As part of the regulatory process introduced by the Autorité de Contrôle Prudentiel (CRBF rule) concerning the internal control systems of credit institutions, Natixis’ Internal Audit Department uses the results of the periodic audits it performs to assess internal control procedures. There is a particular focus on accounting and fi nancial procedures of all consolidated entities, whether or not they have credit institution status.
The fact that most subsidiaries have their own management and control functions means that internal control procedures are decentralized and are tailored to the organization of each of the consolidated entities, relying on a multi-tier accounting control process: V a first-level control where permanent and local controls in operational business lines are integrated into the operating process and formalized in clearly-defined work programs; V an intermediate level overseen by each entity’s financial or accounting departments where independent controls of operating processes are performed to ensure the reliability and exhaustive nature of the financial statements; V a final level of control carried out by the Internal Audit Department as part of its regular audits.
For all these systems, Natixis and its subsidiaries continue to upgrade their accounting and fi nancial control procedures and equip themselves with suitable audit trail tools. In this respect, Natixis’ Finance Department supervises and monitors the various controls performed by the subsidiaries.
The 2013 fi scal year will be mainly dedicated to: V completing the roll-out of the new accounting platform to the US platform; V continuing the migration of funding operations to the new tool that Natixis has acquired; V continuing initiatives committed to strengthening secondlevel controls in the accounting and regulatory areas; V implementing, in conjunction with Review representatives, governance as part of the Review Department’s supervisory responsibility.
In addition to the control procedures followed by the fi nancial departments responsible for preparing individual or consolidated accounts, the quality of accounting controls is verifi ed by: V ad hoc audit assignments conducted by BPCE’s General Inspection and Natixis’ Internal Audit Department; V audits required by the Autorité de Contrôle Prudentiel in its role as banking regulator; V audits conducted by Statutory Auditors. This work is carried out by three firms working in a uniform manner each quarter on most of the entities falling within Natixis’ scope of consolidation and whose opinions rely, in particular, on compliance with Natixis policies and the effectiveness of local internal control procedures.
V to attest that this report contains the other disclosures required by Article L.225-37 of French Commercial Code, it being specified that we are not responsible for verifying the fairness of these disclosures.
We hereby attest that the Chairman’s report includes the other disclosures required by Article L.225-37 of French Commercial Code.
Risk management 4.3 OVERALL INTEREST RATE, LIQUIDITY, STRUCTURAL FOREIGN EXCHANGE RISKS 179 4.3.2 Balance sheet risk management 179 4.4 INSURABLE RISKS 182 4.5 LEGAL RISKS 183 4.5.1 Legal and regulatory issues and constraints 183 4.5.2 Legal and arbitration procedures 184 4.5.3 Situation of dependency 187 4.6 INSURANCE RISKS 188 4.7 SENSITIVE EXPOSURES IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE FINANCIAL STABILITY FORUM 193
RISK MANAGEMENT4 The information provided in the following sections is an integral part of the fi nancial statements certifi ed by the Statutory Auditors: V 4.2.5.1 Natixis’ general risk management system; V 4.2.5.2 Natixis’ Risk Department; V 4.2.5.3 Credit risks (only for data mentioned as certified); V 4.2.5.4 Market risks (only for data mentioned as certified); V 4.3 Overall interest rate, liquidity, structural foreign exchange risks; V 4.6 Insurance risks; V 4.7 Sensitive exposures according to Financial Stability Board Recommendations.
This Chapter addresses the kind of risk factors to which Natixis may be exposed, their scale and the impact that these risks could have on the results and assets of Natixis, as well as the systems implemented to manage them.
In addition to the general risks related to the macroeconomic environment or to the links with BPCE and the networks, the following risks are discussed: R credit risk (including country risk): risk of loss related to counterparty bankruptcy leading to its inability to honor its contractual obligations to Natixis; R market risk: risk of loss related to any fl uctuation in market parameters (interest rates, foreign exchange rates, commodities prices, etc.); R operational risk: risk of loss resulting primarily from the inadequacies or failure of the processes, systems or people responsible for processing transactions; R structural balance sheet risk: risk of loss related to fl uctuations in interest rates (overall interest-rate risk) or foreign exchange rates, or the risk of lacking the resources needed to meet commitments (liquidity risk).
4.1 Risk factors 4.1.1 RISKS RELATED TO THE MACROECONOMIC ENVIRONMENT AND THE FINANCIAL CRISIS
Natixis operates. Despite institutional progress made at the European level, the persistence of the diffi cult economic situation can lead to major disruptions both in terms of credit and market volatility. Furthermore, the return of systemic risk could also impact the bank’s refi nancing conditions and the liquidity of the fi nancial assets it holds.
In addition to the European sovereign debt crisis that dominated 2012, the fi nancial (and banking) markets were also adversely affected by other signifi cant events, often of a political nature, such as the presidential elections in the US and France, as well as the formation of new governments in China and Japan, the downgrade of Spain’s credit rating and the debates surrounding the US “fi scal cliff”.
Given the uncertainty of the global economic outlook for the short and medium term, further widespread economic deterioration in Europe, especially in France, could also have negative repercussions on provisions for credit losses and capital adequacy.
RISK MANAGEMENT4 Risk factors In the event of a strong global economic recovery and runaway infl ation, or of a specifi c political event, central banks could decide at any time, with or without prior consultation, to change their monetary policy and adjust their liquidity policy, which could cause liquidity to suddenly dry up in these markets and in the economy at large. Against this backdrop, such developments could have a negative impact on the environment in which fi nancial institutions operate and, as a result, have an adverse impact on Natixis’ fi nancial position and results.
Governments (including governments of countries where Natixis entities are established) have responded to the fi nancial crisis by adopting, or are currently in the process of submitting to Parliament, a certain number of regulatory measures implementing major changes to the existing framework (Basel 3 (CRD4), Solvency 2, Dodd-Frank Wall Street Reform and Consumer Protection Act, Foreign Account Tax Compliance Act, European market infrastructures (EMIR), MiFID 2, Vickers Report, etc.). The analysis and interpretation of these measures, which arise from diverse sources, may generate new pressures for Natixis in its efforts to comply with all of the new regulations.
In addition, a certain number of exceptional measures taken by governments (support measures), central banks (lowering of key interest rates, unlimited VLTRO liquidity transactions, and the OMT unlimited sovereign debt purchase program) and regulators to remedy the fi nancial crisis, stabilize the fi nancial markets and support fi nancial institutions have recently been, or soon could be, suspended or stopped, which given the uncertainty regarding growth could have an adverse impact on the business conditions of fi nancial institutions.
4.1.2 RISKS RELATED TO THE LINKS WITH BPCE AND THE BANQUE POPULAIRE AND CAISSE D’EPARGNE NETWORKS
In the event such repurchases are carried out via the approval procedure or by compulsory repurchase, Natixis would no longer have any fi nancial interest in the results of the Banques Populaires or Caisses d’Epargne bank, or banks, concerned, and its ability to sell products and services through the Banques Populaires or Caisses d’Epargne bank, or banks concerned, could be impacted.
CREDIT RISK (FOR FURTHER DETAILS REFER TO SECTION [4.2.5.3] OF CHAPTER [4] AND SECTION [3.6.4] OF CHAPTER [3]).
OPERATIONAL RISKS (FOR FURTHER DETAILS PLEASE REFER TO SECTIONS [4.2.5.5] AND [3.6.4]).
New strategy 2012 was marked by the completion of the “New Deal” strategic plan: its primary goals were achieved and its guidelines for the three core business lines will be reaffi rmed under the new plan, based on deepening client relationships and improving collective effi ciency.
If Natixis decided to dispose of certain operations, the selling price could turn out to be lower than expected and Natixis might continue to bear signifi cant risks stemming from these operations as a result of liability guarantees or indemnities that it might have to grant to the buyers concerned.
Pillar II establishes a process of prudential supervision that complements and strengthens Pillar I .
Natixis is subject to consolidated regulatory reporting to the Autorité de contrôle prudentiel (ACP). To this end, Pillar III disclosures are prepared on a consolidated basis.
