since 30/06/2017), Ecureuil Crédit (since September 2008),
Chairwoman of the Board of Directors of: BPCE Services Financiersa (since 17/12/2013), Association "Les Elles du Groupe BPCE" (since 01/10/2014),
CORPORATE GOVERNANCE Additional information on the directors’ positions 51Natixis Registration Document 2018
A graduate of the SKEMA Business School, Sylvie Garcelon joined the Internal Audit Department of Banque Populaire Group in 1987. In 1994, she became Corporate Secretary at SBE before joining the Finance Department of BRED in 2000. In 2003, she joined Natexis where she held positions first in Third-Party Asset Management and then at the Information Systems and Logistics Department. In 2006, she was appointed Chief Executive Officer of M.A. Banque, and then Chairwoman of the Management Board in 2010. Sylvie Garcelon joined CASDEN Banque Populaire in April 2013 as Deputy CEO in charge of Finance, Risk and Subsidiaries.
Chief Executive Officer of Bureau a du Management Financier (absorbed by CASDEN in 2017) (since April 2013) � (until November 2017)
Born December 6, 1963 Nationality: French Natixis shares held: 1,000 Address: 59 rue Nationale 75013 Paris
First appointed: co-opted by the Board of Directors on February 18, 2015 and ratified at the AGM of May 19, 2015
Key advisory skills: entrepreneurial experience, expertise in areas relating to M&A, finance, IT and corporate strategy.
Member of the Supervisory Board a of Medica(2) (from March 2012 to March 2014)
Member of the Board of Kea & a Partners(2) (since December 2013) � (until 09/02/2015)
CORPORATE GOVERNANCE Additional information on the directors’ positions 53Natixis Registration Document 2018
In 1999, she became a founding director of local savings company SLE de Cannes, before being elected as its Chairwoman in 2009. She sat on the Steering and Supervisory Board of Caisse d'Epargne Côte d'Azur as a Non-Voting Member, then from 2009 as Chairwoman of the LSC, joining the Audit Committee at the same time. Françoise Lemalle was appointed Steering and Supervisory Board Chairwoman on April 23, 2015.
She has also been a member of the BPCE Supervisory Board since May
Member of the Steering and Supervisory Board of Caisse d’Epargnea Côte d’Azur (since 2013) and then Chairwoman (since April 2015)
Permanent Representative of Caisse d’Epargne Côte d’Azur, Member ofa the Board of FNCE (since April 2015)
Member of the Board and of the Audit Committee of: IMF Créa-Sola (since July 2013)
With a degree from the École Polytechnique, Bernard Oppetit forged his career with the Paribas group from 1979 to 2000, first in Paris, then New York and finally London.
As Deputy Director of the Financial Management division (1980-1987), Bernard Oppetit joined Paribas North America first as a Risk Arbitrage Trader (1987-1990) and then as Global Head of Risk Arbitrage (1990-1995). In 1995, while still heading up Risk Arbitrage, he moved to London to become Global Head of Equity Derivatives (1995-2000).
Key advisory skills: renowned financial markets specialist, with entrepreneurial experience in Europe.
Member of the Board of: Centaurus Capital Holdings Limited, Centaurusa Global Holding Limited, Centaurus Management Company Limited, Centaurus Capital group
Member of the Board and Chairman of the Cnova(1) Audit Committeea (since 20/11/2014)
Member of the Supervisory Board a of HLD(2) (since 2011) � (until 12/02/2015)
Member of the Board a of Emolument Ltd(2) (from 25/09/2014 to 17/11/2014)
Trustee of the École Polytechnique a Charitable Trust � (until 01/11/2017)
Trustee of The Academy a of St Martin-in-the-Fields (since June 2016) �(until 01/11/2017)
CORPORATE GOVERNANCE Additional information on the directors’ positions 55Natixis Registration Document 2018
A graduate of Sciences Po with a postgraduate degree (DESS) in corporate tax law from Université Paris-Dauphine, Stéphanie Paix has been with Groupe BPCE since 1988.
Stéphanie Paix has been Chairwoman of the Management Board of Caisse d’Epargne Rhône Alpes since end-2011. She is now the Deputy Managing Director in charge of Groupe BPCE’s General Inspection.
Chairwoman of the Board of Directors of Banque du Léman (Switzerland)a (from 2013 to 12/11/2018)
Chairwoman of the non-profit association Le B612 (from 2016 toa 12/11/2018)
Member of the Board of CE Holding Participations (from 09/09/2015 toa 12/11/2018)
Permanent Representative of CERA, Manager of: SCI dans la ville (froma 16/05/2014 to 12/11/2018), SCI Garibaldi Office (from 16/05/2014 to 12/11/2018), SCI Lafayette Bureaux (from 16/05/2014 to 12/11/2018), SCI le Ciel (from 16/05/2014 to 12/11/2018), SCI le Relais (from 19/05/2014 to 12/11/2018)
Chairwoman of the Comité Régional des Banques de Rhône Alpes a (from 13/09/2017 to 12/11/2018)
Non-Voting Member of Société des Trois Vallées (from 2012 to 12/11/2018)a
Member of the 4th College of the French Economic, Environmental anda Social Council (Conseil économique social et environnemental régional CESER ) (from 01/01/2018 to 12/11/2018)
(a) 2020 AGM convened to approve the financial statements for the year ended December 31, 2019.
CORPORATE GOVERNANCE Additional information on the directors’ positions 57Natixis Registration Document 2018
Born August 22, 1953 Nationality: French Natixis shares held: 1,000 Address: 19 rue Ginoux 75015 Paris
Other offices held in 2018 and 2019: Member of the Board of Directors of Banque PSA Finance (sincea 22/02/2019)
Member of the Supervisory Board of a Eurodisney SCA(1)(2) (since 17/02/2016) � (until 13/09/2017)
Member of the Supervisory Board of a Eurodisney Associés SCA(2) (since 17/02/2016) � (until 13/09/2017)
Born November 26, 1961 Nationality: French Natixis shares held: 93 Address: 15, avenue de la jeunesse CS30327 44703 Orvault Cedex
A graduate of ISC Paris Business School, ITB (Institut Technique Bancaire) and ICG IFG (Institut Français de Gestion), Christophe Pinault began his career in 1984 at Banque Populaire Anjou-Vendée before moving to Crédit Agricole Mayenne and Crédit Mutuel Anjou.
In 2002, he joined Caisse d'Epargne des Pays de la Loire as Head of the Network and then Member of the Management Board in charge of Development. He then joined Crédit Foncier in 2007 as Deputy Managing Director in charge of Development. In 2013, he was appointed Chairman of the Management Board of Caisse d’Epargne Côte d'Azur.
Key supervisory skills: expertise in internal control, risk, disputes, and in-depth knowledge of the banking business
Chairman of the Management Board of Caisse d’Epargne Bretagnea Pays de Loire CEBPL (since 27/04/2018)
Permanent Representative of CEBPL, Member of the Board of GIE IT-CEa (since 14/05/2018)
Permanent Representative of CEBPL, Non-Voting Member of ERILIAa (from 14/05/2018 to 12/11/2018)
Member of the Supervisory Board of: Seventure Partners (sincea 25/07/2016), Alliance Entreprendre SAS (since 29/06/2016)
CORPORATE GOVERNANCE Additional information on the directors’ positions 59Natixis Registration Document 2018
In 2005, he was also named Chairman of the School Council of his alma mater, HEC Paris.
Key advisory skills: a nationally and internationally renowned industrialist, with expertise in large corporations and strategic issues.
Other offices held in 2018: Chairman of Henri Proglio Consulting SAS (since 09/01/2015)a
Member of the Board of: Dassault Aviation(1) (since 2008), ABRa Management Russia (since 2014), Akkuyu Nuclear JSC (Turkey) (since 2015), Atalian (since 01/09/2017), FCC (since 27/02/2015)
French Monetary and Financial Code: compliant * Member of the Supervisory Board of Natixis (from November 17, 2006 to April 30, 2009).
Member of the Board of FCC (1) (2) a Spain (from 27/05/2010 to 22/09/2014)
Member of the High Commission a for Transparency and Information on Safety in Nuclear Facilities (from 25/11/2009 to 22/11/2014)
Member of the National a Commission for Sectors of Vital Importance (from 08/12/2009 to 17/02/2014)
Chairman of EDF Energy Holdings a Ltd(2) (from 08/03/2010 to 22/11/2014)
Member of the Board of South a Stream Transport BV(2) (from 13/11/2012 to 26/11/2014) Vice-Chairman of the Eurelectric a association (Belgium) (from 03/06/2013 to 25/11/2014)
Member of the Board of Thales(2) a (since 23/12/2014) � (until 13/05/2015)
CORPORATE GOVERNANCE Additional information on the directors’ positions 61Natixis Registration Document 2018
Born August 22, 1950 Nationality: French Natixis shares held: 1,000 Address: 89 avenue Charles de Gaulle 92575 Neuilly sur Seine Cedex
A graduate of Sciences Po Bordeaux and holder of a DES in public law, Nicolas de Tavernost began his career in 1975 with the cabinet of Norbert Ségard, Secretary of State for Foreign Trade, and then continued with French Postal Services and Telecommunications. In 1986, he took over as Head of Audiovisual Operations at Lyonnaise des Eaux, during which time he oversaw plans to create M6. In 1987, he was appointed Deputy CEO of Métropole Télévision M6, where he has served as Chairman of the Management Board since 2000.
Member of the Board of the Football Club des Girondins de Bordeauxa (from 2001 to 06/11/2018)
Permanent Representative of M6 Publicité, Member of the Board ofa Directors of: Home Shopping Service SA (since 2013), M6 Diffusion SA (since 2013), M6 Editions SA, M6 Événements SA (since 15/03/2012)
Permanent Representative of Metropole Télévision (since 09/07/2018),a Chairman of M6 Digital Services, Chairman of M6 Hosting (since 09/07/2018)
Member of the Board of Nexans a SA (1) (2) (from May 2007 to 31/03/2014)
Permanent Representative of a Home Shopping Service(2), Member of the Board of MisterGooddeal SA(2) (from 2013 to 31/03/2014)
Permanent Representative of a Métropole Télévision(2), Chairman of: M6 Toulouse SAS(2) (from 2001 to 01/01/2014), TCM DA SAS (since 27/06/2013) � (until 20/11/2017)
Chairman of the Groupe M6 a Fondation d’Entreprise(2) (since 2009) � (until 12/07/2016)
(a) 2021 AGM convened to approve the financial statements for the year ending December 31, 2020.
French 01/01/2018 2019 AGM Expertise in Human Resources issues; extensive knowledge of retail banking and business financing
French 31/07/2013 2021 AGM Proficiency in strategic, management and business development issues
French 10/02/2016 2020 AGM Expertise in financial management and corporate strategy
French 01/08/2017 2019 AGM Expertise in business administration, with in-depth knowledge of retail banking, the regional economy and French overseas territories
Nicole Etchegoïnberry 62 N/A French 20/12/2018 2020 AGM In-depth knowledge of retail banking, IT concerns and securities.
Age Attendance rate at Board Meetings and Committees in 2018 Nationality
French 30/04/2009 2019 AGM Extensive knowledge of local and regional authorities
This report was prepared pursuant to Article L. 225-37 of the French Commercial Code.
In accordance with the “apply or explain” rule provided for in Article L.225-37-4 of the French Commercial Code and addressed in Article 27.1 of the Afep-Medef code, Natixis believes that its practices comply with the recommendations of the Afep-Medef code. However, certain recommendations could not be implemented for the reasons given in the table below: SUMMARY TABLE ON COMPLIANCE WITH AFEP-MEDEF CODE RECOMMENDATIONS: R IMPLEMENTATION OF THE “APPLY OR EXPLAIN” RULE
“The proportion of independent directors on the audit committee should be at least equal to two-thirds...”
CORPORATE GOVERNANCE Management and oversight of corporate governance 67Natixis Registration Document 2018
As of November 17, 2018,* the Compensation Committee no longer mostly consists of independent directors.
It must be noted that Natixis does not have an executive director: François Riahi is the Chief Executive Officer of Natixis but not an executive director.
“The non-competition benefit must be paid in installments during its term.”
This is because the commitments made to the Chief Executive Officer when he was appointed by the Board of Directors on May 2, 2018 were made before the publication of the revised Afep-Medef code on June 21, 2018 that included this provision. Natixis will review the matter of complying with this provision when François Riahi is reappointed.
See comment on Henri Proglio with respect to Article 8.3 of the Afep-Medef Code*
At the Combined Shareholders' Meeting of April 30, 2009, Natixis changed its form of governance from a French société anonyme (a public limited company) with a Supervisory Board and a Management Board to a French société anonyme with a Board of Directors.
Following the merger of Banque Fédérale des Banques Populaires (BFBP) and Caisse Nationale des Caisses d'Epargne (CNCE) that resulted in the creation of BPCE, Natixis has been majority-owned by BPCE since August 1, 2009. As of December 31, 2018, BPCE held a 71% stake in Natixis.
As indicated above, Natixis’ Board of Directors had 15 members at March 1, 2019. The members are divided up as follows: two members from BPCE, namely Laurent Mignon and BPCEa itself, represented by Catherine Halberstadt; four members from the Banque Populaire banks, namelya Sylvie Garcelon, Thierry Cahn, Alain Condaminas and Bernard Dupouy; four members from the Caisse d’Epargne, namelya Françoise Lemalle, Nicole Etchegoïnberry, Christophe Pinault and Philippe Sueur; four independent members, namely Anne Lalou,a Catherine Pariset, Bernard Oppetit and Nicolas de Tavernost.
Henri Proglio, who was considered an independent membera until November 17, 2018.
