Agreements between the bank and members of the Board and Executive Bodies 62
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL 361 Corporate Governance 362
Formed from the combination at the end of 2006 of the corporate and investment banking and services activities of the Banque Populaire Group and the Caisse d’Epargne Group, Natixis is a key player in the European banking industry. It has a diversifi ed portfolio of activities with solid business expertise, large customer bases and a strong international presence.
This document is an English-language translation of the French document de référence filed with the Autorité des Marchés Financiers (AMF) on April 17, 2007, in compliance with article 212-13 of the AMF’s standard regulations. Only the original French version can be used to support a financial transaction, provided it is accompanied by a note d’opération duly certified by the Autorité des Marchés Financiers. The document de référence was produced by the issuer, and the signatories to it are responsible for its contents.
Natixis generated pro forma net banking income of €7.3 billion and net income (Group share) of €2.1 billion in 2006. It has approximately 23,000 employees in around 60 countries.
Natixis is one of the top 15 asset management companies worldwide and is also world No. 3 in credit insurance with Coface. Its Services activities are based on powerful and fl exible industrial platforms. Natixis is also No. 1 in private equity in the French SME market.
Natixis capitalizes on the robust growth of its various business lines and opportunities arising from the merging of entities offering a strong strategic fi t in terms of both technical expertise and business assets. With its broad range of products and services - including structured fi nance, capital markets, derivatives, asset management and fi nancial services - the Group is able to meet the needs of its own corporate and institutional clients as well as the personal banking , small business and SME customers of the Banque Populaire Group and the Caisse d’Epargne Group.
(1) The assets transferred are described in the offering circular or “Document E”, registered with the AMF under number E. 06-162 dated October 16, 2006.
Convinced of the need, in a rapidly evolving sector, to establish a strong footing in the areas of corporate and investment banking, asset management and services, we decided to pool our operations in these fi elds in which size, technological and fi nancial innovation and a global presence are fundamental.
With an original structure enabling both groups to blend the cooperative banking model harmoniously with improved access to the fi nancial markets, Natixis intends to pursue the strategic decisions made over the last few years while also respecting each group’s autonomy.
Formed from the merging of entities already offering profi table growth, with solid expertise and leading positions in the majority of its business lines, Natixis has the potential to create value for all of its shareholders.
Natixis works with the majority of large and medium-sized businesses and a large number of institutional clients in France. All the staff of the entities we have brought together within Natixis had a strong culture of customer relations and customer satisfaction. This is what gives our business an exceptional basis.
“ What are the specifi c advantages this provides for your customers? „
Natixis set out quantitative targets at the time of the major market transaction carried out successfully in November and December last year. These targets are supported by an extremely detailed medium-term plan, which constitutes our “route map”.
We would describe our plan as ambitious and realistic. It is primarily an expansion plan, based on Natixis’ formidable potential and focusing on organic growth. However, it also takes into account the fact that conditions may not always be as favorable as in recent times.
This also opens up new opportunities for Natixis’ 23,000 employees, who are already involved in writing an exciting new chapter in what is now our shared history.
(3) Natixis's fi nancial objectives for the period from 2006-2010 are based on a number of assumptions, the most important of which are described in appendix B of Document E (paragraph 5.3.2), registered with the AMF on October 16, 2006, under number E.06-162.
* With affiliation of Ixis CIB and without affiliation of Natixis.
The fi nancial information provided for 2005 and 2006 is presented on a pro forma basis, assuming the consolidation of assets transferred by CNCE on January 1, 2005.
NET INCOME (GROUP SHARE) FROM CORE BUSINESS LINES in € millions
(2) Minority shareholders are Banque Palatine (10.26%), Crédit Foncier de France (8.77%) and Foncier Participation (4.72%).
H1 2006: Exclusive negotiations between the Banque Populaire Group and the Caisse d’Epargne Group
November 17, 2006: Combined general meeting of Natexis Banques Populaires shareholders approving the contributions giving rise to the creation of Natixis.
The combination transactions include: the contribution by Caisse Nationale des Caisses d’Epargne (hereinafter referred to as “CNCE”) to Natexis Banques Populaires of interests in certain subsidiaries and affi liates with activities in corporate and investment banking and fi nancial services, as well as cooperative certifi cates of investment (“CCIs”), issued since 2004 by each of Caisse d’Epargne et de Prévoyance banks(4) (hereinafter referred to as “Caisses d’Epargne”) and representing 20% of their share capital (the “Caisses d’Epargne CCIs”), currently wholly owned by CNCE; the contribution by SNC Champion (a special-purpose company formed by the Banque Fédérale des Banques Populaires (hereinafter referred to as “BFBP”) and the
Banque Populaire banks to Natexis Banques Populaires of the remaining Caisses d’Epargne CCIs not transferred by CNCE and purchased previously by SNC Champion from CNCE. In addition, CNCE and SNC Champion transferred their interests in Ixis Corporate & Investment Bank (hereinafter referred to as “Ixis CIB”) and Ixis Asset Management Group (hereinafter referred to as “Ixis AMG”) purchased from SanPaolo IMI (hereinafter referred to as “SPIMI”).
November 18, 2006 - December 5, 2006: Placement of Natixis shares in the form of an open price offer (“Offre à Prix Ouvert”) in France for private investors and a global placement (“Placement Global”) for institutional investors in France and abroad, with: on December 6: Defi nitive price of the open price offer and global placement is set; on December 7: Listing of the shares under the name Natixis; and on December 11: Settlement/delivery of the shares.
Also refer to the section entitled "Historical information concerning Natixis" in the chapter entitled "Additional information" on page 400.
(4) Except for Caisse d’Epargne et de Prévoyance de Martinique and Caisse d’Epargne et de Prévoyance de Nouvelle Calédonie.(4) Except for Caisse d’Epargne et de Prévoyance de Martinique and Caisse d’Epargne et de Prévoyance de Nouvelle Calédonie.
On November 17, 2006, the general meeting of shareholders of Natexis Banques Populaires approved the transfer of assets from Caisse Nationale des Caisses d’Epargne et de
Prévoyance (CNCE) and SNC Champion - a wholly-owned subsidiary of Banque Fédérale des Banques Populaires - as well as a capital increase to pay for these assets. Shareholders also approved the 10-for-one stock split.
Banque Fédérale des Banques Populaires and subsidiaries (including SNC Champion, dissolved on January 19, 2007) 34.44% 34.44%
NATI XIS SHARES CLOSED ON FEBRUARY 28, 2007 AT €20, UP 42% FROM END-2005.
MARKET CAPITALIZATION in billions of euros * after 10-for-1 stock split on November 17, 2006
(2) Based on number of shares outstanding at end of year.
(3) Proposal to be submitted to shareholders at the May 24, 2007 Annual General Meeting.
Natixis measures shareholder value created for an individual shareholder over a seven-year period, corresponding to a medium-to-long-term investment period.
The following calculations are based on a gross dividend, adjusted for the 10-for-one stock split, including the avoir fi scal tax credit at the 50% rate (except for 2004 and 2005) and reinvested in Natixis shares. Returns were calculated as of December 31, 2006, and are shown before tax and brokerage costs.
The dividend is assumed to be reinvested at the opening share price on the fi rst trading day following payment.
Total shares after reinvestment of gross dividend * Adjusted for the 10-for-1 stock split
In 2006, the Investor Relations department handled all relations with private and institutional investors, financial analysts and ratings agencies.
The Investor Relations department also contributed to the production of several legal documents, in particular those issued in the context of the creation of Natixis (“Document E” fi led with the AMF on October 16, 2006) and the placement of the shares on the market (offering circular approved by the AMF on November 17, 2006).
A large amount of information was added to the 'Shareholders and Investors' section of the www.natixis.com website, available in both French and English. In addition to being able to watch general meetings for several weeks after they are held and view the share price in real time, visitors to this section can download all documents published in 2006. Finally, for several weeks, the Investor Relations department contributed content to a specifi c website presenting Natixis, including all documents relating to the creation of the new entity - from legal aspects to advertising campaigns - as well as the listing of the shares in December.
The fi rst newsletter for Natixis shareholders was sent to all individual shareholders - both bearer and registered shareholders - at the end of March 2007. It covered all of the key events for the company in 2007, in particular the creation of a shareholders’ club .
The new toll-free number (08 00 41 41 41) is now available to all of Natixis’ individual shareholders. The number became operational on October 17, 2006 - in connection with preparations of the placement of the shares with the public - and receives around 70 calls a day. Outside operating hours (9.00am to 6.00pm Monday-Friday), a message is played giving the closing share price.
Finally, the Actionaria trade show, to be held on November 16 and 17, 2007, at the Palais des Congrès in Paris, will provide the opportunity to enhance Natixis’ visibility. Several targeted communications efforts will be implemented in connection with the trade show.
The fi rst Natixis shareholders’ club will be set up in 2007 .
The club will be open to registered shareholders, as well as all bearer shareholders with at least 50 shares, in order to create more personalized dialogue with them. Membership of the club will be free and offer certain benefi ts, such as the regular shareholders’ newsletter , institutional documentation on request and the possibility of being invited to regional shareholders’ meetings. In the longer term, members of the shareholders’ club will be invited to events relating to the company’s patronage policy.
Shareholders will be required to present their admittance card at the door. If they do not receive this card in time, they can still take part in the vote by presenting an offi cial identity document (together with the certifi cate of attendance provided by the bank or broker that manages their share account).
Shareholders who do not attend the Meeting in person can take part in the vote by: giving proxy to the Chairman of the Meeting, by returning the signed form of proxy. The Chairman then casts a “Yes” vote on all resolutions presented or approved by the Board of Directors and a “No” vote on all other resolutions; voting by post, by returning the signed postal voting form after checking the appropriate boxes so as to vote “Yes”, “No” or “Abstain” on each resolution presented to shareholders; giving proxy to their spouse or another Natixis shareholder to vote on their behalf.
Management Board at 1 January 2007 20 Supervisory Board at 1 January 2007 20
AGREEMENTS BETWEEN THE BANK AND MEMBERS OF THE BOARD AND EXECUTIVE BODIES 62
The corporate governance of Natixis, in its current form, is based on the decisions adopted by Natexis Banques Populaires’ Annual General Meeting of November 17, 2006.
The resolutions approved by the Annual General Meeting are refl ected by the adoption of new bylaws, the new company name and changes in the company’s administration and management. The company has a management board and a supervisory board in the place of a board of directors. This change is in accordance with the agreements reached between
For this reason, any information about corporate governance as exercised during the 2006 fi nancial year shall take into account and describe the characteristics and functioning of the two executive bodies that succeeded each other in 2006, one for the fi rst ten and a half months of the year and the other as of November 17.
Three of these members (Daniel Duquesne, Richard Nalpas and Francis Thibaud) left the Board of Directors in May 2006.
Board members can be divided into three groups: Banque Populaire Group; Independent directors; Employee shareholders.
The Banque Populaire Group, which was majority shareholder and by far the largest with 76% of shares, held 11 seats or 73% of the 15 seats on the Board. Aside from the Chairman, directors from the Banque Populaire Group were equally divided between chairmen of Banque Populaire regional banks and Chief Executive Offi cers of Banque Populaire regional banks.
The three independent directors were: Jean de La Chauvinière, a retired banker and stockbroker and therefore completely independent of any fi nancial institution; Vincent Bolloré, Chairman and Chief Executive Offi cer of the eponymous group; ■
Robert Zolade, Chief Executive of Elior, a leading services provider and one of France’s top two food services groups, a sector in which it is one of the founders.
The three independent directors satisfi ed the criteria endorsed by the AFEP-MEDEF report on corporate governance. They had no ties with any of the bank’s direct or indirect shareholders, were not members of the bank’s management and had not sat on the Board for more than 12 years. Furthermore, the fi nancial relationships of the groups managed by two of these directors did not affect their independent judgment.
Owing to their long-standing experience, these three directors provided the Board of Directors of Natexis Banques Populaires with valuable insight and a different point of view, complementing that of the bankers who represent the majority of Board members. Finally, no member of the Board of Directors of Natexis Banques Populaires sat on the Board of Directors of one of the groups managed by these three individuals.
Employee shareholders, who held around 1.6% of the bank’s share capital mid-year (after maturity of the Alizé shareholding plan), were represented on the Board by a director appointed by the Annual General Meeting in accordance with French law. This representative was a manager from the capital markets division.
(5) See on page 393 for a description of the main provisions of the agreement. (5) See on page 393 for a description of the main provisions of the agreement.
MILHAUD Charles Board meeting of November 17, 2006 2011 Chairman of the Supervisory Board
TOURRET Jean-Louis AGM of November 17, 2006 2011 Vice-Chairman of the Supervisory Board
Chairman of the Management Board of CAISSE D’EPARGNE ILE-DE-FRANCE Paris 19, rue du Louvre B.P. 94 75021 PARIS CEDEX 01
Deputy Chief Executive Offi cer of BANQUE FEDERALE DES BANQUES POPULAIRES Le Ponant de Paris 5 rue Leblanc 75511 PARIS CEDEX 15
AGM of November 17, 2006 2011 Member of the Supervisory Board
Chief Executive Offi cer of CAISSE NATIONALE DES CAISSES D’EPARGNE ET DE PREVOYANCE 50 avenue Pierre Mendès France 75201 PARIS Cedex 13
BOLLORÉ Vincent AGM of November 17, 2006 2011 Member of the Supervisory Board
Chairman and Chief Executive Offi cer of Groupe BOLLORÉ Tour Bolloré 31-32 quai de Dion Bouton 92800 PUTEAUX
Chief Executive Offi cer of BANQUE POPULAIRE COTE D’AZUR 457 promenade des Anglais 06292 NICE CEDEX 3
CORDEL Claude AGM of November 17, 2006 2011 Member of the Supervisory Board
Chairman of BANQUE POPULAIRE DU SUD 10 place de la Salamandre CS 98-001 30969 NIMES CEDEX 9
Chairman of the Management Board of CAISSE D’EPARGNE COTE D’AZUR 455, promenade des Anglais B.P. 297 06205 NICE CEDEX 3
HENRY Francis AGM of November 17, 2006 2011 Member of the Supervisory Board
Chairman of the Orientation and Supervisory Board of CAISSE D’EPARGNE CHAMPAGNE- ARDENNE 6, rue de la Grosse Ecritoire B.P 2747 57062 REIMS
NAOURI Jean-Charles AGM of November 17, 2006 2011 Member of the Supervisory Board
Term expires (AGM called to approve fi n. stmts. for the year indicated)
PROGLIO Henri AGM of November 17, 2006 2011 Member of the Supervisory Board
SUEUR Philippe AGM of November 17, 2006 2011 Member of the Supervisory Board
Chairman of the Consultative Committee of DZ BANK AG Am Platz der Republik D-60265 FRANKFURT AM MAIN
Chairman of CASSA DEPOSITI e PRESTITI S pa Piazza San Carlo 156 10121 TURIN Italy
Natixis’ Supervisory Board was appointed for a period of six years by the Annual General Meeting of November 17, 2006, in addition to two non-voting directors.
Members of the Supervisory Board (excluding non-voting directors) can be divided into three groups: 7 members from the Banque Populaire Group; 7 members from the Caisse d’Epargne Group.
The Banque Populaire Group and the Caisse d’Epargne Group, each of which hold 34% of Natixis shares, have an equal number of seats on the Supervisory Board. This equal representation is in accordance with the agreement signed between Natixis’ two shareholders.
two directors as independent members of the Board of Directors of Natexis Banques Populaires can be transposed within the framework of their duties as members of Natixis’ Supervisory Board.
The two non-voting directors, Ulrich Brixner and Alfonso Iozzo, of German and Italian nationality respectively, are both directors or former directors of major banking groups and provide the Board with the insight of European partners.
Under the terms of the pact between the two core shareholders, Chairmanship of the Supervisory Board shall be held alternately
Within this context, since November 17, 2006, Chairmanship of the Supervisory Board has been held by Charles Milhaud, Chairman of the Management Board of Caisse Nationale des Caisses d’Epargne. The two Vice-Chairmen are Jean-Louis Tourret (fi rst Vice-Chairman) and Bernard Comolet (second Vice-Chairman) respectively.
Under the terms of the shareholders’ pact, the appointment or dismissal of any Board member requires the agreement of the two core shareholders and a double majority vote by members of the Supervisory Board present and represented and members representing each of the two shareholders.
The Supervisory Board meeting of November 17, 2006, appointed four Board members: Philippe Dupont, Dominique Ferrero, François Ladam and Anthony Orsatelli. Mr Dupont (also Chairman and Chief Executive Offi cer of Banque Fédérale des Banques Populaires) was appointed Executive Chairman and Mr Ferrero was appointed Chief Executive Offi cer.
Permanent representative of Bolloré Participations, Director of Cie des Tramways de Rouen
Permanent representative of Bolloré Participations, Director of Sté des Chemins de Fer et Tramways du Var et du Gard
Permanent representative of Bolloré Participations, Director of la Sté Industrielle et Financière de l’Artois
Vice-Chairman of Société des Caoutchoucs de Grand Bereby – SOGB (Abidjan)
Member of the Supervisory Board of EQUENS N.V. – Payment Services for Europe
Chairman of the Board of Directors of DZ BANK Ireland plc
Director representing employee shareholders at Natexis Banques Populaires (until November 17, 2006)
Other positions: Director of Association Banque Populaire pour la Création d’Entreprise
Permanent representative of Caisse d’Epargne et de Prévoyance Ile-de-France Paris on the Supervisory Board of Efi dis
Permanent representative of Caisse d’Epargne et de Prévoyance Ile-de-France Paris on the Board of Directors of SACCEF
Permanent representative of Caisse d’Epargne et de Prévoyance Ile-de-France Paris on the Board of Directors of Eulia Caution
Permanent representative of Caisse d’Epargne et de Prévoyance Ile-de-France Paris on the Board of Directors of Socamab
Permanent representative of Caisse Nationale des Caisses d’Epargne on the Board of Directors of Le Livret Portefeuille
Chairman of the Board of Directors of Banque Populaire du Sud
Chairman of the Board of Directors of Banque Populaire du Midi
Chairman of the Supervisory Board of M.A. Banque – Multi Acces Banque
Permanent representative of Banque Populaire Val de France, Vice-Chairman of i-BP (Informatique Banques Populaires)
Permanent representative of Casden-Banque Populaire, Chairman of SAS Parnasse Espace 2
Permanent representative of Banque Fédérale des Banques Populaires, Director of Natexis Banques Populaires (until May 18, 2006)
Permanent representative of Banque Populaire Loire et Lyonnais, Director of Informatique Banques Populaires
Chairman of the Board of Directors of sicav rhône +x court terme
Chairman of the Board of Ixis Corporate & Investment Bank (Ixis CIB)
Permanent representative of Bred Banque Populaire, Director of BICEC – Banque Internationale pour le Commerce, l’Epargne et le Crédit
Permanent representative of BRED Gestion on the Board of Directors of Vialink
Permanent representative of Banque Populaire Atlantique, Director of Informatique Banques Populaires
Permanent representative of Banque Populaire Atlantique, Chairman of SAS Ludovic de Besse
Representative of Banque Fédérale des Banques Populaires on the Board of Directors of Informatique Banques Populaires
Member of the Executive Committee of Confédération Internationale des Banques Populaires
Representative of Banque Fédérale des Banques Populaires on the Supervisory Board of ABP - Assurances Banque Populaire
Member of the Board of Directors of the European Banking Federation
Member of the Board of Directors of Assicurazioni Internazionali di Previdenza SpA
Member of the Board of Directors of Eurizon Financial Group SpA
Member of the Board of Directors of CDC Finance – CDC Ixis
Permanent representative of Banque Populaire Bourgogne Franche-Comté, Member of the Supervisory Board of Banque pour les Paiements onLine
Permanent representative of Banque Populaire Bourgogne Franche-Comté, Non-voting director of ABPAssurances Banque Populaire
Chief Executive Offi cer, Member of the Management Board of Caisse Nationale des Caisses d’Epargne
Permanent representative of CNCE, Member of the Management Board of Alliance Entreprendre
Permanent representative of Caisse Nationale des Caisses d’Epargne, Chairman of GCE Participations
Permanent representative of Caisse Nationale des Caisses d’Epargne, Director of Banque de la Réunion
Permanent representative of GCE Habitat, Member of the Supervisory Board of SOGIMA
Permanent representative of Caisse Nationale des Caisses d’Epargne – Limited partner of ECUFONCIER
Chairman of the Remuneration Committee of Ixis Corporate and Investment Bank
Vice Chairman of the Board of Directors of Natexis Bleichroeder S.A.
