EXPOSURE AT DEFAULT (EAD) BY CATEGORY AND AVERAGE RISK EXPOSURE OVER THE PERIOD
The following tables set out the exposure to credit risk on the basis of Basel II regulations (order of February 20, 2007). Exposure at default (EAD) in accordance with Basel II standards.
Breakdown of exposure at default by geographic area (after deducting other assets and generic risk-adjustment factors)
French and European Union counterparties account for 74% of Natixis’ exposure.
Calculations for the year ended December 31, 2007 were made in accordance with regulations governing large exposures (CRBF regulation 93-05 as amended). Data for the year ended December 31, 2008 correspond to EAD under Basel II (order of February 20, 2007 relative to capital requirements applicable to credit institutions and investment fi rms).
BREAKDOWN OF EXPOSURE AT DEFAULT BY RESIDUAL MATURITY AND BY CATEGORY OF EXPOSURE
Financial institutions and investment fi rms 17,223 6,912 15,283 19,881 27,402 2,167 88,870
Other exposure listed in the corporate category 19,934 10,680 20,352 38,484 26,427 3,334 119,211
Other exposure listed in the retail customer category 527 1,939 692 201 292 3,651
BREAKDOWN OF INDIVIDUAL AND COLLECTIVE PROVISIONS AS OF DECEMBER 31, 2008
(in millions of euros ) Individual risk Collective risk Total risk Individual provisions Collective provisions
92.4% of collective provisions on the Finance and Insurance sector are made up of provisions on credit derivative product companies and monoline credit enhancers.
The standard approach is used for European subsidiaries, exposure in the retail asset class, liquidity lines provided to ABCP
(data excluding specialized fi nance and equities: for the latter, see section 5.10 The banking portfolio’s exposure to equities)
EAD is broken down on the basis of the internal rating (S&P
(sovereigns, banks, corporate entities) after subtracting specialized fi nancing (calculated using Slotting Criteria, i.e. weighting on the basis of the internal ratings for the transaction and not the counterparty) and exposure to equities (calculated using a simple weighting). Pool-based exposure (acquired portfolios) and accounting adjustments have also been excluded.
The breakdown of exposure shows Natixis’ credit risk to be high quality, with 75% deemed to be of investment grade. As the same time, signifi cant efforts have been made to reduce non-rated exposures, which fell from 6.2% at the end of 2007 to 2.1% at the end of 2008.
(sovereigns, banks, corporate entities) after subtracting specialized fi nancing (calculated using Slotting Criteria) and exposure to equities (calculated using a simple weighting). Pools of acquired debt and accounting adjustments have also been excluded (as these exposures are booked on an aggregate basis without detail by counterparty).
(in millions of euros ) Risk-w eighted exposure to specialized fi nancing as of 31.12.2008
TECHNICAL IMPACT OF THE REDUCTION IN RISK ON DERIVATIVES OTHER THAN CREDIT DERIVATIVES (DATA AS OF DECEMBER 31, 2008)
Of which contracts including margin callsDirection * After the application of netting agreements.
(in millions of euros ) Other physical collateral Tangible assets Financial assets Category of exposure
Other physical collateral includes collateral other than securities, fi nancial instruments, property or loans. Tangible assets collateral includes real property or related mortgages, in accordance with
Exposure covered by guarantees or similar sureties by category of exposure (client asset class).
EXPOSURE COVERED BY PERSONAL SURETIES BY CATEGORY OF EXPOSURE (CLIENT ASSET CLASS)
BREAKDOWN OF AGGREGATE AMOUNTS REPRESENTED BY SECURITIZATION POSITIONS KEPT OR ACQUIRED BY RISK-WEIGHTING CATEGORY
Securitization positions rated lower than BB- are deducted from shareholders’ equity.
The fi gures and comments relating to exposure to assets that are subject to risks resulting from the fi nancial crisis (including Financial
The Market Risk Department independently defi nes methodology used to measure risk, examines limits and monitors all market risk within Natixis’ scope of consolidation. The market risk control system is based on a delegated architecture, in which the Group
Additional supporting documents have been provided in order to track key developments over the period covered on the basis of aggregate data (VaR, stress tests, P&L, loss alerts and breaches), summaries of important developments, points needing attention by business line, and summaries by the New Products and New
reviewing risk exposure with a focus on a specifi c class of risk ■
wherever necessary; reviewing any real and/or unauthorized breaches of limits and ■
action taken or needing to be taken; reviewing delegated decisions after they have been taken; ■
The operational unit is responsible for day-to-day control of market risks. It is split into fi ve teams, four of which control risk for the main front offi ces (Credit, Interest Rates and Interest Rate
Each team carries out the following functions for their specifi c business line: analysis and control of market risks and preparation of the ■
They are also tasked with defi ning appropriate risk-measurement methodologies for their respective business lines.
Different techniques are used to measure market risk: 1- synthetic measures of VaR to identify potential losses in each activity, based on a pre-determined confi dence level
(e.g. 99%) and time period (e.g. 1 day). They are compiled and monitored on a daily basis for all the Group’s trading activities.
To this end, a statistical model has been constructed to track the combined behavior of market parameters affecting portfolio value over a period of 1 rolling year. More than 4,200 market risk factors are currently modeled and used.
Natixis uses VaR calculated using numerical simulations, based on Monte Carlo-type methodology taking into account a portfolio’s possible non-linear characteristics with respect to different risk factors. Calculation methods are harmonized using a single calculation tool, Scénarisk. In order to monitor compliance with VaR limits set by the regulator, Natixis’ Risk
Natixis to carry out several studies calculating VaR on the basis of historical data going back to various depths, in the aim of better grasping the change in behavior observed in the capital markets recently. These studies led to the defi nition of a new calculation methodology, now based on econometrics in which standard deviation, for individual risk factors, is assumed to be the maximum standard deviation seen over the following time periods: 12 rolling months, 3 rolling months, September 1, 2008-current date (as long as the current date is before September 1, 2009). This change in methodology caused all limits to be redrawn. After being submitted to the French Banking Commission, this method was implemented during the fourth quarter of 2008; 2- operational indicators are used to manage activity on an overall basis and/or by homogenous activity, by focusing on more directly observable criteria (e.g. sensitivity to change in the value of the underlying, sensitivity to change in volatility or to correlation, diversifi cation indicators). Limits corresponding to these operational indicators thereby complement VaR
an indicator of sensitivity to variations of +/-1% in implied ■
volatility in the equity markets, foreign-exchange markets, interest rates, infl ation and commodity prices (these indicators are taken broadly, by maturity and by strike price), an indicator of variations in the delta to variations in underlyings ■
(equities, interest rates, foreign currencies or commodities), an indicator of sensitivity to variations in government bond/ ■
swap spreads, an indicator of sensitivity to variations in issuer spreads, ■
an indicator of sensitivity to infl ation (variation of 1 basis ■
an indicator of sensitivity to recovery and jump to default, ■
3- stress tests are also carried out to measure potential losses on portfolios in extreme market conditions.
Broad stress tests were at the heart of a major project in 2008 aimed at redrawing and reinforcing them. They are carried out using Natixis’ VaR calculation tool, and can be divided into three categories: H ■ istoric stress tests aim to reproduce groups of variations in market parameters observed during past crises, in order to provide ex-post simulations of the order of magnitude of resultant change on the income statement. While stress tests do not have any predictive powers, they do make it possible to gauge exposure to actual scenarios. Six historic stress tests were devised,
Their scenarios can be defi ned on the basis of economic criteria (e.g. real estate crisis, economic crisis), geopolitical considerations (e.g. terrorist attacks in Europe, overthrow of a Middle East regime) or other factors (e.g. avian fl u). Five hypothetical stress tests were devised,
At the end of 2007, when the two entities merged, the French
Natixis. After a review carried out in 2008, the French Banking
Commission confi rmed Natixis’ use of its model for regulatory purposes as of December 31, 2008.
5.4.3 - Quantitative data for measuring Natixis’ market risk (data certified by the Statutory Auditors in accordance with IFRS 7)
This major crisis prompted the CIB division to reorganize its activities over the fi nal quarter and to put part of its assets into a segregated structure (GAPC). This reorganization was accompanied by change in risk-monitoring methods (with the setting of new limits) and reporting procedures.
Likewise, as described above, it was deemed necessary to adapt the methodology used to calculate VaR to take account of market movements of an exceptional magnitude. Natixis accordingly implemented a change in the way it takes historical data into account, adjusting the calculation of standard deviation on the basis of the following formula: Standard deviation = maximum (12 rolling months, 3 rolling months, historical data starting on September 1, 2008, capped at 1 year).
The new methodology used to calculate standard deviations, applied to individual risk factors, was fi rst applied in the fourth quarter of 2008.
on equivalent positions. An overall limit of €70 million under this methodology was applied as of the same date.
The former VaR limit of €35 million is still monitored on a dayto -day basis, using the former methods, meaning that Natixis in effect now has dual VaR monitoring.
Supervision and active risk management (total) 3.5 2.3 2.3 2.2 1.2
(in millions of euros ) Level as of 31.12.2008 99% 1-day Monte-Carlo VaR
Applied to positions held on December 31, 2008, broad hypothetical stress tests imply potential impact on results (in aggregate terms) as follows: S ■ tress test 1 – Lower stock-market indices: €3 million; S ■ tress test 2 – Higher interest rates: €72 million; S ■ tress test 3 – Wider spreads, lower stock-market indices and interest rates: €34 million; S ■ tress test 4 – Commodities - Heightened volatility: €224 million; S ■ tress test 5 – Crisis in emerging markets: €166 million.
stress indicators and scenarios; validating overall limits applying to structural balance-sheet risk ■
For the parent company, with the exception of structural positions held by the Finance Department, management of mismatching on the banking portfolio is centralized via the use of internal supporting contracts within the Treasury Department, which has been delegated responsibility for operational management by the ALM Committee.
Natixis’ overall interest-rate risk is monitored to track the sensitivity of the portfolios’ economic value on the basis of their position on the yield curve and their currency. The Treasury system also includes 1-day 99% VaR measurements. These measurements are subject to limits set by the ALM Committee on the proposal of the Risk Management Department and tracked on a day-today basis for the Treasury Department and on a monthly basis for subsidiaries.
Natixis’ overall interest-rate risk does not warrant any special comments. The shock resulting from the application of Basel II
standards (+200 basis point instantaneous variation to yield curves) would have resulted in a €184 million impairment to the economic value of the portfolio.
The management of the short-, medium- and long-term net refi nancing requirements in a large number of currencies on behalf of Natixis and its subsidiaries is carried out by the Treasury
Department, which has offi ces in Paris, New York and Singapore.
Liquidity risk stems from the mismatching of maturities between assets and liabilities. As a corporate and investment bank,
As is the case for interest rates, the transformation of the parent company’s refi nancing activities into liquidity is centralized by the Treasury Department. Specifi c subsidiary credit institutions have free reign to manage the process on their own behalf, although the resulting liquidities rank below those of the Treasury
The CIB division’s capital markets activities, which generally hold liquidities for short durations and whose portfolios rotate at a faster rate than the corporate lending activities, are responsible for managing their own refi nancing, and receive their net refi nancing needs from the Treasury Department.
The liquidity risk monitoring system is based on calculating static liquidity gaps and mismatching ratios(6). For the operational management of short-term liquidity, liquidity gaps are calculated every day on a day-by-day basis over a three-month timeframe, and for all operations. Dynamic liquidity gaps, taking into account the renewal of assets and liabilities, are also calculated on shorter timeframes in order to facilitate the operational management of some maturities (at year’s end for instance). With respect to transformations carried out over the medium term on fi nancing operations with more stable positions, liquidity gaps are calculated monthly on an annual basis until the relevant operations have been run down. The Treasury Department’s management of liquidity mismatching risk on its own banking portfolio is bound by minimum mismatching ratios(7) approved by the ALM Committee and reviewed periodically by this Committee. Minimum ratios, renewed in 2008, are as follows: (6) Defi ned for each type of maturity as the ratio of residual liabilities to residual assets. A negative gap on 12-month maturities refl ects a provisional refi nancing requirement at that date.
For refi nancing operations in non-transferable currencies managed in Moscow and Shanghai, the ALM Committee approves dedicated mismatching ratios taking into account the absence of local markets for debt maturing in more than a year.
FINANCIAL DATA 6 Management Report been drawn up in conjunction with the central institutions and approved by the ALM Committee.
Like most fi nancial institutions, Natixis, as a corporate and investment bank without stable and sustainable customer deposits, had to deal with tensions in the interbank markets in 2008, leading to tougher refi nancing conditions. In this unprecedented environment, Natixis quickly implemented a strategy geared towards safeguarding its balance sheet in the short term. The measures taken by the Treasury Committee and approved by the ALM Committee were initially aimed at gradually increasing the internal cost of liquidity charged by the Treasury
As of mid-March, the Treasury Department was instructed to maintain until further notice a liquidity cushion to help it deal with exogenous shocks of any nature, by maintaining an intra-day lending position closed after 10 days.
Department to activate, as a preventative measure, the crisis plan approved by the ALM Committee, and to inform the central bodies. This plan involved tighter monitoring and control over liquidity consumption, and asset reductions. Following government and central bank action taken in October, Natixis took advantage of all new arrangements aimed at restoring market confi dence, including the extension of rules covering the eligibility of assets for use as collateral against central bank refi nancing, term fi xed-rate tenders and the ECB’s U.S. dollardenominated facilities, facilities offered by the U.S. Federal
de Financement de l’Économie Française, an ad hoc vehicle created in October 2008 dedicated to the issuance of senior funding for French banks(8), and the issuance of perpetual deeply subordinated notes under the plan to reinforce bank capital implemented by the French government via the Société
de Prise de Participation de l’État, a state-owned vehicle set up to buy capital issued by the benefi ciary banks(9).
Group was able to ensure its fi nancing in the intra-day and term markets throughout 2008, by placing collateral with the ECB and thanks to loans provided by its two main shareholders, and does not foresee any diffi culties in respecting its fi nancial obligations going forward.
Natixis’ structural foreign exchange risk is focused primarily on the U.S. dollar. It stems in part from net foreign investments refi nanced by currency purchases, as well as from income and expenses (exceptional or recurrent) denominated in foreign currencies and not balanced against euros.
Given the presence of weighted risks denominated in currencies other than the euro, the ALM Committee has approved currency purchases to refi nance long-term investments in order to immunize the bank’s capital-adequacy ratio against change in the euro-U.S. dollar exchange rate.
For income and expenses, part of U.S. dollar-denominated gross operating income included in this year’s budget has been hedged in order to neutralize the impact of adverse change in the average euro-U.S. dollar exchange rate over the year in relation to the average assumed when preparing the budget.
In February 2008, Natixis’ Operational Risk Department was restructured around seven units corresponding to the Group’s various business lines and activities: CIB (CIB) Capital Markets; ■
Natixis InterEpargne, Natixis Intertitres, Compagnie Européenne de Garanties et Cautions, EuroTitres, Natixis Financement,
Natixis Lease, Natixis Algérie, CACEIS; Private Equity and Private Banking: BPSD, Compagnie 1818, ■
They currently include 45 operational risk managers, fi ve of whom are based outside France (London, Asia, America) and 29 of whom work out of subsidiaries but report to the Operational
The Asset Management and Receivables Management divisions report to the Operational Risk Department.
Two units, “reporting” and “methods and data,” are responsible for the Department’s cross-function work, defi ning measures and policies, managing references and data, and reporting.
As such, the Group as a whole is covered by an organization structured around its various activities and the location of its operations.
This structure is complemented within each business line by a network of operational risk correspondents (more than 150 people across the Group excluding Asset Management, Coface and CACEIS). They are responsible for declaring any incidents to the Operational Risk Department and for providing data constituting operational risk: incidents, variables relating to the environment, progress on action plans.
The piloting of Natixis’ operational risks covers the following elements: validation of standards and methods, measures, operational ■
The Business Line Operational Risk Committees are an offshoot of Natixis’ Operational Risks Committee. They manage operational risks in the various business lines closely. They are chaired by the heads of the various business lines, and the
Department or the head of operational risks for the division to which the business line belongs.
At this time, 67 Business Line Operational Risk Committees meet regularly, at least once a quarter, in the presence of the
Work carried out in 2008 was focused on four main areas: rolling out OSIRISK, Natixis’ tool for gathering and measuring ■
1. ■ Rollout of the OSIRISK risk-data gathering and measuring tool
OSIRISK is Natixis’ tool for measuring, controlling and managing operational risks. It was rolled out across the Group as a whole in 2008, except for the insurance-related business lines within the
Committee. It is up to the Committee Chairman to decide which action plans should be implemented. Incidents involving more than €1 million are immediately declared to the central bodies.
(10) An incident is considered serious in the following cases: – if the real or estimated fi nancial impact comes to €50,000 or more; – if the real or estimated reputational risk is signifi cant, in cases where information that is either erroneous or prejudicial to the bank’s reputation is spread in an uncontrolled manner; – if it is behind a malfunction in the production of data used for piloting the bank’s operations, namely false data, delays or an absence of data production over periods of several days or frequently; – if it stems from internal or external fraud; – if the Operational Risks Department considers the incident to be serious; – if it is a near miss catastrophe.
In 2008, Natixis recorded a reduction in the number of incidents, but a substantial increase in the most serious incidents and loss amounts, particularly in the CIB division. The increases on both counts can be ascribed to: the improved quality of data gathering thanks to the OSIRISK ■
operations, smaller customer fl ows, etc.); an increase in losses stemming from volatility in the capital ■
markets. Costs relating to incidents for which losses have a direct impact on the price (e.g. forgetting a buy order) were up sharply; change in operating methods linked to the credit crunch. ■
Private Equity and Private Banking 703 1,246 965 963 (27)% 29%
FINANCIAL DATA 6 Management Report 3. The main action plans ■
In each of its operating entities, Natixis has implemented action plans geared towards reducing its exposure to operational risks (see table below). Signifi cant efforts have been made to implement action plans that help reinforce the bank’s structure.
Risks Committee has worked closely on four major action plans: new hires/departures taskforce harmonizing processes ■
New York; anti-market-fraud taskforce set up in the wake of the Kerviel ■
Services (excluding CACEIS) 134 99 78 4. Natixis’ major risks ■
for initial causes, known as loss-generating events, a law of ■
probability in terms of frequency is defi ned; for each consequence, known as a process fault, a law of ■
Secretary’s offi ce, is tasked with analyzing insurable operational risks and taking out appropriate insurance cover (self-insurance/
hardware and computerized data), as well as losses on banking operations due to such damages.
All the Group’s entities benefi t from: “combined” Overall Banking (securities and fraud) and ■
This cover extends throughout the entire world, except for professional civil liability, where the guarantee does not extend to permanent operations in the United States (cover for U.S.
As of January 1, 2008, efforts continued to bring subsidiaries contributed to Natixis by Groupe Caisse d’Epargne under groupwide general insurance contracts. Most of the buildings housing the Group’s operations and their contents in France, computer risks and risks pertaining to resultant banking losses are now under single cover (reconstruction and/or replacement cost, capped at €200 million per claim).
District Court for the Northern District of Illinois. The plaintiffs alleged that Harris Associates L.P. billed services to these three funds at an excessively high rate in light of applicable regulations.
These proceedings are among numerous legal claims initiated in recent years against investment advisors. Harris Associates and the plaintiffs fi led motions for summary judgment.
On June 2, 2008, the plaintiffs requested a rehearing of the appeal by the entire Court of Appeals. On August 8, 2008, the
On November 3, 2008, the plaintiffs sought relief from the United
On March 9, 2009, the Supreme Court decided to hear the case. Hearings are scheduled for October 2009 and a ruling is expected to be handed down in late 2009 or early 2010.
Class action lawsuits in the United States relati ■ ng to Municipal Guaranteed Investment Contract
D.C. and California. The complaints allege a conspiracy between providers and brokers of municipal derivatives to fi x prices, rig bids and allocate customers between 1992 and 2006. The various plaintiffs have also named some thirty-plus other U.S.
and European banks and brokers as defendants. Plaintiffs seek to certify a class of all state, local and municipal government entities, independent government agencies and private entities that purchased municipal derivatives from defendants or through brokers from 1992 to the present and to recover damages to the class that result from the alleged anticompetitive activities.