The four independent directors at Natixis are: Catherine Pariset (since released from her professional duties); Anne Lalou (Dean and Managing Director of Web School Factory, Managing Director of Innovation Factory); Bernard Oppetit (Chairman of Centaurus Capital Limited, which he founded); and Nicolas de Tavernost (Chairman of the Management Board of Groupe M6).
As is the case every year, at its meeting of December 20, 2018, and following the report submitted by the Appointments Committee, Natixis’ Board of Directors examined each director’s expertise, judgment and freedom of thought and expression and, more specifically, whether they fit the independence criteria recommended by the Afep-Medef code and the criteria in the Board’s Internal Rules (see 2.3.1.2 “Role and Powers of the Board of Directors”).
In particular, the Board of Directors focused on the appraisal of whether the companies in which the independent directors hold corporate office have a significant business relationship with Natixis or its corporate group.
To this end, the Board of Directors analyzes a range of indices, criteria and parameters including the duration, extent and nature of the banking, trade or consulting relationships; the volume of commitments and the weight of Natixis compared to total indebtedness; and the Company’s liquidity requirements.
Based on this review, it determined that Natixis is not the “reference banker” for the companies in which its independent directors exercise their executive duties or corporate offices.
successor is chosen. The Board of Directors acknowledged this commitment and asked Henri Proglio to continue to allow the Company to benefit from his experience by agreeing to be appointed as a non-voting director. This appointment will come into effect when Henri Proglio ends his current term of office as a Board member.
Depending on the progress made in selecting a new director, the Board of Directors may prepare additional draft resolutions to be submitted to the May 28, 2019 meeting that implement the proposed changes. If necessary, this report will be discussed in a companion report that provides details on the proposed changes.
Cannot be or have been during the last five years: an employee or executive corporate officer of Natixis;a an employee, executive corporate officer or director of a a company consolidated by Natixis; an employee, executive corporate officer or director of a BPCE or of a company consolidated by BPCE
Has not been a Board member of the Company for more than 12 years (independent director status is lost once a Board member has served for 12 years)
The Board of Directors also analyzed the qualifications needed for the duties performed within the Board of Directors and determined the knowledge, experience, and expertise required for all of its members.
The Appointments Committee, at its February 8, 2019 meeting, endorsed the diversity policy applicable to Natixis directors.
In the firm belief that the Board of Directors can only be improved by a balanced, skilled and ethical membership, Natixis wanted to establish a diversity policy that ensures that its Board of Directors is always able to make appropriate decisions as a group, while taking into account Natixis' business model, risk appetite and strategy.
This policy will be applied when a new director is appointed and when the Appointments Committee and the Board perform their annual review of the Board's composition.
The Board of Directors approved this policy at its meeting of
In accordance with Article L.225-19 of the French Commercial Code, the number of directors who are over the age of 70 is limited to one-third of the number of directors in office. Only one Natixis director was over the age of 70 at March 1, 2019.
At the proposal of the Chief Executive Officer and after consulting the Appointments Committee, the Board of Directors may, in accordance with the conditions defined in Article 16 of the bylaws, appoint five individuals to assist the Chief Executive Officer, with the title of Deputy Chief Executive Officer. They have the same powers with respect to third parties as the Chief Executive Officer. Deputy Chief Executive Officers may be dismissed at any time by the Board of Directors on the proposal of the Chief Executive Officer; appoints the executive managers (“dirigeants effectifs”, asc) defined by Article L.511-13 of the French Monetary and Financial Code). In a joint stock company (société anonyme) with a Board of Directors, the role of “executive manager” must be performed by the Chief Executive Officer and the Deputy Chief Executive Officer(s), or by a senior executive who has the requisite powers to manage the business of the institution (see Section 2.3.3 “Senior Management” for more information on executive managers); convenes all General Shareholders’ Meetings, sets thed) agenda and oversees the execution of all decisions taken; may, at the proposal of the Chairman, set up its owne) Committees to deliberate on those issues submitted for examination by the Board itself or its Chairman. It determines the structure and powers of these Committees, which conduct their activities under its responsibility.
In light of Natixis’ corporate purpose and in accordance with the provisions of the French Commercial Code (Article L.823-19) and the French Monetary and Financial Code (Article L.511-89), the Board of Directors must draw on an Audit Committee, a Risk Committee, a Compensation Committee and an Appointments Committee (see Article 4 of Natixis’ Internal Rules); adopts and revises the general principles of the Companyf) compensation policy and controls its implementation.
It determines the level and terms of compensation of the Chairman of the Board of Directors, the Chief Executive Officer and of the Deputy Chief Executive Officer(s) after consultation with the Compensation Committee.
It issues an opinion on how well Natixis’ compensation policy complies with current regulation, particularly regarding the Company’s regulated staff.
The Board prepares the management report, approves the report required under Article L.255-37 of the French Commercial Code and reviews the draft budget for the following year; verifies the publishing and disclosure process, as well as thek) quality and reliability of the information that Natixis intends to publish and disclose; is informed of any resignation/appointment of thel) Company’s Chief Risk Officer.
In accordance with the law and the bylaws, the Chairman convenes and chairs the Board and organizes and guides its work. He chairs General Shareholders’ Meetings. The Chairman of the Board or the Chief Executive Officer are required to
CORPORATE GOVERNANCE Management and oversight of corporate governance 71Natixis Registration Document 2018 provide each director with all the documents and information needed to carry out their duties.
In addition to the duties attributed by law and the bylaws, the Chairman of the Board of Directors provides his support and expertise to the Chief Executive Officer, while respecting the CEO’s executive responsibilities. As such, he may attend any meeting that addresses subjects related to Natixis’ strategy and organization, and, at the CEO’s request, he may represent Natixis in its relationships with the Group’s major partners to foster business relationships.
Before assuming office, every one of Natixis’ directors must ensure that they are familiar with the general or specific obligations incumbent upon them, such as those resulting from laws or regulations, bylaws, internal rules and this Charter, as well as any other binding texts.
If the Board of Directors has received inside information on Natixis, the directors and any individual attending Board or Committee Meetings must refrain from: performing or attempting to perform any insider trades (thea term “insider trades” refers to (i) the use of inside information by a person in possession of such information to buy or sell, for themselves or for a third party, directly or indirectly, financial instruments related to this information, and (ii) the use of the recommendations or inducements of a person in possession of inside information if the person using the recommendation or inducement knows, or ought to know, that it is based upon inside information); recommending to another person or inducing them to performa any insider trades; or unlawfully disclosing inside information.a
A person's omission from this list does not mean they are exempted in any way from complying with the laws and regulations and in no way does it prejudice their potential insider status.
In particular, the director agrees not to perform any transaction during shutdown periods, also known as “negative windows,” which begin 30 calendar days before the publication dates of the quarterly, half-year and annual results and end on the publication date of these financial statements.
Directors must also inform Natixis of the number of shares they hold on December 31 of each year and any financial transactions carried out, so that this information may be disclosed by the Company.
Directors strives to preserve their independence in judgment, decision and action in all circumstances. They refuse to be influenced by any element that is not aligned with the corporate interest of Natixis, which it is their remit to defend.
Directors must refrain from acting in conflict of interest with Natixis or the companies it controls. Specifically, when there is a planned transaction or business relationship in which a director or non-voting director is directly or indirectly involved (e.g. when a director is affiliated: with the partner bank or financing bank of a supplier, or the partner bank or financing bank of a Natixis competitor for the transaction in question; or when a director or an independent director is affiliated with an entity initiating a new business relationship with Natixis), the director or non-voting director in question must inform the Chairman of the Board of Directors (or the Corporate Secretary of Natixis) as soon as they become aware of such a plan, and inform the Chairman that they are directly or indirectly interested and in what capacity.
All directors have a duty to learn about and to ask, within the appropriate time frame, the Chairman of the Board of Directors, and/or the Special Committees of which they are a member, to provide the information needed for the Board or the Special Committees to take useful action on the matters on its agenda.
In accordance with current regulations and with Article L.225-42-1 of the French Commercial Code, in fiscal year 2018, the Board authorized Natixis to provide François Riahi with: an agreement relating to the Chief Executive Officer'sa severance payment based on performance conditions and criteria, and capping that payment.
During that same meeting, the Natixis Board of Directors decided that François Riahi will also receive: mandatory pension plans as all staff do. With respect to thea “article 82” life insurance policy (in reference to the French General Tax Code) put in place by BPCE, the premiums shall be paid by François Riahi; personal protection and health insurance affording protectiona similar to those of Natixis employees with respect to health and personal protection coverage.
These commitments were approved by the May 23, 2018 General Shareholders’ Meeting.
Furthermore, at its September 12, 2018 meeting, the Board of Directors authorized the signing of a Negotiation Agreement relating to the sale by Natixis of its Securities & Guarantees, Leasing, Factoring, Consumer Finance, and Securities Services businesses of its Specialized Financial Services division to BPCE.
agreements entered into directly or through an intermediary by, as the first party, the CEO, one of the directors or one of the shareholders with a voting right of more than 10% in a company and, as the second party, another company in which the first party directly or indirectly holds more than half the capital, no agreement meets these criteria for fiscal year 2018.
With regard to Article L.225-37-4 2° of the French Commercial Code, which requires the management report to state any
The Board of Directors held a total of 11 meetings in 2018. The attendance rate was 94% for the year as a whole (versus 95% in 2017).
Each director’s individual attendance rate for Board of Directors’ Meetings is provided in Section 2.2 of this chapter (see directors’ individual fact sheets).
Within a reasonable amount of time before a Board meeting, a digital file containing the items on the agenda is sent to each director via the secure DiliTrust electronic platform for review and analysis in preparation for the meeting.
The Chief Financial and Strategy Officer (replaced by the Chief Financial Officer after August 6, 2018), the Corporate Secretary and, as and when required, one or more business line heads have been invited to provide further information on subjects raised in meetings. The Central Works Council representatives also attended the meetings.
Review of the quarterly and half-yearly financial statements and approval of the annual financial a statements (parent company and consolidated)
Approval of the Board’s management report including the corporate governance report and the report a on the use of authorizations to increase the Company's share capital in 2017
Feedback on the work of the Risk Committee and the US Risk Committeea
Update of indicators in the Risk Appetite Statement and Risk Appetite Frameworka
Oversight of the framework required by the Ministerial Order of November 3, 2014: oversight of the a internal control governance system, monitoring of aggregate limits by risk type, monitoring of compliance risks
CORPORATE GOVERNANCE Management and oversight of corporate governance 75Natixis Registration Document 2018
Convening of the General Shareholders’ Meeting and the Annual Meeting for holders of participating a securities
Review of the related party agreements and guarantees authorized during previous fiscal yearsa
Fixed compensation of the Chairman of the Board for fiscal years 2017 and 2018a
Approval of the 2017 annual report on compensation for the regulated population under CRD IVa
Allocation of performance shares as part of the 2018 Long-Term Incentive Plana
Review of the Risk and Compliance targets for compensation among the regulated population (2017 a summary and 2018 targets)
Report of the annual BPCE Inspection Générale division review of the regulated population under CRD a IV
Information on the capital increase reserved for members of the Mauve 2018 savings plana
Total transfers of assets and liabilities (TUP) from Natixis subsidiaries to Natixisa
Other items Renewal of bond and warrant issue authorizations for fiscal year 2019a
At its February 12, 2019 meeting, in accordance with the recommendations of the Afep-Medef code, the Natixis Board of Directors examined the corruption and influence-peddling detection and prevention system.
As in previous years, in 2018 Natixis assessed the work of its Board of Directors and specialized Committees, in accordance with recommendations set out in the Afep-Medef code regarding the correct governance of listed companies.
This report shows that the directors have a very positive view of the Board of Directors. They believe that it is a high-quality Board where directors are engaged, mindful and constructive. The directors unanimously believe that the performance of the Board of Directors has been highly satisfactory.
Thirty one per cent of directors believes that the Board and its Special Committees have improved the way they operate since the last assessment, while the rest believe that there has been no change, as the Board and Committees already operated very well.
With respect to the matters studied in the Committees and the materials presented, the directors believe that they are complete, relevant, concise, and informative, and enable a good understanding of the subjects covered.
The directors were unanimous in saying that they clearly understand their rights, duties, roles, and responsibilities, as well as ways of identifying and managing conflicts of interest.
Some suggestions were made by the directors on how to further improve the way the Board and the Committees operate, such as appointing a member with international experience.
The directors think that the various themes (results and investor relations, definition and monitoring of strategies, external growth projects, and risks and internal control) examined by the Board are satisfactorily handled.
Some directors believe that external growth projects could be put into context better with regard to the goals set out in the strategic plan, the external growth policy for each business line, and/or the environment in which Natixis operates.
training on capital and financial markets activities was provideda to the directors.
Six sessions were held in 2018. The 2018 training sessions were opened to members of the BPCE Supervisory Board. Furthermore, directors were also invited to attend the training sessions held by BPCE for Supervisory Board members.
To assist it in its review process and prepare for some of its deliberations, in accordance with the French Monetary and Financial Code, Natixis’ Board of Directors has five Special Committees: an Audit Committee, a Risk Committee, a Compensation Committee, an Appointments Committee, and a Strategic Committee, each chaired by an independent director.
The Audit Committee may submit to the Board of Directors any proposals to conduct an audit, especially concerning the financial statements of the Company and its subsidiaries.
– Work of the Audit Committee in 2018C The Audit Committee met five times in fiscal year 2018. The attendance rate was 88% for the year as a whole.
Each director's individual attendance rate for Audit Committee Meetings is provided in Section 2.2 of this chapter (see directors’ individual fact sheets).