The entity EDF Investment group is proportionally consolidated in accordance with the level of economic interest, i.e. 5.2%.
R the Advanced IRB approach, for which bank use all their internal risk component estimates: probability of default, loss given default, exposure at default and maturity.
R impairment losses on any available-for-sale assets recognized in the income statement are not restated; V Issue or merger premiums; V Retained earnings; V Net income (group share), after deducting an estimated portion of this income for cash-settled dividends.
Tier 3 capital comprises subordinated debt with a maturity of over fi ve years that is only used to hedge market risk. Natixis is not affected by these instruments.
Registered share capital amounted to €4,937,943,670.40 at December 31, 2012 (i.e. 3,086,214,794 shares with a par value of €1.60) versus €4,931,753,420.80 at December 31, 2011. This increase is attributable to a free share award reserved for certain employees.
The main shareholding resulting in a capital deduction was the €0.36 billion stake in CACEIS.
Regulatory capital is structured as follows (all data after impact of the fi nancial guarantee granted by BPCE): (in billions of euros) 12.31.2012 12.31.2011 Change
Core Tier 1 capital includes a provision for distribution of 2012 cash dividends of €0.3 billion (i.e. €0.10 per share). It was also boosted by the drop in deducted securitizations (+€0.1 billion). The other prudential restatements and deductions did not vary signifi cantly.
Tier 2 capital came down due to the impact of the early redemption of certain TSN issues that were not compatible with the future Basel 3 rules (-€1.9 billion), regulatory amortization of lines nearing maturity, and the reduction of the favorable gap between provisions and projected losses (-€0.4 billion). These impacts were very partially offset by the reduction of deducted securitizations.
Risk-weighted assets amounted to €125.7 billion after the fi nancial guarantee granted by BPCE (€6.6 billion, down €1.8 billion compared to December 31, 2011), and fell by €19.9 billion over the year.
The decrease in credit risks (-€1.4 billion) over the year was primarily due to the following factors: V the incorporation of risk-weighted assets linked to investments in insurance companies (+€10.0 billion); V a decrease in outstandings, thanks in large part to an exposure reduction strategy (- €8.2 billion); V the implementation of internal models on the credit conversion factors (CCF) (-€1.7 billion) .
CCI risk-weighted assets rose by €4.4 billion due to the change in negative recyclable reserves (+€1.6 billion), Banque Populaire and Caisse d’Epargne capital increases (+€1.9 billion) and the capitalization of non-distributed earnings (+€0.9 billion). Offsetting this increase was a drop of €25.6 billion in riskweighted assets resulting from the implementation of the P3CI deal in January 2012.
The Core Tier 1 ratio rose from 8.3% at December 31, 2011 to 10.9% at December 31, 2012, while the Tier 1 ratio came to 12.3% at December 31, 2012 versus 11.3% at December 31, 2011.
The regulation governing liquidity risk took effect on June 30, 2010 (French decree dated May 5, 2009). The liquidity ratio is designed to ensure that liquid assets with maturities of less than one month are greater than or equal to liabilities falling due within the same period. It is defi ned as the ratio between cash/cash-equivalents and liabilities falling due in less than one month.
This ratio is calculated on a parent company (non-consolidated) basis and according to regulations must be above 100%. Natixis’ ratio was 124% at December 31, 2012.
The regulation on controlling large exposures were revised on December 31, 2010 (CRBF Regulation No. 93-05 as amended by the decree of August 25, 2010). It aims to prevent an excessive concentration of risks for sets of counterparties that are related in such a way that if one encountered fi nancial problems, the others would also be likely to have fi nancing or reimbursement diffi culties. The regulation is underpinned by an obligation to be respected at all times: all risks associated with a single counterparty cannot exceed 25% of the bank’s capital. Natixis complied with this requirement during 2012.
RISK MANAGEMENT4 Pillar III The Risk and Compliance Departments carry out permanent controls. The control system comes under the overall supervision of the Chief Executive Offi cer and Board of Directors of Natixis. The Board is assisted in its duties by the Audit Committee.
It participates in the ALM Committee, which is steered and organized by the Financial Management Department.
To fulfi ll these responsibilities, the Risk Department uses an IT system tailored to the activities of Natixis’ core business lines and which applies the department’s modeling and quantifi cation methods for each type of risk.
In 2012, Natixis continued to roll out risk policies, which now cover the large majority of its portfolio.
Back-testing and performance-monitoring programs are also used to ensure the quality and reliability of LGD estimates and rating models and LGD grids or default probability scales. They include a detailed analysis based on a range of indicators, e.g. differences in terms of severity and migration compared with agency ratings, observed defaults and losses and changes in ratings prior to default and LGD measurements, and the predictive power of indicators used in statistical models.
In addition to quantitative work on models, Natixis has introduced standards and procedures and periodic controls undertaken at different levels within the Bank so as to ensure the quality of ratings and LGDs. As part of its oversight function, the Risk Department makes sure the rules and commitments underpinning the Bank’s IRBA approval are respected, and also ensures the proper operation of the tools and processes used and the quality and consistency of data. It also coordinated training and provides support to Bank employees.
Collateral and netting agreements give rise to: V an analysis undertaken when loan applications are approved or reviewed, assessing the suitability of the instrument or guarantee provided and the associated improvement in risk quality; V verification, processing and documentation based on the use of standard contracts or contracts approved by the Legal Department; V registration and monitoring procedures covering risk administration and management systems.
Natixis buys credit-default swaps and enters into synthetic securitization transactions in order to reduce all or part of the credit risk exposure attached to some assets by transferring the risk to the market. CDS-protected loans remain on Natixis’ balance sheet, but bear the counterparty risk attached to
RISK MANAGEMENT4 Pillar III the credit-default sellers, which are generally OECD banks. Transactions with non-bank third parties are fully collateralized in cash.
Macroeconomic stress testing is regularly applied to the Natixis consolidation scope to evaluate the risk generated in the event of adverse economic and fi nancial data. The results are presented quarterly at each meeting of the Global Risk Committee.
Natixis also sets aside provisions to cover country risk and sector risk (see Note 5.3 to the consolidated financial statements presented in s ection [5.2] Consolidated financial statements). These provisions are created on the basis of: V ratings for loans to private individuals and professionals; V sector risk; V geographic risk for other counterparties (corporate entities, sovereigns, etc.).
The tables below show credit exposure under Basel 2 (decree of February 20, 2007), which is defi ned as EAD (Exposure at Default).
The transition from book outstandings (consolidated scope) to gross exposure and risk exposure in the prudential credit risk scope includes the following main operations: V exclusion of exposure classified in the trading scope; V inclusion of netting agreements on market transactions; V restatement of factoring positions to take into account exposure to the risk of default and a position in risk dilution; V application of a credit-equivalent conversion factor on financing and guarantee commitments.
French and European Union counterparties account for 78.4% of Natixis’ exposure.
Sovereigns Central administrations and central banks 10.7% 1.3% 3.9% 0.7% 16.7% 7.7%
(a) Of which 23 % in exposure to Groupe BPCE , versus 18 .6 % at end-2011.
RISK MANAGEMENT4 Pillar III Breakdown of exposure at risk by residual maturity and category of exposure
Other exposure recorded in the corporate entities category 21,068 15,533 9,343 29,699 12,773 88,417 104,016
Other exposure recorded in the retail customer category 230 1,991 72 158 530 2,982 3,233
SMEs recorded in the retail customer category 383 49 141 781 487 1,841 2,025
Exposure at risk by category of exposure and by approach as at December 31, 2012
SMEs recorded in the retail customer category - - 1,841 1,841
Having received ACP authorization, Natixis has applied internal credit conversion factors to IRBA-approved entities since December 31, 2012.
RISK MANAGEMENT4 Pillar III (in millions of euros) Category of exposure Rating
The table covering retail customer exposure includes generic counterparties, enabling Natixis to model Natixis Financement customers.
