Harris Associates L.P. - Jerry Jones, et al. In August 2004, three shareholders acting in the name of and on behalf of three investment funds (Oakmark Fund, Oakmark Equity and Income Fund and Oakmark Global Fund) fi led a complaint against Harris Associates L.P., a 100% subsidiary of Ixis Asset Management Group, before the United States 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 have fi led a motion for summary judgment. On February 27, 2007, the judge accepted all aspects of the request of Harris Associates and rejected that of the plaintiffs. The plaintiffs appealed against this decision on March 20, 2007. At present, no provisions have been set aside in relation to these proceedings.
Financial liabilities at fair value through profi t or loss and hedging instruments 133.8 5.5
Outstanding customer loans - including lease fi nancing - amounted to €72.0 billion, an increase of €28.1 billion compared with December 31, 2005, relating mainly to outstandings from transferred subsidiaries (€19.1 billion) and growth in the lending business (€9.0 billion) at the former Natexis Banques Populaires, particularly at its foreign branches.
The cancellation of treasury stock and the exercise of stock options decreased the number of shares by 13,370,990 shares, bringing total capital stock at December 31, 2006, to €1,951,782,928, comprising 1,219,864,330 shares with a par value of €1.6.
At December 31, 2006, Natixis’ consolidated regulatory capital amounted to €13.2 billion compared with €8.6 billion for Natexis Banques Populaires at December 31, 2005.
These increases were partly offset by the increase in deduction of goodwill on the balance sheet (€2 billion), as well as the negative development of prudential fi lters, exchange differences and other factors (€0.5 billion). Tier Two capital was insuffi cient to cover the increase in the deduction relating to the holding of cooperative investment certifi cates issued by the two networks, resulting in a reduction of €2.4 billion.
As a result of these trends, the international capital adequacy ratio stood at 10.6% compared with 12.5% at December 31, 2005, with a Tier One ratio of 10.5% compared with 8.3% at December 31, 2005.
Development of Tier One ratio compared with December 31, 2005 pro forma
Tier One capital remained stable in relation to December 31, 2005, pro forma at €13.1 billion. The €2.3 billion increase in Tier One capital was offset by deductions of €2.4 billion not covered by Tier Two capital.
In 2006, Natixis (activities of the former Natexis Banques Populaires and Ixis Corporate & Investment Bank) benefi ted from a high level of liquidity on the bond market. In issues, spread conditions offered by investors were particularly attractive at the start of the year and then again at the end of the year following a short period of tension during the spring.
Natixis managed to focus its offers on the euro market during the most favorable periods and continued to diversify its investor base through transactions on the US market, as well as in Switzerland and the United Kingdom. Over the last few months of the year, Natixis (former Natexis Banques Populaires) carried out two subordinated benchmark notes issues, one for €1 billion in September and the second for €500 million in December. In the senior debt market, the most signifi cant transactions were a €1.5 billion fi ve-year public bond issue in January and a $2 billion extendible notes issue in October. However, like last year, the majority of Natixis’ medium and long-term requirements were covered by the private placement of a number of EMTN issues.
Medium and long-term fi nancing transactions were carried out through a number of medium term note programs. New specifi c programs were opened to target specifi c customers: Ixis Special Products (EMTN), Ixis Financial Instruments (EMTN) and Ixis Financial Products (USMTN).
Natixis (former Natexis Banques Populaires + Ixis CIB) EMTN BMTN UMTN Bonds*
(i) Issuance programs: The EMTN program contains a standard negative pledge. There are no fi nancial or rating-related covenants. There is a cross-default clause restricted to the issuer, with a €30 million trigger.
USCP programs (papers issued by NBP U.S. Finance Company LLC with a Natixis guarantee) the Natixis ECP
International bond issues contain a negative pledge and a cross-default clause, which is the same as that contained in the EMTN program.
The subordination clause, as validated by the French Banking Commission, is as follows: status of the Notes: The principal and interest on the Notes (which constitute obligations under French law) are direct, unconditional, unsecured and deeply subordinated obligations of the Issuer and rank and will rank pari passu among themselves and with all other present and future Support Agreement Claims and Deeply Subordinated Obligations but shall be subordinated to the present and future prêts participatifs granted to the Issuer and present and future titres participatifs, Ordinarily Subordinated Obligations and Unsubordinated Obligations of the Issuer.
In the event of liquidation of the Issuer, the Notes shall rank in priority to any payments to holders of any classes of share capital and of any other equity securities issued by the Issuer.
Finally, the issue prospectus provides an early redemption option as of June 30, 2016, and at each subsequent interest payment date.
The merging of the operations of the entities making up Natixis is one of the management board’s priorities. Integration projects are based on three main objectives that comply with procedures for reporting and consulting employee representative bodies: ensuring, from the creation of Natixis on November 17, 2006, the conditions for continuity of operations and management; anticipating and facilitating the merging of activities and implementation of operations at Natixis; defi ning and rolling out a durable organizational structure.
The conditions are already in place for the rapid execution of these efforts, thanks to: a high level of support in terms of human resources: launch of legal information and consultation procedures, which should allow for groupings by region if necessary before the legal merging of activities. For the Corporate and Investment Banking division, implementation should take place gradually between now and the end of the third quarter of 2007. For the Asset Management division, implementation will begin in the second quarter of 2007. Groupings within the Services division will be carried out in stages as of mid-2007, except for Securities activities, the schedule for which is the same as that for the merging of legal entities, creation - with the agreement of all trade union organizations - of a contractual negotiations body, creation of a Group Committee, implementation of a communications policy for the different stages of the merger; mobilization of all employees under the aegis of the management board. The system is based on a conventional project structure, with a central steering committee in charge of communications, monitoring the progress of projects and arbitrage. Three business line committees and seven crossfunctional committees are responsible for implementing the efforts of sixty specialist working parties; efforts to set up a streamlined real estate structure before the end of 2007. In a favorable market, buildings in Rue Saint
Dominique have been put up for sale and should allow the Group to realize the optimum value of its real estate assets. The majority of employees will be based in offi ces around Gare d’Austerlitz and the Gare de Lyon-Bercy complex. Two buildings of 20,000 m² are in the process of being developed on Avenue Pierre Mendès-France and in the Bercy-Expo district - one for the management board and cross-functional departments and the other for the back offi ce and IT systems teams of the corporate and investment banking division. The space freed up by these relocations will allow for the asset management entities and front offi ce teams of the corporate and investment banking division to be brought together in the same location. Similar moves are planned for outside France, initially in Europe and the United States, in order to make the most of opportunities for the sharing of premises.
Merging of operations in all of Natixis’ business lines and functions
Against this backdrop, the division has aligned the management committees of the French business entities in order to favor coordination of the new Group and appointed managers of the various functions in the target organization. The legal formalities should take place before June 30, 2007. The realization of synergies is supported by efforts to streamline product ranges and optimize the distributor network support and operational structure. As regards the latter, the project developed aims to use a shared interface and maintain the teams and operating methods of each network.
Synergies and integration are not as signifi cant within the Receivables Management and Private Equity and Private Banking business lines. Efforts relating to the merging of business units (factoring) and the realization of the planned revenue synergies (roll-out of international private banking services, development of Receivables Management within the Caisse d’Epargne network) began in early 2007.
The creation of Natixis led to the convergence of IT systems in order to capitalize on existing systems and to accompany the business lines and support functions. The Information Systems
The Group’s IT projects consist of three phases with the aim of accompanying the merging of teams while ensuring control of operational risk and gradual development towards the target structure: creation: launch of activities under the new identity; transition: ensuring business continuity; target: long-term operation.
As of November 17, 2007, the creation phase will focus on regulatory requirements, in particular for accounting production, risks and compliance functions.
The objectives of the next two phases are: to ensure business continuity in Natixis’ operations and the production of consolidated statements in accordance with regulatory requirements; to defi ne and validate a target structure for each business line and for support functions; to determine the process and the main milestones; to initiate measures to achieve the target structure; to monitor synergies.
During the transitional phase, governance of IT systems shall be based on a reduced number of functional areas, to allow for synergies and optimization between the different business lines. Overall consistency is ensured by the central IT department, which defi nes the shared standards and procedures for the running of the Group’s IT systems.
Finally, studies into the harmonization and pooling of infrastructures have been initiated in accordance with the specifi c characteristics of each business line. These concern problems relating to the network (sharing of physical infrastructures, identifying synergies between different external services), as well as shared administration of telecoms, email and workstations (industrialization, shared systems, synergies between different external services). A strategy for streamlining production, servers and processing centers is also being studied.
It has also defi ned reporting and management standards and deployed monitoring tools both on a consolidated level and for Natixis’ various activities.
Pierre Servant is a member of the Executive Committee of Natixis, with oversight responsibility for its asset management businesses. He has been a member of the Board of IAMG since 2000 and services as Chairman of IAMG’s Audit Committee.”
Natixis parent company reported net income of €744,399,468.97 for the year ended December 31, 2006.
The third resolution to be put to the annual general meeting on May 24, 2007, proposes to add to net income the balance held on the retained earnings account, being €16,584,314.50, and to transfer the sum of €37,219,973.45 to the legal reserve, leaving the sum of €723,763,810.02 available for distribution.
Shareholders will be asked to approve the deduction from the general banking reserve of €325,320,000.00, which, added to €723,763,810.02 available for distribution, allows for the payment of a dividend of €1,049,083,323.80 and the transfer of the balance to retained earnings, in the sum of €486.22.
BFBP and CNCE each own 34.44% of Natixis’s share capital and voting rights and exercise joint control of Natixis.
Autorité des Marchés Financiers, Natixis’s Supervisory Board, notwithstanding the existence of an agreement not to sell the shares, subject to the double majority of members present and represented and members representing each of the parties bound by the agreement, shall express an opinion on the recommendation to shareholders whether or not to tender their shares to their offer. If necessary, BFBP and CNCE may decide, on the recommendation of Natixis’s Supervisory Board subject to the double majority rule described above, to amend the terms of the shareholders’ agreement with a view to tendering all Natixis shares to the offer jointly.
Finally, BFBP and CNCE have agreed, under the terms of the shareholders’ agreement, to act in concert to exercise the voting rights held in Natixis in respect of certain decisions, in particular concerning the appointment of Supervisory Board and Management Board members.
The takeover of Natixis by means of a public offer would result in the right to buy back cooperative investment certifi cates issued by the Banque Populaire and Caisse d’Epargne banks.
Under the terms of the protocol agreement between Natixis and the Banque Populaire Group, if BFBP and CNCE cease to exercise joint control of Natixis, the Banque Populaire regional banks would be able to buy back the cooperative investment certifi cates held by Natixis representing 20% of their share capital.
If these cooperative investment certifi cates are bought back, Natixis would lose its equity interest in the Banque Populaire and Caisse d’Epargne networks and its share of income corresponding to these interests, which is consolidated under the equity method. The risk of a buyback of cooperative investment certifi cates in the event of a takeover of Natixis could therefore discourage an offer for the Natixis shares.
FINANCIAL DATA 6 Supervisory Board’s comments on the Chairman’s report and the 2006 fi nancial statements
Supervisory Board’s comments on the Management Board’s report and the 2006 fi nancial statements
The Board has regularly obtained information about the business and activities of the Company and the Group in accordance with legal and statutory requirements. As part of its supervisory role, it has carried out the checks and controls it deems necessary.
The Board has examined the 2006 fi nancial statements presented to it by the Management Board and examined its report on the activities of the Company and the Group over the year, marked by the major event comprising, in November 2006, the contribution to the Company of 12 subsidiaries of Caisse Nationale des Caisses d’Epargne in the areas of corporate and investment banking and services, as well as the accompanying changes in the shareholding structure of the Company, of which Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne each own 34%, with the remaining share capital open to investors and individuals. This transformation was also accompanied by a change in the administration of the Company.
These transactions resulted in the creation of a top-ranking banking group, one of the market leaders in its areas of operation in Europe.
The Board has examined all of these fi nancial statements, reports and resolutions and has no particular comments to make thereon.
We would like to thank the members of staff and the Management Board for their work throughout the year.
We ask you to approve the 2006 fi nancial statements, the proposed allocation of income and the various resolutions presented to you.
On March 15, 2007, CACEIS and HypoVereinsbank issued the following press release: “ HypoVereinsbank and CACEIS agree on strategic partnership in securities services.
For CACEIS, this operation is part of its strategy of focused acquisition growth. Germany stands for one of the major European markets for custody and clearing activities.
■ On April 2, 2007, the Banque Populaire and Caisse d’Epargne Groups issued the following press release: “ Banque Populaire Group and Caisse d’Epargne Group affi liate Natixis.
Cash and balances with central banks and post offi ces 323 217 192
Financial assets at fair value through profi t and loss 8.1 176,903 26,013 24,494
Revaluation differences on portfolios hedged against interest rate risk 0 0 0
Deferred income and accrued charges and other liabilities 8.7 18,836 8,490 7,412
Liabilities associated with non-current assets held for sale 0 0 0
Net gains or losses on available-for-sale fi nancial assets 9.4 247 345 123
Equity at December 31, 2004, before appropriation - 2004 IFRS 772 2,342 (4)
Change in fair value of fi nancial instruments through equity 2005 net income - EU IFRS
Equity at December 31, 2006 - EU IFRS after dividends 1,952 12,435 0
(4) Includes changes in fair value of derivative fi nancial instruments designated as cash fl ow hedges
+/- Net charge to other provisions (including insurance reserves) 3,246 2,507 1,492
+/- Decrease/(increase) in interbank and money market items 6,954 405 5,526
+/- Decrease/(increase) in other fi nancial assets or liabilities 6,434 454 522
Total net cash provided/(used) by operating activities (A) 4,978 (490) 3,015
+/- Decrease/(increase) in fi nancial assets and investments in associates (18,799) (2,747) 506
+/- Decrease/(increase) in property, plant & equipment and intangible assets (160) 105 (95)
Net increase/(decrease) in cash & cash equivalents (A + B + C + D) (14,618) (1,773) 1,554
Upon completion of the transactions described above, CNCE and BFBP (through SNC Champion) conducted a placement on the market of some of the Natixis shares received in consideration for the aforementioned asset contributions, leading to an increase in Natixis’ free fl oat, while strictly maintaining equality between the respective ownership interests held by BFBP (direct and indirect) and CNCE in the entity. At the balance sheet date of December 31, 2006, Natixis’ free fl oat stood at 31% of the share capital, with the remainder split equally between BFBP and CNCE.
IFRSs and their interpretations adopted by the European Union at the same date; the balance sheet at January 1, 2005 was prepared on the same basis.
The standards and interpretations applicable for the fi rst time for the fi rst time as of January 1, 2006 and applied retrospectively did not have any impact on Natixis’ fi nancial statements: the modest revision of IAS 19 “Employee benefi ts” on actuarial gains and losses, group plans and disclosures, has introduced a new option allowing all the actuarial gains and losses deriving from defi ned benefi t plans to be recognized in equity. Since Natixis has not elected to use this option, the introduction of this amendment has not had any impact on its fi nancial statements; the amendment of IAS 39 “Financial instruments: recognition and measurement” and IFRS 4 “Insurance contracts” concerning fi nancial guarantees states the treatment for the fi nancial guarantee contracts given and allows companies to decide freely whether to account for insurance contracts qualifying as fi nancial guarantees in line with the requirements of IAS 39 or in line with IFRS 4; Natixis has elected to account for these contracts using IFRS 4, which does not represent any change on the accounting principles used for the consolidated fi nancial statements for the year ended December 31, 2005; the amendment to IAS 39 “Financial instruments: recognition and measurement” concerning the “cash fl ow hedges for future intra-group transactions” allows, subject to certain conditions, the currency risk on a highly probably future intra-group transaction to qualify as a hedged item in the fi nancial statements. This extension in the scope of items that may be hedged did not have any impact on Natixis’ consolidated fi nancial statements; the amendment to IAS 21 “Effects of changes in foreign exchange rates” clarifi es how to account for net investments in a foreign operation. Implementation of this amendment did not have any impact on Natixis’ consolidated fi nancial statements; IFRIC 4 provides commentaries making it possible to determine whether an agreement that does not have the legal form of a lease, but confers a right to use an asset in consideration for payments contains a lease to be recognized in accordance with IAS 17 “Leases”. This interpretation did not have any impact on Natixis’ consolidated fi nancial statements.
The standards and interpretations IFRS 6 “Exploration for and evaluation of mineral resources”, IFRIC 5 “Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds” and IFRIC 6 “Liabilities arising from participating in a specifi c market—waste electrical and electronic equipment” do not apply to Natixis’ activities and thUS do not have any impact on its fi nancial statements.
The 2004 fi nancial statements provided by way of comparison have been prepared in accordance with IFRS excluding IAS 32, IAS 39 and IFRS 4, applied in accordance with the option provided by IFRS 1 as of January 1, 2005.
All the effects of transition to IFRSs on equity, capital, the balance sheet and income statement were published in the 2005 registration document.
Note 6 to the consolidated fi nancial statements presents: the contributions to the 2006 balance sheet and income statement for publication; the contributions to the 2005 pro forma balance sheet and income statement. These consolidated fi nancial statements include those of the entities contributed as if the contribution had taken place at January 1, 2005; ■
The principles behind the preparation of the pro forma fi nancial statements are described in Note 5.
The consolidated fi nancial statements are based on the individual fi nancial statements of Group companies as of December 31, 2006.
The consolidated fi nancial statements of Natixis include the separate fi nancial statements of Natixis and its main subsidiaries. Only subsidiaries making a material contribution to the Group’s fi nancial statements are consolidated. The materiality of a subsidiary is not assessed with respect to numerical thresholds but based on a qualitative appraisal of the relevance of its contribution to the consolidated fi nancial statements.
The scope of consolidation includes all signifi cant entities over which the consolidating entity exercises control or infl uences its management. As under French GAAP, three types of control are identifi ed under IFRS: companies that are exclusively controlled, companies that are jointly controlled and companies over which the entity exercises signifi cant infl uence. Analysis of the control of the consolidating entity is not restricted to identifying voting rights in subsidiaries but includes economic and legal analysis of relations between the consolidating entity and its subsidiaries.
Under IFRSs, Natixis is required to consider the existence and effect of potential voting rights currently exercisable or convertible when assessing whether it exercises control or signifi cant infl uence. Potential voting rights include, for example, stock options and debt instruments that are convertible into ordinary shares. However, potential voting rights are not taken into account for the purpose of calculating the percentage ownership.
A review of potential voting rights held by Natixis did not lead to any changes in the scope of consolidation in 2006.
Special purpose entities (SPEs) created to manage a specifi c operation or group of similar operations are fully consolidated if they are controlled substantially by Natixis, even where there is no equity relationship. The main criteria for assessing the existence of control as defi ned by SIC 12 are as follows: activities: The SPE’s activities are substantially conducted on behalf of Natixis, which directly or indirectly created the SPE according to its specifi c business needs.
