Weight of gross on-balance sheet funding sources by major category of vehicle and/or by customer segment at the end-2019 reporting date
N on -f in a n ci a l cu st om er s O
Weight of gross on-balance sheet funding sources by major category of vehicle and/or by customer segment at the end-2018 reporting date
Meanwhile, the fall in banks’ dollar reserves, a consequence of the programmed normalization of the Fed’s balance sheet, caused severe tension in the American money markets in September. To respond to this situation, the Fed decided to resume purchasing treasury securities and injecting liquidity via reverse repo operations. The American central bank also decided to lower its policy rates three times in 2019 to combat the negative effects of global uncertainties.
an ambitious monetary stimulus package, characterized largely by the implementation of a tiering system serving to limit the harmful effects of negative rates on the soundness of European financial institutions. It is still too early to fully measure the tiering program’s effects; it could have consequences on the cost for banks when raising funds on the money market.
The European Central Bank only made a minor adjustment to the “low” rate of its monetary policy, by lowering the deposit facility from -0.40% to -0.50% in September, but it accompanied this gesture with
Generally speaking, liquidity was fairly abundant in dollars during the second half, most tellingly in the form of a steady increase in assets in money market funds denominated in dollars. In 2019, the total amount of Natixis issue programs increased. The increase is attributable to the increase in demand for dollar-denominated securities. This phenomenon was focused on the Euro Commercial Paper program under the effect of Asian flows, as well as on the American CD program, resulting from additional interest from local investors. But the increase was partially offset by a decline in the stock of deposits. The market also prepared for the introduction of new benchmarks, with the introduction of the €STR and the reform of the Euribor on the euro. Some transactions have already been made on the European Central Bank’s new benchmark.
Structural foreign exchange risk3.2.7.3 (Data certified by the Statutory Auditors in accordance with IFRS 7)
The interest rate risk of Natixis’ banking portfolio is managed and monitored under the authority of the Asset/Liability Management Committee (ALM Committee), which is chaired by the Chief Executive Officer and attended by the members of the Senior Management Committee in charge of Finance, Risk Supervision Division and the Corporate & Investment Banking division, as well as
Sensitivity of economic value calculations: to measure changes inV this value according to scenarios defined by the EBA.
The limits of these calculations are validated by an Asset/Liability Management Committee. The calculations are performed by the Finance Department, and the limits are monitored by the MARPL department within the Risk Supervision Division.
Complementing this system is a set of operational interest rate risk calculations (interest rate sensitivity and stress tests) which are managed daily by the MARPL department, and monthly for balance sheet management operations and credit subsidiaries.
Maturity (in millions of euros) 1 year 3 years 5 years 7 years
(in millions of euros) 31/12/2019 31/12/2019 Parallel upward shift 12 124
The sensitivity of Natixis’ NII to interest rate variations under various stress scenarios in 2019 was relatively low and stable. In the event of a parallel upward shift of +200 bps in the yield curves, sensitivity was positive and represented less than 1.5% of CET1. In the event of a parallel downward shift of -200 bps in the yield curves, sensitivity was negative and represented less than 1% of the CET1.
Other financial liabilities held for trading purposes — excluding trading derivatives 129.9 8.1 72.0 11.5 3.7 4.9 2, 4 4.0 4.8 18.6
NB. The table does not take account of the run-off of insurance technical reserves, financial commitments or financial guarantees granted. In accordance with accounting standard IFRS 7, it also excludes miscellaneous debts, accrued liabilities, general provisions, shareholders’ equity (including issues of tier one hybrid securities reclassified as equity in the consolidated accounts under IAS) and reserves.
(in billions of euros) Total Demand Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 2 to 5 years
Other financial liabilities held for trading purposes — excluding trading derivatives 124.7 15.2 63.5 9.9 1.8 4.1 1.4 3.7 4.3 20.8
Financial liabilities at fair value through profit or loss 28.7 - 1.7 7.3 2.6 3.4 3.1 6.6 4.0
See 3.2.2 Governance and risk management system — Risk typology for a definition of compliance risk.
It also conducts a regulatory watch and works with the Human Resources Department on staff training. 2019 was marked by change and the migration to a new e-learning platform. Compliance has continued its training and awareness-raising initiatives regarding the many changes to regulations in areas such as anti-money laundering and counter terrorist financing, tax evasion and information security.
The Compliance Department coordinates first-level permanent controls of compliance risks. In addition, it sets up and implements second-level permanent controls to ensure that procedures are applied within the business lines and that compliance risks are managed, as part of a risk-based approach (see 3.2.1 Organization of Natixis’ internal control system). To this end, the Compliance Department maps compliance risks and ensures that anomalies detected by the relevant business lines are resolved.
The Compliance Department reports to the Corporate Secretary and functions independently of the operational departments. At Natixis S.A. level, the business line compliance managers report hierarchically to Natixis’ Chief Compliance Officer. There is a direct reporting line between Natixis’ Chief Compliance Officer and the subsidiary compliance managers, and a strong functional link with the branch compliance managers (particularly for prior approval of the reporting line, appointment or withdrawal of subsidiary compliance managers, participation in annual performance and career advancement appraisals, approval of annual work plans, and with respect to the duty to alert and report to the Compliance Department).
Conflict of interest is managed through: compliance with the conflict of interest prevention framework;V
cooperation among the business lines, Compliance andV Management in order to identify and manage conflicts of interest; close monitoring by Compliance with the help of a transactionalV conflict detection tool; and an escalation process for mediating unresolved conflicts ofV interest if needed.
In accordance with the requirements of the EU regulation on market abuse, Natixis has set up a framework for detecting transactions likely to constitute market abuse. This framework is incorporated within its internal control system. Alerts are processed and potential cases of market abuse are analyzed by a surveillance tool and dedicated teams. Transactions that could constitute market abuse are reported to the Autorité des Marchés Financiers (AMF — French Financial Markets Authority) or to local regulators, in accordance with the regulations in force. The framework is currently being updated to strengthen its analysis and detection capacity.
There is a client information procedure encompassing all the MiFID 2 obligations with respect to client onboarding, as well as the pre- and post-trade information due to clients based on their status as clients, professional clients or eligible counterparty as defined by regulations.
The customer onboarding tool, known as Client Pass, has been rolled out across all Corporate & Investment Banking locations. It is part of a program to digitize the onboarding process. This includes the introduction of an Internet portal that customers can use to enter information online.
This includes ensuring that the distribution strategy is consistent with and appropriate for the target market. Product governance applies to all kinds of clients, regardless of their classification, and all products regardless of their level of complexity or trading venue.
Adapting product governance, especially the definition and validation of the target market, to operations is handled through dedicated Committees.
As part of its efforts to combat money laundering and terrorist financing, in 2019 Natixis enhanced its AML-CTF framework by integrating the new requirements from texts and reports issued by French, European and international authorities and public bodies.
In 2019, Natixis continued to enhance its international sanction compliance framework by improving screening tools within the framework of projects steered by the Financial Security Department.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 150 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Natixis now has a large inventory of laptops that enable it to respond appropriately in the event of a slow-moving crisis (Seine flood, strikes, etc.)
Natixis’ Data Protection Officer belongs to the ITSS-BC Department and coordinates a network of data privacy liaisons distributed across all Natixis entities.
This function’s purpose is to handle all regulations relating to personal data protection and especially to ensure compliance with Europe’s General Data Protection regulation (GDPR). A Data Privacy Committee meets regularly to monitor the function’s activities and manage the remaining alignment measures required. These include the launching by the IT Department of a multi-year project for the remediation of the relevant IT assets.
Outstanding assets exposed to the Madoff affair as expressed in euros were estimated at €551 million at December 31, 2019 and were fully provisioned for at that date. The effective impact of this exposure will depend on both the extent of recovery of assets invested for Natixis and the outcome of the measures taken by the bank, notably in terms of legal proceedings. Furthermore, in 2011 a dispute emerged over the application of the insurance policy for professional liability in this case, which had been taken out with successive insurers for a total amount of €123 million. In November 2016, the Paris Court of Appeal vindicated the Commercial Court’s prior ruling that primary insurers were liable to cover the losses incurred by Natixis due to the Madoff fraud, up to the amount for which the bank was insured. On September 19, 2018, the Court of Cassation subsequently annulled the judgment under appeal and referred the case back to the Paris Court of Appeal with a differently constituted bench. On September 24, 2019, the Court ruled against Natixis, overturning the ruling by the Commercial Court of Paris. Natixis filed an appeal with the Court of Cassation in December 2019.
the Second Circuit Court’s ruling before the Supreme Court. This request for permission is currently before the Supreme Court, which is expected to decide in 2020 whether it will agree to hear the case.
Irving H. Picard, the court-appointed trustee for Bernard L. Madoff Investment Securities LLC (BMIS), submitted a restitution claim concerning the liquidation of amounts received prior to the discovery of the fraud through a complaint filed with the United States Bankruptcy Court for the Southern District of New York against several banking institutions, including a $400 million claim against Natixis. Natixis denies the allegations made against it and has taken the necessary steps to defend its position and protect its rights. Natixis has launched appeals, including a motion to dismiss the case on a preliminary basis, or prior to any ruling on the merits, and a motion to withdraw the reference to transfer certain matters to the United States district court. These proceedings have been subject to numerous rulings and appeals and are still ongoing. A November 2016 ruling by the bankruptcy court dismissed a number of restitution claims initiated by the trustee on the grounds of extraterritoriality. In September 2017, the Second Circuit Court granted the BMIS trustee and the defendants the right to appeal the bankruptcy court’s ruling on the grounds of extraterritoriality directly through the Second Circuit, thereby avoiding the need to file an intermediary appeal with the district court. In February 2019, the Court of Appeals for the Second Circuit overturned the bankruptcy court’s extraterritoriality ruling. In August 2019, Natixis joined the group of defendants that filed a request for permission to appeal
The committal concerns only one of the messages, disseminated on November 25, 2007, explaining the risks to which Natixis was exposed at the time as a result of the subprime crisis. The second message was dismissed. Maintaining that no offense was committed, Natixis will present its defense, and the Criminal Court will render its judgment.
In 2007, Ixis Corporate & Investment Bank (the predecessor of Natixis) issued EMTNs (Euro Medium Term Notes) indexed to a fund that invested in the Bernard Madoff Investment Securities fund. Renstone Investments Ltd (the apparent predecessor of MMR Investment Ltd) is alleged to have subscribed, via a financial intermediary acting as the placement agent, for these bonds in the amount of $50 million.
In April 2012, MMR Investment Ltd filed a joint claim against Natixis and the financial intermediary before the Commercial Court of Paris, claiming not to have received the bonds, despite having paid the subscription price to the financial intermediary. The claim mainly concerns the reimbursement of the subscription price of the bonds and, as an alternative, the annulment of the subscription on the grounds of defect in consent.
On February 6, 2017, the Commercial Court of Paris dismissed all of MMR Investment Ltd’s claims. This ruling was upheld by the Paris Court of Appeal on October 22, 2018. MMR Investment Ltd submitted an appeal. The case is ongoing.
In June 2013, Union Mutualiste Retraite (UMR) filed three complaints against AEW S.A. (previously AEW Europe) in relation to the acquisition and management of two real estate portfolios in Germany between 2006 and 2008. The amounts claimed by UMR total €149 million.
UMR and AEW S.A. mutually withdrew the case before the Commercial Court of Paris at the end of November 2019.
Three of these five proceedings have been brought against Natixis, purportedly on behalf of certificate holders, alleging that Natixis failed to repurchase defective mortgages from certain securitization transactions. Natixis considers the claims brought against it before the New York Supreme Court to be without merit for multiple reasons, including that they are time-barred under the applicable statute of limitations (two proceedings have already been dismissed for these reasons, but a subset of claims in one of these proceedings remains subject to appeal) and that the claimants do not have the legal standing to file the suit.
MPS Foundation sheet. The damages claimed by MPS Foundation against the banks and its former directors amount to €285 million.
In March 2018, Natixis S.A. was summoned, jointly and severally with other banks, by Lucchini Spa (under extraordinary administration) to appear before the Court of Milan, with Lucchini Spa’s receiver alleging improprieties in the implementation of the loan restructuring agreement granted to Lucchini Spa. The case is ongoing.
On October 9, 2015, a company operating in the meal voucher industry lodged a complaint with the Competition Authority to contest industry practices with respect to the issuance and acceptance of meal vouchers. The complaint targeted several French companies operating in the meal voucher industry, including Natixis Intertitres.
Natixis and Natixis Intertitres have decided to appeal this decision as soon as formal notification is received.
On June 7, 2019, Bucephalus Capital Limited (a company under English law), together with other firms, brought claims against Darius Capital Partners (a company under French law that is 60% owned by Natixis Investment Managers), before the Commercial Court of Paris to contest the breach of various contractual obligations, particularly with respect to a framework agreement dated September 5, 2013 setting out their contractual relations and various subsequent agreements. Bucephalus Capital Limited claims a total of €178,487,500.
Following a notice of grievance dated March 18, 2019, the European Central Bank decided on October 21, 2019 to impose an administrative penalty of €1,850,000 on Natixis Wealth Management Luxembourg. The Company had been found to be in breach of the large exposures limit and large exposures reporting requirements between 2016 and 2017. The case is now closed.
After inspecting Natixis Asset Management Finance’s compliance with its professional obligations, especially “efficient portfolio management” transactions carried out in 2016, the AMF decided on July 17, 2017 to issue a notice of grievance against the firm and refer the case to the AMF Enforcement Committee. On September 25, 2019, the Enforcement Committee fined NAM Finance €1 million. The case is now closed.
Natixis Assurances is the Insurance division of the Natixis group and is divided into two businesses: the personal Insurance business, focused on developing portfoliosV of life insurance and endowment policies for investment and retirement purposes, as well as personal protection insurance portfolios; the Non-Life Insurance business, focused on developing portfoliosV for auto and multi-risk home insurance, personal accident insurance, legal protection, healthcare and property and casualty insurance.
Market risk is in large part borne by the subsidiary BPCE Vie on the financial assets that underpin its commitments with guaranteed principal and returns (euro-denominated policies: €58.2 billion on the main fund balance sheet). The Company is exposed to asset impairment risk (fall in the equity or real estate market, widening spreads, interest rate hikes) as well as the risk of lower interest rates which would generate insufficient income to meet its guaranteed principal and returns. To manage this risk, BPCE Vie has only sold policies with a minimum guaranteed return in recent years: more than 95% of the policies have a zero minimum guaranteed return. The minimum guaranteed return averages 0.13%.
The main risk to which life insurance underwriting is exposed is linked to the Investment Solutions activity. In an especially low interest-rate environment, the biggest risk is that of fewer redemptions and/or excessive inflows in euro-denominated vehicles, as reinvestments in securities dilute the main fund’s return. To prioritize inflows in unit-linked policies, measures have been taken, such as the creation of unit-linked products and communication campaigns, and a communication campaign targeting customers and the network.
The Non-Life Insurance underwriting risk to which Natixis Assurances is exposed is borne by its subsidiary BPCE Assurances: premium risk: to ensure that the premiums paid by theV policyholders match the transferred risk, BPCE Assurances implemented a portfolio monitoring policy whereby each policy is given a score based on its track record over three years. Factored in are types of claims, number of claims, their cost and other
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 154 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019 variables specific to the activity in question (degree of liability and bonuses/penalties for auto insurance, for instance). This monitoring policy also helps to detect potential risks arising from large claims, and to arrange adequate reinsurance coverage; risk of loss: each time inventory is taken, an actuarial assessmentV of the reserves for claims to be paid is conducted based on methods widely recognized by the profession and required by the regulator; catastrophe risk: catastrophe risk is the exposure to an event ofV significant magnitude generating a multitude of claims (storm, risk of civil liability, etc.). This risk is therefore reinsured either through the government in the event of a natural disaster or an attack, for example, or through private reinsurers, specifically in the event of a storm or a civil liability claim, or through reinsurance pools.
Coface maintains a diversified credit risk portfolio, in order to minimize the risk of debtor default, a slowdown in a given business sector, or an adverse event in a given country having a disproportionate impact on its overall claims expense. The insurance policies also contain clauses allowing credit limits to be changed mid-contract. Furthermore, the fact that the vast majority of Coface’s risks are short-term (95% of total outstandings) allows it to reduce the risk covered for a debtor or a group of debtors relatively quickly and to anticipate a decrease in their solvency.
Coface has implemented an investment policy that incorporates the management of financial risk through the definition of its strategic allocation, regulations governing insurance companies and constraints related to the management of its liabilities. Management of financial risks is thus based on a rigorous system of standards and controls which is regularly reviewed: interest rate risk and credit risk: The majority of Coface’sV allocations are in fixed-income products, ensuring stable and recurring revenues. The overall maximum sensitivity of the bond portfolio has been deliberately capped at 4 and stood at 3.9 at December 31, 2019. There is still no exposure to Greek sovereign debt. The Group continued to increase its international diversification in 2019, chiefly in emerging countries, while maintaining exposure in Asia and North America in order to benefit from higher rates of return and to accommodate the various interest rate hikes or lower the cost of current hedging. In 2018, interest rate hedges were applied to a portion of exposure to European sovereign debt; these were sold in the first quarter of 2019; the euro in the portfolio combining its European entities, to protect investments in bonds denominated in dollars in particular, Pound sterling, Canadian dollars and Australian dollars; foreign exchange risk: the majority of Coface’s investmentV instruments are denominated in euros. Subsidiaries and branches using other currencies must observe the same principles of congruence. In 2019, Coface systematically set up hedges against equity risk: exposure is capped at less than 10% of the portfolioV and is concentrated in the euro zone, in connection with its core business. At December 31, 2019, listed equities represented 6% of the investment portfolio. These investments were subject to hedging for 50% of the invested portfolio through the purchase of put options on Eurostoxx indices. This hedging can be adjusted in line with investments and the amount of unrealized capital gains or losses on shares held; counterparty risk: the maximum exposure to any givenV counterparty is set at 5% of assets under management, with exceptional exemptions for short-term exposures. More than 92% of the bonds are Investment Grade and therefore have a median rating equal to at least BBB-; liquidity risk At December 31, 2019, 48% of the bond portfolio had aV maturity of less than three years. The vast majority of the portfolio is listed on OECD markets and carries a liquidity risk that is currently considered as low.
Level 2 controls on compliance with Coface’s investment policy are also carried out.
Exposure to sovereign debt (Natixis Assurances and Coface) is presented in the following table as net carrying amount before application of the sharing mechanism between policyholders and insurers specific to life insurance.
The membership of these various bodies is presented in Chapter 2 of this universal registration document. The Internal Rules of the Board of Directors, including the procedure for calling meetings, can be found in Chapter 2 paragraph 2.3.1.
The identification and management of risks linked to social and climate change are presented in Chapter 6 of this universal registration document.
Natixis has chosen to provide information in respect of Pillar III disclosures in a separate section to that on risk factors and risk management in order to single out items concerning regulatory publication requirements.