R IMPACT OF RISK-REDUCTION TECHNIQUES ON CREDIT DERIVATIVES (DATA AS AT DECEMBER 31, 2012)
RISK MANAGEMENT4 Pillar III R COUNTERPARTY EXPOSURE AT RISK ON DERIVATIVE AND REPURCHASE TRANSACTIONS
Other physical collateral o/w tangible collateral o/w fi nancial collateral 12.31.2011
SMEs recorded in the corporate entities category 1,055 10 312 934
Other exposure recorded in the retail customer category 240 - 240 -
R EXPOSURES COVERED BY PERSONAL COLLATERAL BY CATEGORY OF EXPOSURE AS AT DECEMBER 31, 2012
R SECURITIZATION (BANKING BOOK SECURITIZATION POSITIONS INCLUDING THOSE DEDUCTED FROM CAPITAL)
R PRESENTATION OF BANKING BOOK AND TRADING BOOK SECURITIZATION POSITIONS BY WEIGHTING, APPROACH AND METHOD (INCLUDING SECURITIZATION POSITIONS DEDUCTED FROM CAPITAL)
RISK MANAGEMENT4 Pillar III Breakdown of securitization positions according to the role played by Natixis
(in millions of euros) at 12.31.2012 Exposure at risk Risk weighted assets Regulatory capital requirements
Market risk is the risk of loss in value caused by any adverse fl uctuations in market parameters. These parameters include, notably, bond prices, interest rates, securities and commodities prices, derivatives prices and prices of all other assets, notably foreign exchange rates.
Market risk affects Natixis’ trading and investment portfolios. In investment portfolios, market risk encompasses: V the overall interest rate risk associated with asset and liability management, which is the risk to earnings arising from asset and liability mismatches in the bank book or in the i nsurance business; V the risk associated with investment operations, which depends directly on fluctuations in the value of invested assets in securities portfolios; and
The Risk Department’s main responsibilities are: V the definition of all applicable risk measurement methods and risk indicators; V the analysis and daily control of market risks and the corresponding reporting for each business; V the validation of valuation models (pricers); the definition of provisioning and fair value adjustment policies (for liquidity risks, risks related to non-hedgeable parameters, model risks, etc.); V the drawing up of all consolidated reports presented to management and control and supervisory bodies; V the introduction of standards and procedures common to all entities (subsidiaries and branches) carrying market risks; V the production of VaR, stressed VaR (SVaR), IRC (1) (Incremental Risk Charge) and backtesting models.
Different techniques are used to measure market risk: 1. S ynthetic measures of VaR to identify potential losses in each business, based on a pre-determined confidence level (99%) and time period (1 day).
Natixis’ internal VaR model was approved by the French Prudential Supervisory Authority (ACP) in January 2009. Natixis uses VaR to calculate capital requirements for market risks on the portfolios within its remit.
The regulator has authorized Natixis to use these new indicators in order to determine its capital requirement since December 31, 2011; 2. L oss alerts by portfolio and aggregated by business line, which alert the management and Risk Department if losses reach a certain threshold over a given month or on a cumulative basis since the beginning of the year. These thresholds are set by the Market Risk Committee according to the characteristics of each portfolio, past performance and budgetary targets; 3. S tress tests to measure potential losses on portfolios in extreme market conditions. Natixis’ mechanism is based on two categories of stress tests: overall stress tests and dedicated stress tests for each business.
V hypothetical stress tests are used to simulate variations in market parameters on all activities, on the basis of plausible assumptions concerning one market’s predicted response compared with another’s, depending on the nature of the initial stress. Stresses are determined through a joint effort involving the Risk Department, the front office and Natixis economists.
Specific stress tests are also calculated daily in the management tools for all portfolios and are governed by limits. They are defi ned using the same severity standard and are used to identify the main loss areas by portfolio; 4. O perational indicators are used to manage activity on an overall and/or homogenous business basis, by focusing on more directly observable criteria (sensitivity to changes in the underlying and to volatility, correlation, nominal, diversification indicators, etc.). Limits corresponding to these qualitative and quantitative operational indicators thereby complement VaR, stress test and loss alert limits. They are determined in accordance with the latter limits.
The VaR’s decrease over the course of the year is not only indicative of a gradual reduction of exposures, but also of Wholesale Banking’s strategic refocusing on customer activity as well as the markets’ return to normal.
The chart below presents the trading VaR history between December 31, 2011 and December 31, 2012 for the entire scope and for GAPC after accounting for BPCE’s guarantee, as well as for CIB/Wholesale Banking.
The following chart shows results of backtesting (ex-post comparison of potential losses, as calculated ex-ante by VaR, with actual P&L impacts) on the regulatory scope.
A backtesting exception was observed in October 2012. It resulted from the implementation of the “two-curve” calculation method, in keeping with market practices for calculating the risks and results of interest-rate positions. The new risks incurred by this method were hedged and therefore had only a limited impact on the VaR, even though the revaluation of positions in inventory was adjusted. Because of this, the exception is technical in nature.
The hypothetical stress test replicating default by a fi nancial institution gave the maximum loss (€122 million at December 31, 2012).
R OVERALL STRESS TESTS AS AT DECEMBER 31, 2012 (INCLUDING THE BPCE GUARANTEE) millions of euros
The new CRD3 market risk requirements implemented on December 31, 2011 imply an outsourcing of specifi c interest rate risk from securitization positions. The regulatory capital requirements for securitization positions in the trading book are subject to weightings similar to those of the banking book, with again a higher risk weight for resecuritization exposures.
Unforeseen events such as a severe natural disaster, pandemic, terrorist attacks or any other state of emergency could lead to an abrupt interruption of Natixis’ operations and cause substantial losses insofar as they are not covered or are insuffi ciently covered by an insurance policy. These losses could relate to property, fi nancial assets, market positions and key employees. Such unforeseen events may, additionally, disrupt Natixis’ infrastructure, or that of third parties with which it conducts business, and could also lead to additional costs (such as relocation costs of employees affected) and increase Natixis’ costs (in particular insurance premiums). Subsequent to such events, Natixis may be unable to insure certain risks, resulting in an increase in Natixis’ overall risk.
Operational risk is the risk of losses due to inadequate or failed internal processes, or due to external events, whether deliberate, accidental or natural occurrences. Internal procedures include, but are not limited to, h uman r esources and information systems. External events include, but are not limited to, natural disasters, fraud or terrorist attacks. Furthermore, any interruptions or failures of Natixis or third party information systems may result in lost earnings and thus generate losses. Similarly, unforeseen events may cause an interruption in the continuity of Natixis’ operations, thus generating material losses and additional costs.
RISK MANAGEMENT4 Pillar III The Insurance Department, which reports to the Legal Department in the Corporate Secretariat , is tasked with analyzing insurable operational risks and taking out appropriate insurance coverage against them (see section [4.4] for further information). Insurance policies bought from leading insurers provide cover for potentially signifi cant consequences resulting from fraud, embezzlement and theft, operating losses or the implication of Natixis’ civil liability or that of its subsidiaries or the employees for which it is responsible.
Governance of the framework is the responsibility of Natixis’ Operational Risk Committee. This Committee is charged with defi ning the operational risk policy, ensuring its application within Natixis’ entities, reviewing serious operational risks, analyzing potential risks for the Company and monitoring riskreduction measures.
Financial assets at fair value through profi t and loss (other than trading) (20)
Natixis’ structural balance sheet risks are managed and monitored under the authority of the Asset/Liability Management Committee (ALM Committee) chaired by the Chief Executive Offi cer, and comprised of the members of the Senior Management Committee (in charge of Finance and Risks, Wholesale Banking and market solutions), the Head of Risk, the Head of the Single Treasury and Central Bank Collateral Management Pool, the Head of Financial Management and BPCE’s Head of Asset/Liability Management. The Committee meets every two months and is mainly responsible for: V defining and monitoring Natixis’ asset/ liability management; V approving the major principles in terms of structural balance sheet risks (structure, delegation of authority, internal liquidity pricing, etc.) in compliance with the standard ALM framework set up by BPCE; V validating ALM assumptions and conventions underlying calculations for indicators used to manage and monitor structural risks; V validating limits related to liquidity indicators, overall interest rates (1) and structural foreign-exchange rates; V validating the overall refinancing policy; V monitoring the main balance sheet aggregates and their developments, as well as supervising structural balance sheet risks and compliance with limits.