Companies controlled by Natixis are fully consolidated. Under IAS 27, control is presumed to exist when the parent has: ownership, directly or indirectly through subsidiaries, of more than half of the voting power of an entity; power to govern the fi nancial and operating policies of the entity under a statute or an agreement; power to appoint or remove the majority of the members of the board of directors or an equivalent governing body; power to cast the majority of votes at meetings of the board of directors or equivalent governing body.
Under IAS 27, majority interests held by private equity subsidiaries have not been consolidated as they do not meet materiality requirements.
Companies jointly controlled by Natixis are proportionally consolidated. Joint control is the contractually agreed sharing of control over an economic activity between a limited number of shareholders or investors, and exists only when the strategic fi nancial and operating decisions relating to the activity require the unanimoUS consent of the parties sharing control.
IAS 31 also permits jointly controlled companies (joint ventures) to be accounted for using the equity method. Natixis has not elected to apply this option.
Signifi cant infl uence is the power to participate in the fi nancial and operating policy decisions of an economic activity but is not control or joint control over those policies. Signifi cant infl uence is presumed to exist when the reporting entity directly or indirectly owns at least 20% of the voting rights.
Lastly, Natixis and the Caisses d’Epargne banks also agreed to maintain for at least 10 years from the date of the asset contributions their existing industrial and commercial relationship described below: custodial services; design and management of customer products (asset management, revolving credit facilities, guarantee insurance for borrowers, factoring and equipment lease fi nancing, fi nancial engineering and capital market products, local authority fi nancing, debt management); securities and derivative products brokerage.
Article 116 of the amended fi nance law for 2005 (no. 20051720 of December 30, 2005) extended the mandate entrusted to Natixis or any companies that it controls to manage certain public procedures on behalf of the French State. These transactions are recognized separately in the fi nancial statements, and some of them may be guaranteed by the State. The State and other related creditors have a
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes specifi c right over the assets and liabilities allocated to these institutional activities.
The amount of fees received and fi nancing outstanding in connection with institutional activities is not material. Accordingly, the fi nancing outstanding has not been restated at amortized cost. Activities other than fi nancing, where Natixis acts as intermediary on behalf of the State, have been accounted for using French GAAP in the IFRS fi nancial statements.
The balance sheets of foreign subsidiaries and branches whose functional currency is not the euro are translated into euros at the closing rates, except for share capital, reserves and capital allocations, which are translated at historical rates. Exchange gains and losses are recognized directly in equity.
Natixis has elected to use the option available under IFRS 1 on fi rst-time adoption to transfer all exchange gains and losses existing at January 1, 2004, to retained earnings. If a foreign entity is subsequently sold, the gain or loss on sale will include only those exchange gains or losses arising after January 1, 2004.
Business combinations that took place after January 1, 2004, have been restated in accordance with IFRS 3. Those prior to January 1, 2004, have not been restated retrospectively, as permitted by IFRS 1.
When the recoverable amount is lower than the carrying amount, an irreversible impairment loss is recognized in the income statement and charged fi rst against the goodwill allocated to the CGU or group of CGUS and then against other identifi able assets belonging to the CGU or group of CGUs.
The assets contributed by CNCE to Natixis fall into two categories of asset: shares in the corporate and investment banking and services subsidiaries; a portion of the cooperative certifi cates of investment (CCIs) conferring entitlement to the share capital of the Caisses d’Epargne.
Against this backdrop, the method that involves recognizing items at their carrying amount has two advantages: it maintains consistency in the basis of measurement used for the combined entity’s assets, namely between the entities transferred by the Caisse d’Epargne group and those operating in the same business line and part of the preexisting Natixis group, and thUS the accounting treatment is the same regardless of the origin of the relevant activities; ■
In accordance with IFRS 3, the other structural transactions presented in Note I–contributions of the remaining Caisses d’Epargne CCIs, of 1.23% of Ixis CIB’s share capital, of 4.63% of Ixis AMG’s share capital, subscription of the Banques Populaires CCIs and the acquisition of Novacrédit–have been accounted for under the purchase method for consolidation purposes.
Since the assets contributed were recognized at their IFRS net carrying amount, no valuation differences arose on the fi rst-time consolidation of the various assets and liabilities contributed.
Since the business combination took place at the end of the fi nancial year, the fair values attributed to the identifi able assets and liabilities of the entities acquired and the amount of the goodwill arising were only of a provisional nature at December 31, 2006.
The goodwill arising as a result of the business combination came to €633 million on a provisional basis. This fi gure
breaks down into: €229 million on Ixis AMG, €21 million on Ixis CIB and €8 million on Novacrédit, plus goodwill included under Investments in associates, i.e. €236 million on the Caisses d’Epargne CCIs and €139 million on the Banques Populaires CCIs.
During the 2006 fi nancial year, goodwill increased by a total amount of €1,700 million. Almost this entire amount (€1,681 million) was attributable to the goodwill already existing in the entities contributed by the Caisse d’Epargne group (GCE) upon the formation of Natixis.
Real estate companies not allocated to the CGUs 20 20 * Included in the Services CGU in 2005.
Prior to consolidation, the individual fi nancial statements of companies included in the scope of consolidation are restated to bring them into line with the Group accounting policies described below. Intra-group balances and gains and losses arising on intra-group transactions are eliminated.
balance sheet items are included under the corresponding line items of the fi nancial statements presented in the banking format.
The preparation of Natixis’ fi nancial statements may entail in certain aspects assumptions to be made and estimates produced based on the available information that is likely to require expert judgment. These sources of uncertainty may affect the calculation of income and expenses on the income statement, the measurement of assets and liabilities on the balance sheet and/or certain disclosures in the notes to the fi nancial statements.
The accounting estimates requiring assumptions to be made are used principally for the measurement of the following items: Financial instruments recognized at fair value
Fair value of hybrid market instruments not traded on an active market is calculated using valuation techniques. As described in Note 7 on accounting principles and valuation methods, valuations produced by these models are adjusted to take into account the bid and offer price for the net position, the risks inherent in the models, counterparty risk and parameter risk as a function of the relevant instruments and corresponding risks.
The fair value of unrated loans is determined using the discounted future cash fl ow technique. The discount rate is based on an assessment of the rates used by the bank during the fi nancial year for all loans with similar risk characteristics. Loans were classifi ed into groups with similar risk characteristics based on statistical research that helped to identify factors infl uencing the level of credit spreads. Natixis also used its expert judgement to refi ne this segmentation.
Natixis commissions independent actuaries to calculate its principal employee benefi ts. The discount rates, future salary growth rates and the rates of return on plan assets are based on market rates observed at the balance sheet date (e.g. yields on French government bonds for discount rates). When applied to long-term obligations, these rates imply a source of uncertainty in the valuation.
The provisions set aside in the consolidated balance sheet, other than those for fi nancial instruments, employee benefi ts and insurance policies, primarily consist of provisions for litigation, fi nes, penalties and tax risks.
A provision is set aside where it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle an obligation arising from a past event and where the amount of the obligation can be measured reliably. To calculate this amount, management is obliged to assess the likelihood of the risk’s occurrence. Future cash fl ows are discounted where the impact is material.
First-time adoption of IFRS led Natixis to consolidate fi ve nontrading real estate companies (SCIs) in 2004.
For Assurances Banque Populaire Vie, a life insurance subsidiary of Natexis Assurances, the SCIs were Fructifoncier, ABP Iéna, ABP Pompe and Neuilly Château. For the Coface sub-group, the relevant SCI was Cofi mmo.
The total acquisition cost of the entities referred to above came to €18.6 billion, which broke down into €14.3 million paid for through an issue of shares by Natixis and €4.3 billion paid in cash.
Natixis’ valuation is underpinned by the business plan drawn up for the Group and by core business dated March 23, 2006. These business plans cover the 5-year period from 2006 until 2010. Natixis’ valuation was conducted on a preliminary basis on May 5, 2006 and then updated on September 8, 2006. The reference number of shares used in the valuations was 48,590,150 Natixis shares (excluding treasury stock held by the parent company or subsidiaries).
Its value was determined using the following methods, which are traditionally used to value banks: (i) valuation based on the share price, (ii) the application of earnings multiples of comparable listed companies, (iii) the application of equity multiples resulting from a regression analysis of comparable listed companies, (iv) application of the Gordon theoretical approach (also known as warranted equity value), (v) discounting of free cash fl ows generated by Natixis, and (vi) a sum-of-the-parts approach encompassing the value of all the core businesses and/or companies making up Natixis.
Agricole SA and Caisse Nationale des Caisses d’Epargne. The activities of its subsidiaries are: mutual fund depositary bank activities and institutional custodial activities for mutual funds and institutional investors (insurance companies, asset management companies, non-resident banks, etc.), issuer services and fund administration; Natixis Garantie: the Natixis Garantie sub-group provides security deposits and legal and fi nancial guarantees to businesses, small businesses, personal customers and associations; CIFG Holding: a holding company the principal activities of which relate to the management of the sub-group’s investments. The activities performed by its subsidiaries consist in granting irrevocable and unconditional guarantees of payment on fi rst demand of the principal and interest due, in line with the initial issuance schedule. Securities with a credit profi le enhanced in this manner benefi t from the same rating as the fi nancial guarantor, which is a triple A rating in CIFG’s case. CIFG provides issuers with the possibility of securing cheaper refi nancing and offers investors credit enhanced products with new risk profi les; Foncier Assurance: this entity has two insurance activities, namely life and casualty insurance. The life insurance division distributes euro-denominated and unit-linked policies, which are intended to help customers build up savings. The casualty insurance division includes both death cover for borrowing agreements and occupational incapacity guarantees; Gestitres: this entity performs security custody activities and develops IT applications; Caisse d’Epargne Financement (CEFI): an entity specialized in the marketing and active management of consumer loan solutions; GCE Bail: an entity whose principal business activity is granting fi nance leases. GCE Bail primarily uses three channels to reach its customers: a direct offering, an offering marketed via affi liated banking networks (currently Banque Palatine and the Caisses d’Epargne) and an offering marketed via partnerships with business providers (equipment suppliers, industrial leasing companies, fi nancial intermediaries); GCE Affacturage: this entity’s role is to handle either directly or through its subsidiaries all domestic and international factoring, notably including the invoicing, purchasing, sale, collection and recovery of all receivables, the grant in any form whatsoever of advances or guarantees for these receivables, and the requisite account keeping for these operations; Caisses d’Epargne (contribution of the CCIs): the Caisses d’Epargne cooperative banks have strong positions in every region of France with personal and small business customers, for whom they have developed an extensive range of savings and fi nancing products and services. They also contribute towards regional development by offering local authorities, the hospital sector, social housing organizations, participants in the social economy, small and larger businesses a complete range of solutions helping to
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes fi nance their projects, streamline their management and maximize their investment returns.
The Banque Populaire cooperative banks cover all of metropolitan France, as well as overseas departments and territories, offering a broad range of products and services in three customer segments, namely personal customers, small businesses, including self-employed professionals, and businesses. They hold fi rmly entrenched positions among small and medium-sized enterprises and also the farming sector.
Other entities the addition of Novacrédit, which houses the revolving credit outstandings sold to personal customers by the Banque Populaire banks (notably via the Carte Aurore); the addition of Natexis ABM LCC, which acquired the activities of ABM Corp. in the United States; the addition of Natexis Funding USA, which refi nances certain Group companies from the United States; the addition of Fructibail Invest, a SCI real estate company focused on the acquisition and rental of real estate assets; the addition of SCI Colomb Magellan, a subsidiary of Compagnie Foncière, which rents offi ce properties in Paris; the addition of three new private equity investment companies: FNS 4, the Natexis Industrie II venture capital fund and Providente; the addition of Natinium, a securitization vehicle registered in Ireland; the addition of several subsidiaries from the Coface subgroup, notably including: Kompass Israël, Business Data Information, Coface Holding Israël and Coface do Brasil.
Other subsidiaries were deconsolidated either because they were liquidated (e.g. the ABP Taux and ABP Monétaire plus mutual funds, Sogafi ) or because their activities were discontinued (Interfi nance, Invest Kappa, Natexis Bleichroeder UK).
In addition, shares in consolidated subsidiaries Banque Privée Saint Dominique and Natexis Private Banking Luxembourg were pooled into holding company Natexis Private Banking.
Changes in percentage ownership 2% of the share capital of Natexis Cofi ciné was acquired, raising the Group’s ownership to 94.4% and giving rise to €1 million in goodwill; 6% of the share capital of Coface Austria (formerly OKV Coface) was acquired, raising the Group’s ownership of the Coface subsidiary to 100%, which gave rise to €2 million in goodwill.
Consolidated fi nancial statements and notes 4.3 - Companies included in the scope of consolidation
AEW Capital Management, Inc.(27) Asset Management 85 85 - - - -
AEW Global Advisors (Europe) Ltd(27) Asset Management 85 85 - - - -
AEW Partners IV , Inc .(27) Asset Management 85 85 - - - -
AEW Partners V, Inc .(27) Asset Management 85 85 - - - -
AEW TSF, Inc .(27) Asset Management 85 85 - - - -
CIFG Assurance North America(27) Insurance 100 100 - - - -
Coface Deutschland (Formerly AK Coface Holding AG) Holding company 100 100 100 100 100 100
Coface Factoring Italia Spa Factoring 100 100 100 100 - -
Coface UK Holdings (Formerly London Bridge Finance Group) Holding company 100 100 100 100 100 100
Cristal Negociations(14) Real estate agent - - - - 100 100
Curzon Global Partners(27) Asset Management 85 85 - - - -
GCE Bail(27) Lease fi nancing 100 100 - - - -
Harris Alternatives Holding Inc.(27) Holding company 85 85 - - - -
Harris Associates LP(27) Asset Management 85 85 - - - -
Ixis AEW Luxembourg(27) Asset Management 85 85 - - - -
Ixis Alternative Holding Limited(27) Holding company 100 100 - - - -
Ixis Asset Management(27) Asset Management 85 85 - - - -
Ixis Asset Management Asia, Ltd.(27) Asset Management 85 85 - - - -
Ixis Asset Management Distributors, LP(27) Distribution 85 85 - - - -
Ixis Asset Management Global Associates, SA(27) Distribution 85 85 - - - -
Ixis Asset Management Italia(27) Asset Management 85 85 - - - -
Ixis Asset Management North America, LP(27) Holding company 85 85 - - - -
Ixis Asset Management US Corporation(27) Holding company 85 85 - - - -
Ixis Hawai Special Member LLC(27) Commercial real estate fi nancing 100 100 - - - -
Ixis Investment Services Japan, Inc.(27) Distribution 85 85 - - - -
Ixis North America Inc.(27) Holding company 100 100 - - - -
Ixis Private Capital Management(27) Asset Management 69 69 - - - -
Kobrick Funds, LLC(27) Asset Management 85 85 - - - -
Kompass Holding (Sub-Group) Holding company 100 100 100 100 100 100
Kompass International Neuenschwander Holding company 100 100 100 100 100 100
La Compagnie 1818 - Banquiers Prives Holding company 73 73 - - - -
La Compagnie 1818 - Immobilier(27) Real estate 73 73 - - - -
Loomis Sayles & Company, Inc.(27) Asset Management 85 85 - - - -
Loomis Sayles Consumer Discretionary GP LLC (27) Asset Management 85 85 - - - -
Loomis Sayles Distributors, Inc.(27) Distribution 85 85 - - - -
Loomis Sayles Solutions, Inc.(27) Asset Management 85 85 - - - -
Natexis Private Equity Private equity 100 100 100 100 100 100
Natexis Private Equity International Private equity 100 100 100 100 100 100
Naxicap Partners (Formerly SPEF Développement) Venture capital 100 100 100 100 100 100
Paris Offi ce Fund* Real estate agent 50 50 50 50 50 50
Seaport Senior Housing, LLC (27) Asset Management 85 85 - - - -
Snyder Capital Management, LP (27) Asset Management 85 85 - - - -
Asahi Nvest Investment Advisory Co, Ltd.(27) Distribution 42 42 - - - -
Assurances Banque Populaire IARD P&C insurance 50 50 50 50 50 50
Capital Growth Management, LP (27) Asset Management 42 42 - - - -
Hansberger Group, Inc.(27) Asset Management 21 21 - - - -
(3) Consolidation method changed from equity method to full consolidation following the increase in Natexis Private Equity’s stake in BP Développement in October 2005.
(9) Consolidated for the fi rst time following the acquisition of 78% of the shares.
(13) Consolidated for the fi rst time from January 1, 2006.
(19) Merged with Financière Natexis Singapore with retrospective effect as of January 1, 2005.
(38) Created in 2000, consolidated for the fi rst time from June 1, 2006.
(39) Created in 2005, consolidated for the fi rst time from June 1, 2006.
(42) Company belonging to the opaque sub-group of Coface Servicios Mexico in 2005. Company consolidated for the fi rst time from January 1, 2006 and liquidated on December 31, 2006.
(51) Sopromec was sold to non-Group investors on October 12, 2006.
5.1 - Principles used to prepare the 2006 pro forma income statement
In addition, the scope used to prepare the pro forma fi nancial statements at December 31, 2006 is identical to that presented in paragraph 4.3 of this document.
The accounting principles used to prepare Natixis’ pro forma consolidated fi nancial statements are identical to those used to prepare the Natixis group’s consolidated fi nancial statements for publication for the fi nancial year ended December 31, 2006, in accordance with IFRSs, as adopted in the European Union and described in Note 7 .
Intra-group transactions allocated to this additional scope of consolidation are restated where they are material.
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 5.3 - Principles adopted for measuring contributions by the CNCE group to Natixis
In accordance with IFRS 3, the other transactions-contributions of the remaining Caisses d’Epargne CCIs, of 1.23% of Ixis CIB’s share capital, of 4.63% of Ixis AMG’s share capital, subscription of the CCIs issued by the Banques Populaires and the acquisition of Novacrédit–have been accounted for under the purchase method for consolidation purposes.
Differences between the acquisition cost and the Group’s interest in the IFRS net assets at January 1, 2005 of the contributed entities have been set off against consolidated reserves.
This reclassifi cation was carried out owing to the high probability that Ixis CIB will be integrated within Natixis and the pre-existence of an issue by Natixis ranking pari passu, making coupon payments obligatory on both these supersubordinated note issues.
These assumptions were established based on market conditions when the pro forma fi nancial statements published in Document E were prepared. Since the defi nitive characteristics of the refi nancing put in place between November 17, 2006 and December 31, 2006 were very similar to the assumptions made, the impact of the refi nancing as presented in the 2005 pro forma fi nancial statements in Document E has not been restated to take into account actual market conditions.