Permanent representative of Banque Populaire Occitane, Director of Natexis Asset Management Immobilier
Permanent representative of Banque Populaire Occitane, Director of SOCAMA 31 – Société Coopérative de caution mutuelle à capital variable
Permanent representative of the Banque Populaire Group, Director of IRDI S.A.
Permanent representative of Banque Populaire ToulousePyrénées, Director of Maison du Commerçant S.A.
Permanent representative of Banque Populaire ToulousePyrénées, Director of SOCAMA 31 – Société Coopérative de caution mutuelle à capital variable
Permanent representative of Banque Populaire ToulousePyrénées, Member of the Supervisory Board of Fructiger
Permanent representative of Banque Populaire Toulouse-Pyrénées, Member of the Supervisory Board of Assurances Banque Populaire
Permanent representative of Banque Populaire ToulousePyrénées, Director of Natexis Immo Placement
Permanent representative of Banque Populaire ToulousePyrénées, Director of Natexis Asset Management Immobilier
Chairman of the Management Board of Caisse d’Epargne et de Prévoyance des Pays de la Loire
Non-voting director on the Supervisory Board of Caisse Nationale des Caisses d’Epargne
Chairman of the Orientation and Supervisory Board of Caisse d’Epargne Ile-de-France Nord
Chief Executive Offi cer of B anque P opulaire du SudOuest
Vice-Chairman of the Board of Directors of Banque Fédérale des Banques Populaires
Chairman of the Board of Directors of Banque Populaire Populaire Provençale et Corse
Legal representative of Bercy Présidence, the company that is m anager- p artner of Holding Bercy Investissements-H.B.I. (SCA)
Legal representative of Bercy Présidence, the company that is m anager- p artner of H.B.I., the company that is Chairman of Bercy Participations, m anager and partner company of Elior (SCA)
Legal representative of Avenance SAS, the company that is Chairman of Bercy Services V (SAS)
Legal representative of Holding Bercy Management, Chairman of Management Restauration Collective (SAS)
Michel Goudard, age 62, has held successive executive positions within the Banque Populaire Group and has been Deputy Chief Executive Offi cer of Banque Fédérale des Banques Populaires since May 2001.
Nicolas Mérindol, age 45, Chief Executive Offi cer of Caisse Nationale des Caisses d’Epargne, held a series of management positions with a major French carmaker before joining Caisse des Dépôts et Consignations and then the Caisse d’Epargne Group.
Bernard Comolet, age 60, is Chairman of the Management Board of Caisse d’Epargne Ile-de-France Paris and previously held various positions of responsibility within the banking sector.
Claude Cordel, age 66, Chairman of Banque Populaire du Sud, is a business manager in the building materials sector and member of several professional and employers’ organizations.
Stève Gentili, age 57, Chairman of Bred Banque Populaire since 1998, was the manager of a leading food manufacturer until 2004. He is Chairman of the Group agency for cooperation and development (ABPCD) and of Natixis Pramex International.
Yvan de La Porte du Theil, age 58, Chief Executive Offi cer of Banque Populaire Val-de-France since 2002, has held a series of various executive positions within the Banque Populaire Group.
Bruno Mettling, age 49, is Deputy Chief Executive Offi cer of Banque Fédérale des Banques Populaires. Having been an auditor with the French Treasury until 1995, he held a variety of positions of responsibility within ministerial cabinets before joining the Caisse d’Epargne Group in 1999, where he was a member of the Management Board, and then the Banque Populaire Group in 2004.
Didier Patault, age 46, Chairman of Caisse d’Epargne des Pays de Loire, held positions of responsibility at CDC Gestion until 1992 and then at Caisse d’Epargne des Pays du Hainaut and Caisse Nationale des Caisses d’Epargne.
Henri Proglio, age 58, held a variety of executive management positions at Générale des Eaux and then Vivendi, was Chairman and Chief Executive Offi cer of Véolia Environnement and has been Director and Member of the Supervisory Board of several major industrial and fi nancial groups in France.
Philippe Sueur, age 61, is Chairman of the Orientation and Supervisory Board of Caisse d’Epargne Ile-de-France Nord. A professor of law, Mr Sueur also holds a number of elective positions in the Ile-de-France region.
Philippe Dupont, age 56, has been Chairman and Chief Executive Offi cer of Banque Fédérale des Banques Populaires since 1999 and is Executive Chairman of Natixis. Holding a degree in Management and Economics, Mr Dupont was director of a commodities wholesaler for 12 years and then Chairman of the Board of Directors of BP ROP Banque Populaire. Mr Dupont is a member of the Executive Committee of the French Banking Federation.
Anthony Orsatelli, age 56, studied at ENA and held various positions within the French Ministry of the Economy and ministerial cabinets before joining the BNP Group in 1987 and, in 1995, the Caisse des Dépôts Group and then the Caisse d’Epargne Group. Notably, he was Chairman of the Management Board of CDC Marchés, Chief Executive Offi cer of CDC IXIS, Chairman of the Management Board of Ixis-CIB and a member of the Management Board of CNCE.
CORPORATE GOVERNANCE2 Role and rules of operation of the executive bodies
Its responsibilities also included preparing the company and consolidated fi nancial statements and convening general shareholders’ meetings.
In addition, the bylaws specifi ed that the Board had to give an opinion on any substantial investments in the capital of other companies or the creation of new subsidiaries.
As of 2001, the Board of Directors of Natexis Banques Populaires had a set of Internal Rules and a Directors’ Charter.
At any time of the year, it carries out inspections and verifi cations it considers appropriate, and may receive from the Management Board any documents it deems useful in fulfi lling this responsibility.
At least once a quarter and in practice at each meeting, the Board presents a report summarizing the main actions or events in the company’s management, including all quantitative and qualitative information required concerning the development of the company’s business activities.
Under no circumstances may this result in the completion of management actions carried out directly or indirectly by the Supervisory Board or its members.
The Supervisory Board may decide to set up committees to look at issues submitted to it for examination by the Board itself or its Chairman. It determines the composition and duties of these committees, which are under its responsibility.
In addition to the prior authorizations required by applicable legal and regulatory provisions, it should be noted in particular that Natixis’ bylaws and the shareholders’ pact require the prior authorization of the Supervisory Board for certain transactions: increases in share capital maintaining preferential subscription rights, immediate or in the future, including a premium of over €75 million, and an increase in Natixis’ share capital, immediate or in the future, without preferential subscription rights; extension of Natixis’ activities to include major business lines not exercised by Natixis; designation of members of the Supervisory Board and the Board of Directors, Management Board and, if applicable, Chief Executive Offi cers and Deputy Chief Executive Offi cers of the main subsidiaries; any acquisition of a stake in another company or increases in equity investments, other investments, divestments (or the creation of a joint venture) by Natixis or one of its subsidiaries representing more than €150 million; any transfers, mergers or demergers in which Natixis or one of its main subsidiaries is involved; approval of the company’s business plan as prepared by the Management Board, comprising in particular target rates of return and the company’s risk policy, as well as any material changes in the strategic plan; proposals to the general shareholders’ meeting of any changes to the bylaws.
As Natixis was only created during the last few weeks of 2006, the Internal Rules were not adopted until the start of 2007 and are now applicable.
These Internal Rules relate in particular to: the defi nition of the criteria used to qualify members as 'independent': An independent director is a director who has no relationship whatsoever with the company, its management or the group that may compromise it exercising free judgment or create a confl ict of interest with management, the company or the group.
Members of the Supervisory Board representing signifi cant direct or indirect shareholders in the company may be considered independent if these shareholders do not control the company within the meaning of Article L.233-3 of the French Commercial Code. However, if a member of the Supervisory Board represents a shareholder of the company holding more than 10% of share capital or voting rights directly or indirectly, the Board, on the basis of a report from the Remuneration Committee, shall systematically verify the member’s independence, taking account of the composition of the company’s share capital and the existence of any potential confl icts of interest.
Each Supervisory Board member must declare any trading in the company’s shares, in accordance with the provisions
CORPORATE GOVERNANCE2 Role and rules of operation of the executive bodies of Article L.621-18-2 of the French Monetary and Financial Code. Members shall also inform the company of the number of shares held as at December 31 of each year and during any fi nancial transactions, in order to allow for this information to be passed on by the company.
Supervisory Board members shall not carry out any transactions involving Natixis shares during the period commencing 45 days before the publication of the company’s quarterly, interim or full-year results or before a general shareholders’ meeting and ending two trading days after the date of the event concerned.
It has the broadest powers to act under any circumstances on behalf of the company, within the limit of the corporate purpose and subject to powers expressly attributed by law and the bylaws to shareholders’ meetings and the Supervisory Board.
The Management Board prepares and presents to the Supervisory Board reports, budgets and the company and consolidated fi nancial statements, in accordance with the provisions required by law and the bylaws.
The Board of Directors of Natexis Banques Populaires had three special committees. Their job was to assist the Board in its works and improve its functioning: an Audit Committee, (set up in 1996); a Risk Management Committee (set up in 2000); a Remuneration Committee (set up in 1996).
Operating rules were prepared for the Risk Management Committee and the Audit Committee.
The Audit Committee met systematically before the publication of the interim and annual fi nancial statements. In 2006, the Committee met twice, with an 87% attendance rate, to review the 2005 annual fi nancial statements and the 2006 interim fi nancial statements, prior to their presentation to the Board.
Natexis Banques Populaires’ Risk Management Committee had four members: Daniel Duquesne, who was Chairman until May 2006, Jean-François Comas, Claude Cordel and JeanLouis Tourret. From June 2, 2006, Mr Cordel and Mr Duquesne
In accordance with its operating rules, the Risk Management Committee assisted the Board of Directors in managing the risks incurred by Natexis Banques Populaires. To this end, the Committee analyzed the bank’s main areas of risk – other than those concerning the accuracy of the fi nancial statements and fi nancial disclosures – and assessed the effectiveness of the internal control systems.
The Remuneration Committee had four members. Its Chairman was Jean de La Chauvinière (independent director) and the other members were Stève Gentili, Vincent Bolloré (independent director) and Yvan de La Porte du Theil.
The Committee met to propose to the Board of Directors criteria for the indexation of the variable portion of executive compensation.
In accordance with the aforementioned provisions, the Supervisory Board meeting of November 17, 2006, appointed Nicolas Mérindol and Jean-Charles Naouri as joint Chairmen of the Risk Management Committee and Jean-Claude Créquit, Michel Goudard, Yvan de La Porte du Theil and Robert Zolade as members of the Committee.
that may help it to carry out its duties, as necessary. The following list is not exhaustive: company and consolidated fi nancial, accounting and regulatory documents prepared periodically by the company; summary reports by the company’s statutory auditors; any audit reports concerning the company; accounting policies and methods applied within the company; internal control policies and procedures; projected annual, company and consolidated results to endJune, end-September and end-December; consolidated budgets and the fi nancial statements of the main subsidiaries, as well as any related documents provided to the supervisory board or, if applicable, the risk management committee of the main subsidiaries.
Minutes of all Risk Management Committee meetings are produced, which are provided to members of the Risk Management Committee and other members of the company’s Supervisory Board.
Vincent Bolloré was appointed Chairman and Bernard Comolet, Francis Henry, Bruno Mettling, Henri Proglio and Jean-Louis Tourret members of the Remuneration Committee by the Supervisory Board.
The Remuneration Committee prepares the Supervisory Board’s decisions on the following subjects: Terms of compensation The Remuneration Committee is responsible for making proposals to the Supervisory Board concerning: the level and terms of compensation paid to the Chairman of the Supervisory Board, including fringe benefi ts, pensions and personal risk insurance; the level and terms of compensation paid to members of the Management Board, including fringe benefi ts, pensions and personal risk insurance, as well as stock options; rules for the allocation of directors’ fees to members of the Supervisory Board and the total amount submitted to the decision of the company’s general shareholders’ meeting.
Selection procedures The Remuneration Committee gives an opinion and, at the request of the Supervisory Board, makes proposals and recommendations to the Supervisory Board on the appointment of the Executive Chairman ; it gives an opinion on the appointment of other Management Board members proposed by the Chairman, as well as the Chief Executive Offi cers, Deputy Chief Executive Offi cers and members of the Management Board or the Board of Directors of the company’s main subsidiaries, in accordance with the principles set out in articles 3 and 6.1.
The company’s Management Board provides the Remuneration Committee with any documents that may help it to carry out
The Remuneration Committee held its fi rst meeting on November 17, 2006, to propose to the Board on December 13, 2006, the terms and methods for determining compensation paid to the Chairman of the Supervisory Board, members of the Supervisory Board and specialist committees and members of the Management Board. It also gave an opinion on the number of stock options that may be allocated to Management Board members.
As part of its overall responsibilities, the Board made decisions about all matters related to the bank’s strategy and business orientation. It approved the fi nancial statements of the bank and the Group and reviewed the annual budget. At each meeting, the Board received regular information about business performance and also approved fi nancial press releases.
The internal control report, in accordance with CRBF rule n° 97-02, as well as the Chairman’s report on internal control, in accordance with the Financial Security Act (loi sur la sécurité fi nancière), were presented to and discussed by the Board.
The Board was also kept informed about progress made in Basel II procedures.
However, it was not possible to carry out a new evaluation in 2006 as the Board’s debates and discussions prioritized decisions to be made concerning the creation of Natixis.
The Board was kept informed about the creation of Natixis as of March 12. It was involved in the various stages of the process and was invited to comment formally on key decisions on several occasions.
It approved the protocol agreement prior to its being signed by the various parties involved in June 2006. In September 2006, it approved the various contribution agreements forming a key part of the process, as well as protocol agreements relating to the issuance of cooperative investment certifi cates by the Banque Populaire regional banks and the transfer of such certifi cates issued by the Caisses d’Epargne.
Finally, the Board approved the terms of the 51 resolutions to be submitted to the general shareholders’ meeting on November 17, 2006. The agenda for the meeting concerned primarily the approval of the transfer of securities from 12 Caisse Nationale des Caisses d’Epargne subsidiaries representing a total of over €9.5 billion, the transfer of cooperative investment certifi cates of over €4.4 billion, the decision to increase the company’s share capital with a view to paying for these transfers, the adoption of new bylaws and the new company name, the ten-for-one share split, the cancellation of double voting rights, the appointment of new supervisory board members and, fi nally, various authorizations of a fi nancial nature.
The adoption of these resolutions marked the end of the functions of Natexis Banques Populaires’ Board of Directors on November 17, 2006.
The Supervisory Board met three times in November and December 2006.
During the fi rst meeting, held as soon as possible after the general meeting of November 17, the Board appointed the Chairman and Vice-Chairman of the Supervisory Board, members of the Management Board and the Executive Chairman . It also put together the specialist committees.
Given Natexis Banques Populaires’ shareholding structure and/or the existence of directors with directorships of both companies concerned, several of these agreements were treated as regulated agreements in accordance with Article L. 225-86 of the French Commercial Code: authorization of the global security and investment agreement between the company, Banque Fédérale des Banques Populaires, SNC Champion, Caisse Nationale des Caisses d’Epargne et de Prévoyance and the fi nancial institutions guaranteeing the transaction; division of costs relating to the transaction between the company and selling shareholders; authorization of an agreement with Natexis Bleichroeder; authorization of a protocol agreement with the fi nancial institutions guaranteeing the open price offer.
Policies and rules for determining compensation paid to the C hairman, C hief E xecutive O ffi cer and D irectors
Natexis Banques Populaires’ Board of Directors decided that the compensation paid to the Chairman of the Board and the Chief Executive Offi cer would include: a fi xed portion: €263,000 for the Chairman, and €365,000 for the Chief Executive Offi cer; and a variable portion.
The Board selected a method of determining the variable portion of compensation paid to the Chairman and the Chief Executive Offi cer based on certain fundamental principles: straightforward criteria, based on the full-year consolidated net income (after tax) of Natexis Banques Populaires, which was made public; effective variability of the variable portion of compensation; variability was triggered after a certain profi t threshold: there was no variable portion if the full-year consolidated net income (after tax) of Natexis Banques Populaires was less than €250 million; straight-line calculation method.
This system was applied according to the same principles for the Chairman and the Chief Executive Offi cer, with a specifi c variability coeffi cient for each position.
The variable portion of compensation was determined as follows: if the full-year consolidated net income (after tax) of Natexis Banques Populaires was less than €250 million, the variable portion of compensation would be zero; if the full-year consolidated net income (after tax) of Natexis Banques Populaires was equal to or greater than €250 million, the variable portion of compensation would be equal to 1.5/10,000ths (one point fi ve ten thousandths) of this net income for the Chief Executive Offi cer.
The total compensation budget is €500,000 for a Board comprising 18 members and two non-voting directors and two committees each of six members.
Supervisory Board members and non-voting directors: fi xed portion: €10,000 per year variable portion: €2,000 per meeting for up to fi ve meetings.
Committee members: risk Management Committee: Chairman: €12,500 for each joint Chairman Risk Management Committee members: fi xed portion: €5,000 variable portion: €1,000 per meeting for up to fi ve meetings, remuneration Committee: Chairman: €10,000 Remuneration Committee members: fi xed portion: €3,000 variable portion: €1,000 per meeting for up to fi ve meetings.
Both Management Board members (excluding the Chairman and the Chief Executive Offi cer) therefore receive the same compensation.
The bonus structure for Management Board members will combine a portion relating to Natixis’ performance (80%) and a portion relating to individual performance (20%). The calculation basis combines one or two quantitative criteria based on operating income, with a target (projected income) and a
This is refl ected by the allocation of: 190,000 options for the Chairman and 190,000 options for the Chief Executive Offi cer (after the ten-for-one share split); 125,000 options for other Management Board members (after the ten-for-one share split).
This system was implemented before May 1, 2005, i.e. prior to the effective date of the July 26, 2005 law (No. 2005-842).
Should an executive be dismissed prior to the expiration of his term, except in the event of professional misconduct, the group will pay an indemnity equal to one year’s compensation plus 1/12 of annual compensation for every year of service with the Natixis Group or one of the two shareholding groups and, if applicable, 1/12 of the same compensation for every year
COMPENSATION RECEIVED BY MEMBERS OF THE EXECUTIVE BODIES OF NATIXIS AND NATEXIS BANQUES POPULAIRES IN 2006
FERRERO MB 120,047 120,047 LADAM CEO MB 737,462 737,462 ORSATELLI MB 54,250 54,250 (1) Including fringe benefi ts.
In his capacity as Chairman of the Board of Directors of Natexis Banques Populaires, Philippe Dupont was paid a fi xed annual salary of €263,000, identical over the period from 2002 and 2005. The variable portion of his salary was €30,000 in 2002 and €75,000 for the following three years. Total compensation paid to Mr. Dupont in 2006 was €463,000 (including fringe benefi ts).