In 2018, the Audit Committee’s duties focused on the following items in particular: Financial position Review of the quarterly, half-yearly and annual parent company and consolidated financial statementsa
Review of the results of the sharing arrangements for the US affiliates of Natixis Investment Managers a and DNCA
Statutory Auditors’ audit plan for 2018, budget allocated for audits, and follow-up on a completed/ongoing audits
CORPORATE GOVERNANCE Management and oversight of corporate governance 79Natixis Registration Document 2018
Christophe Pinault (position previously held by Alain Denizot until December 20, 2018)
Over the course of the 2018 fiscal year, and in compliance with the US Dodd-Frank Act, the US Risk Committee met four times. On December 6 and 7, 2018, the US Risk Committee met in New York so that Committee members could be in closer contact with the local teams. The US Risk Committee's membership is the same as the Risk Committee. It is tasked with monitoring the management of risks related to Combined US Operations.
Under the authority of the Natixis Board of Directors, the Risk Committee’s primary duties are: advising the Board of Directors on the bank’s overall strategya and risk appetite, both current and future; assisting the Board of Directors when it checks thea implementation of that strategy by the executive managers and by the Head of Risk Management; counterparty risks, prepared at the behest of the Company’s CEO; issuing an opinion on the procedures established by Natixisa that are used to ensure compliance with regulations as well as risk monitoring and control; to that end, it receives the reports of Natixis’ Risk Committees and those of its subsidiaries, as well as the reports on risks, specifically operational, market or monitoring the effectiveness of the internal control and riska management systems; assisting the Board of Directors in determining guidelines anda verifying that the executive managers have properly implemented the supervisory mechanisms, especially in terms of the separation of duties and the prevention of conflicts of interest, that ensure the Company is effectively and prudently managed; reviewing, pursuant to its remit, whether the prices ofa products and services proposed to clients are compatible with Natixis’ risk strategy. If these prices do not correctly reflect the risks, the Committee presents the Board of Directors with an action plan to remedy the situation; reviewing, without prejudice to the responsibilities of thea Compensation Committee, whether the incentives set out by Natixis’ compensation policy and practices are compatible with this latter’s situation with regard to the risks to which it is exposed, its capital, its liquidity and the probability and scheduling of the expected benefits; assisting the Board of Directors in reviewing thea aforementioned governance mechanism, assessing its effectiveness and ensuring that corrective measures have been taken to remedy any shortcomings; regularly examining the strategies and policies governing thea taking, management, monitoring and reduction of the risks to which Natixis is or could be exposed, including risks created by the economic environment. To that end, at least once a year the Risk Committee analyzes the documents used to define and monitor Natixis’ risk appetite, namely the Risk Appetite Statement and the Risk Appetite Framework. The Risk Committee studies all limit changes that took place between two annual reviews, including changes to industry-based limits; examining compliance risk monitoring-related items at leasta once a year, pursuant to Article 253 of the French Ministerial Order of November 3, 2014 on internal control of banking sector businesses, payment services, and investment services; giving its opinion on the appointment or dismissal of the Heada of Internal Audit at Natixis; ensuring that the findings of assignments carried out by thea Internal Audit Department and by regulatory and supervisory authorities (specifically the Autorité de Contrôle Prudentiel et de Résolution, ACPR—French Prudential Supervisory Authority for the Banking and Insurance Sector) are followed up on; to that end, a summary of Internal Audit Department reports on Natixis and its subsidiaries is prepared for the Risk Committee, which also receives all reports from the regulatory and supervisory authorities (specifically the ACPR) on Natixis and its subsidiaries; addressing Natixis’ annual internal audit program, includinga audits of subsidiaries, with this program being presented to the Committee at least one week prior to its approval.
The Risk Committee met seven times in fiscal year 2018. The attendance rate was 87% for the year as a whole.
Each director’s individual attendance rate for Risk Committee meetings is provided in Section 2.2 of this chapter (see directors’ individual fact sheets).
In 2018, the Risk Committee’s duties focused on the following items in particular: Risk management Review of the monthly consolidated risk monitoring dashboard (regular updates on credit, market liquidity a and operational risks and insurance risk)
Review of the provisions of the French Ministerial Order of November 3, 2014, and of the Risk Appetite a Framework (RAF) indicators
Follow-up on the ECB's market and credit TRIM (Targeted Review of Internal Models)a
Liquidity follow-up: Annual analysis of contingency plans, particularly in light of the results of the alternative a scenarios regarding liquidity positions and risk mitigation factors / review of ALM standards
Review of whether the product and service prices offered to clients are in line with Natixis’ risk strategy.a
Monitoring of the implementation of recommendations made by Natixis Internal Audit and BPCE Inspection a Générale
Presentation of the AMF’s follow-up letter to Natixis and the response by Natixis to that lettera
Three of the five members were independent until November 17, 2018(1) (Anne Lalou, Henri Proglio and Nicolas de Tavernost). In accordance with Article 17.1 of the Afep-Medef corporate governance code, a majority of the Compensation Committee was composed of independent directors until that date, and the Committee was chaired by an independent director. Furthermore, the opinions and proposals of the Compensation Committee are adopted if the majority of members present, including the Chairman, vote for them.
The role of Natixis’ Compensation Committee is to prepare the decisions that Natixis’ Board of Directors issues with regard to compensation, including Natixis employees who have a significant impact on the Company’s risk. The Compensation Committee’s powers and operating procedures are detailed in
The Compensation Committee is responsible for submitting proposals to Natixis’ Board of Directors concerning: the amount and terms of compensation paid to the Chairmana of the Board of Directors of Natixis, including benefits in kind, pension plans and collective personal protection insurance, as well as the allocation of stock options or share purchases; the amount and terms of compensation paid to the CEO and,a where applicable, one or more Deputy CEOs, including benefits in kind, pension plans and collective personal protection insurance, as well as the allocation of stock options or share purchases; rules for allocating directors’ fees to Natixis directors and thea total amount submitted to the shareholders at Natixis’ General Shareholders’ Meeting for a decision; the monitoring of the compensation of the Chief Risk Officera and the Compliance Officer; whether Natixis’ compensation policy complies witha regulations, including for the category of staff referred to in the French Ministerial Order of November 3, 2014, as well as for employees referred to in French Law No. 2013-672 on the Separation and Regulation of Banking Activities (“SRAB”) and Section 619 of the US Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”), or regulated categories of staff within asset management (AIFMD) or insurance activities (Solvency II); the annual review of Natixis’ compensation policy, specificallya those employee categories whose professional activities are likely to have a significant impact on the risk profile of Natixis or the Group.
The Compensation Committee met four times in fiscal year 2018. The attendance rate was 95% for the year as a whole.
Within a reasonable amount of time before a Committee meeting, a digital file containing the items on the agenda is sent to each director via the secure DiliTrust electronic platform for review and analysis in preparation for the meeting.
In 2018, the Committee focused on the following areas: Executive corporate officers
Approval of the variable compensation factors for 2017 after assessing the degree to which the a quantitative criteria and strategic objectives of the annual variable compensation of executive corporate officers were met and validation of the compensation principles for fiscal year 2018 (from January 1 to May 31, 2018) put to a vote of the Annual General Shareholders’ Meeting on May 23, 2018
Analysis of the recommendations of the Afep-Medef Code in terms of executive compensationa
Variable compensation for 2017 for the control functions and the “regulated” staff;a
Analysis of compensation awarded to the hundred highest-paid employeesa 2017 annual report on compensation for the regulated population under CRD IVa
Follow-up on existing employee savings plans within Natixis and on Mauvea
The responsibilities assigned to Natixis’ Appointments Committee are, in essence, reviewing the selection of corporate officers and members of the Board, and assessing their individual and collective expertise, as well as the effectiveness of the Board of Directors. The Appointments Committee’s powers and operating procedures are described in detail in the Internal Rules of the Board of Directors, the latest version of which was approved on December 17, 2014.
The Committee’s primary duties are: issuing an opinion and, upon request from Natixis’ Board,a making proposals and recommendations to the Board on the appointment of a CEO and, when appropriate, one or more Deputy CEOs of Natixis; issuing an opinion and making recommendations to the Boarda of Directors on the selection/appointment of directors; evaluating the balance and diversity of knowledge, skills anda experience that the Board members have, both individually and collectively; detailing the duties and the qualifications required for servinga on Natixis’ Board of Directors, and assessing the time to be spent on that service; deciding on a policy and a set of targets for the balanceda representation of men and women on the Board of Directors. The Committee prepares a policy aimed at achieving those targets. Natixis’ target and policy as well as the implementation procedures are made public; periodically, at least once a year, assessing the structure, size,a composition and effectiveness of the Board of Directors with regard to the responsibilities that are assigned to it, and submitting any useful recommendations to the Board; periodically, at least once a year, assessing the knowledge,a skills and experience of the Board of Directors, both individually and collectively, and presenting it with a report on this topic; periodically scrutinizing the policies of the Board of Directorsa on selecting and appointing Natixis’ executive managers, Deputy CEOs and the Chief Risk Officer and making recommendations thereon.
On March 14, 2018, in the interest of spreading out terms of the adjournment of the May 23, 2018 Board meeting held before office more evenly, as recommended by the Afep-Medef code, the Annual General Shareholders' Meeting on the same day, and the Appointments Committee accepted the resignation of four agreed to be reconsidered for directorships at the same meeting. directors whose terms of office were to expire at the adjournment of the May 2019 General Shareholders' Meeting convened to approve the financial statements for the year ending December 31, 2018. The four directors resigned, effective upon
The Strategic Committee meets once a year. The attendance rate was 93%.
The directors and Senior Management Committee members used the opportunity to discuss Natixis' strategic priorities going forward, as well as the focus areas of the New Dimension Plan.
As Natixis’ decision-making body, the Senior Management Committee is responsible for reviewing and approving the Company’s core strategy; overseeing its management, especially regarding the Company’s strategy and budget; major projects and investments; defining its organization and Human Resources; monitoring the performance of its business lines and its results; and monitoring its activities.
Additionally, pursuant to Article L.511-13 and L.532-2 of the French Monetary and Financial Code, Natixis’ Board of Directors appointed three executive managers: François Riahi, Chief Executive Officer; Gils Berrous, Head of Specialized Financial Services; and Marc Vincent, Head of Corporate & Investment Banking.
In this capacity, François Riahi, Gils Berrous and Marc Vincent stand surety and assume full liability toward the supervisory authorities, specifically the Autorité de Contrôle Prudentiel et de Résolution (ACPR—French Prudential Supervisory Authority for the Banking and Insurance Sector) and the European Central Bank (ECB), for the following activities: the bank’s effective management, within the meaning ofa Article L.511-13 of the French Monetary and Financial Code;
CORPORATE GOVERNANCE Management and oversight of corporate governance 85Natixis Registration Document 2018 disclosure to the ACPR of any accounting or financiala documents that the ACPR may request, and responses to any questions or requests for information, per Articles L.571-4 to L.571-9 of the same Code; the periodic evaluation and control of the effectiveness of thea mechanisms and procedures set up to comply with the French Ministerial Order of November 3, 2014 on internal control of banking sector businesses; the determination of d requirements.a
In accordance with Article L.225-37-4 6, as part of Natixis' New Dimension strategic plan, the Company set gender equity targets, according to which women should represent 20% of Senior Management Committee members, 30% of Global Leaders (inner leadership circle) and 40% of Purple Leaders (extended leadership). These targets were applied to the various business lines in 2018 (See Chapter 6, Section 6.6.1.2)
The Board of Directors may appoint a Chief Executive Officer selected from among its directors or otherwise.
Barring exceptions, it meets weekly, chaired by the CEO. Except where circumstances prevented them from doing so, the members of the Senior Management Committee were present at all meetings in 2018. Representatives from the business lines or different support functions were invited to present projects or policies falling within their departmental remits.
In this context, the Senior Management Committee studied the opportunities for external growth in Asset Management, Payments, M&A and Specialized Financial Services and supervised various projects or initiatives. As a result, the Senior Management Committee studied and validated all strategic transactions being carried out by Natixis, before they were presented to the Company’s Board of Directors. These include the acquisition of a majority stake in Comitéo; the purchase of Banque Postale’s 50% stake in Titres Cadeaux, making Natixis the sole shareholder; strategic investments in three independent Mergers & Acquisitions consulting firms (Fenchurch Advisory Partners in the United Kingdom, Vermilion Partners in China, and Clipperton in France); the establishment of a long-term partnership between Natixis and ODDO BHF to create a leader in continental Europe's equity markets; and, in the field of Asset & Wealth Management, the sale of Axeltis and Sélection 1818, and the acquisition of Massena Partners.
It oversaw the plan for Natixis to sell and BPCE to acquire the Factoring, Sureties & Financial Guarantees, Leasing, Consumer Finance and Securities Services business lines, which be completed by the end of the first quarter of 2019. This project will help Groupe BPCE strengthen its universal banking model, adapt to new practices, and better serve the customers of the Banque Populaire banks and Caisses d’Epargne, while also serving as an opportunity to raise Natixis’ acquisition capacity under the New Dimension plan from €1 billion to a total of €2.5 billion.
Furthermore, the Senior Management Committee oversaw Natixis’ adaptation to changes in the economic and regulatory environment in the banking and insurance sectors. It regularly monitored regulatory changes and draft regulations (GDPR, Volcker, corruption prevention system, etc.) and large business-line-specific projects like the #INNOVE2020 project in the general insurance lines. It also encouraged initiatives to strengthen its brand image by organizing the first Natixis Investment Managers Summit, a high-quality event for Asset Management customers, and improving the brand platform, particularly the employer brand.