The derivatives put in place in late 2006 to fi x the interest rate payable on these issues and documented as a cash fl ow hedge in the fi nancial statements for the 2006 fi nancial year were not considered as having been entered into at January 1, 2005 and thUS do not have any impact on the 2005 pro forma fi nancial statements. They were deemed to a management decision by the Group in view of fi nancial conditions at year-end 2006.
In parallel, the net income after tax from the reinvestment of the proceeds generated by the CCI issues has been added back to the earnings of the Banques Populaires banks that issued the CCIs. This amounted to €9 million in the 2005 and 2006 pro forma fi nancial statements.
In addition, the difference in payouts made to holders of CCIs and those made to holders of ownership shares resulted in an accretion gain of €123 million at December 31, 2005, which has been added back to the “Share of income of associates line” item. The accretion gain came to €128 million in the 2006 pro forma fi nancial statements.
Certain items in the fi nancial statements of stakeholders in the Natixis transaction, specifi cally involved in its completion, were taken into account with retroactive effect in Natixis’ pro forma fi nancial statements at December 31, 2005, including: payment of an interim dividend of €279 million by Ixis CIB on November 17, 2006, prior to completion of the asset contributions and thus outside the scope of the Natixis group; the increase of €957 million in the share capital of the Ixis Asset Management Group completed on September 14, 2006 (i.e. 15,292,425 shares issued each with a par value of €1, plus an issue premium of €61.58 per share) to fi nance the acquisition from CNCE of the existing preferred shares issued by Ixis AM US Corp. (since renamed to Ixis AM North America) for a total amount of $1.15 billion, leading to an increase in equity attributable to equity holders of the parent and a corresponding reduction in minority interests.
Accrued income, prepaid expenses and other assets 19,819 9,215 (4,167) (4,553) 20,314
Revaluation differences on portfolios hedged against interest rate risk 34 34
Deferred income and accrued charges and other liabilities 8,734 10,102 18,836
Consolidated fi nancial statements and notes 6.2 - Contributions to the 2006 consolidated income statement
Net gains or losses on fi nancial instruments at fair value through profi t and loss 556 309 865 555 156
Impairment charges and other credit provisions (35) 1 (40) (3) (74) (81) (101)
Including: attributable to equity holders of the parent 943 695 488 attributable to minority interests 56 30 17
(1) Impact of €18 million in refi nancing costs linked to the Banques Populaires CCIs from the date of Natixis’ creation (November 17, 2006) and impact of €2 million resulting from the reclassifi cation of the Ixis CIB super-subordinated notes as debt in the Natixis group’s fi nancial statements.
(3) Impact of the convergence in calculation parameters for the collective provisions.
Financial assets measured at fair value through profi t and loss 26,013 123,822 149,835
Due to central banks and post offi ces 412 0 412
Financial liabilities at fair value through profi t and loss 5,288 127,034 132,322
Consolidated fi nancial statements and notes 6.4 - Contribution to the 2005 and 2006 pro forma consolidated income statements
Net gains or losses on availablefor -sale fi nancial assets 345 168 513
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 694 527 269 302 (130) 1,662
Net gains or losses on fi nancial instruments at fair value through profi t and loss 556 1,485 104 1,937
Net gains or losses on availablefor -sale fi nancial assets 217 105 322
Net income for the period 936 897 295 358 (282) 2,204
Including: - attributable to equity holders of the parent 2,100 - attributable to minority interests 104
Loans are measured at their face value. Undrawn amounts on loans already committed and agreed are recognized as off-balance sheet items under the heading “fi nancing commitments”.
Equity securities held for investment are securities acquired with the intention of being held in the medium to long-term in order to sell them at a profi t or secure a satisfactory yield. They are booked at cost, and an impairment loss recognized if their net book value is higher 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).
Upon their initial recognition, fi nancial assets and liabilities are measured at fair value plus, in the case of assets that are not recognized at fair value through profi t and loss, transaction costs that are directly attributable to the acquisition or issue.
As required by IAS 39, securities and loans are classifi ed in the following four categories: Financial assets at fair value through profit and loss
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes in accordance with the fair value option amendment to IAS 39 (published by the IASB in June 2005 and adopted by the European Union on November 15, 2005).
Securities held for trading purposes are those acquired by Natixis principally for the purpose of selling them in the near term and those forming part of a portfolio of identifi ed fi nancial instruments that are managed together and for which there is evidence of a recent actual pattern of shortterm profi t-taking.
Securities included in this category fall into one of the following three situations: 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 managed at fair value; instruments that present an inconsistency in accounting treatment with a related fi nancial liability.
As stated in note 3, Natixis has elected to use the option provided by IAS 28 not to account for private equity investments between 20% and 50%-owned using the equity method if they designated as “Financial assets at fair value through profi t and loss”. In addition, in accordance with the fair value option amendment, private equity investments in which ownership stands at below 20% are also recognized as “Financial assets at fair value through profi t and loss”, as management and measurement at fair value is a documented and well established practice at private equity companies.
Upon their initial recognition, held-to-maturity fi nancial assets are measured at fair value including transaction costs. After initial recognition, they are measured at amortized cost using the effective interest method. They are tested for impairment on each reporting date and, where necessary, an impairment loss recognized in income under impairment charges and other credit provisions.
Loans and advances are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market, other than those designated by Natixis as at fair value through profi t and loss or available for sale. This excludes
those for which the holder cannot recover the majority of his initial investment for reasons other than impairment of the loan, which should be classifi ed as available for sale. The vast majority of loans and advances granted by Natixis are classifi ed in this category, which also includes the fair value of the hedged components of assets classifi ed as loans and advances (fair value hedges).
If, in a subsequent period, the fair value of an available-forsale fi nancial asset increases and if this increase can be objectively linked to an event occurring after the impairment loss is charged to income, reversals of impairment losses are made through equity, rather than on the income statement, for equity instruments and through the income statement for debt instruments.
For equity instruments, any reduction in the fair value as a result of impairment is recognized in the income statement under “net gains/(losses) on available-for-sale fi nancial assets”.
Leases are classifi ed as fi nance leases when substantially all the risks and rewards incidental to legal ownership are transferred by the lessor. Otherwise they are classifi ed as operating leases.
At inception of the lease, assets held under a fi nance lease are recognized in the lessor’s balance sheet and presented as a receivable at an amount equal to the net investment in the lease. Net investment in the lease is the present value discounted at the rate of return implicit in the lease of the minimum lease payments due from the lessee, plus any unguaranteed residual value accruing to lessor.
IAS 17 requires unguaranteed residual values to be reviewed on a regular basis. If there has been a reduction in the estimated unguaranteed residual value, income allocation is revised over the lease term (new depreciation schedule prepared). Any reduction in respect of past periods is recognized immediately in income and any reduction in respect of future amounts is recognized by revising the interest rate implicit in the lease.
Finance income corresponding to interest is recognized in the income statement under “interest and similar income”.
Provisions for fi nance leases are determined using the same method as that described for loans and advances as of January 1, 2005.
Property, plant & equipment used in the business under fi nance leases is restated for consolidation purposes as assets recorded under “Property, plant & equipment” where material. At the inception of the lease term, it is recognized at the lower of fair value and the aggregate present value of minimum lease payments, with a corresponding entry under debt on the liabilities side of the balance sheet.
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 7.3 - Credit risk on assets classified as loans and advances
Loan interest In accordance with banking regulations: interest past due on loans to borrowers subject to bankruptcy proceedings is deducted from the interest account in which it was initially recorded. If the interest is recovered, it is credited back to the same account on receipt; interest on non-performing loans more than three or, where applicable, six or nine months past due is also provided for in full by deduction from the interest account in which it was initially recorded; all other loans made to these customers are also classifi ed as non-performing, even where the risk appraisal does not call for a provision against the principal amount outstanding.
These provisions cover certain businesses of Natixis that carry potential future risks. These businesses are reviewed quarterly and where necessary included in the basis of provisioning for sound exposure in countries or industries likely to experience diffi culties. During these quarterly reviews, the country and industry provisioning rates are adjusted according to Natixis’ perception of how the businesses will evolve, either negatively or positively. From 2003, additional provisions were set aside to cover potential risks arising as a result of major issues in the European marketplaces.
Any subsequent charges and reversals are also recognized under impairment charges and other credit provisions.
For the industry and country risks, objective evidence of impairment is based on in-depth analysis and monitoring of business sectors and countries. It typically arises from a combination of micro or macroeconomic factors specifi c to the industry or country.
As risk is measured in accordance with the provisions of Basel II based on the probability of default over a one-year horizon, the calculation of expected losses is adapted to take into account the probability of default over the maturity of the loans concerned.
If necessary, Natixis uses expert judgement to adapt the results of this model to its real perceived risk.
The notional amount of these instruments is recorded offbalance sheet for internal monitoring and regulatory purposes, but it is not included in the published statement of offbalance sheet items. Further details are provided in the notes to the French GAAP consolidated fi nancial statements at December 31, 2004.
Spot currency transactions outstanding at year-end are valued at the closing rate.
Forward currency hedging transactions are taken to income on an accruals 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.
In the case of trading 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 taken immediately to the income statement. For over-the-counter instruments, a discount may be taken against the market value in respect or modeling risks or uncertainty over parameters, via a charge to provisions for fi nancial instruments.
After initial recognition, any changes in the fair value of derivative fi nancial instruments held for trading are recognized in income.
Hedging of variable rate borrowings and issues Natixis uses plain vanilla interest rate swaps borrowing fi xed rates to fi x future variable-rate borrowing costs and private or public issues.
Documentation of structural interest-rate risk hedging Documentation of structural interest-rate risk hedging by parent company Natixis is based on the implementation of variable future cash fl ow schedules covering all transactions staggered over time.
By default, derivative fi nancial instruments may not be justifi able in a hedging relationship of this kind.
The retrospective test is used to verify after the event whether or not the hedging implemented at different reporting dates is effective.
Outside these limits, the hedging ratio would no longer be justifi ed under IFRSs.
If a hedging relationship is interrupted, particularly when the effectiveness ratio lies outside the 80% to 125% range, the requisite accounting treatment is to reclassify the derivative instrument under fi nancial instruments at fair value through profi t and loss and defer via the income statement the effectiveness amount, accumulated over previous hedging periods in reversible equity under “unrealized or deferred gains or losses”.
Hedging of fi xed-rate loans and issues Natixis uses plain vanilla interest rate swaps borrowing fi xed rates to protect itself against unfavorable changes in interest rates.
The prospective test is used to check that the fi nancial characteristics of the hedged item and the hedging instrument are the same. The test consists of checking that the characteristics of hedging derivatives and hedged instruments are more or less identical (value date, maturity date, notional amount, fi xed rate, payment frequency).
Accounting method Changes in the fair value of derivative instruments are recorded in the income statement (effective and ineffective portion).
The net impact on the income statement is therefore limited to the ineffective portion of hedging.
If a hedging relationship is interrupted, the hedging instrument is reclassifi ed under fi nancial instruments at fair value through profi t and loss and the unrealized gain on the hedged item at the date the hedging relationship ceases is fi xed and amortized up to the maturity date of the item through the income statement.
Hedging relationships at December 31, 2004 In accordance with IFRS 1 (§ 29), hedging relationships as at December 31, 2004, are recognized at the transition date of January 1, 2005, excluding any relationships not allowed under IAS 39 such as interest rate hedging of held-to-maturity securities.
An embedded derivative is a component that is part of a host contract, with the effect that some or all of the cash fl ows of the contract are linked to an interest rate, a security price, exchange rate or other index.
The credit derivatives used by Natixis are not considered as fi nancial guarantees but as derivative instruments, and therefore fall within the scope of IAS 39.
Aside from securitization transactions, credit derivatives are managed primarily as part of a trading strategy.
Trading account securities are recognized and measured at the latest market price. Latest market price means the last quoted price for listed securities and likely realizable value for unlisted securities. Likely realizable value is estimated on the basis of objective criteria such as recent transaction values, mathematical yield, etc.
Valuations obtained using these models are adjusted to take into account uncertainties relating to changes in parameters and the impact of a change of model.
Standard instruments The majority of over-the-counter derivatives, swaps, forward rate agreements, caps, fl oors and standard options are traded in an active market, i.e. a liquid market with regular trading.
Hybrid instruments Certain hybrid and/or long-maturity fi nancial instruments are valued using a recognized internal model and on the basis of market parameters derived from observable data such as yield curves, implied volatility layers of options and loss assumptions obtained from consensus data or from active over-the-counter markets.
the parameter is representative of recent transactions; the characteristics of the parameter are identical to those of the transaction. If necessary, a proxy may be used, subject to demonstration and documentation of its relevance.
Under IAS 39, gains should be recognized after initial recognition only if they are generated by a change in a factor taken into account by market observers in price setting, i.e. only if the model and the parameters used to obtain the valuation are observable.
If the valuation model is not recognized or the parameters used are not observable, the trading profi t on the day of trading cannot be recognized immediately in the income statement. It is recognized in income over the life of the transaction.
At December 31, 2006, the scope of instruments for which the margin on the negotiation date was deferred comprises essentially: multi-underlying structured equity products; options on funds; hybrid interest rate products; securitization swaps; CDO-type structured credit derivatives; and, interest rate option products.
Property, plant and equipment and intangible assets existing at December 31, 2003, have been maintained in the IFRS balance sheet at their historic cost under French GAAP, except for investment property held by insurance companies, which is valued at fair value through profi t and loss. Assets acquired after that date are measured at cost including transaction costs (transfer duties, fees, commissions and registration expenses). Borrowing costs are not capitalized.
After recognition, assets are carried at cost less any accumulated depreciation, amortization and impairment losses. Investment property held by insurance companies is measured at fair value through profi t and loss in accordance with IAS 40 and IFRS 4.
In accordance with article R332-210-1 of the French Insurance Code, a fi ve-yearly appraisal is conducted by an independent expert approved by the ACAM (Autorité de Contrôle des Assurances et des Mutuelles). Between two appraisals, the market value of assets is certifi ed by experts on a halfyearly basis.
Assets are depreciated or amortized over their estimated useful lives either on a straight-line basis or on a diminishing balance basis where 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 where it can be measured reliably. Natixis does not believe it can reliably measure the residual value of items other than land and indestructible elevations. They are therefore assigned a nil residual value.
In line with IAS 16, a specifi c deprecation schedule is drawn up for each signifi cant component of an item of property, plant and equipment which has a different useful life or rate of consumption of future economic benefi ts than the item as a whole. For buildings used in the business and investment property, the following signifi cant components and depreciation periods have been identifi ed: Part Depreciation period
Other intangible assets primarily comprise: purchased goodwill with an indefi nite useful life, which is not amortized, but tested for impairment at least annually; value of the Coface portfolio, which is 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 provisions for impairment of property, plant and equipment and intangible assets”.
Gains or losses on the sale of assets used in the business are recognized in the income statement under the “gains or losses on other assets” heading. Gains or losses on the sale of investment property are recognized under the “other net banking income” or “expenses from other activities” headings.
Non-current assets that Natixis intends to sell within a period not exceeding twelve months and for which an active plan to
These include fi nancial liabilities held for trading (including derivative fi nancial instruments) and those designated as at fair value upon their initial recognition in line with the option available under IAS 39 and described in more detail in the June 2005 amendment.
Financial liabilities at fair value through profi t and loss are identifi ed separately in the balance sheet and measured at fair value on the reporting date. Changes in fair value (including the issuer spread) are recognized in the income statement under the heading “gains or losses on fi nancial instruments at fair value through profi t and loss”.
Debt instruments issued by Natixis that are not classifi ed as fi nancial liabilities at fair value through profi t and loss are measured using the amortized cost method and recognized in the balance sheet under the headings “deposits from banks”, “customer deposits” or “debt securities in issue”.
Upon their recognition, debt securities in issue are measured at their issue price including transaction costs. After recognition, they are measured at their amortized cost, which includes expenses deferred over the term of the instruments issued.
IAS 39 requires the derecognition of all or part of a fi nancial asset if the contractual rights to the cash fl ows from the fi nancial asset expire or if the contractual rights to the cash fl ows from the fi nancial asset and substantially all the risks and rewards of ownership are transferred.
If substantially all the risks and rewards of ownership of the fi nancial asset are neither retained nor transferred, Natixis then determines whether it has retained control of the fi nancial asset. If control is relinquished, the fi nancial asset is derecognized. If control is retained, the fi nancial asset continues to be recognized 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; receipt of fi nancial compensation related to the performance of the asset transferred.
Securities lending/borrowing is not comparable to a transfer of fi nancial assets in the IFRS sense of the term. Consequently, these transactions cannot give rise to derecognition of the securities loaned. Loaned securities are not identifi ed under IFRSs. They are still recognized in their original IFRS category and valued accordingly. Borrowed securities are not recognized by the borrower.
Consolidated fi nancial statements and notes 7.13 - Provisions for employee benefits
The main provisions for employee benefi ts concern: supplementary banking pension; end-of-career awards and allowances; early retirement benefi ts and supplementary pension benefi ts; “CATS” early retirement plan benefi ts; employer’s contributions to private health insurance companies for retirees and early retirees; long service awards.
Actuarial gains and losses are recognized in income using the “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.
Natixis has issued perpetual and fi xed-term subordinated notes, which in the event of the issuer’s liquidation rank behind all other creditors. Where perpetual subordinated loan notes are treated as equivalent to debt repayable in installments, each period payment is broken down between the repayment of principal, which is deducted from the outstanding debt and interest, recorded in the income statement under interest expense.
IFRS requires the cost of these plans to be recognized in income as payroll expenses: Natixis grants stock options to certain of its employees. The 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 vested at the balance sheet date, are stated at their fair value on the grant date using the Black & Scholes model. The fair value is expensed in payroll costs on a straight-line basis over the vesting period with a corresponding entry in equity. Fair value is reviewed on each balance sheet date and adjusted if subsequent information indicates a change to the initial estimation of vested rights. The expense is then adjusted for the current and future years.
Two plans were set up by Ixis Private Capital Management in 2002 and 2004. The vesting period for these plans is four years; since 2004, CIFG Holding has set up three stock option plans and two bonus share allotment plans. The options may be exercised following a rights vesting period of three or four years, depending on the plans. The allotment of bonus shares becomes defi nitive only after a lock-up period of two years. If the shares are not listed, CIFG Holding is obliged to repurchase the shares from their benefi ciaries. As required by IFRS 2, these plans are classifi ed as plans settled in cash. The fair value of the plans is expensed under wages and salaries over the vesting period of the rights, with a corresponding entry under debt on the balance sheet (“deferred income, accrued charges and other liabilities”). The liability is adjusted at each balance sheet date through to settlement, with any adjustments being made through the income statement.
Natixis (parent company) and Coface have enabled their employees to participate in stock option plans at a discounted
Only treasury shares allocated to the stabilization of the share price or for allotment to employees and classifi ed under trading securities or available-for-sale securities are left in the consolidated fi nancial statements. Shares held for other purposes and recognized under non-current assets in the individual fi nancial statements are deducted from equity.