As under Basel 2, the Basel 3 regulatory provisions are divided into three pillars: Pillar I: a set of rules defining the measurement of risks and capitalV based on various possible methodologies and minimum observable requirements; Pillar II: a mechanism governing the role of the banking supervisoryV authorities, allowing them to define specific regulatory capital requirements for each institution in accordance with their risks and internal governance and oversight systems; Pillar III: requires institutions to disclose a large number of itemsV highlighting the level of risks incurred, capital adequacy and the adequacy of their management. This mechanism was considerably enhanced in 2016 with the publication of new guidelines by the EBA.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 158 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Financial assets at fair value through equity 12,076 12,076 11,990 86
Deposits and loans due to customers 30,485 30,742 (0) 121 (0) 30,621
Revaluation adjustments on portfolios hedged against interest rate risk 157 157 157
Gains and losses recognized directly in equity 1,093 1,093 0 1,093
Non-recyclable gains and losses recognized directly in equity (212) (212) (212)
Coface Europe Full consolidation Equity method Credit insurance and related services France
Coface Debitorenmanagement GmbH Full consolidation Equity method Receivables management and data Germany
Coface Rating GmbH Full consolidation Equity method Receivables management and data Germany
Coface Rating Holding GmbH Full consolidation Equity method Receivables management and data Germany
Coface Austria – BRANCH (Coface Europe) Full consolidation Equity method Holding company Austria
Coface Italy – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Italy
Coface Greece – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Greece
Coface Ireland – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Ireland
Coface Belgium Services Full consolidation Equity method Business and solvency data Belgium
Coface Portugal – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Portugal
Coface Iberica -BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Spain
Coface Servicios España, SL Full consolidation Equity method Receivables management and data Spain
Coface Nederland – BRANCH (Coface Europe) Full consolidation Equity method Insurance Netherlands
Coface Denmark – BRANCH (Coface Europe) Full consolidation Equity method Insurance Denmark
Coface Sverige – BRANCH (Coface Europe) Full consolidation Equity method Insurance Sweden
Coface Do Brasil Seguros de Credito Full consolidation Equity method Credit insurance and related services Brazil
Coface North America Holding Company Full consolidation Equity method Holding company United States
Coface Hungary (formerly ÖKVC Fióktelepe) – BRANCH (Coface Europe) Full consolidation Equity method Insurance Hungary
Coface Lithuania (formerly LEAID) – BRANCH (Coface Europe) Full consolidation Equity method Insurance Lithuania
Coface Bulgaria – BRANCH (Coface Europe) Full consolidation Equity method Insurance BULGARIA
Coface Singapore – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Singapore
Business Data Information Full consolidation Equity method Marketing and other services Israel
Coface Australia – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Australia
FCT TULIP NOTE – compartment 1 Full consolidation Equity method Insurance investments (Securitization funds) Netherlands
AAA Actions Agro Alimentaire Full consolidation Equity method Insurance investment mutual fund France
SELECTION PROTECTION 85 Full consolidation Equity method Insurance investment mutual fund France
Until 2021, regulatory capital is subject to phase-in arrangements and grandfathering provisions to support the roll-out of the CRR. From January 1, 2019, only grandfathering provisions remained active after the completion of phasing-in arrangement.
Detailed information on debt instruments recognized in Tier 2 capital and their characteristics at December 31, 2019, as required by Commission Implementing Regulation No. 1423/2013 (Annex II) is available on the Natixis website (www.natixis.com).
At December 31, 2019, the transition from shareholders’ equity to regulatory CET1 capital, Tier 1 capital and total capital after applying phase-in arrangements, is summarized in the table below.
Own credit risk: liabilities and derivatives net of deferred taxes 84
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 164 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Common Equity Tier 1 capital: regulatory adjustments 7 Additional value adjustments (negative amount) (390) 34, 105 8 Intangible assets (net of related tax liability) (negative amount) (3,864) 36 (1) (b), 37 9 Empty set in the EU
12 Negative amounts resulting from the calculation of expected loss amounts (112) 36 (1) (d), 40, 159 13 Any increase in equity that results from securitized assets (negative amount) 0 32 (1)
15 Defined-benefit pension fund assets (negative amount) 0 36 (1) (e), 41 16 Direct and indirect holdings by an institution of own CET1 instruments (negative amount) (40) 36 (1) (f), 42
Direct, indirect and synthetic holdings of CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount) 0 20 Empty set in the EU
28 Total regulatory adjustments to Common Equity Tier 1 (CET1) (5,289) Sum of lines 7 to 20a, 21, 22 and 25a to 27 29 Common Equity Tier 1 (CET1) 11,168 Line 6 plus line 28
Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interests not included in row 5) issued by subsidiaries and held by third parties 0 85, 86 35 o/w instruments issued by subsidiaries subject to phase out 486 (3)
36 Additional Tier 1 (AT1) capital before regulatory adjustments 2,165 Sum of lines 30, 33 and 34
Holdings of the AT1 instruments of financial sector entities where those entities have reciprocal cross holdings with the institution designed to inflate artificially the own funds of the institution (negative amount) 0 56 (b), 58
Direct, indirect and synthetic holdings by the institution of AT1 instruments of financial sector entities where the institution does not have a significant investment in those entities (amount above the 10% threshold and net of eligible short positions) (negative amount) 0 56 (c), 59, 60, 79
Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties 0 87, 88 49 o/w instruments issued by subsidiaries subject to phase out 0 486 (4)
Direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions) (negative amount) (760) 66 (d), 69, 79 56 Empty set in the EU
57 Total regulatory adjustments to Tier 2 (T2) capital (760) Sum of lines 52 to 56 58 Tier 2 (T2) capital 2,262 Line 51 plus line 57 59 Total capital (TC = T1 + T2) 15,573 Sum of lines 45 and 58 60 Total risk weighted assets 98,990
62 Tier 1 (as a percentage of risk exposure amount) 13.45% 92 (2) (b)
68 Common Equity Tier 1 available to meet buffer requirements (as a percentage of risk exposure amount) 4.78% CRD 128 69 (not relevant in EU Regulation)
80 Current cap on CET1 instruments subject to phase-out arrangements 0 484 (3), 486 (2) and (5)
82 Current cap on AT1 instruments subject to phase-out arrangements 545 484 (4), 486 (3) and (5)
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 166 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Changes in regulatory capital, regulatory own fund requirements 3.3.1.4 and ratios in 2019
Consolidated shareholders’ equity (Group share) net of DSNs and PSNs 17,418 17,938
(in millions of euros) Equities Interest rates Forex Credit Commodities Total o/w: in trading portfolio o/w: in banking book
Holdings of own funds instruments of a financial sector entity where the institution has a significant investment not deducted from own funds (before risk-weighting) 3,129
Others (including irrevocable SRF (Single Resolution Fund) and FGDR (Deposit Guarantee and Resolution Fund) payment commitments) (123)
Deferred tax assets that rely on future earnings (excluding temporary differences) (48) (96)
Amount of Common Equity Tier 1 (CET1) at end of period 11,168 (935)
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 168 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
o/w impact of changes in phase-in rate 0 o/w other impact of changes in base (141) (19)
Amount of Tier 2 capital at end of period 2,262 (19)
Accompanying these factors is a -€0.9 billion impact relating to the disposal of the retail banking business and its acquisition by BPCE S.A.: the pay-out of a special dividend of -€1.5 billion over the financial year having been partially offset by a +€0.6 billion capital gain on the disposal.
The €0.3 billion decrease in CVA can primarily be attributed to changes in by lower exposures at end-2019.
Accordingly, under the New Dimension strategic plan, the fully loaded CET1 ratio beat its 11.0% target by end-2020 by reaching 11.2% at the plan’s completion. With a fully-loaded CET1 ratio of 11.28% at December 31, 2019, Natixis is therefore fully in line with this benchmark.
Together with BPCE Group as a whole, Natixis contributed to collecting detailed information on liabilities, as required by the SRB in 2018. As the BRRD Directive and SRB policies regularly updated, the mechanisms and preparing for this new ratio are ongoing.
(Adjustment for fiduciary assets recognized on the balance sheet pursuant to the operative accounting framework but excluded from the leverage ratio exposure measurement, in accordance with Article 429 (13) of Regulation (EU) No. 575/2013 “CRR”)
Adjustment for off-balance sheet items (i.e. conversion of off-balance sheet exposures to credit equivalent amounts) 38,494 39,614
LEVERAGE RATIO EXPOSURE 381,876 372,964 o/w exposure related to affiliates 56,614 38,808
an overall limit and an alert threshold applied to Natixis’ leverageV ratio, proposed by the ALM Committee and approved by the Risk Committee.
Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) 20,578 21,353
(Adjusted effective notional offsets and add-on deductions for written credit derivatives) (9,010) (8,766)
TOTAL DERIVATIVE EXPOSURES (SUM OF LINES 4 TO 10) 18,130 18,914
(Netted amounts of cash payables and cash receivables of gross SFT assets) (22,150) (23,939)
TOTAL SECURITIES FINANCING TRANSACTION EXPOSURES (SUM OF LINES 12 TO 15A) 79,836 81,332
(Exemption of intra-group exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No. 575/2013 (on and off balance sheet))
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 172 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Credit risk (excluding CCR) 62,392 71,894 4,991 o/w the standardized approach 11,183 19,383 895
Amounts below the thresholds for deduction (subject to 250% risk weight) 1,240 1,750 99
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 174 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Claims on institutions and corporates undergoing a short-term credit assessment 105 105
Sub-total IRB 31/12/2019 by geographic area 85,999 33,676 15,847 8,068 7,456 3,717 6,016 1,607 162,385
Sub-total IRB 31/12/2018 by geographic area 111,677 29,483 13,495 8,200 6,845 4,018 6,025 1,597 181,342
Central government or central banks 430 2 859 293 4,262 5,845
Sub-total SA 31/12/2018 by geographic area 71,620 1,222 1,149 84 316 1,192 11 40 75,632
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 178 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Secured by mortgages on immovable property 11 77 7 130 226
Claims on institutions and corporates undergoing a short-term credit assessment 92 3 8 103
(in millions of euros) On demand <= 1 year > 1 year
Claims on institutions and corporates undergoing a short-term credit assessment 37 62 99
Accumulated impairments, accumulated negative fair value variations due to credit risk and provisions
Of which collaterals and financial guarantees received on non-performing exposures to which forbearance measures have been extended.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 182 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Accumulated impairments, accumulated negative fair value variations due to credit risk and provisions Partial disposal from consolidated
– accumulated impairments, accumulated negative fair value variations due to credit risk and provisions
FITCH Long term 2 A+, A, A4 BB+ to BB- 100
Equities * O/w exposures related to affiliates 96% 100% 96% 100%
SA – exposures (EAD) by asset classes and risk weights (CR5)
% of RWA % of exposure class involved in roll-out planSA FI IA Total
IRB – credit risk exposures by portfolio and PD range (CR6)
Sub-total Central governments or central banks 292 292 0.0% 3 45% 188 185 63%
Sub-total Central governments or central banks 28,382 1,512 62% 29,324 0.2% 264 9% 816 325 1% 51 51
Sub-total Corporates – Specialized Lending 11,688 7,760 69% 17,011 3.2% 869 12% 1,942 4,482 26% 111 133
IRB – Specialized lending and equities under the simple risk weight method
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 192 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Of which €13,969 million relating to clearing houses (2% flat weighting in accordance with applicable regulation) and €3,237 million relating to BPCE Group affiliates at December 31, 2019*
RWAs as at the end of the previous reporting period (31/12/2018) 2,338 187
Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which 10,900 218
Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which
(See Chapter 5 – Consolidated financial statements and notes – Note 6 Accounting principles and valuation methods.)
The market value is measured according to principles described in Note 5.6 of Accounting principles which can be found in Note 5.1 “Consolidated financial statements and notes” to Chapter 5 “Financial data”. Gains or losses on the disposal of securitization positions are recognized in line with the rules applicable to the category in which the positions sold were initially classified.
o/w re-securitization o/w senior debt o/w non-senior o/w retail underlying o/w re-securitization o/w senior debt o/w non-senior
Average of the daily VaR (Article 365 (1) of the CRR) on each of the preceding 60 business days x multiplication factor (in line with Article 366) 2,102 168
Average of the daily SVaR (Article 365 (2) of the CRR) during the preceding 60 business days x multiplication factor (Article 366) 3,456 276
Most recent IRC value (incremental default and migration risks calculated in accordance with Section 3 of Articles 370/371) 236 19
The measurement and monitoring of interest rate risk is presented in section 3.2 “Risk management – Overall interest rate risks”.
The operational risk control system is presented in section 3.2 “Risk management – Operational risks”.
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The following data are calculated on the basis of the median value for the four quarters of 2019.
Loans and receivables other than call loans 0 0 3,115 0
Own debt securities issued besides own secured bonds or own asset-backed securities 0 0 1,018 0
TOTAL ASSETS, COLLATERAL RECEIVED AND OWN ISSUED DEBT SECURITIES 218,715 149,808
(in millions of euros) Associated liabilities, contingent liabilities or securities lent
At December 31, 2019, total balance sheet assets and encumbered guarantees received totaled €218,715 million. These can be broken down by type and source of liabilities: securities transactions, including in particular securities lendingV and repurchase agreements, for a total of €199,628 million; encumbered receivables securing covered bond vehicles (NatixisV Pfandbriefbank), for a total of €1,120 million; encumbered receivables in vehicles other than covered bond assetV pools, such as central bank refinancing or other market vehicles, for a total of €4,670 million; assets encumbered by the payment of margin calls on derivativeV positions, for a total of €13,764 million.
Natixis determines its LCR on a consolidated basis and operationally manages its liquidity position and liquidity coverage requirements relative to these new metrics, having set a minimum ratio of 100%. Natixis regularly assesses its contribution to the Group’s NSFR based on its interpretation of known legislation.
other Level 1 liquid assets, consisting mainly of marketableV securities representing claims on, or guarantees by, sovereigns, central banks and public sector entities, and high-rated covered bonds; Level 2 liquid securities consisting mainly of covered bonds andV debt securities issued by sovereigns or public sector entities not eligible for Level 1, corporate debt securities and equities listed on active markets that satisfy certain conditions.
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Inflows from fully performing exposures 22,100 20,204 19,421 20,122 19,599 18,061 17,581 18,616
Cash inflows (subject to 75% cap) 127,192 125,348 128,473 132,501 47,039 46,567 49,023 52,829
From an operational standpoint, Natixis has two liquidity reserves that contribute to BPCE Group’s reserves: a reserve of liquid assets eligible for central bank collateralizedV refinancing operations to secure intra-day settlements; this relatively stable reserve is made up of central bank loans and securities, and is located in Paris (about €4 billion in the 3G Pool) and New York ($2.3 billion at the FRB discount window); a liquidity reserve established in advance to meet a liquidity crisisV similar to the one simulated by the LCR; the amount of this reserve ranges from €20 billion to €30 billion and is mainly reinvested with the ECB, the US Federal Reserve and, since August 2019, the BoJ. Since 2015, a portion of assets in this reserve has been under “dedicated” management in special portfolios, with an allocation strategy focused on the list of financial instruments considered as Level 1 and Level 2 HQLA as defined by LCR regulations in force. The liquidity of the portfolios (mainly subject to delegated management by Natixis Ostrum and managed directly under a Natixis mandate since 2017) and the assets reinvested with central banks ensure the reserve can be mobilized immediately if needed.
HQLA assets reported in the LCR numerator also include unencumbered HQLA securities temporarily carried by the Capital Markets activities. These securities are not considered as part of the ringfenced liquidity reserve and are not meant to be held over the long term. The outstanding amount and composition of these portfolios may vary considerably from one reporting date to the next, as prices fluctuate. However, they can be monetized on the repo and securities borrowing/lending market, and this monetization may be forced in the event the Group liquidity-stressed BCP is activated and executed.
In June 2013, Natixis established a governance system for the management of the LCR, notably setting an LCR limit higher than 100% from the end of 2013 (greater than the regulatory requirements in force). The oversight of the LCR is part of a BPCE Group framework under the aegis of the BPCE Group Finance division. Natixis’ LCR hedging is organized in close cooperation with BPCE and is managed by the Joint Refinancing Pool, acting with theauthorization of the Financial Management Department on the basis of its forecasts. Within this framework, the strategy for the Natixis scope aims to hedge the LCR above 100% with a safety buffer of around €5 billion in order to deal with any last-minute contingencies, through BPCE adjustments. The structural over-hedge of the Group’s LCR above the 100% threshold (regulatory limit), is borne by BPCE.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 206 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Cross-reference table between articles of the CRR, Basel committee/eba tables and statements, and the Pillar III report
Article 435 (a) (EBA) EU OVA – Bank risk management approach 108 to 115
Article 435 (a) (EBA) CCRA – Qualitative disclosure related to counterparty credit risk 116-117
Article 436 (b) EU LI1 – Differences between accounting and regulatory scopes of consolidation and mapping of financial statements with regulatory risk categories 158-159
Article 458 (BCBS March 2016) CCyB1 – Geographical distribution of credit exposures used in the countercyclical buffer 160
Article 451 (BCBS March 2016) LR1 – Comparison of accounting exposures and leverage exposures 170
Article 438 (c) (f) (EBA) EU OV1 – Overview of RWA 172
Article 438 last paragraph (EBA) EU CR10 – IRB – Specialized lending and equities under the simple risk-weighted approach 190
Art. 442 (d), (e) and (f) NX05 – EAD by geography and by exposure class 125
Art. 453 (d) NX17 – Secured exposure by rating and by type of guarantor 173
Article 442 (c), (g) and (h) (EBA) EU CR1 – Credit quality of assets 175
Article 453 (a) (e) (EBA) EU CRC – Qualitative disclosure requirements related to credit risk mitigation techniques 122
Article 442 (f) (EBA) EU CRB-E – Maturity of exposures 179
Article 453 (f) and (g) (EBA) EU CR4 – Standardized approach – credit risk exposure and Credit Risk Mitigation (CRM) effects 185
Article 452 (a) (c) (EBA) EU CRE – Qualitative disclosures related to IRB models 186
Article 92 (3) and 438 (d) (EBA) EU CR8 – RWA flow statements of credit risk exposures under IRB 186
Article 444 (e) (EBA) EU CCR3 – Standardized approach of CCR exposures by regulatory portfolio and risk weight 192
Article 449 (BCBS) SECA – Qualitative disclosure requirements related to securitization exposures 196
(BCBS) SEC3 – Securitization exposures in the banking book and associated regulatory capital requirements – bank acting as originator or as sponsor 199
Art. 449 (k) NX33BIS – Banking book EAD by agency 197
Art. 445 (EBA) EU MR1 – Market risk own funds requirements 200
Article 105 and article 455 (c) (EBA) EU MRB A – Qualitative disclosures for banks using the Internal Models Approach (IMA) 128 to 130
Article 455 (d) (EBA) EU MR3 – IMA values for trading books 200
Article 448 (BCBS) Table A – IRRBB management policies and objectives 144
Article 49 (1) and 4 (EBA) EU INS1 – Non-deducted holdings in insurance undertakings 167
Article 377 (6) and article 105 (BCBS) PV1 – Prudential valuation adjustments 167
Article 16(3) (EBA) NPL 1 – Credit quality of forborne exposures 181
(EBA) NPL 3: Credit quality of performing and non-performing exposures by days past due 181
(EBA) NPL 4: Performing and non-performing exposures and corresponding provisions 182
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 208 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
EAD, RWA and capital requirement by approach and by Basel exposure category (NX01) 124
Total and average amount of net exposures (EU CRB – B) 176
Main internal models: PD, LGD, CCF and volatility discounts (EU CRE) 121
IRB – Credit risk exposures by portfolio and PD range (EU CR6) 187
IRB – specialized lending and equities using the simple risk-weighted asset method (excluding impact of thresholds) (EU CR10) 190
Breakdown of equity exposures by main Natixis business line (NX23) 191
IRB – CCR exposures by portfolio and PD scale (EU CCR4) 193
Credit derivatives exposures (CCR6) RWA flow statements of CCR exposures under Internal Model Method (IMM) (EU CCR7) 195
EAD according to the role of Natixis in the trading book (NX31-B) 198
Securitization exposures in the banking book and associated capital requirements – Bank acting as originator or as sponsor (SEC3) 199
VaR, stressed VaR and IRC within the regulatory scope (MR3) 200
NII sensitivity and economic value of equity (IRRBB – Table B) 144
decidedly loose. After seven months of keeping its policy unchanged, the Fed cut interest rates (-25 basis points) in July and did so again at the Federal Open Market Committee meetings in September and October (a total of -75 basis points to reach the 1.5 to 1.75% range at end-2019). The ECB for its part proposed a comprehensive policy package in September, including cutting the interest rate on its deposit facility by 10 bps and introducing a two-tier system, restarting the Asset Purchase Program, and easing TLTRO III conditions (Targeted Long-Term Refinancing Operations). Consequently, 2019 confirmed a return to a long-lasting, historically low interest rate regime.
Looking at currencies, 2019 saw further appreciation by the USD on the back of solid growth and a Fed Fund rate that stayed persistently higher than the key rates of other major central banks. As a corollary, the CNY depreciated on a near continuous basis between May and September to nearly 7.2 against the USD, before making a gradual recovery to close the year below 7. Finally, from mid-2019, the GBP steadily appreciated against the EUR, jumping higher in mid-December after the Conservative Party won the general elections. All told, the GBP gained more than 6% against the EUR in 2019.