The Senior Management Committee continued to work on implementing the Transformation and Operational Excellence program. Under this program, Natixis has committed to making substantial investments, especially in technology, in order to generate cost savings.
The Senior Management Committee regularly examined the Company’s business development and results during its meetings throughout the year. It studied the annual, half-yearly and quarterly financial statements, before they were presented to the Board of Directors, and was involved in defining financial communications for the Company.
Finally, the Senior Management Committee encouraged the business lines to adopt measures to combat climate change. This included the Green Weighting Factor project, which led to a favorable adjustment of risk-weighted assets for transactions that have a positive impact on climate and the environment, and an unfavorable adjustment for those that have a negative impact. Another commitment was made in Personal Insurance. Natixis Assurances decided to align its investment policy with the 2°C target set by the Paris Accord: each year, it will devote nearly 10% of its investments to the acquisition of green assets, with a target of 10% green assets as a percentage of all outstanding assets no later than 2030.
Shareholders’ Meetings may take the form of Ordinary, Extraordinary or Combined Meetings depending on the items on the agenda.
OGMs may also be used to appoint or re-appoint directors, non-voting members and Statutory Auditors and, if necessary, ratify the co-option of a member of the Board.
Pursuant to Article R.225-85 of the French Commercial Code, those shareholders who can prove their shares are in a custody account (pursuant to Section 7 of Article L.228-1 of the French Commercial Code) in their name or in the name of an intermediary acting on their behalf, either in the registered share accounts held by the Company or in the bearer share accounts held by their authorized intermediaries, no later than two working days before the date of the meeting (by midnight Paris local time hereinafter referred to as D-2), may attend the meetings.
An authorized proxy (namely the shareholder’s spouse or another shareholder, a partner with whom the shareholder has a civil partnership, or any other individual or legal entity of their choice) may always represent a shareholder at Shareholders’ Meetings. This proxy may not represent another person.
For holders of registered shares, an entry in the registered share accounts by D-2 is sufficient to enable them to attend the meeting.
With respect to holders of bearer shares, proof of their status as a shareholder must be provided directly to the centralizing body of the meeting by the authorized intermediaries that hold their bearer share accounts. The intermediaries do so by producing a certificate that must be attached to the voting form or admission card request in the name of the shareholder or the name of the registered intermediary acting on behalf of the shareholder. A certificate is also delivered to shareholders who wish to attend the meeting in person and who have not received an admission card by D-2, midnight Paris time.
In line with the provisions of Article L.225-105 of the French Commercial Code and subject to the conditions and time frames set by law, one or more shareholders holding the requisite portion of share capital may request, by means of registered letter with acknowledgment of receipt, that items or draft resolutions be included on the meeting agenda.
In line with the provisions of Article 25 of the bylaws, and as an exception to the granting of double voting rights to any fully paid-up shares that can be proved to have been registered in the name of the same shareholder for at least two years as stipulated by Article L.225-123 Section 3 of the French Commercial Code, each member of the meeting has a right to as many votes as they hold or are represented by shares.
Any individual or legal entity that directly or indirectly owns, alone or jointly, a 1% share of the voting rights or any multiple of this percentage, must notify the Company, by registered letter with acknowledgment of receipt, of the number of voting rights that they possess. This notice must be made within a period of 15 days following each acquisition or sale of this fraction.
Failure to comply with the notification requirement referred to in the previous paragraph shall, at the request of a shareholder owning at least 1% of the voting rights, which request shall be recorded in the minutes of the meeting, cause any shares in excess of the fraction that should have been declared to be stripped of their voting rights for a period of two years following the date on which they were properly reported.
The following people, who were Natixis Senior Management Committee members at the time, were also permanently awarded free shares at the end of the vesting period of each plan.
Laurent Mignon 31,955 August 1 2014 free allocation of performance shares
Policies and rules established 2.4 for determining compensation and benefits of any kind for corporate officers
The members of the Board of Directors of Natixis received directors’ fees for the 2018 fiscal year subject to the terms and conditions set out below.
sum of €2,000 per meeting, payable based on their attendance, with the number of compensated meetings being capped at seven.
Each director receives, for their own participation in Board Meetings, a fixed sum of €8,000 each year, as well as a variable
Thus, a director who attends 100% of the Board Meetings will be paid the maximum directors’ fees of €22,000 per year.
Thus, a director who is a member of the Compensation Committee as well as a member of the Strategic Committee will earn a total of €30,000 if they attend all Board and Committee Meetings.
Furthermore, in accordance with the rules applicable within Groupe BPCE, the portion of directors’ fees going to BPCE directors (including that of the Chairman) is granted and paid to BPCE and not to the directors.
Compensation and benefits 2.4.2.1 of any kind for the Chairman of the Board of Directors
The components of the Chief Executive Officer’s compensation for 2018 comply with the principles approved by the General Shareholders’ Meeting on May 23, 2018.
Strategic criteria quantitative targets (70%), 25% of which based on financiala performance in relation to the Groupe BPCE budget (net revenues [4.2%], net income (Group share) [12.5%] and cost/income ratio [8.3%]) and 45% based on the financial performance of Natixis (net revenues [11.25%], net income (Group share) [11.25%], cost/income ratio [11.25%] and ROTE–Return on Tangible Equity [11.25%]); individual strategic targets (30%), 15% of which related to thea implementation of the 2018-2020 strategic plan; the three other strategic targets, each assigned a weight of 5%, being related to oversight in terms of supervision and control as provided for in regulations (including the implementation of the RAF and the activation of the threshold breach remediation process); the implementation of Natixis transformation; and managerial performance assessed with regard to the ability to anticipate developments, make decisions and lead the Group, and manage executive officers; The amount of variable compensation for 2018, which will be put to a vote of the shareholders in May 2019, was set by the Natixis Board of Directors upon recommendation by the Compensation Committee at 94.32% of the variable compensation target, i.e. €452,734 for Laurent Mignon for the period from January 1 to June 1, 2018, and €528,190 for François Riahi for the period from June 1 to December 31, 2018: one portion will be paid in 2019, 50% of it indexed to thej Natixis share price, i.e. €156,889 for Laurent Mignon and €194,853 for François Riahi ; the other portion shall be deferred three years, 50% of itj indexed to the Natixis share price, i.e. €295,845 for Laurent Mignon for the period from January 1 to June 1, 2018, and €333,337 for François Riahi for the period from June 1 to December 31, 2018. These deferred amounts will be paid in thirds in 2020 (100% in cash), 2021 (50% in cash and 50% indexed to the Natixis share price in securities) and 2022 (100% indexed to the Natixis share price or in securities), provided that the presence and performance conditions are met.
It should be noted that payments in respect of annual variable compensation for 2018 will only be made after the vote at the General Shareholders’ Meeting on May 28, 2019.
CORPORATE GOVERNANCE Policies and rules established for determining compensation and benefits of any kind for corporate officers 91Natixis Registration Document 2018
François Riahi's annual variable compensation for the 2018 performance year as Chief Executive Officer of Natixis from
BREAKDOWN OF ANNUAL VARIABLE COMPENSATION ■ FOR THE 2018 FISCAL YEAR BY VESTING DATE
Laurent Mignon, Chief Executive Officer of Natixis from in 2019 in 2020 in 2022 in 2021
François Riahi, Chief Executive Officer of Natixis from in 2019 in 2020 in 2022 65% of Laurent Mignon’s variable compensation for his term as Chief Executive Officer for 2018 is being deferred to 2020, 2021, and 2022, of which 50% is indexed to Natixis’ share price. François Riahi's deferred variable compensation rate for 2018 is 63%.
The performance of Natixis shares versus the Euro Stoxx Banks index will be compared every year during the four-year period covered by the plan, i.e. fiscal years 2018, 2019, 2020 and 2021, for each of the annual tranches, each representing 25% of the shares allocated. Based on the relative performance of Natixis’ TSR compared with the average TSR of the Euro Stoxx Banks index, a ratio will be applied for each annual tranche, as follows: performance strictly below 90%: none of the shares of thea annual tranche shall vest; performance equal to 90%: 80% of the shares of the annuala tranche shall vest; performance equal to 100%: 100% of the shares of the annuala tranche shall vest; performance greater than or equal to 120%: 110% of thea shares of the annual tranche shall vest.
The ratio varies in a linear manner between each performance category.
The ESR targets are based on progress made over the four years covered by Natixis' ESR performance plan, as determined by extra-financial rating agencies. The vesting plan includes a rating scale that corresponds to each agency's ESR scores, with requirements getting stricter over the plan's last two years.
Thirty percent of the shares issued to the executive corporate officer at the end of the vesting period will be subject to a lock-in period ending upon the termination of his office.
The Chief Executive Officer receives a family allowance in accordance with the same rules as those applied to Natixis employees in France. (€818 in 2018 for Laurent Mignon, and €1,388 for François Riahi).
As a reminder, at its February 10, 2016, meeting, the Board of Directors approved a change to the personal protection insurance and supplemental health insurance of Laurent Mignon, with the intention of bringing his situation in line with that of the other members of BPCE's Management Board. Of particular note is the implementation of a scheme to maintain compensation for a period of 12 months in the event of temporary incapacity to work, a scheme benefiting the other members of the BPCE Management Board. In 2018, the declared value of in-kind benefits over the five months of the fiscal year was €7,066 for Laurent Mignon.
François Riahi receives insurance similar to those of Natixis employees with respect to health and personal protection coverage.
Furthermore, in line with the provisions of the Afep-Medef corporate governance code, the right to a benefit is contingent on meeting performance criteria and requirements, such as net income (Group share), ROE and the cost/income ratio reported for the two years prior to leaving the Company. The Board of Directors will verify the satisfaction of these criteria as necessary: Average Natixis net income (Group share) for the period in1. question equal to or higher than 75% of the expected budget average(1) for the period; Average Natixis ROE for the period in question equal to or2. higher than 75% of the expected budget average(1) for the period; Natixis’ cost/income ratio less than 75% at the time of3. leaving (last half-year closed).
PRINCIPLES AND CRITERIA FOR 2.4.3. DETERMINING, DISTRIBUTING AND AWARDING FIXED, VARIABLE AND NON-RECURRING ITEMS MAKING UP THE TOTAL COMPENSATION AND BENEFITS OF ANY KIND ATTRIBUTABLE TO THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE CHIEF EXECUTIVE OFFICER
After consulting with the Compensation Committee and before pay packages are approved by the General Shareholders’ Meeting, the Board of Directors determines the various pay components of Natixis’ executive corporate officers based on the principles of competitiveness with market practices for similar roles and the way said components relate to performance.
The compensation for the Chairman of the Natixis Board of Directors is set by the Board of Directors, taking into account both the Chairman’s career and market practices. Laurent Mignon's annual fixed compensation for his duties as Chairman of the Board of Directors is €300,000 gross.
The fixed compensation of Chief Executive Officer is established based on the skills and expertise required to perform his duties and is in line with market practices for similar roles.
For fiscal year 2019, François Riahi’s fixed compensation remains unchanged from the previous fiscal year and amounts to €800,000 gross.
Furthermore, the compensation of the Chief Executive Officer is closely tied to the Company’s performance, especially through annual variable compensation that is contingent upon the achievement of predetermined targets. Details regarding these targets and the extent to which they have been achieved at the end of the period, as assessed by the Board of Directors after consulting with the Compensation Committee, are then submitted to a vote at the General Shareholders’ Meeting. The criteria include quantitative targets related to the financial performance of BPCE. As a reminder, Natixis is deeply embedded in Groupe BPCE in this regard, with intertwined strategic plans aimed at their mutual success. These criteria also include targets linked to Natixis' performance as well as strategic targets.
Target set at 120% of the fixed compensation, with a range from 0% up to 156.75% of the target, i.e., a maximum of 188.1% of the fixed compensation.
Free allocation of performance shares performance conditions. The total of annual variable compensation and performance shares in favor of the Chief Executive Officer during the fiscal year cannot exceed twice his fixed gross annual compensation.
The Chief Executive Officer is eligible to receive 20% of his gross annual fixed compensation as performance shares under the long-term compensation plans for members of the Natixis Senior Management Committee. The vesting of these shares is contingent upon continued service and the achievement of
Compensation due or granted for the fiscal year €853,552 (a) €2,623,242 (a)
Regarding information about compensation related to BPCE, cf. AMF table NO. 3 o/w a family allowance of €818.(a)
: François Pérol received no compensation in 2018 for his duties as Chairman of the Natixis Board of Directors.Note
Laurent Mignon, Chief Executive Officer (office held since May 14, 2009 until June 1, 2018)
François Riahi’s other compensation for his duties at BPCE €602,359 €323,396 - -
Deferred securities or similar instruments portion of variable compensation for fiscal year 2015
Cash portion of variable compensation for fiscal year 2017 paid in March 2018
In respect of BPCE and its subsidiaries 23,250 45,300 22,050 0
In respect of BPCE and its subsidiaries 25,000 50,000 25,000 0
CORPORATE GOVERNANCE Policies and rules established for determining compensation and benefits of any kind for corporate officers 97Natixis Registration Document 2018
In respect of BPCE and its subsidiaries 23,900 16,900 N/A N/A
In respect of BPCE and its subsidiaries 0 0 N/A N/A
Other compensation for his duties as Chief Executive Officer of Natixis(h) 853,552 1,664,335 2,623,242 2,088,305
Other compensation for his duties as Chairman of the Natixis Board of Directors 175,000 175,000
Benefits in kind in respect of BPCE (company car, housing (o), other) 0 0 0 0
Amounts before 30% withholding tax.(a) Amounts before 36.5% withholding tax.(b) Variable compensation for fiscal year 2018 of which €217,985 (50%) paid in 2019 and the balance (50%) deferred over three years in equal shares of (c) €72,662.