In his capacity as Deputy Chief Executive Offi cer, François Ladam was paid a fi xed annual salary of €290,000 in 2002
(with no variable portion), rising to €362,000 in 2003 and 2004 and €365,000 in 2005, in respect of his duties as Chief Executive Offi cer. The variable portion of his salary amounted to €100,000 in 2003 to 2005 inclusive. Total compensation paid to Mr. Ladam in 2006 was €737,462 (including fringe benefi ts).
COMPENSATION RECEIVED BY MEMBERS OF THE EXECUTIVE BODIES OF NATIXIS (AND NATEXIS BANQUES POPULAIRES ) IN COMPANIES CONTROLLING NATIXIS OR CONTROLLED BY NATIXIS IN 2006
CORPORATE GOVERNANCE 2 Policies and rules for determining compensation paid to the chairman, chief executive offi cer and directors
Members of Executive Management or Management Board (excl. Executive Chairman )
Competence and integrity of members of the Board of Directors and the Supervisory Board
In accordance with regulations, a list of the functions exercised by the executive directors of Natexis Banques Populaires, then Natixis, is provided in the 2006 shelf registration document. The brief summary of their responsibilities shows that they all have recognized business expertise, in particular through their positions as executives of banks or large industrial companies or as former bank executives.
However, Natixis and its subsidiaries have business relationships with its two shareholders or some of their subsidiaries.
Barbier Frinault et Autres – Ernst & Young resigned on December 15, 2006.
Deloitte & Associés, 185 avenue Charles de Gaulle - 92524 Neuilly-sur-Seine; Salustro Reydel, 8, member of KPMG International, 1 cours Valmy – 92923 Paris La Défense Cedex; Mazars et Guérard, Immeuble Exaltis – 61, rue Henri Régnault – 92075 La Défense Cedex.
In return for their services, the Auditors were paid the following fees: Audit
Fully consolidated subsidiaries and branches 2,686 2,159 35% 68% 1,596 1,077 56% 64% 521 0 65% 0% 277 376 23% 25%
(1) Mainly auditing work carried out in relation to the creation of Natixis.
SERVICES 76 Outperforming the market 76 Becoming a key player in consumer fi nance in France and Europe 77 Market leader in Sureties and Financial Guarantees 77 A broad range of employee benefi ts planning products 77 Payments: an effective platform 78 A key player in securities services 78
RECEIVABLES MANAGEMENT 80 Complementary expertise 80 Coface 80 Natixis Factor 81
RETAIL BANKING 84 The Banque Populaire and Caisse d’Epargne Groups 84 Retail banking networks 84
Primary bond market: No. 10 in the euro market (source: Bloomberg)
Trade fi nance: No. 6 in Africa and the Middle East (Dealogic/ Trade Finance Magazine)
CDO issues (Collateralized Debt Obligations): No. 7 in Europe (source: Thomson Financial)
It was involved in major deals with corporate clients in 2006 (Michelin, Liebher, P. Fabre, Plastic Omnium).
Despite continuing deterioration in margins, the corporate segment has been particularly robust, chiefl y in Madrid, London and New York. With its subsidiary Natixis Capital Markets, the bank has developed particularly innovative fi nancing, investment and risk management solutions for its customer base of institutional investors, companies and high net worth individuals. Natixis intends to continue to capitalize on its international expertise and build on its presence in Asia and the United States.
Natixis is market leader in a number of areas of structured finance and is continuing to enhance its reputation as arranger: nearly 300 arrangement mandates in 2006, equal to more than one mandate per day; No. 3 MLA by value in syndicated loans in France and No. 13 in the EMEA region (source: Dealogic Loanware); No. 2 MLA by value in real estate fi nance in France and No. 7 in the EMEA region (source: Dealogic Loanware); No. 4 bookrunner in LBO fi nancing by value (source: Dealogic Loanware); No. 7 MLA in the EMEA region in project fi nance (source: PFI); one of the top 10 aircraft fi nance arrangers worldwide, according to Airfi nance Journal (September 2006); 16 Deals of the Year (Aluar, Ghana Cocobod, Rusal, Sonangol Sinopec International, Addax Petroleum, Albaco, Alro / Marco Industries, Maurel & Prom, TMK etc.) (source: Global Trade Review, Trade Finance, Trade & Forfaiting Review) in commodities fi nancing.
The number of international arrangement mandates has increased signifi cantly. Acquisition/LBO fi nancing accounts for nearly half of net banking income generated outside France, handled by teams in London, Frankfurt, Milan, Madrid, New York and Hong Kong. The team has reasserted its position in France, acting as sole bookrunner in major transactions such as Loxam, Nutrition et Santé, Courtepaille, Onduline and Pasteur Cerba. In real estate fi nance, the bank won 60 arrangement or joint arrangement mandates, including a growing number of international mandates, thanks to the
ACTIVITIES3 Corporate and Investment Banking strengthening of its European teams: e.g. Deutsche Bank (France Printemps - in collaboration with acquisition/LBO fi nance), Alstria (German real estate company), Pirelli (for a fund invested in Italy) Gecina/Generale de Santé and Foncière des Régions/Bail Investissement. In ship fi nance, the bank won 17 mandates outside France, including the mandate for MLA-bookrunner for the fi nancing of a $150 million offshore drilling platform in Indonesia chartered by Total. The bank has developed its international expertise in project fi nance with Reliance Petroleum in India, Casema (telecoms) in the Netherlands and La Boga (wind power) and Sanlucar Solar (solar power) in Spain. Thanks to the combined expertise of its various business lines, the bank was selected as arranger for transactions such as China Southern, Turkish Airlines and Socatra. The fi nancial engineering business made a signifi cant contribution by offering innovative and structured solutions. In a highly competitive climate, Natixis won 70 syndicated loan mandates in 2006, including 42 as bookrunner. Despite a decline in volumes, Natixis almost doubled its market share in France and continued its strategy of diversifying its activities outside France (45% of recurring business) and among SMEs (Pizza Pino, Naturex). In the commodities segment, Natixis has developed a sophisticated range of fi nancing solutions for oil, gas and mineral reserves, offering borrowing base facilities, fi nancial advisory services for acquisitions in refi ning and oil services activities, and offtaking by subsidiary Contango Trading. Natixis has also diversifi ed into new countries, such as Ukraine, Colombia and the Czech Republic, and established its presence in new markets such as ethanol. It has expanded its offering to include primary equity markets and commodities derivatives. Natixis has acted as MLA, joint MLA, agent and participant in major transactions (e.g. Rosneft, Sonangol, CH4, Maurel&Prom, Addax Petroleum), strategic acquisition fi nancing (CVRD/Inco, Petroplus/Petrotrade) and M&A fi nance (Rual/Rusal/Glencore). Its business with major corporate clients and traders has resulted in over 50 new business relationships.
Natixis has developed its partnership with DZ Bank by signing a new agreement entitling it to exclusive distribution of DZ Bank’s equity research and analysis services in Englishspeaking countries. It has been admitted as a member of the London Stock Exchange, enabling it to trade directly in shares listed on the London Stock Exchange and the Alternative Investment Market.
In equity capital markets, Natixis offers a personalized services and high value-added products in both the primary market and derivatives. It has a strong reputation among French companies and has been involved in major French primary equity market transactions such as the sale of Natixis shares, the Société Générale capital increase and the Aéroports de Paris IPO. It has also been involved in medium-sized transactions, which have also seen strong growth. In the United States, Natexis Bleichroeder Inc. was involved in seven transactions. Thanks to its partnership with Lazard, Natixis has improved its origination capacity in the primary equity market. Lazard-
In the M&A market, Natixis Finance has benefi ted from robust market conditions, winning advisory mandates with well known companies such as Alstom for the sale of shipyards on the Atlantic coast to Aker Yards, Chantelle for the takeover of Orcanta, Dassault for the sale of its regional daily press business to L’Est Républicain in association with Crédit Mutuel, the Moroccan government for the second phase of the privatization of Régie des Tabacs Marocains, AXA PE and the shareholding family in acquiring the majority interest in Camaïeu and the management team of Françoise Saget in the LBO by Yves Rocher. In addition, Natixis has developed its advisory services for corporate clients in the infrastructure and real estate sectors, including the acquisition by Caisse des Dépôts of 49% of Viaduc de Millau and acting as intermediary in the sale of 6% of Eiffage by Albert Frère.
Subsidiary Natixis Alternative Investments has launched a managed funds platform. The platform’s fi rst funds, created in the second half of 2006, offer greater liquidity than conventional alternative investment funds. Meanwhile, subsidiary Natixis Capital Partners has strengthened its market-leading position in sale and leaseback transactions in continental Europe. Via its Captiva II fund, the real estate investment structure has acquired seven real estate portfolios in France, Belgium and Germany, including the city of Hamburg, which represents 39 buildings for a total acquisition cost of €815 million.
ACTIVITIES3 Corporate and Investment Banking high level of diversity in assets handled and strong revenue growth. Natixis originated and structured two loans for the Classico synthetic CMBS securitization, which constitutes a fi rst step in establishing itself as a lead manager for CMBS in Europe. In the corporate client segment, Natixis structured a securitization operation with a fi rm under LBO. With Coface, Natixis launched César France, an innovative securitization platform intended for medium-sized companies. Less than one year after it was set up, the team in Milan won three mandates.
Research: a strategic priority Headed by Patrick Artus, the economics research department offers customers renowned and in-depth expertise combining monitoring of economic conditions, economic and fi nancial forecasts, analysis of fi xed income, forex and equity markets, valuations by country and investment strategy. The department covers around 40 countries that play a key role in the global economy, including the main emerging markets.
In credit research, the bank’s strategists and analysts combine quantitative and fundamental approaches that allow for comprehensive analysis of over 100 issuers in Europe and North America, as well as the main private bond market issuers in the eurozone. Through their publications, these teams keep customers abreast of the best market opportunities.
Its expertise covers all asset classes, including money market, bonds, equities, diversifi ed, alternative and real estate assets. It also offers structured and multi-manager investment targeting all customer segments: institutional and corporate clients, insurance companies, banking groups and networks, individuals and wealth management.
2006 was a record year thanks to robust and diversifi ed net new money under favorable market conditions. Assets under management totaled €583 billion, with €394 billion in Europe, €188 billion in the United States and the remainder in the AsiaPacifi c region. Net banking income increased by 23% to €1.5 billion in 2006.
(7) Source: June 2006 IPE ranking for Natixis’ Asset Management division’s assets under management at-end 2005.
The Global Associates platform helps to optimize coverage of the various customer groups in the United States - only for retail clients - and in the rest of the world (excluding France). It already covers customers in around 30 countries across all fi ve continents. In 2006, products distributed by Global Associates on behalf of all of the Group’s asset management companies represented assets under management of €70 billion.
This multi-specialist structure responds to changes in the asset management market on a global scale, characterized by the development of an open architecture - with a strong presence in the United States and development in Europe - the emergence of global distributors and growing demand for high value-added integrated and bespoke solutions, particularly for institutional clients, retail distributors and wealth management clients.
“ A distribution platform offering added value for customers„ A NEW KEY PLAYER IN EUROPE
In France, the combination of Ixis Asset Management and Natexis Asset Management should result in the creation of one of the largest centers of asset management expertise in Europe in 2006: Natixis Asset Management.
The Group’s European asset management operations offer a broad range of products covering all conventional asset classes, including money market, fi xed income, equities and real estate, as well as expertise in value-added products such as collateralized debt obligations (CDOs), socially responsible investment (SRI) and multi-manager investment.
Ixis Private Capital Management (assets under management of €2.8 billion), which is due to merge with Natexis Asset Square (assets under management of €4 billion) in 2007, specializes in multi-manager investment.
Ecureuil Gestion (assets under management of €17 billion excluding delegated mandates) distributes mutual funds and guaranteed funds through the Caisse d’Epargne network. The Group plans to extend this activity to the Banque Populaire network.
Ixis AEW Europe (assets under management of €14.7 billion) and Natexis Asset Management Immobilier (assets under management of €1.5 billion) manage real estate assets.
Loomis Sayles (assets under management of €73 billion at end-2006): wide range of equity funds (growth, core, value) and bond funds (core, high yield); Harris Associates (assets under management of €52 billion): US and international value stocks; Reich & Tang Funds (assets under management of €12 billion): money market fund management; AEW (assets under management of €11 billion): real estate fund management; Hansberger (assets under management of €8 billion): international equity fund management; Harris Alternatives (assets under management of €7 billion): alternative fund management combining several investment strategies; Vaughan Nelson (assets under management of €5 billion): value stock and investment grade fi xed income fund management; Capital Growth Management (50% ownded, assets under management of €5 billion): equities; Caspian (51% ownded, assets under management of €4 billion): alternative management focusing on arbitrage of US bonds and emerging markets; Reich & Tang Capital Management (assets under management of €2 billion): US small & midcap stocks, international core and high yield bonds; Westpeak (assets under management of €2 billion): index-tracker funds; Snyder (assets under management of €2 billion): US small & midcap value stocks.
The Private Equity and Private Banking division comprises Natixis’s private equity and private banking activities. Private equity is one of Natixis’s historic business lines, having operated in this marked for 20 years through subsidiary Natixis Private Equity (NPE). NPE is currently recognized as one of France’s market leaders in private equity for SMEs, with a portfolio of over 600 investments and assets under management of €3.2 billion in 2006. Private banking covers three activities: wealth management, serving customers with savings of over €1 million, private asset management for customers with assets of €150,000 to €1 million, and fund management.
The presence of several major institutional investors in NPE’s funds also helps to enhance visibility and its networks for the benefi t of entrepreneurs both in France and abroad.
Buy-in/buy-out fi nancing Initiative & Finance Ixen Finatem Cape Natixis Talinks Providente MCH Private Equity Axxon Group Krokus PE +Indian team
Banque Privée Saint Dominique specializes in wealth management and focuses solely on high net worth individuals, business owners and company executives. The experience of its managers ensures capable handling of personal investment issues, as well as in-depth analysis of each individual situation. With the support of its personal investment experts, it proposes tailored solutions that take account of the personal and professional circumstances of each of its customers. Its positioning alongside teams from Natixis also provides sound knowledge of issues relating to serving companies and their executives. In this area, it has developed expertise in fi nancial engineering dedicated specifi cally to optimizing and fi nancing private aspects of corporate fi nance transactions, such as executive profi t-sharing, minority buyouts and fi nancing of stock options. Banque Privée Saint Dominique also offers a broad range of fi nancial management services, through products managed by its own teams as well as structured products or selected investments with external partners.
Created in 2005, Compagnie 1818 - Banquiers Privés, focuses exclusively on major private banking customers (entrepreneurs, company executives etc.). It is made up of specialists in wealth management and top-level experts in legal and tax issues to devise tailor-made solutions covering areas such as fi nancial management structured products and dedicated funds. It has three main business lines: wealth management for its own customer base, with a broad and open offering so as to offer the best products and the best managers; private asset management to support subsidiaries of the Caisse d’Epargne Group (Caisse d’Epargne, Banque Palatine, Financière Océor, Crédit Foncier); ■
asset management for independent fi nancial advisors approved by Centre Français du Patrimoine.
Natixis Private Banking Luxembourg S.A. offers wealth management and fi nancial asset management services, fi nds international investors and provides bancassurance services for high potential international customers. Positioned in the heart of Europe, if benefi ts from effi cient, practical and fl exible domestic legislation. It enjoys a stable political, social and economic environment and competitive tax conditions. Natixis Private Banking Luxembourg S.A. embodies local presence and a banking tradition of quality, oriented towards its client-investor-partners.
“ High value-added fi nancial services„ To address the needs of an ever more demanding clientele, the expertise of Natexis Private Banking Luxembourg SA extends to all banking and fi nancial services. The range of products offered includes discretionary asset management, various types of exclusive management, based in particular on an open architecture approach, fi nancial engineering, innovative optimization and asset structuring, tailor-made lending solutions, life insurance products, mutual products and structured products with a guaranteed or protected capital feature.
Its investment experts and wealth management advisors support Natixis’s teams in resolving the international personal investment issues of business owners, entrepreneurs and company executives.
Natixis’s Insurance offering covers all types of insurance: life and personal risk insurance for personal customers, small businesses and corporate clients; non-life insurance for personal customers and small businesses. With gross premium income up 35% at €4.1 billion, the life insurance business again achieved stronger growth than the “G11” bancassurers (20%) and the French market (17%). Against this favorable backdrop, the 72% increase in net premium income to €2.4 billion related mainly to the solid business momentum of the distribution networks and the launch of innovative products such as Fructi-Pulse.
Fructi-Pulse The Fructi-Pulse life insurance policy provides access to the fi nancial markets from just €30 per month. Customers can choose from three packages - “Initiation”, “Equilibre” and “Tonique” - depending on their investor profi le and the proportion of their investment they wish to allocate to unit-linked products. This includes an innovative and free steered management mechanism that automatically secures capital gains when the fi nancial markets rise and enables investors to make the most of opportunities when the markets fall.
With nearly 4,200 employees, the Services division combines six complementary and interactive business lines from both a commercial and technical viewpoint.
Four of these business lines - Insurance, Sureties and Financial Guarantees, Consumer Finance and Employee Benefi ts Planning - specialize in designing products sold primarily by the distribution networks to their customers.
The other two business lines - Payments and Securities Services - complement the Group’s payment processing services and fi nancial instruments activities.
Furthermore, in order to enhance the performance and quality of its products, Natixis Assurances launched a three-year program in 2006 concerning the complete updating of its IT systems.
BECOMING A KEY PLAYER IN CONSUMER FINANCE IN FRANCE AND EUROPE
The Consumer Finance business has undergone reorganization since November 2006, with new rules of operation in making products available to the Banque Populaire and Caisse d’Epargne networks. Natixis Consumer Finance has expanded and updated its consumer fi nance offering for the Caisse d’Epargne banks and developed a revolving credit product for the Banque Populaire banks. The revolving credit business saw robust growth in 2006. CEFI’s outstandings increased by 9%. In 2006, this business line took the next step in its development with management of personal loans using an innovative new tool: “IZICEFi”. Installed in Caisse d’Epargne branches, this tool increases selling opportunities of personal loans while ensuring optimum profi tability. At the end of 2006, personal loan outstandings through IZICEFi totaled €1.1 billion.
Covering a variety of business lines and markets, the Sureties and Financial Guarantees business provides partners with the banking and fi nancial counter-guarantees required for their business. Natixis Garanties’ range of surety products are among the most apt and competitive on the market. A platform of experts provides the most suitable response to the fi nancing needs of individuals, businesses and local authorities.
Natixis Interépargne has been market leader in employee savings for a number of years (source: AFG June 30, 2006) and is No. 1 in administrative and fi nancial management. It has
ACTIVITIES3 Services continued to expand its business, with a 17% increase in the number of corporate clients to over 30,000.
In response to the policies adopted by companies regarding their employees, in 2006, Natixis Intertitres enhanced its range of pre-fi nanced vouchers used to pay domestic employees (“Chèque emploi service universel”) or “CESU” and gift vouchers (“Chèque cadeau”), distributed under the Cado Chèque brand by Titres Cadeaux, a joint venture in partnership with La Banque Postale.
The number of vouchers issued over the year increased by 12% (for all products).
In employee benefi ts planning, Natixis aims to continue its pro-active strategy, primarily by strengthening its marketleading position in connection with account holding and asset management, as well as by developing integrated products and services, in particular in service vouchers within the employee benefi ts planning range.
The Payments business designs, develops and managers all processing and associated services required for payments processing. These services apply to all mass transactions in national and international systems, as well as all transactions involving large amounts.
The Securities business has become a key player in all of its areas of activity - retail custody services, institutional custody services and fund administration.