RISK MANAGEMENT4 Overall interest rate, liquidity, structural foreign exchange risks The Risk Department calculates indicators and monitors limits daily for Treasury and monthly for credit subsidiaries.
Liquidity risk is the risk that Natixis will be unable to honor its commitments to its creditors due to the mismatching of maturities between assets and liabilities. This risk could arise, for example, in the event of massive withdrawals of customer deposits or a crisis of confi dence or an overall market liquidity crisis. As a corporate and investment bank, this risk for Natixis results primarily from mismatched positions between transactions with contractual maturities, as Natixis does not have stable and permanent customer resources and partly funds itself on the markets (see Chapter 5 “Financial data”, section [5.1.5] “Refinancing”).
As a subsidiary of Groupe BPCE and present in Wholesale Banking, Asset Management and specialized fi nance, Natixis’ liquidity risk management policy is an integral part of the Group’s overall policy. It sets out to optimize Natixis’ activities within a clear, shared and standardized framework in terms of governance and ALM regulations and in line with the Group’s risk constraints. In particular, these constraints are part of the regulatory commitments made by the Group when creating Natixis, which includes BPCE’s obligation to guarantee the liquidity of its subsidiary.
Thus, the purpose of the overall liquidity risk management policy is to: V guarantee that Natixis complies with its financing commitments while ensuring that its refinancing needs and mismatches traded are in line with the Group’s short- and medium-term refinancing capacities; V optimize the cost of refinancing within the set risk constraints to help reach the profitability objectives; V respect the internal limits set in close cooperation with BPCE and adapted to the Group’s ability to provide for Natixis’ ultimate liquidity needs; V comply with national and international regulations; V contribute to the diversification of amounts raised by Groupe BPCE by geography, product and counterparty.
The overall structural foreign exchange risk management policy, set out by the ALM Committee, thus aims to: V only purchase currency for strategic net investments with sustainable holding periods; net investments in non-strategic currencies are therefore refinanced by loans; V maintain structural foreign exchange positions within the set limits in order to protect the Core Tier 1 ratio from exchange rate fluctuations due to weighted currency risks (in particular the US dollar).
The Insurance Department, which reports to the Legal Department within the Corporate Secretariat , is tasked with analyzing insurable operational risks and taking out appropriate insurance coverage (direct insurance and/or transfer).
V The “Overall Banking”, “Company Civil Liability” (operational and professional) and “Management Civil Liability” insurance policies taken out by Natixis on behalf of the parent company and all its subsidiaries were renewed on January 1, 2012.
Natixis and its subsidiaries benefit from the guarantees provided by the “combined” Banker’s Blanket Bond (securities and fraud) and Company Civil Liability policies providing coverage of €150 million per claim per insurance year.
V “Civil Operating Liability” coverage is provided by the civil operating liability group insurance plan taken out by BPCE
S.A., which came into effect on January 1, 2012, for up to €75 million per claim; V “Management Civil Liability” coverage is provided by the managers’ and executive corporate officers civil liability group insurance plan taken out by BPCE S.A., which came into effect on January 1, 2012, for up to €200 million per claim per insurance year; V Coverage for the buildings housing Natixis’ operations in France, their contents, IT risks and the resulting loss of banking business is provided by the “All Risks & Resulting Loss of Banking Business” group insurance policy taken out and renewed by BPCE S.A., which came into effect on January 1, 2012 (reconstruction and/or replacement cost, capped at €250 million per claim); V Coverage for intangible computer damage (damage to data without physical damage to the hardware containing it) and resulting loss of banking business is provided by the “Intangible Computer Damage/Loss of Banking Business” group insurance policy taken out and renewed by BPCE S.A., which came into effect on January 1, 2012, for coverage of up to €65 million per claim and per year.
Such changes could include, but are not limited to, the following: V monetary, interest rate and other policies of central banks and regulatory authorities; V general changes in government or regulatory policy liable to significantly influence investor decisions, in particular in markets where Natixis operates; V general changes in regulatory requirements, notably prudential rules relating to the regulatory capital adequacy framework, such as the modifications being made to the regulations implementing Basel 3, Solvency 2 and DoddFranck Act requirements; V changes in rules and procedures relating to internal controls; V changes in the competitive environment and prices; V changes in financial reporting rules; V expropriation, nationalization, price controls, exchange controls, confiscation of assets and changes in legislation relating to foreign ownership rights; and
Inadequate management of these issues could also give rise to additional legal risk for Natixis and cause an increase in the number of legal proceedings and the amount of damages claimed against Natixis, or expose Natixis to sanctions from the regulatory authorities (for further details, please refer to the paragraph on “Legal and arbitration procedures” below).
The fi nancial consequences, assessed at December 31, 2012, of those deemed likely to, or those that have in the recent past had a material impact on Natixis’ fi nancial situation and/or that of Natixis and its consolidated subsidiaries as a whole, their profi tability or their business, have been included in Natixis’ consolidated fi nancial statements.
The most signifi cant litigations are described below. Their inclusion in the list does not indicate that these litigations will necessarily have an impact on Natixis and/or its consolidated subsidiaries. The other litigations are deemed not liable to have a material impact on Natixis’ fi nancial situation or profi tability and/or that of Natixis and its consolidated subsidiaries as a whole, or have not reached a stage where it can be determined whether they will have such an impact.
On June 2, 2008, the plaintiffs requested a rehearing of the appeal by the entire Court of Appeals. On August 8, 2008 the Court of Appeals denied the plaintiffs’ request for a rehearing of their appeal.
Since March 13, 2008, Natixis and Natixis Funding have been named among the defendants in multiple class-action lawsuits fi led by and on behalf of certain state, county and municipal bond issuers in the US federal courts in New York, Washington D.C. and California. The plaintiffs allege that providers and
These damages claims arise out of investigations that were performed or are currently being performed by the US Internal Revenue Service (“IRS”), the Department of Justice (“DOJ”) Anti-Trust division, the US Securities and Exchange Commission (“SEC”) and state prosecutors.
The allegations against Natixis are that Natixis was Natixis Funding’s guarantor in derivatives transactions and that it was Natixis Funding’s agent. The defendants have responded to the grievances fi led by the plaintiffs. The parties have entered the discovery phase of litigation. The coming months are dedicated to requests concerning the communication of evidence and reviewing the documents requested by the plaintiffs. At the same time, the parties are preparing to take on the most important part of the litigation which is the attempt to certify the litigation as a class action suit by the plaintiffs. The defendants are in the process of recruiting an expert economist and a statistician to analyze the data of all the transactions to prepare arguments against class action certifi cation. During this time, the 26 state prosecutors and the DOJ are continuing their investigations.
Natixis has not been accused of any wrongdoing in the CIC Group’s complaint, whether with respect to the terms of the contracts or their performance. The legal arguments used by the Crédit Mutuel Group to challenge the validity of its purchases of EADS shares appear to be without merit.
In a ruling handed down on January 27, 2010, the Commercial Court of Paris refused to hear the suit fi led by CIC and Crédit Mutuel, and ordered them to pay €120,000 to Natixis and €50,000 to Lagardère in accordance with Article 700 of the French Civil Proceedings Code (Code de procédure civile). The order of April 28, 2011, issued by the Paris Court of Appeals (Cour d’Appel de Paris) upheld the lower court’s ruling, which dismissed the claim by the plaintiffs. Following an appeal for annulment fi led by CIC and Crédit Mutuel, in a ruling dated July 10, 2012, the Supreme Court overturned the ruling of the Paris Court of Appeals dated April 28, 2011 for reasons of form relating to the drafting of the ruling . The case has been referred to the Paris Court of Appeals for trial by a different judge.
In March 2009, the Paris public prosecutor’s offi ce (Parquet de Paris) launched a preliminary investigation into a complaint fi led by Natixis minority shareholders and coordinated by the Association to Defend Minority Shareholder Rights (Association de Défense des Actionnaires Minoritaires – ADAM). Because of the institution of civil action proceedings of plaintiffs, a judicial information was opened.