District of New York under the caption “In re: Municipal Derivatives
Commission (“SEC”). Although the IRS investigation has been settled without admission of guilt or liability by Natixis Funding or
In a decision dated March 27, 2008, the Commercial Court of Toulouse decided to cancel two swap transactions with notional amounts of €7.5 million and €12.5 million entered into by Natixis with the Société Patrimoine Languedocienne, S.A., a public housing company (SPL), holding Caisse d’Epargne Midi
Pyrénées and Natixis jointly liable for damages to SPL relating to these swaps. The court named an expert to assess the damages, for which the Caisse d’Épargne Midi Pyrénées and
On September 11, 2008, CIC and Crédit Mutuel brougt an action against Lagardère and Natixis before the Commercial Court of
(AMF), which has not been made public, the plaintiffs allege that
Lagardère SCA failed to comply with market regulations when it issued bonds redeemable in EADS shares, subcribed by Natixis, in April 2006.
group’s complaint, whether with respect to the execution of the contracts on their performance. The legal arguments used by the
contractual rate in the case of a drop in interest rates
To deal with this risk, ABP Vie has for several years marketed only contracts with no rate. More than 90% of contracts have no guaranteed minimum rate. The guaranteed minimum rate averages 0.76%.
Natixis Assurances has identifi ed the insured population for whom the risk of repurchase is high, the differential criteria being age, fi scal seniority and the amount of capital. For this population,
Cap contracts, and has limited the scope covered by such contracts to approximately a quarter of its interest-rate assets. It has also subscribed to variable-rate bonds with a minimum rate.
The liability adequacy test carried out in accordance with IFRS 4 showed that insurance liabilities evaluated under local standards, for the year ended December 31, 2008, were greater than the fair value of these liabilities, taking into account the repurchase option incorporated in the contract.
Also, Natixis Assurance reinsures, at 100% the guaranteed minimum payment on unit-linked contracts.
Natixis Assurances makes use of reinsurance to limit its exposure to the risk of dispersion of capital guaranteed upon death, accidents of life and loss of autonomy, as well as the frequency of claims for cessation of work, invalidity and loss of autonomy.
The annual reinsurance plan seeks to diversify reinsurers and to deal only with parties having a high-quality rating. No reinsurance treaty is concluded or renewed with parties that are not of investment grade. In practice, the rating of the group’s reinsurers is between BBB and AA (some reinsurers may nevertheless be unrated if their shareholders are deemed to be of suffi ciently high quality).
The nature of insured risks combined with reinsurance coverage does not create any particular exposure to concentrated insurance risks.
Through its activities, Coface is exposed to two main types of risk. The fi rst is a technical risk, which is the risk of losses generated by Coface’s portfolio of insurance policies. The second is a fi nancial risk, which is the risk of loss due to unfavorable variations in interest rates, exchange rates or the market value of securities or investment properties. Coface has put sophisticated tools in place designed to rigorously control these risks so that they remain
The technical risk concerns the risk of loss generated by the portfolio of insurance policies.
In addition to monthly monitoring at the level of each underwritingcenter, a system is put in place at the group level, which includes: centralization of declarations of threats of claims exceeding a ■
Intelligence); the large risks committee, which sets the maximum outstanding ■
losses that may be recorded in case of claim) by debtor, group of debtors or emerging country.
In the context of the fi nancial crisis, the listing of vulnerable risks has been made on the basis of Coface ratings as well as on proposals from underwriting centers for specifi c risks such as repurchase operations with leverage effect due to strong indebtedness. All the signifi cant risks rated BB- or lower are subject to centralized monitoring both for inventory and monthly fl ows. For frequency risks, scores will be used to identify populations at risk and more restrictive quotation matrixes are to be implemented.
(in millions of euros) Number of limits Number of buyers As a %
FINANCIAL DATA6 Management Report 5.10 – The banking portfolio’s exposure to equities
The banking portfolio’s exposure to equities is treated in credit risk on the basis of the following methods: exposure representing interests of more than 10% in credit ■
institutions is excluded. These positions are directly deducted from capital; exposure through interests in the Group’s insurance companies ■
is excluded. These companies are consolidated under the equity method; exposure through interests in clearing houses is excluded. ■
These assets are reclassifi ed and listed under on the “other assets” line
(in millions of euros ) Weighted exposure to equities as of 31.12.2008
TOTAL AMOUNT OF CAPITAL GAINS OR LOSSES ON DISPOSAL FOR THE PERIOD UNDER REVIEW
Regulatory restatement of unrealized capital gains or losses on available-for-sale capital instruments (42)
Financial assets at fair value through profi t and loss and hedging derivatives 275.2 198.1
The increase was linked primarily to the increase in value of transactions recognized at fair value on the balance sheet, offset chiefl y by a decline in repurchase agreements.
Financial assets at fair value through profi t and loss and hedging derivatives amounted to €275.2 billion, compared with €198.1 billion as of December 31, 2007, a €77.1 billion increase linked primarily to higher valuations for credit derivatives and interest-rate swaps. Financial assets at fair value through profi t and loss comprise trading instruments (€248.5 billion), instruments recognized at fair value (€26.2 billion) and hedging derivatives (€0.5 billion).
These assets are fairly evenly broken down between life insurance investment portfolios, mainly in the form of fi xedincome securities, and the banking investment portfolio.
The customer loan portfolio, including lease fi nancing and factoring, amounted to €103.1 billion, an increase of €17.7 billion compared with December 31, 2007. This increase stemmed in large part from the reclassifi cation of assets from the trading portfolio as available-for-sale assets, totaling €11.5 billion.
Securities held under reverse repurchase agreements amounted to €53.9 billion, a €46.6 billion decline stemming from transactions with credit institutions. These assets are fi nanced primarily by repurchase agreements and recorded under liabilities.
As of December 31, 2008, registered share capital amounted to €4,653,020,309, divided into 2,908,137,693 shares with a par value of €1.60.
Regulatory capital and risk-weighted assets are calculated in accordance with the February 20, 2007 order, amended on
The regulatory scope of consolidation is based on the statutory scope of consolidation, but with equity-method accounting for the insurance companies Coface, Natixis Assurances and
Regulatory capital is structured as follows in respect to the various rules: Basel II Basel II pro forma CAD
Supplementary capital was virtually unchanged over the period, while deductions increased mainly because of securitization issues rated under BB- or not rated.
Risk-weighted assets under the Basel II framework totaled €163.2 billion, an increase of €9.5 billion year-on-year on a proforma Basel II basis.
The overall ratio was to 10.2%, above the 10% minimum required by the U.S. Federal Reserve Bank.
The calculation is managed by the Finance Department. The process relies foremost on the Group’s existing risk-measurement tools and on databases provided by central systems.
The ratio of liquid assets to liabilities falling due within one month must be higher than 100%. It stood at 195% as of
The aggravation of the crisis after the collapse of Lehman Brothers led the short-term treasury unit to modify its processes: dynamic management of the liquidity gap was ensured by a ■
Natixis was able to successfully complete its medium-and longterm refi nancing program.
In 2008, it raised a gross total of €20.2 billion under its various programs and debt instruments.
In April 2008, seizing a window of opportunity in the bond market,
Between the start and the close of the year, refi nancing spreads widened by minimums of between 160 and 250 basis points, depending on the maturities.
To help banks’ medium-term refi nancing, the government set up the Société de Financement de l’Économie Française
(SFEF), a vehicle dedicated to the issuance of senior funding for
French banks, in October 2008. This body issues governmentguaranteed debt, and places the proceeds at the disposal of
Thanks to this mechanism, and with the help of its two main shareholders, which are founding members of the SFEF, Natixis was able to obtain, towards the end of 2008, resources totaling €835 million with maturities spread over 1.5 and 3 years.
(capped at €10 billion) and Natixis Financial Products (capped at €5 billion).
Natixis’ medium- and long-term resources were also boosted by proceeds from the €3.7 billion capital increase carried out in September 2008 and the subscription by the CNCE and the
BFBP to €1.9 billion of deeply subordinated perpetual notes in December 2008. This subscription fell under the terms of the French government’s bank recapitalization plan. The two shareholders having also issued deeply subordinated perpetual notes to the newly-created SPPE.
(i) Senior debt contracted within the framework of issuance programs: Natixis’ MTN program includes a standard negative pledge.
guarantee), certifi cates of deposit (issued by the Singapore branch), ECP, TCN and Extendible Notes are not subject to any covenants.
(ii) Senior debt outside existing programs: Bond issues carried out in 2008 outside the framework of EMTN
programs (under the international format) included negative pledges and cross-default clauses similar to those included in the MTN program.
(ii) With respect to deeply subordinated notes: issued on March 31, 2008 (€150,000,000) fi xed then fl oating ■
The subordination clause is set out below in the terms used in the prospectus: Status of the Notes: ■
French Code de commerce, as amended in particular by law no. 2003-706 on fi nancial security dated August 1, 2003.
The proceeds of the issue of the Notes will be treated, for regulatory purposes, as consolidated fonds propres de base for the Issuer subject to the limits on the portion of the Issuer’s fonds propres de base that may consist of hybrid securities in accordance with Applicable Banking
shall have the meaning given to it in Article 2 of Règlement no. 90-02 dated February 23, 1990, as amended, of the
“CRBF Regulation”) or otherwise recognized as fonds propres de base by the SGCB. The CRBF Regulation should be read in conjunction with the press release of the
In the event of liquidation of the Issuer, the Notes shall rank in priority to any payments to any classes of share capital and any other equity securities issued by the Issuer.
following terms: Natixis announced it had reached an agreement in principle with
Natixis’ Supervisory Board examined the terms of the project at its Meeting on that day.
On this basis, the information and consultation process with employee representative bodies was initiated.
When the sale becomes effective, Natixis’ solvency will be strengthened with a positive impact of 0.40% on its Tier-1 ratio.
Supervisory Board met on February 24, and February 26, 2009, and approved the merger principles regarding the two central bodies that will lead to the creation of France’s second largest banking Group.
The new Group will be supported by two complementary autonomous networks and two distinct brands. The new entity will consist of around 34 million customers, over 7 million member-stakeholders and a deeply rooted network, thanks to 7,700 branches, and almost 110,000 employees. The new
The retail banking business will be the focus of the new Group, essentially concentrating on the domestic market. In addition,
(Crédit Foncier de France, Nexity, Foncia, MeilleurTaux) as well as the other interests of the two central bodies (notably Banca
Carige, Banque Palatine, DZ Bank and MaBanque) will be kept initially by CNCE and BFBP.
The French State, which had favorably welcomed the merger plan, has wished to support the establishment of the new
Group by proposing an equity contribution in line with its policy of supporting major French banking Groups. In this way, the government has stated that it intends to subscribe to preference shares without voting rights and undated super-subordinated notes (TSSDI) issued by the new central body, for a maximum amount of €5 billion. The government support will enable the new Group to benefi t from a robust and durable capital structure.
The preference shares will be convertible into ordinary shares, under certain conditions, leading the State to hold up to a 20%
The merger will also facilitate combining Natixis’ ownership structure, whose governance will be simplifi ed. In this respect, at the General Shareholders’ Meeting called to approve the 2008 fi nancial statements, the transformation of Natixis into a Company with the separation of roles between Chairman and Chief Executive Offi cer with a Board of Directors will be proposed.
Directors has decided to propose Mr. Philippe Dupont to occupy the position of fi rst Chairman of the Supervisory Board of the new central body. At the end of the term of offi ce of Mr. Philippe
Management Board of the new central body. Mr. François Pérol has also been appointed to Natixis’ Supervisory Board and will be the Chairman. Mr. Dominique Ferrero, in his capacity as
Mr. François Pérol has been appointed as of March 2, 2009
On March 6, 2009, Natixis issued a press release in the ■
following terms: At its Meeting of March 6, 2009, the Supervisory Board noted the resignations of Mr. Bernard Comolet and Mr. Bruno Mettling from the Supervisory Board and of Mr. Philippe Dupont from the
This plan will be submitted to Natixis’ shareholders at the combined Ordinary and Extraordinary Shareholders Meeting convened to approve the accounts for the 2008 fi scal year. The date of the combined Ordinary and Extraordinary Meeting has been advanced to April 30, 2009.
With the exception of what is specifi ed in th ■ is Registration
IX. INFORMATION CONCERNING THE PARENT COMPANY AND PROPOSED ALLOCATION OF NET INCOME
Information concerning the Natixis parent company 2008 was marked by a continuation of the global fi nancial crisis.
In 2008, Natixis’ net banking income fell by €3,436 million, taking into account: a €1,633 million increase in net interest income; ■
a €405 million reduction in income from transactions on held- ■
The cost of risk increased signifi cantly in 2008 (€983 million)
Gains or losses on fi xed assets were positive at €164 million.
At December 31, 2008, total assets amounted to €357,664 million, compared with €412,008 million as of December 31, 2007.
The Natixis parent company recorded negative net income of €5,053,779,558.57 for the year ended December 31, 2008.
The third resolution that will be put to the April 30, 2009
FINANCIAL DATA6 The Supervisory Board’s comments on the Executive Board’s management report and the 2008 financial statements
In accordance with the clauses of Article L. 225-68 of the Commercial Code, the Executive Board’s management report on the business of the Company and its Group, together with the annual accounts for the year ending December 31, 2008, were examined by the Supervisory Board at the Meeting of February 25, 2009.
According to the terms of the resolutions submitted for your approval, you are requested to approve the unconsolidated and consolidated accounts for 2008, the assignment of the results and the draft resolutions presented by the Executive Board.
Financial liabilities at fair value through profi t and loss 8.1 275,380 165,030
o/w: - Attributable to equity holders of the parent (2,799) 1,101 - Attributable to minority interests 72 119
Consolidated net income/(loss) attributable to equity holders of the parent – per share, calculated on the basis of the average number of shares over the period excluding treasury shares (1,57) 0.90
Consolidated net income/(loss) attributable to equity holders of the parent – per share, calculated on the basis of the average number of shares over the period excluding treasury shares and including shares that could be issued on the exercise of stock options (1.56) 0.90
Equity component of share-based payment plans 2006 dividend paid in 2007 (324)
(1) Share premium, legal reserve, contractual reserves, long-term capital gains reserve and other Natixis reserves.
+/- Net charge to depreciation and amortization of property, plant & equipment and intangible assets 206 164
= Total non-cash items included in income/(loss) before tax and other adjustments (1,302) 7,863
+/- Decrease/(increase) in fi nancial assets and investments in associates 89 (6,471)
business lines, cutting costs, strengthening its fi nancial structure, and improving the risk profi le of its Corporate and Investment Banking division (CIB). These new strategic focuses will be implemented as part of the plan to transform the corporate and investment banking business, approved by
Natixis’ Supervisory Board on September 18, 2008. The plan involves: discontinuing credit and structured credit proprietary ■
CIB to optimize run-off management, refocusing on historic clients by concentrating on operations ■
for corporate and institutional customers, achieving a leaner international presence by steep operational ■
cutbacks in Asia (most capital market activities will be stopped) and in the United States (the equity derivatives desk will be shut down), strengthening risk discipline across all activities, ■
overheads by 10%; implemented a cost-cutting program to run through to 2009. ■
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements program, concerning internal and external staff costs and operating expenses. A work adjustment plan was launched for Natixis S.A. employees in September 2008. The impacts of this plan were costed and a provision of €144 million set aside in the 2008 fi nancial statements (see Note 13); carried out a €3.7 billion rights issue in September. The Banque ■
Fédérale des Banques Populaires and the Caisse Nationale des Caisses d’Epargne subscribed to €2.5 billion of the issue by offsetting the shareholder loan previously granted.
1.2 - Integration process for entities contributed on November 17, 2006
Besides the strategic refocusing and other measures adopted in response to the fi nancial crisis, Natixis continued with its process of integrating the entities contributed on November 17, 2006*.
The main business combinations completed in 2008 for legal purposes are listed below: reorganization of the securities services business: ■
activities carried out by Natixis and Natixis Investor Servicing were transferred to CACEIS, retail custody platforms of Gestitres and Natixis were merged ■
Européenne de Garanties et Cautions, a multi-business platform for surety bonds and fi nancial guarantees; Natixis Altaïr’s data center operations were contributed to its ■
Natixis Altaïr’s businesses (technical architecture, support functions, etc.) were merged with Natixis’ IT division. For legal purposes, the merger took the form of a full asset/liability transfer (transmission universelle de patrimoine); in the consumer credit business, activities related to the ■
At the end of November 2008, Banque Privée Saint Dominique and La Compagnie 1818 – Banquiers Privés launched a merger project to create a private bank offering: wealth management services to direct clients; ■
Following these transactions, the CNCE and the BFBP (through SNC Champion) placed on the market some of the Natixis shares they received in consideration for the above-mentioned contributions. This resulted in an increase in Natixis’ free-fl oat, while maintaining strictly equal the shareholdings owned (directly and indirectly) by the BFBP and the CNCE
Notes to the consolidated fi nancial statements merger talks and the work to be performed with a view to completing and executing the merger in the fi rst half of 2009.
Board, whose governance will be based on the principles of balance and equality between both networks.
On March 2, 2009, Natixis announced that it had reached a memorandum of understanding with Crédit Agricole SA to begin exclusive talks with a view to selling 35% of the capital of CACEIS to Crédit Agricole SA for €595 million. Subject to obtaining advice from the employee representative bodies and securing the requisite authorizations, the sale could be fi nalized in the second quarter of 2009. If the negotiations are successful,
Natixis would retain a 15% stake in CACEIS. The sale is part of the strategic refocusing measures announced and implemented by Natixis since mid-2008.
2.1 - IFRS standards and IFRIC interpretations applied by the Group
European Union at that date(1). These standards include IAS 1 to 41, IFRS 1 to 8 and the related IFRIC interpretations adopted by the European Union as at December 31, 2008.
equity, equity capital, assets, liabilities and earnings, and the fi rst-time application options used by Natixis in accordance with
IFRS 7 dealing with the reclassifi cation of fi nancial assets has a material impact on the 2008 consolidated fi nancial statements.
The transfer of assets meeting the defi nition of loans and advances at the reclassifi cation date depends on the intention and ability of the entity to hold the fi nancial assets for the foreseeable future or through to maturity. If the asset was designated “At fair value through profi t and loss – Trading” upon initial recognition, it must no longer be held for the purpose of being sold in the near term. An analysis is carried out in the case of hybrid instruments featuring embedded deriatives, based on the conditions prevailing upon inception of the transaction, to determine whether the derivative should be separated out and continued to be reported as at fair value through profi t and loss – Trading.
as “At fair value through profi t or loss – Trading”; €2.8 billion relating to the fair value of assets previously ■
(1) All of the standards adopted by the European Union are available from the European Commission’s website, at
Natixis also took into account: with regard to pricing fi nancial instruments in its 2008 ■
consolidated fi nancial statements, the recommendation published on October 15, 2008 by the AMF, the French National
Standards, amendments and interpretations adopted by the European Union at December 31, 2008, but not early adopted in the 2008 consolidated financial statements
Natixis did not early adopt the following standards, interpretations and amendments endorsed by the European Union at
Commission on November 21, 2007 and effective for accounting periods beginning on or after January 1, 2009. This standard replaces IAS 14 “Segment reporting” and requires operating segments to be defi ned using the management approach; the revised IAS 1 “Presentation of fi nancial statements” ■
This revised standard replaces the current IAS 1, and is mandatorily applicable for accounting periods beginning on or after January 1, 2009. It aims to make it easier for fi nancial statement users to analyze and compare information. The revised IAS 1 concerns only the presentation and contents of fi nancial statements, and accordingly, has no impact on
Natixis’ earnings or equity; the amendment to IFRS 2 “Share-based payment”, ■
Commission on December 10, 2008. This revised standard is mandatorily applicable for accounting periods beginning on or after January 1, 2009 and eliminates the possibility of recognizing borrowing costs directly attributable to the acquisition, construction or production of qualifying assets within expenses. As this standard does not apply to Natixis’
operations, it will have no impact on the fi nancial statements; IFRIC 11 “Group and treasury share transactions” adopted ■
by the European Union on June 1, 2007 and effective for accounting periods beginning on or after January 1, 2009.
by the European Commission on December 16, 2008. As this interpretation does not apply to Natixis, it will have no impact on its fi nancial statements; IFRIC 14 “The limit on a defi ned benefi t asset, minimum funding ■
Europe for accounting periods beginning on or after January 1, 2009. It should not impact the Group’s consolidated fi nancial statements.
Notes to the consolidated fi nancial statements 2.2 - Presentation of the consolidated financial statements
The consolidated fi nancial statements have been prepared in accordance with the measurement and presentation principles set out in Notes 3, 6 and 7 below.
The consolidated fi nancial statements are based on the individual fi nancial statements as at December 31, 2008 of the entities included in Natixis’ scope of consolidation.