Amount paid in 2017 for the variable compensation for fiscal year 2016.(f) Of which €40,000 in housing allowance and €4,080 under "company car" benefits in kind.(g) Laurent Mignon received from Natixis, a company controlled by BPCE within the meaning of Article L. 233-16 of the French Code of Commerce, (h) compensation for his duties as CEO of Natixis, as well as compensation for his duties as the Chairman of the Natixis Board of Directors (see table AMF No. 2). On May 23, 2018, Laurent Mignon was awarded 11,661 free performance shares with a fair value of €47,460 corresponding to €80,000 when allocated, and on May 23, 2017, 29,911 free performance shares valued at €99,305 and corresponding to €192,000 when allocated. Variable compensation for fiscal year 2018, of which €228,837 (30%) in 2019 and the balance (70%) deferred over three years in equal shares of €177,984.(i) Before 12.8% withholding tax.(j) In addition, François Pérol received compensation of €39,193 for assisting the President of the Management Board with matters regarding the CFF as part of (k) an employment contract from June 1-30, 2018.
Variable compensation for fiscal year 2018, of which €245,182 (50%) in 2019 and the balance (50%) deferred over three years in equal shares of €81,727.(l) Amount paid in 2018 for the variable compensation for fiscal year 2017, i.e. €370,920 for the deferred portion of the variable compensation for fiscal year (m) 2016, i.e. €138,672 for the deferred portion for fiscal year 2015, i.e. €183,622 and for the deferred portion for fiscal year 2014, i.e. €210,273. Variable compensation for fiscal year 2017, of which €370,920 (40%) in 2018 and the balance (60%) deferred over three years in equal shares of €185,460.(n) Amount paid in 2017 for the variable compensation for fiscal year 2016, i.e. €278,850 for the deferred portion of the variable compensation for fiscal year (o) 2015, i.e. €184,655 for the deferred portion for fiscal year 2014, i.e. €211,414 for the deferred portion for fiscal year 2013, i.e. €236,701.
Subscription or call options granted during the period to each executive corporate officer by the issuer and by any Group companies
No subscription or call options were granted in fiscal year 2018.
No subscription or call options were exercised in fiscal year 2018.
Performance shares allocated to Laurent Mignon and François Riahi by Natixis on a pro rata basis to reflect the length of time served for their (a) duties as Chief Executive Officer of Natixis.
Shares allocated as part of the deferred component of annual variable compensation in respect of 2017.(c)
Corresponding to the value of the shares on the allocation date.(d)
Group (Natixis, BPCE, Caisse d’Epargne, Banque Populaire)—Record of purchase or subscription options granted
Options granted during the fiscal year by the issuer and any company included in the scope of allocation, to the top ten salaried employees of the issuer and of any company included in this scope holding the highest number of options granted 0 N/A N/A
(a) All shares allocated in fiscal years 2014 to 2018 inclusive are subject to performance conditions. This does not apply to the 90 shares allocated in 2013.
(c) 30% of the shares issued to the executive corporate officer at the end of the vesting period will be subject to a lock-in period ending upon the termination of his office.
(d) Shares allocated as part of the deferred component of annual variable compensation in respect of previous years.
Term of office ended: the May 2022 General Shareholders’ Meeting X X
Components of compensation due 2.4.3.4 or granted with respect to the fiscal year ended December 31, 2018 to Laurent Mignon, Chief Executive Officer of Natixis
Fixed compensation From Jan. 1 to June 1: €400,000 From June 1 to Dec. 31: €466,667
Laurent Mignon’s fixed compensation for 2018 was €960,000 for the full year, or €400,000 for the period from January 1 to June 1, 2018.
The annual variable compensation in respect of fiscal year 2018 was calculated on the basis of quantitative and strategic criteria first reviewed by the Compensation Committee then validated by the Board of Directors, and submitted to a vote at the General Shareholders’ Meeting in May, 2018 in accordance with the provisions of the Sapin II law.
Given the achievements observed by the Board of Directors after receiving the opinion of the Compensation Committee, the amount of annual variable compensation for 2018 for Laurent Mignon for the period from January 1 to June 1, 2018 was set as follows: in respect of BPCE quantitative criteria: €137,948, or 114.62% of the target;a in respect of Natixis quantitative criteria: €165,986, or 76.85% of the target;a in respect of strategic criteria: €148,800, or 103.33% of the target.a
And the amount of annual variable compensation for 2018 for François Riahi for the period from June 1 to December 31, 2018 was set as follows: in respect of BPCE quantitative criteria: €160,939, or 114.62% of the target;a in respect of Natixis quantitative criteria: €193,651, or 76.85% of the target;a in respect of strategic criteria: €173,600, or 103.33% of the target.a
Multi-year variable compensation 0 In 2018 Laurent Mignon and François Riahi did not receive any multi-year variable compensation.
Extraordinary compensation 0 In 2018 Laurent Mignon and François Riahi did not receive any extraordinary compensation.
Allocation of stock options/performance shares and any other long-term compensation 11,661 shares allocated to Laurent Mignon 13,605 shares allocated to François Riahi
The allocated shares correspond to 20% of the gross annual fixed compensation for Laurent Mignon and François Riahi, prorated to reflect the length of time each of them served as Chief Executive Officer in 2018.
The ESR targets are based on progress made over the four years covered by Natixis' ESR a performance plan, as determined by extra-financial rating agencies. The vesting plan includes a rating scale that corresponds to each agency's ESR scores, with requirements getting stricter over the plan's last two years. At the end of the four years, the average of the overall annual ratings shall determine the percentage of shares that vest in addition to those vesting under the TSR criteria. In the event that TSR and ESR performance is substantially above target, the percentage of shares of the annual tranche that shall vest is capped at 120%.
Components of compensation due or granted for the fiscal year ended which are subject to approval or have been approved by the General Shareholders’ Meeting with respect to the related-party agreements and commitments procedure Amount Comments
Furthermore, in line with the provisions of the Afep-Medef corporate governance code, the right to a benefit is contingent on meeting performance criteria and requirements, such as net income (Group share), ROE and the cost/income ratio reported for the two years prior to leaving the Company. Satisfaction of these criteria will be verified by the Board of Directors as necessary: 1. Average Natixis net income (Group share) for the period in question equal to or higher than 75% of the expected budget average for the period; 2. Average Natixis ROE for the period in question equal to or higher than 75% of the expected budget average for the period; 3. Natixis’ cost/income ratio less than 75% at the time of leaving (last half-year closed).
Non-compete indemnity in the event of termination of the Chief Executive Officer’s office
RISK MANAGEMENT3.2 116 Organization of Natixis’ internal control 3.2.1 system 116
BASEL 3 PILLAR III DISCLOSURES3.3 166 Capital management and capital adequacy3.3.1 166
This chapter includes information on the risk factors set out under Prospectus regulation 3 on the management of risks associated with financial instruments, as well as information on capital management and compliance with the regulatory ratios required under the IFRS framework as adopted in the European Union. Some information in this chapter is an integral part of the notes to Natixis' consolidated financial statements and consequently falls under the Statutory Auditors' certification of the consolidated financial statements. This information is identified by the phrase “Data certified by the Statutory Auditors in accordance with IFRS 7”. Natixis is subject to the supervision of regulatory authorities and to the regulatory capital requirements applicable to credit institutions and investment companies, as per EU regulation No. 575/2013 of June 26, 2013. Under Pillar III of the Basel Accords, detailed, standardized information on items related to the Basel 3 report and to prudential publications is published in the third part of this chapter.
Natixis is exposed to the credit risk arising from its counterparties (banks, financial institutions, industrial and commercial enterprises) in connection with the financing, structuring, trading and settlement activities carried out by its Corporate & Investment Banking (CIB) and Specialized Financial Services (SFS) businesses.
Credit risk is one of the major risks identified by Natixis and represented 76% of total RWA at December 31, 2018 (see Section 3.2.3.10 of this registration document).
Natixis’s ability to carry out its financing, structuring, trading and settlement transactions also depends, among others, on the stability and financial soundness of other financial institutions and market participants. Financial institutions are in fact closely interconnected mainly because of their trading, clearing, counterparty and financing operations. A default by one participant in the financial industry market could have repercussions on other financial institutions, cause a chain of defaults by other participants in this market and thus generate financial losses for Natixis.
A substantial increase in Natixis' impairments or provisions for expected credit losses could adversely affect its results and financial position
In connection with its activities, Natixis establishes asset impairment charges, whenever necessary, to reflect actual or potential losses in respect of its loan and receivables portfolio in its profit and loss account under “Provision for credit losses.”
At December 31, 2018, Natixis’ provision for credit losses totaled -€215 million. Since January 1, 2018, Natixis has applied IFRS 9 “Financial Instruments,” which requires that provisions be recorded on initial recognition of a financial instrument. This new provisioning model applies to outstandings recognized at amortized cost or at fair value through other comprehensive income recyclable to income and to loan and guarantee
If the liquidity of assets such as loans decreases or disappears entirely, it could make them more difficult for Natixis to distribute or structure and adversely affect its results and financial position
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk factors 110 Natixis Registration Document 2018 may require Natixis to bear more credit risk and market risk associated with such assets for a longer period than initially anticipated. The absence of liquidity in the secondary markets for such assets may require Natixis to reduce its origination activities, which would impact revenues and could affect its relations with customers, which in turn could adversely affect its results and financial position (see Section 4.2.1 of this registration document). Furthermore, depending on market conditions, Natixis may have to recognize a value adjustment on assets likely to adversely affect its results.
In recent years, the financial markets have fluctuated significantly in a sometimes highly volatile environment and could do so again; this could result in significant losses for capital markets activities. Furthermore, 2018 was marked by the return of volatility due to numerous uncertainties related to global growth trends, trade tensions between the United States and China, and Brexit.
The losses that may be recorded due to high market volatility could affect several market products in which Natixis trades. The volatility of financial markets makes it difficult to predict trends and implement effective portfolio management strategies; it also increases the risk of losses from net long positions when prices decline and, conversely, from net short positions when prices rise.
The market risk associated with the Corporate & Investment Banking business line activities represented 8.2% of Natixis’ total RWA at December 31, 2018 (see Section 3.3.1.4 of this registration document).
Natixis could suffer losses if any of the instruments and hedging strategies it uses to hedge the various types of risk to which it is exposed prove ineffective. Many of these strategies are based on observation of historical market behavior and historical correlation analysis.
For example, if Natixis holds a long position in an asset, it could hedge the risk by taking a short position in another asset whose past performance has allowed it to offset the performance of the long position. However, in some cases, Natixis may only be partially or inadequately hedged, or its strategies may not fully hedge future risks or effectively reduce risk in all market configurations, or may even cause an increase in risks. Any move in the market in a direction or manner contrary to Natixis’ expectations could also reduce the effectiveness of these hedging strategies and expose Natixis to potentially significant losses. In addition, the method used to recognize gains and losses resulting from certain ineffective hedges may increase the variability of Natixis’ reported earnings.
Changes in the fair value of Natixis’ securities, derivatives portfolios and its own debt could have a negative impact on the carrying value of such assets and liabilities, and thus on its net revenues, net income and shareholders’ equity
Most of the adjustments are made on the basis of changes in fair value of the assets or liabilities during an accounting period, with the changes recorded either in the income statement or directly in Natixis’ shareholders’ equity.
Changes that are recorded in the income statement, to the extent not offset by opposite changes in the fair value of other assets, affect net revenues and, as a result, net income. In some cases, the value adjustments have a direct impact on shareholders’ equity.
More generally, value adjustments may be required as a result of inherent uncertainty in the models and parameters used in the valuation of Natixis’ financial instrument portfolios. This is particularly true where instruments are complex or do not have publicly quoted market prices, and valuation is based on internally generated or otherwise non-standard modeling that ultimately relies to some degree on Natixis’ estimates and judgment. These value adjustments may have a negative impact on net revenues and thus on net income.
If the credit ratings of BPCE and thus of Natixis were downgraded by major rating agencies, or if BPCE were to experience difficulties in obtaining financing in the markets, the liquidity of Groupe BPCE, and thus of Natixis, and the corresponding cost of funding could be adversely affected.
In addition, in the event of another crisis affecting the financial markets and/or the banking sector or adverse trends in market conditions, Natixis’ financial position in terms of CET1 (as defined in the glossary to the registration document) and leverage, its balance sheet and its results could be adversely affected.
RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk factors 111Natixis Registration Document 2018
If it fails to comply with applicable laws and regulations, Natixis could be exposed to heavy fines and other administrative and criminal sanctions likely to have a material adverse impact on its financial position, business and reputation
The legal risks to which Natixis is exposed in the normal course of business could adversely affect its business and financial position
In the normal course of business, Natixis may be involved in certain legal civil, administrative, criminal or arbitration proceedings. The outcome of these disputes and their exact financial consequences are by nature difficult to predict. Thus, any corresponding provisions that Natixis may record in its financial statements could prove insufficient. Actions instituted against Natixis (including ongoing proceedings) could result in unfavorable arbitration or administrative decisions by the courts, leading to fines or penalties that could thus have a negative impact on its business and financial position. For a detailed description of the most significant ongoing disputes involving Natixis, please refer to Section 3.2.9 of this registration document.