On November 13, 2009, Maximus Master Fund Limited and its portfolio manager, Anakena, fi led a complaint against Natixis before the Commercial Court of Paris seeking the payment of €59.9 million in damages, and alleging that Natixis had abused its rights as the majority investor by asking the fund to redeem its investment in the middle of the fi nancial crisis. In a ruling handed down on January 27, 2012, the Commercial Court of Paris dismissed all of the claims fi led by Anakena and Maximus and ordered them to pay €10,000 to Natixis in accordance with Article 700 of the French Civil Proceedings Code. On February 13, 2012, Anakena and Maximus fi led an appeal against the ruling issued on January 27, 2012.
On January 14, 2013, the judge in charge of preliminary investigations in the Florence court accepted the motion to dismiss fi led by the public prosecutor and closed the case against Natixis.
The AMF conducted an audit of the marketing of Doubl’ô fund ranges from 2001 to 2002. In April 2011, Asset Management companies, subsidiaries of Natixis, received a notifi cation of grievances from the AMF for failure to meet their professional obligations (inconsistency between the advertisement and the proposed investment).
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) alleged to have subscribed, via a fi nancial intermediary acting as the placement agent, for these bonds in the amount of $50 million.
MMR Investment Ltd fi led a joint claim against Natixis and the fi nancial intermediary, claiming not to have received the bonds, despite having paid the subscription price to the fi nancial intermediary. The claim pertains fi rstly to the restitution of the subscription price of the bonds and secondly to the invalidity of the subscription, due in particular to lack of consent.
As part of terminating a swap agreement entered into by Natixis FP in connection with a CDO transaction, the CDO’s trustee asked the New York magistrate judge to interpret the provisions of this swap agreement . On December 22, 2012, the magistrate judge ruled that Natixis is required to pay $10.5 million to terminate the swap. Natixis is disputing this ruling and has decided to appeal.
Insurance risk is the risk to profi ts of any difference between expected and incurred claims. Depending on the insurance product in question, the risk varies according to macroeconomic changes, changes in customer behavior, changes in public healthcare policy, pandemics, accidents and natural disasters (such as earthquakes, industrial accidents or acts of terrorism or war). As mentioned previously, the credit insurance business is also subject to credit risk.
As Natixis Assurances predominantly sells savings products, the main risks resulting from insurance policies are of a fi nancial nature: Risk of no longer being able to meet the minimum contractual rate of return in the event of a decline in interest rates
To deal with this risk, ABP Vie (a subsidiary of Natixis Assurances) has only sold policies without a minimum guaranteed rate in recent years: more than 90% of the policies have a 0% minimum guaranteed rate. The minimum guaranteed rate averages 0.2%.
Natixis Assurances has identifi ed the policyholders with a high risk of redemption, the differential criteria being age, tax seniority and amount of capital. For these policyholders, Natixis Assurance has hedged the risk of interest rate increases and has limited the scope covered by such policies to approximately a quarter of its assets. Against this backdrop, it has hedged its portfolio with Cap policies and has also subscribed to variablerate bonds.
Concerning securities in other categories, the sensitivity analysis carried out at end-December 2012 showed that a 1-point increase in bond yields would have a negative impact of €71 million on equity (taking into account the variation attributable to policyholders and taxation), i.e. 6.8% of equity.
According to the sensitivity analysis carried out at endDecember 2012: V a 10% drop in the stock market would have a negative impact of €18.5 million on equity (after taking into account the variation attributable to policyholders and taxation), i.e. 1.8% of equity; V a 10% drop in the real estate market would have a negative impact of €5.9 million on equity (after taking into account the variation attributable to policyholders and taxation), i.e. 0.6% of equity.
The monitoring and management of counterparty risk is carried out in compliance with Natixis’ standards and internal limits, as determined by the Credit Risk Committee, as well as the regulatory constraints imposed on insurance companies. Thus, 72% of the fi xed-income portfolio is invested in securities rated higher than A-.
In addition to weekly and monthly monitoring at each region and country level, Coface has implemented a system based on: V the centralization of declarations of intent to file a claim exceeding a certain amount (currently €0.5 million for all Coface arbitration centers); V at the risk underwriting level, monitoring of MSE (Maximum Standard Exposure) which generates an approval above a certain level of DRA-based outstandings, and establishment of an overall budget by the Group Arbitration Department; V a DRA risk evaluation system covering all buyers; V external quota share reinsurance treaties (25% cession rate) and excess of loss reinsurance treaties (deductible of €40 million), thus limiting frequency and event risks.
For each of its activities, underwriting risk management is largely based on an analysis of the transactions under consideration (quality of counterparties, type and analysis of the project, funding or commitments and sureties collected) and on an individual and collective delegation system tailored to the specifi c risks of each market and the experience of the delegates. The delegation system covers specifi c market risks by level of risk, which refl ects the probability of occurrence of a claim, and by level of commitment, which refl ects the severity of the claim in the event of occurrence. The approval process governs CEGC’s delegation system through the establishment of absolute limits on outstandings per business line (severity of the claim in the event of occurrence) and by counterparty rating (probability of occurrence).
Underwriting risk is monitored in two ways: at the consolidated level through the use of several statistical tools, scores and risk indicators, and individually (i.e. by counterparty) via special Committees such as the Underwriting Committee, Legal Disputes and Provisioning Committee, and Watchlist Committee.
Lastly, this system draws on updated procedures for surety and guarantee approval as well as underwriting risk monitoring (premiums, reserves, disaster) detailed by activity, market risk (equities, interest rates, defaults, real estate, etc.), default risk (reinsurers, debtors) and operational risk.
CEGC holds an investment portfolio of €1,122 million on its balance sheet. Market risk arising from the investment portfolio is considered minor in comparison with underwriting risk. Underwriting activities are recorded off-balance sheet. CEGC does not have to address refi nancing issues in depositing guarantee premiums upon commitment. There is no transformation risk either, as the investment portfolio is fully backed by equity and underwriting reserves.
CEGC covers its portfolio of commitments with a reinsurance program tailored to its activities. Through this program, the Company is able not only to secure its underwriting income and solvency margin on the loan guarantee markets, but also to protect its equity in the event of high-severity claims on the corporate markets (property administrators and realtors, single-family home builders, developers, and regulated and contractual guarantees for companies).
Each year, CEGC’s reinsurance coverage requirements are defi ned according to the development of its business.
RISK MANAGEMENT4 Insurance risks R CEGC’S OUTSTANDINGS (IN MILLIONS OF EUROS)
RISK MANAGEMENT4 Sensitive exposures in accordance with the recommendations of the Financial Stability Forum US RMBS PORTFOLIOS, INCLUDING SUBPRIME RMBS
Exposure in the fi nancial statements at December 31, 2012 was as follows: (in millions of euros) US RMBS
Available-for-sale asset portfolio 10 (2) (2) 6 - - 2 2 1 1 1 -
% net exposure BPCE guarantee (including assets hold by SAHARA) 97%
Net exposure as at 12.31.2011 Change in value in 2012 Other changes
RISK MANAGEMENT4 Sensitive exposures in accordance with the recommendations of the Financial Stability Forum Breakdown by rating % breakdown
5.1 MANAGEMENT REPORT AT DECEMBER 31, 2012 198 5.1.3 Consolidated results 201 5.1.4 Analysis by Natixis business 203 5.1.5 Refi nancing 214 5.1.6 Post-closing events 215 5.1.7 Information concerning Natixis S.A. 215 5.2 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 218 5.3 STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS 345 5.4 PARENT COMPANY FINANCIAL STATEMENTS AND NOTES 347 5.5 STATUTORY AUDITORS’ REPORT ON THE COMPANY FINANCIAL STATEMENTS 394 5.6 STATUTORY AUDITORS’ SPECIAL REPORT ON RELATED PARTY AGREEMENTS AND COMMITMENTS 396
The changes in the consolidation scope that took place in 2011 and 2012 were not recognized pro forma due to the insignifi cant nature of their contribution to the various aggregates.
V The results of the Natixis business lines and divisions were recognized pro forma to reflect the following organizational changes: R the combination of active portfolio management expertise within Global Structured Credit Solution (“GSCS”), whose income is divided up 50/50 between FIC-T and Structured Financing; R the residual income from medium-to-long-term Treasury activities, after reallocation to the business lines via internal transfer rates, which is accounted for by the Corporate Center and is no longer allocated to Wholesale Banking (a FIC-T business).