The consolidation methods applied by Natixis are described below: Full consolidation
IAS 27, control is presumed to exist when the parent has: ownership, directly or indirectly through subsidiaries, of more ■
No majority shareholdings were consolidated as a result of applying IAS 27 to the Group’s private equity business, as the shareholdings concerned are not material.
to be accounted for using the equity method. Natixis has not elected to apply this option.
Companies over which Natixis exercises signifi cant infl uence are accounted for using the equity method.
Under IAS 28 and IAS 31, private equity investments between 20% and 50%-owned do not have to be accounted for using the equity method if they are designated at inception as at fair value through profi t and loss. Natixis has opted for the latter method which it believes provides investors with more relevant information.
and federal delegate/non-voting member reporting); right to audit the Banques Populaires and the Caisses ■
d’Epargne et de Prévoyance banks; delegation of powers concerning the risk management ■
systems, operational management of foreign currency accounting); design and management of customer products on behalf of ■
the Banques Populaires banks (asset management, insurance products, factoring, lease fi nancing, fi nancial engineering, expansion capital, employee benefi ts planning, international operations, credit insurance and business information).
The related transactions, some of which may be guaranteed by the State, are recognized separately in the fi nancial statements.
The State and other related creditors have a specifi c right over the assets and liabilities allocated to these institutional activities.
Fees received and loans outstanding in connection with institutional activities are not material. Accordingly, these items were not restated at amortized cost. Activities other than fi nancing where Natixis acts as an intermediary on behalf of the French State, have been accounted for using the previous treatment in the IFRS fi nancial statements.
The balance sheet of foreign subsidiaries and branches whose functional currency is not the euro are translated into euros at the closing exchange rate, except for share capital, reserves and capital allocations, which are translated at the historical exchange rate. The income statements of foreign subsidiaries and branches whose functional currency is not the euro are translated at the average exchange rate for the year. Any resulting translation gains or losses arising on both balance sheet and income statement items are recognized in equity under “Translation adjustments”
Natixis elected to use the option available under IFRS 1 on fi rsttime adoption to transfer the cumulative balance of translation adjustments existing at January 1, 2004 to consolidated reserves. If a foreign entity is subsequently sold, the gain or loss on sale will include only those translation gains or losses arising after January 1, 2004.
The excess of the cost of the business combination over the acquirer’s interest in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities is recognized as goodwill. Goodwill is allocated at the acquisition date to one or more cash-generating units (CGUs) expected to benefi t from the acquisition.
Goodwill is tested for impairment at least once a year and whenever there is objective evidence that it may be impaired.
conferring entitlement to the share capital of the Caisses d’Epargne banks.
The contribution values used for consolidation purposes in respect of both categories of assets are the carrying amounts of these assets in the CNCE’s consolidated fi nancial statements, restated in accordance with IFRS as adopted in the European
In accordance with IFRS 3, other transactions affecting the structure of the Group that are described in Note 1.2 – contribution of the remaining Caisses d’Epargne CCIs, 1.23% of the share capital of IXIS CIB, and 4.63% of the share capital of IXIS AMG; subscription to the Banques Populaires CCIs, and acquisition of
Novacrédit – have been accounted for by the purchase method for consolidation purposes.
As the contributions were recognized at their net carrying amount under IFRS, no valuation adjustments have been recorded on the various assets and liabilities contributed. The difference between the acquisition cost and the Group’s interest in the net assets of the contributed entities does not represent goodwill within the meaning of IFRS 3, since the acquisition cost takes into account the real value of the shares, while the contributions were recognized at their net carrying amount. Each of the differences observed was recognized in consolidated reserves.
In 2008, goodwill decreased by €3 million excluding translation gains of €54 million and impairment losses.
€15.5 million in goodwill; acquisition of a minority 23.76% stake in La Compagnie 1818, ■
Goodwill arising on Olympia and CACEIS Germany recognized in 2007 was allocated to intangible assets for €15 million and €44 million, respectively.
reduction in goodwill; sale of 33% of SLIB, leading to a €1.3 million reduction in ■
reporting structure. The loss-making activities have been placed under the responsibility of a specifi c management team, with the related earnings and risk profi le monitored separately from the
In accordance with IAS 14, these hived-off activities represent a separate business segment (see Note 14 “Segment and geographical analysis”) and therefore a new CGU. Consequently, any items of goodwill previously allocated to corporate and investment banking operations have been split between the two
CGUs using an allocation scale based on the expected capital consumption of each activity. As a result, of the €69 million in goodwill previously allocated to the CIB CGU, €52 million has been transferred to the “CIB – Continuing operations” CGU and €17 million to the “CIB – Hived-off operations” CGU.
(1) For certain businesses (asset management, securities services, payments), value in use is calculated through a combination of the DCF model and market comparables method. For the private equity business, value in use is calculated based on net assets.
three years taken from the Group’s medium-term business plan(1); perpetual growth rate: 2%; ■
The discount rate used is based on trading data for the period. It represents the projected average rate of return on listed stocks in the same sector as Natixis, based on their current share price, projected earnings for the coming years and an extrapolation of these earnings to infi nity using a constant perpetual growth rate. This is obtained by adding the risk-free rate (10-year French treasury bonds) to the risk premium and the historical industry beta, both of which are calculated using a representative sample of listed companies in the same sector as Natixis.
The dilutive/accretive impact derives from differences in the rights associated with ownership shares (entitlement to dividends)
As part of the commutation agreement signed on January 22, 2009 by CIFG, its two shareholders and its main counterparties including Natixis, the Group’s percentage interest in CIFG moved to 6.9% (see Note 6.3).
3.8 - Standardization of individual data and elimination of intra-group transactions
The following rules are applied for fully consolidated insurance subsidiaries: income and expenses are classifi ed by nature in accordance ■
with banking accounting principles and not by function of expense; balance sheet items are included under the corresponding ■
line items of the fi nancial statements presented in the banking format.
Insurance company investments are classifi ed in the balance sheet under the various categories defi ned in IAS 39.
Technical reserves for personal risk insurance contracts are calculated using statutory discount rates and mortality tables, as well as BCAC tables for incapacity and disability risks.
The deferred participation asset or liability is equal to the portion of unrealized gains and losses on investments carried in assets, payable to policyholders pursuant to their insurance contracts or arising on consolidation adjustments. The rate is calculated on the basis of the average participation rate of policyholders recognized in the individual fi nancial statements under contractual rules (average contractual participation rate for each product weighted by the value of the investments on the calculation date). This rate was around 92% for ABP Vie at December 31, 2008 (virtually unchanged from end-2007).
contracts; the restatement in the consolidated fi nancial statements of the ■
Given the sharp downturn in the markets, a deferred participation asset was recognized as a result of shadow accounting, corresponding to the unrealized losses that may be charged against the future returns associated with the technical liabilities.
December 19, 2008, the deferred participation asset was recognized at its recoverable amount within “Accrued income, prepaid expenses and other assets” in the consolidated balance sheet, with a matching entry recorded in equity or income, depending on the classifi cation of the assets to which the capital losses relate. The deferred participation asset relates essentially to Assurances Banque Populaire Vie and to the investment vehicles owned by the latter, which carry the bulk of life insurance for Natixis Assurances. A recoverability test was carried out on Natixis Assurances. In the absence of signifi cant allocated resources (outstandings under PERP plans represent less than 1% of the ABP Vie total), the test was carried out on the overall liabilities of the insurance fund.
The recoverability of the deferred participation amount depends on the intention and ability of an entity to achieve future returns on contracts. These are sensitive to: changes in equity and bond markets; ■
Analyzing the recoverability of the deferred participation asset involves: assessing the probability that the unrealized capital losses will ■
be realized at the reporting date, and as a result, indirectly assessing the entity’s ability to continue to hold the loss-making assets, based on estimated net infl ow and benefi t scenarios and a going concern assumption; a liability adequacy test carried out in accordance with IFRS 4. ■
Notes to the consolidated fi nancial statements feature). Stochastic economic scenarios are generated based on historical probability (equities, dividends, short and long-term interest rates, infl ation).
These tests and scenarios revealed the sensitivity of the recoverable amount of the deferred participation asset to: the surrender rates used, which have a signifi cant bearing on ■
and property markets indexes, etc.), which determine changes in competitive returns payable to policyholders, compared with the estimated future rate of return on the asset portfolio.
However, the average results obtained by the stochastic scenarios did not call into question the recoverability of the deferred participation asset, the net amount of which was €922 million.
Special purpose entities (SPEs) created to manage a specifi c operation or group of similar operations and substantially controlled by Natixis, even where there is no equity relationship, are fully consolidated if their contribution to the Group’s consolidated fi nancial statements is a material one. The main criteria for assessing the existence of control as defi ned by
SIC 12 are as follows: O ■ perations: the operations of the SPE are mostly conducted on behalf of Natixis which, directly or indirectly, has created the
SPE according to its specifi c business needs; D ■ ecision-making powers: Natixis has the right to control or obtain control of the SPE or its assets, including certain decision-making powers created after the formation of the
SPE’s operations; rights to a majority of any economic benefi ts distributed in the form of future net cash fl ows, earnings, net assets or other economic benefi ts or rights to majority residual interests; R ■ isks: Natixis retains substantially the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefi ts from its activities.
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements group. The holding company does not guarantee the fund and is not at risk in respect of the fund’s assets; any provision for profi t-sharing by the holding company only applies to a minor part of the fund’s gains. NGAM’s compensation as the fund manager is of a marginal nature in comparison with that provided to investors.
As of December 31, 2008, only the NBP Invest FCP investment ■
fund is consolidated since Natixis is its 100% shareholder and the fund is a material component with regard to Natixis’
Natixis entity holds any material interest in such funds. Natixis is not therefore subject to the majority of the risks and benefi ts associated with the funds, none of which is consolidated as of
Real estate funds are generally set up by NGAM, but NGAM may also act purely as the manager of a portfolio of real estate assets on the basis of a contract concluded with a third party. NGAM’s function is strictly defi ned by the management agreement which never provides it with effective control of the structure. The rate of commission does not allow it to benefi t from the major part of the cash fl ows generated by the portfolio. If provision has been made for an out performance commission it generally takes the form of a liquidation bonus, the major part of which accrues to the shareholders. The “majority of risks” and “majority of benefi ts” criteria are thus assessed on the basis of the Group’s shareholdings in such funds.
investment funds which provide support for euro or unit-linked insurance contracts.
receives a minimum guaranteed return plus a major share of the excesses generated by the insurance company’s main fund. Any shortfall between the fund’s return and the minimum guaranteed return is borne by the insurer which thus assumes the risks of the fund. The risk and benefi t criteria are met for such funds if the insurer’s shareholding is a majority one. At
Group’s consolidated fi nancial statements and have thus been consolidated: ABP Actions; ■
Notes to the consolidated fi nancial statements 4.2.3 – Credit insurance (Coface sub-group) SPEs
for losses in excess of a predefi ned contractual deductible termed the Aggregate First Loss. The guarantee provided by Coface Kredit under such contracts may be likened to a
In the framework of its private equity operations, the Natixis ■
range of Private Equity investment fund shareholdings which are not consolidated given that they represent marginal interests (generally of less than 1%) in the funds and thus do not meet any of SIC 12’s operations, decision-making powers, benefi ts and risks criteria.
4.2.5 – SPEs for Structured Finance “ New” CIB with the exception of financial engineering operations
is, its shareholding is generally a minority one. Auto-pilot mechanisms generally exist but have not been oriented for the benefi t of Natixis; Natixis merely acts as a lender; most credit facilities are ■
In consequence, none of these entities have been consolidated as of December 31, 2008.
SPEs may be used to hold securities on behalf of a client. ■
instrument (on the asset side of their balance sheet) into an equity instrument (on the liability side of their balance sheet)
December 31, 2008 given that its preference share issue was wholly redeemed during the period.
Natixis’ consolidated fi nancial statements. No such entity is therefore consolidated as of December 31, 2008.
The assets of these conduits, and the liabilities they issue, are rated by the rating agencies which constantly scrutinize the degree of match between the level of risk associated with each tranche sold and the rating attributed.
originator of the loans or securities held on the asset side of the ■
Given the segregation of risk and the aim of spreading credit risk for the benefi t of investors other than Natixis, securitization conduits do not generally require consolidation under IFRS: the associated operations have been principally undertaken ■
on behalf of third party investors so as to provide them with access to diversifi ed portfolios; a third party entity manages the assets to the extent required. ■
Notes to the consolidated fi nancial statements in comparison with the third party investors, Natixis never ■
exposed to the majority of the risks associated with the entities.
The review performed as of December 31, 2008 concluded that there was a requirement for consolidation of three securitization entities with portfolios comprising CDO and ABS securities backed by subprime mortgages.
The main changes in consolidation scope since January 1, 2008 have been as follows: 5.1 - Receivables Management
Acquisition of a 75% interest in Coface Finans A/S Denmark ■
Purchase of a 19.55% interest from the minority shareholders in ■
Sale of 25.9% of VR Factorem resulting in a change from ■
indexing purposes related to an ELN issue by NCM on behalf of a client.
(No. 2) Inc, Ixis CMNA (Australia) Funding (No. 1) Pty Ltd, Ixis
Creation of SAS Immobilière Natixis Bail (a subsidiary of OPCI ■
Sale of Fastnet House on March 31, 2008 to Crédit Agricole ■
services to issuers focused on institutional clients) and fund administration operations to CACEIS (Natixis’ percentage interest in CACEIS remaining unchanged at 50%).
Absorption of Caisse d’Epargne Ile de France Ouest et Nord ■
Creation of Natixis Altaïr IT Share Services by contribution of ■
part of the operations of Natixis Altaïr (cf. Note 1) followed by absorption of Natixis Altaïr by Natixis.
6.1 - Risk exposures in Natixis’ balance sheet as of December 31, 2008
Fair value as a percentage of the nominal amount 61% 70%
The exposures relate to the following asset portfolios: ABS CDO subprime portfolios ■
Nature of the tranche Supersenior Mezzanine Supersenior Supersenior Supersenior Supersenior Supersenior Supersenior
Nature of the underlyings Mezzanine Mezzanine Mezzanine High Grade High Grade High Grade Mezzanine Mezzanine
% (Mid-prime-->) Prime underlying assets 2.2% 11.2% 7.2% 4.4% 1.5% 2.4% 11.7% 2.8%
The gross nominal amount of ABS CDO subprime assets subject to monoline insurance amounted to €1,393 million as of December 31, 2008. Of these exposures, €581 million relate to ABS CDOs covered by CDSs contracted with CIFG and cancelled in the framework of the commutation agreement entered into with CIFG (cf. Note 6.3). These exposures are also presented in the table summarizing the protection obtained from monoline insurers included in Note 6.2.
Group have been valued using stress tests applied by the Risk
In addition, given the signifi cant deterioration in certain 2005 vintage assets and therefore, in the expected deterioration in their fi nal performance, the valuation model has been adapted as follows: integration of the current rating of collateral assets rated ■
agreement with CIFG (cf. Note 6.3): +€6 million of unrealized capital losses.
These are the US RMBS portfolios (subprime or other) held by
and most of the US RMBSs accounted for as “Assets at fair value through profi t and loss – trading” were reclassifi ed as
Without this reclassifi cation, the revaluation of the US RMBSs as of December 31, 2008 would have generated an unrealized capital loss of €44 million. Following the reclassifi cation, a €24 millions impairment loss for counterparty risk was recorded during the fourth quarter.
The US RMBSs may be broken down as follows by rating and by type of underlying as of December 31, 2008: Breakdown by rating
December 31, 2008 using a discounted cash fl ow method refl ecting the following parameters: expected rate of early repayment; ■
and AA and classifi ed as “Available-for-sale assets” and “Assets at fair value through profi t and loss – trading” were reclassifi ed as
OTHER RMBSS: €1.1 BILLION (INCLUDING NETHERLANDS 33%, ITALY 35% AND PORTUGAL 10%)
sector and for which the Group makes use of a valuation model
The valuation as of December 31, 2008 of the following assets, related to securitization transactions, for which no market prices could be identifi ed, was performed using valuation models: for non-residential US ABS CDOs, application of a scoring ■
model including criteria for differentiation of the level of risk associated with each individual structure; for CRE CDOs, application of a valuation model based on ■
Data as of 31.12.2008 Nominal amount Pre-value adjustment exposure Value adjustment
A further impairment loss was recognized against a particular credit enhancing transaction given the deterioration observed in the counterparty’s credit status. As of December 31, 2008 this impairment loss amounted to €83 million compared with an economic exposure of €539 million.
subject to further impairment losses given the deterioration in the ratings of these counterparties and the broadened spreads for the assets they guarantee. The method of calculation of impairment losses was thus reviewed during the second quarter of 2008 and maintained unchanged as of December 31, 2008. They have been calculated by assuming a standard rate of recovery of 10% of the unrealized capital losses on the underlying assets (this rate is justifi ed by the low capitalization of the monoline insurers given their risk exposures) and a probability of default refl ecting the credit enhancer’s credit risk. Additional credit losses of €1,329 million have thus been recognized during the period, making for a closing cumulative total of €1,528 million. An additional €162 million has also been provided against the monoline insurers, taking the cumulative total to €300 million.
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 6.3 - Commutation agreement in respect of CIFG
Following negotiations, on January 22, 2009 an agreement in principle was reached between CIFG, its two shareholders and
CIFG’s main counterparties including Natixis. The agreement provides for: the cancellation by the counterparties of all the CDSs, ■
insurance and fi nancial guarantees in their favor and in respect of ABS CDOs (without exception) and certain CRE CDO based transactions with the greatest loss potential for CIFG. These transactions represent a total nominal amount of €1,030 million for Natixis. The CDS guarantees for our benefi t were valued at €365 million as of December 31, 2008 and have been entirely provided against via a charge to “Net gains or losses on fi nancial instruments at fair value through profi t and loss”; in exchange, a balancing payment by CIFG to the counterparties ■
counterparties, of which $98.5 million for Natixis, the split between the counterparties of the essential part of ■
Natixis, as a shareholder of CIFG until the end of 2007, had prior to that date provided its subsidiary with a shareholder’s advance of $200 million of which: $98.5 million had been used at the time of transfer of Natixis’ ■
Banque Fédérale des Banques Populaires; $101.5 million had not been used. ■
Group’s consolidated fi nancial statements as of December 31, 2008; their total impact amounted to +€102 million.
The fi nancial crisis has led Natixis to reinforce the fi nancial support provided to certain non-consolidated SPEs principally used for securitization purposes. The support has taken the form: either of the subscription of securities issued by the SPEs (in the ■
case of the Elixir, Versailles and Direct Funding conduits); or, of the granting of credit facilities or cash. The total facilities ■
Each new intervention has been accompanied by reexamination of the SIC 12 criteria for consolidating the SPE, but it has never appeared appropriate to reconsolidate the entities concerned.
6.5 - Recognition of general provisions reflecting the deterioration of certain sectors directly affected by the financial crisis
During 2008, objective criteria were identifi ed for recognizing general provisions against certain new business sectors such as
In addition, the basis amount to be provided against has been adjusted for the non-investment grade fi nancial assets reclassifi ed under the October 13, 2008 amendment to IAS 39.
SIVs invest in highly rated medium- or long-term assets using signifi cant leverage in the form of commercial paper or mediumor long-term notes. As these issues are rated by the rating agencies, SIVs are required to comply with liquidity ratios and
Notes to the consolidated fi nancial statements 6.8 - Exposure in respect of Lehman Brothers
Price guarantees given to two OPCVM investment funds managed by NAM 44 (38.9)
to respect certain thresholds related to the value of their assets, if necessary by selling assets. As of December 31, 2008 and given the trend observed in the redemption values for the SIV
The Group’s net SIV investments amounted to €21 million as of 6.7 - Recognition of impairment losses against the portion of syndicated loans destined to be sold
As of December 31, 2008 the loans whose theoretical date of syndication was already past amounted to €857.4 million. These loans were individually reviewed in order to take into account any market discounts applicable as of the balance sheet date.
During September 2008, the following events had an impact for several Lehman Brothers Group entities: the bankruptcy under US law of Lehman Brothers Holdings ■
Inc. on September 15, 2008; the receivership of Lehman Brothers International Europe on ■
The positive amounts resulting from these cancellations were recorded as asset balances by Natixis in the “Loans and advances” category. The associated net risk exposure as of
Natixis recognized an additional €20.9 million provision for risk, equally charged to the cost of risk, in respect of the residual counterparty risk borne by the fund and guaranteed by Natixis at the fund’s maturity by reason of the capital and performance guarantees provided to the fund; held an outstanding amount of €77.5 million, as of ■
December 31, 2008. A €11.5 million impairment loss, net of deferred insurance profi t-sharing, was recognized against this amount by charging the cost of risk.