Furthermore, some measurement metrics and tools, such as certain rating or VaR measurement models (as defined in Section 3.2.5.3 of this registration document) that Natixis uses to manage its risks are based on observed historical market behavior. To quantify its risk exposure, Natixis then conducts a primarily statistical analysis of these observations (see Section 3.2.5.4 of this registration document for a detailed description of the risk management framework). The measurement metrics and tools used may provide inaccurate conclusions on future risk exposures, mainly because of factors that Natixis has not anticipated or correctly assessed or taken into account in its statistical models, or because of unexpected and unprecedented market trends that could reduce its ability to manage its risks. Consequently, the losses borne by Natixis could prove far greater than those forecast based on historical averages. Moreover, Natixis’ quantitative models do not incorporate all risks. Certain risks are subject to a more qualitative analysis that could prove insufficient and thus expose Natixis to significant and unanticipated losses.
Like most of its competitors, Natixis relies heavily on its communication and information systems to process a high volume of increasingly complex transactions for its businesses (see the risk management framework in Section 3.2.8.5 of this registration document for a description of Natixis’ communication and information systems).
Although Natixis has made data transmission security a priority, any breakdown, interruption or failure of these communication and information systems could result in errors or interruptions to the systems it uses for customer relationship management, the general ledger, deposit and loan processing transactions, and/or risk management. If, for example, Natixis’ information systems shut down, even for a short period, it could be unable to meet customers’ needs in a timely manner and could thus lose business opportunities.
Furthermore, the inability of Natixis’ communication and information systems to accommodate an increasing volume of transactions could also undermine its business development capacity.
Unforeseen events, such as a severe natural disaster, pandemic, terrorist attack, or any other state of emergency, could lead to a sudden interruption of Natixis’ operations and cause substantial losses insofar as they are not covered or are insufficiently covered by an insurance policy. At December 31, 2018, Natixis conducted 53.6% of its business in France and is therefore more exposed to risks related to events that could occur in that country, such as natural disasters, strikes, protests and terrorist attacks. In the past, for example, Natixis had to contend with the
RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk factors 113Natixis Registration Document 2018
In the course of business, Natixis is exposed to employee or third-party actions and behaviors that are unethical or violate laws and regulations and that could damage its reputation and expose it to sanctions
Natixis’ Code of Conduct, applicable to all Natixis employees, formalizes the general principles of conduct that apply at Natixis and establishes guidelines for all employees regarding the behavior expected in the performance of their duties and responsibilities.
Any person working at Natixis, or at an entity at least 50% owned by Natixis, must comply with the Code of Conduct, whether this person is a permanent or temporary employee. This requirement is in addition to commitments to comply with applicable internal rules and national and international laws and regulations.
The occurrence, whether once or repeatedly, of one or more of the risks identified in this section, in addition to the specific negative impact it causes, could tarnish Natixis’ reputation and, as such, affect its business outlook and thus its financial results.
Natixis’ business model is based on expertise in various business areas, which in turn requires qualified employees. High turnover or the departure of talent could affect Natixis’ skills and know-how in key areas, which could reduce its business outlook and consequently affect its financial results.
Adverse market or economic conditions may negatively affect Natixis’ profitability and financial position
Natixis is the Groupe BPCE subsidiary that carries out its Asset & Wealth Management, Corporate & Investment Banking and Specialized Financial Services activities; it operates in three key regions: the Americas (29% of net revenues for the fiscal year ended December 31, 2018), Asia-Pacific (2% of net revenues for the fiscal year ended December 31, 2018) and EMEA (Europe, Middle East and Africa, 69% of net revenues for the fiscal year
Natixis may not achieve the goals of its strategic plan, which could adversely affect its financial position and the market value of its securities
Natixis may be unable to meet the objectives set out in its “New Dimension” strategic plan for the period from 2018 to 2020, or in any future or replacement strategic plan. The New Dimension plan, announced on November 20, 2017, aims to contribute to the development of high value-added solutions for Natixis’ clients. The strategy focuses on three initiatives: deepening the transformation of Natixis’ business models; investing in digital technologies and external growth opportunities; and seeking to become clients’ key representatives in areas where Natixis’ teams have developed strong and recognized expertise (see pages 4-5 of the registration document for a detailed description of the New Dimension strategic plan).
The New Dimension strategic plan contains forward-looking information and guidelines, and while Natixis believes the plan provides a number of opportunities, it will face uncertainties related to the potentially volatile state of financial markets and the global economy. There is therefore no guarantee that Natixis will achieve the goals of this new strategic plan or any other strategy it announces or undertakes in future periods. In particular, in connection with the New Dimension strategic plan, Natixis announced certain financial targets, mainly profitability and risk-weighted asset growth rates, capital generation targets and shareholder dividend objectives, as well as targets for regulatory capital ratios and strategic initiatives and priorities. The financial objectives were established primarily for purposes of planning and allocation of resources, are based on a number of assumptions, and do not constitute projections or forecasts of income. The actual results of Natixis are likely to vary significantly from these targets. If Natixis does not realize these objectives, its financial position and the market value of its securities could be adversely affected.
Natixis may encounter difficulties in identifying, executing and integrating its policy in relation to acquisitions or joint ventures
Natixis may consider external growth or partnership opportunities from time to time. While Natixis closely reviews the companies it plans to acquire and the joint ventures it plans to engage in, it is generally not feasible for these reviews to be exhaustive. As a result, Natixis may have to assume unforeseen liabilities. Similarly, the expected benefits of an acquisition or joint venture may not be obtained, expected synergies may only be partly achieved (or not achieved at all), or the transaction may give rise to higher-than-expected costs. Natixis may also encounter difficulties in consolidating a new entity. The failure of an announced external growth operation or the failure to consolidate the new entity or joint venture is likely to materially affect Natixis’ profitability. This situation could also lead to the departure of key employees. Insofar as Natixis may feel compelled to offer its employees financial incentives in order to retain them, this situation could also result in increased costs and an erosion of profitability. In the case of joint ventures, Natixis is subject to additional risks and uncertainties in that it may be dependent on systems, controls and personnel not under its control and which could subject Natixis to liability, losses or reputational damage. In addition, conflicts or disagreements between Natixis and its joint venture partners may undermine the benefits sought by the joint venture.
In this changing legislative and regulatory environment, it is impossible to predict the impact these new measures will have on Natixis. Natixis is incurring, and could incur in the future, significant costs to update or develop programs to comply with these new legislative and regulatory measures and to update or develop its information systems as a response to or in anticipation of the new measures. Despite its efforts, Natixis may also be unable to achieve full compliance with all applicable legislation and regulations and could thus be subject to financial or administrative penalties. Furthermore, the new legislative and regulatory measures may require Natixis to adapt its businesses and/or could therefore affect its results and financial position. Lastly, the new regulations may require Natixis to raise new capital at a time when it is costly or difficult to do so, or could increase its overall funding costs.
A deterioration in market conditions, and in particular excessive up and down movements in interest rates, could have a material adverse impact on Natixis’ life insurance business and its income
RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk factors 115Natixis Registration Document 2018 in the case of higher rates: reduce the competitiveness of thea euro-denominated offer (by making new investments more attractive) and cause waves of redemptions on unfavorable terms with unrealized capital losses on outstanding bonds; in the case of lower rates: in the long term, make the return ona the general funds too low to enable them to meet their capital guarantees.
Due to the allocation of the general funds, a widening of spreads and a fall in the equity markets could also have a material adverse impact on the results of Natixis’ life insurance business.
A mismatch between the claims expense anticipated by the insurer and the actual benefits paid by Natixis to policyholders could have a material adverse impact on its general insurance business, results and financial position
The main risk to which Natixis’ insurance affiliates are exposed in their general insurance business is underwriting risk. This risk results from a mismatch between, first, the claims actually incurred and the benefits actually paid as compensation for these claims and, second, the assumptions that the affiliates use to set the prices for their insurance products and to establish technical reserves for potential compensation.
To the extent that the actual benefits paid by Natixis to policyholders are higher than the underlying assumptions used in initially establishing the future policy benefit reserves, or if events or trends were to cause Natixis to change the underlying assumptions, Natixis may be exposed to greater-than-expected liabilities, which may adversely affect Natixis’ general insurance business, results and financial position.
The European regulation establishing a framework for the recovery and resolution of credit institutions and investment firms and the texts transposing these rules into French law (the BRRD regulation) aim primarily to establish a single resolution mechanism giving the resolution authorities “bail-in” powers. The purpose of these powers is to counter any systemic risk linked to the financial system and, more specifically, avoid any financial intervention by the State in the event of a crisis. If a financial institution (or the group to which it belongs) subject to the BRRD defaults or is close to defaulting, these powers allow the authorities to impair, cancel or convert the financial institution’s eligible securities and commitments into shares.
The implementation of resolution measures would also significantly affect Natixis’ ability to make the payments required by such instruments or, more generally, honor its payment to third parties.
Natixis organizes its control functions on a global basis in order to ensure consistency of the internal control mechanism throughout the Company. Second-level permanent and periodic control functions within subsidiaries or businesses report to Natixis’ corresponding central control departments, either on a functional basis in the case of subsidiaries or on a hierarchical basis in the case of business lines.
The purpose of this organization is to ensure adherence to the following principles: a strict segregation of duties between units responsible fora performing transactions and those that approve them, in particular accounting teams; strict independence between the operational and functionala units responsible for undertaking and validating transactions, and the units that control them.
Coordinating the system as a whole is the Control Functions Coordination Committee.
* Accounting, fiscal and regulatory controls performed by the Finance Review department, reporting hierarchically to the Accounting and Ratios department within Finance, and functionally to the Compliance Department.
The Control Functions Coordination Committee (CFCC) is chaired by the Natixis Chief Executive Officer or his substitute, the Corporate Secretary. Its members are the Heads of Risk, Compliance, Internal Audit, as well as the Head of the Regulatory and Accounting Review Team, the Corporate Secretary of the Risk Division, Compliance and Permanent Controls of BPCE and, as required, certain operational or functional managers. The CFCC coordinates the entire internal control system by: addressing all issues pertaining to the organization anda planning of control services; highlighting areas of emerging or recurring risk within thea scope under consideration and reporting any significant anomalies observed to the executive body (for example, monitoring the backlog of the main corrective measures); and providing the executive body with updates on ongoinga controls performed by internal or external control functions, or by regulators, and ensuring that the conclusions from these undertakings are taken into account by the operational business lines.
First-level permanent controls are carried out by operational or functional staff on the transactions they perform, following internal procedures and legal and regulatory requirements. Transactions may be subject to a control by operational staff themselves (level 1.1.) and to a separate control by line management or by a functional department responsible for validating these transactions (level 1.2).
At December 31, 2018, 2,286 level 1.2 controls were reported (mostly on a quarterly basis).
It conducts audits across the whole of Natixis (parent company, subsidiaries and branches) and covers all classes of risk arising from the various business activities carried out. It has full and unrestricted access to all information, confidential or otherwise. Its field of investigation encompasses all of Natixis’ operational activities, its functional departments—notably including entities in charge of permanent control assignments—and its outsourced activities. For all the business lines, these audits result in an assessment of the suitability of existing control points in the processes audited as well as an appraisal of the
The Internal Audit Department monitors the implementation of recommendations and presents its findings to Natixis’ Senior Management Committee, the Risk Committee and the Board of Directors via the Chairman of the Risk Committee. To this end, it performs due diligence and carries out follow-up audits.
Natixis' annual and multi-year audit plans are approved by its Chief Executive Officer. The Annual Audit Plan is examined by the Risk Committees of Natixis and BPCE and approved by the Natixis Board of Directors.
In 2018, the Internal Audit Department conducted audit assignments on all risk classes to which Natixis’ activities are exposed. It dedicates a significant share of its resources to assignments of a regulatory nature, by working with Natixis on its new obligations (New Definition of Default, ICAAP), as well as assignments conducted in Natixis’ subsidiaries pursuant to audit agreements entered into with them.
Several specialist projects involved all Internal Audit staff in 2018. These included: follow-up to the 2018 independent review by an externala consultant of the self-assessment of the quality of audits conducted in 2017; improving the quality of audits by implementing most of thea recommendations of the 2017 and 2018 audits and taking further action to reduce the turnaround times for audit reports; strengthening the organization and resources of Natixis’a Internal Audit function by building expertise in the area of data science (recruitment of an expert and selection of a specialized tool for use in all for all audits); stepping up the general oversight of the work of the ninea international and subsidiary audit teams (formalizing and following up the implementation of audit plans, inspectors’ skills and training, etc.); strengthening the system for following up recommendationsa by introducing an alert on the platforms and in the subsidiaries whenever a recommendation has not been implemented in a timely manner, similar to the system used by the Group;
RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management 119Natixis Registration Document 2018 upskilling the Internal Audit team by upgrading the traininga program and revisiting its content (particularly to include regulatory updates); continuing to actively draft and update audit guides, anda implementing a tool for monitoring model risks, carried out jointly with BPCE’s General Inspection.
Natixis’ risk management is based on independent control functions, each addressing the risks falling within their scope of oversight.
It manages the risk appetite framework, recommends risk policies consistent with those of Groupe BPCE to Senior Management for approval, and makes proposals to the executive body on principles and rules in the following areas: risk decision-making procedures;a limit authorizations;a risk measurement;a risk oversight.a
It plays an essential role within the Committee structure, the highest-level Committee being Natixis’ Global Risk Committee, which meets once per quarter.
The duties of Natixis’ Audit Committee are essentially: to monitor the process of preparing financial information (thea financial statements, the management report, etc.) and to make recommendations to guarantee the integrity of this information; to monitor the statutory audit of the quarterly, half-yearly anda annual consolidated financial statements and annual individual financial statements, as well as Natixis’ draft budgets and material off-balance sheet commitments, far enough in advance that they can be presented to Natixis’ Board of Directors, as well as the half-yearly and annual management reports; to monitor the effectiveness of the internal control and riska management systems with regard to the procedures for preparing and processing accounting and financial information; to ensure the independence of the Statutory Auditors;a
The executive managers, under the supervision of the Board of Directors, are responsible for implementing Natixis’ internal control system in its entirety.