This business line will draw on the high level of assets under management to achieve economies of scale, while also developing an innovative offering and a renowned standard of services, thereby strengthening its operations while also improving productivity.
SLIB confirms its international strategy Natixis’s subsidiary SLIB develops software solutions for brokers, banks and global clearing members to handle their trading, post-trading and clearing activities on the Euronext markets.
In 2006, SLIB confi rmed its international strategy by winning contracts with European operators for clearing, portfolio management, trading and market data distribution services, as well as a range of derivatives and futures services for Euronext.liffe.
four business lines in every country, overhaul its production organization and implement a global IT infrastructure for all four business lines. Finally, it will seize any acquisition opportunities that may arise in any of the four business lines.
With premium income up 10% at €1.34 billion, Coface saw its strongest intrinsic growth in 10 years in 2006 (premium income up 9.8% like-for-like).
In 2006, Coface achieved the initial targets of its strategic development plan by enhancing its product offering in the countries in which it operates, establishing company
ACTIVITIES 3 Receivables Management information in two new countries, receivables management in 10 new countries, credit insurance in four new countries and factoring in four new countries.
Following the acquisition of ORT in 2004, ORT was merged with Coface Scrl in 2006 to create Coface Services, market leader in company information in France and No. 2 in receivables management.
Coface’s @rating system is the link between all these business units. A unique, worldwide system for rating insurable companies, @rating includes: an @rating opinion, including a suggested credit limit on 44 million companies worldwide (1@ = €20,000, 2@ = €50,000, 3@ = €100,000, etc.); an @rating credit score, now available on all French companies, which indicates a probability of bankruptcy in the coming year; a country @rating on 154 regularly monitored countries; a sector @rating measuring the average non-payment risk of companies in the sector.
Natixis Factor saw rapid growth in 2006, with factored receivables up 16% at €13.6 billion.
In France, Natixis Factor consolidated its position as market No. 3 (source: ASF), progressing in all customer segments. In 2006, it continued to pursue its strategy of winning new clients and heightening customer loyalty, including in the French overseas departments and territories (factored receivables up 29%) and in exports (up 53%).
It has also strengthened its position among large companies thanks to the success of its confi dential factoring products. It has enhanced its offering with the launch of a trade balance purchasing solution. It was also the driving force behind the fi rst two syndications of factoring products in France.
In an environment characterized by heightened competitive pressures, Natixis Factor decided to differentiate itself through the quality of its services. It obtained BVQI certifi cation for its services in 2005 as recognition that it has honored a specifi c set of commitments to its clients over the full range of its factoring services. One of its commitments, for example, is to fi nance 100% of every factored receivable from one day after reception. A new satisfaction survey conducted at the end of 2006 showed an overall satisfaction rate of over 92% (source: Artenice). The score given by customers increased by 0.2 points to 7.4 (out of 10) and the level of “very satisfi ed” customers increased by 2 points compared with 2005.
Development of factoring activities outside France 2006 saw strong growth in export factoring with factored receivables up 53%, thanks to CREANCExport. In Germany, the development of VR Factorem as a joint venture with DZ Bank subsidiary VR Leasing now constitutes a major growth driver. Finally, Natixis Factor is jointly responsible - with Coface Finanz - for the division’s Center of factoring excellence, which supports the roll-out of the Group’s factoring activities around the world.
CIFG upgrades to AAA rating underlying issues which are rated at least investment grade.
The issuers concerned can be traditional issuers such as local authorities or special purpose issuers such as SPVs, securitization funds and trusts.
It consists of a holding company and four companies of which the main two are monoline insurers, operating in Europe (CIFG Europe, based in Paris and London with the capacity to issue guarantees in the European Union) and in the United States (CIFG North America, based in New York, with insurance company licenses in most US states).
Natixis aims to build on CIFG’s position as a key player in the fi nancial guarantee sector by helping its subsidiary to increase its investment and diversify its portfolio.
(6) Except for Caisse d’Epargne de Martinique, which has not issued any CCIs.(6) Except for Caisse d’Epargne de Martinique, which has not issued any CCIs.
As cooperative, regional banks of the people, the Banque Populaire banks play a key role in the Banque Populaire Group's regional footing. They are loyal to their original business and ensure a high standard of banking relations with customers on a day-to-day basis, playing an active role in the economic development of the region.
Customer savings of €65 billion (up 9%), including €29.9 billion in life insurance (up 15%) and €31 billion in mutual funds
As a means of ensuring permanent contact with customers, online banking as seen strong growth in the number of subscribers, as well as increasingly frequent use of the service.
partnership was signed with La Mutuelle des Etudiants to facilitate access to loans; private banking customers, with the creation of a nationwide organization to make the most of the potential offered by the network; public sector workers, with whom the Group has close relations through CASDEN for employees of the French national education, research and culture systems, and ACEF to provide savings and lending products for public sector workers.
Winning new customers and extensive measures to ensure the loyalty of existing customers resulted in further growth in customer savings, outstanding loans and the number of products per customer.
The 32 Socama companies are made up of entrepreneurs. This original structure allows the Group to meet its customers’ needs, thanks to its excellent sector knowledge. It creates innovative products that enjoy a high level of success, such as investment loans or business buyout loans with no personal guarantee required or a limited personal guarantee for buyouts.
From its solid footing in the corporate client market, the Banque Populaire Group offers a broad range of banking products and services in areas as diverse as payments processing, structured and specialist fi nance, employee benefi ts planning and international or fi nancial management. In addition to this global approach to clients’ needs, the Group offers a local presence, guaranteeing reactivity and understanding of companies’ specifi c needs. It has a structure dedicated to this customer group, based on the Banque Populaire business banking branches and regional departments of Natixis. Specialists at its 155 business centers mobilize and organize the Group’s various resources in order to offer tailor-made solutions to each client.
Thanks to the combined expertise of the Banque Populaire regional banks and Natixis, as well as the complementary know-how of Coface, the Group is able to provide support at each stage of a company’s development, from starting up to expansion in France and abroad, IPOs and buyouts. The Group has relationships with in two SMEs in France and is also the No. 1 principal bank for SMEs (source: SOFRES - September 2005).
In 2006, the Banque Populaire Group, with Natixis Factor, also consolidated its position as market leader in factoring.
It is also No. 1 in employee savings and has confi rmed its position as the partner of choice for companies in the larger market of employee benefi ts planning.
In 2006, the Caisse d’Epargne banks continued with the “Fréquence Client” program, intended to improve their sales and marketing methods and their distribution network. The various online banking channels have also been optimized (the website is the second most visited banking website in France).
Ecureuil Sérénité Services, a comprehensive range of personal banking services developed in partnership with MACIF and MAIF, was launched at the start of the year. Caisse d’Epargne has also formed a strategic partnership with Accor Services to offer its corporate and local authority clients pre-fi nanced Chèques Emploi Service Universel (CESU) service vouchers.
In partnership with MACIF, the Caisse d’Epargne Group also launched three straightforward and competitive top-up health insurance policies at the end of 2006.
With its strong regional positioning, Caisse d’Epargne partners all organizations involved in regional social and economic development.
Caisse d’Epargne is joint market leader in providing fi nancing for the public sector and hospitals in France. It also acts as an advisor to local authorities and institutions, providing tailormade solutions for their development projects, managing their debt portfolios etc.
It has also developed a signifi cant public private partnership (PPP) business, with a dedicated structure and funds.
The banks are directors of the majority of Public Agencies for Development and Construction (OPAC). They are the largest private shareholder in semi-private real estate companies, whose majority shareholders are local authorities.
Caisse d’Epargne supports regional businesses from start-up stage to buyouts, offering a comprehensive range of fi nancing solutions and services, as well as equity solutions through national and regional investment funds.
It has 90 centers and 250 account managers specializing in corporate clients. It also benefi ts from the support of Banque Palatine in cooperation agreements.
2006 was a year of transition in terms of human resources. To meet the challenges involved in creating the new entity and presenting the transaction to the entire workforce, the Human Resources department initiated a broad information and consultation program covering the entire Natixis scope. In the context of the merger with Ixis CIB, the HR department also worked on identifying key people to ensure that they are placed at the right level in the new organization and thereby preserve the company’s human capital.
Natixis pursued an ambitious hiring policy in parallel with the merger-related actions. 572 new employees joined the parent company either on a permanent or fi xed-term basis in 2006, against 482 in 2005. The new people are highly educated (more than two thirds have four or fi ve years’ post-high school education) and very experienced (more than 30% are aged over 35). These high-profi le recruits have strengthened the bank’s expertise, particularly in commercial fi elds and the capital markets, but also in risk management, internal control and compliance.
The training policy adopted in 2005 continued during 2006. It has two main focuses: fi rst, cross-functional skills such as foreign languages, information technology, degree programs and regulations, and second, specifi c training programs designed to consolidate technical expertise, develop a managerial culture and strengthen the sense of belonging to a constantly-evolving enterprise. In addition, business line seminars on fi nancial strategy aimed at experienced relationship managers in corporate and investment banking were organized in partnership with the HEC business school. Lastly, 80% of Natexis Banques Populaires employees completed a compliance awareness course via the Banque Populaire Group’s e-learning platform.
More than 120 agreements or amendments were signed with the Natixis Group in 2006. A new employee representative body was created for the new entity comprising Natixis and its subsidiaries to provide a legal framework for collective bargaining on issues common to all Natixis Group companies, such as the Group Works Council, employment and mobility. The three-year agreement creating the new body was signed by all the labor unions represented in the Natixis Group (CFDT, CFTC, CGT, FO, SNB-CNE/CFE-CGC and UNSA). It covers companies in which Natixis directly or indirectly owns more than half the capital and whose registered offi ce is based in France. Under the agreement, the labor unions have appointed national delegates within the Natixis Group, who are authorized to sign agreements negotiated by the new employee representative body.
As soon as Natixis was created on November 17, 2006, the Human Resources department began to take action throughout the new entity to meet the needs and expectations of over 23,000 employees, including one third working abroad. Working groups were created to review the potential repercussions of the new organization structures on the various aspects of human resources management. As a result of work on “employer image”, the bank attended the École Polytechnique career fair on November 23, with a new stand sporting the Natixis colors and a brochure presenting the new entity’s fl agship business lines. The brochure was also circulated at subsequent engineering and business school career fairs. It will gradually be enriched with a description of the Group’s other business lines. In addition, a presentation common to all entities has been prepared for the online employment sites, to emphasize their belonging to the same Group. Lastly, the corporate web site will be revamped to place a greater focus on the diversity of the business lines offered by Natixis and its subsidiaries.
Working groups were also created to handle internal communications. This led to the development of a program to support employees throughout the change involved in the creation of Natixis. As soon as the merger was announced, an 8-page letter called ”Natixis News” was sent out to employees to explain the principles behind the merger. A ”Project Letter” was then regularly e-mailed to all employees updating them on progress in the merger. As soon as Natixis was offi cially created, the communications program was stepped up. A video journal called “Focus on” has been gradually extended to all Natixis entities. A weekly newsletter called ”Natixis infos newsletter” e-mailed to employees contains information about the entire Natixis group. The “Project Letter” became the ”Natixis n ewsletter” and provides news about the merger, including organizational decisions, appointments and new agreements signed. A 24-page two-monthly magazine called ”Impulsion” is sent to all Natixis employees. In addition to these central arrangements, the Communications department also helps the bank’s various business lines to design and produce dedicated newsletters called ”Business Line Info”. All these newsletters and magazines, which are always available in both French and English, can be consulted on “IntraNatixis”. This new web page created in November opens automatically when an employee connects to one of the bank’s intranets and provides news and information on life in the new entity.
* New entity including all subsidiaries of the Caisse d’Epargne Group transferred on November 17, 2006.
This plan will provide Natixis with a modern, upgradeable enterprise systems architecture which guarantees consistency between the various reporting systems.
During 2007, work will focus on preparations for meeting this key milestone. The new systems will be tested throughout the summer and a parallel run is scheduled for the fi nal quarter. During 2007, aspects related to the new Natixis entity will also be integrated into the enterprise systems development plan: upgrade of data entry architecture to take account of an almost twofold increase in data fl ows; reconfi guration of the “counterparty risk” project to capitalize on Ixis CIB’s systems; revision of the applications migration timetable to include business line applications identifi ed as “target” during business line IT convergence work.
An Information Systems project was launched to ensure seamless convergence. It is managed by a steering committee that tracks progress in the various IT projects, which are designed to ensure overall consistency of IT work.
IT actions required for launch on November 17 and then for the 2006 period-end.
The goals of the transition and target stages are: to ensure business continuity in the bank’s operations and the production of consolidated fi nancial statements in accordance with regulatory requirements; to defi ne and validate a target structure for each business line and for support functions; to determine the process and the main milestones; ■
These stages are covered by projects to align the business line information systems and cross-functional projects. Certain business lines that are not much affected by the merger operations (Factoring, Insurance, Receivables Management, Guarantees and Consumer Finance) will retain their existing systems. Work on Corporate and Investment Banking is designed to unify and optimize processing chains, focusing on front to back solutions using cross-functional software and sharing support functions wherever possible. The French asset management companies will migrate to a shared system by mid-2008, based on similar applications and cross-functional databases already existing within the two entities. In Services, the Securities Services departments will eventually migrate to a single system for each customer segment (retail, institutional). Payment systems (access to clearing platforms) will be unifi ed, especially during convergence work on Corporate and Investment Banking’s IT systems. The custodian business of Ixis CIB and other subsidiaries will be transferred to Natixis.
The IT function employs a total of about 1,700 people. Outsourcing accounts for about 50% of activity, which is in line with practices in the major French banking groups.
Sustainable development is now an integral part of the bank’s day-to-day activity. Its policy is based on concrete action and aims to involve all employees both in their commercial approach and in their daily lives. Natixis is involved in all the major national and international sustainable development organizations. It fi nances renewable energies and offers dedicated socially-responsible investment funds. It also strives to raise employee awareness of the key sustainable development issues, from global warming to methods of adopting a responsible purchasing policy. Natexis also extends its action to society in general, by supporting projects that go beyond its traditional areas of activity through its patronage of the arts and involvement in the battle against malaria.
As the listed vehicle of the Banque Populaire and Caisse d’Epargne Groups, both of which have signed the United Nations’ Global Compact, Natixis is committed to respecting the Compact’s principles on human rights, environmental protection and anti-corruption. On a national level, Natixis is also a member of ORSE, the corporate social responsibility think tank, and of IMSEntreprendre pour la Cité.
ECF, a Luxembourg SICAV launched by the major European fi nancial institutions and managed by Ixis E&I, aims to fi nance the “carbon” component of industrial projects. It meets the objectives set out in the Kyoto Protocol and the European Directive aiming to reduce greenhouse gas emissions throughout the world (see inset). The teams support projects in all four corners of the globe by buying certifi ed emission credits issued by the UN under the Kyoto Protocol, with the aim of providing liquidity in the European CO
To make its corporate clients more aware of the issues of global warming, the bank took part in the 4thedition of the Carbon Disclosure Project. This survey was sent by 225 investors managing over $31,500 billion to the world’s biggest listed companies in terms of market capitalization. In 2006, the survey also included French companies in the SBF 120 index as well as FT 500 companies. 72% of the FT 500 companies responded and 45% of French companies. The results confi rm that companies are gradually taking more account of global warming and that investors are seeking more information.
Natixis has confi rmed its leading position in renewable energies through its leasing, project fi nance and specialist investment fund management business lines.
In addition, the project fi nance business line substantially increased its activity in fi nancing renewable energies. Fourteen wind farm projects were fi nanced in Europe and the United States in 2006, with a total capacity of 1,730 MW. Natixis also diversifi ed its support to the renewable energies sector by fi nancing two solar farms in Spain (see inset).
These two towers, which have a combined capacity of 31.02 MW, will reduce CO2 emissions by about 54,000 tonnes a year and will provide almost 18,000 homes with electricity.
An environmental scorecard is systematically completed by the relationship managers for all proposed project fi nance deals, regardless of amount, and reviewed by the credit committee. Scores take account of the project’s impact (level A, B or C depending on the sector or country), compliance with regulations, the conclusions of the environmental report and the risk of opposition to the project.
Coface has a set of environmental guidelines that defi ne the criteria used for analyzing major projects for each sector concerned. They identify the main factors having an impact on the environment and set out Coface’s requirements for environmental management. In 2006, guidelines for the construction sector were added to those covering large dams, thermal power stations and hydrocarbon projects.
At December 31, 2006, the Asset Management core business managed several types of SRI expertise represented by 37 funds encompassing all asset classes (equities, bonds, money market and diversifi ed) and based on various types of approach (best in class sustainable development, ethical, sectoral and solidarity-based). These products are aimed at all client segments, including retail, institutional, corporate and employee savings. In 2006, eight new funds in the bond range (Natexis/Fructi ISR Obli Euro) adopted SRI screening of governments and companies in their investment process.
Insertion Emplois Équilibre Insertion Emplois Équilibre aims to provide access to solidarity-based fi nancing and socially responsible investment through a prudent asset allocation (65% fi xed income and 35% equities). It invests directly or via mutual funds in unlisted securities issued by solidarity organizations (5-10% of assets) that directly or indirectly create jobs for people in severe diffi culties.
Natexis Solidaire This fund is devoted to managing the solidarity components of the bank’s solidarity-based employee savings funds. It is the fi rst fund of this type to provide a broad range of solidarity players with the benefi t of funds raised from employee savings to support projects promoting solidarity housing, fair trade or development of southern countries. The fund was approved by the AMF on August 1, 2006 and received the Finansol label in December 2006.
The bank has stepped up its long-standing efforts to combat fi nancial crime. The dedicated team, which reports to the Compliance department, was strengthened in terms of both staff and technical resources. Training in money laundering prevention also continued during the year. At end-2006, around 85% of parent company employees and over 80% of the subsidiaries’ employees had attended the training. The behavioral analysis software purchased in 2005 went live for an initial batch of business activities. This software is designed to identify suspicious transactions in terms of money laundering regulations. It is now being extended to other businesses. The payment fi ltering software designed to ensure observation of embargoes and asset freezes on entities suspected of participating in fi nancing terrorism has been extended to all SWIFT transactions. Lastly, the “know your customer” rules applicable to all new business relationships have been tightened up.
Given the scale of its operations and its 23,000 employees, Natixis has signifi cant impacts on its environment in terms of consumption of resources, waste management and the associated carbon emissions. In 2004, the bank introduced an internal environmental management approach to control these impacts.
In 2005, a questionnaire was sent out seeking employees’ suggestions for reducing energy, paper and fuel consumption and optimizing waste management. The results were used in 2006 to identify “fi ve key green behaviors”, which have been published on the “gestes verts” intranet site.
Five key green behaviors optimizing travel: use environmentally-friendly or public transport wherever possible and make more use of telephone conferencing; saving energy: switch off lights in unused rooms, turn off computer screens at night, avoid turning up the airconditioning or heating; reducing paper consumption: use both sides of the paper and only print out e-mails if really necessary; sorting waste: use the waste sorting bins provided; eco-purchasing: choose “green” products in the offi ce supplies catalog.
In 2006, when Natixis was created, consumption tracking was extended to all entities comprising the new group.
When the new identity was introduced, a specifi c mechanism was made available to employees to recover their obsolete printed matter, business cards and headed envelopes for recycling. In this way, 23 tonnes of paper were recovered for recycling, the equivalent of 9,000 reams.
In the second half of 2006, Natixis completed a carbon report on the old Natexis Banques Populaires parent company (i.e. 5,200 employees and fourteen premises). The carbon report aims to audit the level of greenhouse gas emissions generated directly and, more importantly, indirectly by the bank’s business operations.