V The interest expense of the P3CI deal on the income statement is booked to Natixis’ net revenues (Corporate Center). This expense is analytically assigned to the core businesses (Wholesale Banking, Investment Solutions and Specialized Financial Services ) and to retail banking in proportion to their regulatory capital at December 31, 2011. This analytical cost can be broken down as follows (on an annual basis): €139 million for Wholesale Banking, €31 million for Investment Solutions, €30 million for SFS and €72 million for r etail b anking.
V Prudentially, CCIs are recognized under risk-weighted assets with a weighting of 370%.
V Savings in risk-weighted assets (€25.6 billion) arising from the P3CI transaction were converted into regulatory capital and allocated to the core businesses and to retail banking in proportion to their regulatory capital at December 31, 2011.
V The result used to determinate Natixis’ ROE is net income (group share), from which DSN interest expense is deducted, net of tax effects as recognized in equity. The equity used is average annual shareholders’ equity (group share) under IFRS, after distribution of dividends, eliminating unrealized or deferred gains or losses recognized in equity and excluding DSNs.
Over the course of 2012, Natixis once again faced a highly contrasting fi nancial environment in Europe: the year began with tensions and gradually returned to normal in the second half of the year. The economic climate was dominated by the ongoing crisis in Europe.
Amid these conditions, Natixis continued to adjust its organizational structure, particularly in Corporate and Investment Banking . Firstly, it implemented its adaptation plan (announcing the closure of the commodities broker, running off the shipping portfolio, shutting down the principal trading activities, selling off additional credit lines, etc.). Secondly, it revised its structure and created the Wholesale Banking division with the aim of promoting client coverage and establishing an “Originate-to-Distribute” model.
On the Capital markets, the debt platform combines loan syndication with the primary bond market. Global Structured Credit & Solutions posted excellent performances and continued developing its global Originate-to-Distribute model. In the debt issuance segment, Natixis is No. 9 in the “Global Euro” ranking and No. 2 for corporate issues in France (source: IFR- Thomson Reute rs, Dealogic).
Banque Privée 1818 continued to expand its sales activity with the networks and implemented new synergies with the Group: sales of structured products by Wholesale Banking, sales of Naxicap Rendement launched by Private Equity and infl ows managed with Natixis Life. In the fourth quarter, the merger of 1818 Gestion with Natixis Multimanager gave rise to VEGA Investment Manager, held jointly by Asset Management (40%) and Private Banking (60%).
In 2012, Insurance consolidated its strong business momentum in individual personal protection insurance and payment protection insurance. However, like 2011, the economic environment remained very sluggish for life insurance.
At €3,676 million, capital under management posed substantial growth of 27% year-on-year. Regulatory changes in progress (taxation, Basel 3 and Solvency 2), coupled with a deteriorated economic and fi nancial environment, slow fund-raising conditions across all business segments, and reduce the market liquidity.
At the end of 2012, Natixis acquired a 100% stake in Natixis Financement, a subsidiary specializing in consumer fi nance, via the holding company Natixis Consumer Finance.
In Financial investments, Coface continued to refocus on credit insurance. Meanwhile, Coface’s non-core activities were combined within the holding companies HCP and CCNAH.
Revenue synergies were in line with the New Deal strategic plan, with additional revenues generated via the BPCE networks reaching €303 million by end-2012.
The development of the divisions went hand-in-hand with strict financial management: V in an effort to strengthen its balance sheet, Natixis carried out the P3CI transaction with BPCE, aimed at protecting the prudential value of CCIs for Natixis. When the deal was implemented, risk-weighted assets were reduced by €25.6 billion. At the same time, Natixis redeemed €2.3 billion in DSNs; V liquidity requirements were reduced by over €15 billion in 2012 compared to December 31, 2012, ahead of schedule; V Natixis also continued its targeted disposals, selling €1.9 billion in Wholesale Banking activities, with a limited direct impact of €25 million on net revenues; V RWA consumption fell by €20 billion (-14%) compared to December 31, 2011. The increase in RWAs on CCIs and the impact of incorporating insurance company investments in RWAs was primarily offset by the implementation of P3CI, efforts to reduce outstandings, and the standardization of models. This rigorous management approach helped prepare the bank for the transition to Basel 3 .
** Core businesses and Financial investments. Not including Corporate Center and CCI carrying cost.
Natixis’ net revenues amounted to €6,132 million at December 31, 2012, down 8.5% versus December 31, 2011. The revaluation of the Group’s own senior debt (3 ) contributed -€352 million to net revenues over the year. Similarly, the P3CI deal reduced net revenues by -€268 million.
Net revenues generated by the Investment Solutions business improved by 9%, thanks in large part to the solid momentum of asset management, driven by development in the US which offset outfl ows on the European market, in which the department nevertheless sought to roll out new areas of expertise.
Growth in net revenues for the Specialized Financial Services activities came out at 4%, varying by business: dynamic for the Specialized Financing businesses in conjunction with the networks, yet more contrasted in Financial Services, with the development of employee savings plans but a fall in net revenues for securities services due to the highly unsupportive environment.
(3 ) The impact on net revenues of the revaluation of Natixis’ own senior debt was -€352 million in 2012 compared to +€239 million in 2011.
Consolidated expenses, including GAPC, totaled €5,064 million, up 3% on 2011 at constant USD exchange rates.
Recurring expenses (excluding GAPC) rose 5% versus 2011, to €4,939 million. At constant USD exchange rates, the increase was smaller (+3%) and was mainly generated in Investment Solutions, which continued to expand (headcount up 4%) in all geographic areas, while Wholesale Banking recorded stable expenses at constant exchange rates and Specialized Financial Services posted a decline in expenses.
Pre-tax profit was €1,284 million in 2012 compared with €2,229 million in 2011 (i.e. -42%). This included a -€352 million impact linked to the revaluation of senior debt and a -€268 million impact from the implementation of the P3CI deal. Excluding these impacts, the decrease in 2012 versus 2011 was limited to 4%.
In 2012, GAPC’s net loss dropped by 43% on 2011 to -€45.3 million.
Net income (group share) totaled €901 million in the 2012 versus €1,562 million in 2011.
Consolidated post-tax ROE came out at 4.4% in 2012 after recognizing a DSN interest expense booked to equity for a net total after tax of €76 million.
Natixis’ Basel 2.5 Core Tier 1 ratio improved by 2.6% over the year, from 8.3% at the end of 2011 to 10.9% at the end of 2012 due fi rst to a €20 billion decrease in RWA. The RWA reduction efforts and implementation of the P3CI deal more than offset the incorporation of insurance company investments in the calculation of RWA as from end-2012. Second, Core Tier 1 capital increased by €1.5 billion ( income impact of €0.7 billion, change in reserves and OCI (other comprehensive income) of €0.8 billion mainly in CCIs).
The Tier 1 ratio improved slightly less than the Core Tier 1 ratio, moving up 1 point to 12.3% at end-2012 versus 11.3% at end-2011 because of the repayment of DSNs.
Management Report at December 31, 2012 5.1.4 ANALYSIS BY NATIXIS BUSINESS
Commercial Banking revenues fell 11.9% year-on-year, with outstandings down 18% amid RWA and liquidity management efforts. In light of this change, the margin and commissions on guarantees recorded a sharp decline while the contribution of service fees held steady.
Structured F inancing activities saw a year-on-year decline in revenues (-4.1%) despite tensions in USD liquidity observed at the start of the year and the increased cost of liquidity. Activity remained relatively strong over the year, with new business of €7.2 billion recorded on the balance sheet. Furthermore, due to liquidity and capital constraints, the Debt and fi nancing teams developed new solutions. For example, Natixis was named “Aircraft Finance House of the Year” by Global Transport Finance and created a Pfandbriefbank to develop real estate activities. Net margins on average outstandings were resilient. Service fees stayed at the same level as last year. More specifi cally: V Global Energy & Commodities posted a 7% rise in revenues.