The sale of Natixis’ retail banking activities (Factoring, Sureties and Financial Guarantees, Leasing, Consumer Financing and Securities Services) to BPCE S.A. was finalized in the first quarter of 2019.
Asset & Wealth Management saw a number of major developments in the Asset Management business over the course of 2019.
The following events, projects and initiatives took place in the course of Natixis IM’s expansion: launch of Thematics Asset Management in March 2019;V
acquisition in April 2019 of a minority stake of 24.9% in US firmV WCM Investment Management (WCM). Natixis Investment Managers consequently became WCM’s exclusive distributor outside the Company (other than specified exceptions). This long-term partnership gives Natixis Investment Managers the opportunity to offer WCM’s investment strategies to international investors, and enable WCM to continue to grow, creating new opportunities for its clients and staff; acquisition of an 11% stake in Fiera Capital, the leading publiclyV traded independent distribution platform in Canada, giving Fiera's clients access to the global active strategies of Natixis Investment Managers. Under this long-term agreement, Fiera Capital becomes the exclusive distributor of Natixis Investment Managers in Canada, thereby giving Fiera Capital’s clients access to Natixis Investment Managers’ wide array of active investment strategies. In addition, NIM Canada was sold to Fiera Capital in the third quarter of 2019 as part of a strategic partnership that was concluded in the second quarter of 2019; launch of Ostrum AM’s offering in real asset private debt with:V
the launch of the private debt management business in Asia byV hiring a team of experts based in Hong Kong and Singapore, the launch of the private debt management initiative in the USV with the appointment of Brian T. Yorke, who joined the Company on June 12, 2019, as US Head of Loan and Structured Credit Management; creation of Vauban Infrastructure Partners, a new affiliateV specialized in infrastructure investment, through the transfer of Mirova’s current infrastructure team to a new specialized subsidiary; announcement by Groupe BPCE and La Banque Postale of aV project to deepen and expand their business partnership, entailing the merger of the mainly insurance-related euro fixed-income management activities of Ostrum AM and LBPAM using a shared platform controlled by Natixis IM with a balanced governance structure, guaranteeing the pooling of IT tools and the rights of each party with respect to these IT tools; sale of Darius in the fourth quarter of 2019;V
Natixis IM earned the following distinctions over the course of 2019: Dan Fuss of Loomis Sayles, who also co-manages the LoomisV Sayles Bond Fund, was named Outstanding Portfolio Manager at the 2019 US Morningstar Awards for Investing Excellence; Kathryn Kaminski of AlphaSimplex was one of 10 to receive a “TopV Women in Asset Management” award from Money Management Executive for her contribution to the Asset Management sector; At the Lipper Fund Awards Natixis and its subsidiaries wereV recognized in several categories and countries (UK, Germany, Switzerland, US, Austria and Taiwan); Investment & Pensions Europe (IPE): Natixis Investment ManagersV was ranked 16th out of the top 400 asset managers in 2019 by AuM and country of main headquarters at December 31, 2018; Cerulli Associates Top 50 asset management companies: NatixisV Investment Managers was ranked 16th-largest global asset management company; InvestmentNews: the Excellence in Diversity & Inclusion AwardsV recognized Natixis Investment Managers as a champion of diversity; Bonhill/InvestmentNews, “Women in Asset Management New YorkV Awards”: Gina Szymanski of AEW Capital won the Women in AssetV Management New York award for Real Estate; FT Adviser Investment 100 Club:V
The Loomis Sayles US Equity Leaders fund was named the winnerV in the FTA Investment 100 Club's North American Equity category; Citywire Professional Buyer:V
Eileen Riley of Loomis Sayles was ranked No. 11 in Citywire’sV 20 top female portfolio managers, up two places from her ranking in 2018.
Natixis Wealth Management continued to evolve thanks to its strong sales drive in the networks as well as in its wealth management business for direct clients.
For VEGA Investment Managers, the year’s highlights were: the One Bank project with the first NWM LuxembourgV subscriptions in VEGA IM funds; the strong momentum of the thematic funds created at the end ofV 2018; signing of the UN-PRI (United Nations — Principles for ResponsibleV Investment) in May 2019.
In Employee Savings, sales in the Groupe BPCE distribution networks remained brisk with a 22% increase in new contracts, attributable to the elimination/decrease of the “forfait social” (employee social charge) in companies with less than 250 employees. The final adoption of PACTE (France's Action Plan for Business Growth and Transformation) on May 23, 2019 created new challenges for the development of employee savings as well as retirement savings, and Natixis Interépargne is actively preparing for these.
Corporate & Investment Banking’s 2019 highlights included the continued roll-out of New Dimension strategic plan targets aimed at achieving the following goals: to be recognized as a bank that offers innovative solutions and to become a benchmark bank in four strategic sectors (energy and natural resources, aerospace, infrastructure, real estate and hospitality). Thanks to the diversification of its businesses, the Corporate & Investment Banking business line continues to create value despite less favorable conditions for Capital Markets activities, especially in the first half of 2019.
Natixis continued to develop its advisory services, as shown by the “Most Innovative Investment Bank for Financial Institutions Group” Award it received from The Banker in recognition of its close relationship with its institutional clients, as well as its ability to deliver innovative solutions adapted to their needs.
In addition, it continued to develop its social initiatives: volunteer work in Cambodia as part of its partnership with PSE For a Child’s Smile; and new initiatives as part of the DANA program — Diversity @Natixis Asia (APAC Banking School for sharing knowledge between the Bank’s senior and junior staff, Début 2.0 for reinserting banking professionals into the job market).
The Americas platform delivered a solid performance in all its business sectors. It continued to expand its range of solutions and
The EMEA platform enjoyed strong business volumes in the Real Assets sector, particularly in energy and real estate infrastructure projects through the distribution of its assets to a variety of investors and partners. The loan solutions business on the capital markets also made progress.
In the Middle East, Natixis moved ahead on the opening of a Saudi Arabian subsidiary in Riyadh, which is expected to fully operational by the end of the first quarter of 2020. This local presence will allow Natixis to deepen its relationship with Saudi corporate and institutional clients, as well as with family offices.
The Global Energy & Commodities sector assisted its commodity producing, transforming and trading clients in their development and financing transactions. In keeping with the bank’s sustainable development policy, Natixis arranged multiple deals indexed to environmental, social and governance.
The infrastructure sector pursued its efforts in favor of renewable energies, and consolidated its co-investment platform by forming partnerships with institutional investors. There are currently 10 partners on the platform, with an investment capacity of nearly €7.5 billion. Natixis is the world’s number 7 MLA in project financing and the number 4 MLA in Europe in infrastructure financing (source: IJGlobal).
The Real Estate & Hospitality sector further expanded internationally and diversified its offering. Of note, Natixis was ranked, for the third consecutive year, No. 1 bookrunner and MLA for credit financing in the EMEA region (source: Dealogic).
Trade & treasury solutions ramped up its international expansion while continuing to develop in France and find innovative ways to improve and secure the customer experience.
Despite a highly competitive market, the investment banking business was very buoyant by carrying out a diverse range of deals. Natixis was ranked No. 1 bookrunner for sponsored loans and No. 6 for sponsored loans in the EMEA region (source: Refinitiv).
In 2019, Natixis contained to expand internationally in the area of M&A. It also made a strategic investment in Azure Capital. With the acquisition of this Australian boutique specialized in infrastructure, energy and natural resources rounds out Natixis’ international network with seven boutiques. In France, Natixis Partners ranks No. 5 by number of deals (source: L’Agefi & Mergermarket), and more specifically No. 3 by number of deals with midcaps (source: L’Agefi).
On December 19, 2019, Groupe BPCE and CNP Assurances confirmed the extension of agreements signed in 2015 between BPCE, Natixis and CNP Assurances from December 31, 2022 to December 31, 2030. These new agreements set out the transition to a 50% payment protection insurance distribution between Natixis Assurances (BPCE Vie and BPCE Prévoyance) and CNP Assurances, and reinsurance by CNP Assurances for 34% of individual payment protection underwritten by BPCE Vie, as of January 1, 2020.
The measures Natixis Assurances has taken for the last few years to adapt to a low interest rate environment have enabled it to maintain satisfactory solvency and profitability in 2019: the persistence of this environment has resulted in the ongoing lowering of revaluation rates and strengthening its profit sharing reserves and OPEX control.
Groupe BPCE’s ambition to become a fully-fledged bancassurance specialist and create a distinct non-life Insurance business model for individual and business customers within Natixis Assurances was realized after it was agreed, in May 2019, to renew the partnership with Covéa from January 1, 2020. This partnership will focus on insurance of professional risks for customers of the Caisses d’Epargne and Banque Populaire banks. From 2020, Natixis Assurances will handle all new non-life Insurance business from Banque Populaire individual customers together with those of Caisse d’Epargne with the roll-out of the #INNOVE2020 program.
In addition, the Purple#Care claims management transformation and digitalization project to improve customer satisfaction rolled out a new solution for home, personal accident, auto and two-wheeler products.
2019 was also year of strategic partnerships for the division, and particularly those with VISA: with the creation of Xpollens, a white-label Payments in a boxV solution offering innovative payment services to fintechs, merchants and corporates. With this solution, users can easily incorporate a complete range of payment services, ranging from issuing instant payment cards to instant payment to account administration; and the solutions implemented for the FIFA 2019 Women’s World Cup inV France, allowing fans to use prepaid contactless cards and payment bracelets created especially for the occasion. Visa, Groupe BPCE and Natixis Payments Solutions plan to capitalize on this success to offer innovative payment experiences to the spectators and delegations at the Paris 2024 Olympic and Paralympic Games, in their role as premium partners. Groupe BPCE will also involve Payments division entity E-Cotiz in this event.
Other partnerships also involved fintechs such as Shopify and PayPlug, with the shared goal of simplifying everyday operations for merchants. Through this collaboration, users of the Shopify platform will enjoy a user-friendly omnichannel payment solution, offering the highest level of protection against fraudulent transactions.
In additional, business remained buoyant in 2019 both in the division’s historical businesses...
For the purposes of comparability, the management report as a whole has been restated for the disposal of the retail banking activities to BPCE S.A.
Natixis’ net revenues stood at €9,196 million at December 31, 2019, up 3.1% from 2018 at constant exchange rates.
The various divisions posted stable or increased revenues. Asset & Wealth Management net revenues gained 4.1% at constant exchange rates. Corporate & Investment Banking net revenues were virtually stable at constant exchange rates. The Insurance and Payments divisions were up 7% and 8.5% respectively.
Management report at December 31, 2019 217NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019www.natixis.com
Gross operating income stood at €2,564 million in 2019, up 5% at constant exchange rates versus 2018.
Revenues from Associates climbed to €21 million in 2019 versus €29 million in 2018.
Gains or losses on other assets totaled €687 million in 2019, of which €697 million was attributable to the disposal of the retail banking activities to BPCE S.A. in the first quarter of 2019, versus €54 million in 2018.
Pre-tax profit therefore totaled €2,945 million in 2019 versus €2,281 million in 2018.
After incorporating -€304 million in non-controlling interests, net income (Group share) amounted to €1,897 million in 2019, up sharply from 2018 owing to the exceptional capital gains from the sale of retail banking activities to BPCE S.A.
Consolidated management ROTE after tax (excluding non-recurring items) came to 10.0% in 2019, giving an accounting ROTE of 14.3%.
Recurring expenses of the AWM division increased 7% compared with December 31, 2018 at current exchange rates to €3,760 million (+4.1% at constant exchange rates).
Expenses increased at a slower rate (+6.3% at current exchange rates, or +3.3% at constant exchange rates) to €,2,492 million.
At 14.8%, the division’s ROE was down 0.9 points from December 31, 2018.
+14% / +€118.0bn * Main 2019 scope effects: Integration of WCM in the US (+$34.6 billion) in Q2; Disposal of NIM Distribution Canada (-$0.8 billion) in Q3; Disposal of Darius in Q4 (-€0.7 billion).
At December 31, 2019, AuM can be broken down into predominantly equity products (29.3%), followed by bond products (28.4%) and life insurance (20.2%).
At December 31, 2019, net revenues climbed 7% to €3,511 million compared with December 31, 2018 (i.e. +4% at constant exchange rates), driven by: the sharp increase in the incentive fees of European assetV management companies (mainly H2O and DNCA) and US asset management companies (AEW CM); an increase in financial products, linked to the positive valuationV impact of the seed money portfolio, and the integration of WCM and Fiera; other revenue improved by provision reversals for prior litigation.V
Expenses stood at €2,251 million, including non-recurring item, up 6% compared with December 31, 2018 (+3% at constant exchange rates). Restated for the non-recurring provision reversal recognized in Q1 2018 (prior litigation), the increase in expenses is slightly lower (+5%), driven by higher internal payroll costs (increase in headcount in step with business expansion), operating costs — mostly IT costs (developing tools and running projects) — and documentation and market data costs (price rise and the MiFID impact).
Expenses stood at €157.5 million, up 5% compared with 2018. Restated for the Sélection 1818 and Massena Partners scope effect, the increase in expenses is 4% higher versus 2018.
Management report at December 31, 2019 219NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019www.natixis.com
Assets under management at December 2019 totaled €27.0 billion, representing an increase of €0.4 billion, or 1% compared with December 31, 2018, thanks to a very favorable market effect (+€3.7 billion) which more than offset negative net placements (-€3.3 billion).
In 2019, Corporate & Investment Banking net income remained stable compared with 2018 at constant exchange rates, and included income of €68 million for the settlement of the litigation with Société Wallone du Logement, booked as a non-recurring item under financial communication in the third quarter of 2018. Excluding non-recurring item and one-off autocalls in Asia (€259 million in the fourth quarter of 2018), net revenues shed 5.4% at constant exchange rates.
Revenues from Fixed Income, Forex, Credit, Commodities and Treasury activities stood at €1,118 million in 2019, down 4.9% on 2018 at constant exchange rates. The following changes were observed in each segment: fixed Income and Forex revenues fell 23.9%, with the Fixed IncomeV business shedding 23.7% due to a loss of momentum in France and Asia on long-term issuance, while the Forex business decreased 24.3% due to poor currency volatility and lower volumes on the flow activity; revenues from Credit activities were up 15.1%. The businessV recorded continued growth in securitization activities, in both the US and Europe; revenues from repo activities, now split evenly between FixedV Income and Equity, fell 7.5% compared with 2018 on account of stricter regulatory constraints and tighter margins caused by a more competitive market.
Strategic and Acquisition Finance revenues had a limited decrease of 1.2% in a leveraged buyout (LBO) market showing signs of strain.
Revenues from syndication on the bond market gained 33.5% compared with 2018. Revenues generated by the primary bond market increased 10.8% while secondary market revenues recovered sharply due to a favorable comparison base effect owed to the recognition in the last quarter of 2018 of the negative impact from the management of debt positions in a highly unfavorable market.
At €417 million, Equity revenues increased 135.0% compared with 2018 at constant exchange rates and down slightly (-4.4%) excluding one-off autocalls in Asia. Sales were again focused on new products over the course of 2019.
Revenues from origination and syndication were down 18.1% compared with 2018, penalized by the decrease in real estate finance securitization activities in the US amid a less dynamic market, especially in the CMBS segment. The revenues of the financing portfolio remained stable at constant exchange rates in a context of pressure on margins. ENR (Energy & Natural Resources) and Trade Finance revenues drifted lower to 11.2% at constant exchange rates due to a weaker average per-barrel oil price than last year.
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2019 220 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
In 2019 Corporate & Investment Banking’s expenses totaled €2,235 million, up 1.5% at current exchange rates and stable compared with 2018 at constant exchange rates. Excluding Transformation & Business Efficiency costs recognized as a non-recurring item under financial communication, i.e. €27 million in 2019, expenses totaled €2,208 million in 2019, up 0.9% at current exchange rates and down 0.8% at constant exchange rates due to the decrease in variable expenses.
67.0% in 2019 (66.2% excluding non-recurring items), slipping 0.4 point compared with 2018 (67.4%), including non-recurring items.
Gross operating income totaled €1,102 million, up 3.6% compared with 2018 at current exchange rates and 0.6% at constant exchange rates. Excluding non-recurring items, the total was €129 million, up 8.4% at constant exchange rates. The cost/income ratio stood at
At €312 million, provision for credit losses gained 79.2% compared with 2018 including non-recurring items.
With €10.1 billion in direct business premiums, life insurance inflows increased by 5% year-on-year, keeping the business robust despite a persistently low interest rate environment, higher capital markets and inflation. Premiums on unit-linked assets totaled €3.1 billion (-3%) and made up 30.6% of total gross inflows in 2019, down 2.6 points to 33.2% year-on-year but outperforming the market by 4 points at end-December 2019 (27%). Inflows invested in the “Euro” fund increased by 9% to €7.0 billion.
The non-life insurance portfolio grew by 5% to 6.1 million policies. Gross sales inched up 1% with stable results in the Caisse d’Epargne network and a 6% increase in the Banque Populaire network. Acquired premiums gained 6% to €1,577 million, with similar growth for both networks. This increase was driven by the core range, with an 8% jump in both auto insurance and multi-risk home insurance, 7% in personal accident and multirisk personal accident insurance, in line with portfolio growth.
Business remained buoyant in 2019 both in the division’s historical businesses and in the Fintechs.
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2019 222 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Net revenues in 2019 totaled €712 million, up 5% (4% at constant scope and exchange rate) compared with 2018.
Compared to 2018, cash-at-risk commitments fell 22% to €52.6 million (mainly due to the depreciation effect of the Venture funds). At €13.6 million, off-balance sheet commitments were down 6% compared with 2018.
At constant exchange rates, short-term average outstanding loans rose 8% while medium- and long-term outstanding loans decreased by 8%, penalized by the economic and political situation in Algeria. In the same period, customer deposits increased by 6% due to increased current account inflows as well as new term deposit subscriptions.
Off-balance sheet commitments fell by 16%, which was mostly due to guarantee re-issuance and documentary credit because of less foreign corporate investment.
Natixis Algérie posted a 12% increase in net revenues to €70.6 million compared with 2018. Excluding the exchange rate effect, net revenues were up 9% with an increase in equity investments and in fee income on forex transactions.
Excluding these items, net revenues reached +€20 million in 2019 compared with +€30 million in 2018; It essentially comprised: revenues from Treasury and ALM operations; andV
Total provision for credit losses by geographic area (2019 excluding the disposal of the retail banking activities)
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2019 224 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Appendix to 4.2.2 – Consolidated Results 1 – Management results reclassified as consolidated results in 2019
Main investments and divestments performed over the period 225NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019www.natixis.com
Asset Management Acquisition of a minority stake in US asset management company WCM Investment Management (WCM) and conclusion of an international distribution agreement
Asset Management Conclusion of a strategic partnership agreement with Fiera Capital, the leading publicly traded independent distribution platform in Canada, and acquisition of a minority stake of 11% in its capital
Acquisition of a majority stake in Azure Capital, one of Australia’s top M&A advisory boutiques
Long-term partnership to create a leading player in equity brokerage and equity capital markets in continental Europe. This partnership includes: the transfer of Natixis’ equity brokerage and equity research activities in France to ODDO BHF;V the integration of both players’ equity capital markets activities in France at NatixisV
Payments Acquisition of a majority stake (70%) in Comitéo, a prepaid payments company (software platform for works councils)
Asset Management Acquisition by Mirova of a majority stake (51%) in Althelia Ecosphère, an asset management company specialized in impact investing
Asset Management Acquisition of a majority stake (51.9%) in Investors Mutual Limited, a well-known asset management company in Australia
Payments Acquisition of 54% of the shares of Dalenys, a French fintech with a high-performance technological offering for e-commerce retailers
Asset Management Sale of the Canadian distribution business to Fiera Capital
Gains or losses on long-term investments 1,258 3501 1 (148) 1,259 3689 35 (2) 33
Gains on trading book transactions increased by €66 million, i.e. +€93 million for Mainland France and -€26 million for transactions carried out by foreign branches.