Carbon report results The items that produce the most greenhouse gas emissions are the purchase of products and services (51%) and travel (24%), half of which is due to business travel by plane. Internal energy consumption generates 7% of total emissions and depreciation of buildings and computer equipment 17%.
As part of the policy introduced in 2005, the bank continues to integrate sustainable development criteria in its bid invitations. Emphasis is placed on recognized environmental labels for products and ISO 14001 or EMAS certifi cation for production sites.
As part of a continuous progress approach, environmental criteria based on recognized labels such as TCO for computer equipment or the European eco-label for other types of products are monitored regularly to take account of any changes in standards or legislation. The criteria are also refi ned in association with the Ademe’s “Eco-design and sustainable consumption” department. In addition, raising awareness among suppliers is refl ected in a particular focus on eco-labeled products, particularly for offi ce supplies, with an extension of the range of products bearing the European eco-label. The continuous progress and supplier awareness approach also involves gradually tightening up the bank’s requirements of suppliers in line with changes in standards for recognized labels and changes in suppliers’ offerings.
“Eco-responsible” purchasing In 2006, the bank renewed its choice of products having less impact on the environment, including: paper containing recycled fi bers or new fi bers from sustainable managed forests; recyclable envelopes for both internal and external use carrying the “NF Environnement” eco-label; recycled ink cartridges for printers and fax machines; offi ce supplies listed as “green products”: in 2006, 22% of products were listed as green, representing a total of 103 catalog items, against 15% in 2005.
Based on the Vigeo criteria, Natixis is among the leaders in human resources management, given its heavy investment in training, employability and social dialog (see chapter on “Human resources”).
Nevertheless, two points were singled out for special attention. First, the proportion of women managers has been growing steadily (34.1% in 2004, 34.9% in 2005 and 36.4% in 2006)
SUSTAINABLE DEVELOPMENT 5 Stronger commitment to sustainable development and the percentage of promotions involving women should signifi cantly improve the position (56.4% in 2004, 59.1% in 2005 and 57.3% in 2006).
Hiring and integrating people with disabilities is also becoming an important aspect of social responsibility. To make sure the bank is integrating this initiative into its hiring policies, the Human Resources department has staffed a new team dedicated to diversity issues, and more particularly the hiring of people with disabilities.
In 2006, assisted by a specialist consultant, the bank conducted an analysis of its position with regard to disabled workers. The aim was to implement an active policy of hiring disabled people and calling on the protected sector more often for certain types of job. This should lead to the bank signing an agreement with the Agefi ph in 2007.
Disability awareness sessions for human resources employees aim to change the way people perceive disability and to think about how better to integrate disabled workers into the workplace. This campaign will be further developed in 2007 not just among human resources employees but also among managers.
For the second year running, Natixis supported the FrancoAfrican fi ght-against-malaria day organized by the NGO Plan France, a campaign designed to inform the general public. Along with its subsidiaries, the bank also fi nances programs to increase awareness and distribute mosquito nets among affected populations. In 2006, projects were carried out in Cameroon and Burkina Faso. Audits conducted on the program set up a year ago in Cameroon confi rmed the benefi ts of this project.
The bank helped fi nance a biomedical research program run by the Institut Pasteur in Madagascar, which aims to compare the therapeutic effectiveness of two combined anti-malarial treatments.
En 2006, Natixis continued its action to promote knowledge about Coronelli’s terrestrial and celestial globes. These seventeenth-century baroque works of art were exhibited at the Grand Palais in September 2005 and joined the permanent collection of the Bibliothèque Nationale de France (BnF) in October 2006. The ultraviolet and infrared images and x-rays taken by the Centre de Recherche et de Restauration des Musées de France (C2rmF) have provided valuable information about the Globes ahead of the next stages of their restoration.
In parallel, Natixis supported a contemporary plastics artist, Xavier Lucchesi, the National Picasso Museum and the C2rmF in their project for an exhibition entitled XRAYS (September 2006 to January 2007), revealing the hidden face of Picasso’s plaster works using x-ray techniques. In 2006, the bank also provided fi nancing for the Musée du Quai Branly to develop its Internet documentary portal and complete its central mezzanine fl oor devoted to multimedia.
Development of expertise: negotiating CO2 quotas, Kyoto project fi nancing, purchase of credits by the European Carbon Fund
Structure the range of products and services for clients subject to new environmental constraints.
Strong growth in SRI assets under management: number 2 in the French SRI market
Training in money laundering prevention techniques for 85% of parent-company employees and over 80% of subsidiaries’ employees.
Deployment of the behavioral analysis program for the fi rst batch of activities.
'Green behaviors' awareness campaigns for employees: communication campaigns on the 5 key green behaviors.
Draw up a formal environmental policy and set quantifi ed targets for energy cosumption control.
Refi ne the sustainable development criteria incorporated in new bid invitations.
Raise awareness about diversity among employees involved in recruiting and career planning (HR and managers).
Commitment to the battle against malaria (support for the anti-malaria day, project fi nance in affected countries, support for research carried out by the Institut Pasteur).
A distinction has been drawn between the old scope comprising Natexis Banques Populaires and its subsidiaries, and the new scope comprising Natixis, which includes the subsidiaries of the Caisse d’Epargne group transferred on November 17, 2006.
Managers accounted for 65.1% of all new hires and 75.1% of new permanent contracts.
The diversity of new employees refl ects the diversity of the bank’s business lines and its need for complementary talents and cultures.
Within the parent company, more than two thirds of new hires have four to fi ve years of post-high school education. Positions of high responsibility or requiring specifi c, businessline expertise were fi lled by experienced candidates, both male and female.
No signifi cant recruiting problems were encountered. In addition to the www.natixis.com web site, the bank regularly uses the major online employment sites to publish its job offers.
Temporary employees: temporary employees represented 3.3% of total French employees (new scope) at December 31, 2006, representing a monthly average of 467 FTEs.
■ In the parent company, the monthly average was 156 FTEs, representing 3.1% of total parent company employees in France at December 31, 2006.
Service providers: the average monthly number of FTEs in France was 1,435 for the old scope and 1,767 for the new scope. Service providers were used mainly in the areas of information systems (project management), fi nance and accounting.
Employees have the option of working part-time on the basis of 50%, 60%, 70%, 80% or 90% of the full-time schedule. Similarly, management-level employees on a number-of-days basis may opt for part-time arrangements of 105, 126, 147, 167 or 188 days. At December 31, 2006, 552 people or 10.9% of total staff opted for these part-time arrangements.
Labor negotiations at the Banque Populaire Group resulted in a 1.6% overall gross salary increase in April 2006, with a gross annual minimum of €420. Natixis applies the Group agreement to all employees whose contracts are governed by the collective bargaining agreement applicable to banks.
Average gross annual compensation for permanent employees on a full-time equivalent basis (fi xed and variable components excluding profi t-sharing, incentive plans and employer’s matching contributions to the employee savings plan) was €64,470 for the Group in France (€62,894 for the parent company).
121 agreements and amendments have been signed by the Group in France, including 14 in the parent company, on subjects such as incentive and profi t-sharing plans and the work-time management plan.
The Group employee profi t-sharing agreement signed in 2005 was renewed in 2006 for a further year. It covers more than 6,700 employees in the parent company and nine of its subsidiaries.
Elections of employee representatives in the parent company are due to take place in October 2006. To take account of the special circumstances arising as a result of the merger of certain activities of the Banque Populaire Group and the Caisse d’Epargne Group within Natixis, an agreement was signed by Natexis Banques Populaires parent company and all the labor unions extending the mandates of the work council members and employee representatives until April 30, 2007.
Information and consultation processes began at the end of 2006 on the proposed merger of certain entities such as Natexis Asset Management and Ixis Asset Management.
A user’s guide to IT, digital and technological resources sets out employees’ rights and responsibilities with regard to the IT resources made available by the employer.
A “new organization” sub-committee has been created comprising representatives of Management, the labor unions and occupational physicians with a view to optimizing working conditions for employees following their redeployment in the new organization structures.
Concerning employee health, the independent, occupational medicine department regularly monitors employees in the Paris metropolitan area. Independently of the new legal provisions requiring two-yearly physical examinations, employees requiring special medical supervision will continue to be monitored on an annual basis.
The number of hours training rose by 65% compared to 2005, mainly due to compliance and money-laundering prevention training.
Training in 2006 represented 4.72% of the parent company’s total payroll and 3.30% of the French payroll compared to a minimum legal requirement of 1.6%.
A catalog of available training is circulated to employees each year. Available training can also be consulted by all employees on the HR intranet.
As of December 31, 2006, women represented 50.8% of the total French workforce - new scope (47.3% for the parent company).
The number of women hired by the parent company continued to increased in 2006. 50.4% of the 681 new hires in 2006 were women and the percentage was similar across all French entities (new scope).
Working time: women accounted for 91.5% of part-time employees (versus 93.0% on old scope).
Proportion of women in management-level positions (parent company): Proportion of women in management-level positions 32.9% 33.7% 34.1% 34.9% 36.4%
Among all French employees, the proportion of women in management-level positions was 39.7% at December 31, 2006.
Individual pay rises granted to women: Women received 50.7% of all individual raises among employees in France, which is equivalent to the proportion of women in the total French workforce.
Training: women accounted for 48.9% of the number of employees receiving training and the number of hours training.
Over the next few years, a signifi cant proportion of employees are due to retire, which will reduce the average age and boost mobility.
AGE PYRAMID FOR NATIXIS FRANCE Permanent employees at december 31, 2006 (*)
In 2006, electronic voting was introduced for the fi rst time at the Mutuelle’s annual general meeting in June. This had the effect of tripling the number of voters and a quorum was reached the fi rst time around.
Natixis provides modern sports amenities for its employees, including a new gym in the Liberté 2 building. This led to a 20% increase in the total number of members of the Natixis Sports Association.
A mutual assistance organization helps employees who are confronted with a traumatic event or serious personal problems in their lives. Annual voluntary contributions to the association are also matched by the company.
A large number of employees were involved in the Telethon solidarity event in 2006. Donations to the Telethon are also doubly matched by Management.
In all, 204 young people joined the bank in France on workstudy programs (new scope).
Natixis contributes to local development outside France through its international operations. Over 7,000 people work in offi ces, branches and subsidiaries abroad. Nearly all of them are hired locally. There are very few expatriates in the Group. Only 116 French employees (new scope) work abroad on expatriate contracts.
Two separate sets of fi gures are provided: A = new scope comprising the former Natexis Banques Populaires and its subsidiaries including Coface, plus Ixis AM and Ixis CIB, in metropolitan France (i.e. approximately 80 premises representing 350,000 sq.m. of space and 18,000 work stations)
B = comparable 2005/2006 scope comprising the former Natexis Banques Populaires and its subsidiaries including Coface in metropolitan France (excluding Ixis AM and Ixis CIB).
Water consumption for the new scope including Ixis CIB and Ixis AM totaled 150,632 cubic meters in 2006. There was an increase per workstation in 2006, although overall consumption remains low.
Gas consumption per sq. m. GLA (cu. m.) 13.2 13.9 8.2
The bank’s energy and fl uid consumption is managed by the Logistics department. Its policy is to minimize the direct environmental impacts of the bank’s operations, while maintaining high-quality working conditions for employees. In an effort to achieve this delicate balance, qualitative and quantitative consumption targets are set annually for each building.
The Logistics department has individual building representatives who interact directly with users. They are responsible, among other things, for optimizing energy consumption. They use centralized technical management tools to optimize user comfort while minimizing energy consumption. These tools automatically manage technical installations, taking account, for example, of outside temperature and the thermal properties of the building.
In 2005, Natixis considered a program to purchase electricity produced from renewable energy sources. However, the program did not offer acceptable environmental guarantees and was therefore not pursued.
Direct and indirect emissions of greenhouse gases (EN 16 / EN 17) - Transportation (EN 29)
Business air travel Parent company 2005 Parent company 2006 B 2006
Emissions of ozone-depleting substances and other signifi cant air emissions: NOx, SOx (EN 19, EN 20)
Natixis does not install air conditioning systems that discharge heated water so as to avoid polluting water discharge. Instead, glycolated water from heat exchangers is periodically emptied and recovered by specialized recycling companies. Used fl uids from combustion engines (generators, vehicles, etc.) are also recovered and treated by specialized companies.
Paper, envelopes and boxes 634 T Natixis uses envelopes that are recyclable and have the «NF environnement» eco-label.
Batteries 129 kg Collection, transportation and treatment by an approved external service provider in line with legislation
* In 2006, 60% of consumables used (cartridges) were remanufactured. The Purchasing department buys these cartridges as and when the models used by the bank’s equipment are available on the market and their reliability and quality can be confi rmed.
MEASURES TAKEN TO LIMIT DAMAGE TO THE ECO-SYSTEM, NATURAL HABITATS AND PROTECTED ANIMAL AND PLANT SPECIES
The bank’s offi ces are mainly in towns and do not have a signifi cant, direct impact on the natural environment. Nevertheless, preventive measures are taken to avoid any accidental water or air pollution. For example, sensitive installations are regularly maintained and premises containing potential pollutants are sealed.
In 2006, the company spent €936,000 (excl. VAT) on environmental protection, covering the following areas: asbestos detection and removal, bacteriological testing, recovery and treatment of potentially polluting liquids, air conditioning replacement studies.
Any “potentially polluting fl uid” used in the bank’s premises (glycolated water, hydrocarbons, etc.) is recovered and treated in line with current regulations.
The targets concerning buildings operation and informing employees apply to all the bank’s foreign subsidiaries.
Synergies are expected from the combination transactions between the corporate and investment banking and fi nancial services activities of the Banque Populaire Group and the Caisse d’Epargne Group carried out in 2006, resulting in the creation of Natixis. These synergies are set out in appendix B of the offering circular registered with the Autorité des Marchés Financiers on October 16, 2006, under number E. 06-162 to accompany the combination transaction. The anticipated level of synergies is based on a number of assumptions, many of which depend on factors that are beyond the control of Natixis. Natixis may fail to achieve expected synergies for any number of reasons, including diffi culties encountered in the integration process, disruptions caused by the unique structure of the new Group (described below in “Risks relating to Natixis’ structure”) or the materialization of risks relating to ordinary banking activities (described below in “Risks relating to Natixis’ operations and the banking sector”). Any of these factors, among others, could result in the actual level of revenue and/or cost synergies being lower than anticipated.
Moreover, the integration of the operations of the Natexis Banques Populaires Group with those of the contributed entities could interfere with the activities of one or more of their businesses and divert management’s attention from other aspects of Natixis’ operations, which could have an adverse effect on Natixis’ operations and results.
The combination transactions generated a substantial amount of goodwill that may be subject to impairment
In connection with the Combination Transactions, Natixis recorded new goodwill of €633 million (before the fair value allocation of the implied acquisition price), in addition to the goodwill on the books of the contributed entities of €1,423 million. Overall, pro forma goodwill, before fair value allocation, as of December 31, 2005, was €2,808 million. If signifi cant asset quality issues arise or if the fi nancial condition and prospects of the contributed entities otherwise fail to meet the expectations used for valuation purposes in the Combination Transactions, Natixis could incur impairment charges, which could have an adverse effect on its results of operations.
The results of operations and fi nancial condition presented in Natixis’ unaudited pro forma fi nancial statements may not be indicative of its future performance
BFBP and CNCE are both required to ensure the compliance of the entire Banque Populaire Group and the Caisse d’Epargne Group, respectively, with applicable French banking regulations in areas such as capital adequacy and risk management. As a result, BFBP and CNCE have been granted signifi cant approval rights over important aspects of the risk management policies of Natixis (which is part of both the Banque Populaire Group and the Caisse d’Epargne Group). In particular, BFBP and CNCE have the power to approve the appointment or removal of the director of internal audit of Natixis, as well as certain aspects of risk management such as the approval of credit limits and the classifi cation of loans to customers that are common to Natixis and one or both of the two shareholder groups as doubtful loans. The interests of BFBP and CNCE (on behalf of their respective groups) with respect to risk management may be different from those of Natixis.
Under the shareholders’ agreement signed on November 17, 2006, BFBP and CNCE have established a mechanism for the appointment of members of the supervisory board and of the management board of Natixis, and have also agreed on the implementation of various corporate governance measures. In addition, the shareholders’ agreement provides that certain decisions deemed essential — such as the purchase or sale of an interest or the creation of a joint venture by Natixis or one of its subsidiaries in an amount exceeding €150 million — require the approval of both BFBP and CNCE as well as the supervisory board of Natixis. In the event of a disagreement, the shareholders’ agreement provides mechanisms for the resolution of the issue at the senior management level, but it does not contain a mechanism for defi nitively resolving the disagreement. In the event of deadlock, the management board may be unable to obtain supervisory board or shareholder approval to proceed with planned actions. Natixis’ business may therefore be subject to signifi cant disruptions in the event that BFBP and CNCE are unable to resolve any differences concerning Natixis’ development.
Natixis has no voting rights with respect to the cooperative investment certifi cates representing 20% of the share capital of the Banques Populaires and the Caisses d’Epargne and is not the central body of the Banque Populaire Group or the Caisse d’Epargne Group
Natixis owns a 20% equity interest in the Banques Populaires and in the Caisses d’Epargne in the form of cooperative investment certifi cates issued by each entity. These cooperative investment certifi cates are non-voting securities, with different rights from those attached to cooperative shares in the Banques Populaires and the Caisses d’Epargne. Although Natixis is entitled to participate in meetings of the cooperative shareholders (“sociétaires”) of the Banques Populaires and the Caisses d’Epargne, it is not entitled to vote at these meetings and does not have control over decisions that require the consent of the shareholders of the Banques Populaires and the Caisses d’Epargne. Moreover, Natixis is not the central body of the Banque Populaire Group or of the Caisse d’Epargne Group (the central bodies, BFBP and CNCE, respectively, have certain coordination and control powers under French banking laws and regulations).
Under the terms of the agreements relating to the combination transactions, Natixis is prohibited from selling all or part of its 20% equity interests in the Banques Populaires or the Caisses d’Epargne without the prior consent of the board of directors of the Banque Populaire concerned or CNCE, respectively. While a bank whose board refuses to approve such a sale will be required to repurchase the relevant equity interests, the price will be based on the proportionate share of the net assets of the bank represented by the equity interests, taking into account the valuation method used to determine the initial price paid by Natixis for those interests, and thus may be different from the price that Natixis would have obtained from the proposed purchaser. In addition, the mere existence of the approval right might make it diffi cult for Natixis to sell its equity interests.
Natixis has important commercial relationships with entities in the Banque Populaire Group and the Caisse d’Epargne Group, which might have interests that are different than those of the shareholders of Natixis
Part of Natixis’ strategy for long-term growth is to expand the products and services it provides through the retail banking networks of the Banque Populaire Group and/or the Caisse d’Epargne Group, in areas such as employee benefi ts planning, consumer fi nance and payment services. However, the customers of the Banque Populaire Group and the Caisse d’Epargne Group are faced with a range of savings, investment or other products from which to choose, including in some cases products and services of competitors that will be offered by banks within each group. There can be no assurance that products or services provided by Natixis will be uniformly selected, or promoted, over the other services offered by the two banking networks. Although the Banque Populaire Group and the Caisse d’Epargne Group, as indirect owners of substantial interests in Natixis, have a signifi cant fi nancial interest to support Natixis’ continued development, they may from time to time have interests that differ from those of Natixis.
The non-competition undertakings of BFBP and CNCE contain certain exceptions that could result in Natixis being in direct competition with the entities of one of the two groups
the risk associated with certain other activities, such as real estate, which is indirectly affected by changes in the value of negotiable assets held in the normal course of business.