Fees and commissions for one-off services, such as business provider fees, are recognized in income as soon as the service is provided.
The tax charge for the period comprises: tax payable by the various French companies at the standard rate of 34.43% and by foreign companies and branches at the local rate; deferred taxes arising on temporary differences existing in the individual fi nancial statements between the carrying amount and tax value of assets and liabilities on the balance sheet or on specifi c consolidation adjustments, calculated using the liability method.
The net deferred income tax balance is recognized in the balance sheet under “deferred income tax liabilities”.
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.
All fi nancing commitments granted by Natixis give rise to the grant of loans at market rates which are classifi ed as loans and advances. These commitments constitute contingent liabilities and are recorded in accordance with IAS 37. Upon their initial recognition, they are not recognized in the balance sheet. A provision for contingencies and losses, recorded under liabilities, is recognized after recognition in the event of the probability of default by the counterparty over the commitment period.
The fair value of loans with an initial term of less than one year is considered to correspond to their carrying amount.
Diluted earnings per share correspond to net income for the period (attributable to equity holders of the parent), divided by the weighted average number of shares adjusted for the maximum impact of the conversion of dilutive instruments into ordinary shares. Stock options issued are taken into account in calculating diluted earnings per share. The conversion of these instruments does not impact net income used to calculate diluted earnings per share.
Average number of shares for diluted earnings per share calculation 577,285,267 47,113,517 46,673,091
Diluted earnings per share (€) 1.6 * 14.8 10.4 * The par value of the share was divided by 10 on the day following the asset contribution, which automatically led to a ten-fold increase in the number of shares. On a like-for-like basis, 2005 earnings per share would have been €1.48.
8.1.1 - Financial assets measured at fair value through profit and loss
At December 31, 2006, assets at fair value through profi t and loss comprised primarily: fi xed income securities; (derivatives.)
Derivative fi nancial instruments held for trading 8.1.3 53,773 5,282 3,974
Variable income securities valued on a listed market (listed securities) or using another valuation method (unlisted securities valued on the basis of price-earnings ratio or discounted cash fl ows) break down as follows: 8.1.1.1 - Variable income securities at fair value through profit and loss
Cash fl ow hedging is principally used by Natixis as a structural hedge of parent company Natixis’ 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 Ixis Capital Markets North America’s (subsidiary of the Ixis CIB sub-group) interest rate risk.
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 8.3 - Available-for-sale financial assets
Accrued interest 8.4 - Loans and advances 8.4.1 - Loans and advances to banks
(1) The hedging rate of non-performing loans to banks stood at 37% at December 31, 2006 compared with 59% at December 31, 2005.
Consolidated fi nancial statements and notes 8.4.1.1 - Performing loans to banks
TOTAL PERFORMING LOANS 114,923 56,112 41,142 8.4.2 - Loans and advances to customers
(1) The hedging rate of non-performing loans to customers was 60% at December 31, 2006, making it identical to the level at December 31, 2005.
At December 31, 2006, the fair value of held-to-maturity fi nancial assets, calculated in accordance with the methods set out in Note VII, amounted to €7,514 million.
Consolidated fi nancial statements and notes 8.6 - Deferred tax assets and liabilities
Including: - deferred tax assets 523 248 231 - deferred taxes of associates (7) (7) (4)
(1) The sources of deferred taxes 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.
(3) In line with US legislation, goodwill arising on the acquisition of the Nvest sub-group by Ixis Asset Management Group is amortized for tax purposes. In accordance with paragraph 15 and 21 of IAS 12, a deferred tax liability was recognized on the temporary difference between the carrying amount and value for tax purposes of the goodwill. Pursuant to the US tax treaty, the tax rate applied is that applicable in France to long-term capital gains insofar as it was considered that: - the goodwill was inseparable from the business activities and accordingly could not be sold separately from the entity carrying it; - the timing difference arising on the goodwill could be recovered only through the sale of the entity’s shares.
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 8.7 - Other assets and liabilities
Deferred income and accrued charges - insurance companies 8.7.3.2 392 985 177 8.7.1 - Sundry other assets and liabilities 8.7.1.1 - Other assets
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 8.7.3 - Accrued income and prepaid expenses and deferred income and accrued charges - insurance companies 8.7.3.1 - Accrued income and prepaid expenses - insurance companies
Deferred acquisition costs 105 17 19 8.7.3.2 - Deferred income and accrued charges - insurance companies
Non-current assets held for sale 0 0 0 0 0 0 0 0 0
(1) Insurance company investments. Changes in fair value give rise to the symmetrical recognition of a deferred participation reserve equal, on average, to 92% of the base concerned.
Opening balance Acquisitions Change in impairment losses Exchange differences Closing balance
The goodwill of the sub-groups included in the scope of the November 17 asset contribution comprises the goodwill present on their balance sheet and the goodwill recognized by Natixis upon their fi rst-time consolidation.
This goodwill breaks down as follows: Goodwill already present on the sub-groups’ balance sheet
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 8.10 - Deposits from banks and customer deposits
Deposits from banks and customer deposits are presented by nature, taking into account whether they are demand or time deposits. They are measured in accordance with IAS 39 as other fi nancial liabilities under the amortized cost method.
At December 31, 2006, the fair value of customer deposits was €50,244 million.
Consolidated fi nancial statements and notes 8.11 - Debt securities in issue
Debt securities in issue (interest-bearing notes, interbank market instruments etc.) are broken down by nature, apart from subordinated debt, which is recorded separately in a specifi c line item.
In order to protect policyholders, insurance companies record under liabilities technical reserves, determined on the basis of statistical calculations.
Provisions for unearned premium income refl ect the portion (calculated on an accruals basis) of premiums issued during the fi nancial year that relate to a period after the balance sheet date.
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 8.13 - Provisions and impairment charges 8.13.1 - Summary of provisions
Provisions for employee benefi ts 242 41 (44) 35 (2) 272
Provisions for current income taxes 120 64 (29) (16) (2) 47 (6) 178
Amortization, depreciation and impairment of property, plant and equipment and intangible assets
After analysis, preferred shares may be classifi ed either as debt or equity. All the preferred shares issued by Natixis are classifi ed under subordinated debt.
In addition, it is worth noting that two issues of supersubordinated notes held as equity on Ixis CIB’s balance sheet have been reclassifi ed in Natixis’ consolidated fi nancial statements as debt based on the high probability of Ixis CIB’s being integrated within Natixis and the pre-existence of an issue ranking pari passu with them, making payment of a coupon obligatory on these two super-subordinated notes.
At December 31, 2006, the fair value of subordinated debt came to €8,780 million.
(1) The 2006 issues comprised a tranche of €1,000 million in dated subordinated notes (TSRs, €1,000 million issued in September 2006 due 2017) issued by Natexis Banques Populaires, a €1,002 million tranche (net of intra-group items) issued by Natixis (December 2006 TSR: €274 million (net of intra-group items) - due 2021, December 2006 TSR: €500 million - due 2017, December 2006 TSR $300 million, i.e. a euro-equivalent value of €228 million - due 2019) and a $250 million tranche, i.e. a euro-equivalent value of €189 million, super-subordinated notes (TSS) issued by Ixis CIB and included in its Tier 1 capital ratio.
(2) Changes in the scope of consolidation primarily included the addition of Ixis CIB, CACEIS and CEFI.
“Interest and similar income” and “interest and similar expenses” comprise interest on fi xed-income securities recognized as available-for-sale fi nancial assets, and interest on securities lending/borrowing transactions and on loans and advances to banks and loans and advances.
Expiry of hedging relationship (CFH) 1 (1) 0 0 0 0 0 0 0
Impaired loans, including restructured loans 2 2 12 12 2 2
Consolidated fi nancial statements and notes 9.2 - Net fee and commission income
Financing, guarantee, securities, derivatives commitments 87 (59) 28 66 (43) 23 86 (40) 46 9.3 - Gains or losses on financial assets and liabilities at fair value through profit and loss
This item includes gains and losses on fi nancial assets and liabilities at fair value through profi t and loss, whether held for trading or designated as at fair value, including interest.
Net gains on fi nancial assets and liabilities excluding hedging instruments 921 586 161
Net gains on fi nancial assets and liabilities held for trading 848 (73) 129 o/w non-hedging instruments 181 (371) (274)
Net gains or losses on available-for-sale fi nancial assets principally comprise gains or losses on sale and impairment losses on variable income securities.
Income and expenses from other activities comprises mainly income and expenses relating to lease fi nancing and investment property.
Sub-total real estate activities 246 (168) 76 238 (176) 62 197 (149) 48
Net charge to/reversal of insurance companies’ technical reserves (1,519) (1,519) 0 (1,490) (1,491) 0 (686) (687)
Operating expenses comprise mainly payroll costs, including wages and salaries net of rebilled expenses (see 12.1), social security charges and employee benefi ts (see 12.3) such as pensions (defi ned benefi t plans) and share-based payments (see 12.4), in accordance with IFRS 2.
Write-offs of individual receivables (100) 47 (13) 17 (49) (169) 104 (8) 16 (56) (89)
Total net reversals: 251 9.8 - Share of income of associates
Net capital gains on disposals 11 9 11 5 93 98 2 (3) (1)
= Consolidated net income before tax, goodwill amortization and share of income of associates 1,306 1,052 740
(1) The main deductions in respect of permanent timing differences concern the tax-exempt net income of venture capital subsidiaries. Under IFRS, results of subsidiaries that have issued preferred shares have been eliminated after reclassifying interest due to minority shareholders as interest expense. Under French GAAP, this no longer qualifi es as a permanent timing difference.
Natixis has six business segments, representing the six business lines identifi ed in Natixis’ organization structure: ■
The CIB business line houses all the fi nancing and capital markets activities for a clientele of large companies, banks and institutions, local authorities, and the retail banking networks of the two core shareholders. It brings together Ixis CIB’s expertise in capital markets with Natixis’ know-how in fi nancing. It has a highly integrated sales force responsible for marketing Natixis products and developing sales of all
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes products to its customers, and particularly products provided by the core business, which include: fi nancing products: working capital fi nance (overdrafts, spot credits, discounting, credit lines, guarantees and bonds, documentary credits), fi nancing for equipment, assets, acquisitions, projects and international trade; capital market products: fi xed-income, equity, credit and currency derivatives, brokerage and arbitrage, natural resources and securitization; cash management and payment services: payment systems, EDI, authorizations, checks, letters of credit, transfers, cash management; advisory services: design and implementation of innovative fi nancial solutions for corporate and institutional customers, M&A and corporate fi nance advisory capabilities.
This business line encompasses: the private equity business, which provides expansion (corporate fi nance for mature companies), buy-in and buy-out (LBOs) and venture capital (young and innovative companies) and international private equity for a clientele of small and medium-sized, mostly unlisted companies by leveraging its own sales force; the wealth management activities in France and Luxembourg, developed from Banques Populaires’ and supplemented by Natixis clientele, plus the recent addition of customers contributed by La Compagnie 1818 and the Caisse d’Epargne group. They span advisory services, portfolio management and mutual fund investment management.
With the addition of GCE Affacturage, which took over the SME factoring portfolio of the Caisse d’Epargne et de Prévoyance d’Île de France’s department, Natixis has strengthened its position in this fi eld and honed its expertise for retail networks, which is already applied through Natexis Factor.
Main activities: 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.
Receivables management has an extensive distribution network comprising: its own network inherited from Coface covering 60 countries, supported by the CreditAlliance network (91 countries); the Banque Populaire and Caisses d’Epargne retail banking networks, which are a major source of factoring business in France and offer substantial development potential for other activities.
Natixis’ product management and design activities were strengthened by the contribution of the IAM group’s businesses. These 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. These companies are thus able to focus on their core business of achieving high performance, while retaining the option of developing their own institutional clientele and benefi ting from the business line’s other support functions. A number of them
This analysis refl ects the main regions in which it operates, of which France is by far the largest market.
Segment reporting is based on fi nancial aggregates taken from the balance sheet and income statement and reconciled with the consolidated fi nancial statements. Results for each segment comprise directly attributable operating income and expenses, including transactions with other segments of Natixis.
General system and principles applied by Natixis until November 17, 2006
The control coordination committee, which had been chaired since 2003 by the Chief Executive Offi cer, coordinated these various units on a monthly basis.
The credit risk management system was also structured around the large exposures committee and the various risk committees. The large exposures committee included the Chairman, the business line heads and representatives of the risk management, internal control and internal audit departments. It monitored and measured trends in the bank’s major exposures and took preventative measures. It also assessed the quality of each core business’s security systems and risk management tools. During 2006, it focused on integrating the Basel II capital ratio into the risk management process and validating capital market risk models, operational risk and LBOs.
Natixis’ risk management system is an integral part of compliance with regulatory standards and of the creation of an organization implementing the best practices of Natexis Banques Populaires and Ixis -CIB.
Permanent controls are underpinned by a coordinated set of committees, principally including: a top-level committee: the group risk management committee, which sets the major tenets of risk management policy; the Natixis group credit committee; the market risk committee; the operational risk committee; the new products and new business committees; the sensitive matters and provisions committee; ■
The risk management department aims to achieve a unifi ed organization in terms of resources, methodologies and systems that capitalizes on Ixis -CIB’s and Natixis’ best practices. As of November 17, 2006, a Senior Executive Vice President in charge of risk management was appointed under the responsibility of both Natixis and Ixis -CIB. He reports directly to the Chief Executive Offi cer.
The role of the market risk committee is to determine the bank’s market risk policy and ensure that it is implemented properly. The market risk committee represents the operational
extension of the executive body and as such possesses full powers to make decisions in matters falling within its jurisdiction. The market risk committee meets on a monthly basis. This said, it may be convened whenever the need arises. It is chaired by a member of the Management Board. The committee’s chairman has sole authority to make decisions after a discussion between the stakeholders. Should he be unavailable, he may be represented by another person.
Natixis’ risk management department validates these market models and ensures on a regular basis that the models used are relevant in view of trends in the markets and best practices in the industry.
The market risk department oversees second-tier control and is completely independent of the business units. Its key duties are thus: validating the principles and methods proposed by the middle offi ce, ensuring their consistency throughout the Group and making recommendations where necessary; monitoring market risks at the various consolidation levels and particularly at Group level; handling internal and external reporting on market risks; validating internally-developed models and software models used to value products held in the portfolio; validating the various delegated authorities and limits requested by capital markets unit of the corporate and investment banking business line and proposed by the middle offi ce; making recommendations on the risk management system.
In addition, the control system also draws on the fi rst tier controls performed by the middle offi ce, which has operational functions linked to the applications it administers and uses on a daily basis. Its key duties are: producing and analyzing performance and risks on a daily basis; producing and analyzing provisions on a monthly basis; ensuring the reliability of market parameters used to calculate results and risks; proposing methods to calculate provisions, while ensuring that they are exhaustive and match the nature of risks incurred; developing the system of delegated limits and method of calculating risk, in conjunction with the risk management department; monitoring and reporting any market limit violations.
Until November 17, 2006, the bank’s Board of Directors validated the level of overall limits for all the entities. In addition, the internal audit departments of the former Natexis Banques Populaires and Banque Fédérale des Banques Populaires periodically conducted specifi c audit assignments.
Consolidated fi nancial statements and notes derivatives, project structuring and fi nancing. Charged with business monitoring in the broad sense of the term, these units harness the synergies between risk analyses and performance. They represent the department in its dealings with each front offi ce and internally act as customers and users of the risk and performance systems.
Within their scope, they are thus responsible for: analysis and control of market risks and related reporting; regular monitoring of positions and their performance; second-tier validation of investment performance produced by the results department; validation of pricing models; determination of provisioning policies and value adjustments (for liquidity risk, statistical risk, non-hedgable parameters, model risks, etc.); follow-up on the new products committee.
Historical stress testing consists in replicating sets of changes in market parameters observed during past crises, over a short-term time horizon, to simulate the orders of magnitude of changes in the P&L. Although these stress tests have no predictive power, they help to assess the scope’s exposure to known scenarios. No historical stress scenarios were used in production at Ixis Corporate & Investment Bank at November 17, 2006. The stress scenarios already in place at the former Natexis Banques Populaires will be reused across the entire combined entity, plus additional shocks concerning the credit scope.
Theoretical or “global” stress tests consist in modeling changes in market parameters for all the activities, based on plausible assumptions of the reaction of one market to another, depending on the nature of the initial shock. Four global stress tests currently in place at Ixis Corporate & Investment Bank will be extended to the entire scope of Natixis, once foreign exchange rate shocks have been added.
Methods Natixis’ market risk management system is based on a risk metrics model that measures the risk run by each Group entity. The current model consists of a number of standard metrics and VaR calculations. As part of the creation of Natixis, the internal model developed by Ixis Corporate & Investment Bank, which is based on a VaR measurement, is set to be applied to the portfolios of the former Natexis Banques Populaires (see above).
The system of limits was reviewed notably with respect to the following points: further increase in the outstandings authorized for money market securities, with an adjustment in the level of the limit related to the spread risk management metric (Xsi)* on this portfolio.
Ixis Corporate & Investment Bank’s risk measurement methodology Market risks are measured using various types of metric: synthetic Value at Risk (VaR) metrics revealing the potential losses that each business may suffer at a predefi ned confi dence interval (e.g. 99%) and for a specifi ed position holding horizon (e.g. 1 day). They are calculated and monitored on a daily basis for all the Group’s trading activities.
To this end, the combined performance of the market parameters on which portfolios’ value depends is modeled using statistical studies over a period of 365 calendar days. For the time being, there are over 3,500 market risk parameters that are modeled and used in the Scénarisk software.
In keeping with existing systems in place at the former Natexis Banques Populaires and Ixis-CIB, the ALM committee defi nes the key priorities for the management of structural balance sheet risks. The role of this committee, which is chaired by a member of the Management Board, includes representatives from corporate and investment banking, the fi nance and risk management departments and meets once a quarter, is asfollows: monitoring changes in the balance sheet and the off-balance sheet; ■
Consolidated fi nancial statements and notes analyzing liquidity risks, the structural interest rate and nonoperational currency risk; validating internal refi nancing rules (TCI); validating the Group’s refi nancing policy on the markets; validating the limits corresponding with the balance sheet risk metrics for presentation to and approval by the group risk management committee.
Since 2000, the structural interest rate and liquidity risk transformation process is centralized using internal matching agreements within the treasury department of the corporate and institutional banking and markets business line. This department is responsible for operational management
Structural interest rate risk Since it is a corporate and investment bank, Natixis has few undated interest rate positions. Almost all its transformation into structural interest rate risk is based on contractually dated transactions centralized by the treasury department. In addition, the structural interest rate risks deriving from these operations are almost exclusively linear in nature.