Together, these items brought operating income to +€863 million, down -€669 million.
Pursuant to Article D.441-4 of the French Commercial Code, supplier invoices that have been received but remain unpaid at the reporting date (for a total amount including tax of €101.5 million) are as follows: Invoices received but still unpaid at the end of the period 0 day (indicative) 1 to 30 days 31 to 60 days 61 to 90 days 91 days and over Total
Percentage of the total amount of purchases, including tax, for the period
Outlook for Natixis4.6 2019 closed on a positive note in terms of the global trade outlook: the risk of a hard Brexit was ruled out, and the US and China reached a partial agreement that was then signed on January 15, 2020. While this progress does not eliminate all the uncertainties (especially the impact of the coronavirus outbreak on global growth and Natixis' businesses, which has yet to be assessed), such progress should bring about a cyclical recovery. Survey data at the beginning of 2020 indicate improvement in the manufacturing sector, which can vary in strength (weak in the euro zone, robust in the US) depending on the region.
As a reminder, the strategic priorities for Natixis’ various divisions are broken down as follows: Asset & Wealth Management: Confirming our position as a worldV leader in active investment strategies in terms of size, profitability and capacity for innovation; Corporate & Investment Banking: becoming a benchmark bank inV four key sectors (energy and natural resources, aerospace, infrastructure, real estate and hospitality), with a reputation for offering innovative solutions; Insurance: consolidating our position as a top-tier insurer inV France; Payments: becoming a pure play in the European paymentsV industry and accelerating its digital transformation.
Pursuant to Article 19 of Regulation (EU) 2017/1129, the following information is included as reference: the overview of the 2018 financial year on pages 219 to 238V of the 2018 Registration Document submitted on March 15, 2019.
Following the disposal of the retail banking businesses to BPCE S.A., finalized on March 31, 2019, the presentation of the business lines is as follows: Employee Savings Plans (Natixis Interépargne) moves to the AssetV & Wealth Management business line; Film Industry Financing (Natixis Coficiné) moves to CorporateV & Investment Banking; the disposal has no impact on the Insurance business line;V
Please note that, to comply with the requirements of the French law on the separation of banking activities, the Short-Term Treasury and Collateral Management activities, which used to be part of Global Markets, were transferred to the Finance Department on April 1, 2017. However, to ensure comparability, in this management report CIB refers to CIB and the Short-Term Treasury and Collateral Management activities.
as the numerator, the business line’s pre-tax profit, as per theV aforementioned rules, to which a normative tax is applied. The normative tax rate is determined for each of the divisions by factoring in the tax liability conditions of Natixis’ companies in the jurisdictions where they operation. It is determined once a year and does not factor in potential changes over the year linked to deferred taxes, as the denominator, normative capital, calculated on the basis ofV 10.5% of RWA assigned to the division, plus goodwill and intangible assets related to the division; Natixis’ ROTE is determined using, as the numerator, net incomeV (group share) minus the post-tax interest expense on DSNs. The equity used is average shareholders’ equity (group share) under IFRS, after payout of dividends, excluding average hybrid debt, average intangible assets and average goodwill.
Internal control procedures 5.5 relating to accounting and financial information 431
Net gains or losses on financial instruments at fair value through profit or loss 7.3 1,986 1,764
Gains and losses on financial assets at fair value through other comprehensive income 7.4 40 6
Net gains or losses resulting from the derecognition of financial instruments at amortized cost 7.5 (10) (3)
Net income/(loss) attributable to shareholders (see Note 10.1.2) — group share — per share, calculated on the basis of the average number of shares over the period, excluding treasury shares 0.56 0.47
Net income/(loss) attributable to shareholders (see Note 10.1.2) — group share — per share, calculated on the basis of the average number of shares over the period, excluding treasury shares and including shares that could be issued on the exercise of stock options and bonus shares 0.56 0.47
Share of gains and losses recognized directly in the equity of associates recyclable to income 7 (2)
Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss (226) 384
Revaluation of equity instruments recognized at fair value through other comprehensive income 47 (7)
Revaluation of hedging derivatives of equity financial assets recognized at fair value through other comprehensive income - -
Gains and losses recognized directly in other comprehensive income (after income tax) 302 277
Breakdown of tax on unrealized or deferred gains or losses 31/12/2019 31/12/2018
Revaluation of financial assets (debt instruments) at fair value through other comprehensive income recyclable to income 14 (3) 11 (61) 18 (43)
Revaluation adjustments on defined-benefit plans (51) 13 (38) 32 (10) 23
Shares in unrealized or deferred gains/(losses) of associates 9 (2) 7 (4) 2 (2)
TOTAL CHANGES IN UNREALIZED OR DEFERRED GAINS OR LOSSES 346 (44) 302 297 (20) 277
Financial assets at fair value through profit or loss 8.1 228,802 214,086
Loans and receivables due from customers at amortized cost 8.6.2 71,089 69,279 o/w institutional operations 852 839
The information reported at December 31, 2018 has not been restated for the impact of the first-time application of IFRS 16 “Leases”, in accordance with (a) the option available under this standard and the amendment to IAS 12 “Income Taxes”. The impacts of the first-time application of the amendment to IAS 12 and to IFRS 16 on the opening balance sheet at January 1, 2019 are presented in detail in Notes 1 and 2, respectively. Corresponds to the SFS business lines recognized in non-current assets held for sale as at December 31, 2018 and sold to BPCE in the first quarter of 2019 (b) (see Notes 3.6 and 4.1).
Revaluation adjustments on portfolios hedged against interest rate risk 157 108
Accrual accounts and other liabilities 8.9 16,148 15,359 o/w institutional operations 0 1
Issuance and redemption of perpetual deeply subordinated notes and preference shares (254)
Appropriation to a reserve of income from the sale of equity instruments at FV through other comprehensive income that cannot be reclassified completed during the period (4)
Issuance and redemption of perpetual deeply subordinated notes and preference shares 0
Interest paid on perpetual deeply subordinated notes and preference shares (138)
Share premiums, legal reserve, contractual reserves, long-term capital gains reserve and other Natixis reserves.(a) Other equity instruments issued: refers to perpetual deeply subordinated notes. At December 31, 2018, a redemption of perpetual deeply subordinated notes issued in 2008 was recorded in the amount of -€254 million.(b) Realized and unrealized “changes in fair value attributable to own credit risk on financial liabilities at fair value through profit or loss” recognized in shareholders' equity at December 31, 2019 totaled -€226.4 million (c) (gross amount, with an associated tax impact of +€60.4 million). Balancing payments related to the early redemption of Natixis issues recognized in shareholders' equity at December 31, 2019 totaled -€2 million (gross amount, with an associated tax impact of +€0.7 million); - Realized and unrealized “changes in fair value attributable to own credit risk on financial liabilities at fair value through profit or loss” recognized in shareholders' equity at December 31, 2018 totaled +€385.8 million (gross amount, with an associated tax impact of -€111.4 million). Balancing payments related to the early redemption of Natixis issues recognized in shareholders' equity at December 31, 2018 totaled +€5.3 million (gross amount, with an associated tax impact of -€1.7 million); In 2018, shareholders' equity group share included the following:(d) - the impact of the recognition of new put options granted to minority shareholders relating to acquisitions, for -€49.5 million. These put options concern the M&A business line, with the acquisitions of Vermilion (-€14.1 million) and Fenchurch (-€26.8 million), and the Payments business line, with the acquisition of Alter CE (-€8.6 million); - the impact of existing put options granted to minority shareholders at the start of the year, for -€68.9 million. This impact was partly due to the change in the fair value of these put options for -€63.6 million, generated by the revaluation of financial debt for -€32.3 million, and for -€31.3 million by the effects of the unwinding of the discount on this financial debt, and partly due to the transfer of the change in the share of the net minority position of the entities representing these put options, for -€5.3 million; - the effect of changes in the percentage of ownership without a loss of control of consolidated entities, for -€5.8 million. This mainly concerned the increase in the percentage of ownership of the consolidated entity Caspian PE (from 55% to 72%), for -€3.4 million, and the fall in the percentage of ownership of the consolidated entity Ossiam (from 83% to 75%), for -€1.1 million; - the recognition of goodwill from BPCE IE directly in equity, in accordance with the accounting treatment of the acquisitions of jointly-controlled entities, for -€1 million; - the effects of translation adjustment recycling for -€56.5 million following the repayment by the Singapore, New York and Asia Ltd branches of part of their capital in order to reduce the Group’s global exposure to USD/EUR and HKD/EUR foreign exchange risk. In 2018, other reclassifications included -€43.2 million related to the elimination of capital gains on reclassification following the redemption of two lines of perpetual deeply subordinated notes issued in 2008.(e)
Remeasurement of equity instruments at fair value through other comprehensive income
At December 31, 2019, shareholders' equity group share included the following:(f) - the impact of the recognition of new put options granted to minority shareholders relating to acquisitions, for -€44.2 million. These puts concerned the Corporate & Investment Banking business line and its acquisition of M&A advisory firm Azure Capital. A -€9 million put was recognized on 48% of minority interests. In addition, a -€0.3 million put was recorded on Natixis Coficiné minority interests (0.01% of share capital). Furthermore, the Asset & Wealth Management business line (via Natixis Investment Managers) sole part of its stake in Flextone Partners SAS, thus decreasing Natixis’ ownership interest from 100% to 84%. A put option on minority interests was recorded on the 16% minority stake for -€3.6 million. In addition, Thematics Asset Management, which was co-founded by its managing partners and Natixis Investment Managers in 2019, was consolidated in the accounts. The intention is for the firm to become Natixis’ partner of choice for thematic investing in international equities. Natixis Investment Managers holds put options on minority interests (60%) in the amount of -€30.2 million. At Massena Partners, a put option on minority interests (2%) was recorded in the amount of -€0.9 million. Finally, for the Payments business, a put option on the minority interests at Lakooz (0.1%) was recorded in the amount of -€0.2 million. - the impact of existing put options granted to minority shareholders at the start of the year, for +€12.7 million. This impact stems from the +€12.7 million change in fair value of these put options over the period, resulting from the negative revaluation of financial debt for +€29.5 million and the effects of unwinding the discount on this financial debt, for -€16.8 million. The transfer of the change in the share of the net minority position of the entities representing these put options had a neutral effect over the period; - the effect of changes in the percentage of ownership without a loss of control of consolidated entities, in the amount of -€13 million, of which -€4.4 million for Coface and -€11.5 million in losses for the buyout of 49% of the minority interests of Mirova Natural Capital Limited - the impact of the recycling to profit or loss (resulting from the disposal of the SFS business lines to BPCE) in particular of unrealized reserves on available-for-sale assets from the CEGC portfolio for -€70 million, recyclable hedging derivatives reserves for +€106 million and revaluation adjustments on defined benefit plans for +€2 million; - the impact of the recycling through profit or loss (resulting from the disposal of Natixis Brasil) of translation adjustments for +€21.9 million and recyclable OCI on fixed income securities for +€0.8 million.
- the effects of translation adjustment recycling for -€5.6 million following the repayment by the Dubai branch of part of its capital (€94.4 million) in order to reduce the Group’s global exposure to USD/EUR foreign exchange risk.
+/- Net charge to depreciation and amortization of property, plant and equipment and intangible assets 454 341
+/- Decrease/(increase) in financial assets and equity interests (a) 2,652 620
Gains and losses on financial instruments 7.3 at fair value through profit or loss
Fair value of financial assets 8.5 and liabilities carried at fair value in the balance sheet
Market risk, overall interest rate risk, 11.3 liquidity risk and structural foreign exchange risk
Net revenues, pre-tax profit, taxes and 18.2 headcount by country at December 31, 2019
It should be noted that the new IFRS 9, “Financial Instruments”, adopted by the European Commission on November 22, 2016, is retrospectively applicable as of January 1, 2018.
IFRS 9 replaces IAS 39 and defines the new rules for classifying and measuring financial assets and liabilities, a new credit risk-based impairment model for financial assets, and a new method of hedge accounting, except for macro-hedging, for which the IASB is currently studying a separate draft standard.
Furthermore, on November 3, 2017, the European Commission adopted the amendment to IFRS 4 on the joint application of IFRS 9 “Financial Instruments” and IFRS 4 “Insurance Contracts”, with specific provisions for financial conglomerates, with effect from January 1, 2018. Under European regulations, European financial conglomerates may defer application of IFRS 9 to their Insurance divisions until January 1, 2021 (effective date of application of the new IFRS 17 “Insurance Contracts”) as long as they: do not transfer financial instruments between the InsuranceV division and other divisions of the conglomerate (with the exception of financial instruments at fair value through profit or loss for the two divisions affected by the transfer); indicate the insurance entities that apply IAS 39;V
At its meeting of November 14, 2018, the IASB decided to postpone the effective date of IFRS 17 “Insurance Contracts” by one year until January 1, 2022. The decision was also made to postpone the scheduled temporary exemption from IFRS 9 for insurers to coincide with the application of IFRS 17 from January 1, 2022.
Pursuant to the implementing regulation of November 3, 2017, the Group took the necessary measures to prohibit any transfer of financial instruments between its insurance operations and the rest of the Group that would have a derecognizing impact for the transferring entity, although this restriction is not required for transfers of financial instruments measured at fair value through profit or loss by both sectors involved.
The accounting principles and methods used to prepare the consolidated annual financial statements of Natixis at December 31, 2019 are identical to those used to prepare the consolidated financial statements for the fiscal year ended December 31, 2018, prepared in accordance with IFRS as adopted in the European Union and detailed in Note 2 “Basis of presentation” to the consolidated financial statements for fiscal year 2018 (presented in Chapter 5.1 “Financial data – Consolidated financial statements and notes” of the 2018 Registration Document), with the exception of the following standards, amendments and interpretations, which took effect as of January 1, 2019: IFRS 16 “Leases”, adopted by the European Commission onV October 31, 2017. This standard will replace IAS 17 “Leases” and the interpretations relating to the accounting of these contracts. It became applicable retrospectively on January 1, 2019, according to specific phase-in conditions.
The impacts associated with the first-time application IFRS 16 and the related accounting principles are addressed in Notes 2 and 6.2, respectively.
The IFRS IC conducted an analysis of several subjects over the course of 2019 to decide upon the need to clarify certain aspects of the standard. These notably concern the legally enforceable term of certain indefinite term leases and the impact of non-removable leasehold improvements on the assessment of the legally enforceable lease terms. The IFRS IC’s final decision on these issues was published on November 26, 2019. The impacts of these decisions on Natixis’ accounts are currently being assessed; IFRIC 23 “Uncertainty over Income Tax Treatments” adopted byV the European Commission on October 23, 2018 with mandatory application from January 1, 2019. This interpretation clarifies the procedures for recognizing and measuring payable and deferred tax if there is uncertainty over the tax treatment applied. Where a reporting entity is uncertain that a particular tax treatment will be accepted by the tax authority in accordance with tax laws in force, the tax treatment in question is an uncertain tax treatment. In the event it is not probable that the tax authority will accept a particular tax treatment, IFRIC 23 states that the amount of the uncertainty to be disclosed in the financial statements shall be estimated using the method that provides the best prediction of the resolution of the uncertainty. To determine this amount, the reporting entity may either use the most likely amount or the expected value of the tax treatment (i.e. the weighted average
Depending on whether they pertain to current or deferred tax assets or liabilities, tax uncertainties are recognized in the balance sheet under “Deferred tax assets”, “Current tax assets”, “Deferred tax liabilities” and “Current tax liabilities.”
the amendment entitled “Annual Improvements to IFRSsV 2015-2017 cycle” adopted by the European Commission on March 14, 2019. This amendment is part of the annual improvement process that aims to simplify and clarify international accounting standards. The following standards were modified: IFRS 3 “Business Combinations”, IFRS 11 “Joint Arrangements”, IAS 12 “Income Taxes” and IAS 23 “Borrowing Costs.”
Natixis has not opted for early application of the following standards, which had not yet entered into force at December 31, 2019: the amendment to IAS 1 and IAS 8 “Definition of Material”V adopted by the European Commission on November 29, 2019 with mandatory application from January 1, 2020. These amendments provide clarification of the term “material” in order to facilitate assessments of the significance, or otherwise, of a piece of information, and to improve the relevance of the information presented in the notes to the financial statements; the amendment to the “Conceptual Framework” adopted by theV European Commission on November 29, 2019 with mandatory application from January 1, 2020. The aim of this amendment is to replace existing references to previous frameworks, in respect of several standards and interpretations, with references to the revised conceptual framework.
Liabilities under these contracts, which are currently valued at historical cost, will have to be recognized at present value under IFRS 17. As such, insurance contracts will be valued based on their future cash flows, including a risk margin in order to factor in the uncertainty relating to these cash flows. IFRS 17 also introduces the concept of the contractual service margin. This represents the insurer's unearned profit and will be released over time as services are rendered to the insured. The standard demands a more detailed level of granularity in calculations than previously as it requires estimates by group of contracts.
The consolidated financial statements have been prepared in accordance with the assessment and presentation principles set out in Notes 3 and 6 below.
Impact of the first-time application of IFRS 16 Note 2 at January 1, 2019
Natixis began applying IFRS 16 “Leases”, which replaced IAS 17 “Leases”, on January 1, 2019. The provisions of IFRS 16, as compared to IAS 17, predominantly impact recognition of operating lease by lessees.
From the lessor’s standpoint, no impact of the first-time application of IFRS 16 was recorded at January 1, 2019, as the provisions were substantially unchanged relative to IAS 17.
For lessees, IFRS 16 requires that all lease contracts be recorded as fixed assets in the balance sheet such that they convey the right to use the leased asset, with a corresponding financial liability entry under liabilities to reflect the lease and other payments to be made over the term of the lease.
Previously, under IAS 17, operating leases did not lead to the recognition of the lessee’s right to use leased assets, and rents were recorded in income.
Natixis also took the option offered by IFRS 16 to not apply the standard to intangible assets.
Details of the accounting principles applying to leasing contracts are presented in Note 6.2.
Given Natixis’ activities, IFRS 16 will be applied, to a very large extent, to real estate assets leased for use as offices.
Natixis has chosen the modified retrospective method for the first-time application of this standard. Under this method, lease liabilities are measured based on residual payments at the transition date, using the discount rates appropriate to the residual terms of the leases. The option to not recognize contracts with a residual term of less than 12 months at January 1, 2019 in the balance sheet is applied and initial direct costs are excluded from the measurement of rights of use. Rights of use are measured using the amount of the lease liabilities determined at that date.
No deferred tax is recorded at the initial recognition date, given that the value of the asset is identical to the value of the liability. Deferred tax is recognized when net temporary differences subsequently arise due to changes in amounts recorded for rights of use and lease liabilities.
The breakdown of lease liabilities and off-balance sheet commitments by contractual maturity are presented in Note 6.1.
Specific information relating to leasing contracts is presented in Note 16.1.
The entities controlled by Natixis are consolidated using the full consolidation method, in accordance with IFRS 10. This standard defines a single audit model applicable to all entities, whether they are traditionally governed entities or structured entities (see Note 5). The control of an entity will be analyzed using three cumulative criteria: power over the entity’s relevant activities;V
If this is not the case, control is determined through the exercise of judgment and by taking into account all facts and circumstances, such as: the objectives, terms and circumstances surrounding the creationV of the entity; the nature of the entity’s relevant activities and theV decision-making processes concerning these activities; the scope of Natixis’ decision-making rights (from voting rights orV contractual agreements) over the management of the entity’s relevant activities (i.e. activities having a significant impact on the entity’s returns); exposure to variability in the entity’s returns (the significance of theV returns received by Natixis compared with the returns received by the other investors, etc.); rights held by other parties (withdrawal rights, early redemptionV rights, rights regarding the dissolution of the entity, etc.).
Joint operations are partnerships in which the parties exercisingV joint control of the operation have rights over its assets, and obligations with regard to its liabilities. An investment in a joint operation is recorded by including all of the interests held in the joint operation, i.e. the share in each of the assets, liabilities and other comprehensive income to which it is entitled. These interests are broken down by type across the various items in the consolidated balance sheet, consolidated income statement and statement of net income/(loss) and other comprehensive income.