As part of its retail banking activities, the Caisse d’Epargne Group is one of two groups in France that offer to depositors a
In June 2006, the European Commission opened an inquiry to determine if the special rights granted to the Caisses d’Epargne, La Banque Postale and Crédit Mutuel (which distributes the Livret bleu, another regulated savings account) violated European laws with respect to the right to free exercise of a trade and the freedom to provide services. In addition, in March 2006, a group of banks, consisting of BNP Paribas, BFBP, Crédit Agricole, Société Générale and ING Direct, fi led a complaint with the Administrative Tribunal of Paris in order to overturn the administrative decisions of the Minister of the Economy, Finance and Industry rejecting their requests to be authorized to distribute the Livret A. These banking groups and Crédit Agricole S.A. have also fi led a complaint before the Conseil d’Etat. Through these legal actions, the banks are seeking to obtain permission to distribute the Livret A in the future.
While the Banque Populaire Group is one of the plaintiffs in the cases challenging the distribution of the Livret A, BFBP and CNCE have advised Natixis that they do not believe that this will affect their ability to cooperate on matters relating to Natixis. If this were to prove untrue, it could have the effect of impeding or delaying certain strategic decisions relating to Natixis’ development.
A substantial increase in new provisions or ashortfall in the level of previously recorded provisions could adversely affect Natixis’ results of operations and fi nancial condition
In connection with its lending activities, Natixis periodically establishes provisions for loan losses, which are recorded in its income statement under cost of risk. Natixis’ overall level of provisions is based upon its assessment of prior loss experience, the volume and type of lending being conducted, industry standards, past due loans, economic conditions and other factors related to the recoverability of various loans. For further information on Natixis’ provisioning policy and its treatment of doubtful loans, see “Risk Management”.
Natixis’ employees are its most important resource and, in many areas of the fi nancial services industry, competition for qualifi ed personnel is intense. Natixis’ results depend on its ability to attract new employees and to retain and motivate its existing employees. Changes in the business environment may cause Natixis to move employees from one business to another or to reduce the number of employees in certain of its businesses; this may cause temporary disruptions as employees adapt to new roles and may reduce Natixis’ ability to take advantage of improvements in the business environment. This may impact Natixis’ ability to take advantage of business opportunities or potential effi ciencies.
Pursuant to IFRS rules and interpretations in effect as of the present date, Natixis is required to use certain estimates in preparing its fi nancial statements, including accounting estimates to determine loan loss reserves, reserves related to future litigation, and the fair value of certain assets and liabilities, among other items. Should Natixis’ determined values for such items prove substantially inaccurate, or if the methods by which such values were determined are revised in future IFRS rules or interpretations, Natixis may experience unexpected losses.
To the extent that Natixis owns assets, or has net long positions, in any of those markets, a downturn in those markets could result in losses due to a decline in the value of its net long positions. Conversely, to the extent that Natixis has sold assets that it does not own, or has net short positions, in any of those markets, an upturn in those markets could expose it to losses as it attempts to cover its net short positions by acquiring assets in a rising market. Natixis may from time to time have a trading strategy of holding a long position in one asset and a short position in another, from which it expects to earn net revenues based on changes in the relative value of the two assets. If, however, the relative value of the two assets changes in a direction or manner that Natixis did not anticipate or against which it is not hedged, the Group might realize a loss on those paired positions. Such losses, if signifi cant, could adversely affect Natixis’ results of operations and fi nancial condition.
Market downturns are likely to lead to a decline in the volume of transactions that Natixis executes for its customers and as a market maker, and, therefore, to a decline in its net banking income from these activities. In addition, because the fees that Natixis charges for managing its customers’ portfolios are in many cases based on the value or performance of those portfolios, a market downturn that reduces the value of its customers’ portfolios or increases the amount of withdrawals would reduce the revenues the Group receives from its asset management and private banking businesses.
The amount of net interest income earned by Natixis during any given period signifi cantly affects its overall net banking income and profi tability for that period. Interest rates are highly sensitive to many factors beyond Natixis’ control. Changes in market interest rates could affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing liabilities. Any adverse change in the yield curve could cause a decline in net interest income from lending activities. In addition, increases in the interest rates at which short-term funding is available and maturity mismatches may adversely affect Natixis’ profi tability. Increasing or high interest rates and/or widening credit spreads, especially if such changes occur rapidly, may create a less favorable environment for certain of Natixis’ businesses.
As with most other banks, Natixis relies heavily on communications and information systems to conduct its business, as its activities require it to process a large number of increasingly complex transactions. Any failure or interruption or breach in security of these systems could result in failures or interruptions in customer relationship management, general ledger, deposit, trading and/or loan organization systems. If, for example, Natixis’ information systems failed, even for a short period of time, it would be unable to serve some customers’ needs in a timely manner and could thus lose their business. Likewise, a temporary shutdown of Natixis’ information systems, despite back-up recovery systems and contingency plans, could result in considerable information retrieval and verifi cation costs, and even a decline in its proprietary businesses if, for instance, such a shutdown occurs during the implementation of its hedging policies. The inability of Natixis’ systems to accommodate an increasing volume of transactions could also constrain its ability to expand its businesses.
Natixis also faces the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or other fi nancial intermediaries or outside vendors it uses to facilitate its securities transactions. As its interconnectivity with its customers grows, Natixis may also increasingly face the risk of operational failure with respect to its customers’ systems. Natixis cannot provide assurances that such failures or interruptions in its systems or in those of such other parties will not occur or, if they do occur, that they will be adequately addressed.
Unforeseen events like severe natural disasters, pandemics, terrorist attacks or other states of emergency can lead to an abrupt interruption of Natixis’ operations and, to the extent not covered by insurance, can cause substantial losses. Such losses can relate to property, fi nancial assets, trading positions and key employees. Such unforeseen events may additionally disrupt Natixis’ infrastructure, or that of third parties with which it conducts business, and can also lead to additional costs (such as relocation costs of employees affected) and increase Natixis’ costs (such as insurance premiums). Such events may also make insurance coverage for certain risks unavailable and thus increase Natixis’ global risk.
Such changes could include, but are not limited to, the following: the monetary, interest rate and other policies of central banks and regulatory authorities; general changes in government or regulatory policy that may signifi cantly infl uence investor decisions in particular markets in which Natixis operates; general changes in regulatory requirements, for example, prudential rules relating to the capital adequacy framework, which are scheduled to change signifi cantly in the near future; changes in the competitive environment and pricing practices; changes in the fi nancial reporting environment; expropriation, nationalization, price controls, exchange controls, confi scation of assets and changes in legislation relating to foreign ownership; any adverse change in the political, military or diplomatic environments creating social instability or an uncertain legal situation capable of affecting the demand for the products and services offered by Natixis.
Tax laws and their interpretation in France and in the countries in which Natixis does business may signifi cantly affect Natixis’ results
The structures of Natixis’ intragroup transactions and of the fi nancial products sold by Natixis are based on its own interpretations of applicable tax laws and regulations, generally relying on opinions received from independent tax counsel, and, to the extent necessary, on rulings or specifi c guidance from competent tax authorities. There can be no assurance that the tax authorities will not seek to challenge such interpretations, in which case Natixis could become subject to tax claims.
A failure of or inadequacy in Natixis’ risk management policies, procedures and methods may leave it exposed to unidentifi ed or unanticipated risks, which could lead to material losses
The risk management techniques and strategies used may also not effectively limit its risk exposure in all market patterns. These techniques and strategies may not be effective against certain risks, particularly those that Natixis has not previously identifi ed or anticipated. Some of Natixis’ qualitative tools and metrics for managing risk are based upon its use of observed historical market behavior. Natixis applies statistical and other tools to these observations to arrive at quantifi cations of its risk exposures. These tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors Natixis did not anticipate or correctly evaluate in its statistical models. This would limit Natixis’ ability to manage its risks. Natixis’ losses could therefore be signifi cantly greater than the historical measures indicate. In addition, Natixis’ quantifi ed modeling does not take all risks into account. Natixis’ qualitative approach to managing those risks could prove insuffi cient, exposing it to material unanticipated losses. See “Risk Management” below for a more detailed discussion of the policies, procedures and methods Natixis uses to identify, monitor and manage its risks.
If any of the variety of instruments and strategies that Natixis uses to hedge its exposure to various types of risk in its businesses is not effective, Natixis may incur losses. Many of its strategies are based on historical trading patterns and correlations. For example, if Natixis holds a long position in an asset, it may hedge that position by taking a short position in an asset where the short position has historically moved in a direction that would offset a change in the value of the long position. However, Natixis may only be partially hedged, or these strategies may not be fully effective in mitigating its risk exposure in all market environments or against all types of risk in the future. Unexpected market developments may also affect Natixis’ hedging strategies. In addition, the manner in which gains and losses resulting from certain ineffective hedges are recorded may result in additional volatility in Natixis’ reported earnings.
Intense competition, both in Natixis’ home market of France, where it has the largest single concentration of its businesses, as well as internationally, could adversely affect the Group’s net banking income and profi tability
Competition is intense in all of Natixis’ primary business areas in France and the other countries in which it conducts large portions of its business. Consolidation, both in the form of mergers and acquisitions and by way of alliances and cooperation, is increasing competition. Consolidation has created a number of fi rms that, like Natixis, have the ability to offer a wide range of products and services. Natixis competes on the basis of a number of factors, including transaction execution, its products and services, innovation, reputation and price. If Natixis is unable to continue to respond to the competitive environment in France or in its other major markets with attractive product and service offerings that are profi table for the group, it may lose market share in important areas of its business or incur losses on some or all of its activities. In addition, downturns in the French economy could add to the competitive pressure, through, for example, increased price pressure and lower business volumes for Natixis and its competitors. In addition, new lower-cost competitors may enter the market, which may not be subject to the same capital or regulatory requirements or may have other inherent regulatory advantages and, therefore, may be able to offer their products and services on more favorable terms. Technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products, and for fi nancial institutions and other companies to provide electronic and Internet-based fi nancial solutions, including electronic securities trading. These new entrants may exert downward price pressure on Natixis’ products and services or may affect its market share.
In the context of its risk management policies, Natixis enters into transactions to hedge its exposure to exchange rate risk. However, these transactions may not be fully effective to offset the effects of unfavorable exchange rates on Natixis’ operating income.
Natixis’ profi tability and business prospects could be adversely affected by reputational and legal risk
Various issues may give rise to reputational risk and cause harm to Natixis and its business prospects. These issues include inappropriately dealing with potential confl icts of interest; legal and regulatory requirements; ethical issues; money laundering laws; information security policies and sales and trading practices. Failure to address these issues appropriately could also give rise to additional legal risk to Natixis, which could increase the number of litigation claims and the amount of damages asserted against Natixis, or subject it to regulatory sanctions (see “Legal Risks” in the management report ).
A description of Natixis’ risk management policy and practices is given in Chapter IV of the annual report, in the Management Report.
Several adjustments have been made to 2005 pro forma accounting information in order to improve the economic comparability of the bank’s 2005 results with those of 2006 and future years.
Like 2005, 2006 was an extremely positive year for the fi nancial markets, with nearly all asset classes delivering an excellent performance. In equities, the MSCI World Index gained over 20% (in dollars). The general climate remained largely favorable, with acceleration in worldwide growth, continuing abundant liquidity and general interest rates supporting the search for returns. The highlight of the year was probably the ongoing reduction in volatility in nearly all markets, favoring carry trade transactions. This was supported by a low level of macroeconomic uncertainty, a solid microeconomic business environment and the lack of event risk, which some had expected to re-emerge as a result of investment transactions in particular.
Meanwhile, in the eurozone, signs of more solid demand were observed. The job market saw notable improvement, with unemployment falling from 8.3% at the start of the year to 7.7% in November, its lowest level since April 2001. Industrial confi dence indicators peaked at the end of 2006 and did not seem to show any concerns about the 3 percentage point VAT increase planned for Germany in January 2007. The end of 2006 was marked by a cyclical gap between the hesitant US economy and growth of 2.7% in the eurozone, with growth of just 2% in France. This cyclical gap explained the rise in the euro against the dollar at the end of the year, refl ecting the differing outlooks concerning monetary policy.
Overall, global growth was robust in 2006, driven by the strong momentum of Asia (including Japan), slight improvement in Europe and moderate infl ation on the other side of the Atlantic. In the absence of any major infl ation shocks (less tension in oil prices and improvement in the job market, but with no excessive wage tensions), Central Banks were not forced to overreact. Meanwhile, interest rates remained low. Coupled with non-infl ationary growth, low long-term rates increased investors’ appetite for risk, particularly as China and oilproducing nations continued to support the dollar - at least implicitly: exchange rate fl uctuations above all refl ected cyclical differences and differences in monetary policy.
Net banking income from international activities represented 47% of Natixis’ net banking income in 2006 compared with 43% in 2005.
“Ordinary” operating expenses (excluding restructuring costs and charges relating to the creation of Natixis) totaled €4,967 million, in line with growth in net banking income. This increase of €883 million compared with 2005 related to several factors: heavy investment in human resources (increase of 1,418 in the number of full-time equivalent employees compared with end-2005), equipment (updating of business and management products) and international operations as part of the bank’s ambitious expansion plans; variable remuneration, which increased sharply in relation to 2005 due to signifi cant improvement in the performance of the Corporate and Investment Banking and Asset Management divisions and, to a lesser extent, the alignment of compensation paid in the former Corporate and Institutional Banking and Markets division with that of Ixis CIB; the increase in expenses relating directly to business lines’ activities: set-up costs for the Corporate and Investment Banking division, structuring and investment charges for the Private Equity division, “Organic” tax etc.
Natixis also incurred costs of €86 million relating to its creation in 2006, including: restructuring costs of €45.5 million (advisory fees, property and IT write-offs relating to decisions concerning offi ces and the organizational structure at end-2006, initial IT and logistics equipment); costs of €40.7 million relating to the “Champion” program and the market transaction (advisory banks, statutory auditors, expert appraisers, lawyers), promotional expenses (advertising campaign for the share incurred by Natixis) and events-related expenses (road shows).
Gross operating income (before merger-related costs) came to €2,354 million, up €433 million or 23% compared with 2005.
Gains and losses on disposals of fi xed assets, which in 2005 included the capital gain of €95 million on the sale of the Liberté II building, came to just €15 million in 2006.
Retail Banking, through the consolidation under the equity method of 20% of income generated by the Banque Populaire and Caisse d’Epargne networks from cooperative investment certifi cates.
FINANCIAL DATA 6 Management report 2006 PRO FORMA RESULTS BY BUSINESS LINE (EXCLUDING RESTRUCTURING CHARGES)
Compared with 2005, the contribution of the various business lines to the group’s net banking income changed slightly to the benefi t of Corporate and Investment Banking in 2006.
Through income relating directly to the recognition under the equity method of cooperative investment certifi cates, the Retail Banking division generated 21% of Natixis’ net income. Including products and services distributed by the retail banking networks, the Retail Banking division accounted for 36% of Natixis’ net income (Group share).
The breakdown of average capital by business line remained stable in relation to 2005.
The contribution of the various business lines to net income (Group share) did not change as signifi cantly, benefi ting the Private Equity and Private Banking division due to a limited increase in expenses and favorable taxation.
Another year of strong growth in net banking income (up 27%) The Corporate and Investment Banking division achieved strong year-on-year growth of 27% in 2006, at the upper end of the range for European banks, thereby confi rming the solidity of Natixis’ business model. This performance is even more remarkable against the backdrop of the merger.
The division’s business profi le changed slightly in 2006, with investment banking activities accounting for 65% of net banking income (an increase of 2 percentage points compared with 2005).
With net banking income up 22%, fi nancing activities delivered strong growth, particularly in real estate fi nance, project fi nance (infrastructures, PPP* ) and LBOs. The current situation of abundant liquidity coupled with strong company performances, favoring access to refi nancing, resulted in greater pressure on margins. However, the strategy pursued in 2005 of developing a competitive product offering that is both extensive and innovative, came to fruition: recent measures undertaken have enabled the bank to offer its customers improved fi nancing terms by optimizing sales of structured fi nance and with the support of reinforced coverage functions. Gains from cross and combined selling therefore doubled in relation to last year.
Securitization activities, based mainly in New York, Paris and London, reported record volumes. Continuing low long-term rates on both sides of the Atlantic buoyed investor demand for these more lucrative asset classes (CMBS, ABS etc.). CDO/ CLO activities also saw strong growth, with the bank’s teams ranked No. 1 bookrunner for arbitrage CLOs worldwide in terms of issue volumes(10).
Increase in profi tability indicators 2006 gross operating income came to €1,389 million, an increase of 20% compared with 2005 pro forma. Net income was €943 million, up 33% year-on-year.
Average risk-weighted assets increased by 17% to €104.5 billion. The rate of return after tax, measured in terms of return on average allocated capital, was 15% compared with 13.1% in 2005.
The division’s excellent growth related primarily to securitization and principal fi nance (net banking income up 43% at €553 million), structured fi nance and natural resources (up 39% at €631 million) and capital markets activities (up 36% at €1,389 million).
The Corporate and Institutional Relations unit generated net banking income of €416 million in 2006, stable in relation to 2005. Growth in the leasing business was absorbed by the impact of deterioration in margins on corporate fi nance net banking income, as well as the decline in payment fl ows activities.
Corporate New production in corporate fi nance activities amounted to €9.1 billion in 2006, compared with €9.3 billion in 2005. The granting of loans and credit lines was balanced out in 2006 (representing 50% of production respectively) compared with 2005, when a large part of new loan production related to back-up credit facilities (80% of credit lines and 20% of loans) due to particularly attractive rates during the period.
Average outstandings remained stable (down 1% in relation to 2005): control of outstandings was one of the main challenges facing the bank in 2006.
In addition, the SOFRES study confi rmed further improvement in the quality of transaction processing (overall score of 8.2 compared with 8 in the 2004 survey).
In equipment lease fi nancing, production totaled €1.6 billion, an increase of close to 16%, thanks to acceleration in the fourth quarter of the year. The deterioration in margins since the end of 2005 stabilized. The long-term leasing business reported new business of €29 million, up 13% on 2005. The number of vehicles under management was close to 4,000.
As a result of the group’s robust international activities, new medium and long-term loan production increased by 60% or €3.6 billion year-on-year to €9.5 billion.
Corporate Financing delivered new production of €4.9 billion, an increase of €1.4 billion compared with 2005, of which 90% relates to European offi ces, which focused on developing the customer base by including mid-corporates.
Global Trade Services, which was restructured in mid-2006, generated new production of €0.7 billion. The development of this business is now based on three main pillars: the search for buyer credit mandates offering higher valueadd with only international customers; growth in trade fi nance volumes; increased cross-selling of international contracts, mainly with the Structured Finance and Natural Resources and Capital Markets divisions.
International entities accounted for 87.4% of total new medium and long-term loan production, relating chiefl y to the Madrid and London offi ces, which achieved twice the level of 2005.
Average outstandings (€8.6 million) increased by 43% or €2.6 billion in relation to 2005. This was largely thanks to activities in the energy sector, with average outstandings
Risk-weighted assets totaled €6.6 billion at the end of the year, up from €5.9 billion one year previously.
Net banking income increased signifi cantly, despite adverse market conditions (fi erce competition, relaxation of credit structures and longer loan terms, high liquidity and pressure on margins). However, this was attenuated in the fourth quarter. The majority of net banking income still came from activities in the energy sector (57% of total net banking income), despite strong growth of 51% in activities in the metals sector.
Acquisitions and LBOs Acquisitions and LBOs again made the largest contribution to the performance of the Structured Finance and Natural Resources division.
2006 was a busy year, with new production of €3.8 billion: 34 mandates in France (including 12 as lead arranger and six as underwriter), 36 in Europe (including six as underwriter), 67 in the United States (including nine as underwriter) and three in Asia.