As of December 31, 2008 Natixis’ global exposure in respect of the Icelandic banks amounted to €174 million of which €145 million of loans and €29 million of derivatives.
the events of the fourth quarter of 2008 and the outlook for ■
The company was one of the main New York brokers. It also acted as an investment advisor and custodian on behalf of certain hedge funds (hereafter denoted the “Madoff Feeders”).
Natixis held no shares in those funds on its own behalf.
Nor is Natixis exposed to any risk of loss relating to its investment
Feeders as cover for securities purchased by its clients. The risk of loss arises because the securities issued by Natixis have the benefi t of leverage or of a guaranteed amount of capital upon maturity.
The risks inherent to the Madoff affair have been provided against in the amount of €375 million as of December 31, 2008.
6.11 - Impact of the valuation of the issuer’s spread on Natixis’ issues measured at fair value
(by option) at fair value through profi t and loss has had a positive impact of €633 million on the Group’s result for 2008 and a cumulative positive impact of €664 million as of December 31, 2008. These values have been determined by discounting the nominal amount of each issue on the basis of the net margin between the average contractual spread for the issue and the spread for a replacement Natixis issue with the same rating.
Prise de Participation de l’Etat (SPPE) which is authorized to subscribe to issues of subordinated securities eligible for inclusion in the equity of the issuing banks.
de Financement de l’Economie Française (SFEF) as security for its loans. The loans thus received by Natixis from Banque
in the amount of €835.6 million. The receivables provided as security have been maintained in Natixis’ consolidated balance sheet with their original classifi cation since the criteria for derecognition defi ned by IAS 39 do not apply. They are included in the “Loans and advances” line item of the table entitled “Financial assets provided as security” presented in
de Prise de Participation de l’Etat. Natixis’ two issues are classifi ed under IFRS, as defi ned by IAS 32 in accordance with
IFRIC’s position, as debt instruments given the existence of an obligation to reimburse the interest relating to a prior “linker”
issue of super-subordinated debt securities of the same rank for which the payment of interest is obligatory.
At initial recognition, fi nancial assets and liabilities are measured at fair value, corresponding to their acquisition price at that date.
Securities held for trading purposes are those acquired by Natixis principally to be sold in the near term and those forming part of a portfolio of fi nancial instruments that are managed together and for which there is evidence of a recent actual pattern of shortterm profi t taking.
Securities accounted for under the fair value option fall into one of the following three categories: hybrid instruments that contain one or more signifi cant and ■
separable embedded derivative features; instruments belonging to a group of fi nancial assets valued and ■
As stated in Note 3, Natixis has elected to use the option provided by IAS 28 and not to account for private equity investments between 20% and 50%-owned using the equity method if they are designated as “Financial assets at fair value through profi t and loss”. In accordance with the fair value option amendment, private equity investments less than 20%-owned are also recognized as “Financial assets at fair value through profi t and loss”, since managing and measuring these investments at fair value is a well-established practice within private equity companies.
These are non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturity that Natixis has the positive intention and ability to hold through to maturity, other than those that are designated on initial recognition as at fair value through profi t and loss (fair value option) or available-forsale, and those that meet the defi nition of loans and advances.
On initial recognition, loans and advances are measured at fair value plus transaction costs and less any discount and transaction revenues. In the case of loans, transaction costs include fees and any expenses directly attributable to setting up the loan.
The reserve to be recycled to the income statement in respect of instruments reclassifi ed from “Available-for-sale fi nancial assets” to “Loans and advances” remains fi xed at its level on the reclassifi cation date. The amounts in question are recycled to income using the effective interest rate method over the residual life of the assets, or immediately if the instrument has been impaired or sold since reclassifi cation.
Available-for-sale fi nancial assets are non-derivative fi nancial assets that are not classifi ed as loans and advances, held-tomaturity investments or fi nancial assets at fair value through profi t and loss. Assets in this category include Natixis’ investments in non-consolidated companies. On initial recognition, availablefor -sale fi nancial assets are measured at fair value including transaction costs. Subsequently, and at each reporting date, the assets are remeasured to fair value based on the bid price for listed instruments.
suggesting that the entity is unlikely to recover all or part of its initial investment. Securities presenting an unrealized capital loss of over 20% on their face value for a period of at least six months, or securities nearing this threshold that present a signifi cant discount are systematically tested for impairment.
The test involves a qualitative analysis considering a variety of factors such as share price performance over a given period or information relating to the issuer’s fi nancial position. Where necessary, an impairment loss is recognized based on the market price at the reporting date. Irrespective of the above, an impairment loss is systematically recognized when securities present an unrealized capital loss of over 30% on their face value for a period of at least six months; investments: unrealized capital losses of over 20% on their ■
face value for a period of more than 18 months, or signifi cant changes in the technological, market, economic or legal environment suggesting that the amount invested in the equity instrument may not be recoverable; shares in venture capital funds (FCPR): net asset value alone is ■
not enough to determine whether there is any evidence that the initial investment might not be recovered. This is because net asset value during the investment phase is reduced by startup costs (structuring and brokerage fees, etc.) Accordingly, for investments of this type which are not quoted on an active market, the following impairment principles apply: no impairment is recognized if, at the reporting date, the ■
If the fair value of an available-for-sale fi nancial asset increases during a subsequent period, and this increase can be objectively linked to an event occurring after the impairment loss was charged to income: reversals of impairment losses on equity instruments are ■
recorded in equity rather than in the income statement; reversals of impairment losses on debt instruments are ■
IAS 17 prescribing the accounting treatment for leases gives fi ve examples of situations where substantially all of the risks and rewards incidental to ownership are transferred to the lessee: the lease transfers ownership of the asset to the lessee by the ■
is expected to be suffi ciently below the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; the lease term is for the major part of the economic life of the ■
asset; at the inception of the lease, the present value of the minimum ■
with the cancellation are borne by the lessee; gains or losses from the change in the fair value of the residual ■
Upon the adoption of IFRS, Natixis analyzed the substance of its lease contracts in accordance with the provisions of IAS 17, which are more specifi c than French GAAP. This led to certain fi nance leases being reclassifi ed as operating leases.
receivable by the lessor and the unguaranteed residual value, to be equal to the sum of: (i) the fair value of the leased asset and (ii) any initial direct costs ■
IAS 17 requires unguaranteed residual value to be reviewed on a regular basis. If there has been a reduction in the estimated unguaranteed residual value, the income allocation over the lease term is revised (revised depreciation schedule) and any reduction in respect of amounts accrued is recognized immediately.
Finance income corresponding to interest is recognized in the income statement under “Interest and similar income”.
For consolidation purposes, property, plant and equipment used in the business and held under fi nance leases is restated and reported under “Property, plant and equipment” where material.
At the inception of the lease term, leased property, plant and equipment is recognized at the lower of fair value and the present value of minimum lease payments, with a corresponding entry under debt on the liabilities side of the balance sheet.
7.3 - Credit risk on assets classified as loans and advances a) Assets individually assessed for impairment
At each reporting date, Natixis reviews assets classifi ed as loans and advances to determine whether there is any objective evidence of impairment arising from one or more events occurring after initial recognition and having an impact on estimated future cash fl ows. This corresponds to loans identifi ed as doubtful or irrecoverable under French regulations (CRC regulation
Where a group of fi nancial assets is found to be impaired, the impairment loss is calculated based on the expected losses arising on each exposure within the group (excluding investment grade exposures), in accordance with the provisions of Basel II.
Derivatives held for trading purposes are recorded in the balance sheet under “Financial assets at fair value through profi t and loss”
After initial recognition, changes in fair value are recorded in the income statement under “Net gains or losses on fi nancial instruments at fair value through profi t and loss”. The interest accrued on such instruments is also recorded in this line at the same time as changes in value.
Derivatives separated from host contracts in this way are included in assets and liabilities at fair value through profi t and loss.
Retrospective hedge effectiveness tests are used to verify whether or not the hedge was effective at different reporting dates. At each such date, changes in the fair value of hedging instruments
(excluding accrued interest) are compared with changes in the fair value of the hypothetical derivatives (synthetic instruments representative of hedged assets or liabilities and management intentions). To be effective, changes in the fair value of hedging instruments must offset changes in the fair value of hedged items in a range of 80%-125%. Outside these limits, the hedge would no longer qualify for hedge accounting under IFRS.
European Union. The accounting treatment of derivative fi nancial instruments designated for accounting purposes as structural fair value hedges is similar to that applied to fair value hedging derivatives. Changes in the fair value of portfolios of hedged instruments are reported on a specifi c line of the balance sheet
(“Revaluation adjustments on portfolios hedged against interest rate risk”), with a corresponding entry in income.
The prospective hedge effectiveness test is used to ensure that the fi nancial characteristics of the hedged item and hedging instrument are essentially the same: (value date, maturity, notional amount, fi xed rate, payment frequency).
The retrospective hedge effectiveness test is used to verify whether or not the hedges were effective at different reporting dates.
Net investment hedges are used to hedge the exchange risk arising on investments made in dollars. They are accounted for in the same way as cash fl ow hedges. The effective portion of changes in the fair value of net investment hedges eligible for hedge accounting is recognized in equity, while the ineffective portion is recognized in income. Unrealized gains or losses recognized in equity are transferred to income when all or part of the net investment is sold.
A number of internal contracts involving derivatives used in hedge accounting exist between Natixis and its subsidiaries. To ensure that the transactions meet the hedge accounting criteria for consolidation purposes, Natixis regularly verifi es that they have been correctly hedged on the market.
Credit derivatives used by Natixis are not considered as fi nancial guarantees but as derivatives falling within the scope of IAS 39.
Non-monetary items denominated in foreign currencies and measured at fair value are translated at the exchange rates when fair value is estimated. When a gain or loss on a non-monetary item (e.g. available-for-sale fi nancial assets) is recognized directly in equity, any foreign exchange component of that gain or loss is also recognized directly in equity. When a gain or loss on a nonmonetary item (e.g. fi nancial assets at fair value through profi t and loss) is recognized directly in income, any foreign exchange component of that gain or loss is also recognized in income.
On subsequent reporting dates, fair value is estimated on the following basis: if the instrument is quoted on an active market, fair value is ■
is established using various valuation techniques. Valuation techniques may refer to observable data from recent transactions, the fair value of similar instruments, discounted cash fl ow analysis and option pricing models. The fair values obtained using these models may be adjusted, depending on the instruments concerned and associated risks, to take account of factors such as the bid-ask spread and modeling risk in the case of hybrid instruments.
These are securities and derivatives quoted on organized markets, such as futures and options, which are located in liquidity zones that can be demonstrated as such (active market).
All transactions in which Natixis is involved on listed markets are included in this category.
Most over-the-counter derivatives, swaps, forward rate agreements, caps, fl oors and plain vanilla options are traded in an active market. An active market is a liquid market in which trades occur regularly.
Under IAS 39, day one profi t should be recognized only if it is generated by a change in the factors that market participants would consider in setting a price, i.e. only if the model and parameters input into the valuation are observable.
Investment property, shown separately from other property, plant and equipment on the balance sheet, consists of properties held with the aim of generating rental income rather than for operating purposes.
Property, plant and equipment and investment properties are recorded at their purchase price at the acquisition date, including directly attributable costs (transfer duties, fees, commissions and registration expenses). Natixis does not include borrowing costs in the acquisition cost of its assets.
“Intangible assets” at its direct cost of development, which includes the related hardware costs, service costs and payroll costs directly attributable to the production and preparation of the software for use. Expenses incurred during the development phase are capitalized if they meet the criteria for recognition as intangible assets set out in IAS 38. These include technical feasibility, the intention to complete the asset and use or sell it, the probability that it will generate future economic benefi ts, the availability of resources, and the ability to measure reliably the expenditure attributable during the asset’s development. Costs incurred during the research phase are not capitalized but are recognized in expenses.
After initial recognition, assets are measured at cost less accumulated depreciation, amortization and impairment losses.
Fair value is obtained using a multi-criteria approach based on the capitalization of rents at the market rate and a comparison with market transactions.
Code, a fi ve-yearly appraisal is conducted by an independent expert approved by the French insurance regulator (ACAM).
Internally generated software is amortized over its estimated useful life, which may not exceed 15 years.
amortized but tested for impairment at least annually; components of the Coface portfolio, which are amortized over ■
the term of the contracts (eight to ten years for France).
The charge to depreciation or amortization is recognized in the consolidated income statement under the heading “Depreciation, amortization and impairment of property, plant and equipment and intangible assets”.
Assets are tested for impairment whenever there is objective evidence that they may be impaired and at least annually in the case of intangible assets with an indefi nite useful life. Natixis considers whether there is any evidence of impairment at each reporting date. When any such evidence exists, the recoverable amount of the individual asset is estimated wherever possible; otherwise the recoverable amount of the CGU to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use, which is the present value of future cash fl ows expected to be derived from continuing use of the asset or cash-generating unit. If the recoverable amount of the asset or CGU is lower than its carrying amount, an impairment loss is recognized in income under “Depreciation, amortization and impairment of property, plant and equipment and intangible assets”.
In the fi nancial statements at December 31, 2007, the CIFG subgroup was included in the income statement under “Discontinued operations or operations in the process of disposal” (see
Debt securities in issue are broken down into interbank market instruments, negotiable debt instruments and bonds. They do not include subordinated notes, which are included within subordinated debt and dealt with below.
If the Group has neither transferred the contractual rights nor retained substantially all of the risks and rewards, Natixis then determines whether it has transferred control of the asset. If control is considered to have been relinquished, the fi nancial asset is derecognized. If the Group retains control of the asset, it remains on the balance sheet to the extent of the Group’s continuing involvement.
Continuing involvement is evidenced by the existence of contractual conditions such as: an option or obligation to repurchase the assets transferred; ■
Securities sold are not derecognized. Natixis recognizes a liability representing the commitment to return funds received
(“Securities sold under repurchase agreements”). This fi nancial liability is recorded at amortized cost, not at fair value.
Securities bought are not recognized but a receivable due from the assignee is recorded representing the funds lent. The amount disbursed in respect of the asset is recognized under “Securities acquired under repurchase agreements” within “Loans and advances”.
Securities lending/borrowing transactions do not involve the transfer of a fi nancial asset within the meaning of IFRS.
category and measured accordingly. Borrowed securities are not recognized by the borrower.
The amount recognized as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. This amount is discounted when the effect of discounting is material. Provisions are reviewed at each balance sheet date and adjusted if necessary.
employees who will be compensated upon termination of their services, the expenditures that will be undertaken, and ■
the Group has raised a valid expectation in those affected that ■
in respect of retirees and early retirees; long service awards. ■
plus or minus any actuarial gains or losses arising from: ■
employee turnover rate and rate of future salary increases, differences between the actual return and expected return ■
The annual charge recognized in income for the period in respect of the Group’s obligation therefore corresponds to: incremental benefi t entitlements (service cost); ■
In accordance with IAS 32, issued fi nancial instruments are classifi ed as debt or equity depending on whether or not they incorporate a contractual obligation to deliver cash to the holder.
An analysis of the contractual agreements covering subordinated notes, super-subordinated notes and the three preferred share issues led to their classifi cation as debt, since one of the clauses in these agreements made payment of a coupon by Natixis obligatory.
Natixis grants stock options to certain of its employees. These ■
options are exercisable over a period of three years after a lock-up period of four years. As required by IFRS 2, stock options granted after November 7, 2002 which have not yet vested at the reporting date are stated at their fair value on the grant date using the Black & Scholes model. The fair value is expensed in payroll costs over the vesting period, with a corresponding entry in equity. The expense is revised at each reporting date and adjusted whenever subsequent information regarding the number of benefi ciaries alters the initial estimates of rights vested. The resulting adjustments affect the expense for the period and for subsequent periods.
These adjustments are aimed at safeguarding the rights of stock option holders: the reduction in the exercise price is intended to offset the ■
decline in value of the shares resulting from the detachment of the preferential subscription rights, the change in the number of shares underlying the options is ■
These two adjustments maintain the fair value of the sharebased payments within the meaning of IFRS 2 at the level it stood before detachment of the preferential subscription rights.
The changes in the plans resulting from the adjustments described above are detailed in Note 13.4; Natixis Global Asset Management share-based payments relate ■
Fair value is recognized under “Wages and salaries” over the vesting period, with a corresponding reduction in liabilities under
A plan set up in 2004 relates to investment certifi cates issued by Natixis Asset Management and Natixis Global Asset
Capital Management) in 2004. The vesting period under this plan was four years. All of the options under this plan were exercised in 2008.
Employees of Natixis (parent company) and Coface are entitled to participate in plans to purchase stock options at a discount.
These plans give rise to an expense recognized in payroll costs with a corresponding entry in equity when the plan is set up.
an entity in which 50% or more of the capital is directly or ■
employees are still with the Group, and start of the two-year lock-up period.
Shareholder Groups bear the cost of expenses incurred in setting up and running SAGA bonus share plans in proportion to the number of shares awarded to their employees (this basis is also used to determine the allocation of rebilled costs). The costs payable by each entity essentially represent the purchase cost of the shares.
Consequently, the income statement only includes within expenses the value of the benefi ts granted to Group employees.
In accordance with IFRS 2, the cost of the benefi ts was measured based on the share price at the grant date, less the present value of dividends to which employees were not entitled during the vesting period. The amount is recognized in payroll costs over the two-year vesting period.
In connection with the September 2008 rights issue, the preferential subscription rights attached to treasury shares owned by Natixis were sold. To safeguard the rights of benefi ciaries of the SAGA bonus share plan, on December 8, 2008 Natixis’
These involved awarding 33 additional Natixis shares on top of the 60 shares initially awarded. The additional shares awarded are subject to the same vesting conditions and lock-up period as the initial shares.
In accordance with IFRS 2, this new award increases the plan’s aggregate fair value. The fair value of the commitment corresponding to the 33 additional shares awarded to Natixis
This additional expense is recognized in payroll costs over the period remaining until the date the shares are effectively granted
The amount of the additional expense is calculated based on the share price at the grant date (December 8, 2008), taking into account the number of benefi ciaries and the proportion of those benefi ciaries that remained employed by the Group during the period.
All treasury shares held by Natixis are deducted from equity regardless of the purpose for which they are acquired/held.
In accordance with IAS 32, minority interests in the equity of dedicated mutual funds represent a fi nancial liability recognized under “Financial liabilities at fair value through profi t and loss”.
34.43%, and by foreign companies and branches at the local rate; deferred taxes arising from temporary differences between the ■
Financial guarantee commitments not classifi ed as derivatives are contracts requiring the issuer to make specifi c payments to repay the business guaranteed for a loss that it has actually suffered owing to the failure of a debtor to make the contractual installments due. The exercise of these rights is subject to the occurrence of an uncertain future event.
received. All fi nancial guarantees issued within the Natixis Group are entered into at market rates.
Subsequently, fi nancial guarantees are stated at the higher of: the amount initially recognized upon inception less, where ■
Natixis guarantees the capital and/or returns on shares in certain mutual funds. These guarantees are executed solely in the event that the net asset value of each of the shares in the fund at maturity date is lower than the guaranteed net asset value. Under
IFRS 7 requires disclosures in the notes to the fi nancial statements of the fair value of all fi nancial instruments carried at amortized cost, including loans. The following valuation methods are used to determine the fair value disclosed in the notes to the fi nancial statements: Loans classified as “Loans and advances” and amounts payable under finance leases
The majority of Natixis’ loans are variable-rate loans, and their fair value is determined on the basis of discounted future cash fl ows.
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements the contractual rate is adjusted according to the trend in market lending rates and in counterparty risk.
The fair value of instruments reclassifi ed in accordance with the amendment to IAS 39 and IFRS 7 published on October 13, 2008 dealing with the reclassifi cation of fi nancial assets, was calculated using the valuation models described in Note 6.1.
The fair value of investment property (excluding investment property held by insurance companies) is determined by reference to the capitalization of rents, a method widely used by real estate professionals. The capitalization rate applied to the property depends on a number of factors such as location, the quality and type of building, use, type of ownership, quality of lessees and characteristics of leases, interest rates and competition in the real estate market.