Significant influence over associates3.2.3 terms as those applicable to joint ventures (see above), with the exception of Private Equity investments, which Natixis classifies under financial assets at fair value through profit or loss, in accordance with the option available under IAS 28.
The assumption of control through successive purchases of securities from an entity previously recognized in financial assets at fair value (through profit or loss or other comprehensive income) is shown as two transactions taking place upon the assumption of control: the disposal of securities previously recognized in assets at fairV value through profit or loss; and the acquisition of all of the securities held after the assumptionV of control.
The following accounting treatment is applied to business combinations giving rise to control: IFRS 3 before revision if they occurred prior to January 1, 2010,V except for those that occurred before January 1, 2004. On the initial application date of IFRS, Natixis chose the option offered by IFRS 1 “First-Time Adoption of IFRS” to not retrospectively restate business combinations made prior to January 1, 2004, pursuant to IFRS 3; Revised IFRS 3 (IFRS 3R) if they occur after January 1, 2010.V IFRS 3R can be applied prospectively to business combinations if their acquisition date is the same or later than the adoption date of IFRS 3R.
Barring clarification of IFRS 3R on the accounting treatment of business combinations under joint control, Natixis applies a method based on historical carrying amounts to such transactions. According to this method, the difference between the price paid and Natixis’ share in the historical carrying amounts of the assets and liabilities of the acquired entity is recorded as a deduction from shareholders’ equity. In effect, in using this method, any goodwill and valuation differences resulting from the application of the acquisition method are deducted from shareholders’ equity.
Other transactions affecting the structure of the Group that led to the creation of Natixis were accounted for by the acquisition method for consolidation purposes, in accordance with IFRS 3.
Goodwill arising in connection with the above-mentioned business combination on December 31, 2006 was accounted for as follows:
As the contributions were recognized at their net carrying amount under IFRS, no valuation adjustments have been recorded for the various assets and liabilities contributed. The difference between the acquisition cost and the Group’s interest in the net assets of the contributed entities does not constitute goodwill within the meaning of IFRS 3, since the acquisition cost takes into account the real value of the shares, while the contributions were recognized at their net carrying amount. Each of the differences observed was recognized in “Consolidated reserves”.
An amount of €3.170 billion was charged against the share premium in this respect at December 31, 2006.
Subsequent to the sale of the retail banking entities to BPCE, the goodwill associated with these entities and allocated to the former CGU “Specialized Financial Services” is no longer recorded on Natixis’ balance sheet. On December 31, 2019, the former CGU “Specialized Financial Services” was divided up into three CGUs: The “Payment” CGU, the “Asset & Wealth Management” CGU (for the Employee Savings Plans business line) and the “Corporate & Investment Banking” CGU (for the Film Industry Financing business line). Goodwill related to the entities not sold to BPCE was symmetrically reallocated to these three CGUs.
discount rate: use of a specific rate for each CGU: 9.1% for Asset &V Wealth Management (8.7% in 2018), 11.4% for CIB (10.6% in 2018), 10.6% for Insurance (10.2% in 2018), 9.2% for Coface (9.3% in 2018) and 6.9% for Payment.
The discount rates were determined by factoring in the following: for the Insurance and Payment CGUs, the risk-free 10-year FrenchV Treasury bond rate, averaged over a depth of 10 years, and for the Asset & Wealth Management and CIB CGUs the average of the 10-year French and US government bond rates, averaged over a depth of 10 years. A risk premium calculated on the basis of a sample of companies which are representative of the CGU is then added to these rates; for the Coface CGU, the interest rate references used wereV determined according to a similar method to the other CGUs, using samples of equivalent companies for the insurance and factoring activities.
Consolidated financial statements and notes 251NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019www.natixis.com for non-life insurance, the main vector of sensitivity is the loss ratio, which is notably measured via the combined ratio. Natixis’ New Dimension strategic plan sets the combined ratio at below 94%. A one-point deterioration in this ratio each year would lead to a limited fall of 3% in the CGU's value, with no impact on impairment; for Payment, with regard to business activity, the CGU has aV diversified business model with, on the one hand, a long-standing payments business serving the Groupe BPCE networks, which has generated high volumes of activity over the years (and strong momentum in electronic payments) and, on the other, a portfolio of Fintech companies offering a wide range of products, both to Group clients and externally (digitized securities, merchant solutions, e-commerce, solutions for company works councils, etc.). This business model implies a low level of earnings volatility; for Coface, the primary sensitivity vector is the loss ratio.V The projected level of this ratio is around 45.6% (net of reinsurance) for 2019. A one-point increase in the loss ratio, relative to the assumptions used for the DCF calculation over all years from 2020, would impact the average multi-criteria value by around 3% and would not lead to the recognition of impairment for the CGU. Furthermore, a valuation at the lowest price in 2019 would lead to a very limited impact on the weighted average valuation for the various methods (less than -1%).
Subsequent to the September 2018 announcement that Natixis planned to sell its Specialized Financial Services division's Factoring, Sureties & Financial Guarantees, Leasing, Consumer Finance and Securities Services business lines to BPCE at December 31, 2018 Natixis continued to fully consolidate the subsidiaries in question and, in accordance with the provisions of IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, combined the assets and liabilities of these entities in two separate balance sheet line items: “Non-current assets held for sale” and “Liabilities associated with non-current assets held for sale”. Since the deal was finalized in the first quarter of 2019 (see Notes 3.6 and 4.1), the subsidiaries were no longer included in Natixis’ scope of consolidation at
Natixis had also begun negotiations for the sale of its subsidiary Natixis Brasil. At December 31, 2018, this fully consolidated entity’s assets and liabilities were not recognized, in line with IFRS 5, in non-current assets held for sale and liabilities associated with non-current assets held for sale, given that the amounts in question were not material. Since the deal was finalized (see Note 4.2), the subsidiary was no longer included in Natixis’ scope of consolidation at December 31, 2019.
The balance sheets of foreign subsidiaries and branches whose functional currency is not the euro are translated into euros at the closing exchange rate, except for share capital, reserves and capital allocations, which are translated at the historical exchange rate. The income statements of foreign subsidiaries and branches whose functional currency is not the euro are translated at the average exchange rate for the year. Any resulting translation gains or losses arising regarding both balance sheet and income statement items are recognized in equity under “Translation adjustments” for the portion attributable to the Group and “Minority interests” for the portion attributable to third parties.
On September 12, 2018, Natixis and BPCE announced that Natixis planned to sell its Factoring, Sureties & Financial Guarantees, Leasing, Consumer Finance and Securities Services business lines to BPCE S.A. for €2.7 billion.
Since the deal was considered highly probable, the activities in question were recognized in accordance with IFRS 5 in Natixis’ consolidated financial statements at December 31, 2018. As a result, the net non-intra-group assets and liabilities of the transferred entities, as well as the assets and liabilities related to the transferred Natixis activities (predominantly associated with EuroTitres), were reclassified within a single balance sheet line (assets and liabilities held for sale). Together, these assets totaled €25,646 million at December 31, 2018 (of which €150 million in intangible assets and €28 million in goodwill). The related liabilities amounted to €9,737 million at December 31, 2018.
Total income from the transaction, after tax and minority interests, was €586 million, including a gross capital gain of €697 million, a tax impact of -€78 million and -€33 million transferred to minority shareholders. The transaction also resulted in the recycling through profit or loss of unrealized reserves on available-for-sale assets from the CEGC portfolio, in the amount of -€70 million, unrealized hedging derivatives reserves for +€106 million, and revaluation adjustments for defined benefit plans for +€2 million, giving an overall impact of +€38 million under "Gains and losses recorded directly in equity".
As soon as the fine was announced, Natixis acknowledged the competition authorities’ ruling but denied all accusations of coordinating its business with its competitors, adding that it was extremely surprised at the decision, which it deemed unfounded and wholly disproportionate. Natixis will appeal this decision and believes it has numerous arguments in its defense with which to challenge it.
Natixis will own 55% of the future joint entity (via its subsidiary Natixis Investment Managers), with LBP owning 45% (via its subsidiary LBP Asset Management), to ensure a balanced governance approach.
The main change in the consolidation scope recorded since January 1, 2019 involved the sale of the entities belonging to the former Specialized Financial Services division to BPCE S.A. in the first quarter of 2019 (see above): Natixis Financement, FCT Pumacc, Natixis Factor, Midt Factoring, Compagnie Européenne de Garanties et Cautions (CEGC), Natixis Lease, Co-Assur, Cicobail, Natixis Lease Immo, Lease Expansion, Natixis Bail, Natixis Energeco, Natixis Lease Madrid, Natixis Lease Milan, Natixis LLD, Oceor Lease Tahiti, Oceor Lease Nouméa, Oceor Lease Réunion, Natixis Car Lease, Sud-Ouest Bail, SAS Immobilière Natixis Bail, Batilease and Inter-Coop.
Creation and consolidation of Saudi Arabia Investment Company inV the fourth quarter of 2019.
Deconsolidation of securitization vehicle FCT Natixis Export CreditV Agency in the first quarter of 2019.
In the second quarter of 2019, the interest in Natixis CoficinéV increased from 91% to 100% following a buyback of executive officers' shares and the application of IFRS 2 subsequent to the implementation of a bonus share allocation plan.
In the second quarter of 2019, the interest in Natixis PartnersV increased from 87% to 100% following a buyback of executive officers’ shares and the application of IFRS 2 subsequent to the implementation of a bonus share allocation plan.
Consolidation of H2O AM France, H2O AM Monaco, H2O Asia,V Prometheus Wealth Management, Arctic Blue Capital Management Ltd, Arctic Blue Capital Ltd, Poincaré Holding Ltd and Poincaré Capital Management Ltd, asset managers created or acquired by H2O.
AEW Capital Management LP established a new company inV Japan, AEW Japan Corporation, with the aim of developing its activities in Asia. This wholly-owned entity was added to the scope of consolidation at end-June 2019.
Consolidation of the following funds in the fourth quarter after theV percentage interest rose above regulatory thresholds: Thematics Meta Fund and Thematics AI and Robotics Fund.
Creation in 2019 and consolidation in the fourth quarter of 2019 ofV Vauban Infrastructure Partners, which is destined to become Natixis’ preferred partner in international infrastructure investment.
To further its expansion in Asia, Ostrum created a new company inV Hong Kong in 2010, Ostrum AM Hong Kong, which was consolidated in the fourth quarter of 2019.
Consolidation in the fourth quarter of 2019 of AEW Partners RealV Estate Fund IX, LLC which manages the fund AEW Partners Real Estate IX launched recently in the US by AEW Capital Management, which owns 100% of its capital.
In the fourth quarter of 2019, the interest in Dorval FinanceV increased from 50% to 55% following the buyout of shares from company managers.
In the fourth quarter of 2019, the interest in Darius Capital PartnersV increased from 60% to 70% following the buyout of shares from company managers.
In the fourth quarter of 2019, the interest in Mirova Natural CapitalV Limited and its branch office increased from 51% to 100% following the buyout of shares from company managers.
Deconsolidation of Mirova Global Sustainable Equity Fund in theV first quarter of 2019 after the percentage interest fell below regulatory thresholds.
Deconsolidation of Natixis Global Associates Germany and NatixisV Global Associates Australia following their liquidation in the third quarter of 2019.
Deconsolidation of the ASG Managed Futures and DNCA ArcherV Mid-Cap Europe funds in the third quarter of 2019 after the percentage interest fell below regulatory thresholds.
Deconsolidation of AEW Partners IV Inc. and MC Donnel entities inV the fourth quarter of 2019 following their liquidation.
Acquisition of a 50% stake in Titres Cadeaux from La BanqueV Postale in the first quarter of 2019 (bringing the percentage of ownership to 100%). Titres Cadeaux manufactures and distributes multi-store gift cards and certificates to individual customers or Works Councils. Natixis exercises control over this entity in accordance with IFRS 10, and fully consolidates it. This transaction generated goodwill of €10.2 million at
Consolidation of the Coface branch in Greece in the first quarter ofV 2019.
At December 31, 2019, as at December 31, 2018, the main material subsidiary in which the Group had a non-controlling interest was Coface.
The share of encumbered assets that cannot be freely used is presented in Section 3.3 of Chapter 3 “Risk factors, risk management and Pillar III” of the universal registration document.
Types of partnerships and associates 4.4.1 with which Natixis has dealings
The summarized financial data pertaining to material associates and joint ventures under significant influence are presented below.
The data for EIG established at December 31, 2019 and methods applied to Natixis’ consolidated financial statements December 31, 2018 comply with IFRS as adopted by the European as presented in Note 6. Union on that date and with the accounting principles and valuation
Risks associated with interests 4.4.4 in joint ventures and associates held by entities
Scope of the structured entities 5.1 with which Natixis has dealings
In accordance with IFRS 12, Natixis discloses information for all of the structured entities in which it holds interests and for which it acts in one or more of the following roles: originator/structurer/arranger;V
The structured entities with which Natixis has dealings can be categorized into four groups: entities created within the context of Structured Financing, Asset Management funds, securitization vehicles and entities established for other types of transactions.
In accordance with IFRS 10, consolidation analyses of structured entities are performed taking into account all of the criteria referred to in Note 3.2.1.
In order to meet financing requirements for movable assets (involving air, sea or land transportation), real estate, corporate acquisitions (LBO financing) or commodities, Natixis may be required to create structured entities for a specific financial transaction on behalf of a customer.
As with non-guaranteed mutual funds, guaranteed mutual funds are subject to consolidation under IFRS 10 whenever Natixis acts as principal (e.g., Natixis acts as a non-revocable manager and holds a material interest). Guaranteed mutual funds subject to consolidation but not consolidated due to their materiality are listed in Note 19.1.
A fund is subject to consolidation if Natixis acts as principal (e.g., Natixis is a manager and is not revocable by a limited
The analysis criteria for IFRS 10 consolidation applied to Private Equity funds are the same as those applied to real estate funds. A fund is subject to consolidation if Natixis acts as principal (e.g., Natixis is a manager and is not revocable by a limited number of people and holds material variable returns). Private Equity funds subject to consolidation but not consolidated due to their materiality are listed in Note 19.1.
The following types of securitization are encountered at Natixis and involve structured entities: transactions through which Natixis (or a subsidiary) transfersV credit risk relating to one of its asset portfolios to a dedicated vehicle in cash or synthetic form; securitization transactions on behalf of third parties. TheseV transactions consist in placing the assets of a third-party company in a dedicated structure (generally a special purpose entity [SPE] or a conduit). The SPE issues units that may in some cases be subscribed to directly by investors, or subscribed to by a multi-seller conduit which refinances the purchases of its units by issuing short-maturity “notes” (treasury notes or commercial paper).
Natixis Investment Managers is involved in such funds as manager of the underlying portfolio for third-party investors. Its role is strictly defined by the portfolio management agreement, which never provides it with effective control of the structure but rather with the role of agent. Furthermore, neither Natixis Investment Managers nor any other Natixis entity holds a material interest in these funds. Natixis is therefore not significantly exposed to the variability of returns.
The Coface sub-group’s credit enhancement operations consist of insuring receivables securitized by a third party for investors via a structured entity for losses in excess of a predefined amount. A distinction must be made between the policies taken out by the German branch Coface Deutschland and those taken out by Compagnie Française d’Assurance pour le Commerce Extérieur: under the German policies, the credit insurer is only liable forV losses in excess of a deductible termed the Aggregate First Loss. This first loss tranche contractually defines the amount of first losses that are not covered by the credit insurer. The coverage provided by Coface Kredit via these policies is similar to “Natural disaster” type coverage. An analysis of these structures shows that the amount of the first loss is systematically higher than the expected loss, namely the average losses expected over the year. Furthermore, the activity of the structured entity is not conducted on behalf of the credit insurer, which is only a protection seller. Coface Kredit does not sponsor the securitization structures. Coface Kredit does not play any role in determining the activity of the structured entity, nor in its operational or administrative management. Coface Kredit has no power over the relevant activities of the securitization vehicle (selecting receivables comprising the portfolio, managing receivables, etc.). As the criteria for powers and significant exposure to returns are not met, these funds are not subject to consolidation; the French policies taken out by Coface rarely include non-coveredV “first losses”. However, the policies only cover a small portion of the receivables held by the SPE. Furthermore, the quality of portfolio risk covered by Coface, compared with that borne by the other stakeholders (other insurers, sponsors, sellers) is not such as to significantly transfer the structure’s risks to Coface. In addition, Coface does not play any role in determining the activity of the structured entity, nor in its operational or administrative management. In the event of a guarantee activation, Coface only has powers corresponding to its protective rights. Indeed, Coface does not have any power over activities relevant to the securitization vehicle. Accordingly, such funds do not require consolidation.
structured entities created by producers to host a filmV production. Coficiné is involved only as a lender. It has no stake in the entity, which is wholly owned by the producer. Coficiné does not participate in managing the entity, as activity falls within the remit of the producer. Coficiné, and therefore Natixis, has no power over the relevant activities of these structured entities and has no control under IFRS 10; Film Industry Financing companies (SOFICA). Natixis holds aV non-material stake in these SOFICAs and receives management fees at market rates consistent with the services rendered. Natixis does not hold any other interests in these structured entities. They are therefore not subject to consolidation under IFRS 10.
Financial assets at fair value through profit or loss 622 1,565 1,224 598 4,009 450 1,170 1,021 399 3,040
Financial instruments measured using the fair value option - - 0 - 0 - - - - -
Financial instruments to be valued at fair value through profit or loss 81 1,012 223 14 1,330 71 947 188 14 1,221
Financial liabilities at fair value through profit or loss (derivatives) 45 90 903 182 1,221 19 204 585 192 1,000
Notional amount of sales of options and CDS 555 - 5,043 377 5,974 405 155 2,788 262 3,610
MAXIMUM EXPOSURE TO RISK OF LOSS 13,092 3,307 19,923 2,065 38,387 11,021 8,175 17,709 1,557 38,462
Financial assets at fair value through profit or loss - 8,594 - - 8,594 - 9,157 - - 9,157
Non-consolidated structured entities in which Natixis 5.3 is involved only as a sponsor
With respect to information that must be disclosed under IFRS 12, Natixis sponsors a structured entity when both of the following indicators are met: Natixis is involved in the creation and structuring of the structuredV entity; Natixis contributes to the entity’s success by transferring assets toV it or by managing the structured entity’s relevant activities.
Net gains or losses on instruments at fair value through profit or loss 1 43 44 5 5
Carrying value of the assets transferred from the entity during the year* 948 - 948 1,181 - 1,181
The business model represents the way in which Natixis manages its financial assets to produce cash flow and revenues. The entity must exercise judgment to determine the business model used.
The choice of business model must be made at a level which reflects the way in which groups of financial assets are managed collectively with a view to achieve a given economic objective. The business model is therefore not determined on an instrument by instrument basis, but rather at a higher level of aggregation, by portfolio.
IFRS 9 provides for three business models: hold to collect model: in this model, financial assets are held inV order to receive contractual cash flows over the life of the assets. This model, under which the concept of “holding” is relatively similar to holding to maturity, remains valid if sales are made under the following conditions: the disposals are due to an increase in credit risk;V
the disposals occur just before maturity and at a price thatV reflects the contractual cash flows that are still owed; other disposals may also be compatible with the “hold to collect”V model’s objectives if they are infrequent (even if their value is significant) or if their value is insignificant when considered both individually and overall (even if they are frequent).
Natixis applies the “hold to collect and sell” model primarily to portfolio management activities for securities in the liquidity reserve; other model: a model intended for other financial assets, especiallyV those held for trading, for which the collection of contractual cash flows is incidental.
The “effective interest rate” is the rate that discounts estimated future cash flows (payments or receipts) to the value of the debt instrument at inception. This rate includes any discounts and any external transaction income or costs directly related to the issue of the loans, which are treated as an adjustment to the effective yield.
Revenues under the finance lease are recognized as income at the interest rate implicit in the lease so as to produce a constant periodic rate of return on the lessor’s net investment.