V T he contribution of Aircraft, Infrastructure & Export fell 6%, as the department revised the scope of its shipping finance activities.
V Real Estate Finance’s recurring net revenues slipped by 7%, despite a substantial rise in service fees (+39%).
Revenues generated by the Fixed Income, Foreign Exchange, Credit, Commodities, Cash Management and Arbitrage businesses declined by 16% on 2011.
FINANCIAL DATA5 Management Report at December 31, 2012 Natixis was ranked No. 1 bookrunner on the eurodenominated covered bond market in terms of number of transactions and No. 2 in terms of volume (source: Dealogic), and was named Best Bank 2012 on the covered bond market for the second year in a row (source: The Cover Euroweek, Best Overall Bank for Covered Bond – Covered Bond Awards).
V Revenues from Credit activities went up 18%: increased revenues on the back of spread tightening were partially offset by a lower contribution from structured repo activities.
V Currency activities saw a 46% upturn in revenues. In addition to the changing market climate, sales activity picked up 9% with the increase in trading volumes and new clients in Europe.
V Commodities recorded a slight improvement in business. The scope of activities was revised and brokerage operations are being eliminated.
Corporate Solutions saw a 25% decline compared to 2011. Revenues generated on strategic derivatives were affected by a small number of new transactions, particularly in Asia and emerging countries.
Net revenues from CPM and Other activities slid by €48 million: the CPM portfolio was reduced, leaving the business with only a marginal contribution to the net income (-€28 million compared to 2011). It also recorded the capital gain on the sale of LME shares (€34 million).
At December 31, 2012, risk-weighted assets (RWA) stood at €63.1 billion, as measured at period-end, versus €71.8 billion at December 31, 2011. The €8.7 billion decrease (-12%) stemmed from optimization efforts and strict capital management.
Investment Solutions posted a 9.4% increase in revenues year-on-year to €2,069 million (+5.0% at constant exchange rates).
Gross operating income was up 1.9% (-2.0% at constant exchange rates) to €545 million.
R at AGEFI’s “Grands Prix des Actifs du Patrimoine” wealth management awards, CNP Court Terme, a fund managed for CNP, won the top prize (“Actif d’or”) for distribution in the “Bond fund under one year – networks” category;
Market effect Net inflows Scope effect 12/31/2012/ / 2/3 /20 22/3 /20
The average rate of return on assets under management made a slight increase of 24.9 bp year-on-year (versus 24.5 bp in 2011 in constant euros). The product mix at end-December confi rmed the predominance of insurance products (28.9%) and bonds (28.4%).
At December 31, net revenues were up 15.7% year-on-year to €1,665.6 million (i.e. +9.6% at constant exchange rates), driven by fees on assets under management in the US and a high level of incentive fees on both sides of the Atlantics.
Against this backdrop, life insurance revenue fell 36.1% yearon -year, in euro and unit-linked policies alike. Unit-linked infl ows nevertheless accounted for 16.3% of total infl ows, beating the market trend (13% for the market at end-December, according to FFSA sources) amid considerable risk aversion.
Net outfl ows came to -€1,201 million in 2012 versus infl ows of €583 million in 2011. Net outfl ows over a rolling one-year period were offset by a positive market effect, thus accounting for the relative stability of outstandings (-0.3%) at €37.5 billion at the end of December 2012.
At December 31, 2012, Private Banking recorded limited net outflows of -€3 million versus net infl ows of €1,888 million at the end of December 2011. Infl ows generated with the networks (+29.6% vs. 2011), buoyed by private banking and life insurance activities, were not enough to offset outfl ows on Sélection 1818’s IWMA platform (-€269 million at endDecember 2012) and the net outfl ows observed in Luxembourg (-€303 million).
Net revenues totaled €91.2 million in 2012, up 5.3% compared to 2011, mainly comprising capital gains which rose signifi cantly compared to 2011 (+77.7%) and an increase in dividends and interest on bonds, partially offset by a drop in fi nancial income due to fi nancing costs on the NR 2018 high-yield bond issue.
Factoring boosted its market share by 0.9 bp to 15.3% in one year, drawing on substantial growth of 14% in factoring revenue driven by the momentum of provider networks.
Total expenses for the Specialized Financial Services division came down slightly (-0.8%), to -€784.5 million at end-2012, compared to 2011. This can be broken down into: V a decline in IT expenses of 4.6% (€10.8 million), largely concentrated in Securities Services (less use of external providers, cost synergies, transaction volumes); V reduced operating costs (-1.8%) for a gain of €3.5 million; V a limited increase of 2.8% in payroll costs (-€8.5 million).
Net revenues for 2012 were €728 million, up 4.2% on 2011, buoyed by credit insurance (+9.2%), whereas net revenues from factoring in Germany and Poland fell by 24.4%. The loss ratio improved to 56.7% in 2012 (versus 57.5% for 2011).
Dutch company TKB, sold at the end of May 2012, was deconsolidated. The impact on the fi nancial statements for the year was -€4.1 million in terms of net revenues and €3.1 million in terms of expenses.
Net revenues totaled €117 million for the year, down 17.3% compared to 2011.
Natixis Algérie developed its business on the back of strong sales momentum in 2012. Customer deposits climbed 28% year-on-year and average loan outstandings increased 11%. Net revenues stood at €63 million, up 27% on 2011.
FINANCIAL DATA5 Management Report at December 31, 2012 GAPC pre-tax profi t was -€67.6 million in 2012, after recognizing a gain of €67 million in respect of the BPCE guarantee (-€113.1 million and +€18 million, respectively, in 2011).
In 2012, the impact of the guarantee could be broken down into +€164.6 million in net revenues and -€98 million in provision for credit losses.
Post-guarantee risk-weighted assets (RWA) dropped by 14% year-on-year, mainly in structured credit exposures (-43% yearon -year). Conversely, increased volatility in euro zone yields sparked a rise in market risk-weighted assets in the interest rate derivatives bucket.
The Corporate Center’s net revenues amounted to -€612 million in 2012, including the negative revaluation of own senior debt measured at fair value for -€352 million versus +€239 million in 2011. Excluding this item, net revenues went from -€22 million in 2011 to -€260 million in 2012, resulting mainly from the implementation of the P3CI deal, which brought 2012 net revenues down by €268 million.
The combined net income of the two networks was €2 billion at the end of December 2012, down 18% on 2011.
The equity method contribution was €462 million, down 20% compared to 2011, due to the lower earnings of the networks and, to a lesser extent, the decline in accretion profi t (1 ).
(1 ) Accretion profi t is the difference between the interest collected by Natixis (via CCIs) and 20% of the total interest paid by the BPs or the CEs (ownership shares + CCIs). It embodies the fact that the distribution of interest does not refl ect the distribution of capital rights.
V The Banque Populaire network’s activity and financial results were affected by the challenging economic environment of 2012. The network did expand its customer base, however, with the number of active customers gaining 1.1% year-onyear. The cooperative shareholder base also grew (+2.5% year-on-year).
V Although competition remained fierce in terms of customer deposits, outstanding balance-sheet deposits nevertheless increased 7.9% over the year. Business was strong across all markets: outstanding balance- sheet deposits rose 7.4% in the individual customer segment and 8.6% in other markets. All vehicles contributed to these trends (except for demand deposits), and especially the Livret A (+42.5%) and LDD (+30.3%) passbook savings accounts, helped by attractive regulated interest rates and, in the last quarter of 2012, by the increase in the account limit. Ordinary passbook accounts (+7.7%) and term deposits (+19.4%) followed the same trend. Despite the harsh conditions in life insurance, the network’s outstandings were stable year-onyear (+0.3%).
V The network’s outstanding loans grew by 3.3% year-on-year, driven by real estate loans to individual clients (4.0%) which were boosted significantly by low interest rates. Equipment loans to professional and corporate clients also posted dynamic growth (+2.6%).
V After taking into account a difference of -€23 million in goodwill (including a write-down of -€22 million in respect of a regional banking subsidiary of a Banque Populaire), the share in income from associates (€21 million) and a tax expense of -€404 million, net income for the Banque Populaire network came out at €786 million, down 28.6%.