The main areas requiring use of estimates and assumptions are set out below: Financial instruments recorded at fair value
Unlisted equity instruments classifi ed as available-for-sale fi nancial assets primarily consist of investments in nonconsolidated companies. The fair value of unlisted nonconsolidated investments is obtained principally by using the P/E
Each item of goodwill is assigned to a CGU so that it may be tested for impairment. The tests performed by Natixis consist of comparing the carrying amount of the CGU (including goodwill)
with its value in use. Value in use is calculated by discounting free
When applied to long-term liabilities, these rates introduce uncertainty into the valuations.
Insurance technical reserves are calculated using estimates and assumptions that may lead to adjustments in amounts reported over the period: for personal risk insurance, claims reserves are calculated by ■
of claims reported but not settled at year-end. Besides this amount of claims payable, a provision is set aside for unknown claims, calculated on a statistical basis by reference to the fi nal amount of claims to be paid following settlement of risks and any debt recovery measures. Provisions for debt recovery procedures, representing estimates of expected recoveries, are calculated by applying a terminal recovery rate to all subscription periods not yet settled.
Net income/(loss) attributable to equity holders of the parent (in millions of euros ) (2,799) 1,101
Average number of ordinary shares issued and outstanding over the period 1,794,666,986 1,220,693,389
Average number of treasury shares issued and outstanding over the period 8,642,611 1,298,047
Average number of shares used to calculate diluted earnings/(loss) per share 1,791,784,463 1,224,841,727
Securities designated at fair value through profi t and loss 5,746 5,537 11,283 of which: private equity securities 14 1,685 1,699 8.1.1.2 Loans and advances designated at fair value ■
Exposure to credit risk is represented by the fair value of loans and advances designated at fair value through profi t and loss shown on the balance sheet. Purchases of credit derivatives covering exposure to credit risk for loans and advances are indicated for the amount of their fair value recognized on the balance sheet. Variations in fair value are calculated over the period and in aggregate from the date of initial recognition of the loan or receivable.
Variation in fair value of loans and advances attributable to credit risk
The use of the fair value option is considered to provide more pertinent information in two situations: in the absence of accounting match between economically ■
linked assets or liabilities. In particular, this is the case between an asset and a hedging derivative when the criteria for hedge accounting are not fulfi lled; in the presence of a portfolio of fi nancial assets and liabilities ■
Carrying amount of instruments designated at fair value through profi t and loss and included in a portfolio of fi nancial assets or liabilities managed and evaluated at fair value through profi t and loss
Difference between the carrying amount and the amount contractually due on maturity
linked assets or liabilities. In particular, this is the case between a liability and a hedging derivative when the criteria for hedge accounting are not fulfi lled since the use of the option then allows natural offset to occur between changes in fair value of the hedged item and those of the hedging instrument; in the presence of a portfolio of fi nancial assets and liabilities ■
managed and evaluated at fair value as part of a documented policy of asset and liability management.
Carrying amount of instruments designated at fair value through profi t and loss because of accounting imbalance with related instruments
Cash fl ow hedging is principally used by Natixis as a structural hedge of interest-rate risk. Fair value hedging is used to hedge changes in the fair value of fi xed income instruments individually and as a structural hedge of Natixis Capital Markets North
Available-for-sale assets are tested for impairment as of each publishable balance sheet date (so at a quarterly rhythm). When there is objective evidence of impairment and a reduction in fair value has previously been recognized in equity, the aggregate loss is transferred from equity and recognized in profi t and loss.
(1) The fall observed in the amount of fi xed income securities is mainly due to the €2.8 billion reclassifi cation of certain securities to loans and advances, as of October 1, 2008 and as provided for by the “Reclassifi cation of Financial Assets” amendment published by the IASB on October 13, 2008 (cf. Note 6.1 and Notes 8.6.1 to 8.6.4).
Impairment losses amounted to 54% of non-performing loans to banks at December 31, 2008 compared with 60% at
Notes to the consolidated fi nancial statements 8.4.1.1 Performing loans to banks ■
The rise observed in the amount of unlisted fi xed income securities is mainly due to the €11.6 billion reclassifi cation of certain securities as of October 1, 2008 and as provided for by the “Reclassifi cation of Financial Assets” amendment published by the IASB on October 13, 2008 (cf. Note 6.1 and Notes 8.6.1 to 8.6.4).
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 8.4.2.2 Lease financing ■
Impairment losses amounted to 72% of non-performing loans at December 31, 2008 compared with 34% at December 31, 2007.
Notes to the consolidated fi nancial statements 8.6 - Other information relating to financial assets 8.6.1 Reclassification of financial assets as provided for by the “Reclassification of Financial Assets” amendment to IAS 39 and IFRS 7 published on October 13, 2008
8.6.2 Change in fair value of the financial instruments reclassified during the period
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 8.6.3 Changes in fair value that would have been recognized if items had not been reclassified
Changes in fair value that would have been charged to profi t and loss in respect of assets previously classifi ed as at fair value through profi t and loss
Impairment that would have been charged to profi t and loss in respect of assets previously classifi ed as available for sale
Changes in fair value that would have been charged to recyclable equity in respect of assets previously classifi ed as available for sale
Assets held to maturity 8.6.4 Gains and losses of the period in respect of financial instruments reclassified
(in millions of euros ) Net banking income Cost of risk
Included below is the carrying amount: of securities and other items provided as security for liabilities; ■
Natixis does not hold any signifi cant amount of fi nancials assets received as security under terms allowing it to reuse the assets in the absence of any failure on the part of the owner of the guarantee.
Note 8.6.5, Natixis does not hold any assets the cash fl ows for which might have been transferred within the meaning defi ned by IAS 39 but without being (totally or partially) derecognized on the basis of Natixis having retained control of the assets or substantially all of the risks and rewards of ownership.
These restructured assets exist essentially at the level of the parent company Natixis in the amount of €36 million at the end of 2008 (€86 million at the end of 2007), Natixis Financements in the amount of €35 million at the end of 2008 (€29 million at the end of 2007) and the Group’s fi nance lease operations in the amount of €4 million at the end of 2008 (€14 million at the end of 2007).
Overdue assets are those in payment arrears (meaning installments of capital or interest not paid), but which have not yet been the subject of impairment.
For overdrafts, the arrears are counted from the date when the client is notifi ed and the amount indicated is the total overdraft.
For these instruments, profi t or loss cannot be established upon initial recognition. The margin shown upon initial booking must, in this situation, be deferred and spread over the spread over the lifetime of the instrument.
Financial assets designated at fair value through profi t and loss 36,996 36,996 28,059 8,937 1,780
column includes: the fair value of over the counter derivatives. For most of these ■
long-term maturities) valued using internal pricing models (in common use or not) applied to market parameters based on observable or non-observable data; securitization securities for which no market price was available ■
(1) The sources of deferred tax giving rise to deferred tax assets are given a positive sign, while those giving rise to deferred tax liabilities are shown with a negative sign.
Accrued interest 1 8.8.2 Accrued income and prepaid expenses and deferred income and accrued charges 8.8.2.1 Accrued income and prepaid expenses (excluding insurance) ■
Day one P&L sensitivity depends on the amortization period for transactions. The P&L impact for 2008 of reducing that period would be as follows: equity instruments: ■
Reduction in the amortization period for day one P&L P&L impact for 2008 (in millions of euros )
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 8.8.3 Insurance company items 8.8.3.1 Insurance company items – Assets ■
Deferred profi t-sharing – debit balances 925 8.8.3.2 Insurance company items – Liabilities ■
The table lists the assets obtained by taking possession of guarantees: the type and the carrying amount of the assets (securities, buildings, etc.) obtained and booked following use of guarantees or by mobilizing other forms of surety.
Natixis Real Estate Capital Inc. recovered property through mortgage loan guarantee foreclosure for an amount of €23 million in 2008
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 8.13 – Debt securities in issue
Debt securities in issue (interest-bearing notes, interbank market instruments, etc.) are broken down by nature, excluding subordinated debt which is recorded separately in a specifi c line item.
(calculated on an accrual basis) of premiums issued during the fi nancial year that relate to a period after the balance sheet date.
Life insurance reserves refl ect the payments received, plus investment income paid out to policyholders and less exit benefi ts. These reserves are topped up by the management reserve, which is intended to cover future management costs on life insurance contracts.
The reserves for deferred profi t-sharing represent the portion of investment income attributable to policyholders, but not yet paid out. These reserves are due to be paid out within eight years.
The change between 2007 and 2008 in the reserves for deferred profi t-sharing is attributable for about two thirds of its amount to the strong fall in the equity markets and for the remaining third, to the change in the credit spreads for debt instruments.
At December 31, 2008, given the very signifi cant fall in the markets, the shadow accounting mechanism resulted in the recognition of a €925.2 million deferred profi t-sharing asset
The Group’s opening non-life insurance reserves were reclassifi ed from mathematical reserves to other technical reserves (impact: €589 million).
Notes to the consolidated fi nancial statements 8.15 - Provisions and impairment 8.15.1 Summary
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 8.15.2 Provisions for risks and other costs
The “Restructuring” line item includes a €144 million provision for redundancies.
Subordinated debt differs from advances and bonds issued in that it will be repaid only after all the senior and unsecured creditors, but before the repayment of participating loans and securities and super-subordinated debt. It is valued at amortized cost.
(in millions of euros ) 01.01.2008 Issues (1) Redemptions (2) Conversion differences
This table does not include: Preference shares; or ■ Accrued interest. ■
(2) Repayments comprised: At maturity: ■ Natixis repaid the May 1998 and July 1998 tranches of the redeemable subordinated bonds issued in FRF to Banque Fédérale des Banques − Populaires (an amount of €1.5 million), Natixis Factor repaid a July 1997 tranche of redeemable subordinated bonds (an amount of €1.5 million).−
In advance: ■ CACEIS repaid €200 million of a December 2007 tranche of redeemable subordinated bonds (Group share: €50 million),− Natixis Cofi ciné repaid an April 1997 tranche of redeemable subordinated bonds (€0.8 million) and a December 1998 tranche (€0.8 million).−
IAS 39 establishes a hierarchy in the means of determining fair value: the best representation of fair value is the price quoted on an ■
active market. A market is considered as active if prices are easily and regularly available from a stock market, a broker, a negotiator, a price-evaluation service or a regulatory agency and these prices represent real transactions regularly occurring in the market; failing this, fair value must be determined using evaluation ■
Debt in the form of securities issued 34,606 34,606 34,606 34,606
comprise interest on fi xed-income securities recognized as available-for-sale fi nancial assets, and interest on loans and advances to and from banks and clients.
The method of accounting for fees and commissions received in respect of services or fi nancial instruments depends on the ultimate purpose of the services rendered and the method of accounting for the fi nancial instruments to which the service relates.
result in assets being held or invested on behalf of personal customers, pension schemes or other institutions. In particular, fi duciary transactions include the asset management and custodial activities performed on behalf of third parties.
Fees and commissions that form an integral part of the effective ■
Under EU IFRS, these fees and commission are recognized as interest income rather than fees and commission.
Hedging instruments include changes in the fair value of fair value hedges, including interest, plus the symmetrical revaluation of items hedged. They also include the ineffective portion of cash fl ow hedges.
(1) The “Net gain/(losses)s on fi nancial assets and liabilities held for trading” line item includes: the impairment of the CDSs entered into with monoline insurers, as described in Note 6.2 and amounting to €1.3 billion at December 31, 2008; ■ the valuation losses for subprime ABS CDOs amounting to €655 million at December 31, 2008; ■ the valuation losses for subprime RMBSs amounting to €330 million at December 31, 2008. ■
Impairment of fi xed income securities is charged to the cost of risk.
This line item also includes dividends received from variable income securities.
Notes to the consolidated fi nancial statements 9.5 - Other income and expenses
Net charge to/reversal of insurance companies’ technical reserves (128) (128) (1,764) (1,764)
Other insurance income and expenses 9.5.2 4,491 (3,045) 1,446 5,590 (3,759) 1,831
Gains or losses on sale 1 (7) (6) 20 (131) (111)
Other related income and expenses 138 (99) 39 130 (99) 31 9.5.2 Other insurance income and expenses
Notes to the consolidated fi nancial statements 9.7 - Cost of risk
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 9.9 - Gains or losses on other assets
The net capital gain for 2008 on the disposal of investments in consolidated companies includes the €105 million gain arising on the contribution by Natixis to CACEIS of its custodial operation and shares in Natixis Investor Servicing (NIS).
= Consolidated taxable income/(loss) (4,361) 87 x Standard tax rate 33.33% 33.33%
The Group’s segment analysis refl ects a two-dimensional approach: a primary reporting level based on business segments; ■
Segments are identifi ed on the basis of Natixis’ organizational structure and its internal reporting to the Executive Board and
CIB business. The CIB division thus henceforth comprises two business segments: the “ New” CIB and CIB-GAPC.
relationship in France and internationally and arranges standard fi nance and cash fl ow products as well as advising on mergers and acquisitions; Financing products: combines structured fi nance, ■
of dedicated resources allowing them to accompany each business line in its international development.
Banques Populaires, supplemented by Natixis clientele. They span advisory services, portfolio management and mutual fund investment management.
This division groups together a number of service businesses dedicated primarily to the Caisses d’Epargne and Banques
Populaires networks, and to the other Natixis business lines: securities – securities back-offi ce services: custody (account ■
assist companies with their employee benefi ts planning), marketing and management of employee savings accounts, fund administration and accounting; collective life insurance, service vouchers; specialized fi nance: comprises both fi nance leasing (taken over ■
Natixis Garanties. The main services it provides are: guarantees for mortgage loans granted by the Caisses d’Epargne network to personal and small business customers, legal guarantees and fi nancial bail bonds; CONTENTS< >
France. This was followed by the creation of the Coface holding company, which now houses all subsidiaries of the business line within a single legal entity. The business includes trade receivables management and offers customers tailored products to manage, protect and fi nance their receivables.
Its main activities are: credit insurance, business information and ratings (solvency and marketing), receivables management (from issuance through to collection), factoring, and management of public procedures on behalf of the French State.
Global Asset Management. They cover all asset categories and are carried out mainly in the United States and in France. These activities are performed by autonomous entities (specialized management companies and specialized distribution units) coordinated by a holding company that ensures the organization’s consistency by overseeing its strategic direction.
Together, these specialized management companies enable the Group to provide a full range of expertise meeting demand from all the various customer segments. Coverage of the various customer segments is optimized by the organization of distribution around the Advisors/Global Associates platform and the business franchises developed over the long term by the management companies, mainly with group clientele. The management companies continue to handle distribution via the
Natixis integrates these operations via its 20% ownership of the Banques Populaires’ and Caisses d’Epargne’s retail banking networks and via the business lines distributed by the networks. Both shareholder groups’ networks hold distinct yet complementary market positions. The Caisses d’Epargne banks have a strong presence in the personal and small-business customer segment, offering a full spectrum of products and services. They also boast robust local roots and are prime movers in regional development, offering local authorities, social housing organizations and businesses an extensive range of products and services. The Banque Populaire network focuses on small businesses, small and medium-sized businesses and personal customers.
Other operations not covered by these six core businesses are grouped under “Other businesses”, a category primarily comprising the functional departments (IT, human resources, fi nance and internal audit).
This analysis refl ects the main regions in which Natixis operates, of which France is the largest market.
The information on risk management required under IFRS 7 and IFRS 4 is presented in the management report, Chapter V “Risk
As a lending institution, Natixis is subject to banking regulations and to supervision by the French Banking Commission. This control is exercised on a consolidated basis and its purpose is to set a number of rules guaranteeing the bank’s capital adequacy, liquidity and fi nancial equilibrium. The main means used to achieve these objectives are a quantitative mechanism consisting of ratios governing capital adequacy, control of large exposures and liquidity, accompanied by a qualitative mechanism based on internal control requirements.
The capital adequacy ratio encompasses credit risk, market risk and operating risk. This ratio measures the adequacy of regulatory capital in relation to risk. The numerator represents the bank’s consolidated regulatory capital, calculated in accordance with CRBF regulation 90-02. The denominator represents all of the bank’s weighted credit, market and operating risks. Natixis complied with the 8% minimum level at December 31, 2008.
The liquidity ratio compares liquid assets with a maturity of less than one month with liabilities falling due within the same period.
Natixis complied with the 100% requirement during fi nancial year 2008. Management of liquidity risk has been adapted to the context of the fi nancial crisis, resulting in adoption of the specifi c measures described in Note 5.5 to the management report.
NOTE 13 PAYROLL COSTS, NUMBER OF EMPLOYEES, COMPENSATION AND EMPLOYEE BENEFITS
The annual charge for defi ned benefi t plans comprises: additional entitlements vested with all employees; ■
Group and a residual supplementary banking pension calculated on the basis of the difference between banking entitlement at
The former Crédit National funds disclosed a slight defi cit in 2007 but have been adversely affected by the economic situation prevailing in 2008. The fall in value of the plan assets, in conjunction with a reduction in the discount rate, have increased the total plan obligation at December 31, 2008. However the portion of the actuarial losses exceeding the corridor is not material (about €4 million) and will be spread over the remaining benefi t vesting period.
conditions under which employees may be retired between the ages of 65 and 69. Henceforth, and as provided for by law dated December 30, 2008, an employee retired between the ages of 65 and 69 must be consulted in writing as to his or her voluntary intention of ceasing employment. An employee wishing to continue to work beyond the age of 65 will be able to do so until the age of 70, when the employer will once again be able to retire him or her unilaterally.
Modernization Act dated June 25, 2008 and the related implementing decree dated July 18, 2008, has increased the amount of compensation payable in law for termination of employees, with effect from one year’s complete service, to 1/5th of a month’s salary per year of employment plus 2/5th with effect from the 10th year of employment.
This measure has increased the corresponding benefi t obligation by €16.8 million. As it is considered under IAS 19 as a plan amendment, the impact of this measure will be charged to profi t and loss over the remaining vesting period estimated at 12 years.
During 2008, the following changes took place as regards the benefi ciaries of Natixis’ benefi t plans: former Ixis CIB employees were reclassifi ed with effect from ■
plan with effect from July 1, 2008 following the absorption of this entity.
With effect from these dates, the employees concerned come under the Natixis arrangements for end-of-career awards, healthcare benefi t and long service awards.
These various restructuring measures have increased the Group’s overall benefi t obligation by about €6 million. This amount will be accounted for under IAS 19 as a plan amendment, i.e. by charging it to profi t and loss over the remaining vesting period.
In September 2008, Natixis implemented a redundancy plan providing for the suppression of 840 jobs. As the employees concerned will not fi nish their careers with Natixis, this measure will reduce the amount of the Group’s end-of-career award, healthcare benefi t and long service award obligations.
The applicable benefi t obligation for employees aged over 55 included in the redundancy plan has been provided for as part of the overall provision for the redundancy plan (cf. Note 8.15.2 and Note 9.6).
Discount rate and return on plan assets at December 31, 2008
(in millions of euros ) Supplementary pensions End-of-career awards Long service awards Other benefi ts Total
Benefi ts paid over the period (9) (10) (3) (3) (25)
Benefi ts vested over the period 2 8 4 3 16
Change taken to profi t and loss (14) (20) 1 4 (29)
Changes in the discount rate and expected infl ation have also contributed to increasing the overall benefi t obligation.
CHANGE IN THE FAIR VALUE OF ASSETS HELD TO FUND POST-EMPLOYMENT BENEFITS GRANTED TO EMPLOYEES
(in millions of euros ) Supplementary pensions End-of-career awards Other benefi ts Total 31.12.2008
At December 31, 2008 the plan assets for Natixis’ postemployment benefi t plans comprised 67% of bonds, 27.7% of shares, 4.8% of monetary assets, 0.4% of real estate assets and 0.1% of other assets.
Experience adjustments refl ect the effects of differences between previous actuarial assumptions and what has actually occurred.
Board decided to modify the option exercise criteria and number of shares subject to option. The adjustments were made in order to preserve the rights of the holders of share subscription options: the reduction in the exercise price is intended to compensate ■
As a result, there has been no change to the fair value and other accounting recognized under IFRS 2.
No options were granted in 2006 2004 Plan 2005 Plan 2007 Plan 2008 Plan
Valuation method Black & Scholes Black & Scholes Black & Scholes Black & Scholes
On the allocation date, each employee was entitled to receive 60 shares within two years subject to conditions of presence.
At the time of the share capital increase of September 2008, the preferential subscription rights attached to Natixis’ treasury shares were sold in the market. In order to preserve the rights of the holders of the free shares, at its meeting of December 8, 2008 Natixis’ Executive Board decided to adjust the bonus allocation by allocating an additional 33 shares to each employee benefi ting from the original allocation of 60 shares. The new allocation is subject to the same conditions of acquisition and conservation as the original allocation.