At least one of the Bank’s executive managers or one of his or her delegates chair the main Special Committees on risk: the Global Risk Committee (CRG), the Natixis Credita Committee, the Market Risk Committee, the Operational Risk Committee, the Watchlist and Provisions Committee; the ALM Committee;a the Control Functions Coordination Committee.a
The Risk division, which reports to the Chief Executive Officer, is responsible for measuring, monitoring and managing the risks inherent to the business activities, in particular market and liquidity risk, credit and counterparty risk, and operational and model risk.
The Legal Department, also reporting to the Corporate Secretary, ensures legal regulatory compliance.
The Internal Audit Department reports to the Chief Executive Officer and performs audits on existing control points in the audited processes and evaluate the risks generated by the activities under audit.
Each Natixis entity is responsible for the first-level management of its risks within its scope.
Furthermore, the new Code of Conduct adopted by Natixis in December 2017 is an effective means of inculcating the risk culture, as it defines the rules of conduct applicable to all employees and encourages greater involvement and accountability. Four guiding principles serve as the building blocks of Natixis’ DNA and are adapted to each profession and function. The rules fall into the following themes: being client-centric;a behaving ethically;a acting responsibly towards society;a protecting Natixis' and Groupe BPCE’s assets and reputation.a
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For each identified risk and selected indicator, the risk appetite operating mechanism relies on two successive levels: an overall limit setting the risk envelope allocated to thea business lines; and a warning threshold on the maximum risk that, if exceeded,a would pose a risk to Natixis’ business continuity and/or stability and would have to be reported immediately to the Board of directors, BPCE and the ECB.
The risk appetite framework forms part of Natixis’ main processes, especially regarding: risk identification. every year risks are mapped to give ana overview of the risks to which Natixis is or could be exposed. With this approach it is possible to identify material risks, the indicators of which are included in the risk appetite framework; in the budget process and overall stress tests.a
Natixis is exposed to a set of risks inherent to its activities, which may change, particularly as a result of regulatory requirements.
Credit risk affects lending operations as well as other operations exposing Natixis to the risk of counterparty default, notably its trading operations in financial instruments on Capital Markets and its settlement-delivery operations.
In general, securitizations have the following characteristics: they result in a material transfer of risk where the transactiona is originated by Natixis; payments made in the course of the transaction depend ona the performance of the underlying exposures; the subordination of tranches, defined by the transaction,a determines the distribution of losses over the term of the risk transfer.
Market risk is the risk of loss in value caused by any adverse fluctuations in market parameters. These parameters include
Natixis’ overall interest rate risk is defined as the risk of loss on the banking portfolio due to mismatches between interest rates on assets and on liabilities.
As is the case for most corporate and investment banks, Natixis has very few assets and liabilities generating structural interest rate positions. Natixis’ overall interest rate risk concerns contractual transactions. The most significant positions concern exposures to the short end of yield curves and are predominantly linked to the lag between IBOR fixing dates. This is therefore classed as a secondary risk at the bank level.
Liquidity risk is the risk that Natixis will be unable to honor its commitments to its creditors due to the positive difference of maturities between assets and liabilities. This risk could arise, for example, in the event of massive withdrawals of customer deposits, a crisis of confidence, or an overall market liquidity crisis. As a corporate and investment bank, this risk for Natixis results primarily from mismatched positions between transactions with contractual maturities, as Natixis has fewer stable and permanent customer resources than retail banks and partly funds its operations on the markets.
RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management 123Natixis Registration Document 2018
Structural foreign exchange risk is defined as the risk of transferable equity loss generated by an unfavorable fluctuation in exchange rates against the currency used in the consolidated accounts due to a mismatch between the currency of net investments (refinanced by purchases of the same currency) and the currency of equity.
Reputational risk is the risk of damage to the confidence shown in the Company by its customers, counterparties, suppliers, employees, shareholders, supervisors, or any other third parties whose trust, in whatever respect, is a prerequisite for the normal conduct of business.
Insurance business-related risk: insurance risk is the risk to profits of any difference between expected and incurred claims. Depending on the Insurance product in question, the risk varies according to macroeconomic changes, changes in customer behavior, changes in public healthcare policy, pandemics, accidents and natural disasters (such as earthquakes, industrial accidents or acts of terrorism or war).
Climate risk is the increased vulnerability of businesses to variations in climate indices (temperature, rainfall, wind, snow, etc.).
The purpose of global internal stress tests is to assess the impact of a baseline scenario and of stressed scenarios on a bank's income statement, risk-weighted assets and equity.
They are translated into levels or shocks to economic and financial variables, such as GDP, inflation, employment and unemployment, interest and exchange rates, and commodity prices, over a three-year period. These variables are factored into projection models used by Natixis to apply stress to the various aggregates of the income statement, risk-weighted assets and equity.
A second scenario, developed to show a much stronger impact on Natixis’ earnings, suggested G7 economies would heat up, lifting inflation. This would be aggravated by higher oil prices. The overheated economy would send equity markets plunging and cause credit spreads to widen. The increase in long-term rates would significantly affect the banking sector, dragging down the real estate market starting in 2019. These shocks would cause 2020 GDP to fall in various countries while global trade would decrease.
Regulatory stress tests comply with the ad hoc requirements of the ECB, the EBA and any other supervisor: the last regulatory exercise was performed in 2018 using the methodology published by EBA for the ECB. Natixis contributed to the exercise for Groupe BPCE’s scope.
The specific stress test exercises performed by the Natixis Risk division are detailed in the dedicated sections of this document (namely with regard to the credit stress tests detailed in section 3.2.3, subsection 3.2.3.9 “Commitment monitoring framework”, as well as the market stress tests detailed in section 3.2.5, subsection 3.2.5.3 “Market risk measurement methods”).
Natixis now has some 20 risk policies, which are regularly revised and cover the various Corporate & Investment Banking business lines (corporate, LBO, aircraft finance, real estate finance, project finance, commodities finance, banks, insurance, etc.) and the subsidiaries’ various activities (e.g. leasing for Natixis Lease and Factoring for Natixis Factor, etc.).
The framework these risk policies set out makes a distinction between recommendations based on best practices, and strict (qualitative or quantitative) supervisory criteria, any deviation from which affects the decision-making process and the usual system of limit authorizations.
This framework helps to monitor the concentration of the bank’s commitments in relation to a given sector or type of risk.
The qualitative framework is, for its part, structured around the following criteria: business sectors: preferred sectors, banned sectors;a targets: customers to be targeted or excluded based ona various criteria (size, rating, country of operation, etc.);
RISK FACTORS, RISK MANAGEMENT AND PILLAR III Risk management 125Natixis Registration Document 2018 structuring: maximum durations, financial ratios, contractuala clauses, collateral arrangement, etc.; products.a
which Natixis S.A. is not authorized to use the EEPE model, exposure is determined using the mark-to-market method.
For the purpose of determining capital requirements for counterparty risk, the European Central Bank has partially authorized Natixis S.A. to use the internal EEPE (Effective Expected Positive Exposure) model to calculate exposure. For other Group entities, as well as the scope of operations for
The limits are defined depending on the counterparty risk profile and after analysis of all information relevant and useful for decision-making purposes.
General wrong-way risk is covered through Wrong Way Risk stress scenarios by asset class.
Pursuant to regulatory requirements, all counterparties in the banking book and the related exposures must have an internal rating if they: carry a loan or are assigned a credit limit;a guarantee a loan;a issue securities used as collateral for a loan.a
The internal rating mechanism is based on: internal rating methodologies specific to the various Basela asset classes and consistent with Natixis’ risk profile; there is a unique rating procedure and methodology for each asset class; an IT system used for managing the successive stages of thea rating process, from the initiation of the process to the approval and logging of the complete process; procedures and controls that place internal ratings at the hearta of the risk management system, from transaction origination to ex-post analysis of defaulting counterparties and the losses incurred on the relevant loans; periodic reviews of rating methodologies, the method fora calculating the LGD and the underlying risk inputs.
Ratings are established based on two approaches, namely statistical approaches and expert appraisals.
INDICATIVE EQUIVALENTS BETWEEN INTERNAL RATINGS BASED ON EXPERT APPRAISAL AND EXTERNAL AGENCY R RATINGS (CORPORATES, BANKS, SPECIALIZED FINANCING INSTITUTIONS)
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For Natixis, the Corporate (including Structured Finance), Interbank and Sovereign portfolios, which are handled using dedicated rating tools, have the lowest default rates (Low Default Portfolios). These portfolios are backtested in accordance with their specific nature, namely the low number of defaults and the difficulty in creating and maintaining a PD scale based on internal data.
The severity of the internal ratings compared with the agency ratings is examined. Natixis therefore analyzes all the internal ratings of counterparties that are also rated by the rating agencies (Standard and Poor’s, Moody’s and Fitch). The extent to which the risk assessments are aligned can be determined through these analyses.
CANO Meetings are chaired by the heads of the Individual Risk and Consolidated Credit Risk Departments within the Risk division, or by their representatives. The follow-up on the decisions made during Committee Meetings are presented at subsequent meetings, particularly if thresholds have been breached and this situation has not been rectified.
All of these analyses are also presented each quarter to the Chief Risk Officer and sent to the regulator.
LGD, CCF and ELBE backtesting is carried out by the Risk divisions teams to: verify that the model is correctly calibrated;a assess the model’s discriminating power;a assess the model’s stability over time.a
Loss given default models (internal LGD) are calculated: on a statistical basis for the Corporate asset class;a based on internal and external histories and an externala benchmark for banks and sovereigns; using stochastic models if there is a claim against a financiala asset.
The results of the backtesting may result in the recalibration of the risk input, where appropriate.
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12 Expert analysis-based rating models by business sector for corporates and statistical models for SMEs (scores)
4 Statistical models (decision trees or assessment of recoverable assets) by type of financed asset. The safety buffers included in the LGD models serve to cover periods of decline (primarily via bootstrap techniques).
Specialized Financing 4 Models used to assess assets on resale. Assumptions of asset disposals are based on adverse scenarios
Lease Financing 3 Statistical models (decision trees) by type of financed asset. The safety buffers included in the LGD models serve to cover periods of decline (primarily via bootstrap techniques).
Consumer Finance 1 Rating model based on historical behavior since 2002. The model includes segmentation and a score.
Credit risk mitigation is a technique to reduce the credit risk incurred by the bank in the event of counterparty default which can be partial or total.
In accordance with regulatory provisions, the bank performs the valuation of guarantees, periodically reviews these valuations and carries out any necessary adjustments.
Financial guarantee: eligibility is determined by the relevanta legal framework, the nature of the guarantee (financial collateral, real collateral or netting agreement) and borrower, as well as liquidity. It must be valued at least once a year and meet all of these conditions: all the legal documents are binding to all parties and arej legally valid in all relevant jurisdictions, the bank has the right to realize or take ownership of thej collateral in case of default, insolvency or bankruptcy, there is no material positive link between the quality of thej counterparty credit and the value of the collateral, the asset must be liquid and its value sufficiently stable overj time for its realization to be certain.
Natixis’ commitments are measured and monitored on a daily basis using dedicated consolidation systems. An IT system enables comprehensive consolidation of limits and credit exposures across a scope covering all of Natixis’ exposure to credit risk and most of that of its subsidiaries.
The Risk Division provides Senior Management and the Bank’s business heads with reports analyzing Natixis’ risks: trend analyses, indicators, stress test results, etc.
Credit risk is supervised by making the various businesses accountable, and by various second-level control measures overseen by a dedicated Risk division team.
The Natixis Watchlist and Provisions Committee meets once a quarter and covers all the bank’s businesses. It reviews all non-performing loans under watch that may give rise to provisions or adjustments to existing provisions, and decides on the amount of provisioning necessary.
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In addition to individual provisions, Natixis records provisions for expected credit losses (ECL) at initial recognition.
The system is a true risk management tool, with scenarios that are regularly introduced and revised. The Risk division regularly works on improving the methods used and adding to the scopes defined for the stress scenarios, with particular attention paid to the market stress requirements.
EAD, RWA AND CAPITAL REQUIREMENTS BY BASEL APPROACH AND EXPOSURE CLASS (NX01)R
Exposures secured by mortgages on immovable property 1,195 559 45 1,025 498 40
Exposures to institutions and corporates with a short-term credit assessment 643 413 33 382 200 16
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Exposures secured by mortgages on immovable property 1,279 169 1,195 84 1,124
EAD BY GEOGRAPHIC AREA AND BY BASEL EXPOSURE CLASS (NX05)R (Data certified by the Statutory Auditors in accordance with IFRS 7)
Exposures secured by mortgages on immovable property 1,156 37 2 1,195
Exposures to institutions and corporates with a short-term credit assessment 412 13 43 299 767
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 134 Natixis Registration Document 2018
The following table shows the breakdown of exposures at risk by internal rating (S&P equivalent) for asset classes measured using the IRB approach, excluding: exposures to equities (calculated using a simple weighting);a pool-based exposures (acquired portfolios) and third parties grouped into homogeneous risk classes;a securitization positions.a
Reclassification of central bank exposures from AA- to AA+ for the US central bank and from AA- to AA for the French central bank in the interest * of better alignment with their external ratings (modification of the theoretical allocation principle: level 1 internal rating, or equivalent to an S&P rating of between AAA and AA-, with allocation to an AA- rating).
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.