Liquidity risk As a corporate and investment bank, Natixis has few liquidity positions in undated accounts. Almost all its liquidity transformation is based on contractually dated transactions.
The treasury department’s handling of liquidity transformation is monitored using minimum liquidity gap coverage levels (ratio of assets to liabilities by maturity segment) validated by the ALM committee. These ratios were not changed during 2006.
Structural currency risks Natixis’ structural currency risks are primarily focused on the US dollar. These include risks linked to: investments in subsidiaries, capital allowances given to branches and retained earnings not denominated in euros,
incomes and expenses denominated in a currency other than the euro.
With regard to the fi rst component, the ALM committee has prioritized the purchase of the foreign currency and refi nancing in euros for long-term investments (acquisitions of shareholdings, capital allowances, etc.). This policy helps to protect the bank’s capital adequacy ratio, the risks of which are denominated partly in a currency other than the euro. It may evolve should the protection level of the ratio move above 100%.
The interest-rate gap used is the difference, for each plot, between fi xed-rate liabilities and assets (i.e. including fi xing for revisable rates). A negative (or positive) gap indicates exposure to an increase (or decrease) in interest rates.
Liquidity risk Short-term liquidity requirements are monitored on the basis of three factors: the liquidity ratio, with a target ratio of a minimum of 120%. This is estimated daily by the fi nance department on a company basis and monthly on a consolidated basis; current account limits: these limits are managed by the fi nancing committee, which comprises representatives of the main users, as well as the treasury and risk management departments; stress scenarios: scenarios are updated once a month and presented to the balance sheet management committee.
As referred to previously, the objectives of Natixis’ (scope of the former Natexis Banques Populaires) and Ixis -CIB’s strategy for the management of fi nancial risks – namely interest rate and liquidity risks – are based on the centralization of these risks with the treasury department. Since Natixis’ entities enjoy operational autonomy in terms of managing their interest rate and liquidity risk as a result of delegation of authority from the ALM committee, they have their own treasury or balance sheet management committee. The interest rate risk of Natixis and of its main subsidiaries is subject to maximum exposure limits, which are defi ned and validated annually by the ALM committee.
Risk of not being able to meet the minimum contractual payout rate in the event of a fall in interest rates
To contend with this risk, ABP Vie has for several years only sold contracts with no guaranteed minimum payout rate, which account for 84% of contracts. The average guaranteed minimum payout rate stands at 0.53%.
ABP Vie was thus able to restrict the scope requiring hedging with caps to around one-third of its fi xed-income assets. In addition, it purchased variable-rate bonds with minimum guaranteed yields.
option embedded in the contracts. The test carried out was based on a stochastic technique of measuring discounted future cash fl ows.
The sensitivity of the Group’s equity to changes in interest rates is attenuated by the classifi cation of around €7 billion of fi xed-income securities in the “held-to-maturity fi nancial assets” category.
The sensitivity analysis performed at year-end 2006 shows that a one-point increase in bond yields would have a negative impact of €23 million on equity, i.e. 3% of total capital.
Counterparty risk is monitored and managed in accordance with Natixis’ internal standards and limits, as defi ned by the risk management committee, as well as by the regulatory constraints on insurance companies.
As a result, over 95% of the fi xed-income portfolio is invested in securities rated above A-.
The reinsurance plan enables it to curb its exposure notably to the dispersion risk of guaranteed capital and to the frequency risk of losses linked to absence from work and invalidity. A reinsurance treaty covering the scenario of an epidemic or pandemic has also been arranged to curb exposure resulting from the increase in mortality rates that would ensue.
In addition to monthly monitoring of each underwriting center, a procedure is in place at group level based on: a centralized system for reporting potential loss claims above a certain amount (currently €0.5 million for all underwriting centers, increased to €1 million for the two main centers – Coface SA and Coface Kredit), with the intervention of a subsidiary specializing in recovery (RBI); ■
Exposure to non-payment risk Coface insures the non-payment risks of nearly 1.9 million companies worldwide. At December 31, 2006, the average risk per debtor was €169,770. Individually, the vast majority of debtors pose an insignifi cant risk in relation to Coface’s total portfolio, since no single debtor represents more than 1% of Coface’s total outstandings.
Risk control is a critical aspect of all transactions. After an analysis of transactions by the business lines, the risk control department verifi es the quality of the risk models used, their correct use and the quality of the risk underwriting.
In addition, CIFG verifi es the intrinsic diversifi cation of its risk portfolio. Using proprietary models and models replicating rating agencies’ analysis, it performs continuous analysis of the overall risks and also of the individual risks deriving from underlying assets to verify their characteristics and assess the probabilities of default and severity.
When CIFG grants protection against a credit risk in the form of a credit derivative (credit default swap), market conditions can lead to changes in the carrying amount of these transactions at a given date. Although fi nancial guarantors are by defi nition obliged to pursue a buy and hold strategy, this change in market conditions has to be measured in line with IFRSs.
For each relevant transaction, CIFG models the impact of credit spreads on possible losses and verifi es that the resulting change in value remains minimal relative to the terms of the transaction. The credit committee is supplied with this information when it reviews the transaction.
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 12.2 - Number of employees
As regards pension funds specifi c to Natixis, the former BFCE fund is at breakeven, while the former Crédit National fund shows a small defi cit between reserves and discounted commitments.
Provisions are booked for all subsidiaries’ commitments not covered by insurance policies.
The Social Security fi nancing act for 2007 alters the conditions under which employees may be retired before the age of 65. Allowances paid in connection with employees who take early retirement before the age of 65 after January 1, 2014 will be subject to social security contributions. Analyzed under IAS 19 as a change in scheme, the impact of this new legislation on the amount of obligations will be recognized on a deferred basis over the vesting period of entitlements starting on January 1, 2007, since the Act entered force in late 2006.
The drift rate for healthcare expenses is 4.5%, of which 2% relates to infl ation and 2.5% to the “generation” effect.
Benefi ts paid over the period (3) (4) (2) (3) (12)
IFRS 2 covers four plans allocated after November 7, 2002, rights to which had not yet vested as at January 1, 2006.
Financial assets at fair value through profi t and loss 165,496 651 1,214 9,315 164 791 (728) 176,903
Available-for-sale fi nancial assets 6,476 51 620 17,408 1,023 5,852 (287) 31,143
Consolidated fi nancial statements and notes 13.2 - Geographical analysis 13.2.1 - Income statement
Held-to-maturity fi nancial assets 6,956 81 0 0 0 0 7,037
Financial liabilities at fair value through profi t and loss 103,333 10,331 17,975 726 1,230 (203) 133,392
IAS recognizes three types of fi nancial guarantee: guarantees granted (received) upon the transfer of fi nancial assets/liabilities; fi nancial guarantees treated as derivative fi nancial instruments; these are credit derivatives (see table on derivative fi nancial instruments for details); fi nancial guarantees meeting the defi nition of an insurance contract and covered by suffi cient technical reserves.
Guarantees given - Confi rmed documentary credits 1,234 1,322 906 - Tax and other bonds 830 1,001 1,118 - Other bonds and endorsements 124,580 5,399 5,393
The following financing commitments fall within the scope of IAS 39: commitments classifi ed as fi nancial liabilities at fair value through profi t and loss. If an entity has a practice of reselling or securitizing credits just after they are issued, these loans are subject to IAS 39 from the commitment phase; those which are subject to settlement (i.e. disposal); those which result in a loan below market conditions.
corresponding entry under accruals. This discount is then integrated into the loan and in the calculation of the effective interest rate.
A fi nancing commitment given is a contingent liability, defi ned by IAS 37 as: a possible obligation arising from past events whose existence will be confi rmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise; or present obligation arising from past events but which is not recognized because it is not probable that an outfl ow of economic benefi ts will be required to settle the obligation; or a reliable estimate of the amount of the obligation cannot be made.
Less than 3 months 3 months to 1 year 1 year to 5 years
Available-for-sale fi nancial assets 2,022 3,195 3,177 4,694 6,839 11,217 31,143
Held-to-maturity fi nancial assets (HTM) 0 0 405 2,678 3,954 0 7,037
Financial liabilities at fair value through profi t and loss 478 3,631 14 391 31
(1) In 2006, as in previous years, directors’ fees paid to Board members and members of the Supervisory board included a fi xed portion (€1,525 per year and per person) and a variable portion (€1,220 per Board meeting and per person). The directors sitting on the audit committee and remuneration c ommittees received a payment of €915 per meeting and per person. This compensation is paid in full at the end of the year.
Total gross compensation paid to executive offi cers was as follows: In euros Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
Dominique Ferrero, Chief Executive Offi cer and Member of Natixis’ Management Board None.
Number of options exercised Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
In the event of the early retirement of a director (apart from in the case of gross misconduct), the Banque Populaire group shall pay an allowance equal to one year’s compensation, plus one-twelfth of annual compensation per year of service at the Group, and possibly one-twelfth of the same compensation per year as an executive offi cer. The maximum amount payable may not exceed 42/12ths of annual compensation.
At the level of net banking income, insurance income and expenses that are similar to banking income and expenses (principally interest and fees) are reclassifi ed under related line items in the banking format, in the interests of consistency. Movements in technical reserves and loss expenses are deducted from net banking income and not recognized as impairment losses.
Reclassifi cations on the balance sheet were not very signifi cant. Most of the balance sheet line items specifi c to insurance companies are shown under “insurance company investments” on the asset side and under “technical reserves of insurance companies” on the liabilities side. Accrued interest receivable and payable, which is shown under accrued income and prepaid expenses and/or deferred income and accrued charges in the insurance format, is reclassifi ed on the same lines as the principal in the banking format.
Mark-to-market losses on assets held to cover linked liabilities (19) (19) (19) - - (19)
Impairment charges and other credit provisions (8) - - - - (8) (8)
Share in income of associates 11 - - - - 11 11
Amortization, depreciation and impairment of property, plant and equipment and intangible assets (23) (21) (18)
In our opinion, the consolidated fi nancial statements give a true and fair view of the fi nancial position and the assets and liabilities of the group and the results of its operations in accordance with IFRS as adopted by the European Union.
Natixis uses signifi cant estimates within the context of its banking activities: the Group records provisions to cover the risks inherent in its business (notes 7.3 and 11.4 of the notes to the fi nancial statements). We examined the control procedures applicable for monitoring credit risks, provisioning methodologies, assessing the risks of nonrecovery and determining the related specifi c and collective provisions; the Group uses internal models and methodologies to measure fi nancial instruments that are not traded on active markets, as well as to book certain provisions and assess the relevance of their designation as hedging instruments (in particular fi nancial assets and liabilities at fair value through profi t or loss, available-for-sale assets and fi nancial instruments recognized at amortized cost, the fair value of which is presented in note 7.1 of the notes to the fi nancial statements). We have examined the control procedures relating to the verifi cation of the models and determination of the parameters used.
Fund for general banking risks 239 233 13b Regulated reserves & government grants 94 106 111 16 of which institutional activities: 78 93 100
Commitments given to customers 17,369 17,061 15,959 16 of which institutional activities: - 1 2
19 Income from variable income securities 433 294 198 20 Fee and commission income 719 638 562
22 Net gains/(losses) on securities held for sale (5) 117 68
Depreciation, amortization and impairment of property, plant & equipment and intangible assets (30) (21) (27)
GROSS OPERATING INCOME 638 521 434 25 Impairment charges and other credit provisions (141) (76) (82)
The highlight of the 2006 fi nancial year was the formation of Natixis, the new name for Natexis Banques Populaires, notably including the contribution by the Caisse Nationale des Caisses d’Epargne of shares in the following companies: Ixis CIB with a value of €4.4 billion; IAMG with a value of €3.6 billion; CACEIS with a value of €0.5 billion; Natixis Garanties with a value of €0.5 billion; CIFG with a value of €0.4 billion; CEFI with a value of €0.2 billion; La Cie 1818 with a value of €75 million; Gestitres with a value of €32 million; GCE FS with a value of €29 million; GCE Bail with a value of €39 million; GCE Affacturage with a value of €9 million; Foncier Assurance with a value of €33 million; The Cooperative Certifi cates of Investment held by the Caisses Epargne Prévoyance with a value of €4.5 billion.
The amounts shown are the contribution values at November 17, 2006, the date on which Natixis was formed.
Except for the Banques Populaires CCIs refi nanced by the issue, the contribution of these assets gave rise to an equivalent increase in equity (increase in Natixis’ share capital and share premium).
The costs arising from these contributions and the restructuring of Natixis were recognized under operating expenses.
Loans are carried at their face value. Undrawn amounts on loans already committed and agreed are included in off-balance sheet items under the heading “fi nancing commitments given”. Performing and non-performing loans are identifi ed separately.
Since 2000, Natixis has provided for loan impairment at three levels: 2.1 - Specifi c provisions 2.1.1 - Loan principal Where there is a risk of partial or total non-recovery of loans or non-compliance with loan terms or covenants, impairment charges or provisions are recognized in income under the heading “impairment charges and other credit provisions”. These impairment charges are determined on a case-bycase and country-by-country basis and adjusted at quarterly intervals, based on an analysis of the related risk and available collateral. With lease fi nancing transactions, capital gains and losses on disposal and charges to and reversals of provisions (leased assets and temporarily unleased assets) are recognized in net banking income. Termination compensation is booked as interest and similar income. Only the principal amount of payments on non-performing leases is provided for under impairment charges and other credit provisions.
On the assets side of the balance sheet, the net outstanding balance of the loans concerned by the put option is covered by zero-coupon bonds held by the two entities. The results of the two entities consist solely of annual accruals to recognize the value appreciation of the zero-coupon bonds up to their redemption value in 2014, when the bonds mature and the defeasance structure will be wound up. Over this period, the value appreciation exactly matches the provisions required to write down the full amount of the loans covered by the put option. Consequently, the operation has no impact on the income statement and the cash required to refi nance the transactions is offset by a cash infl ow.
A fund for general banking risks, consisting of amounts set aside from post-tax income, completes Natixis’ range of provisions for general risks. At December 31, 2006, the entire amount of the fund for general banking risks was reversed.
Securities are classifi ed according to the purpose of the transaction regardless of their legal form (equities, bonds and notes, treasury bills, certifi cates of deposit, negotiable instruments, money market securities, etc.), based on the following rules: trading account securities are securities traded on liquid markets, which are bought or sold with the intention of reselling or repurchasing them within a short period. They are carried in the balance sheet at cost, including transaction expenses and accrued interest. At the period-end, they are marked to market and the resulting unrealized gain or loss is recognized in income. Trading account securities that are still in the portfolio six months from the date of acquisition are transferred to “securities held for sale” at their market price on the transfer date; securities held for sale are securities acquired with the intention of holding them for a period of more than six months. They are valued individually at the year-end at the lower of cost or estimated fair value. An impairment charge is taken for unrealized losses but unrealized gains are not recognized. Premiums and discounts, corresponding to the difference between the cost of fi xed-income securities (excluding accrued interest) and their redemption price, are taken to income over the remaining life of the securities; debt securities held for investment are fi xed-income securities acquired with the intention of being held in principle to maturity. They are either match-funded or hedged against interest rate risk. They are recorded at cost (excluding accrued interest), and any premium or discount between cost and redemption price is deferred and taken to income over the remaining life of the securities.
Consolidated investments: Natixis valued its investments in consolidated subsidiaries at December 31, 2006.
The discount rate used for each subsidiary was based on the following: the average 10-year OAT (French government bond) yield; the risk premium in the subsidiary’s market; a beta value based on a sample of comparable companies.
Non-consolidated investments are valued individually at the lower of cost and value in use at the year end. Value in use is determined on the basis of criteria such as restated net asset value and profi tability.
6 - Income, value adjustments and gains or losses on securities
Fixed assets of the former Crédit National purchased prior to December 31, 1976 are stated at fair value as determined at the time of the 1976 legal revaluation. Assets purchased since 1976 are stated at cost. Fixed assets of the former BFCE are carried in the balance sheet at their fair value as determined at the time of BFCE’s acquisition by Crédit National. Fixed assets of the former Caisse Centrale des Banques Populaires were transferred at their net book value following the partial asset contribution.
Assets are depreciated or amortized over their estimated useful lives either on a straight-line basis or on a diminishing balance basis where 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 where it can be measured reliably. Natixis does not believe it can reliably measure the residual value of items other than land
FINANCIAL DATA 6 Financial data Parent company fi nancial statements and notes and indestructible elevations. They are therefore assigned a nil residual value.
In line with the new standards, a specifi c deprecation schedule is drawn up for each signifi cant component of an item of property, plant and equipment, which has a different useful life or rate of consumption of future economic benefi ts than the items as a whole. For buildings used in the business and investment property, the following signifi cant components and depreciation periods have been identifi ed: land: n/a; indestructible elevations: n/a; walls, roof, waterproofi ng: 20 to 40 years; foundations, framework: 30 to 60 years; external rendering: 10 to 20 years; equipment and installations: 10 to 20 years; internal fi xtures and fi ttings: 8 to 15 years.
Where perpetual subordinated loan notes are treated as equivalent to debt repayable in installments, each periodic payment is broken down between the repayment of principal, which is deducted from the outstanding debt, and interest, which is recognized in income as interest and similar expenses.
The cost of share issuance by Natixis is offset, net of tax, against the issue premium.
The accounting treatment of speculative positions is identical with respect to interest fl ows. Positions are marked to market at the period end and a provision taken against any unrealized losses.
In the case of specialized management of a trading portfolio, each instrument is marked to market on an individual basis. Changes in value during the period are recognized immediately in income. Valuations are adjusted for counterparty risk and the discounted present value of future contractual management costs.
Parent company fi nancial statements and notes 13.2 - Currency instruments
In the case of 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 in income. For over-the-counter instruments, a discount may be taken against the market value in respect of modeling risks or uncertainty over parameters, via a charge to provisions for fi nancial instruments.
Commitments given to banks that grant 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 arising on institutional activities (swaps and exchange rate guarantees) are charged to or paid to the French Treasury in accordance with agreed terms and conditions.
employer’s contributions to private health insurance companies for retirees and early retirees; long service awards.
The provision recognized in the balance sheet is equal to: the amount of the actuarial liability in respect of postretirement and similar benefi ts for employees and retirees; less the market value of plan assets; less or plus any actuarial losses or gains arising from: experience adjustments in respect of demographic variables, changes in actuarial assumptions such as the discount rate, employee turnover and future salary increases, differences between the actual return and expected return on plan assets.
Natixis abandoned the previous method used to account for forward currency positions (deferral of the premium/discount) and now marks these positions to market (valuation using the exchange rate for the remaining term). The impact of this change of method (positive impact of €9.6 million) was recognized through opening 2006 equity.
Unless otherwise stated, the fi gures shown in the notes to the parent company fi nancial statements are expressed in millions of euros.