Under IFRS 2, the new allocation increases the fair value of the allocation as a whole. The fair value attributable to the supplementary allocation of 33 shares will be charged to payroll costs over the remaining period till the date of vesting (i.e.
The amount of the additional charge will be based on the share price at the date of allocation (i.e. December 8, 2008), the number of benefi ciaries at that date and their rate of continued presence during the subsequent period.
Net expense/net income on stock option plans for other unlisted Group companies 657 (180)
Available-for-sale fi nancial assets 7,834 311 204 20,860 1,105 597 30,911
Loans and advances to banks 58,320 139 411 2,923 191 3,588 65,573
The key fi gures shown above are broken down by the seven business described in Note 10: Retail banking [1] encompasses Banque Populaire and Caisse ■
d’Epargne activities, which are integrated by Natixis through its 20% shareholding; new CIB [2] houses the target CIB division business. CIB ■
houses the capital markets and fi nancing business targeting major customers; CIB – WPM [2] manages the winding down of the portfolios of ■
Privée Saint-Dominique, Compagnie 1818-Banquiers Privés and Natixis Private Banking Luxembourg); Services [5] houses the following activities: Securities ■
and credit management services provided by Coface plus the factoring businesses of Natixis Factor and VR Factorem; other businesses [7] house Natixis activities that are not strictly ■
French State. General operating expenses refl ect overhead not allocated to the individual business lines. Other Businesses also include certain consolidation adjustments that cannot be assigned to business segments.
Share in income from equity method affi liates 463 10 10 1 484
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT (1,562) (732) (513) (30) 37 (2,799)
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 14.2.2 Balance sheet
Loans and advances to banks 53,819 8,700 1,389 75 1,590 65,573
A fi nancial guarantee is a contract that requires the issuer to reimburse the holder of the contract for a loss that the holder incurs because a debtor fails to make payment when due. The exercise of these rights is contingent on the occurrence of an uncertain future event.
IAS recognizes three types of fi nancial guarantees: guarantees extended (received) upon the exit (entry) of fi nancial ■
The amounts shown represent the nominal value of the commitment undertaken.
To banks 4,674 2,854 - Confi rmation of documentary credits 1,042 1,496
Guarantee commitments received from banks 8,373 39,066 15.2 - Financing commitments
will be confi rmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; or a present obligation arising as a result of past events but that is ■
economic benefi ts will be required to settle the obligation, or the amount of the obligation cannot be measured reliably. ■
To customers 46,680 53,242 - Other confi rmed lines of credit 38,228 43,603
Natixis Group also extended liquidity lines to several funds arranged by third parties (Landale, LMA SA, Thesee, Eureka,
As of December 31, 2008, none of these vehicles was consolidated as the Group does not have control and because it is not exposed to most of the risks and benefi ts related to the securitized assets.
Assets and liabilities without a maturity date, such as receivables and related payables, ordinary accounts and receivables due and payable immediately are shown in the column “less than one month”.
Financial assets at fair value through profi t and loss 14,127 1,851 7,538 7,190 13,714 26,271 28,530 99,220
Present value of minimum lease payments receivable 1,441 4,376 1,683 7,500
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 16.2.2 Leasing as lessee
Cash and balances with central banks and post offi ces 3,937 1,186
Net income – Group share for 20% shareholdings in the CCI’s 205 184
(2) Total gross compensation paid to members of Natixis’ Executive Committee during their term of offi ce during the period, including members of the Executive Board. Number of members of the Executive Board: 17 in 2008, 14 in 2007.
Total gross compensation paid to executive offi cers was as follows: Mr. Philippe Dupont, Executive Chairman of Natixis 350,000 350,000
The number of stock options awarded to offi cers of the issuing company and related companies were as follows: Number of options awarded 31.12.2008 31.12.2007 (a)
Upon its closing the plan was closed to any new benefi ciaries.
Mr. Philippe Dupont is eligible for this plan based on his service at
BFBP and he is therefore not eligible for his service at Natixis.
Mr. Jean-Pascal Beaufret will not be a benefi ciary of this plan because he departed prior to serving the required 7 years.
The members of the Supervisory Board at their December 18, 2008 meeting, having taken note of the AFEP-MEDEF
recommendations on several payments for executive offi cers, noted for the record that the members of the Executive Board
The insurance industry companies within Natixis’ scope of consolidation are: Coface and its subsidiaries (credit insurance, business information and debt management services), Natixis
The following table shows a reconciliation between the fi nancial statements of the insurance companies and how these fi nancial statements translate into fi nancial statements in the banking format.
At net banking income level, in the interest of consistency, insurance income and expenses that are similar to banking income and expenses (principally interest and fees and commissions)
Balance sheet reclassifi cations were immaterial. Most of the balance sheet line items specifi c to insurance companies are shown under “insurance company investments” on the asset side and under “insurance companies’ technical reserves” on the liabilities side. Receivables and related payables, shown under accrued income, prepaid expenses and other assets or deferred income, accrued charges and other liabilities in the insurance format are reclassifi ed on the same lines as the principal in the banking format.
Other current operating income and expenses (313) 71 (384) (313) (313)
Net gains or losses on fi nancial instruments at fair value through profi t and loss (1,399) (313)
Depreciation, amortization and impairment of property, plant and equipment and intangible assets (8) (18)
Amount excl. VAT % Amount excl. VAT % Amount excl. VAT %
The alternate Statutory Auditors are: BEAS, 7-9, Villa Houssay – 92200 Neuilly-sur-Seine; ■
The bank’s fi nancial statements are audited by three independent accounting fi rms. The terms of Deloitte & Associés and Salustro
GARBO INVEST (1) Investment company FC 100 100 100 100 Luxembourg
Issuance of negotiable debt securities FC 100 100 100 100 United States
NATIXIS FINANCE Merger and acquisition advisory services FC 100 100 100 100 France
EDF INVESTISSEMENT GROUPE (32) Investment company PC 15 15 33 33 Belgium
NATIXIS MALTA INVESTMENTS LIMITED Holding company FC 100 100 100 100 Malta
NATIXIS CAPITAL MARKETS Inc Other fi nancial company FC 100 100 100 100 United States
NATIXIS NORTH AMERICA Inc. Brokerage FC 100 100 100 100 United States
Financing on secondary market FC 100 100 100 100 United States
Other fi nance company FC 100 100 100 100 United States
IXIS MANZANO SPECIAL MEMBER LLC (1) (8) Property fi nancing 0 0 100 100 United States
PLAZA SQUARE APPARTMENTS OWNERS LLC (1) Property fi nancing FC 100 100 100 100 United States
PLAZA/TRINITY LLC (1) Property fi nancing FC 100 100 100 100 United States 11 WET DIVISION LLC (1) (8) Property fi nancing 0 0 100 100 United States
NEXGEN CAPITAL Ltd Investment company FC 100 100 100 100 Ireland
NATIXIS CORPORATE SOLUTIONS Ltd Investment company FC 100 100 100 100 Ireland
FCPR IXEN III (1) (2) Buy-in/buy-out fi nancing FC 99 99 0 0 France
MERCOSUL International investment fund FC 100 94 100 95 Great Britain
NATEXIS INDUSTRIE FCPR Buy-in/buy-out fi nancing FC 89 78 89 80 France
NATIXIS PRIVATE EQUITY INTERNATIONAL Capital-investment FC 100 100 100 21 France
LA COMPAGNIE 1818 - IMMOBILIER (36) Real estate operations FC 100 98 100 74 France
MANTRA GESTION (36) Mutual fund management company EM 34 33 34 25 France
AEW GLOBAL ADVISORS (Asia) Ltd Asset Management FC 89 89 89 89 Singapore
AEW GLOBAL ADVISORS (EUROPE) Ltd Asset Management FC 89 89 89 89 Great Britain
AEW MANAGEMENT AND ADVISORS, LP Asset Management FC 89 89 89 89 United States
AEW PARTNERS III, Inc. Asset Management FC 89 89 89 89 United States
AEW PARTNERS V, Inc. Asset Management FC 89 89 89 89 United States
AEW TSF, Inc. (7) Asset Management 0 0 89 89 United States
AEW VIF INVESTORS, Inc. Asset Management FC 89 89 89 89 United States
ALPHASIMPLEX GROUP LLC Asset Management FC 89 89 89 89 United States
ALTERNATIVE STRATEGIES GROUP LLC Asset Management FC 89 89 89 89 United States
ASG QUASAR FUND (1) (2) Asset Management FC 89 89 0 0 United States
CASPIAN CAPITAL MANAGEMENT, LLC Asset Management FC 51 45 51 45 United States
CGW GESTION D’ACTIFS Asset Management EM 33 18 33 18 France
CREA WESTERN INVESTORS I, Inc. Asset Management FC 89 89 89 89 United States
CURZON GLOBAL ADVISORY Ltd Asset Management FC 89 53 89 53 Great Britain
CURZON GLOBAL CC Ltd Asset Management FC 89 53 89 53 Great Britain
CURZON GLOBAL UK Ltd Asset Management FC 89 53 89 53 Great Britain
EPI SLP LLC (1) Asset Management FC 89 53 89 53 Great Britain
HANSBERGER GROUP, Inc. Asset Management FC 88 88 88 88 United States
HANSBERGER GLOBAL INVESTOR, Inc. Asset Management FC 89 89 89 89 United States
HARRIS ALTERNATIVES HOLDING Inc. Holding company FC 89 89 89 89 United States
HARRIS ASSOCIATES, Inc. Asset Management FC 89 89 89 89 United States
IXIS AEW EUROPE SA Asset Management FC 60 53 60 53 France
IXIS AEW LUXEMBOURG Asset Management FC 89 53 89 53 Luxembourg
NATIXIS ASSET MANAGEMENT ADVISERS, LP Distribution FC 89 89 89 89 United States
ABSOLUTE ASIA AM Asset Management FC 89 89 89 89 Singapore
NATIXIS DISTRIBUTION CORPORATION Distribution FC 89 89 89 89 United States
NATIXIS ASSET MANAGEMENT JAPAN CO., Ltd Asset Management FC 89 89 89 89 Japan
NATIXIS INVESTMENT SERVICES JAPAN, Ltd Distribution FC 89 89 89 89 Japan
LOOMIS SAYLES ALPHA, LLC (1) (2) Asset Management FC 89 89 0 0 United States
LOOMIS SAYLES & COMPANY, Inc. Asset Management FC 89 89 89 89 United States
LOOMIS SAYLES & COMPANY, LP Asset Management FC 89 89 89 89 United States
LOOMIS SAYLES CONSUMER DISCRETIONARY GP LLC (7) Asset Management FC 0 0 89 89 United States
LOOMIS SAYLES CONSUMER DISCRETIONARY LP (7) Asset Management FC 0 0 89 89 United States
LOOMIS SAYLES DISTRIBUTORS, Inc. Distribution FC 89 89 89 89 United States
LOOMIS SAYLES ENERGY, LLC (1) Asset Management FC 89 89 89 89 United States
LOOMIS SAYLES FUTURES, LLC Asset Management FC 89 89 89 89 United States
MC MANAGEMENT, Inc. Holding company FC 89 89 89 89 United States
NATIXIS LOOMIS SAYLES GLOBAL GROWTH FUND (1) (2) Asset Management FC 89 89 0 0 United States
NATIXIS ASSET MANAGEMENT PARTICIPATIONS 1 Holding company FC 89 89 89 89 France
NATIXIS ASSET MANAGEMENT PARTICIPATIONS 2 Holding company FC 89 89 89 89 France
NATIXIS GLOBAL ASSET MANAGEMENT CORPORATION Holding company FC 89 89 89 89 United States
NATIXIS GLOBAL ASSET MANAGEMENT HOLDINGS, LLC Holding company FC 89 89 89 89 United States
NATIXIS GLOBAL ASSET MANAGEMENT, LLC Holding company FC 89 89 89 89 United States
NATIXIS GLOBAL ASSOCIATES GERMANY Distribution FC 89 89 89 89 Germany
NATIXIS GLOBAL ASSOCIATES LUXEMBOURG Distribution FC 89 89 89 89 Luxembourg
NATIXIS GLOBAL ASSOCIATES, Inc. Distribution FC 89 89 89 89 United States
NATIXIS GLOBAL ASSOCIATES SWITZERLAND (2) Asset Management FC 89 89 0 0 Switzerland
NATIXIS CASPIAN PRIVATE EQUITY (2) Asset Management EM 40 35 0 0 United States
REICH & TANG ASSET MANAGEMENT, LLC Asset Management FC 89 89 89 89 United States
REICH & TANG DISTRIBUTORS, Inc. Distribution FC 89 89 89 89 United States
REICH & TANG SERVICES, Inc. Asset Management FC 89 89 89 89 United States
VAUGHAN NELSON INVESTMENT MANAGEMENT, Inc. Asset Management FC 89 89 89 89 United States
VAUGHAN NELSON TRUST COMPANY Asset Management FC 89 89 89 89 United States
VAUGHAN NELSON VALUE OPPORTUNITIES FUND (1) (2) Asset Management FC 89 89 0 0 United States
WESTPEAK SMALL CAP GROWTH FUND (1) (7) Asset Management 0 0 89 89 United States
COFACE HOLDING SAS Holding company FC 100 100 100 100 France
COFACE SA Credit insurance and related services FC 100 100 100 100 France
COFACE POLAND FACTORING (2) Factoring FC 100 100 0 0 Poland
COFACE SERVICES AUSTRIA Receivables management data FC 100 100 100 100 Austria
COFACE SERVICES NORTH AMERICA GROUP Holding company FC 100 100 100 100 United States
COFACE UK SERVICES Ltd Receivables management data FC 100 100 100 100 Great Britain
COFOBLIG Insurance investment mutual fund FC 100 100 100 100 France
GRAYDON HOLDING Receivables management data EM 28 28 28 28 Netherlands
GROUPE COFACE CENTRAL EUROPE HOLDING Holding company FC 75 75 75 75 Austria
NATIXIS FACTOR Portugal (2) Factoring FC 100 100 0 0 Portugal
VR FACTOREM GMBH (33) Factoring PC 25 25 51 51 Germany
COFACE SVERIGE (formerly AKC NORDEN) - SUCC (COFACE KREDIT) Insurance FC 100 100 100 100 Germany
COFACE BELGIUM - SUCC (COFACE SA) Insurance FC 100 100 100 100 Belgium
COFACE PORTUGAL - SUCC (COFACE SA) Insurance FC 100 100 100 100 Portugal
COFACE IBERICA -SUCC (COFACE SA) Insurance FC 100 100 100 100 Spain
KOMPASS ESPAGNE - SUCC (KOMPASS FRANCE) Data and advertising FC 100 100 100 100 Spain
COFACE SWITZERLAND - SUCC (COFACE SA) Insurance FC 100 100 100 100 Switzerland
COFACE LATVIA INSURANCE -SUCC (COFACE AUSTRIA) (2) Insurance FC 100 100 0 0 Latvia
COFACE SINGAPOR -SUCC (COFACE SA) Insurance FC 100 100 100 100 Singapore
COFACE HONG KONG -SUCC (COFACE SA) Insurance FC 100 100 100 100 Hong Kong
COFACE ECUADOR (SUCCCOFACE SA) (2) Insurance FC 100 100 0 0 Ecuador
COFACE TAIWAN (SUCCCOFACE SA) (2) Insurance FC 100 100 0 0 Taiwan
NATIXIS CONSUMER FINANCE IT (formerly Natixis Consumer Finance) Consumer loans FC 100 100 100 100 France
FRUCTIBAIL INVEST (1) Financial leasing FC 100 100 100 100 France
NATIXIS LEASE MILAN Equipment and property leasing FC 100 100 100 100 Italy
OPCI NATIXIS LEASE INVESTMENT (1) (2) Real estate funds FC 100 100 0 0 France
SAS IMMOBILIÈRE NATIXIS BAIL (1) (2) Financial leasing FC 100 100 0 0 France
NATIXIS PRAMEX INTERNATIONAL Holding company FC 99 99 99 99 France
Promotion and international trade operations FC 100 99 100 99 United States
BROOKE SECURITIES Inc. (38) Funds Administration 0 0 50 50 United States
Institutional safekeeping – Mutual fund depositary bank PC 50 50 50 50 France
Institutional safekeeping – Mutual fund depositary bank PC 50 50 50 50 Luxembourg
CACEIS BANK DEUTSCHLAND Securities holding PC 50 50 50 50 Germany
CACEIS CORPORATE TRUST Issuer services PC 50 50 50 50 France
OLYMPIA CAPITAL Inc. (38) Funds Administration 0 0 50 50 United States
OLYMPIA CAPITAL ASSOCIATES, LP (38) Funds Administration 0 0 50 50 United States
CACEIS CANADA Ltd (formerly Olympia Capital Financial Services Inc.) * Funds Administration PC 50 50 50 50 Canada
OLYMPIA CAPITAL IRELAND Ltd Funds Administration PC 50 50 50 50 Ireland
PARTINVEST SA Real estate operations PC 50 50 50 50 Luxembourg
THE FASTNET HOUSE (6) Real estate operations 0 0 50 50 Luxembourg
WINCHESTER FIDUCIARY SERVICES Ltd Funds Administration PC 50 50 50 50 Bermuda
NATIXIS FUNDING USA LLC Refi nancing activity FC 100 100 100 100 United States
NATIXIS ALTAÏR IT SHARE SERVICES (2) Data services FC 100 100 0 0 France
BERCY GESTION FINANCE Financier institution/ extension of activity EM 20 20 20 20 France
COFEG Financier institution/ extension of activity EM 20 20 20 20 France
ESFIN Financier institution/ extension of activity EM 8 8 8 8 France
GIE USC Non-fi nancial institution/other EM 20 20 20 20 France
PARNASSE FINANCES Financier institution/ extension of activity EM 20 20 20 20 France
Financier institution/ extension of activity EM 20 20 20 20 France
SCI FAIDHERBE Non-fi nancial/real estate company EM 20 20 20 20 France
SCI SAINT-DENIS Non-fi nancial/real estate company EM 20 20 20 20 France
CAISSE D’EPARGNE ÎLE DE FRANCE (formerly Caisse d’épargne Île-de-France Paris) * (18)
Financial and lending institution EM 20 20 20 20 France * Registered company name change.
(9) Merger – absorption by Kompass International. (10) Merger with Natixis as of January 1, 2008.
(11) Deconsolidated after disposal of the building as of April 1, 2008. (12) Merger into the CACEIS tier as of 30.06.2008. (13) Disposal as of June 30, 2008. (14) Liquidation in fi rst quarter 2008.
(31) Deconsolidated as of 30.09.2008 after liquidation of its assets. (32) 18.33% earnings-per-share increase effect related to a capital increase subscribed exclusively by EDF. (33) Disposal of 25.9% of the VRFactorem shares with change in consolidation method from PC to EM. (34) Disposal of Percipio shares.
In accordance with our appointment as Statutory Auditors at the General Shareholders’ Meeting, we hereby present our report for the year ended December 31, 2008, on: our audit of the accompanying consolidated fi nancial statements of Natixis; ■
We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated fi nancial statements are free of material misstatement. An audit includes examining, on a test basis or using other sampling techniques, evidence supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and signifi cant estimates made by management, as well as evaluating the overall fi nancial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
Without qualifying our opinion, we draw your attention to the change in accounting policy in accordance with the amendment to
“Basis of presentation’, Note 6.1 “Risk exposure in Natixis’ balance sheet as of December 31, 2008”, and Note 7 “Signifi cant accounting policies”.
As indicated in Notes 7.6 and 7.22 to the consolidated fi nancial statements, the Group uses internal models and methodologies to measure fi nancial instruments that are not traded on an active market, as well as to book certain impairment losses. We examined the control procedures relating to the assessment of whether a given market was inactive, the validation of models and the defi nition of the parameters used.
The Group revises its measurement of intangible assets and goodwill carried in its consolidated fi nancial statements (Notes 3.5, 7.7 and 8.11 to the consolidated fi nancial statements). We examined how this work was carried out as well as the main assumptions and parameters used.