The lease contracts taken out by Natixis are recognized on the balance sheet under “right-of-use” on the asset side and under “financial liabilities” on the liabilities side in respect of rents and other payments made over the duration of the lease, unless the lease term is 12 months or less or the underlying asset has a low value, as provided for under IFRS 16. Natixis used the indicative threshold of USD 5,000 provided by the IASB (in the Basis of Conclusions) to define low-value assets and elected to exclude certain contracts where such exceptions have a non-material impact on its financial statements.
At the lease commencement date, payment taken into account to determine lease liabilities include payments for the right to use the underlying asset during the lease term that are not paid at the commencement date, i.e.: fixed payments (including in-substance fixed payments), less anyV lease incentives receivable. In-substance fixed lease payments are payments that may, in form, contain variability but that, in substance, are unavoidable; variable lease payments that depend on an index or a rate, initiallyV measured using the index or rate as at the commencement date; and, where applicable, any amounts expected to be payable byV Natixis to the lessor under residual value guarantees, purchase options or payments of penalties for terminating the lease.
The right-of-use amortization expense is recorded in the income statement under “Depreciation, amortization and impairment of property, plant and equipment and intangible assets”.
These are performing loans for which credit risk has not increased materially since initial recognition. Impairment or provision for credit risk on these loans is recorded in the amount of 12-month expected credit losses. Interest income on these loans is recognized in profit or loss using the effective interest rate method applied to the gross carrying amount of the instrument before impairment.
Loans that are “impaired” as defined by IFRS 9 are transferred to this category. These are loans for which there is objective evidence of impairment loss due to an event that represents a counterparty risk occurring after the initial recognition of the instrument in question. This generally concerns, as was the case under IAS 39, receivables for which a default event has been identified as defined in Article 178 of the EU Regulation of June 26, 2013 on regulatory requirements for credit institutions. The impairment or provision for credit risk is calculated according to the losses expected over the instrument’s residual lifetime (expected losses at maturity) based on the recoverable value of the receivable, i.e. the present value of the estimated recoverable future cash flows after taking the impact of any collateral into account. Interest income is recognized in income based on the effective interest method rate applied to the net carrying amount of the asset after impairment.
For debt instruments recognized on the asset side of the balance sheet at amortized cost, impairments are recorded against the line on which the asset was initially shown at its net value (regardless of the category of the asset). Impairment charges and reversals are recorded in the income statement under “Provision for credit losses”.
For operating lease or lease financing receivables (falling within the scope of IAS 17 at December 31, 2018, and IFRS 16 at December 31 2019) Natixis has opted not to apply the simplified approach proposed by IFRS 9, which involves measuring lifetime expected credit losses so as not to have to identify the significant increase in credit risk since initial recognition.
More specifically, the change in credit risk is measured on the basis of the following criteria: for Large Corporates, Banks and Sovereigns loan books: anV increase in credit risk is measured based on a combination of quantitative and qualitative criteria. The quantitative criterion is based on the change in rating since initial recognition. Additional qualitative criteria are used to categorize as Stage 2 any contracts included on a non-S3 watch list, undergoing adjustments due to financial hardship (forbearance) or more than 30 days past due (the assumption that payments are more than 30 days past due was therefore not refuted). Additional criteria based on the sector rating and level of country risk are also used; Individual Customer, Professional Customer, SME, Public SectorV and Social Housing loan books: an increase in credit risk is measured based on a combination of quantitative and qualitative criteria. The quantitative criterion is based on the measurement of the change in 12-month probability of default (measured as a cycle average since initial recognition). Additional qualitative criteria are used to categorize as Stage 2 any contracts included on a non-S3 watch list, undergoing adjustments due to financial hardship (forbearance) or more than 30 days past due (the assumption that payments are more than 30 days past due was therefore been refuted). Additional criteria based on the sector rating and level of country risk are also used.
For all of these loan books, the ratings on which the measurement of the increase in risk is based are any available ratings produced by internal systems, as well as external ratings, particularly when an internal rating is not available.
Financial assets where there is objective evidence of impairment loss due to an event which represents a known counterparty risk and which occurs after their initial recognition are considered as being classified as Stage 3. Asset identification criteria are similar to those under IAS 39 and are aligned with the concept of default in prudential terms.
Debt instruments such as bonds or securitized transactions (ABS, CMBS, RMBS, cash CDOs) are considered impaired and are classified as Stage 3 when there is a known counterparty risk. The Group uses the same impairment indicators for debt securities classified at Stage 3 as those used for individually assessing the impairment risk on loans and receivables.
For perpetual deeply subordinated notes that meet the definition of financial liabilities within the meaning of IAS 32, particular attention is also paid if, under certain conditions, the issuer may be unable to pay the coupon or extend the issue beyond the scheduled redemption date.
The variables defined in each of these scenarios mean that PD and LGD parameters can be altered and an expected credit loss can be calculated for each economic scenario.
The parameters thus defined allow credit losses for all rated exposures to be valued, regardless of whether they belong to a scope approved using an internal method or they are processed using the standard method for the calculation of risk weighted assets.
The mechanism for validating IFRS 9 parameters is fully integrated in the validation mechanism for existing models within Natixis and Groupe BPCE. As such, model validation undergoes a review process by an independent internal model validation unit.
Loans classified as Stage 3, which would not be impaired following an individual expected recovery analysis, are impaired or provisioned on the basis of a loan loss reserve ratio calibrated based on historical unexpected losses on unprovisioned loans.
An embedded derivative is a component of a host contract which causes some or all of the cash flows of that contract to change in response to changes in an underlying (interest rate, share price, exchange rate or other index).
Natixis uses plain vanilla interest rate swaps lending at fixed rates to fix future variable-rate borrowing costs.
Cash flow hedges are mainly used to hedge Natixis’ overall interest rate risk.
If a hedging relationship is discontinued, for example when hedge effectiveness is outside the 80%-125% range, the derivative must be reclassified in financial instruments at fair value through profit or loss, while the cumulative amount relating to the effective portion of the hedge that has been carried directly in recyclable other comprehensive income under “Gains and losses recognized directly in equity” is recycled to income when the hedged item itself affects income.
Natixis uses plain vanilla interest rate swaps lending at fixed rates to protect itself against the impact of unfavorable changes in interest rates on its fixed-rate borrowings and issues. Plain vanilla swaps borrowing at fixed rates are used to protect it from the impact of unfavorable changes in interest rates on its fixed-rate loans and securities.
When a hedging relationship is discontinued, the hedging instrument is reclassified in financial instruments at fair value through profit or loss, while the unrealized gain or loss on the hedged item is fixed at its amount on the date the hedge is discontinued and recorded in income through to maturity.
Many internal contracts involving derivatives used in hedge accounting exist between Natixis and its subsidiaries. To ensure that the transactions meet the hedge accounting criteria for consolidation purposes, Natixis regularly verifies that they have been correctly hedged on the market.
Credit derivatives used by Natixis are not considered as financial guarantees but as derivatives falling within the scope of IAS 39. They are classified as assets or liabilities at fair value through profit or loss.
The method used to account for assets and liabilities relating to foreign currency transactions entered into by Natixis depends upon whether the asset or liability in question is classified as a monetary or a non-monetary item.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the spot rate prevailing at the reporting date. All of the resulting foreign exchange gains and losses are recognized in income, except in two cases: only the portion of the foreign exchange gains and lossesV calculated based on the amortized cost of financial assets at fair value through other comprehensive income is recognized in income, the remainder being recognized in “Gains and losses recognized directly in equity”; foreign exchange gains and losses from monetary itemsV designated as cash flow hedges or part of a net investment in a foreign entity are recognized in “Gains and losses recognized directly in equity”.
The mid-market price is obtained based on: the quoted price if the instrument is quoted on an active market. AV financial instrument is regarded as quoted on an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring transactions on an arm’s length basis on the main market or, failing that, the most advantageous market; if the market for a financial instrument is not active, fair value isV established using valuation techniques. The techniques used must maximize the use of relevant observable entry data and minimize the use of non-observable entry data. They may refer to observable data from recent transactions, the fair value of similar instruments, discounted cash flow analysis and option pricing models, proprietary models in the case of hybrid instruments or non-observable data when no pricing or market data are available.
This adjustment is the difference between the bid price and the ask price corresponding with the selling costs. It reflects the remuneration requested by a market player in respect of the risk of acquiring a position or of selling at a price proposed by another market player.
This adjustment applies to valuations that do not account for the counterparty’s credit quality. It corresponds to the expected loss related to the risk of default by a counterparty and aims to account for the fact that Natixis cannot recover all of the transactions’ market value.
The following criteria are used to determine whether a market is active: the level of activity and trend of the market (including the level ofV activity on the primary market); the length of historical data of prices observed in similar marketV transactions; scarcity of prices recovered by a service provider;V
Since the unrealized capital losses or write-downs on the assets covered by the guarantee have already been recognized in income, this premium was not immediately recorded either in income or on a straight-line basis.
Note that the TRS and the option had virtually no impact on Natixis’ income statement at December 31, 2018.
Fixed assets recognized on the balance sheet include property, plant and equipment, intangible assets, and investment property. The rights of use in respect of leased assets (of which the main items are described in Note 6.2) are presented under fixed asset lines corresponding to similar assets owned of which Natixis has full ownership.
In accordance with Article R.332-210-1 of the French Insurance Code, a five-year appraisal is conducted by an independent expert approved by the ACPR. Between two appraisals, the market value of property is certified by experts on a half-yearly basis.
Other intangible assets mainly consist of components of the client portfolio, which are amortized over the term of the contracts (average term of five to eight years for the United States and 10 years in Australia).
A non-current asset (or group of assets) is meant to be disposed of when its carrying amount is recovered by means of a sale. This asset (or group of assets) must be immediately available for the sale, and it must be highly likely that the sale will happen within twelve
The relevant assets are classified in the “Non-current assets held for sale” line item and cease to be amortized as soon as they are reclassified. An impairment loss is recognized if their carrying amount is higher than their fair value less selling costs. Associated liabilities are also identified on a separate line of the balance sheet.
If the sale has not taken place within twelve months of classification in “Non-current assets held for sale”, the asset or group of assets ceases to be classified in this category, barring special circumstances independent of Natixis’ control.
A provision is a liability of uncertain timing or amount. A liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits that can be reliably measured.
the location, function, and approximate number of employeesV who will be compensated upon termination of their services, the expenditures that will be undertaken,V
The provisions booked on the liability side of Natixis’ financial statements as at December 31, 2019 and as at December 31, 2018, are presented in Note 8.16 “Summary of provisions”, and the possible allocations are set out in Note 7.6 “Other income and expenses”, Note 7.7 “Operating expenses” and Note 7.8 “Provision for credit losses”.
In accordance with IAS 19, employee benefits are classified in one of four categories: “short-term benefits”, including salaries, social securityV contributions, annual leave, employee profit-sharing, incentive plans, top-up contributions and bonuses payable for the period; “severance payments”, comprising employee benefits granted inV return for termination of a staff member’s employment before the normal retirement age, resulting from a decision by the entity, or a decision by the employee to accept a severance package in exchange for terminating their employment; “post-employment benefits”, such as pensions, otherV supplementary retirement benefits applicable to the banking industry, end-of-career awards and other contractual benefits payable to retirees; “other long-term employee benefits”, including long-serviceV awards and deferred compensation payable in cash under Employee Retention and Performance Plans.
The annual payroll costs recognized in respect of defined-benefit plans consist of: the costs of services rendered, representing rights vested byV beneficiaries over the period; past service costs, arising from possible plan changes orV curtailments as well as the effects of possible plan settlements; the net interest cost reflecting the impact of unwinding theV discount on the net obligation.
In accordance with IAS 32, issued financial instruments are classified as debt or equity depending on whether or not they incorporate a contractual obligation to deliver cash to the holder: deeply subordinated notes and preference shares are classifiedV in equity in light of the 2009 renegotiation of a clause making the payment of interest non-optional in the event of positive consolidated income and which has since become discretionary; The change over the fiscal year is presented in Note 8.15 “Changes in subordinated debt over the period”, and in Note 13.3 “Capital management”; however, if an instrument is classified as equity:V
The variable compensation policy is in keeping with the regulatory framework, including the European Regulation CRD IV. It also meets transparency requirements with regard to the ACPR, the ECB and the AMF.
Under IFRS 2 “Share-based payment”, employee bonus share awards give rise to an expense representing the fair value of the goods or services received at the grant date. This payroll expense is recognized against equity. The fair value of the services received is calculated by reference to the fair value of the shares at the grant date, less the present value of dividends forfeited by employees during the vesting period, taking the continued service requirements into account.
Under IFRS 2, the services acquired and the liability incurred are measured at fair value. Until the liability is settled, debt is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognized in income for the period. The remeasurement of the liability at the reporting date takes into account any changes in the value of the underlying shares, as well as whether or not the continued service requirement and performance criteria have been met.
Where the payment of compensation is subject to a continuing service requirement, the corresponding expense is recorded over the vesting period on a straight-line basis. When no continuing service requirement exists, the expense is recognized immediately as a debt. The latter is then remeasured at each reporting date taking into account performance criteria and any changes in the value of underlying shares.
Changes to the terms and conditions of a cash-settled employee retention and performance plan indexed to the value of the Natixis share, or that of its subsidiaries’ shares, with the result that the plan is reclassified as an employee retention and performance plan settled in shares, would trigger the derecognition of the debt recorded for the initial plan indexed to the value of the Natixis share, or that of its subsidiaries’ shares, and the recognition of a debt equivalent to the services provided for the new employee retention and performance plan settled in shares as at the date of modification. The difference between the recognition in equity and the derecognition of the debt is recorded directly in income.
All treasury shares held by Natixis are deducted from equity regardless of the purpose for which they are acquired/held. Any gains or losses recognized in the parent company financial statements in respect of the sale, measurement or impairment of treasury shares held for trading or available-for-sale are eliminated in the consolidated financial statements through equity.
The main Natixis activities to which this approach applies are: fee and commission income, from banking services if this incomeV is not included in the effective interest rate, or from Asset Management or financial engineering services; income from other activities, in particular for services included inV leases.
If uncertainty remains regarding the measurement of a fee amount (performance fee for Asset Management, variable financial engineering fee, etc.), only the amount for which the Group’s entitlement is already assured given the information available on the reporting date is recognized.
Fees for structuring and arrangement relating to the arranging of certain customer loans, notably as part of syndication transactions, are recognized in income at the legal date on which the transaction is completed or at the end of the syndication period (in the case of syndicated loans).
Any mismatch between the date of payment and the date of implementation of the service will generate an assets or liability depending on the type of contract and the nature of the mismatch and will be recorded under “Other assets” and “Other liabilities”.
The tax expense for the year comprises: tax payable by French companies at the rate of 34.43% for theV fraction of the profit exceeding €500,000 (28% of €0 to €500,000) or at the rate in force locally for foreign companies and branches; deferred taxes arising from temporary differences between theV carrying amount of assets and liabilities and their tax basis, which are calculated using the balance sheet liability method.
The deferred tax rate applied in France takes account of the tax cuts introduced by parliament through the various Finance laws. The rate of corporate tax will decline (excluding a social security contribution impact of 3.3%) to 31% in 2020 (for the share of taxable income above €500,000), to 27.5% in 2021 (for all taxable income) and to 25% in 2022 and subsequent years.
Financial guarantees given are stated initially at fair value, then subsequently at the higher of: the amount initially recognized upon inception less, whereV appropriate, the amount of amortization recorded in line with the principles outlined in IAS 15 “Revenue from Contracts with Customers”. This amortization represents the deferred recognition of the fees received over the period covered by the guarantee; and the amount of the provision determined according to theV provisions of the expected credit loss model (see Note 6.3).
Although similar to derivatives, the capital and/or performance guarantees given by Natixis to certain mutual funds were recognized as financial guarantees and provisioned in accordance with IFRS 9 until December 31, 2018, due to the difficulty in determining their fair value. Based on an in-depth review conducted in the first half of 2019, these guarantees were recorded as derivative instruments subject to fair value measurement in accordance with IFRS 13.
There are no IFRS standards covering financial guarantees received (other than derivatives or insurance contracts). In the absence of specific guidance, the accounting treatment applied must be determined by analogy with the accounting treatment prescribed by other standards in similar situations. Accordingly, guarantees received meeting the definition of a financial guarantee for an issuer are accounted for in accordance with: IFRS 9, for guarantees received in respect of financial assets (debtV instruments). The measurement of the expected credit losses associated with financial assets must in fact take into account the flows generated by guarantees considered an integral part of the debt instrument; IAS 37, for guarantees received in respect of non-financial liabilitiesV falling within the scope of IAS 37.
The vast majority of the financing commitments granted by Natixis give rise to loans granted at market rates at the grant date and recognized at amortized cost. As such, and in accordance with IFRS 9, the commitment to lend and the loan itself are considered successive stages of one and the same instrument. The commitment to lend does not, therefore, fall within the scope of IFRS 9: it is treated as an off-balance sheet transaction and is not revalued. Financing commitments are eligible for the provisioning mechanism under IFRS 9, however (see Note 6.3). IFRS 9 provides that the issuer of a financing commitment must apply provisioning criteria to loan commitments that do not fall within the scope of this standard. The provisions recognized in respect of these commitments are presented in Note 8.16 “Summary of provisions”.
In accordance with Delegated Regulation 2015/63 and Implementing Regulation 2015/81 supplementing the BRRD Directive on ex-ante contributions to financing mechanisms for the resolution, the Single Resolution Board set the level of contributions to the Single Resolution Fund for 2019. Contributions paid to the fund may be made in cash security deposits recognized as assets on the balance sheet (15% in cash security deposits) and in contributions recorded in income as “Taxes and regulatory contributions” (see Note 7.7).
In preparing its financial statements, Natixis is required to make certain estimates and assumptions based on available information that is likely to require expert judgment. These estimates and assumptions constitute sources of uncertainty which may affect the calculation of income and expenses in the income statement, the value of assets and liabilities in the balance sheet and/or certain disclosures in the notes to the financial statements. As a result, future results of certain operations may differ significantly from the estimates used in the financial statements at December 31, 2019.
All goodwill is assigned to a CGU so that it may be tested for impairment. The tests conducted by Natixis consist in comparing the carrying amount of each CGU (including goodwill) with its recoverable value. If the recoverable value is the same as the value in use, it is determined by discounting the annual free cash flows to infinity (see Note 3.5). Use of the discounted cash flow method involves: estimating future cash flows. Natixis has based these estimatesV on forecasts included in its business units’ medium-term plans spanning five years; projecting cash flows for the last year of the plan to perpetuity,V at a rate reflecting the expected annual growth rate; discounting cash flows at a specific rate for each CGU.V
In application of IFRS 16, Natixis uses its own expert judgment when estimating the lease terms to be applied for the recognition of rights of use and lease liabilities.
Natixis calls on independent actuaries to calculate its principal employee benefits. These commitments are determined using assumptions such as the salary growth rate, discount rates and rates of return on plan assets (see Note 12.2.3). These discount rates and rates of return are based on observed market rates at the end of each calculation period (e.g., the yield curve on AA Corporate bonds for discount rates). When applied to long-term benefit obligations, these rates introduce uncertainty into the valuations.
Insurance technical reserves are calculated using assumptions and estimates that may lead to adjustments in amounts reported over the subsequent period: for personal protection insurance, claims reserves are calculatedV by modeling claims experience; for life insurance, underwriting reserves are computed based onV economic and financial assumptions, mortality and morbidity tables, and behavioral statistics, for example concerning surrenders; for Non-Life Insurance, technical reserves comprise provisions forV unearned premium income (calculated on an accrual basis and representing the portion of premiums issued during the period that relate to a period after the reporting date) and reserves for claims to be paid, corresponding to known and unknown claims that have occurred but not yet paid at the reporting date; for credit insurance, claims reserves include an estimate of claimsV reported but not settled at the reporting date. In addition to the amount of claims payable, a provision is set aside for unknown claims, calculated on a statistical basis in reference to the final amount of claims to be paid following settlement of risks and any debt recovery measures. Provisions for debt recovery procedures, representing estimates of expected recoveries, are calculated by applying a terminal recovery rate to all subscription periods not yet settled.
In the event of a deferred profit-sharing asset, a recoverability test is carried out to verify that liquidity requirements arising from an unfavorable economic environment do not force the sale of assets and generate unrealized losses. This recoverability test relies on projected future cash flows based on various economic assumptions about historical redemptions and inflows (see Note 9.2.5).