Securities held for sale 516 1,060 1,890 a ccrued interest receivable 20 30 59
Debt securities held for investment 344 383 414 a ccrued interest receivable 9 10 8
Loans and advances to banks 54,110 65,174 47,782 a ccrued interest receivable 2 11 41 n on-performing loans 1 1 1 a ccrued interest receivable 532 484 244 n on-performing loans 40 81 85
Short-term loans and consumer loans 18,159 15,949 12,149 a ccrued interest receivable 81 47 41 a ccrued interest receivable 10 8 8 a ccrued interest receivable 12 5 8
NOTE 3 BONDS, EQUITIES AND OTHER FIXED AND VARIABLE INCOME SECURITIES
Natexis Paiements (formerly Banque pour les Paiements on line) 4,076,219 22,086,690.50
CCI BP Val de France - St Quentin en Yvelines 1,175,000 332,739,909.76
OGIF - Omnium de Gestion Financière de l’Île-de-Fr ance 77,350 31,556.95
D) Investments with a carrying value of less than or equal to €1 5,000 - 153,698.53
A - Investments with a carrying value in excess of 1% of the share capital of the reporting company - Investments in subsidiaries and associates (holdings in excess of 10%)
NATEXIS LEASE 45, rue Saint-Dominique, 75007 Paris 267,242 EUR 135,876 EUR 99.81%
NATEXIS PAIEMENTS 45, rue Saint-Dominique, 75007 Paris 22,419 EUR 1,584 EUR 100.00%
NATEXIS FACTOREM 4, place de la Coupole, 94600 Charenton-le-Pont 12,000 EUR 137,623 EUR 99.66%
NATEXIS ALGÉRIE 62, chemin Mohamed Drareni, Hydra, Algiers 2,500,641 DZD 322,988 DZD 91.29%
NATEXIS ARBITRAGE 115, rue Montmartre, 75002 Paris 60,298 EUR (9,690) EUR 100.00%
NATEXIS BLEICHROEDER INC 1345, avenue of the Americas, NY 10105, New York 151,503 USD (20,997) USD 100.00%
NATEXIS COMMODITY MARKET (ex Natexis Metals) 47-53, Cannon Street, London EC4M 5SH 35,788 USD (2,744) USD 100.00%
CEFI 87-89, quai Panhard-et-Levassor, 75634 Paris Cedex 60,090 EUR (1,147) EUR 67.00%
GCE GARANTIES 42, rue Raymond Poincaré, 75782 Paris 10,109 EUR 142,103 EUR 100.00%
Ixis ASSET MANAGEMENT GROUP 21, quai d’Austerlitz, 75013 Paris 66,809 EUR 2,193,125 EUR 84.58%
Intangible assets used in the business 87 53 (5) (1) 134
Property, plant & equipment used in the business 199 32 (17) (1) 213
Property, plant & equipment used in the business 122 21 (17) (1) 125
Due to central banks and post offi ces 613 412 22
Deposits from banks 50,267 54,106 39,847 a ccrued interest payable 5 2 2 o ther amounts due 1 25 27 a ccrued interest payable 344 426 207
Special savings accounts 60 63 55 a ccrued interest payable 6 4 2 o ther amounts due 3 66 69 a ccrued interest payable 24 111 64
Interbank market instruments and money market instruments 46,396 30,238 25,855 a ccrued interest payable 437 184 143 a ccrued interest payable 26 41 41
Revaluation reserve for depreciable assets Provisions for investment Accelerated depreciation Total
Investments in associates and other securities held for investment (3) (18) (33)
Investments in associates and other securities held for investment (5) (5) (129)
Reversal from provision for departures under the employee assistance program 1 2 4
Transfer of personnel costs in connection with the employee assistance program (1) (2) (4)
Impact of foreign branch income taxed at different rates (5) (3) (3)
Income after tax, depreciation, amortization and provisions 206,037,266.02 200,728,250.83 213,582,296.25 459,177,494.14 744,399,468.97
Income after tax, depreciation, amortization and provisions 4.34 4.18 4.43 9.37 0.61
In accordance with the requirements of Art. L. 823-9 of the French Commercial Code (Code de commerce) relating to the justifi cation of our assessments, we draw your attention to the following matters: Changes in accounting methods
Paragraph 17 of the section on accounting policies and valuation methods in the notes to the fi nancial statements describes the changes in accounting methods adopted during the year, which resulted in overall positive impact of €8.6 million on shareholders’ equity at January 1, 2006, resulting mainly from the adoption of the fair value method for forward currency transactions instead of the carry-forward method.
As part of our assessment of the accounting policies used by the company, we verifi ed the appropriateness of the basis for and presentation of these changes.
As required by article L. 225-88 of the French Commercial Code (Code de commerce), we have been advised of those agreements which were subject to prior authorization by the Board of directors until November 17, 2006, or by the Supervisory Board after this date.
The directors concerned by these agreements are: Mr Dupont, BFBP represented by Mr Desvergnes, Mr Brevard, Mr Clochet, Mr Comas, Mr Cordel, Mr Gentili, Mr Gevin, Mr Jeannin, Mr de la Porte du Theil and Mr Tourret.
Authorization of the global security and investment agreement between Natixis, Banque Fédérale des Banques Populaires, SNC Champion, Caisse Nationale des Caisses d’Epargne et de Prévoyance and the fi nancial institutions guaranteeing the transaction
Natixis, Banque Fédérale des Banques Populaires, SNC Champion, Caisse Nationale des Caisses d’Epargne and the fi nancial institutions guaranteeing the transaction, including Natexis Bleichroeder and IXIS Corporate & Investment Bank, have signed a global security and investment agreement.
The directors concerned are: Mr Milhaud, Mr Tourret, Mr Comolet, Mr Comas, Mr Cordel, Mr Crequit, Mr Gentili, Mr de La Porte du Theil, Mr Mettling, Banque Fédérale des Banques Populaires, represented by Mr Goudard, Caisse Nationale des Caisses d’Epargne, represented by Mr Mérindol.
Natixis did not incur any income or expenses in respect of this agreement during the year.
Natixis and the selling shareholders have signed an agreement concerning the sharing of expenses relating to the Offer.
The agreement was approved by the Supervisory Board on December 6, 2006.
The director concerned is Banque Fédérale des Banques Populaires, represented by Mr Goudard.
Acting as global coordinator, Natixis has signed a protocol agreement with the fi nancial institutions guaranteeing the open price offer, including Natexis Bleichroeder and IXIS Corporate & Investment Bank. The purpose of this protocol agreement is to set out certain rights and obligations of the fi nancial institutions guaranteeing the open price offer in addition to those stipulated in the global security and investment agreement relating to the Offer.
This protocol agreement was approved by the Supervisory Board on December 6, 2006.
The directors concerned are: Mr Milhaud, Mr Comolet, Banque Fédérale des Banques Populaires, represented by Mr Goudard, Caisse Nationale des Caisses d’Epargne, represented by Mr Mérindol. Natixis did not incur any income or expenses in respect of this agreement during the year.
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL (ARTICLE L.225-68 OF THE FRENCH COMMERCIAL CODE)
Information concerning conditions for the preparation and organization of the Board’s work is provided in the section on corporate governance.
Although responsibility for fi rst-tier controls falls to the heads of operational or functional departments, second-tier permanent controls and periodic controls are carried out by independent central functional departments, the heads of which, within the meaning of Articles 7 and 11 of CRBF rule n° 97-02, report directly to Natixis’ executive body within the meaning of Article 4 of the same rule; Natixis organizes its internal control functions into global units in order to ensure consistency throughout the Group. The internal control system therefore covers all risks and extends to all business lines and subsidiaries of the Natixis Group. Local permanent and periodic control functions within the Group’s subsidiaries or business lines report to Natixis’ corresponding central control departments, either on a functional basis in the case of subsidiaries or on a hierarchical basis in the case of business lines. The “risk”, “compliance” and “inspection/audit” units constitute separate business units; Natixis’ control system is organized in accordance with the principles set out by the Caisse d’Epargne Group and the Banque Populaire Group, with the aim of ensuring a consolidated approach to risk within the framework of the joint control exercised by the bank’s shareholders and future central bodies, as well as monitoring requirements on a consolidated basis in accordance with CRBF rule n° 97-02, as amended.
In 2006, the Internal Control department continued with the roll-out of tools and working methods intended to improve the effi ciency of the internal control offi cers. An IT application, accessible via the intranet, allows for management of the entire cycle of an assignment, from planning to the following up of recommendations. It is currently used by all entities in France and was rolled out abroad in 2006.
In addition, a sampling methodology was established in mid-2005, ensuring that all samples used in survey-based controls are representative, thereby allowing for more precise assessment of the reliability of results.
At the end of 2006, the Internal Control department initiated two projects that will be continued in 2007: formalizing relations with other permanent control functions (the Ethics and Compliance, Risk Management and Finance departments) in the form of charters setting out the rights and duties of each party; extending the scope of its controls, notably to the subsidiaries transferred by the Caisse d’Epargne Group as part of the creation of Natixis.
On an operational level, the aim of these procedures is to ensure: the compliance of transactions and activities with regulatory requirements and professional standards applicable to the company; the safe development in accordance with current regulations of new products/packages/activities; the organization of activities and operations in order to prevent any confl icts of interest.
The actions of the Group Compliance department are centered around two core responsibilities: prevention of non-compliance risk, which comprises: legal supervision, defi ning Natixis’ internal standards, in accordance with legislative and regulatory requirements applicable to banking and fi nancial activities, compliance with best practice rules relating to customers and professional standards applicable to Natixis’ various activities, advising staff about operational procedures, systematic pre-approval of new products and processes,
Natixis’ Group Compliance was created at the end of 2005 in accordance with new regulatory requirements, in particular those set out in CRBF rule n° 97-02. Until Natixis was created, this department reported to the General Secretary of Natexis Banques Populaires, who was a member of the executive committee and responsible for continuous checks; it is now under the direct authority of the Chairman of Natixis’ Management Board.
In practice, due to the relatively new nature of this function, apart from certain checks relating to conformity with AMF regulations and employee ethics and compliance, compliance checks have been delegated throughout the group to the Internal Control department.
Procedures have been revised as a result of the link-up with subsidiaries transferred from Caisse Nationale des Caisses d’Epargne. For this purpose, working parties have been meeting since the fourth quarter of 2006 in order to propose changes. Business line coordinators have also been appointed in order to ensure convergence.
The Group Compliance department is organized according to the following principles: separation of advance risk prevention functions and postoperation control functions; organization of Group Compliance teams according to Natixis’ business lines; management by a central department in charge of crossfunctional activities; high level of functional reporting by the subsidiaries’ heads of compliance to the Group Compliance department.
Natixis’ compliance control system is based on three main areas: Ethics and Compliance The Ethics and Compliance department is responsible for ensuring the awareness and correct application of regulations applicable to investment services providers, which apply to all Natixis entities, including its subsidiaries, as well as all employees.
The group’s standards and procedures form part of a General Procedure, resulting in the adoption in 2006 of the Group Compliance Charter, as well as governing procedures relating to new products and services, market abuse declarations, the preparation and updating of lists of insider dealing in Natixis shares and other fi nancial instruments.
In addition, since April 2006, Natixis’ central compliance team has been developing an E-learning training program. This training program is made up of two parts, the fi rst intended for all group employees (awareness module) and the second comprising six business line modules intended for the employees concerned. Training is also provided by the business line compliance teams.
Financial Security The Financial Security department reports to the Group Compliance department and is in charge of measures to counter money laundering and terrorism fi nancing at Natixis. Its resources were enhanced further in 2006 in order to step up the implementation of actions required in order to comply with applicable legal and regulatory requirements.
The department is made up of two teams: one is in charge of the various activities relating to combating money laundering and terrorism fi nancing, namely drawing up and updating procedures, checks of unusual transactions, declarations to the relevant authorities (Tracfi n and the French Treasury Offi ce) etc.; the other is responsible for implementing and updating the software intended either to ensure that the bank respects its obligations in terms of freezing the assets of organizations suspected of fi nancing terrorism and embargos, or to enhance its ability to detect money laundering transactions.
The plan of action initiated at the end of 2005 to improve the quality of customer records was implemented in the fi rst quarter of 2006.
The fi ltering of payments in order to detect terrorist fi nancing was also extended and since May 2006 has concerned all SWIFT messages sent and received.
2006 was dedicated to defi ning a uniform method of mapping non-compliance risks for the entire group and the roll-out thereof, capitalizing on the work already carried out by heads of Compliance at the various business lines, the Internal Control department and the Operational Risk Management department. The roll-out of this risk mapping has begun and is continuing.
The Group Compliance teams also carry out specifi c ad hoc checks into certain areas of regulation: continuing checks, automated checks or checks based on transaction reporting and checked in situ. A system for detecting market abuses has been rolled out gradually since June 2006. This system uses automated detection tools developed internally and is accompanied by procedures, training and controls.
Finally, in addition to the aforementioned checks, a number of checks relating to transactions, procedures and organizations have been delegated to the Internal Control department. The Group Compliance department receives reports of checks carried out by the Internal Control department and is consulted on its observations and recommendations.
Natixis’ information systems security offi cer reports hierarchically to the director of Information Systems and Shared Services and functionally to the Management Board, and plays an active role in the main executive committees in charge of the bank’s risks, including in particular in 2006: internal control overarching committee; operational risks committee; IT asset protection committee; information systems security committee.
It manages the Information Systems Security department, which consisted of 60 employees at the end of 2006.
In carrying out its duties, the department is supported by the bank’s technical project management teams and a network of correspondents in all operational and functional sectors.
The Information Systems Security department also plays an active role in the bank’s Internal Control system. The actions carried out are in accordance with the recommendations arising from the French Banking Commission’s white paper, CRBF rule n° 97-02 and, more generally, the directives of the Basel Committee.
Natixis’ business recovery plan, based on analysis of the risks facing the company by all business lines, entailed the implementation and maintaining on an operational level of the following: a crisis and warning system with the aim of integrating all of the bank’s operating and functional activities, shared user emergency rooms in the event of incidents affecting the bank’s offi ces, back-up systems for the most sensitive information and technical resources, contingency plans to limit the effects of incidents.
Within this context, the Information Systems Security department aimed to achieve the following in 2006: making the various business lines aware of their obligations: implementation of steering committees and systematic training of crisis units, managing all efforts of business line correspondents and within the IT division, bringing all documentation up to standard in order to comply with the chosen method, checking that the various technical and organizational tests are carried out correctly in all areas; management of clearances using centralized profi les
The main advances made in 2006 were as follows: rapid remote distribution of security patches to servers and workstations, implementation of operating warning procedures coming from the operational security center. Alerts are raised by the various security equipment in place: anti-virus software, fi rewalls, probes etc., installation of a platform for the centralization of security journals, introduction of systematic checks of internet access intrusions and in the electronic banking environment, implementation of a fi ltering and internet access control system.
of October 11, 2006. Also in accordance with these principles, the Internal Audit department heads up a global audit unit.
The Internal Audit department is responsible for verifying the bank’s controls and is one of the bodies responsible for the correct functioning of the internal control system within the meaning of CRBF rule n° 97-02. In this respect, it is independent from all business lines and support functions. It has no operational role and can therefore never be in the position of both judge and interested party.
The Internal Audit department is responsible for following up progress in implementing its recommendations. It conducts follow-up audits, as well as ongoing investigations by continuous control teams delegated by the Internal Audit department.
Consequently, the Internal Audit department’s assignments are set out in a yearly audit plan, which itself forms part of a four-year plan setting out the frequency of audits and grading of appropriate methods to be used for the risks to be verifi ed.
It may be revised during the year at the request of Executive Management or if dictated by circumstances.
In addition to conventional audit assignments, the Internal Audit department is also able to carry out ad hoc audits in order to address issues arising in the course of the year that were not initially included in the audit plan.
Natixis’ yearly and multi-year audit plans are approved by the Chairman of the Management Board and the internal audit departments of the bank’s shareholders and future central bodies. The yearly audit plan is examined by Natixis’ audit committee.
In 2006, the Internal Audit department continued to diversify its areas of intervention, with the aim of adapting to changes in the banking environment in terms of both risks and regulations.
The Internal Audit department also continued to consolidate its tools, in particular by improving access to the bank’s IT applications.
However, it should be noted that 2006 was the year of the creation of Natixis. Therefore, as of July 2006, the department’s efforts applied to several areas: a unit for coordinating the internal audit departments of Natixis’ shareholders and future central bodies was implemented. This unit met six times in the second half of 2006; the structure of Natixis’ Internal Audit department - resulting from the merging of the audit teams of the former Natexis Banques Populaires and IXIS CIB - was defi ned; in agreement with the internal audit departments of Natixis’ shareholders and future central bodies, the bank’s yearly and multi-year audit plans were drawn up, as well as identifying the resources required for their execution. A plan to reinforce the Internal Audit department was defi ned as a result; various reviews were carried out with the aim of rationalizing and standardizing the bank’s working methodologies and tools; fi nally, the Internal Audit department devised a group audit charter, which was approved by the internal audit departments of Natixis’ shareholders and future central bodies.
See the chapter on the functioning of the bank’s executive bodies.
The Risk Management department is responsible for analyzing the credit risk of counterparties using a formalized credit fi le for each counterparty and benefi ciary group, including all relevant information that is useful in forming an opinion, such as: internal information about the client and its business activities; fi nancial data, internal ratings, identifi cation and analysis of the client in accordance with methods validated by the Group Compliance department when entering into business relations etc.; external information: external ratings, sector analysis etc.; information about commitments, the credit fi le summarizing all credit risks incurred by the bank, including credit risk on capital market operations; ■
Authorized limits are set out formally and granted personally, without subdelegation, by the Chief Executive Offi cer or any person with the appropriate authority. They are graded by category and internal credit rating, as well as the nature and duration of the commitment. The delegation system was revised with the creation of Natixis to implement a single procedure to cover the corporate and investment banking activities of the former Natexis Banques Populaires and IXIS CIB.
In addition to the decision-making system on an individual basis, the Group’s Risk Management Committee has set overall limits relating for example to country risk.
Natexis Banques Populaires used tools and methods validated by the Banque Populaire Group to rate its clients, while IxisCIB used methodologies validated by the Caisse d’Epargne Group. In September 2006, the three parties selected the target methods to be used for their shared asset classes. On November 17, 2006, all measures had been taken to manage the transitional period before the full rerating of clients using target models.
The bank’s commitments are assessed and monitored on a daily basis using consolidation tools.
Compliance with these commitments is monitored over time using procedures concerning disbursements and, in the context of procedures for the assessment, analysis and monitoring of the passing of thresholds.
Sensitive, doubtful or disputed risks are monitored by the Special Affairs and Litigation department, which intervenes in the management of diffi cult cases when necessary. It also handles the recovery of receivables in the event of legal proceedings.