Like vanilla finance transactions, securitization structures and transactions are reviewed at least once a year, while transactions on the watchlist are re-examined at least once a quarter.
the first involves the daily identification of all ratinga downgrades affecting BPCE’s securitization positions as well as the associated potential risks and, if necessary, deciding on an appropriate course of action; The second is underpinned by a quantitative (ratings,a valuations) and qualitative analysis of securitization positions for the purpose of segmenting the portfolio on the basis of risk levels.
The results of these analyses are written up and discussed in a quarterly presentation at the meeting of the Watchlist and Provisions Committee.
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/Mountcliff. For both vehicles, Natixis plays a predominant role in the selection and management of acquired receivables as well as the management of the issuance program, thus giving it power over the conduits’ relevant activities and influence over the amount of their returns. In contrast, given that Natixis is not part of the governing body holding the power to decide on Magenta's relevant activities, this conduit is not consolidated in Natixis’ regulatory consolidation scope.
The IRC (Incremental Risk Charge) 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.
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The internal IRC calculation model used by Natixis was approved by the Autorité de Contrôle Prudentiel et de Résolution in 2012.
The valuation of Natixis’ various market products forms part of the independent control system made up of dedicated procedures.
In accordance with the provisions of IFRS 9, financial instruments are recognized at their fair value. (See Chapter 5 of the Natixis 2017 registration document for further information on fair value accounting methodologies.)
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Independent price verification is carried out by the “Service des Résultats” Department’s IPV (Independent Price Verification) teams which, in line with the division’s charter, control the market inputs used in the valuation process for the bank’s transactions. The review of market inputs may lead to valuation adjustments recognized in economic results and the financial statement.
IPV governance is based in particular on: a supervision mechanism overseen by various committeesa (Observability and Inputs Committee, Valuation Committee, IPV Committee); a policy and set of procedures, explaining the validation anda escalation system; a set of weekly and monthly reports;a dedicated tools.a
Moreover, the Market Risk Department’s teams carry out second-level monthly controls of market inputs.
This independent validation verifies the evaluation of financial instruments traded and the suitability of the model. In accordance with the validation procedures, these reviews cover the following aspects: the theoretical and mathematical validation of the model, thea analysis of assumptions and their justification in model documentation; algorithm validation and benchmarking;a the model’s stability and convergence of the numerical methoda in a stress scenario; the assessment of implied risk factors and calibration, thea analysis of input, and the upstream identification of models; the measurement of model risk and validation of the relateda reserves methodology.
These models may be subject to backtesting and monitoring in terms of quality and solidity to ensure that the applied risk parameters correspond to the value ranges projected upon their validation. These models are also reviewed periodically, with the periodicity and depth of the review depending on the level of materiality. Conclusions from validation work are presented to the Valuation Models Oversight Committee which brings together model designers and validators on a quarterly basis and contradictory issues are discussed. Conclusions from these Committee Meetings are reporting to the Model Risk Management Committee, chaired by the Chief Risk Officer who is a member of the Senior Management Committee. This
Adjustment amounts are updated on a monthly basis and reported to Natixis Senior Management. Changes in methodology applied to adjustment calculation are submitted for independent validation by the Model Risk & Risk Governance teams.
The following table presents the key VaR figures: (in millions of euros)
The breakdown of the VaR by risk factor provides a picture of the monthly contribution of the main risks and the netting effects in terms of VaR.
Consolidated VaR increased by +€8.3 million from December 29, 2017 to December 31, 2018, due in large part to a deterioration in the Asian markets, which had an adverse impact on the equity risk in Natixis’ portfolios.
The following chart shows results of backtesting (ex-post comparison of potential losses, as calculated ex-ante by VaR, with actual P&L impacts) on the regulatory scope, and can be used to verify the reliability of the VaR indicator: /1 2/
The exception on June 19, 2018 was related to the remarking of the US yield curves used in New York. This loss amounted to -€10.2 million in profit and loss.
The last backtesting exception, recorded on October 30, 2018, was mainly due to strong variations of several risk factors (equity and foreign exchange volatility, equity correlation) combined to remarking regarding Asia Equity Solutions desk. This loss amounted to -€12.2 million in profit and loss.
Natixis’ regulatory stressed VaR averaged €13.2 million. It peaked at €19.7 million on December 24, 2018, and bottomed out at €8.5 million on August 7, 2018, and stood at €16 million at December 31, 2018.
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Overall stress test levels reached a negative average level of -€13 million at December 31, 2018, versus +€55 million at
The historical stress test replicating the sovereign debt crisis in 2011 gave the maximum loss (-€82 million at December 31, 2018).
In flu en tia l I ss ue r d ef au lt
The function in charge of monitoring operational risk ensuring the monitoring and management of risks arising from failures attributable to operating procedures, employees and internal systems or arising from outside events.
Its duties as described in the operational risk policies and procedures validated by the Natixis Operational Risk Committee include: recording incidents via a network of Operational Risk Officersa across all business lines and support functions; analyzing serious incidents using an escalation process;a mapping potential risks, both qualitatively and quantitatively,a based on a risk self-assessment and audits carried out by the business lines; links with other control functions;a establishing key risk indicators and environmental variables ofa a predictive nature.
The mechanism is managed by Natixis’ Operational Risk Committee which determines the operational risk policy, monitors Natixis’ operational risk exposure and makes final decisions on hedging and reduction. It is the operational extension of the executive body and of which it has full decision-making powers for issues within its area of responsibility. This Committee meets quarterly and is attended by the Finance Department, the Compliance Department, ITSS-BC and the Internal Audit Department. It is chaired by the Chief Executive Officer, the Chief Risk Officer (his substitute), with the Head of the Operational Risk Department acting as secretary. The standing members of the Operational Risk function, apart from the Head of the department, are the departments’ Heads of Operational Risk and the Data & Methods Officer.
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.
This framework is managed using a single information system that has been deployed across the Company’s entities, business lines and support functions in France and internationally. It is available in French and English and hosts all the components of the operational risk oversight system (incidents, mapping of quantified potential risks, risk management systems, key risk indicators, corrective actions, committees, etc.). The accuracy of the information entered or approved by the operational risk managers is ensured through reconciliation with information from other functions (accounting, compliance, legal, IT Systems Security, data quality, insurance, etc.).
Every year the department in charge of monitoring operational risks, in conjunction with the other control functions, works with each business line, entity and support function to map operational risks. The exercise involves identifying and descriptively analyzing risks, quantifying the risk situations (average frequency, average and maximum loss), and taking into account existing risk management mechanisms. This mapping is based on process analysis and is carried out for all the bank's activities. Its consistency is verified through backtesting, in other words by using the incident history, as well as external data where relevant.
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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 Specialized Financial Services, Insurance and Private Banking. 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 Operational Risk Department) are reported immediately to the business line’s management and to Natixis’ Chief Risk Officer.
Following an investigation involving all relevant parties, the operational risk manager of the business line compiles a standardized full report, including a factual description of the event, the analysis of the initial cause, the description of the impact and the proposed corrective actions. At every level of the Company, the business line Operational Risk Committee
Natixis has implemented measures in every business line and support function to monitor the corrective actions to reduce the Bank’s exposure to operational risks. Nearly 64% of the almost 450 corrective actions initiated in 2018 were implemented by the business lines in charge and are monitored by the business line and central Operational Risk Committees. These actions, defined to reduce and resolve operational risk, are ranked by priority depending on the risks incurred. An alert system has been set up to prompt assessment by the Natixis Operational Risks Committee of any delays in implementing first-level corrective actions.
Reporting to the Natixis Insurance division, the Groupe BPCE Risk Insurance Department is responsible for: analyzing insurable operational risks;a taking out appropriate insurance coverage (direct insurancea and/or transfer).
Natixis and its subsidiaries benefit from the guarantees provided in the following main insurance programs: covering its insurable operational risks; and which are pooleda with Groupe BPCE (with the exception of the risk described in point a) below); A combined “Global Banking (Damages to Valuables anda Fraud)” & “Professional Liability” policy with a total maximum payout of €148 million per year of insurance (of which €133 million has been pooled with Groupe BPCE), of which: €15 million per year, combined “Fraud/Professional Civila) Liability” insurance available, subordinate to the amounts guaranteed set out in b) and/or c) and/or d) below, €38 million per claim and per year, solely reserved forb) “Global Banking” risk, €25 million per claim and per year, solely reserved forc) “Professional Civil Liability” risk, €70 million per claim and per year, combined “Globald) Banking/Professional Civil Liability” insurance available in addition to or after use of the amounts guaranteed set out in b) and/or c) above.
This coverage extends worldwide for initial risk or umbrella risk, subject to certain exceptions, mainly in terms of “Professional Civil Liability” where the policy does not cover permanent institutions based in the United States (where coverage is obtained locally by Natixis’ US operations).
Furthermore, since mid-2011, Natixis’ funding structure has relied on a Joint Refinancing Pool shared by Natixis and BPCE. Placed under the authority of the Group ALM Committee, this platform was implemented in order to secure the Group’s financing and optimize the management of collateral and allocation of liquidity within the Group in accordance with predefined rules, with the aim of limiting the use of market financing and reducing funding costs.
In particular, responsibilities for debt issues are as follows: BPCE is in charge of Natixis’ medium and long-term funding for public and private sector senior or subordinated vanilla funding transactions; Natixis is the MLT issuer for Groupe BPCE in all structured private sector refinancing transactions.
market depth tests conducted by the Joint Refinancing Pool:a these liquidity tests aim to explore the limits established by our counterparties on our issues.
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The diversification strategy that has been underway for several years now was further fortified in 2018, when liquidity remained abundant and fluid liquidity—particularly for the US dollar—but long-term liquidity spreads rose, in step with the adjustment in investor risk premiums to international conditions (trade tensions between the US and China, Italy, Brexit, economic slowdown, etc.).
WEIGHT OF GROSS ON-BALANCE SHEET FUNDING ■ SOURCES BY MAJOR CATEGORY OF VEHICLE AND/OR BY CUSTOMER SEGMENT AT END-2018 REPORTING DATE Sources: Management data
As expected, the Fed raised its interest rates at the end of each quarter of 2018. US long-term interest rates initially responded to the Fed’s intervention, peaking at 3.24% at the beginning of November. The sharp reversal of equity markets at the end of 2018 also led to a flattening of the yield curve. This movement suggests that the market anticipates a slowdown in US economic activity in the coming years.
(in millions of euros or euro equivalents) Certificates of deposit Commercial papers
In Europe, attention has been focused on Prime Minister Theresa May’s negotiations over Britain’s departure from the European Union. The Brexit issue is still uncertain. Italy was also a central focus after the new Italian government submitted a 2019 budget showing a deficit in excess of -2% (vs. the -0.8% announced by the previous government). The 10Y Bund-BTP spread, which was 162 bp at the start of the year, closed at 252 bp in 2018.
Meanwhile, the ECB halted its quantitative easing (QE) bond-buying program in December, as expected. However, the €2,600 billion stockpile of government and corporate bonds held by the ECB will be maintained since the central bank is committed to reinvesting cash from maturing debt for an indefinite period.
(in millions of euros or euro equivalents) EMTN NEU MTN US MTN Bond issues
“structural” foreign-exchange position that is restated for translation adjustments when it purchases foreign currencies to fund strategic long-term net investments in foreign entities, while non-strategic net investments in local currencies are funded with loans.
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This risk is measured in terms of the sensitivity of a portfolio's economic value by bp on the yield curve and by currency. For the largest portfolios it is controlled through limits approved and monitored by the Market Risk Committee, chaired by the CEO. In accordance with the French Ministerial Order of November 3, 2014, an overall limit was also defined and approved by the Board of Directors.
MEASURE OF SENSITIVITY TO A +1 BP VARIATION IN INTEREST RATES BY MATURITY AT DECEMBER 31, 2018■
Interest rate gap indicators factor in all asset and liability positions and variable-rate positions until the next interest reset date: they compare the amount of liability exposures to the amount of asset exposures using the same interest rate index and over different maturities.
Given its nature, overall interest rate risk is a marginal risk for Natixis and calls for no special comments.
Other financial liabilities held for trading purposes —excluding trading derivatives 124.3 124.7 15.2 63.5 9.9 1.8 4.1 1.4 3.7 4.3 20.8
Less than 1 month months months 6 months to 1 year years years
See 3.2.2 Governance and risk management system—Risk typology for a definition of compliance risk
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 Code of Conduct and its implementation), which are also included, as regards compliance, in the Compliance Manual.
data protection regulation, the Natixis Code of Conduct, professional ethics, the French law on the separation and regulation of banking activities and the Volcker Rule. More than 107,000 training or awareness-raising initiatives were carried out, through classroom training or e-learning.
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The protection of customers’ interests is a core concern for Natixis that is reflected in the policies of every entity in France and abroad. In all circumstances, employees are required to serve customers with diligence, loyalty, honesty and professionalism, and to offer financial products and services that are appropriate to customers’ abilities and needs.
The entry into force of MiFID 2, PRIIPS and IDD required adapting the various customer information and knowledge systems. To find out more about the protection of customers' personal information see section 3.2.8.6. Protection of personal data.
There is also a specific procedure on costs, expenses, and on key information documents for packaged products to be provided to non-professional customers pre-trade, thus ensuring Natixis’ compliance with PRIIPS obligations.
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 and AIE). The onboarding procedures are also designed to protect customers (through compliance with MiFID, EMIR and the Dodd-Frank Act).
In 2018, Natixis began the roll-out of a new customer onboarding tool named Client Pass. It is installed in all of Corporate & Investment Banking’s offices and is part of a program to digitize the onboarding process. This includes the introduction of an Internet portal that customers can use to enter information online.
This framework ensures that: customers receive transparent information on how theira complaints are being handled; complaints are handled effectively; anda corrective action is enforced to remedy any problemsa identified.
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