As a precaution, Natixis records a net deferred tax asset linked to its ability to generate taxable income over a given period (10 years maximum), while tax loss carry forwards are deductible with no time limitation in France and the UK or over very long periods (20 years in the US for tax losses prior to January 1, 2018).
A provision is raised when it is likely that an outflow of resources embodying economic benefits will be required to settle an obligation arising from a past event, and when the amount of the obligation can be reliably estimated. In order to calculate this amount, Natixis is required to assess the probability of the risk occurring. Future cash flows are discounted where the impact of discounting is material.
The purpose of the Benchmark Regulation is to regulate the provision of benchmarks, the provision of data underlying benchmarks, and the use of benchmarks, within the European Union. It provides for a transition period for administrators, who have until January 1, 2022 to be approved or registered. After this date, the use by entities supervised by the EU of benchmarks whose administrators are not approved or registered (or, if they are not located in the EU, are not subject to equivalent or otherwise recognized or approved regulations) will be prohibited. Under the BMR, interest rate benchmarks Euribor, Libor and Eonia have been designated as critical.
With regard to the latter point, the IASB published the amendments to IFRS 9, IAS 39 and IFRS 7, in respect of hedging-related issues, in September 2019. The amendments to IAS 39 and IFRS 9 provide for temporary exceptions to the requirements set forth by these standards in terms of hedge accounting, while the amendments to IFRS 7 require that, in respect of the hedging relationships to which these exceptions apply, information be provided on the entities’ exposure to the IBOR reforms, the way they manage the transition to alternative benchmark rates, and the assumptions or judgments made in order to apply these amendments. Through these amendments, the IASB aims to prevent entities from having to discontinue hedging relationships due to uncertainties associated with the IBOR reform. Talks are underway at the IASB with regard to post-IBOR reform considerations. No draft text has been published at this stage. Accordingly, in respect of this transition, close attention will need to be paid to the potential impacts of the reform in terms of the modification or derecognition of IBOR-indexed financial assets and liabilities, and also the application of the SPPI criterion, fair value and hedging relationships during the transition.
Average number of ordinary shares outstanding over the period 3,152,619,870 3,144,191,001
Average number of shares used to calculate earnings/(loss) per share 3,150,173,517 3,141,934,648
“Interest and similar income” and “Interest and similar expenses” comprise interest on fixed-income securities recognized as “Financial assets at fair value through other comprehensive income” and “amortized cost”, and interest on loans and receivables to and from banks and customers.
Financial assets and liabilities at amortized cost 3,452 (2,683) 769 3,463 (2,256) 1,207
The impacts associated of the first-time application of IFRS 16 are addressed in Note 2.(a) At December 31, 2018, the SFS division’s retail banking entities recognized in assets held for sale contributed +€426.1 million to the interest margin.(b)
The method of accounting for fees and commissions received in respect of services or financial instruments depends on the ultimate purpose of the services rendered and the method of accounting for the financial instruments to which the service relates. The main accounting principles applying are presented in Note 6.19.
Gains and losses on financial instruments at fair value 7.3 through profit or loss
Net gains/(losses) on financial assets and liabilities excluding hedging derivatives 2,004 1,757
Net gains/(losses) on financial assets and liabilities held for trading (b) 5,275 306 o/w derivatives not eligible for hedge accounting (463) 1,955
Net gains/(losses) on financial assets to be valued at fair value through profit or loss 268 (135)
Net gains/(losses) on financial assets and liabilities under the fair value option (3,714) 1,374
Furthermore, credit risk adjustments related to the valuation of counterparty risk (credit valuation adjustments or CVA) on financial assets amounted to -€1.2 million (expense) at December 31, 2019 versus an expense of €27.4 million at December 31, 2018; - the Funding Valuation Adjustment (FVA) used on uncollateralized derivatives or imperfectly collateralized derivatives is also recognized on this line in the amount of €12.8 million (income) at December 31, 2019 versus -€64.1 million (expense) at December 31, 2018; - over the 2019 fiscal year, the market risks associated with certain transactions comprising the Asia derivatives portfolio (see Note 8.5.d) were transferred to external counterparties. At the same time, the €173 million in provisions recorded at December 31, 2018 were reversed in full over the 2019 fiscal year.
Gains and losses on financial assets at fair value through 7.4 other comprehensive income
At December 31, 2018, real estate operations were exclusively carried by the SFS division’s retail banking entities.(a) At December 31, 2018, the SFS business lines recognized in non-current assets held for sale as at December 31, 2018 contributed a total of €21 million to other (b) income and expenses (of which +€237 million in income and -€216 million in expenses).
loan or guarantee commitments given that do not fit theV definition of derivative financial instruments; losses on irrecoverable loans, and recoveries of loans previouslyV recognized as losses.
Provisions for impairment of financial assets (872) 561 (9) 4 (316) (1,114) 1,019 (70) 14 (152)
Unimpaired financial assets – 12-month expected credit losses (74) 61 0 0 (13) (70) 61 0 0 (10)
Impaired financial assets – Lifetime expected credit losses (554) 234 (9) 4 (325) (718) 540 (70) 14 (234)
Financing commitments – 12-month expected credit losses (29) 26 0 0 (3) (30) 31 0 0 1
Financing commitments – Lifetime expected credit losses (166) 174 0 0 8 (192) 227 0 0 35
This item comprises capital gains and losses on the disposal of property, plant and equipment and intangible assets used in operations, as well as capital gains and losses on the disposal of investments in consolidated companies.
+ Tax on prior periods and other tax items (c) 80 82
Of which in 2019: +€47.5 million in respect of interest due on perpetual deeply subordinated notes and, in 2018, +€20 million for reversals of provisions for (c) corporate tax refunds relating to non-consolidated entities and that are no longer applicable and +€20 million in reversals of provisions for tax risks following the completion of tax audits conducted that year.
These assets and liabilities are measured at fair value at the reporting date, with changes in fair value, including interest, recognized in income under “Net gains or losses on financial instruments at fair value through profit and loss”, except for: interest on hedging derivatives and non-SPPI instruments recordedV as interest income and expenses in the income statement; and changes in fair value attributable to own credit risk on financialV liabilities designated at fair value through profit or loss, recorded in other comprehensive income as “Revaluation of own credit risk on financial liabilities at fair value through profit or loss”.
Derivative instruments not eligible for hedge accounting (c) 60,880 0 0 60,880 57,161 0 0 57,161
Derivative instruments not eligible for hedge accounting (a) 59,718 0 59,718 57,160 0 57,160
The information presented takes into account the impact of offsetting carried out in accordance with IAS 32 (see Note 8.3).(a)
Conditions for classification of financial 8.1.2.1 liabilities under the fair value option
Financial liabilities are designated at fair value through profit and loss when this choice provides more pertinent information or when the instruments incorporate one or more significant and separable embedded derivatives (see Note 6.1.5).
Liabilities measured at fair value through profit and loss mainly comprise issues originated and structured on behalf of customers for which risks and hedging are collectively managed. These issues include significant embedded derivatives for which changes in value are neutralized, except for those allocated to own credit risk, by those of the derivative instruments hedging them.
Cumulative changes in the fair value of financial liabilities, designated at fair value through profit or loss, attributable to credit risk
Financial liabilities under the fair value option for which credit risk is recognized in net income
Derivative financial instruments not eligible for hedge accounting are classified as held for trading, irrespective of the period over which they are expected to be held.
The notional amounts of derivative financial instruments are merely an indication of the volume of the Group’s business on the financial instruments market, and do not reflect the market risks associated with such instruments.
Cash flow hedges are mainly used by Natixis to hedge the overall interest rate risk. Cash flow hedging was also used by the leasing business, of which most entities were sold to BPCE in the first quarter of 2019 (see Note 4.1).
Fair value hedging is used to hedge changes in the fair value of fixed-income securities on an individual basis, as well as comprehensive hedging of the interest-rate risk of Natixis Financial Products LLC according to the carve-out provisions of IAS 39.
The table below shows the breakdown of the notional amounts of the derivatives by maturity date.
Financial assets at fair value through equity 10,407 28 8,933 (118)
Financial assets at amortized cost 11,247 184 1 12,235 129 (2)
Hedging of interest rate risk (64) (63) (0) (57) (60) 2
The hedged portion still to be deferred came to €59 million at December 31, 2019 and €57 million at December 31, 2018.
The gross amount of financial assets and financial liabilities recognized (including amounts not offset on the balance sheet which may or may not be subject to master netting arrangements or similar agreements), after indicating the gross offset amounts, correspond to the net balances presented on the balance sheet.
The gross offset amounts reflect repurchase agreements and derivative transactions, most of which carried out with clearing houses, for which the criteria set out in IAS 32 are met: for OTC derivatives, the information is presented in considerationV of the effects of the currency offset between asset valuations, liability valuations of the derivatives and variations in margin; for listed derivatives, the positions recorded under the respectiveV asset and liability items for: index options and futures options are offset by maturity and byV currency, equity options are offset by ISIN code and maturity date;V
as regards repurchase agreements, Natixis records on its balanceV sheet the net value of repurchase and reverse repurchase agreements that: are entered into with the same clearing house,V
involve the same custodian (unless the custodian has signed upV to the T2S platform), are made in the same currency.V
These tables also show the impacts of master arrangements or similar agreements corresponding to derivative amounts or outstanding repos covered by master netting arrangements orì similar agreements under which the net settlement criterion or the simultaneous settlement of assets and liabilities cannot be demonstrated or for which the right to set-off cannot be exercised except in the event of the default, insolvency or bankruptcy of one or more counterparties. These amounts are not offset on the balance sheet.
Financial assets at fair value through profit or loss 198,941 48,090 150,851 181,562 29,101 152,461
Corresponds to unimpaired financial assets for which value adjustments are calculated based on 12-month expected credit losses (Stage 1) or lifetime (a) expected credit losses (Stage 2).
Impaired financial assets (Stage 3) are assets for which a default event has been identified as defined in Article 178 of the EU Regulation of June 26, 2013 (b) on regulatory requirements for credit institutions.
Reconciliation table for financial assets at fair value through recyclable other 8.4.1 comprehensive income
Variations linked to changes in credit risk parameters (excluding transfers) 516 0 (0) (2) 515 0
Variations linked to changes in exchange rates 161 0 (3) 0 (0) 158 0
For financial reporting purposes, the fair value of financial and non-financial instruments has been broken down in accordance with a fair value hierarchy that reflects the observability of the models and parameters used to make these assessments (see Note 6.6). The three levels of the fair value hierarchy are presented below.
For derivative instruments, fair values are broken down based on the dominant risk factor, i.e. primarily interest rate risk, foreign exchange risk, credit risk and equity risk: Assets
Financial assets held for trading 163,461 47,785 112,452 3,224 152,037 31,342 117,806 2,889 o/w debt instruments in the form of securities 15,004 11,870 2,793 341 12,190 7,976 4,139 75
Financial assets at fair value through equity 12,076 11,171 585 321 10,798 9,864 886 48 o/w debt instruments in the form of securities 11,563 10,987 576 0 10,672 9,786 886 o/w loans and receivables
Financial liabilities held for trading 33,825 18,534 15,291 0 33,485 20,690 12,796 o/w securities issued for trading purposes 18,840 18,534 306 0 21,062 20,690 373
Most over-the-counter derivatives, swaps, credit derivatives, forward rate agreements, caps, floors and plain vanilla options are traded in active markets, i.e. liquid markets in which trades occur regularly. These instruments are valued using generally accepted models (discounted cash flow method, Black & Scholes model, interpolation techniques), and on the basis of directly observable inputs. For these instruments, the extent to which models are used and the observability of inputs has been documented.
a “payoff”, i.e. a calculation of positive or negative cash flowsV attached to the product at maturity, a model of changes in the underlying asset.V
The main models used for equity products are local volatility, local volatility combined with the one-factor Hull & White (H&W1F) model, as well as the Tskew and Pskew models.
The Pskew model is similar to the Tskew model. It is used in particular for simple ratchet equity products such as capped or floored ratchet products; fixed-income products: fixed-income products generally haveV specific characteristics which justify the choice of model. The valuation of the payoff will take into account all underlying risk factors.
The main models used to value and manage fixed-income products are Hull & White models (one-factor and two-factor models or one-factor Hull & White stochastic volatility model), the Hunt Kennedy model and the “smiled” BGM model.
SBGM and Hunt Kennedy models are used to value fixed-income products that are sensitive to volatility smiles (i.e. implied change in volatility relative to the exercise price) and to autocorrelation (or correlation between interest rates); currency products: currency products generally have specificV characteristics which justify the choice of model. The main models used to value and manage currency products are local volatility and stochastic models, as well as the hybrid models combining an underlying currency model with two one-factor Hull & White models to understand fixed-income factors.
Inputs relating to all such Level 2 instruments were demonstrated to be observable and documented. From a methodology perspective, observability is based on four inseparable criteria:
Consolidated financial statements and notes 303NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019www.natixis.com inputs are derived from external sources (primarily a recognizedV contributor, for example); they are updated periodically;V
In accordance with the French Ministerial Order of February 20, 2007, amended by the Ministerial Order of November 23, 2011, relating to regulatory capital requirements applicable to credit institutions and investment firms, and in accordance with the European Capital Requirements Regulation (CRR) of June 26, 2013 on requirements resulting from Basel 3, a description of crisis simulations and ex-post controls (validation of the accuracy and consistency of internal models and modeling procedures) is provided for each model used in Section 3.2.5 of Chapter 3, “Risk factors, risk management and Pillar III”.
Under IAS 9, day-one profit should be recognized in income only if it is generated by a change in the factors that market participants would consider in setting a price, i.e. only if the model and parameters input into the valuation are observable.
If the selected valuation model is not recognized by current market practices, or if one of the inputs significantly affecting the instrument’s valuation is not observable, the trading profit on the trade date cannot therefore be recognized immediately in the income statement, but is recorded in income on a straight-line basis over the life of the transaction or until the date the inputs become observable. Any losses incurred at the trade date are immediately recognized in income.
At December 31, 2019, instruments for which the recognition of day-one profit/loss has been deferred included: multiple equity and index underlying structured products;V
Equity Plain vanilla derivatives and complex derivatives, equity basket or funds
Correlation between forex rates and interest rates: [15%; 50%] Long-term volatility: [3.15%; 13.27%]
Credit Collateralized debt obligations The default rates are based on the market prices of the underlying PFI bonds and the recovery rates are based on historical ratings agency data
A review is undertaken for any instrument that ceases to meet these criteria or once again complies with the criteria. The transfers to and from Level 3 presented below are subject to validation by the Valuation Committee.
business model associated with these products and led to the reserve mechanism being supplemented by introducing an additional reserve to allow for the model’s shortcomings. This reserve was based on expert judgment (including in particular forecast changes in market conditions, portfolio behavior, etc.) and, as a result, the prices of the products subject to expert judgment were no longer directly observable. The products were then transferred from Level 2 to Level 3 of the fair value hierarchy, based on the observability of inputs, the model used and observed liquidity.
At December 31, 2019, the value of TruPS CDOs was marked to market due to the sufficient number of contributions.
Financial assets and liabilities at fair value measured using level 3 8.5.1 of the fair value hierarchy
Financial assets held for trading 2,889 65 148 8,635 (8,431) (116) 6 (0) 27 3,224 o/w debt instruments in the form of securities 75 (27) (21) 1,350 (1,045) (0) 6 3 341 o/w equity instruments 60 60
Derivative instruments not eligible for hedge accounting (negative fair value) 2,054 (151) (225) 250 (264) (401) 598 39 1,898
Derivative instruments not eligible for hedge accounting (positive fair value) 2,981 (11) 2,970 (38) (129) 172 (366) (206) 148 (2) 0 2,548
Financial instruments to be valued at fair value through profit or loss 1,448 1,448 94 21 (0) 183 (427) (0) 160 8 0 4 1,490 o/w debt instruments in the form of securities 358 358 47 22 105 (230) 160 401 0 862
Financial assets designated under the fair value option 1,873 (1,850) 22 0 (23) 0 0 o/w debt instruments in the form of securities 350 (329) 21 0 (21) 0 0 o/w equity instruments 724 (724)
TOTAL FINANCIAL ASSETS RECORDED AT FAIR VALUE 7,094 19 7,113 115 (20) (16) 7,909 (8,313) (207) 322 6 0 66 6,975
The impact of the transfer to Level 3 of the fair value hierarchy of equity derivatives traded in Asia (see key events) amounted to €131 million at December 31, 2018.(a)
TOTAL FINANCIAL LIABILITIES RECOGNIZED AT FAIR VALUE 3,414 (11) 3,404 495 (559) 1,602 (1,370) (176) 14 2 4 1 3,415
Sensitivity of the fair value of financial instruments measured using environments. This estimate was established using assumptions unobservable inputs was estimated at December 31, 2019. With the about additional adjustments to the valuation of interest rate, foreign aid of probable assumptions, this sensitivity was used to estimate exchange, credit and equity instruments. the impacts of market fluctuations in uncertain economic
The deferred margin covers only financial instruments eligible for outstanding non-amortized amount is recognized on the balance Level 3 of the hierarchy. It is calculated after determining the sheet under “Financial instruments marked to market on the income valuation adjustments for uncertainty as described in Note 6.6. The statement” less the market value of the related transactions.
Financial assets and liabilities at fair value: transfers between fair value levels8.5.3
From Level 1 Level 2 Level 2 Level 3 Level 3 Level 1 Level 2 Level 2 Level 3 Level 3
Derivative instruments not eligible for hedge accounting (positive fair value) 16 111 486 339 23 85 148 206 o/w interest rate derivatives 381 5 17 o/w credit derivatives 1
Financial liabilities held for trading 12 199 598 403 41 56 14 176
Derivative instruments not eligible for hedge accounting (negative fair value) 12 116 598 401 41 56 13 176
Financial liabilities designated under the fair value option 4,975 1 o/w securities under the fair value option 4,975 o/w other financial liabilities under the fair value option 1
Loans and receivables due from customers at amortized cost 71,089 71,281 49,262 22,019 69,279 69,997 48,486 21,511
The measurement of the fair value of Natixis’ borrowings and debt securities is based on the discounted cash flow method using inputs at the reporting date such as the underlying’s interest-rate curve and the spread applied to lending/borrowing between Natixis and Group entities. The fair value of debts maturing in less than one year is considered to be the same as their carrying amount; these debts are classified in Level 2 of the fair value hierarchy.
Corresponds to unimpaired financial assets for which value adjustments are calculated based on 12-month expected credit losses (Stage 1) or lifetime expected credit losses (Stage 2).(a) Impaired financial assets (Stage 3) are assets for which a default event has been identified as defined in Article 178 of the EU Regulation of June 26, 2013 on regulatory requirements for credit institutions.(b)
New originated or acquired contracts 12,296 (0) 64 (0) 12,360 (0)
Contracts fully repaid or sold during the period (15,008) 10 (4,653) 21 (262) 60 (123) 12 (20,046) 103
Including the transfer from Stage 2 to Stage 1, due to the improvement over the period of the ratings of the economic sectors related to the transferred amounts.(a) Corresponds to the SFS business lines recognized in non-current assets held for sale as at December 31, 2018 (see Notes 3.6 and 4.1).(b) Of which €525 million corresponds to outstanding loans with the SFS entities sold to BPCE at January 1, 2019.(c)
Value adjustments for credit losses (116) (1,239) (1,355) (121) (1,099) (1,220)
Value adjustments for credit losses (1) (147) (148) (6) (132) (137)
New originated or acquired contracts 724 (0) 57 (0) 781 (0)
Natixis has continuing involvement in a fully derecognized transferred financial asset if, according to the terms of the transfer, it retains contractual rights or obligations inherent in that asset or obtains or assumes new contractual rights or obligations to that asset.
Financial assets at fair value through profit or loss 4,255 2,071
Financial assets received as security and able to be sold or reused as security8.7.3
The fair value of the financial assets received as security that Natixis may sell or reuse as security was €234 billion at December 31, 2019, versus €231 billion at December 31, 2018.