In the case of the latter asset class, this typically arises from a combination of micro or macroeconomic factors specifi c to the industry or country. If necessary, an expert opinion is sought in order to confi rm the result obtained.
Risk diversifi cation rules were revised on the creation of Natixis and are now included in the scope of the tripartite agreement between Natixis, the Banque Populaire Group and the Caisse d’Epargne Group.
Natixis’ main market risks relate to the Corporate and Investment Banking division of the former Natexis Banques Populaires (parent company and specialist subsidiaries) and its subsidiary IXIS CIB.
Natixis uses IXIS CIB’s Scénarisk software, based on VaR measurement and approved by the French Banking
Natixis’ Risk Management department plays a key role in all procedures: it provides an independent view during the decision-making process in relation to market risks; it defi nes risk measurement methods and submits them to the market risk committee for approval; it proposes limits to the market risk committee or advises the committee thereof, whether on the request of the business lines or on its own initiative; it is responsible for the day-to-day analysis and measurement of risks; it is responsible for defi ning, implementing and using market risk measurement tools, with choices validated in principle by the market risk committee.
The Asset & Liability Committee (ALM Committee), which is chaired by the Chief Executive Offi cer and includes representatives of the Treasury, Finance and Risk Management departments, is responsible for setting out broad guidelines for the management of structural balance sheet risks. It meets once a quarter and its duties are as follows: measurement and monitoring of structural interest rate risk; ■
The transformation of risk into structural interest rate and liquidity risk has been centralized using internal agreements within the Treasury department of the Corporate and Investment Banking division. This department is responsible for operational management by delegation of the ALM Committee.
Subsidiaries are refi nanced by the Treasury department. They benefi t from autonomous management of liquidity and structural interest rate risk by delegation of the ALM Committee and have their own Treasury or ALM committee for the management of rules and limits validated by the group ALM Committee.
Sensitivity limits for refi nancing books are expressed as a percentage of regulatory capital. For sensitivity to a 200 basis point change in interest rates, the Committee set an overall limit of 2.5% of regulatory capital. The Chief Executive Offi cer may delegate all or part of this limit.
The authorized liquidity gap and maturity mismatch limits are monitored by the ALM Committee.
The VaR limit for the structural interest rate position monitored by the Finance department was updated in 2006 and revised to €18 million. Consumption associated with this limit is calculated daily by Ixis CIB’s Risk Management Department.
Short-term liquidity requirements are monitored on the basis of three factors: liquidity ratio: the target ratio is a minimum of 120%. This is estimated daily by the Finance department on a company basis and monthly on a consolidated basis; current account limits; these limits are managed by the fi nancing committee, which comprises representatives of the main users, as well as the Treasury and Risk Management departments; stress scenarios: scenarios are updated once a month and presented to the ALM committee.
Medium to long-term liquidity requirements are monitored on a monthly basis by this committee.
On the creation of Natixis, the Operational Risk Management department endeavored to take all appropriate conservative measures to maintain the systems in place (in particular the reporting and analysis of signifi cant incidents and maintaining the operational risk management committees).
Its efforts concerned primarily: Natexis Banques Populaires’ business recovery plan (BRP): decision-making crisis unit, monitoring of tests, progress in the business recovery plans of the various business lines and international offi ces, crisis management system, presentation of the BRP audit, reporting on incidents; monitoring of the progress of the business line operational risk management project (see below); various issues such as the implementation and supervision of the charter governing use of information, technological and digital resources and logical security management.
Furthermore, in 2006, each business line implemented a system for the declaration of operational risk losses and incidents. Losses and incidents for each business line are reported to the Risk Management department on a monthly basis.
A warning procedure was also devised to allow the business lines to warn the Risk Management department of any losses in excess of €100,000 or which may have a signifi cant impact, particularly in terms of image.
At the head offi ce, as at all subsidiaries and branches in France and abroad, responsibility for operational risk is delegated to representatives of the Risk Management department. The actions of the Operational Risk division are relayed to all business lines and support functions by operational risk correspondents and their deputies.
Ixis CIB and Ixis Capital Markets each have their own operating risk management committees, which meet under the chairmanship of the member of the Management Board in charge of Operations at Ixis CIB and the CEO at Ixis Capital Markets.
All entities transferred from the Caisse d’Epargne Group have access to a central operational risk management tool, which allows for: mapping of risks; updating of risk mapping; monitoring progress in the plans of action implemented on the basis of risk mapping; listing incidents using an incident database; identifying areas of weakness using group and local indicators; evaluating the system on a regular basis, using a synthesized view of the system both in general and by unit, via reporting functions.
The Finance department is responsible for preparing Natixis’ consolidated fi nancial statements using the consolidation system and manual developed and administered by Banque Fédérale des Banques Populaires. As a listed company, Natixis is required to prepare its own consolidated fi nancial statements, although it also the main part of a subset that now
includes the two consolidation entities formed by the Banque Populaire Group and the Caisse d’Epargne Group.
The reliability of this process is based on the following core principles: defi nition and communication of accounting principles applicable to Group companies, including new texts issued during the period, in terms of both French accounting standards and IFRS; use of the direct consolidation method, now deployed throughout the group, to permit detailed integration of the consolidation packages of consolidated entities according to a formal review process; use of a single consolidation system for all sub-consolidations produced within the group, in order to guarantee the internal consistency of scopes of consolidation, defi nitions, standards, charts of accounts, processing sequences and analysis; preparation of consolidated fi nancial statements on a quarterly basis, allowing for a better level of control of halfyearly and annual fi nancial statements, on the basis of projected operations for the year and increased reconciliation of intra-group operations; implementation of forecasting processes for half-yearly and annual results and systematic reconciliation between economic and accounting results both within the various group entities and at parent company level; an automated control procedure for individual information provided by the consolidated entities, using a package including several thousand accuracy or consistency checks which must be completed for the data to be transmitted; item-by-item analysis of all entries that impact consolidated shareholders’ equity and production of a tax proof for each consolidated entity in order to provide full evidence of consolidated shareholders’ equity and individual justifi cation of deferred taxes; an audit trail system to trace the accounting data published in the fi nancial statements and the notes back to the accounts of each consolidated entity and the consolidation adjustments; archiving and security procedures including the twice-daily back-up of the unifi ed consolidation database and regular data recovery testing; regular support and training of accounting teams at the consolidated entities, promoting the use of best practice throughout the group.
The durability of this procedure allowed for further industrialization and automation of processes for producing the consolidated fi nancial statements.
This solution, which comprises 4,500 checks, allows for a full audit trail between the consolidated fi nancial statements under French accounting standards and those prepared under IFRS on the transition to the new accounting standards.
For the preparation of the 2006 fi nancial statements, a specifi c system was implemented to create consolidation groups for the entities transferred from the Caisse d’Epargne Group.
In 2006, Natixis also changed its consolidation system, continued with the decentralization of this system within its international entities (installed at three new branches: Milan, Labuan and Shanghai) and, notably, ensured the transparency of Coface, which now allows for the consolidation and monitoring of over 110 additional subsidiaries within the parent company teams.
As part of the regulatory process implemented by the French Banking Commission (CRBF rule n° 97-02) for the prudential monitoring of credit institutions, Natixis’ Internal Audit department uses the results of its periodic audits to assess the internal control procedures, in particular the accounting and fi nancial procedures, of all entities within the scope of
For all systems, Natixis and its subsidiaries are continuing to upgrade their accounting and fi nancial control procedures and develop audit trail tools.
Natixis’ accounting control system is based on: strict separation of recording and accounting control functions; a size suited to the objectives set; a schedule of works and deployment of accounting controls at a balanced rate; management and monitoring by the Finance department.
In 2006, the functions of the IT solution developed by Natixis were extended, thereby meeting the reproduction, synthesis and management requirements of accounting controls.
The integration of a documentary database accessible via Natixis’ intranet portal and providing access to all documentation relating to accounting controls (procedures, mapping of controls, instruction notes etc.) satisfi ed regulatory requirements concerning documentation of internal procedures.
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL (ARTICLE L.225-68 OF THE FRENCH COMMERCIAL CODE) 7
The system was also reinforced with the roll-out of themed accounting control assignments under the aegis of the Internal Control department, supporting the continuous controls carried out by the business lines; these assignments are managed and monitored by the Finance department.
audits carried out by the French Banking Commission in its role as banking regulator; the Banque Populaire Group’s IFRS restatements were audited in 2006.
audits carried out by the group’s external auditors, who work in collegiate fashion consistently throughout all Group entities and whose opinions are based in part on compliance with the Group’s standards and on the effectiveness of local internal control procedures; during its annual audit, the external auditors noted the progress made in terms of control procedures, highlighting the automation of processing, monitoring and management of reporting and risk control.
However, 2006 was also characterized by major changes relating to operations, resulting in the creation of Natixis.
Auditors’ report on Chairman’s report STATUTORY AUDITORS’ REPORT PREPARED IN ACCORDANCE WITH THE FINAL PARAGRAPH OF ARTICLE L.225-235 OF THE FRENCH COMMERCIAL CODE ON THE CHAIRMAN’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
As statutory auditors to Natixis, and in accordance with article L.225-235 of the French Commercial Code, we hereby present our report on the Chairman’s report for the year ended December 31, 2006, drawn up in accordance with the provisions of article L.22537 of the French Commercial Code.
We conducted our investigations in accordance with the professional standards applied in France. Those standards require that we perform our procedures to assess the fairness of the information contained in the Chairman’s report with respect to internal control procedures over the fi nancial reporting process. These procedures principally consisted of: familiarizing ourselves with the internal control objectives and general organization, as well as internal controls over the fi nancial reporting process, as presented in the Chairman’s report; familiarizing ourselves with the procedures underlying the information presented in the report.
Report of the Management Board on the resolutions to be put to the vote at the annual general meeting 378
Shareholders’ meetings are called by the Management Board, or, failing that, under the conditions provided by article 225103 of the French Commercial Code. Notices of meetings are issued in accordance with current regulations. Meetings take place either at the company’s head offi ce or at any other place specifi ed in the notice of meeting.
Pursuant to article 26 of the bylaws, shareholders are entitled to one vote for each share that they own or represent.
Pursuant to article 5 of the bylaws and in accordance with the applicable legal and regulatory provisions, the Company may request any authorized body or intermediary to provide any information about the holders of securities conferring immediate or future voting rights at shareholders’ meetings, and in particular as to their identity, nationality and address, the number of securities that they hold and any restrictions attached thereto.
Any natural or legal person that, directly or indirectly, and whether alone or in concert with other natural or legal persons, comes to hold or transfer 1%, or any multiple of that percentage, of the voting rights, must notify the Company of the number of voting rights held or transferred, by registered letter with proof of receipt requested, within a period of fi fteen days of their acquisition or transfer.
REPORT OF THE MANAGEMENT BOARD ON THE RESOLUTIONS TO BE PUT TO THE VOTE AT THE ANNUAL GENERAL MEETING
The second resolution seeks approval of the related party agreements described in the Acting Auditors’ special report.
In the third resolution, shareholders are asked to approve the proposed appropriation of earnings and the payment of a dividend. The Management Board is proposing to pay a dividend of €0.86 per share for each of the 1,219,864,330 shares comprising the capital stock. The dividend will be payable as of May 30, 2007.
The fourth resolution seeks approval of the consolidated fi nancial statements presented to the meeting, in accordance with the provisions of the French Commercial Code.
In the fi fth resolution, the Management Board is seeking renewal of the authority granted by the General Meeting on November 17, 2006 to trade in the company’s own shares under the conditions set out in European Directive 2003/6/EC of January 28, 2003 and in European regulation 2273/2003 of December 22, 2003.
RESOLUTIONS TO BE PUT TO THE VOTE AT THE ANNUAL GENERAL MEETING OF MAY 24, 2007
retained earnings at December 31, 2005 €4,299.25: 2005 dividend in respect of treasury shares €7,915,605.00,
Change of accounting method in respect of foreign exchange futures €9,625,593.88,
In accordance: with the provisions of articles L.225-209 et seq. of the French Commercial Code; with the provisions of European Directive 2003/6 and of European regulation 2273/2003 of December 22, 2003; with articles 631-1 et seq., and articles 241–1 et seq., of the general regulations of the Autorité des Marchés Financiers; with market practices as accepted by the Autorité des Marchés Financiers in two decisions of March 22, 2005; and having regard to the description of the program published in the manner provided by the Autorité des Marchés Financiers, the shareholders, having received and considered the report of the Management Board, hereby grant it the authority to purchase shares in the company.
This authority, which is granted for a period of eighteen months with effect from the date of this general meeting, is intended to enable the company: to ensure liquidity or make a market in the shares through an independent investment service provider acting independently under the terms of a liquidity agreement complying with the Code of Ethics of the AFEI; to allot shares to employees under the conditions permitted by the regulations, and particularly in the context of a profi tsharing arrangement, stock option plan, company or group savings plan or free allocation of shares; ■
to offer the shares in payment or exchange, particularly with respect to acquisitions; to use the shares to cover obligations relating to debt securities giving access to the capital; to cancel the shares by way of a reduction in the capital.
For the purpose of implementing this authority, the shareholders confer all necessary powers on the Management Board, including the power to subdelegate as defi ned in article L.225209 paragraph 2 of the French Commercial Code, to decide to implement this authority and to determine the manner in which this will take place, particularly in order to adjust the aforementioned purchase price in the event of transactions altering the Company’s equity capital or capital stock or the nominal value of its shares; to place any stock market orders and enter into any agreements; to make any declarations and complete any formalities; and, more generally, to do whatever may be necessary.
Having received and considered the report of the Management Board and the special report of the Acting Auditors, acting under the conditions as to quorum and majority required for extraordinary general meetings and pursuant to the provisions of articles L.225-177 et seq. of the French Commercial Code, the shareholders hereby: 1. resolve to authorize the Management Board, on one or more occasions, to grant options valid for a period of seven (7) years conferring a right to subscribe for new, or to purchase existing, shares of the Company made available as a result of buybacks carried out under the conditions provided by the bylaws and by law, to employees or company offi cers of the Company or of companies associated with the Company within the meaning of article L.225-180 of the French Commercial Code, or some of them; 2. resolve that the total number of stock options granted pursuant to this authority may not confer a right to subscribe for more than 10,000,000 shares; 3. resolve that the options to subscribe for and/or purchase shares must be granted before the expiry of a period of 38 months from the date of this general meeting; 4. formally acknowledge and, if necessary, resolve, that this authority shall automatically involve a waiver by the shareholders of any preferential subscription rights in respect of the shares to be issued following the exercise of the options, in favor of the benefi ciaries of the stock options; 5. confer all necessary powers on the Management Board to implement this authority under the conditions provided by law and by the bylaws, particularly in order: to determine the conditions under which the options will be granted and to draw up a list or the categories of benefi ciaries of the options, to determine the price of subscription of the shares (in the case of options to subscribe for shares) and the purchase price of the shares (in the case of options to purchase shares) and the date on which the options will be granted (on the understanding that this price may not be lower than the value arrived at by the application of the current regulations, to adjust the subscription and purchase price of the shares to take account of any fi nancial transactions that may take place before the options are exercised, to determine the period or periods of exercise of the options thus granted, to make provision for temporary suspension of the exercise of options for a maximum period of three months in the event of fi nancial transactions involving the exercise of a right attached to the shares,
if necessary, to record the number and the amount of shares issued during the fi nancial year as a result of the exercise of options, at its fi rst meeting following the end of each fi nancial year, in its sole discretion and if it sees fi t, to charge the expenses of increases in the capital stock to the amount of premiums referable to those increases, and to deduct from that amount the sums necessary to bring the legal reserve back up to one tenth of the new capital stock after each increase, to complete or arrange for the completion of any acts and formalities necessary to make defi nitive any capital increases that may be carried out pursuant to the authority granted by this resolution, to make the consequential amendments to the bylaws, and generally, to do whatever may be necessary; 6. formally notes that this authority cancels any previous authority granted for the same purpose.
Since the number of free shares to be allocated must be adjusted to cover all the staff of the groups concerned, it is proposed to grant authority to the Management Board to allocate an increased number of shares of 6,600,000, and consequently, to replace the resolution adopted on November 17, 2006 with the following resolution: Having received and considered the report of the Management Board and the special report of the Acting Auditors, in accordance with articles L.225-197-1 and L.225-197-2 of the French Commercial Code, and acting under the conditions as to quorum and majority required for extraordinary general meetings, the shareholders hereby: 1. authorize the Management Board, on one or more occasions, to allocate free shares of the Company or shares of the Company to be issued; 2. resolve that the benefi ciaries of the allocations may be employees or certain categories of employee of the Company and/or of companies directly or indirectly associated with the Company under the conditions
ADDITIONAL INFORMATION8 Legal information provided by article L.225-197-2 of the French Commercial Code; 3. resolve that the Management Board shall determine the identity of the benefi ciaries of the allocations and the conditions, and, if necessary, the criteria for the allocation of shares; 4. resolve that the total number of shares allocated free of charge pursuant to this resolution may not exceed more than 6,600,000 shares on the date of the decision of the Management Board, not including additional shares to be issued or allocated to preserve the rights of the benefi ciaries in the event of transactions in relation to the Company’s capital during the acquisition period; 5. resolve that the allocation of the shares to their benefi ciaries will become defi nitive after a minimum acquisition period of two years, the minimum duration of the benefi ciaries’ obligation to retain the shares being two years from the date of defi nitive allocation of the shares; 6. resolve, by way of exception to the foregoing, that the shares shall be defi nitively allocated to their benefi ciary before the expiry of the acquisition period in the event of the invalidity of the relevant benefi ciary within the meaning of the second or third categories provided by article L.3414 of the Social Security Code, shares allocated early in this way then being freely transferable by the benefi ciary notwithstanding the retention period normally applicable; 7. authorize the Management Board, during the acquisition period and if necessary, to make adjustments to the number of free shares allocated in order to preserve the rights of the benefi ciaries, according to any transactions in relation to the Company’s capital; 8. formally acknowledge that this resolution automatically involves a waiver by the shareholders in respect of the portion of reserves, profi ts or premiums, as the case may be, which may be incorporated in the capital in the event of the issue of new shares, in favor of the benefi ciaries of the free shares; 9. formally notes that, in the event that the Management Board makes use of this authority, it will report to the ordinary general meeting each year on the transactions carried out pursuant to articles L.225-197-1 to L.225197 -3 of the French Commercial Code, in the manner provided by article L.225-197-4 of the said Code.
This authority is granted for a period of 38 months from the date of this meeting.
All necessary powers are conferred on the holder of a copy or extract of the minutes of this meeting to carry out any fi ling and publication formalities provided by law.
Paris Trade and Companies Register Registration number: B 542 044 524 APE Code: 652 C
The balance, plus any retained earnings, comprises the sum available for distribution, which may by resolution of the shareholders at the annual general meeting be used as they deem appropriate within the limits permitted by law, either by way of transfer to retained earnings or other reserves, or on the recommendation of the Management Board, distributed in full or in part as a dividend.