Project fi nance Project fi nance activities generated high new business production of €6.6 billion. This was relatively evenly divided between the different sectors, with a particularly solid performance in PPP/infrastructure fi nance, benefi ting from the resurgence of the French market and the privatization of a number of transport infrastructure projects. Natural Resources fi nancing saw a slight decline in relation to other sectors due to emphasis being placed on three arranger mandates and fewer equity investment opportunities than in other sectors.
Syndicated loans Natixis improved its position in a declining market, winning mandates for 67 syndicated loans in 2006 compared with 90 in 2005. It was also bookrunner 46 times in 2006 (70% of mandates) compared with 45 times in 2005 (50% of mandates). Natixis is ranked No. 15 MLA/bookrunner for the EMEA region (source: IFR).
Due to the highly competitive conditions in this market, Natixis has diversifi ed into more lucrative niche areas with more complex structured credit products, international credit products and small and midcaps.
The forex business suffered a decline in margins in vanilla products, validating its business model, which consists of selling the entire product range focusing on value-add and structuring.
Equity derivatives and arbitrage The equity derivatives market benefi ted from strong business momentum in the core business line (structured derivatives in the form of barrier and digital options). The bank built up its positions by looking for innovative option products combining hybrid underlying assets. For example, in Italy the bank’s teams set up a new multi-asset hybrid product allowing investors to combine several asset classes (equities, real estate, interest rates and infl ation). On an international level, the Asia-Pacifi c region was confi rmed as the main focus for expansion, with operations currently being rolled out in South Korea, Japan and Hong Kong. Arbitrage activities benefi ted from buoyant market conditions in directional investments and M&A transactions. This favorable climate, coupled with the bank’s risk control procedures, allowed it to deliver an excellent performance.
Brokerage In a favorable climate, the performance of the various subsidiaries improved signifi cantly in relation to 2005.
It was also a busy year for Natexis Bleichroeder SA. All segments delivered an excellent performance, including securities lending (with lendings of €3.5 billion at the end of the year), institutional equity sales (with growth of 16.8% in secondary brokerage activities) and electronic execution (net banking income up 22.5%). Natexis Bleichroeder was also involved in major market transactions, including rights issues by BNP Paribas, Vinci and Société Générale as joint lead manager, as well as the privatization of ADP and the placement of Natixis shares.
Commodities trading The Commodities trading business achieved strong growth in net banking income compared with 2005. Commodities markets were subject to severe volatility in 2006, with heavy investment in this new asset class (investors looking to diversify their portfolios) and contrasting developments for each product category. Energy products (oil and natural gas) sustained a fall (GSCI Energy index down 22.2%), while base metals and precious metals saw a sharp increase (GSCI Base Metals index up 57.5% and GSCI Precious Metals index up 22.5%).
Natexis Commodity Markets currently trades most commodities (oil, soft commodities, base metals and precious metals). Trading volumes increased signifi cantly to around 2,500 tickets per day, up 65% compared with 2005.
It proved to be one of the best years of the decade in the primary equity markets. The Equity Capital Markets business also performed well, benefi ting from the partnership between Lazard and Ixis. Teams achieved major successes in IPOs (Icade, Parrot and EDF Energies Nouvelles), the Cap Gemini capital increase to refi nance the acquisition of US company Kanbay and as global coordinator of the placement of Natixis shares, representing a total of €5.5 billion.
The bank saw strong growth in its advisory business, particularly in real estate advisory mandates (for the creation of OPCI real estate investment funds) and in energy-related activities (e.g. negotiating and signing long-term electricity supply contracts for a consortium headed by Alcan).
The Structured Funds team confi rmed its position in guaranteed capital structured funds. In France, business was driven by signifi cant growth in this area among bank networks (Crédit Agricole, Caisses d’Epargne).
In the real estate sector, Ixis Capital Partners strengthened its leading position in sale and leaseback transactions in Continental Europe with the acquisition of several real estate portfolios worth a total of €815 million.
The Group has a platform for the sale of all structured products - asset backed securities (ABS), residential mortgage backed securities (RMBS) and collateralized debt obligations (CDO) - comprising 80 people covering North America, Europe and Asia. On the strength of its experience, the bank was ranked No. 7 in the world for CDOs in the third quarter of 2006(11).
Ixis Capital Markets sold and securitized over $3 billion of commercial mortgage backed securities (CMBS) as part of seven deals and over $4 billion of asset backed securities (ABS) in eight deals. The subsidiary still enjoys a dominant position in the international market as underwriter for CDO/ CLO (collateralized loan obligation) transactions. It structured and placed CLOs worth $14.6 billion in 2006, more than double the level of 2005. In order to accompany its growth, the company has opened new offi ces in Jersey City, Atlanta and Chicago. It also issued a record $4.8 billion of fi xed-rate and fl oating-rate loans and mezzanine fi nance for real estate acquisitions and recapitalizations in the United States.
This business unit achieved a 3% increase in net banking income in 2006 to €334.7 million thanks to the solid performance of Treasury activities, the ramp-up of Credit Portfolio management and, to a lesser extent, growth in net banking income at ABM LLC, offsetting the decline in Proprietary Management.
Proprietary Management The Proprietary Management business was affected by mixed market conditions, with very narrow credit spreads at the end of 2006, close to their lowest ever level, while volatility continued to decline throughout the year.
Since the creation of Natixis, the Services division has comprised two major activities: transaction processing, i.e. securities and payments; business lines offering products and services distributed mainly by the retail banking network (Insurance, Sureties and Financial Guarantees, Consumer Finance and Employee Benefi ts Planning).
The Services division generated net banking income of €1,151 million in 2006, an increase of 10% or €105 million. Meanwhile, growth in operating expenses was maintained at 7% or €51 million. The division therefore benefi ted from a favorable pincer effect, with a reduction in the cost/income ratio of nearly 2 percentage points year-on-year and gross operating income of €383 million, an increase of 16% or €54 million.
Against this backdrop, the main challenges are improving operating performance and controlling costs. Thanks to the success of the CACEIS project in institutional custody services, the bank now enjoys a leading position in this segment, with net banking income up 14% and expenses more or less stable. The electronic banking partnership agreement with BNP Paribas signed in 2006 is in keeping with this strategy. In revolving credit facilities, the Group is currently fi nalizing its efforts to develop an offering covering both networks.
This business line was formed from the merging of Natexis Assurances, representing 98% of assets managed, and Foncier Assurances, transferred from CNCE, which holds a stake of 60% (the remainder is owned by Crédit Foncier).
transfers of home purchase plans (“plan épargne logement” or PEL) as a result of the change in taxation for plans more than 12 years old; the strong momentum of the life insurance market, which benefi ted indirectly from the favorable equity market trend. This buoyant climate favored the development of unit-linked products, which saw growth of 60% and now account for 22% of total gross premium infl ows; net premium infl ows also increased sharply thanks to a combination of this solid business momentum and very moderate growth in paid-for services.
Meanwhile, premiums earned increased by €12.7 million or 14% over the year as a result of inventory effects (these premiums are spread out over the duration of loans in Saccef’s fi nancial statements).
Net banking income fell by €11.6 million or 12% to €84.1 million.
Excluding the provision booked in 2006 to cover an exceptional risk of €24.2 million, net banking income increased by €12.6 million year-on-year.
Employee Benefi ts Planning 2006 was an eventful year, with the gradual implementation of the Employee Benefi ts Planning concept, the launch of the “Chèque Emploi Services Universel” (CESU) scheme - vouchers used by households to pay domestic employees - the partnership with Banque Postale for the launch of the “Chèque Cadeau” scheme and the introduction of the French development of employee participation and shareholding act, as published in the Offi cial Journal of December 30, 2006.
Natixis is market leader in employee savings plans, which saw strong growth: assets under management from Banque Populaire customers increased by €3.2 billion to €17 billion as a result of net investment of €1.7 billion (EDF, Sanofi -Aventis, Bayer) and the favorable performance of market indices (increase of €1.5 billion), while assets under management from Banque Populaire customers , which represent a small proportion (around 12%), increased by 27%; the number of employee accounts managed rose by 8% to 2,808,961 and the number of companies increased by 17% to 30,189.
Payments 2006 was marked by the creation of Partecis, a joint venture between BNP Paribas and Natixis for the implementation of a shared electronic banking platform and the launch of new marketing campaigns such as the “football card”.
Securities 2006 saw the ramp-up of this business line. With the consolidation of Gestitres, CACEIS (proportionally consolidated at 50%) and Natixis Investor Servicing alongside the Financial Services business, the Securities business line now offers a broad range of custody and account management services for retail banking customers and institutional clients.
The end of the year was marked by the successful open price offer of Natixis shares, as well as the general meeting resulting in the creation of Natixis. Natixis’ Financial Services teams and Gestitres worked alongside the IT teams to handle the unprecedented transaction volumes.
The Securities business - which now accounts for over 44% of the Services division’s net banking income - generated net banking income of €503 million in 2006, an increase of 7% or €34 million compared with 2005.
Financial Services activities were robust in 2006: assets in custody increased by €84 billion or 20% to €513 billion as a result of the creation of Natixis, accompanying the development of the institutional client base and including negotiable debt securities held in custody using Arpson, representing around €10 billion; the number of stock market orders in France totaled 3,010,000, an increase of just over 22%; meanwhile, volumes on foreign stock markets (250,000 orders executed) fell by 12% year-on-year, while the number of portfolios in custody remained stable at 1,332,000.
Gestitres’ assets in custody remained more or less stable, totaling €105 billion as at December 31.
Assets under management increased by €67.3 billion at constant exchange rates but just €49.2 billion (or 9%) in real terms, due to the combination of three factors: net new money of €29.9 billion in 2006, up 19% compared with 2005 at constant exchange rates; ■
Natixis’ Asset Management division continued to pursue its international strategy in 2006: the Asset Management division confi rmed its “FrancoAmerican ” positioning, with record net new money of €29.9 billion - €11.7 billion in Europe and €18.1 billion in the United States. The Group developed its cross-border business, which represented net new money of €6 billion, coming from France, the United Kingdom, Japan and Australia and going primarily to US bond specialist Loomis Sayles; in the predominantly closed-architecture French market, Natixis’ Asset Management division benefi ted from the strong business momentum of its shareholders’ networks. Both networks benefi ted from strong growth in fi nancial savings in 2006 and in life insurance in particular, which represented net new money of €6.3 billion out of a total of €11.7 billion in Europe; in the open-architecture US market, thanks to its multispecialist and federal structure (Ixis AM Global Associates), the bank was able to meet market expectations. Net new money increased by 90% to €18.1 billion, over 44% of which came from Ixis Advisors; the Group continued to diversify into higher-margin products, developing its alternative investment and structured product activities, which saw a total increase in assets under management of €5.1 billion; Natixis is recognized for the quality of its asset management, receiving distinctions across the range. In the United States, Morningstar won the award for International Equity Fund Manager of the Year. David Herro of Harris Associates and Dan Fuss/Kathleen Gaffney came second in the bond fund category; Ixis Advisors’ fund families were ranked top by Barron’s for their fi ve-year performance and No. 2 for their one-year performance. Also in the United States, the mutual funds range delivered a very satisfying performance: 99% of bond funds were in the top quartile in 2006 and on a medium-term horizon, 52% of all non-money market funds were in the top quartile.
Operating income moved up 23% to €386 million, with an increase of 13% in average assets under management. The cost/ income ratio remained stable at 74%.
Multi-manager investment (IPCM and NAS) generated net new money of €1.8 billion.
Ecureuil Gestion launched six new guaranteed funds in 2006 (Al dente 3 to 8), which more than offset the maturing of three funds. These high added value structured products generated net new money of €0.8 billion in 2006.
The division’s operating expenses totaled €147.1 million, an increase of 18% or €22.7 million compared with 2005. This relates primarily to Compagnie 1818, which is undergoing expansion, as well as fees concerning Natixis Private Equity.
Total capital managed by the Private Equity business amounted to €3.2 billion, including funds raised but not yet invested and unrealized capital gains, up 29% or €724 million compared with 2005.
(1) Under IFRS, changes in the stock of unrealised capital gains are recorded in the income statement.(1) Under IFRS, changes in the stock of unrealised capital gains are recorded in the income statement.
Private Banking produced net banking income of €94.9 million in 2006, up €22.2 million or 31% compared with 2005.
Assets under management increased by €2 billion or 26% year-on-year to nearly €10 billion, half of which related to net new money.
Assets under management totaled €3.2 billion at endDecember 2006, up 11%. Of this growth, €189 million relates to the market effect and €109 million to net new money, well above the level of 2005, thanks to the bank’s new business momentum.
Net banking income (€32 million) rose by €10.2 million or 47% compared with 2005. This was the result of the proactive “products” policy in place since 2004, with the regular placement of EMTNs, development of credit activities, the revision of custodian fees and an increase in management fees for the Soprane mutual fund range.
The Receivables Management division produced net banking income of €840 million, an increase of €55 million or 7% year-on-year. The division benefi ted from the 10.5% increase in revenues (€1,465 billion), particularly in credit insurance and factoring, but was penalized by weaker fi nancial income. Credit insurance accounted for 73% of the division’s revenues and 55% of net banking income. The division generated 59% of revenues and 56% of net banking income outside France, including 20% in Germany.
Gross operating income was €235 million, an increase of €15 million or 7% compared with 2005. The division’s cost/ income ratio was 72%, in line with that of 2005. Net income (Group share) increased by 8% to €144.5 million, 10% ahead of the target of €13 million.
FINANCIAL DATA 6 Management report and the roll-out of four business lines on each regional platform.
In Insurance, net banking income remained stable yearon -year despite a 10% increase in premium income, as the result of an aggressive marketing strategy with greater price fl exibility and a reasonable increase in the risk acceptance level. The loss ratio (on premiums earned) was in line with 2005 at 49%.
In Services, net banking income moved up 14%, including 40% relating to factoring activities, mainly in Germany.
Total factored receivables came to around €13.9 billion, an increase of nearly 16%, with potential revenues from new factoring contracts rising by 12% to a total of over €4.4 billion. The bank networks generated 78% of the business line’s revenues.
Thanks to continuing sales and marketing efforts, factoring net banking income increased by 15% to €121.5 million in the still highly competitive French market, which is continuing to grow.
Factoring commissions came to €2.4 million, with net fi nancial income of €1.1 million, contributing to net banking income of €3.5 million.
CIFG’s portfolio has is now of a signifi cant size, demonstrating its position as a key player in the fi nancial guarantee market delivering tangible growth. The successful diversifi cation of its portfolio to cover all asset classes, both in the US municipal sector and in projects and local authorities, as well as credit enhancement for securitization vehicles (structured fi nance) have helped to consolidate its market position. The average rating of the portfolio is AA.
Net premiums earned, recognized as net banking income, came to €56.5 million, an increase of 49%.
The Banque Populaire regional banks generated aggregate net banking income of €5,578 million, an increase of 6.1%. This was impacted by the reversal of a provision for home purchase savings plans booked in accordance with IAS 39 of €36 million, compared with a provision charge of €6 million in 2005. Excluding the change in this provision, net banking income rose by 5.3%.
Excluding the home purchase savings plans provision, the interest margin rose by 3% as a result of the positive effect of the increase in credit outstandings in an increasingly diffi cult competitive climate, despite unfavorable exchange rates, marked by the fl attening of the rate curve and a higher refi nancing cost. In the second half of the year, the Banque Populaire regional banks nevertheless achieved slight improvement in interest margin.
Commission income remained the main growth driver, with an increase of 11%, representing 35.4% of net banking income in 2005 compared with 33.9% in 2005. Growth in commission income was fueled by a 19% increase in commission from fi nancial savings products (life insurance and mutual funds), while growth in commission on banking transactions slowed down sharply to 5%.
Year-end customer deposits increased by 8.2%, with a 7% increase in average customer deposits. Demand deposits accounted for nearly 40% of total deposits, up 7.8% in terms of average deposits.
In mutual funds, SICAV unit trusts and non-money market mutual funds saw an increase of over 12%, representing over 37% of total assets under management at end-2006.
General operating expenses were impacted by exceptional charges relating in particular to the merger process and IT migration projects, which are now close to completion. Excluding exceptional items, general operating expenses increased by 4.7%, also evenly divided between payroll costs and other expenses.
Operating income was €1,767 million, an increase of 11% compared with 2005.
The Caisse d’Epargne banks generated net income of €6,221 million aggregated under IFRS. This constitutes an increase of 6.9% compared with 2005.
Interest and other income came to nearly €3.5 billion, up 11% compared with 2005. Adjusted for the CNCE dividend and changes in home purchase savings - refl ecting a signifi cant fall in old outstandings generating negative margins, mostly recycled as life insurance - the interest margin increased by 3.1%. This was driven primarily by a volume effect on outstandings, which offset the effects of a decline in margins: in a continuing buoyant market for home loans and with strong momentum in consumer loans, outstanding loans increased by 8% to €114 billion at end-2006; customer savings (excluding demand deposits) increased by 5% to nearly €270 billion. This includes signifi cant outfl ows of home purchase savings deposits following the decision to tax interest earned on plans more than 10 years old,
coupled with a sharp increase in life insurance investments (up 13%); demand deposits rose by nearly 7% to €24 billion, refl ecting the continuing increase in the number of customers holding bank accounts and service packages earning interest on their current account balances.
This program was launched in early 2006 and took a major step with the choice of the target platform in December, allowing for quantifi cation of the investment required by type of cost and expected savings (15-20% of IT costs).
Excluding the provision for the IT convergence program, the cost/income ratio was 64.7%.
Impairment charges and other credit provisions remained low at less than €150 million. This represents less than 13 basis points of expenses relative to outstandings, with coverage of doubtful loans of over 70%.
Return on fi xed assets includes the capital gain realized by CEP on the sale of CEFI shares to CNCE (in order for them to be transferred to Nate xis).
Income before tax came to over €2 billion, up 30% compared with 2005.
Shareholders’ equity excluding revaluation reserves increased by over 10% to €18.8 billion. Including revaluation reserves, shareholders’ equity stood at €21.4 billion at end-December.
Natixis’ risk management system complies with regulatory requirements and is based on the implementation of an organizational structure combining the best practices of Natexis Banques Populaires and Ixis Corporate & Investment Bank.
The main guidelines are as follows: separation of risk and control functions within the Natixis Group, including: distinction between front and back offi ce functions, the existence of fi rst-tier controls at an operational level, distinction between periodic and permanent controls; a global organization of control units within the Natixis Group ensuring the consistency of internal procedures; a specifi c role for the central body assigned jointly to the Caisse d’Epargne Group and the Banque Populaire Group.
The joint control system implemented at the end of 2006 is structured around three permanent confederal committees that meet once a month. The main duty of the standards and methods committee is to decree joint standards or to validate
FINANCIAL DATA 6 Management report standards in the event of delegation. These standards relate in particular to the general organization of risk management, risk assessment methods and reporting within the framework of consolidated monitoring. The information systems risk committee handles issues relating to the project management of information systems risks shared by the two shareholding groups and Natixis required for consolidated monitoring. The confederal risk committee approves the global risk limits proposed by Natixis, decides on commitments in excess of the unit limit for large risks assigned to Natixis and monitors Natixis’ main risks.
Within Natixis, permanent controls are carried out by the Risk Management, Internal Control and Compliance departments. These departments are completely independent from the business lines. An overarching committee meets once a month to ensure the consistency and effectiveness of procedures.
The Risk Management department proposes a risk policy to the Management Board for validation, drawn up in accordance with the policies of the two shareholding groups.
It also submits proposals to the executive body concerning the following principles and regulations: procedures concerning decisions to take risks; delegations; risk assessment; risk monitoring.