Share capital subscribed not paid in 13 Accrued income and prepaid expenses 21,408 23,951 1,011
See Note No. Off-balance sheet items – Commitments received 2008 2007 2006
14 Due to central banks and post offi ces 653 1,405 613 17 Deferred income and accrued charges 17,917 15,916 2,924 23 Institutional business activities: 1 3 18 Provisions for contingencies and charges 3,427 2,019 1,067 20 Fund for general banking risks
Commitments in favor of customers 23,016 27,918 17,369 23 Institutional business activities: CONTENTS< >
See note No.Year ended December 31 2008 2007 2006 24 Interest and similar income 17,120 17,668 5,416
Depreciation, amortization and impairment of property, plant & equipment and intangible assets (947) (60) (30)
OPERATING INCOME (LOSS) (5,392) (151) 497 33 Net gains/(losses) on disposals of non-current assets 164 (452) 73
Worsening of the financial crisis: In a climate marked by the worsening fi nancial crisis, which spread to other types of assets and to the deterioration of the economic environment after the bank failures during the third quarter, Natixis: has redefi ned its business plan, rebalancing its business model ■
Banking (CIB) risk profi le. This strategic refocusing was implemented under the CIB transformation decided upon by
Natixis’ Supervisory Board at its meeting of December 18, 2008. The plan called for: discontinuing own account investment activities, loans ■
and structured loans and discontinuing the most complex market activities. These decisions were accompanied by the creation of a dedicated structure to house these activities so as to optimize management of the winding down process, refocusing on our traditional customers, emphasizing ■
Corporate and Institutional Customer transactions, a streamlined international presence, cutting back sharply in ■
has implemented a cost cutting program for 2009, to cut 10% ■
of 2007 base fi xed costs. This approach, which translated into a series of rationalization projects launched in second quarter 2008, is part of a 2008-2009 expense reduction plan affecting headcount, outsource service providers and operating expenses. With respect to headcount, a job adaptation plan was implemented among Natixis S.A. employees in
of €3.7 billion, with Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne subscribing €2.5 billion by offset of the shareholder advance previously contributed; with respect to the liquidity risk triggered by the fi nancial crisis, ■
French State support measures: Natixis has benefi ted indirectly, through its two major shareholders, from fi nancing made available by the French State to banks under the fi nancial sector support plan approved by the
subject to the Amended Finance Law to Finance the Economy of October 16, 2008. This law enables Société de Financement de l’Économie Française (SFEF) to raise funds on the market, guaranteed by the State, in order to lend these funds to French banks against the provision of collateral; a mechanism to strengthen banks’ equity through Société de ■
Populaires and Caisse Nationale des Caisses d’Epargne was provided under market conditions under specifi c agreements of two types: medium term interbank loans secured by turning over ■
unrestricted ownership of receivables, subject to certain eligibility requirements. The transfer of ownership of the receivables enables the lenders (Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne) to pledge these receivables to Société de Financement de l’Économie
of €950 million each were subscribed, one in its entirety by
sheet as of December 31,2008: This exposure was in the form of an ABS CDO portfolio essentially classifi ed as trading securities for a global nominal exposure of €2,038 billion, of which €1,189 billion was covered by monolines.
25% for loans originated in 2006 (versus 23% as of ■
11% for loans originated in 2005 (versus 9% as of ■
a scoring model for structures (for ABS CDO’s and CLOs), ■
Transactions with monoline insurers entered into in the form of CDSs were subject to the funding of additional fair-value adjustments related to the lowering of the rating of these counterparties and to the widening of spreads on the assets backing them. The method for determining the fair-value adjustments was reviewed in 2 nd quarter 2008 and maintained from then through December 31, 2008. Impairment was determined by applying to the unrealized capital losses on the underlyings an across-the-board recovery rate of 10%
(a rate justifi ed by the weak capitalization of the monolines considering their risk exposure) and a likelihood of default in line with the credit risk of the enhancement. This resulted in an additional fair-value adjustment in the amount of €1,060 billion for the fi scal year, increasing the total stock to €1,216 million.
SIV’s (Structured Investment Vehicles) are entities that make highly leveraged investments in highly-rated medium- and long-term assets. To fund themselves, SIV’s issue commercial paper or medium- and long-term notes. Since these issues are rated by rating agencies, SIV’s need to conform to liquidity ratios and are bound to respect thresholds linked to the value of their portfolios. If these thresholds are reached or exceeded, they must liquidate assets. Given the changes in the NAV
of the shares in SIV’s held by Natixis and of the consequent liquidation risk, Natixis recognized a €42 million writedown on these shares (classifi ed as securities held for investment) on
Natixis has held a 2.5% stake in the capital of the German bank IKB since 1993. The business relationship between the two companies is essentially focused on fi nancing medium to large German companies. It does not concern, either directly or indirectly, IKB’s fi nancing and investment activities on the
Natixis to recognize an additional impairment charge against the IKB shares in the amount of €11.3 million, bringing the total to €27.1 million.
After the fi nancial support to CIFG at year-end 2007, and as announced at that time, the transfer of the securities to Caisse Nationale des Caisses d’Epargne and Banque
Fédérale des Banques Populaires took place in 2008. A swap agreement was entered into on January 22, 2009, resulting in Natixis voiding guarantee agreements, the drawdown of the available balances of the lines of credit extended to CIFG, the discontinuation of all the lines of credit extended and the collection of an adjustment in cash and CIFG shares. Since the terms of this agreement were known as of the closing date, Natixis recognized the consequences on the fi nancial statements as of December 31, 2008, for the impairment of the lines of credit (USD 200 million) and the recording of a receivable for the adjustment (USD 98 million).
As of December 31, 2008, Natixis’ exposure to Iceland bank risks totaled €174 million.
The individual provisions funded for risk at year-end 2008, were €93.6 million and the exposure to each Icelandic counterparty was analyzed taking into account: the nature of the obligations, ■
Madoff Investment Securities (BMIS) through 6 funds was €356.4 million. The risk of loss was estimated at €221 million and fully provisioned as of December 31, 2008. In addition, a provision of €12 million was funded for legal expenses.
Ixis CIB’s merger into Natixis resulted in the recognition of a negative technical value adjustment for the difference between the value of Ixis CIB shares on Natixis’ balance sheet and the net value of the assets contributed by Ixis CIB as of December 31, 2006 (the backdating date). All of the adjustment (€861 million)
Loans are carried on the balance sheet at their par value.
Where there is a risk of partial or total non-recovery of receivables or borrowers’ breach of covenants, impairment charges or provisions are charged to the income statement on the line “cost of risk”. These impairment charges are determined on a caseby -case and country-by-country basis and reviewed quarterly, based on an analysis of the related risk and available collateral.
The impairment charge is calculated as the difference between the loan carrying amount and the estimated recoverable amount discounted at the original effective interest rate.
Non-performing loans are identifi ed and recognized in conformity with the provisions of CRC Standard 2002-03. This Standard and the notice issued by the CNC Urgent Issues Task Force on December 18, 2003 set forth the rules for classifying nonperforming and reclassifying them as unrecoverable loans.
Loans declared in default, restructured loans on which the borrower has once again defaulted and loans classifi ed as nonperforming for more than one year for which a write-off is planned are deemed to be unrecoverable.
In addition, Natixis recognized a charge to net banking income to amortize discounts on restructured loans and the write-back of impairment on unrecoverable loans related to the passage of time.
classifi ed as non-performing and a provision is funded for the amount outstanding when a lease payment or any incidental costs are more than three months (equipment) or six months
In 1991 and 1992, there were two transactions involving the assets of the former BFCE subject to sovereign risk, a defeasance transaction and a put. The defeasance structure,
Worledge Investment Ltd, were consolidated for the fi rst time as of December 31, 2002. In accordance with paragraph 10052 of
CRC Standard 99-07, consolidation of these two entities led to an adjustment of provisions covering at-risk loans covered by the put.
These provisions cover certain Natixis businesses that carry potential future risks. These businesses are reviewed quarterly and where necessary included in the basis for provisioning for
FINANCIAL DATA6 Financial data Parent company fi nancial statements and notes sound exposure in countries or industries likely to experience diffi culties.
Securitizations are transactions that transfer credit risk without disposing of the underlying portfolios. They consist of synthetic securitizations based on credit derivatives entered into jointly with third party banks and special purpose entities. Credit derivatives are equivalent to credit insurance protecting Natixis against execution risk (bankruptcy, restructuring of the terms of an underlying asset and borrower’s inability to pay) for the borrowers comprising the portfolio.
In addition, a bonus share allocation plan (SAGA) was implemented in November 2007 for the benefi t of employees of Natixis and companies linked to it either directly or indirectly, pursuant to the provisions of Article L.225-197-2 of the French
Parent company fi nancial statements and notes resolved to adjust the bonus share allocation program in order to preserve the rights of the benefi ciaries, resulting in the allocation of 33 additional shares to supplement the 60 shares initially allocated. The shares will be acquired by Natixis in 2009 for allocation to employees and the acquisition cost will be provisioned pursuant to the provisions applied in the fi rst phase. Given the immateriality of the impact for the period, no charge was recorded in 2008.
In order to pursue the convergence of French rules with IFRS
“Securities held for investment” and from “Securities held for sale” to “Securities held for investment”.
Consolidated investments in affiliates: ■ Natixis valued its investments in consolidated subsidiaries as of December 31, 2008.
The results of this method were corroborated using other customary methods such as market comparisons and restated net asset value.
Non-consolidated investments in affiliates: ■ are valued individually at the lower of acquisition cost and value in use at year end. Value in use as of year end is determined based on criteria such as restated net asset value and profi tability of the affi liates in question.
Securities held for investment: ■ are securities acquired with the intention of holding them over the medium- to long-term in order to sell them at a suffi cient profi t or obtain a suffi cient yield. They are recorded at acquisition cost and an impairment charge is recorded if their net book value is greater than their fair value (based on recent transaction values, profi tability, market price for listed securities or other valuation methods used at the time of acquisition).
are shown on different lines depending on the nature of the transaction: securities held for trading, securities held for sale and ■
investment: are recorded on the line net gains (losses) on disposals of non-current assets 7 - Property, plant and equipment and intangible assets 7.1 Measurement upon initial recognition
Banques Populaires were contributed at their net book value following the partial asset contribution.
New acquisitions are recorded at acquisition cost plus directly attributable transaction costs (transfer duties, fees, commissions and registration expenses). Borrowing costs are not capitalized.
Internally-generated software is carried on the balance sheet at the total cost of development, including related hardware costs, service costs and personnel costs directly attributable
After acquisition, fi xed assets are carried at cost less any cumulative depreciation, amortization and impairment losses.
Fixed assets are depreciated or amortized over their estimated useful lives either on a straight-line basis or on a diminishing balance basis when this better refl ects the pattern of consumption of future economic benefi ts. The residual value of the asset is deducted from its depreciable or amortizable amount when it can be measured reliably. Natixis does not believe it can reliably measure the residual value of items other than land and indestructible construction. They are therefore assigned no residual value.
Other intangible assets primarily comprise goodwill with an indefi nite useful life, which is not amortized but rather tested for impairment at least annually.
Where perpetual subordinated notes are treated as equivalent to debt repayable in installments, each periodic payment is broken down into the repayment of principal, which is deducted from the outstanding debt, and interest, which is charged to the income statement as interest and similar expenses.
Remuneration paid on participating notes is treated as interest payable and charged to the income statement as accrued.
Interest, together with premiums, fees and commissions treated as interest income, is recognized on the income statement as accrued. Other fees and commissions are accounted for on a cash basis.
Beginning in January 1, 1994, Natixis elected to defer all debt issuance expenses over the life of the debt, as permitted by tax legislation (law of August 8, 1994) and in line with trends in the nature of such expenses, which are in substance an additional fi nancing cost.
The cost of Natixis capital increases is offset, net of tax, against the issue premium.
The accounting treatment depends on the instrument involved and the purpose of the transaction (hedging or trading).
These instruments are classifi ed according to the purpose for which they are executed: micro-hedging (hedging of specifi c transactions or ■
income statement on an accrual basis, either as premiums or discounts where they are intended to hedge commercial transactions, or as accrued interest where they are intended to hedge long-term assets and liabilities denominated in foreign currencies.
Income and expenses on hedging transactions are recognized in income on a symmetrical basis with the income and expenses on the hedged items.
For non-hedging activities, positions in a class of option or forward contract are marked to market at the period end. Changes in value during the period are recognized immediately on the income statement. For over-the-counter instruments, a discount may be charged to the market value based on modeling risks or uncertainty over parameters, by funding provisions for fi nancial instruments charged to income.
Commitments given to banks that extend export credits fi nanced in foreign currencies in order to fi x the exchange rate of their foreign currency borrowings are not included in published offbalance sheet commitments. Income and expenses deriving from institutional activities (exchange rate swaps and guarantees)
The main provisions for employee-related liabilities concern: end-of-career awards and allowances; ■
Natixis uses independent actuaries to measure its main liabilities like the supplementary bank pension.
less or plus any actuarial gains or losses arising from: ■
“corridor” method. Under this method, the portion that exceeds 10% of the greater of the group’s obligation or the fair value of plan assets is deferred over the remaining average working lives of the employees participating in the plan.
Securities held for investment 238 396 344 accrued interest receivable 4 6 9
Advances to banks 96,038 132,333 54,110 accrued interest receivable 9 4 2 accrued interest receivable 718 1,575 532
Short-term loans and consumer loans 34,010 32,008 18,159 accrued interest receivable 187 83 81 accrued interest receivable 16 11 10 accrued interest receivable 34 7 12 accrued interest receivable 2 0 0
(1) The gross values shown in the “Securities held for sale” and “Securities held for investment” columns represent their redemption value.
NOTE 7 INVESTMENTS IN SUBSIDIARIES AND AFFILIATES, OTHER SECURITIES HELD FOR INVESTMENT AND TREASURY STOCK
II - INVESTMENTS IN AFFILIATES AND OTHER SECURITIES HELD FOR INVESTMENT
D) Investments with a book value of less than or equal to €150,000 1,694,037.06
NOTE 9 DISCLOSURES OF MATERIAL SHAREHOLDINGS IN FRENCH COMPANIES DURING THE YEAR: The table below is provided in conformity with the provisions of Article L.247-1 of the French Commercial Code: % as of 31.12.2008 Number of shares as of 31.12.2008
8, RUE DU PROFESR LAVIGNOLLE PROFESSEUR LAVIGNOLLE 33049 BORDEAUX CEDEX 48,346 EUR 78,148 EUR 81.60%
GARBO-INVEST 30, AV. PIERRE MENDES FRANCE 75013 PARIS 105,000 EUR (4,219) EUR 100.00%
1209 ORANGE STREET - WILMINGTON NEW CASTLE COUNTY - DELAWARE UNITED STATES 2,138,912 USD (59,209) USD 18.47%
NATIXIS ALTERNATIVE INVESTMENTS LUXEMBOURG LUXEMBOURG SA 25 RUE GOETHE L-1637 LUXEMBOURG 58,769 EUR 207 EUR 100.00%
128, RUE LA BOETIE 75008 PARIS 10,110 EUR 158,850 EUR 100.00%
30, RUE PIERRE MENDES-FRANCE 75013 PARIS 44,813 EUR 6,243 EUR 100.00%
5-7, RUE DE MONTTESSUY 75007 PARIS 499,576 EUR 179,526 EUR 100.00%
30, RUE PIERRE MENDES-FRANCE 75013 PARIS 95,626 EUR 81,505 EUR 100.00%
12 LOWER LEESON STREET DUBLIN 2 100,000 EUR 10,177 EUR 100.00%
PO BOX 309GT UGLAND HOUSE SOUTH CHURCH STREET GEORGE TOWN ILES CAIMAN 307,199 USD 292,987 USD 23.39%
(1) The net value of these lines of securities is higher than their gross value, due to a positive translation differences.
Book value of investments Loans and advances extended but not yet repaid
Intangible assets used in the business 1,113 65 (79) 34 1,133
Due to central banks and post offi ces 653 1,405 613
Due to banks 105,553 137,318 50,267 accrued interest payable 23 4 5 other amounts due 4 6 1 accrued interest payable 573 1,328 344
Special savings accounts 77 87 60 accrued interest payable 34 7 6 other amounts due 54 5 3 accrued interest payable 67 77 24
Interbank market instruments and money market instruments 42,482 91,256 46,396 accrued interest payable 206 974 437 accrued interest payable 308 216 26
Retail certifi cates of deposit and savings bonds 0 1 1 accrued interest payable 0 0 0
Merger fl ows / partial contributions of assets (4) (7) (5) (16)
Dividends paid in the form of shares 2007 68 333 401
The share capital comprises 2,908,137,693 shares with a par value of €1.60 each. All shares confer the same rights to their holders other than treasury shares, which do not carry voting rights.
Financing commitments extended to: Guarantees furnished on behalf of: CONTENTS< >
Net gains (losses) on securities held for trading (1,914) 2,113 165
Funding of provisions for contingencies and charges (pension commitments) (129) (1) 6
Investment in affi liates and other securities held for investment (30) (41) (3)
Investment in affi liates and other securities held for investment 58 95 9
Reversal of provision for departures under the employee assistance program 0 0 1 transfer of payroll expenses to employee assistance program 0 0 (1)
The tax consolidation convention prevailing at Natixis Group is based on the principle of neutrality, whereby each subsidiary determines its tax and contributes the tax to the Group as if it were not consolidated. The tax charge payable for each subsidiary is not affected by consolidation.
Any tax savings or expense generated by consolidation is recognized by the parent company Natixis.
Any losses transferred to the parent company are recognized as a provision for restitution of corporate tax to offset the additional
Group tax if in favor of the subsidiaries, and the tax contribution is decreased by the amount of the prior year losses.
Audit, certifi cation, examination of individual and consolidated fi nancial statements 5.1 2.7
Income after tax, depreciation, amortization and provisions 213,582,296.25 459,177,494.14 744,399,468.97 (467,183,610.92) (5,053,779,558.57)
Income after tax, but before depreciation, amortization and provision 5.24 7.30 0.51 0.81 (0.82)
Social security, pension costs, etc., and other employee benefi ts 166,610,951.72 193,645,949.43 233,880,070.04 269,404,568.47 273,921,026.89
In accordance with our appointment as Statutory Auditors at the General Shareholders’ Meeting, we hereby present our report for the year ended December 31, 2008 on: our audit of the accompanying fi nancial statements of Natixis S.A.; ■
The parent company fi nancial statements have been approved by the Executive Board. Our responsibility is to express an opinion on these fi nancial statements based on our audit.
as well as to book certain impairment losses (see section 13 of Note 1 to the fi nancial statements discussing signifi cant accounting policies). We examined the control procedures relating to the assessment of whether a given market was inactive, the validation of models and the defi nition of the parameters used, the Company recognizes impairment losses to cover the credit risks inherent in its businesses (see paragraph 2 of Note 1 to −
the fi nancial statements discussing signifi cant accounting policies). We examined the control procedures relating to credit risk monitoring, impairment methodology, the assessment of risks of non-collection and the provisions set aside in this respect for individual and collective impairment.
FINANCIAL DATA6 Financial data Statutory Auditors’ report on the parent company fi nancial statements
The Company records provisions to cover employee benefi ts (see paragraph 16 of the note discussing signifi cant accounting policies). We examined the methodology used to measure these benefi t obligations, as well as the main assumptions and parameters applied.
The assessments were made in the context of our audit of the fi nancial statements, taken as a whole, and therefore contributed to the formation of the unqualifi ed opinion expressed in the fi rst part of this report.
We also conducted the specifi c verifi cations required by law.
offi cers, as well as benefi ts granted on or after assuming, changing or terminating offi ce.
As required by Article L.225-88 of the French Commercial Code, we have been advised of those agreements and commitments which were subject to prior authorization by the Supervisory Board.
It is not our responsibility to ascertain the existence of other agreements and commitments, nor to comment on their relevance or substance. We are simply required to report to shareholders, based on the information provided, on the basic terms and conditions of agreements and commitments that have been disclosed to us. Under the provisions of Article R. 225-58 of the French Commercial
Code, it is the shareholders’ responsibility to determine whether the agreements and commitments are appropriate and should be approved (fourth resolution put to the vote at the Ordinary General Shareholders’ Meeting).
Statutory Auditors’ Board (Compagnie nationale des commissaires aux comptes – CNCC). Those procedures involved ensuring that the information disclosed to us was consistent with the source documents from which it was taken.
1.1 Natixis’ participation as arranger in the € 25 billion secured bond issue program launched by the Caisse d’Epargne Group and approval of the corresponding related party agreements
Corporate offi cers concerned: Charles Milhaud, Bernard Comolet, Nicolas Mérindol, Jean-Claude Créquit, Francis Henry, Didier
Corporate offi cers concerned: Philippe Dupont, Charles Milhaud, Jean-Louis Tourret, Bernard Comolet, Philippe Queuille, Stève
Finally, on September 3, 2008, the Supervisory Board approved the letter of agreement concerning early repayment of the shareholder advances granted to Natixis by BFBP and CNCE in the fi rst half of 2008 within the scope of the €3.7 billion capital increase carried out with preferential subscription rights.