As permitted by law, the Management Board may decide to pay an interim dividend either in cash or in shares.
Annual dividends shall be paid on the date or dates set by the Management Board but no later than nine months after the year end.
The age limit for holding offi ce as a member of the Management Board shall be 70 years. Any member of the Management Board who attains that age shall automatically be deemed to have resigned.
The Supervisory Board shall appoint one of the members of the Management Board as Chairman. The Chairman shall exercise his or her functions throughout his or her term of offi ce as a member of the Management Board. He or she shall represent the Company in its relations with third parties.
The Supervisory Board may confer the same representative power on one or two members of the Management Board, in which case they shall have the title of Chief Executive Offi cer.
The Management Board shall draw up its own regulations governing its manner of functioning, and shall provide a copy of them to the Supervisory Board for information.
The Management Board shall be invested with the broadest powers to act in all circumstances on behalf of the Company, subject to the limitations of the corporate object and those powers expressly attributed by law and by these bylaws to general meetings of shareholders and the Supervisory Board.
Throughout his or her term of offi ce, each member of the Supervisory Board must be the owner of at least one hundred (100) shares.
Article 16 – Meetings of the Supervisory Board 16.1 The Supervisory Board shall meet as often as is required by the interests of the Company and legal and regulatory provisions, and at least once a quarter in order to examine the written quarterly report of the Management Board. Meeting shall be called by the Chairman of the Supervisory Board or by a third of its members, either at the head offi ce or in any other place indicated in the notice of meeting.
Before meetings, the members of the Supervisory Board must be provided with suffi cient information for a suffi cient period of time to enable them to make an informed decision.
The Supervisory Board shall draw up internal regulations which may provide that, save for the adoption of decisions relating to the verifi cation and control of the parent company and consolidated fi nancial statements, members of the Supervisory Board taking part in meetings by means of videoconferencing or telecommunication shall be deemed to be present for the purposes of calculating the quorum and majority, under the conditions permitted or prescribed by current laws and regulations.
Urgent Business is defi ned as an exceptional situation (i) characterized by the existence of a short period of time, which is imposed by a third party on pain of foreclosure and where failure to comply would be likely to cause loss to the Company or to one of its Principal Subsidiaries (the term Principal Subsidiary referring to Ixis Corporate & Investment Bank, Ixis Asset Management Group, Coface and Natexis Asset Management or any other company controlled directly or indirectly by the Company within the meaning of article L.2333 of the French Commercial Code (x) which is substituted for them (in whole or in part) by reason of a merger, asset transfer or other transfer of its assets or (y) which has control thereof within the meaning of article L.233-3 I and II of the French Commercial Code, or (ii) requiring a rapid response from the Company which is incompatible with the application of the usual time limits for the convening of meetings of the Supervisory Board.
At any time of the year, it shall carry out such verifi cations and inspections as it shall consider appropriate, and it may obtain from the Management Board any documents that it considers necessary for it to carry out its task.
This supervision shall not in any circumstances result in the Supervisory Board or its members carrying out acts of management, whether directly or indirectly.
The Supervisory Board shall appoint and may dismiss the members of the Management Board, the Executive Chairman and the Chief Executive Offi cers, under the conditions provided by law and by article 9 of these bylaws.
The general meeting of shareholders may allocate directors’ fees to the Supervisory Board. The Supervisory Board shall distribute them among its members as it sees fi t.
The Supervisory Board may also award exceptional remuneration to its members in the cases and subject to the conditions provided by law.
Non-voting directors shall receive the same information as the members of the Supervisory Board and shall be called to all meetings of the Supervisory Board. They shall sit on the Supervisory Board in a consultative capacity.
Acting and substitute auditors shall be appointed by the ordinary general meeting of shareholders under the conditions provided by law. Their duties and powers shall be as provided by current legislation.
Form and transfer of shares (Title II, article 4 of the bylaws)
Shares in the company may either be registered shares or identifi able bearer shares, at the option of the holder. They shall be registered in an account and transferred in the manner provided by applicable laws and regulations.
The capital stock was €1,951,782 at December 31, 2006, divided into 1,219,864,330 shares with a par value of €1.60 each, fully paid-up.
SUMMARY OF OPTIONS PLANS GRANTED TO DIRECTORS AT DECEMBER 31, 2006
Changes in the capital during the last fi ve fi nancial years
Number of shares at the end of the fi nancial year Authorized share capital (in euros)
NATEXIS BANQUES POPULAIRES BECOMES Natixis – DIVISION OF THE NOMINAL VALUE BY 10 new situation 1,233,235,210 1,973,176,336
reduction of capital by the cancellation of treasury stock (15,552,460) (24,883,936) (288,910,332.20)
The ownership of shares by company offi cers is not signifi cant. Page 387 contains details of Company stock options granted to certain employees and company offi cers.
Changes in the distribution of the capital during the last three years
The application of the corporate governance rules and the rules imposed on the members of the Board enable the risk of abuse of management control to be prevented.
Right of pre-emption in the event of non-renewal of the stability period
Ownership by the parties of a strictly identical number of Natixis shares
The Management Board is composed of between 2 and 7 members appointed for a term of six years by the Supervisory Board (on a proposal from the Executive Chairman in the case of the other members). They are chosen according to competence criteria without distinction according to the group to which they belong.
Essential decisions are: the appointment and dismissal of the Executive Chairman ; the dismissal and, on a proposal from the Executive Chairman , the appointment of the other members of the Management Board; the decision to appoint one (or two) member(s) of the Management Board as Chief Executive Offi cer; the withdrawal of the position of Chairman or Chief Executive Offi cer from a member of the Management Board; any acquisition or increase of a shareholding, or any investment or disinvestment (including the transfer of the CCI issued by Caisses d’Epargne or Banques Populaires) or the constitution of a joint venture by Natixis or any of its subsidiaries, for an amount in excess of €150 million; any asset transfer, merger or spin-off transaction to which Natixis or any of its subsidiaries is a party; any increase in the capital stock of Natixis, immediate or future, while cancelling preferential subscription rights, including the allocation of options to subscribe for shares or of free new shares; ■
Furthermore, the Supervisory Board (or Board of Directors) of the principal subsidiaries of Natixis shall be composed, in addition to the members representing the Management Board of Natixis, of an equal number of members appointed on a proposal from BFBP and members appointed on a proposal from CNCE.
The agreement entered into force on November 17, 2006 for a term of 15 years. Each of the two shareholders may, however, terminate the stability period (inalienability and upper limits) after a period of 10 years, subject to giving prior notice of 6 months.
Natixis shares are traded on the Eurolist by Euronext Paris (compartment A) and are eligible for deferred settlement (Isin code: FR0000120685).
Natexis Banques Populaires was informed that an administrative investigation was commenced on November 28, 2005 by the Secretary-General of the Autorité des marchés fi nanciers (AMF) concerning the market in Natexis Banques Populaires shares from July 1, 2004 onwards. This investigation led to inspections at the premises of Natexis Banques Populaires and Banque Fédérale des Banques Populaires on February 22, 2006. Since that date the investigation has not been pursued, as far as Natixis is aware.
The principal provisions of the Banques Populaires CCI (cooperative certifi cates of investment) Agreement signed on September 26, 2006 by Natexis Banques Populaires, BFBP and all the Banques Populaires, are as follows: 1. Restrictions on the free transferability of the Banques Populaires CCI
The Banques Populaires CCI are freely negotiable. However, the sale of Banques Populaires CCI must be approved in advance by the Board of Directors of the Banque Populaire concerned, under the conditions provided below.
In order to obtain approval, the vendor must notify the Banque Populaire concerned of its request for approval, indicating the identity of the purchaser, the number of Banques Populaires CCI of which the sale is envisaged and, if applicable, the price offered and the terms of payment of the price.
Approval of the sale of the Banques Populaires CCI will be given either in the form of a notice to the vendor of the decision of the Board of Directors of the Banque Populaire concerned, or will be deemed to have been given in the absence of a reply within a period of one month with effect from the date of receipt of notice of the proposed sale.
Natixis, which will have considerable infl uence over the Banques Populaires in terms of compliance with the rules of governance and internal organization within the Banque Populaire Group, compliance with contractual commitments previously entered into within the Banque Populaire Group and compliance with the principles determined therein, will arrange the consolidation of the accounts of the Banques Populaires CCI by the equity method.
Since the Banques Populaires CCI do not carry voting rights, the particular infl uence of Natixis over the Banques Populaires will be characterized (i) by its legal infl uence arising from Natixis having the means to assess and make known its assessment of the consequences for Natixis of operational and fi nancial management decisions made by the Banques Populaires, and (ii) by its “de facto” infl uence arising from the industrial and technical cooperation between the Banques Populaires and Natixis.
In addition, in the event that legislative or regulatory changes or changes in the assessment of the regulators concerned or of the statutory auditors of Natixis should make it necessary to increase the infl uence of Natixis or to alter it signifi cantly in order to enable the consolidation of the Banques Populaires CCI by Natixis to be maintained, Natixis must submit the precise terms of the changes made necessary to the Banques Populaires in order for them to be able to determine whether they should integrate the new aspects of infl uence in their arrangements or whether they should decide, on receiving prior authorization from the Board of Directors of BFBP, to exercise their right to buy back the CCI that they have issued.
The buyback value of the Banques Populaires CCI will be calculated using the method of valuation used when they were issued, particularly as regards the calculation of revalued net assets, and must take account of the profi tability of the Banques Populaires and of the proportion of the net assets to which the CCI confer a right. In the absence of agreement between Natixis and the Banque Populaire concerned, this buyback value will be determined by an expert.
Natixis and the Banques Populaires have agreed to maintain existing industrial and commercial relations for a period of at least 10 years with effect from the date of subscription of the Banques Populaires CCI.
In particular, the provision of the following services currently provided by Natexis Banques Populaires to the Banques Populaires will be maintained: the provision of computer infrastructures; the provision of industrial services (custodial services, payment systems, operational management of currency accounting); the design and management of customer products on behalf of the Banques Populaires (asset management, the whole range of insurance (life, providence, fi re, accident and other risks), factoring and lease fi nancing, fi nancial planning, expansion capital, employee benefi ts planning (and particularly employee savings), international planning, credit insurance and commercial information (Coface)).
An agreement relating to the CCI issued by the Caisses d’Epargne and transferred to Natexis Banques Populaires will be entered into by each Caisse d’Epargne et de Prévoyance and by CNCE, SNC Champion and Natexis Banques Populaires, before the end of October 2006 (hereinafter the “Caisses d’Epargne CCI Agreement”), after approval by the steering and supervisory board of each of the Caisses d’Epargne.
The principal provisions of the Caisses d’Epargne CCI Agreement are as follows: 1. Restriction on the free transferability of the Caisses d’Epargne CCI
The Caisses d’Epargne CCI Agreement provides that the transfer of all or part of the Caisses d’Epargne CCI by Natixis shall be subject to the prior agreement of CNCE.
In the event that CNCE agrees to the transfer of the Caisses d’Epargne CCI, their transfer will be subject to a fi rst-ranking right of pre-emption held by CNCE and then by the issuing Caisses d’Epargne (subject to the authorization of the banking authorities) with an option to substitute a third party approved by CNCE.
Natixis, which will have considerable infl uence over the Caisses d’Epargne in terms of compliance with the rules of governance and internal organization within the Caisse d’Epargne Group, compliance with contractual commitments previously entered into within the Caisse d’Epargne Group and compliance with the principles determined therein, will arrange the consolidation of the accounts of the Caisses d’Epargne CCI by the equity method.
The particular legal infl uence of Natixis over the Caisses d’Epargne will arise particularly from the following provisions of the Caisses d’Epargne CCI Agreement: (i) the extension of the mission of the non-voting director representing CNCE on the steering and supervisory boards of the Caisses d’Epargne to take into account the interests of Natixis in terms of the consistency of the development of each Caisse d’Epargne with the objectives of Natixis; (ii) the representation of Natixis on the Group Risks Committee (and its sub-committees), on the Group ALM Committee and on CNCE Committees for the approval of new customer and fi nancial products acting under the authority of CNCE’s Management Board; (iii) the prior consultation of Natixis in its capacity as a nonvoting director as of right on the Supervisory Board of CNCE, for all decisions of the Supervisory Board which relate to its mission as the central body of CNCE’s Caisses d’Epargne network (in particular, defi nition of the policy and strategic direction of the Caisses d’Epargne network, the negotiation and conclusion of national and international agreements on behalf of the Caisses d’Epargne network, the approval of the directors of the Caisses d’Epargne, the approval of increases in the capital, of bond issues and of acquisitions and sales of investments, and the centralization of cash fl ow surpluses of the Caisses d’Epargne and their refi nancing); (iv) the right of Natixis to request a second resolution in the event that the Supervisory Board of CNCE decides not to follow the advice given by Natixis on a decision likely to cause harm to its fundamental interests; (v) the right of Natixis to full and complete information regarding the operational and fi nancial management of the Caisses d’Epargne; (vi) the rights of Natixis in respect of the audit of the Caisses d’Epargne, and particularly the association of Natixis, in its capacity as a non-voting director, with the decisions taken by the Board of Directors of CNCE relating to administrative, technical and fi nancial control of the organization of the management of the Caisses d’Epargne; (vii) the delegation of powers by CNCE to Natixis as regards the defi nition of standards and methods of assessment of risks common to BFBP, CNCE and Natixis.
In particular, the Transferred Subsidiaries provide the Caisses d’Epargne with the following services: custodial services; the design and management of customer products (asset management, revolving credit, guarantee insurance for borrowers, factoring and equipment leasing, fi nancial planning and market products, local authority fi nancing, debt management; and securities and derivatives brokerage.
Under the terms of the Caisses d’Epargne CCI Agreement, Natixis undertakes to sell the Caisses d’Epargne CCI to CNCE or to the Caisse d’Epargne concerned, in accordance with the terms and conditions defi ned below, without the prior authorization of the special general meeting of the holders of Caisses d’Epargne CCI, in the following circumstances: (i) any substantial alteration in the balance of the respective shareholdings of BFBP and CNCE in Natixis and/or an end to the joint control exercised by CNCE and BFBP over Natixis after the completion of the Operation; (ii) any sale and/or transfer of the Caisses d’Epargne CCI for any reason whatever, including in the event of a merger or spin-off of Natixis; (iii) any reform of 1947 Law involving a substantial alteration of the rights of CCI holders; (iv) any legislative or regulatory changes or changes in the assessment of the regulators concerned or of the statutory auditors of Natixis that makes it necessary to increase the infl uence of Natixis or to alter it signifi cantly in order to enable the consolidation of the Caisses d’Epargne CCI by Natixis to be maintained, on the understanding that, in this event, Natixis must submit the precise terms of the changes made necessary to CNCE and the Caisse d’Epargne concerned in order for them to be able to determine whether they should they should integrate the new aspects of infl uence in their arrangements or whether they should decide to exercise their right to buy back the Caisses d’Epargne CCI.
On November 17, 2006, Natixis entered into purchase and sale undertakings with Banque Palatine, Foncier Participations and Crédit Foncier de France relating to the investments held by Banque Palatine, Foncier Participations and Crédit Foncier de France in the capital of Compagnie 1818 – Banquiers Privés.
The total exercise price of the undertakings is €34,448,822 subject to certain adjustments in the event of a cash transfer, dividend distribution or reduction of the capital of Compagnie 1818 – Banquiers Privés.
Natixis was created following the transfer of the assets of CNCE (Caisse Nationale des Caisses d’Epargne et de Prévoyance) and SNC Champion (a wholly-owned subsidiary of Banque Fédérale des Banques Populaires) to Natexis
At the end of 1999, the Banque Populaire Group held 88.06% of the newly-formed Natexis Banques Populaires. At the end of 2000, its holding was reduced to 79.23% following a new share issue placed primarily with retail investors.
Founded in 1919, Crédit National initially focused on developing its business as a medium and long-term lender before branching out into related activities in order to offer its corporate clients a broader and more comprehensive solution to their needs.
Documents relating to Natixis (deeds of incorporation, bylaws, reports, letters and other documents, historical parent company and consolidated fi nancial information for each of the fi nancial years preceding the publication of this document) are partially included in this document and may be consulted at the company’s head offi ce, preferably by appointment.
Any person wishing to obtain additional information about Natixis can request documents free of charge and without obligation: by letter, from: Natixis
Investor Relations Department Immeuble Arc-de-Seine 30, avenue Pierre Mendès-France 75013 Paris by telephone, from: ■
Registration document page number 3. Selected fi nancial information 3.1. Selected historical fi nancial information regarding the issuer for each fi nancial year 6 - 7 3.2. Selected historical fi nancial information for interim periods N.A.
13. Profi t forecasts or estimates 5 14. Administrative, management, and supervisory bodies and senior management 14.2. Administrative, management, and supervisory bodies and senior management confl icts of interests 62 15. Remuneration and benefi ts 15.1. Amount of remuneration and benefi ts 15.2. Total amounts set aside or accrued by the issuer or its subsidiaries to provide pension, retirement or similar benefi ts
in its country of incorporation 21 ; 25 17. Employees 17.2. Directors’ shareholdings and stock options 57 ; 306 ; 388 17.3 Arrangements for involving employees in the issuer’s capital 381 ; 392 18. Major shareholders 18.1. Shareholders owning more than 5% of the share capital or voting rights 391 18.2. Different voting rights 378 18.3. Control over the issuer 393 18.4. Arrangements, known to the issuer, the operation of which may at a subsequent date result in a change in control 393 19. Related-party transactions 304 - 305 , 332 - 335 , 358 - 359 20. Financial information concerning the issuer’s assets and liabilities, fi nancial position and profi ts and losses 20.1. Historical fi nancial information 185 to 309 ; 312 to 355 ; 403 20.2. Pro forma fi nancial information 235 - 242 20.4. Auditing of historical annual fi nancial information 310 - 311 ; 356 - 357 ; 368 - 369 20.5. Age of latest fi nancial information 185 20.6. Interim fi nancial information N.A.
20.9. Signifi cant change in the issuer’s fi nancial position 181 21. Additional information 21.2. Memorandum and articles of association 383 - 387 23. Third party information and statement by experts and declarations of any interest N.A.
Pursuant to article 28 of Commission regulation No. (EC) 809/2004 of April 29, 2004, the following information is incorporated by reference in this registration document: the consolidated fi nancial statements for the year ended December 31, 2005, the statutory auditors’ report thereon and the Group management report, on pages 102 to 205, 206 to 207 and 69 to 95 of the registration document fi led with the AMF on March 23, 2006 under number D.060152; ■
All other chapters of reference documents D.06-0152 and D.05-0285 are either of no material interest to investors or covered elsewhere in this registration document.