Natixis has actively prepared for the Basel II reforms, ensuring consistency with the work of Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne. As of January 1, 2008, Natixis intends to use the IRB Foundation Approach to calculate capital requirements for most of its risk portfolio, subject to approval by the French Banking Commission.
Its achievements in 2006 include: continuation and completion of the deployment of the operational risk management system in all areas of the bank, including its branches and subsidiaries; extension of the coverage of ratings tools implemented gradually by the project; back-testing and improvement in ratings models; implementation of ratings methods for sectors not yet covered, including rating of sovereign risks; ensuring the reliability of information concerning guarantees and maintaining a valuation of guarantees on an almost exhaustive basis throughout France; ■
All of the efforts relating to the Basel II project since its launch both at Natixis and its subsidiaries form an integral part of the permanent risk control system.
At November 17, 2006, measures were taken to ensure effective control of risk-taking and the monitoring of credit risks, including in particular: a unifi ed decision-making process between Natixis concerning its corporate and investment banking operations and Ixis Corporate & Investment Bank; consolidation of loan outstandings and limits within Natixis’ risk consolidation tool, using a merged third-party reference framework; ■
standardized assessment of the quality of counterparty risks. The rating methods used were decided with the central bodies, as well as the role of the different parties involved in ratings. Correspondence tables have been compiled in anticipation of the complete re-rating of the Group’s credit exposure.
Average client exposure (on and off-balance sheet) in 2006, management data
The quality of the Group’s credit exposure remains good, thanks to continuing favorable economic conditions coupled with a policy of selectivity in the distribution of credit facilities.
Natixis is inevitably exposed to the banking sector because of its business activities and presents secure sector diversifi cation.
Breakdown of exposure by region (Total exposure excluding minor subsidiaries and equity)
Breakdown of exposure by McDonough counterparty category (Total exposure, excluding minor subsidiaries and equity)
Breakdown of loan loss provisions by region at December 31, 2006
On the creation of Natixis, the market activities of the former Natexis Banques Populaires and Ixis Corporate & Investment Bank were juxtaposed. They were combined within the Corporate and Investment Banking division as part of the Capital Markets business. The principles of the market risk organization in place within Ixis Corporate & Investment Bank and Natixis have therefore been maintained, while a reconciliation process has also been initiated in order to implement the system described below. The overall consistency of procedures and the development thereof are ensured by the centralization of key decisions.
The market risk policy determined by the market risk committee comprises the following: determining and reviewing VaR limits and operational limits. These limits are examined in the light of budgetary information provided by front offi ce managers; defi ning validation delegations; reviewing risk exposure with a possible focus on a particular risk category; reviewing any violations and/or non-authorizations of limits and measures taken or to be taken; reviewing decisions made under delegation; information about the validation of market risk methods and validation of models, on a case by case basis within the framework of ad hoc committees.
Natixis’ Risk Management department validates market models and carries out regular checks that the models used are relevant in the light of market developments and best practices.
First-tier controls are carried out by the middle offi ce, which plays an operational role through the applications it manages and uses daily. Its key duties are: producing and analyzing results and risks on a daily basis; producing and analyzing provisions on a monthly basis; ensuring the reliability of market parameters used to calculate results and risks; proposing methods to calculate reserves while ensuring that they are exhaustive and correspond to the nature of risks; developing the system of delegated limits and method of calculating risk, in conjunction with Risk Management; monitoring and reporting any limit violations.
Finally, Internal Audit is responsible for the operational component of second-tier controls: ensuring that adequate procedures are in place and periodically assessing their appropriateness, particularly with regard to business activities and regulations; ensuring that procedures are properly and correctly followed; making recommendations on the risk management system; more generally, ensuring that procedures governing the management and monitoring of market risks are respected.
FINANCIAL DATA6 Management report a risk monitoring and supervision committee, which meets quarterly, comprising front offi ce and middle offi ce managers, the Risk Management department and the Internal Audit department to present new methods for measuring risks and divide up developments for their implementation; a new products committee, enabling capital markets activities to launch new products safely, after identifying and analyzing the different risk factors that may impact the value of the product. The new products committee meets approximately every six weeks and is completed by working parties that meet every week. The committee examines the different risks inherent to a new product, in particular market, counterparty, legal, accounting, tax and non-conformity risks.
Until November 17, 2006, the bank’s board of directors validated overall risk limits for all entities. In addition, the Internal Audit departments of the former Natexis Banques Populaires and Banque Fédérale des Banques Populaires periodically conducted specifi c audit assignments.
Ixis Corporate & Investment Bank’s market risk department, which is fully independent of the business lines, defi nes principles for the measurement of market risks, instructs on risk limits and monitors these limits.
Market risk management is based on a complex risk measurement system, specifi c procedures and close supervision. The entire system is overseen by the market risk committee, chaired by the Chairman of the Executive Board. Its role is: to examine market risks; to establish the different limits and associated allocations to individual operators; to validate risk measurement methods and monitoring procedures; to ensure market risk procedures are respected.
They are therefore responsible for: the analysis and control of market risks and corresponding reporting; ■
In addition to these standard metrics, the former Natexis Banques Populaires also used VaR calculations until November 17, 2006 (see Natixis’ system for VaR calculations since November 17, 2006). It used Riskmanager software developed by Riskmetrics to perform historical VaR calculations to quantify the risk of losses from capital markets activities using conservative assumptions. VaR calculations were based on: one year’s historical data; a one-date potential loss horizon; a 99% confi dence level.
For the former Corporate and Institutional Banking and Markets core business, VaR calculations were conducted daily by the middle offi ce and monthly by the Risk Management department. Natexis Commodity Markets’ VaR calculations were conducted daily using local Riskmanager software and monthly by the Risk Management department.
Main limits The main limits for the former Natexis Banques Populaires are as follows: maximum sensitivity of interest rate maturity schedules to a +/-1% shift in the yield curve of €125 million at December 31, 2006; the currency risk limit is €3 million expressed in terms of a one-day potential loss and a 99% confi dence level; maximum sensitivity to a change in issuer spreads in the secondary bond market trading book is €11.5 million, expressed in terms of a one-day potential loss and a 99% confi dence level; volatility limits for interest rate, currency and equity options are: €4.5 million for a 1% change in interest rate volatility; €3 million for a 1% change in equity volatility; ■
The limits set for the former Natexis Banques Populaires were revised as follows: a further increase in assets authorized for negotiable debt instruments, with an adjustment of the limit relating to spread risk measurement metric (Xsi) for this portfolio (Xsi is a metric of the former Natexis Banques Populaires measuring issuer spread risk, an idiosyncratic risk); increase in Alpha/Delta limits and outstandings following the development of this activity; increase in delta limits for hybrid interest rate, exotic and equity fi nance products. Since January 1, 2006, limits for Natixis Arbitrage have been applied to Natixis’ portfolios; ■
increase in market risk limits for Natexis Bleichroeder Inc. (NBI), in particular the global VaR limit; increase in global interest rate sensitivity for capital market activities (including treasury desks); increase in sensitivity to yields on short-term and long-term treasury instruments and reduction in the treasury strategies desk’s sensitivity to yields; completion of the deployment of the curve risk metric at the former Natexis Banques Populaires; 2006 saw the implementation of specifi c metrics in dollars at the former Natexis Banques Populaires following the development of dollar rate options products relating to new types of risk (correlations, vega and smile); in addition, new risk metrics were implemented for the monitoring of Natexis Commodity Markets’ energy activities: “Effective Barrel”: net position on underlying energy assets expressed as the number of barrels; increase in the global VaR limit following the development of energy activities.
Confi dence level: 99% - Horizon: 1 day. History: 1 year non-weighted.
Date Total VaR Interest rate VaR Forex VaR Equities VaR Commodities VaR
Methods Market risks are assessed using a variety of methods: synthetic VaR calculations that determine potential losses from each activity at a given confi dence level (for example 99%) and a given holding period (for example one day). The calculation is performed and monitored daily for all of the Group’s trading activities.
Since the end of November 2004, Ixis Corporate & Investment Bank has been calculating VaR based on digital simulations, using a Monte Carlo methodology which takes into
Calculations Since January 1, 2006, one-day VaR with 99% confi dence for Ixis Corporate & Investment Bank’s trading portfolios averaged at €11.7 million, with a high of €17.5 million. This was below the average limit of €20 million and the absolute limit of €25 million set by the Group.
The results of the stress tests performed on positions at December 29, 2006, were as follows (earnings impact in absolute value): Change in interest rates €75.9 million
(EUR +40 bps, GBP +80 bps, USD +60 bps, other currencies +60 bps)
The credit derivatives portfolio of the former Natexis Banques Populaires at December 31, 2006, represented a total of €14.29 billion, comprising credit default swaps and credit linked notes. This breaks down as €10.2 billion of credit risk bought and €4 billion of credit risk sold. These instruments generate a market risk - corresponding to the spread risk on the underlying assets - which is taken into account in the Xsi risk metric.
At Ixis Corporate & Investment Bank, the credit derivatives portfolio at December 31, 2006, represented a total notional amount of €400.4 billion comprising credit default swaps, credit linked notes and credit indexed loans. This breaks down as €200.6 billion of credit risk bought and €199.8 billion of credit risk sold.
Specifi c deductions are made from credit derivative positions to adjust the effects of uncertainties concerning the level of certain parameters which are not liquid or cannot easily be covered, particularly recovery rates. The standard deductions for counterparty risk are also applied (deductions for the expected loss based on statistical risk data).
Procedures for monitoring and managing structural balance sheet risk at Natixis will be standardized further in 2007 in accordance with the commitments made in the context of risk convergence and the ALM plan of action.
Since 2000, transformation into structural interest rate risk and liquidity risk has been centralized using internal contracts within the Treasury division of the former Corporate and Institutional Banking and Markets core business. This department is responsible for operational management by delegation of the ALM Committee. Subsidiaries are refi nanced by the Treasury department. They benefi t from autonomous management of liquidity and structural interest rate risk by delegation of the ALM Committee and have their own Treasury or ALM committee for the management of rules and limits validated by the Group ALM Committee.
Structural interest rate risk As a corporate and investment bank, Natixis has few interest rate positions relating to accounts without a set maturity; nearly all transformation into structural interest rate risk concerns operations with a contractual maturity, centralized by the Treasury department. Furthermore, nearly all structural interest rate risks in this area are linear in nature.
The ALM Committee validated the principles of expressing sensitivity limits of the economic value of maturities for refi nancing books as a percentage of regulatory capital. For sensitivity to a 200 bp change in interest rates(12), the Committee set an overall limit of 2.5% of regulatory capital. The risk limits currently allocated by the Chief Executive Offi cer are as follows: ■
Finally, sensitivity measurements of net interest income for different scenarios are carried out periodically without being restricted by limits.
Management of transformation into liquidity risk carried out by the Treasury department is subject to minimum transformation ratios (ratio of remaining assets due to liabilities remaining due by maturity category), validated by the ALM committee. These ratios were not subject to any changes in 2006.
(13) The indicator and its limit for short-term treasury activities in New York is currently being deployed.(13) The indicator and its limit for short-term treasury activities in New York is currently being deployed.
Finally, in order to enhance the Group’s liquidity risk monitoring, liquidity stress scenarios are being developed.
Structural currency risk The structural currency risk of the former Natexis Banques Populaires is predominantly in US dollars. This comprises risks relating to: investments in subsidiaries, charges by branches and earnings held in reserve not denominated in euros; income and expenses denominated in currencies other than the euro.
For the second component, the ALM Committee has approved coverage of risk denominated in US dollars, as set out in the budgetary procedure, be it on the basis of anticipated sales in
Structural interest rate, currency and liquidity risk at Ixis Corporate & Investment Bank
The ALM Committee of Ixis Corporate & Investment Bank is responsible for management of structural assets and liabilities, interest rate, currency and liquidity risk. This committee, which comprises representatives of the Finance and Risk Management departments, is chaired by a member of the management board.
Structural currency risk Ixis Corporate & Investment Bank has chosen to fi nance its liabilities in foreign currencies by borrowing in the currency. Structural currency risk falls within the scope of the ALM committee. Currency risk relating to revenues in foreign currencies is subject to specifi c management.
As stated previously, the objectives of the strategy for the management of fi nancial risks - namely interest rate and liquidity risks - at Natixis (for the former Natexis Banques Populaires) and Ixis Corporate & Investment Banking are based on the centralization of these risks within the treasury department. Natixis entities benefi ting from autonomy in the operational management of their interest rate and liquidity
FINANCIAL DATA 6 Management report risks by delegation of the ALM committee work through a decentralized ALM/Treasury committee. The interest rate risk of Natixis and its main subsidiaries is subject to maximum exposure limits, which are defi ned and validated yearly by the ALM committee. Within the framework of its structural interest rate risk management, Natixis uses primarily vanilla interest rate swaps as hedging instruments.
As regards overall management of Natixis’ interest rate and liquidity risks in respect of IFRS, Natixis uses two types of hedge accounting.
Hedging of variable rate borrowings and issues: Natixis uses vanilla interest rate borrower swaps at fi xed rates to fi x future variable-rate borrowing costs and private or public issues.
For cash fl ow hedge management, Natixis uses mainly derivative fi nancial instruments to hedge income or expenses relating to variable-rate assets/liabilities.
Given the specifi c nature of Natixis’ balance sheet (no behavioral option, no need to recognize potential early redemptions as fi nancial compensation is paid), the use of this type of hedging is justifi ed by the implementation of variable-rate future repayment schedules as represented by all transactions with a set maturity.
Prospective test: The prospective test entails the establishment of (by index type and currency): a schedule of cumulative variable-rate borrowings and fi xed-rate borrower swaps by maturity; a schedule of cumulative variable-rate loans and fi xed-rate lender swaps by maturity.
At each accounting date, changes in the fair value excluding accrued interest of hedging instruments are compared with those of hypothetical assets and liabilities (synthetic instruments representing assets and liabilities to be hedged at the risk-free rate). The ratio of their respective changes should be between 80% and 125%. Outside these limits, the hedging ratio would no longer be justifi ed under IFRS.
PERIODS FOR WHICH CASH FLOW HEDGING IS JUSTIFIED (ALL CURRENCIES VERSUS VALUED IN EUROS)
Fair value hedges Hedging of fi xed-rate borrowings and issues: Natixis uses vanilla interest rate lender swaps at fi xed rates to protect itself against unfavorable changes in interest rates.
Hedging of loans and securities held for sale: Natixis uses vanilla interest rate borrower swaps at fi xed rates to protect itself against unfavorable changes in interest rates.
Prospective test: The prospective test is used to check that the fi nancial characteristics of the hedged item and the hedging instrument are the same.
Retrospective test: The retrospective test is used to ensure whether or not the hedging implemented at different accounting dates is effective.
At each accounting date, changes in the fair value excluding accrued interest of hedging instruments are compared with those of hypothetical assets and liabilities (synthetic instruments representing assets and liabilities to be hedged at the risk-free rate). The ratio of their respective changes should be between 80% and 125%.
Outside these limits, the hedging ratio would no longer be justifi ed under IFRS.
Operational risk is defi ned as the risk of loss due to inadequacies or defi ciencies in processes, people and systems, or to external events. Operational risk management is based primarily on the principle of the responsibility of business line management for fi rst-tier risk and an internal control system applicable to all activities. This system is overseen by the Operational Risks committee.
On its creation, Natixis had an operational risk management system for all of its operations, comprising risk mapping, loss and incident reporting procedures and monitoring of operational risks. Initially, Natixis’ Risk Management department endeavored to take appropriate conservative measures to maintain the systems in place. The operational risk management committees were therefore maintained, meeting with the same frequency in all of the Group’s entities during the start-up period. These committees will continue to meet until Natixis’ entities are effectively merged. The Operational Risk Management department has also rapidly implemented
a reporting procedure for serious incidents. Management has therefore been kept up to date about incidents of this kind several times since mid-November. Finally, a detailed study of existing risk mapping and the different incident databases enabled the department to produce consolidated pro forma reporting for all of Natixis at the end of 2006.
At the former Natexis Banques Populaires, the operational risk management committee met four times in 2006. Its efforts concerned primarily: the former Natexis Banques Populaires’ business recovery plan (BRP): decision-making crisis unit, monitoring of tests, progress in the business recovery plans of the various business lines and international offi ces, crisis management system, presentation of the BRP audit, reporting on incidents; monitoring of the progress of the business line operational risk management project (see below); various issues such as the implementation and supervision of the charter governing use of information, technological and digital resources and logical security management.
At Ixis Corporate & Investment Bank, the operational risk management committee, chaired by a member of the management board, meets every two months. Its role is to analyze and validate proposed plans of action identifi ed following serious incidents and during the mapping of operational risks, to discuss cross-functional projects relating to operational risks and to monitor progress in the deployment of procedures.
The General Secretariat and the Insurance department are responsible for analyzing insurable operational risks, seeking adequate cover and/or purchasing it on the market.
The 2006 insurance program for general risks and risks specifi c to the business of the former Natexis Banques Populaires and its subsidiaries (excluding Coface) included the following: 1. buildings used in the business in France and their contents (excluding IT equipment) are insured against the usual risks (fi re, explosion, terrorism, fl ooding etc.) at reconstruction or replacement value. Buildings outside France are insured locally; 2. IT equipment and consequential loss of banking business is covered under a blanket group policy taken out by Banque Fédérale des Banques Populaires. Capital insured varies depending on the geographical sites insured (maximum of €175 million); 3. risk of theft and fraud are also covered by two blanket group policies taken out by Banque Fédérale des Banques Populaires for the entire Banque Populaire Group; 4. liability is covered by several policies for different amounts depending on their nature and, in some cases, legal requirements (operations, motor, professional liability worldwide excluding the US and Canada, Directors’ liability, specifi c business line liability etc.).
All policies include deductions or retentions determined in relation to the fi nancial capacity of the Banque Populaire Group and/or Natexis Banques Populaires. Total insurance premiums paid for the risks described above amounted to just over €4.7 million in 2006.
Proceedings relating to the distribution of the Livret A regulated savings account. In a letter dated June 7, 2006, the European Commission informed French authorities of its decision to open an inquiry under Article 86, Paragraph 3 of the EC treaty concerning the special rights granted to La Poste (the French postal service), the Caisses d’Epargne and Crédit Mutuel to distribute the Livret A and Livret Bleu regulated savings accounts. The European Commission considers that the special rights in question could infringe on the right to free exercise of a trade and the freedom to provide services, protected by Articles 43 and 49 of the EC treaty. CNCE fi led a response with the European Commission on October 3, 2006. Its response aims to demonstrate that the special distribution right for Livret A passbook accounts is consistent with right to free exercise of a trade and the freedom to provide services, and that regardless of circumstances, the special right is justifi ed in furthering the public interest. After a preliminary examination of CNCE’s observations, the European Commission asked CNCE to provide clarifi cation on a number of additional matters, which was done in a letter dated November 3, 2006. Following the meeting with the European Commission on November 8, 2006, an additional letter was sent on December 13, 2006.
These banks, as well as Crédit Agricole S.A., also fi led complaints with the Conseil d’Etat between February 17 and July 4, 2006 in order to have overturned the administrative decision of the Prime Minister that rejected their respective requests to suspend the provisions of Articles R. 221-1 to R. 221-27, D. 221-28 to D. 221-31 and R. 518-46 to R. 518-55 of the French Monetary and Financial Code, relating to the Livret A, including the article setting the mechanism for compensation of the Caisses d’Epargne for distributing the Livret A. CNCE submitted its observations on these complaints to the Conseil d’Etat on January 10, 2007. Its observations show in particular that the special right to distribute the Livret A savings account is in accordance with the freedom of establishment, does not entail any government aid and does not allow for automatic abuse of a dominant market position.