The fair value of the financial assets received as security that were resold or reused as security was €177 billion at December 31, 2019, versus €155 billion at December 31, 2018.
The table below provides, by type of financial instrument, a breakdown of the age of financial assets which were past due but not individually impaired at the reporting date. It does not take into account impairments based on any portfolios that may have been created.
≤ 90 days > 90 days ≤ 180 days > 180 days ≤ 1 year > 1 year Total ≤ 90 days > 90 days
TOTAL SOURCES OF DEFERRED TAX 2,612 1,388 616 3,193 1,456 505
At 31/12/2019, deferred tax assets on losses were recognized in the amount of €789 million, of which €641 million was activated in respect of the tax (a) consolidation group in France. The base of the tax loss recognized for the tax consolidation group in France amounts to €2,455 million, out of a total stock of tax loss carryforwards of €4,350 million. At December 31, 2019, Natixis conducted tests to measure the potential impact on deferred tax assets of the assumptions applied when implementing its tax business plans. These tests, which notably measure the impact of a +/- 10% change in the GDP growth assumptions applied, confirm the likelihood of Natixis being able to deduct future taxable profits, used to calculate the deferred taxes activated, from tax losses. Except for tax losses that arose prior to January 1, 2018 (limited to 20 years).(b) As for the federal deficit, the “State” and “City” portions may be activated over longer periods (limited to the legal time limit).(c)
Other assets 280 462 of which €231 million in contract assets (accrued income) at December 31, 2019 versus €270 million at December 31, 2018.(a) of which €1,058 million in trade receivables at December 31, 2019 versus €970 million at December 31, 2018.(b)
Of which +€122.7 million of goodwill recorded on the acquisition of MV Crédit and -€27 million for the disposals carried out: -€19 million for Axeltis (a) and -€8 million for Selection 1818. In addition, a goodwill adjustment for Investors Mutual Limited (-€9.6 million) and Mirova Althélia (-€0.2 million) was made within the one-year allocation period. Of which +€10.8 million in goodwill recorded on the acquisition of Vermilion and +€36.6 million on the acquisition of Fenchurch.(b) Of which +€20 million in goodwill recorded on the acquisition of Alter CE (Comitéo). A reclassification in the “Financial assets held for sale” aggregate was also (c) recognized in accordance with IFRS 5 in the amount of -€27.5 million: -€9.5 million for Natixis Financement, -€12.2 million for CEGC, -€5.2 million for Midt Factoring and -€0.6 million for Natixis Factor.
carrying amount of the goodwill and its tax value. This difference in treatment generated a deferred tax liability of €335.8 million as at December 31, 2018.Certain goodwill recorded for the United States gives rise to a tax amortization over 15 years due to the difference between the
Amounts due to banks and customer deposits are presented by type accordance with IFRS 9 within other financial liabilities using the of deposit (demand or term deposits). They are measured in amortized cost method.
Including €438.7 million for the insurance entities at December 31, 2019, versus €448.3 million at December 31, 2018.(a) The fair value of debt securities is presented in Note 8.5.4.(b)
Including €640 million for the insurance entities at December 31, 2019, versus €640 million at December 31, 2018.(a) Subordinated debt issue agreements do not incorporate a clause providing for early redemption in the event that the covenants are not observed.(b)
Other changes mainly pertained to the revaluation of debts subject to hedging and variations in intra-group securities held by Natixis Funding for the purposes (a) of market making with respect to Natixis’ debt on the secondary market.
of which €551 million of provisions at December 31, 2019 for Madoff fraud exposure (see Section 3.2.9 of Chapter 3 “Risk factors, risk management (a) and Pillar III”). of which €10.5 million of provisions for restructuring costs at December 31, 2019 in respect of the Coface plan.(b)
The table does not include value adjustments for credit losses associated with financial assets at fair value through other comprehensive income.
of which €543.4 million of provisions at December 31, 2018 for Madoff fraud exposure (see Section 3.2.9 of Chapter 3 “Risk factors, risk management (a) and Pillar III”). of which €11.4 million of provisions for restructuring costs at December 31, 2018 in respect of the Coface plan.(b) of which -€119 million for the SFS business lines recognized in non-current assets held for sale as at December 31, 2018 (see Notes 3.6 and 4.1).(c)
The technical provisions of insurance companies, which for the most part are equivalent to demand deposits, are not shown in the table below.
Assets at fair value through profit and loss – excluding trading derivatives 0 0 2 1 165 168 0 0 0 2 1 153 157
Financial assets at fair value through equity 1 0 0 1 9 1 12 1 1 1 5 3 0 11
Loans and receivables due from customers 16 5 7 26 13 4 71 15 5 7 26 13 4 69
Held-to-maturity financial assets 0 0 0 1 0 0 0 0 1
Natixis opted to continue applying the provisions set out in IAS 39 for insurance entities (see Note 1.1).
The other balances related to the Insurance business are aggregated with the balances related to the other balance sheet items by type.
The income statement line item “Net income from insurance activities” mainly covers: premiums written and the change in unearned premium reserves;V
Securities valued under this option fall into one of the following three categories: hybrid instruments that contain one or more significant andV separable embedded derivative features; instruments belonging to a group of financial assets valued andV managed on a fair value basis; instruments that present an inconsistency in accounting treatmentV with a related financial liability.
A provision for impairment is set aside as soon as there is reason to believe the issuer may not be able to meet its commitments regarding the payment of principal and interest, such as a default on interest or principal payments. Securities in this category are determined on a case-by-case basis at each reporting date after the portfolios are reviewed.
Guarantees given or received as part of these transactions are recognized on the balance sheet (cash deposits) or off-balance sheet (securities pledged or received as collateral).
Deferred profit-sharing assets and liabilities arise mainly on: the revaluation of “available-for-sale financial assets” and “financialV assets at fair value through profit or loss”; the revaluation of real estate assets held to cover insuranceV policies; the restatement in the consolidated financial statements of theV capital reserve and the liquidity risk reserve.
The change in the deferred profit-sharing asset and liability is recognized: in equity when it relates to changes in the value ofV “available-for-sale assets”; in income when it relates to changes in the value of assets “at fairV value through profit or loss” or investment property held to cover insurance policies, as well as changes in provisions for prolonged declines in value in “available-for-sale assets”.
Capital gains and losses on disposal of investments (net of reversals, write-downs and amortization) 205 105
Change in fair value of investments carried at fair value through profit or loss 1,833 (1,013)
At December 31, 2018, Compagnie Européenne de Garanties et Cautions (CEGC) contributed (a) +€278 million to net income from Insurance businesses.
Change in unearned premium income (20) (20) 0 0 (20) 0 0 0 (20)
Change in write-downs on investments (73) (67) (6) 0 (73) 1 0 0 (73)
Share in income of associates 10 0 0 0 0 0 0 10 10
Change in write-downs on investments (94) (96) 2 0 (94) 0 0 0 (94)
Investment income (net of expenses) 556 539 29 (11) 556 0 0 0 556
Income and expenses net of reinsurance transfers (29) (28) 0 0 (28) 0 0 0 (28)
Amortization of portfolio values and related items 0 1 (1) 0 0 0 0 0 0
Other recurring operating income and expenses (358) 0 (78) (280) (358) (1) 0 0 (359)
After-tax income from discontinued activities 0 0 0 0 0 0 0 0 0
Financial assets at fair value through profit or loss 9.4.1 23,360 22,328
Share held by cedents and retrocessionaires in liabilities relating to insurance policies and financial contracts 15,218 13,015
Conditions for classification of financial 9.4.1.1 assets under the fair value option
The use of the fair value option is considered to provide more pertinent information in two situations: an asset and a hedging derivative when the criteria for hedge accounting are not met; where there is an accounting mismatch between economicallyV linked assets and liabilities. This arises for example in the case of where a portfolio of financial assets and liabilities is managed andV recognized at fair value as part of a documented policy of asset and liability management.
Debt instruments in the form of securities 2,670 622 2,048 2,353 843 1,510
The table below shows available-for-sale financial assets by type of instrument (fixed-income securities, variable-income securities). It discloses the gross value before impairment, the amount of impairment and the net value after impairment.
Investment property – At fair value 1,070 1,070 970 0 970
Financial assets and liabilities measured at fair value are categorized based on the fair value hierarchy presented in Notes 6.6 and 8.5.
Available-for-sale financial assets 51,391 43,317 5,279 2,795 47,801 39,708 5,617 2,475
TOTAL FINANCIAL ASSETS RECORDED AT FAIR VALUE 3,713 76 48 14
o/w debt instruments in the form of securities 2,955 (0) (3) (67)
o/w other available-for-sale financial assets TOTAL FINANCIAL ASSETS RECORDED AT FAIR VALUE 5,021 (24) (5) (63)
Financial assets at fair value through profit or loss 0 0 0 0 31 0 2 0 0 1
Financial assets designated under the fair value option through profit or loss 0 0 0 0 31 0 2 0 0 1 o/w debt instruments in the form of securities 31 1 o/w equity instruments 2
Available-for-sale financial assets 401 825 685 0 572 75 9 603 0 1,525
Other available-for-sale securities 401 825 685 0 572 75 9 603 0 1,525 o/w debt instruments in the form of securities 99 544 685 572 56 9 603 1,506
Loans and receivables due from banks 682 682 3 679 378 378 4 374
Technical reserves relating to financial contracts with a discretionary profit sharing feature 20,161 20,118
Technical reserves relating to financial contracts without a discretionary profit sharing feature - -
Financial liabilities designated at fair 9.5.1 value through profit or loss
The information about debts due to banks and customer deposits required by IFRS 7 is presented in Note 8.13.
Coface, Private Equity (proprietary activity retained until it is put into run-off, and portion of sponsored funds) and Natixis Algérie are considered non-strategic and are now grouped within Financial Investments.
Wealth Management: this business line covers wealthV management activities in France and Luxembourg and asset management. Natixis Wealth Management holds a key place on the French market. The bank mainly develops its customer base from the clientele of the Caisse d’Epargne and Banque Populaire banks, and to a lesser extent from that of Natixis. Wealth management offers advisory services, financial planning and expertise, and fund management solutions.
Corporate & Investment Banking advises businesses, institutional investors, insurance companies, banks and public sector entities and offers them a diversified line of customized financing solutions, as well as access to capital markets. Building on the technical expertise of its teams, Natixis designs tailored solutions for its customers incorporating the most recent market developments. In 2016, its organizational structure was adapted to better support its customers and to accelerate the implementation of the “Originate to Distribute” model. This led to the creation of a new Investment Banking business line, whose mission is to develop strategic dialog with customers and incorporates the Acquisition & Strategic Finance, Capital & Rating Advisory, Equity Capital Markets and Strategic Equity Transactions business lines. It also includes Bond Origination.
In early 2018, CIB changed the way it presents the earnings and analysis of its financing activities with the creation of three new business lines based on four key sectors defined in the New Dimension plan: the “Energy & Natural Resources” sector, which comprises TradeV Finance, origination and structuring of structured commodity finance; the “Real Assets” business line which brings together originationV and structuring in three sectors: Infrastructure, Aviation and Real Estate & Hospitality; the “Distribution & Portfolio Management” business line, whichV comprises syndication and structured and vanilla finance portfolio management.
Lastly, subsequent to the sale of SFS busines operations to BPCE S.A., the Corporate & Investment Banking division now includes the Film Industry Financing business line, which is operated via Coficiné, a subsidiary specializing in structured loans for film and audiovisual activities in France and Europe.
Change between December 31, 2019 and December 31, 2018.(a) O/w for Asset Management: (b) - Net revenues: €3,511 million; - expenses: -€2,253 million; - gross operating income: €1,258 million; - provision for credit losses: -€6.5 million; - pre-tax profit: €1,257 million.
O/w for short-term treasury: (c) - net revenues: €114 million; expenses: -€65 million; - gross operating income: €49 million; - provision for credit losses: €0 million; - pre-tax profit: €49 million.
Change between December 31, 2018 and December 31, 2017.(a) O/w for Asset Management: (b) - net revenues: €3,274 million; - expenses: -€2,114 million; - gross operating income: €1,160 million; - provision for credit losses: -€5 million; - pre-tax profit: €1,184 million. O/w for short-term treasury: (c) - net revenues: €114 million; - expenses: -€60 million; - gross operating income: -€55 million; - provision for credit losses: €0 million; - pre-tax profit: €55 million.
Financial liabilities at fair value through profit or loss 121 214,322 3,601 235 218,279
Financial assets at fair value through other comprehensive income 0 3,107 0 4 0 7,687 10,798
Loans and receivables due from customers at amortized cost 4,668 56,307 (325) 651 2,509 5,468 69,279
Deposits and loans due to banks and similar items 2,168 30,618 5,112 14,144 660 20,532 73,234
Liabilities related to insurance policies 0 1 87,597 (0) 1,941 0 89,538
Financial assets at fair value through profit or loss 153,544 7,634 38,389 14,173 345 214,086
Non-current assets held for sale (a) 24,655 915 0 0 76 25,646
Concerns the SFS business lines recognized in non-current assets held for sale as at December 31, 2018 (see Notes 3.6 and 4.1).(a)
The information on capital adequacy required under IAS 1 is presented in Section 3.3.1 of Chapter 3, “Risk factors, risk management and Pillar III”.
Debt instruments at fair value through other comprehensive income 11,563 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 11,563
Debt instruments at fair value through other comprehensive income 10,672 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10,672
Loans and receivables due from customers at amortized cost 65,554 460 629 424 622 294 146 2,387 118 6 1 0 0 0 0 1,114 69,278
Debt securities at amortized cost 155 (147) 8 206 (132) 75 57 -
Loans and receivables due from banks at amortized cost 48 (48) 0 48 (47) 0 - -
Customer loans and receivables at amortized cost 3,072 (1,255) 1,817 298 945 2,388 (1,114) 1,274 282 577
Market risk, overall interest rate risk, liquidity risk and structural foreign 11.3 exchange risk
Every year since 2010, Natixis has granted share-based payment plans to certain categories of staff. The accounting treatment of these plans is described in Note 6.17.
Payments under these plans are subject to a continued service requirement and performance criteria.
The expense associated with the short-term plan is fully recognized in the 2019 financial statements in the amount of €28 million versus €36 million at December 31, 2018.
Liabilities in respect of these awarded benefits are hedged, in full or in part, by assets comprised mainly of outsourced insurance contracts managed by French insurers specializing in retirement. The insurers carry the longevity risk once the annuities are liquidated. Plan assets are invested in the insurers’ general funds, which, for the most part, generally consist of bonds. The insurers are subject to French prudential standards and regulations.
354 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019 a) Amounts recognized on the balance sheet at December 31, 2019
Fair value of separate assets (a) (32) (28) 0 0 (61) (147) (27) 0 0 (174)
Actuarial liabilities at start of period 526 215 51 144 936 577 256 63 123 1,020 o/w amounts paid out in respect of plan liquidation (11) 0 0 0 (11) (11) (6) (2) (28) (48)
Changes recognized directly in other comprehensive income with no recycling 95 19 0 0 114 (45) (15) 0 0 (61)
Revaluation adjustments – past-experience effect 15 (5) 0 0 10 (19) (1) 0 0 (21)
Actuarial liabilities at end of period 622 238 54 127 1,042 526 215 51 144 936
Consolidated financial statements and notes 355NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019www.natixis.com c) Changes in recognized amounts on the balance sheet (Changes in hedging assets)
Fair value of assets at start of period 255 102 357 270 88 359 o/w amounts paid out in respect of plan liquidation (11) 0 (11) (0) 0 (0)
Changes associated with non-current assets held for sale (a) 0 0 0 (0) (6) (6)
Fair value of assets at end of period 422 104 526 255 102 357
Corresponds to the fair value of the plan assets, at December 31, 2018, covering the employee benefits of the SFS entities recognized in non-current assets held for sale as at December 31, 2018 (see Notes 3.6 and 4.1).(a) In 2019, Institution de Prévoyance Austerlitz was transformed into an Institution de Retraite Professionnelle Supplémentaire (IRPS – complementary occupational pension scheme), with the result that the contracts hedging (b) part of Natixis’ pension commitments were classified as plan assets.
Fair value of assets at start of period 147 27 174 171 43 214 o/w amounts paid out in respect of plan liquidation 0 0 0 (9) 0 (9)
Fair value of assets at end of period 32 28 60 147 27 174
Corresponds to the fair value of the plan assets, at December 31, 2018, covering the employee benefits of the SFS entities recognized in non-current assets held for sale as at December 31, 2018 (see Notes 3.6 and 4.1).(a) In 2019, Institution de Prévoyance Austerlitz was transformed into an Institution de Retraite Professionnelle Supplémentaire (IRPS – complementary occupational pension scheme), with the result that the contracts hedging (b) some of Natixis’ pension commitments were classified as plan assets.
TOTAL REVALUATION ADJUSTMENTS AT START OF PERIOD 233 12 245 275 27 302
Revaluation adjustments over the period 95 17 112 (41) (15) (57)
TOTAL REVALUATION ADJUSTMENTS AT START OF PERIOD 45 2 47 61 0 61 o/w effect of ceiling on assets (2) 0 (2) (7) 0 (7)
Revaluation adjustments over the period 84 1 86 (16) 2 (14)
Total revaluation adjustments at start of period 38 5 43 51 2 54 o/w effect of ceiling on assets 0 0 0
Total revaluation adjustments at end of period 7 6 13 38 5 43 o/w effect of ceiling on assets f) Analysis of expenses for the period
Rate of increase in salaries (incl. inflation) 2.94% 2.26% 2.26% 3.37% 2.94% 2.27% 2.27% 3.20%
Wage growth including inflation is determined using the average rate of real compensation growth over the past six years. This wage growth is capped at the maximum nominal rate of increase seen over the same period.
+1% change in rate of increase in healthcare costs 1.19% 1.50%
-1% change in rate of increase in healthcare costs (0.99)% (1.09)%
-1% change in rate of increase in salaries and income (incl. inflation) (9.93)% (10.20)% (7.14)% (9.38)% (9.93)% (6.79)%
Consolidated financial statements and notes 359NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019www.natixis.com i) Schedule of non-discounted payments
Total subscribed amount (in millions of euros) €40.2m €2.1m €45m €26m €60m
At December 31, 2018, Natixis recorded an expense of €2.3 million for the discount granted on subscription to employee stock options under the Company employee savings plan, measured taking into account the five-year lock-up period applicable to the issued securities.
Note that the gross amount of exchange rate fluctuations in deeply subordinated notes in foreign currencies recorded in income at December 31, 2019 amounted to +€19 million, or €14.3 million after tax, compared with €47.8 million at December 31, 2018, or €33.9 million after tax.
The main features of the perpetual deeply subordinated notes are outlined in Chapter 14 of the Pillar III report.
Pursuant to this contract, Natixis has 1,981,426 shares, representing €7.9 million as of December 31, 2019, compared to 3,566,311 shares, representing €14.7 million, at December 31, 2018.
The amounts shown represent the nominal value of the commitment undertaken: Guarantee commitments given
It should be noted that, at December 31, 2018, these guarantees were recorded as financial guarantees and an appropriate provision for counterparty risk was set aside in accordance with IFRS 9. They were presented within “Other bonds and endorsements given” for €5,383 million.
Unimpaired commitments for which expected credit losses are measured on a lifetime basis
New OBS commitments originated or purchased 7,895 (2) 632 (3) 0 0 8,528 (4)
Fully sold, called or matured commitments (3,136) 0 (4,187) 3 (0) 1 (10) 0 (7,333) 4
Variations linked to changes in credit risk parameters (excluding transfers) (2,316) 2 (256) 0 (32) (4) (2,604) (2)
Including the transfer from Stage 2 to Stage 1, due to the improvement over the period of the ratings of the economic sectors to which the transferred amounts are related.(a) Gross carrying amount excluding insurance company contributions, i.e. €1,544 million (versus €939 million at December 31, 2018).(b) Corresponds to the SFS business lines recognized in non-current assets held for sale as at December 31, 2018 (see Notes 3.6 and 4.1).(c) Mainly comprising guarantees given to UCITS now recognize as derivatives.(d)
commitments which result in a loan granted at below-marketV interest rates.