1.3 Guarantee and placement agreement between Natixis, BFBP, CNCE and the banks in the placement syndicate set up in connection with the capital increase
Charges recognized with respect to this agreement in 2008 totaled €59,212,979.38.
1.4 Agreement between Natixis, BFBP and CNCE regarding the commitment to subscribe to the capital increase
In connection with the aforementioned capital increase, on September 3, 2008 the Supervisory Board approved an agreement between Natixis, CNCE and BFBP under which the CNCE and the BFBP agreed to (i) subscribe by way of right to the capital increase up to the full amount of their preferential subscription rights, and (ii) in the event of the termination of the guarantee agreement, bankruptcy of a guarantor or deferral of the settlement date for the issue, to subscribe in equal portions for any shares not subscribed by way of right or for any excess shares not subscribed by other parties.
(i) to adopt regulations for the scheme insofar as they defi ne the potential rights of members of the Executive Board eligible to benefi t from the scheme, provided that they were appointed to the Board between November 27, 2006 and December 15, 2008, and
(ii) to close the scheme to any new members of the Executive Board.
Regarding the collective welfare benefi t scheme: to continue offering in 2009 the welfare scheme available to the chief executive ■
offi cers of the Banques Populaires to members of Natixis’ Executive Board, it being specifi ed that the scheme adapts the guarantees applicable to all former Natexis Banques Populaires personnel to the specifi c situation of each member.
Regarding termination and retirement indemnities: not to apply the provisions regarding early termination or retirement indemnity ■
arrangements for the chief executive offi cers of the Banques Populaires to Natixis’ corporate offi cers appointed after May 1, 2005.
1.6 Agreement providing for the distribution of Natixis products and services to the regional banks acquired by Banque Populaire from HSBC
In accordance with the French Commercial Code, we have been informed that the following agreements and commitments that were approved during previous fi scal years were still in effect over the last fi scal year.
2.1 Invoicing agreement regarding the affiliation of Natixis to Banque Fédérale des Banques Populaires (BFBP) and Caisse Nationale des Caisses d’Epargne et de Prévovance (CNCE)
2.2 Natixis’ participation as arranger in the € 25 billion secured bond issue program launched by BFBP
FINANCIAL DATA6 Financial data Special report on related party agreements and commitments 2.3 Sale of CIFG Holding shares held by Natixis to BFBP and CNCE
On December 19, 2007, the Supervisory Board approved an agreement providing for the sale by Natixis of its shares in CIFG Holding to the BFBP and the CNCE, with the following main characteristics: sale price of US$2; ■
Mandate regarding the CIFG Group, pursuant to the provisions of Article 3.2 of said Mandate.
On June 6, 2007, the Supervisory Board approved a service agreement between Ixis CIB, CNCE and Banque Palatine relative to the CNCE’s transfer of operational and technical responsibility for the “Clic’n Trade” site to Banque Palatine. Under the agreement, the CNCE remains the owner of the site and the counterparty for forward and spot exchange transactions carried out in relation to
Between 1996 and 2004, Ixis CIB (formerly CDC Marchés and then CDC Ixis Capital Markets) signed a number of letters of joint and several guarantees and commitments with its successive shareholders, namely Caisse des Dépôts (CDC), CDC Finance – CDC Ixis
(replaced in its rights and obligations by CNCE further to the merger on December 31, 2004), and the CNCE.
Natixis Municipal Products Inc. (formerly CDC Municipal Products Inc.), Natixis Derivatives Inc. (formerly CDC Derivatives Inc.), Natixis
Financial Products Inc. (formerly CDC Financial Products Inc.), Natixis Funding Corp. (formerly CDC Ixis Funding Corp.), and Natixis
On June 15, 2006, the Supervisory Board approved letters of joint and several guarantees and commitments between Ixis CIB
On December 19, 2001, the Supervisory Board approved a de facto association agreement between the CDC, CNCE (replacing
This agreement, automatically renewed every three years, replaces the agreement entered into on August 30, 1996 between the
Charges recognized by Natixis with respect to this agreement in 2008 totaled €5,259,322.
Natixis Securities (formerly CDC Ixis Securities), setting the conditions for Natixis Securities to invoice Ixis CIB for a percentage of the cost of its research offi ce, set at 25%.
On November 17, 2005, the Supervisory Board approved an addendum to this agreement providing for a reduction in the percentage at which the services provided would be rebilled, from 25% to 18.75%.
On November 17, 2005, the Supervisory Board approved a service and partnership agreement between Ixis CIB and the CNCE
under which Ixis CIB agreed to develop and host a website for the CNCE for placing orders on forward and spot foreign exchange transactions.
2.11 Agreements to transfer software user rights and services between Ixis CIB and Crédit Foncier de France
FINANCIAL DATA6 Financial data Special report on related party agreements and commitments
We also present you our report on the agreements and commitments subject to the provisions of Article L.225-90 of the French
In accordance with Article L.823-12 of the Commercial Code, we remind you that these agreements and commitments did not receive the prior approval of the Supervisory Board.
We are required to report to shareholders, based on the information provided, on the basic terms and conditions of these agreements and commitments, and on the reasons why the approval procedure was not respected.
Financial guarantee and credit master agreements between Natixis, CNCE and BFBP
Natixis entered into fi nancial guarantee and credit master agreements with its central institutions ( CNCE and BFBP) on December 3 and December 4, 2008, respectively. These agreements were transferred to the Société de Financement de l’Économie Française
The purpose of these agreements is to allow Natixis to borrow from its two central institutions in return for posting collateral. The amounts lent represent credit facilities granted under the terms of the agreements between the central institutions and the SFEF. The terms therefore refl ect the agreement entered into between the central institutions (and all other banks in the marketplace) and the
all or part of the revenue arising on this arrangement is used to grant Natixis a loan, in return for a guarantee in the form of −
collateral, which will be pledged by the central institution to the SFEF to guarantee its loan.
Given the timing of these agreements, they could not be approved by the Supervisory Board before being signed. These agreements are the subject of the fi fth and sixth resolutions put to the vote of the Ordinary General Shareholders’ Meeting.
COMPOSITION, PREPARATION AND ORGANIZATION OF TASKS UNDERTAKEN BY THE SUPERVISORY BOARD 398
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL (ARTICLE L.225-68 OF THE FRENCH COMMERCIAL CODE)7 Composition, preparation and organization of tasks undertaken by the Supervisory Board
Natixis was formed from the merger of the corporate and investment banking and services operations of the Banque
& Investment Bank’s (IXIS CIB) merger into Natixis in 2007. The transaction – which came into effect on December 31, 2007 –
was approved by the CECEI on November 15, 2007. The main shareholders of Natixis are Banque Fédérale des Banques
transactions, as well as other forms of diligence relating to the monitoring of all types of risk resulting from transactions; periodic checks in the form of enquiries and audits of the ■
compliance of transactions, conformity with procedures and the effectiveness of permanent control systems.
In reference to its regulatory requirements and commitments made to the CECEI, Natixis has structured its internal control system around a periodic control body that undertakes audits, together with units in charge of exercising permanent control over compliance and transaction security and verifying the effectiveness of the Bank’s risk control and monitoring procedures.
(AMF), and especially the code of good conduct concerning market participation and customer relations; Natixis complies with the terms of the codes of good conduct ■
Code of Compliance for Financial Analysts, made mandatory by the AMF); Natixis applies anti-money laundering and terrorist fi nancing ■
Reserve, the National Association of Securities Dealers and the Securities and Exchange Commission in the
rules relating to IT systems security and continuity and specifi es the security principles needing to be implemented; the charter which formally sets out the jurisdiction of the country ■
managers in Natixis’ foreign offi ces and which organizes relations with the heads of the business lines represented locally; the “compliance manual” which defi nes the rules of good ■
They are structured according to three principles: Natixis separates its risk-taking and control functions, and ■
the existence of fi rst-tier controls at the operational level, ■
units constitute separate business units; Natixis’ control system is organized in accordance with the ■
Compliance’s main responsibilities involve: conducting legal and regulatory watch in the compliance area, ■
in conjunction with the legal function; defi ning standards and methods for assessing compliance, ■
control and reporting risks. These standards were devised in order to ensure market integrity, the primacy of customer interest, to prevent confl icts of interest (including independence in third-party account management) as well as the fi ght against money laundering and the fi nancing of terrorism; conducting permanent second-tier controls (regarding ■
compliance standards and application of procedures); establishing a compliance risk map; ■
Department, through reports and corrective measures regarding operational defects which may entail risks of noncompliance for the Bank; issuing a written opinion concerning all new activities, structures, ■
Committees set up within Natixis’ business lines or set up centrally for products common to many business lines; advising business lines in order to secure operations and ■
ensure compliance with standards; contributing to employee training in conjunction with Human ■
Resources; managing information systems for the monitoring and control of ■
compliance risk at subsidiary or business-line level, with a view to their consolidation at Group level; centralizing any dysfunctions in the sense of Article 11-2 of ■
Board and central institutions; ensuring that permanent compliance risk controls are ■
Compliance managers in subsidiaries and branches report to the executive body or, exceptionally, if the size of the entity warrants it, to a permanent controls manager who, in turn, reports to the executive body through a strong functional and hierarchical link to the Chief Compliance Offi cer. This link means that: Natixis’ Chief Compliance Offi cer is required to issue prior ■
performance reviews and career advancement decisions; the subsidiary Compliance manager must fulfi ll mandatory ■
There are three main components to Natixis’ Compliance mechanism: Professional ethics ■
Department systematically of transactions posing issues of confi dentiality or potential confl icts of interest. Regulatory watch was also reinforced.
The system for informing business lines’ Compliance managers of changes in the applicable law or regulations has been improved and the information is now available to all Natixis staff via the
Group’s intranet portal. Appropriate legal and regulatory watch also continues to be performed by the Group’s subsidiaries and foreign branches.
The Compliance Department has continued to be an active participant in the ad hoc committees set up to review proposals for new products.
Department and is in charge of measures within Natixis and its subsidiaries to counter money laundering and terrorist fi nancing, in liaison with these bodies. Financial Security thus plays an essential advisory, monitoring, training and informational role within the Group.
Following drafting and issue of the new anti-money laundering procedure at the end of 2007, a new “know your client” procedure was drafted and issued at the beginning of April. It defi nes the guiding principles to be implemented by each business line and introduces the risk-based approach defi ned by the 3rd European
Directive under which each client or counterparty is classifi ed as of low, medium or high risk. The approach is currently being deployed by Natixis Corporate and Investment Banking.
Employee information and training in measures to counter money laundering and terrorist fi nancing was pursued. A specifi c seminar was provided to all head offi ce employees and Natixis
Compliance Department’s intranet portal. Three days of contacts with third party specialists were also provided for Natixis’ Tracfi n correspondents, Compliance managers and commercial staff.
procedure, and also to the ongoing rollout of the fi nancial transaction monitoring system (broadened scope, new criteria for detection of atypical transactions, client segmentation).
in order to achieve a signifi cant improvement in the transparency of transfers received.
transactions and transaction execution processes comply with applicable banking and fi nancial rules and market rules; organizational compliance; ■
procedures exist and are effectively applied (in accordance with Article 40 of regulation 97-02), and that these procedures comply with the rules applicable to the various types of risk.
The Compliance Department’s controls may take three forms: controls based on the reporting documents arising from fi rst- ■
tier controls; controls based on alerts arising from automated control tools, ■
The risk-mapping approach continued in 2008, via the controls executed by Compliance Department controllers. The parent company’s domestic operations were covered in 2008 and the process will be extended to its subsidiaries and foreign branches in 2009.
involved; promoting policy and ensuring adherence to it at all levels; ■
The ITSS Department participates fully in the Bank’s internal controls system. Its activities are in keeping with the recommendations contained in the French Banking Commission’s
The ITSS functions as a whole is steered by: an ITSS Strategic Committee, which determines IT security ■
policy for Natixis and its subsidiaries. The Committee is chaired by a member of the Executive Board. It is responsible for validating the annual security plan prepared for Natixis and its subsidiaries at the highest level. It met twice in 2008, in accordance with the General Policy on Information Security; an ITSS Coordination Committee which comprises the various ■
within subsidiaries. It is responsible for monitoring the annual security plan, coordinating and steering all ITSS actions and pooling security projects. It met fi ve times in 2008, in accordance with the General Policy on Information Security; Security Committees within subsidiaries or business lines. ■
These Committees are chaired by the Head of ITSS within the subsidiary or within the Natixis Group and oversee ITSS
During 2008 ITSS also managed several IT projects designed to improve controls: software designed to monitor and correlate security incidents; ■
Board. It has strong functional ties, of a hierarchical nature, with the internal audit departments of Natixis’ shareholders – Banque
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL (ARTICLE L.225-68 OF THE FRENCH COMMERCIAL CODE)7 Internal control procedures or otherwise. Its fi eld of investigation encompasses all of Natixis’
– including entities in charge of permanent controls – and outsourced activities. In each business line, it carries out indepth analysis of the “front-to-back” processes through which operations are carried out. These analyses concern evaluation of existing controls in the audit process as well as the risks to which the relevant operations are exposed. Recommendations may be formulated to make these controls more comprehensive or robust. They are set out in order of priority.
Internal Audit’s assignments are set out in a yearly audit plan, which itself forms part of a four-year plan proscribing the frequency of audits and assigning resources according to the nature of the risks to be verifi ed.
Department is also able to carry out ad hoc audits in order to address issues arising in the course of the year that were not initially included in the audit plan.
In 2008, the Internal Audit Department conducted assessments on all the risk classes to which Natixis’ operations are exposed. It also dedicated a substantial portion of its resources to regulatory surveys, as part of the Bank’s Basel II certifi cation process, as well as to work arising as a result of the crisis in the fi nancial markets.
Audit continued to reinforce headcount in line with the plan launched when Natixis was formed in 2006.
The Committee is chaired by the Executive Chairman or the Chief
Audit and IT Systems Security and the Special Advisor to the
The Committee handles all issues relating to the organization and planning of control services, highlights areas of emerging or recurring risk and reports any signifi cant dysfunctions observed to the executive body. It also supplies the executive body with updates on ongoing controls performed by internal or external control functions or regulators, and ensures that the conclusions from these undertakings are taken into account by the operational lines.
See the chapter dealing with the functioning of the executive bodies.
Groupe Caisse d’Epargne, in line with the convergence plan concluded between the three groups. The three governing
e.g. fi nancial data, identifi cation and analysis of the client in accordance with diligence approved by the Group Compliance
summarizing all credit risks incurred by the Bank, including those on capital market transactions; information concerning the counterparty’s profi tability. ■
Credit decisions are made either via delegations of authority accorded to business lines and certain members of the Risk
In addition to this decision-making system on an individual basis, the Group’s Risk Committee, the most senior risk committee, approves the main risk-taking procedures and sets overall limits relating, for example, to country risk.
The Risk Department provides the Executive Board and business line managers with reports, trend studies and analyses on the Group’s risk. Natixis’ commitments and developments are presented according to various risk indicators such as: the category, internal rating, business sector or client location; ■
An Excess Committee meets monthly in order to analyze excess movements against various indicators (number, business lines affected, etc.), and to examine signifi cant excesses and monitor their regularization.
Cases entailing deteriorations in risk are detected as they emerge and immediately reported to the Risk Department, the Special
Their entry onto watch list is then examined and, if applicable, acted upon by the Special Affairs and Litigation Department, the
The Group Provisioning Committee makes use of the investigations carried out by the Counterparty Watch List
These indices usually comprise a combination of micro- or macro-economic indicators specifi c to the sector or the country.
The rules for diversifying risk form part of the tripartite agreement between Natixis, Groupe Banque Populaire and Groupe Caisse d’Epargne. Natixis reports its “major risks” to its central institutions, which then jointly validate the credit cases and ratings assigned to the counterparties concerned at least once yearly.
Natixis’ main market risks relate to the Markets, Debt & Financing and Active Risk Management business lines within Natixis CIB.
Market risk control is handled by the Market Risk function within the Risk Department. Market Risks has full independence to defi ne risk measurement principles and develop the necessary tools.
The extreme market volatility of all asset classes observed since the failure of Lehman Brothers led the Risk Department to undertake several reviews involving the calculation of VaR
Natixis also launched a fundamental review designed to redefi ne its existing stress tests (hypothetical, historical and specifi c).
and led to the defi nition of severity criteria and impact matrices for each business line. The review is expected to be completed during 2009 and to allow for stress tests to be performed on a routine system basis and be compared with predefi ned limits.
Work also continued throughout the year to standardize and unify risk indicators and the calculation of fair values and adjustments.
system; the conditions under which market risk limits are examined, ■
allocated and monitored; the respective roles of the front offi ce, the Risk Department and ■
the business lines or on its own initiative under the aegis of the
the market risk measurement tools that enable risk to be aggregated on a consolidated basis at Natixis. The decisions in this area are validated in matters of principle by the Market
Any excesses are reported to the front offi ce and management as specifi ed in the procedure for notifying excesses.
Global risk reporting is sent to members of the Executive Board and front offi ce business line managers on a daily basis, and, if requested, to the Supervisory Board. The Risk Department submits overall limits and the main standards and procedures for validation to Natixis’ Risk Committee, which is the highest authority in this area.
It reports regularly to the Group’s central institutions within the framework of the Joint Standards and Methods Committee (as regards tripartite methodological aspects) and the Joint Risk
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL (ARTICLE L.225-68 OF THE FRENCH COMMERCIAL CODE)7 Internal control procedures 4.3 - Structural interest rate, liquidity and currency risks
The Asset & Liability Committee (ALMS Committee), which is chaired by the Chief Executive Offi cer and includes representatives of the Corporate and Investment Bank, the Financial Department and the Risk Department, is responsible for monitoring Natixis’
currency risk management and reinvestment of available regulatory capital; approving assumptions and rules used to devise indicators ■
and stress scenarios; validating the overall limits applying to structural balance sheet ■
agreements on the operational management and risk monitoring and measuring mechanism is negligible.
At Group level, where the majority of Natixis’ balance sheet risks are concentrated, this mismatching is centralized by the use of the Treasury’s internal matching contracts and managed by delegation by the ALMS Committee. Because of their specifi c operations, certain subsidiaries qualifying as credit establishments are permitted to manage their own ALMS risk on a delegated basis via their own ALMS Committee or Treasury Committee.
Risk Department using one-day VaR of 99% and portfolio value sensitivity at selected points and by currency. These measures are monitored daily by risk managers within a framework of directional and VaR limits.
The exposure of Natixis’ banking portfolio, essentially concentrated on its euro and US dollar (USD) content, to overall interest rate risk in 2008 does not call for any major comments.
Liquidity mismatching risk on Natixis’ banking portfolio is measured on the basis of mismatching ratios defi ned for each class of maturity, e.g. the ratio of assets remaining due to liabilities remaining due. Minimum ratios validated by the ALM Committee were applied across the Treasury function.
As recommended by the regulatory authorities, the procedures for monitoring liquidity risk have been complemented by stress scenarios and by the preparation of a formal business continuity plan for the event of a liquidity crisis.
Natixis’ structural currency risk, which is primarily in USD, consists of risk from net investments abroad refi nanced by currency purchase and risk resulting from revenue and expenses
(whether of an exceptional or recurring nature) recorded in currencies other than the euro. Given the non-euro risk weighting, the ALM Committee approved continued refi nancing of long-term investments via purchases of foreign currencies for the fi rst component, in order to immunize the Bank’s capital
Internal control procedures adequacy ratio. With regard to the second component, a portion of budgeted USD gross operating income is subject to hedging.
Since February 2008 the Operational Risk function has been subdivided into seven areas of control to ensure consistent coverage of Natixis’ businesses and operations. Five of these areas report hierarchically to the Operational Risk Department whilst the other two have a functional relationship.
Coverage of the Group as a whole is ensured by a matrixtype organization combining business lines and geographic locations.
Committee designed to ensure the closest control over the specifi c business risks. Each such Committee, which meets at least quarterly, is chaired by the Head of the Business Line with the participation of the Operational Risk Department which has a right of veto and acts as the Committee’s secretary.
Receivables Management; identifi cation and quantifi cation of Natixis’ major risks as of ■