V The Caisse d’Epargne network was nonetheless very committed to its role in financing the economy and the regions. The network’s outstanding loans increased by €14.3 billion year-on-year (+8.4%): the 8.1% rise in real estate loans, driven by all markets, combined with the 11.1% gain in equipment loans.
V The network’s results reflected this sales momentum, tempered by lower financial returns. Net revenues, excluding PEL/CEL, came to €6,937 million in 2012 (+1.5%). Restated for the recovery of the “Echange Image Chèques” fine and the decrease in the commission rate on centralized savings, net revenues were up 2.3% year-on-year.
V At €4,072 million, the interest margin (excluding PEL/CEL effects and excluding centralized savings), driven by higher volumes, was up 5.2%.
V At €2,771 million, fees (including fees on centralized savings) fell 5.6%: the significant increase in service and loan fees was undermined by the continued widespread availability of the Livret A passbook savings account (decrease in fees on centralized savings of €95 million), the sharp drop in prepayment fees and lower fees on financial savings.
V With expenses up 2.4%, due in large part to the tax hike (higher social security contributions, doubling of the systemic bank tax, expansion of the salary tax base), the cost/income ratio (excluding PEL/CEL effects) was 65.2% over the period (+0.6 point).
Pro forma: the overall provision for credit losses of -€39 million, recorded at December 12, 2011, for the Global Structured Credit & Conduit business, which was part of the Structured Financing division at the time, was divided up equally between Structured Financing and Capital markets, in accordance with the new rule adopted in 2012.
Highlighting this renewed appetite for senior bank debt, since the end of summer 2012, US Money Funds have been returning to French issues and the maturities traded have grown much longer.
In the wake of the 2011 liquidity crisis, which saw credit spreads widen and the market for bank debt close in the euro zone, the ECB’s announcement of three -year VLTROs in December 2011 and February 2012 opened the bond market back up. The market was very busy in this segment during the entire year. Spreads were highly volatile in 2012, however, due to fi scal excesses in southern euro zone countries. Volatility began to decline in August, when the ECB announced the OMT
In these market conditions, Natixis borrowed a total of €7.4 billion for its medium- and long-term refi nancing needs. As the only long-term issuer in the public issues segment, BPCE provided Natixis with fi nancing for a total euro-equivalent amount of €4 billion.
Refer to Note 14, “Post Closing Events”, in Chapter [5.2], Consolidated Financial Statements and Notes.
In 2012, net revenues increased by €502 million to +€3,490 million thanks to: V a €1,401 million increase in the interest margin; V a €52 million rise in net fee and commission income; V a €224 million drop in income from variable-income securities; V a €338 million increase in income from trading book transactions; V a €839 million decrease in income from transactions on securities held for sale; V a €225 million decline in other banking operating income and expenses.
Excluding the depreciation, amortization and write-down of fi xed assets, operating expenses increased by €10 million. However, they fell by €19 million after taking into account the depreciation, amortization and write-down of fi xed assets.
Gains or losses on fi xed assets were negative at -€204 million.
Gain or loss on other assets (2) (6) 0 0 (7)
Gain or loss on other assets 9 0 20 0 29
Loans and receivables to banks 6.4 61,932 48,643 o/w institutional operations
Financial liabilities at fair value through profi t and loss 6.1 200,913 232,184
Due to banks 6.12 127,754 108,630 o/w institutional operations 46 46 o/w institutional operations 745 655
Revaluation adjustments on portfolios hedged against interest rate risk 348 375
Accruals and other liabilities 6.8 28,212 24,803 o/w institutional operations 2 1
FINANCIAL DATA5 Consolidated fi nancial statements and notes CONSOLIDATED INCOME STATEMENT
Net gains or losses on fi nancial instruments at fair value through profi t and loss 7.3 2,079 743
Net gains or losses on available-for-sale fi nancial assets 7.4 362 233
Depreciation, amortization and impairment of property, plant and equipment and intangible assets (235) (234)
Consolidated net income/(loss) – group share – per share, calculated on the basis of the average number of shares over the period excluding treasury shares 5.24 0.27 0.43
Share of gains or losses from equity affi liates recorded directly in equity 8.1 434 (606)
Equity as of December 31, 2010 after appropriation of income 4,653 4,897 0 4,628 (8)
Equity as of December 31, 2011 after appropriation of income 4,932 5,230 0 3,799 (13)
Total activity related to relations with shareholders 6 30 0 0 (3)
(a) Issue premiums, legal reserve, contractual reserves, long-term capital gains reserve and other Natixis reserves.
= Total non-cash items included in income/(loss) before tax and other adjustments 1,362 1,980
+/- Decrease/(increase) in fi nancial assets and investments in associates (a) 683 716
+/- Decrease/(increase) in property, plant and equipment and intangible assets (176) (173)
As required by European regulation 1606/2002 of July 19, 2002, Natixis has prepared its consolidated fi nancial statements for the year ended December 31, 2012 , in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union at that date (1).These standards include IAS 1 to 41, IFRS 1 to 8 and the related IFRIC interpretations adopted by the European Union as at December 31, 2012.
Natixis did not early apply the standards adopted by the European Union at December 31, 2012 but which had not yet entered into force. This mainly includes: V amendment to IAS 1 «Presentation of financial statements» adopted by the European Commission on June 5, 2012, with mandatory application to financial years beginning on or after July 1, 2012. The aim of this amendment is to increase the financial information on the «Statement of net income/ (loss), gains and losses recorded directly in equity». The presentation of gains and losses recorded directly in equity must distinguish items liable to be recycled to net income from items that will never be recycled to net income.
The impacts of these changes in method, not including the tax effect, on the equity in the opening balance sheet on January 1, 2012 come to -€17 7 million, of which -€141 million for the change in the method of recording actuarial variances and -€36 million for the change in the method of accounting for the cost of past services; V the new standards on consolidation – IFRS 10, “Consolidated Financial Statements,” IFRS 11, “Joint Arrangements,” and IFRS 12 “Disclosure of Interest in Other Entities,” published by the IASB on May 12, 2011 and adopted by the European Commission on December 11, 2012, is subject to mandatory application for the annual periods beginning on January 1, 2014.
The consolidated fi nancial statements are based on the individual fi nancial statements as at December 31, 2012, of the entities included in Natixis’ scope of consolidation.
The scope of consolidation includes all material entities over which Natixis exercises control or signifi cant infl uence. IFRS stipulate three types of control: exclusive control, joint control and signifi cant infl uence. Determining the type of control that exists is based on an analysis of the economic and legal relations between the parent and its subsidiaries, as well as any voting rights held.
If the put option granted to minority interests is associated with a currently exercisable call option held by Natixis, in principle the potential voting rights are included in the calculation of the percentage of ownership and voting rights held.
FINANCIAL DATA5 Consolidated fi nancial statements and notes Natixis’ signifi cant de jure infl uence over the Banque Populaire banks and Caisses d’Epargne derives from the following rights conferred on Natixis by certain corporate documents relating to BPCE and by the memorandum of understanding relating to the CCIs issued by the Banque Populaire banks and the Caisses d’Epargne: V participation in certain Committees of Groupe BPCE; V right regarding certain decisions made within BPCE (Natixis’ opinion must be sought and Natixis must be consulted in its capacity as a non-voting member; rights to a second deliberation regarding certain matters); V right to receive information (information relating to the CCIs); V delegation of powers concerning the risk management function (definition of risk standards and risk assessment methods).
Lastly, Natixis and the Caisses d’Epargne have agreed to maintain, for a minimum period of 10 years as from the date of the contributions, any industry and commercial relations existing in the following areas: V custody; V design and management of customer products (Asset Management, revolving credit facilities, guarantee insurance for borrowers, factoring and non-real estate lease financing, financial engineering and capital market products, local authority financing and debt management); V securities and derivatives brokerage.
Consolidated fi nancial statements and notes 2.4 Currency conversion of the statements of foreign subsidiaries and branches
R goodwill is the difference between the cost of the business combination and the share of the purchasing entity’s interest in the net fair value of identifi able assets, liabilities and contingent liabilities.
V Application of IFRS 3R to business combinations carried out after January 1, 2010: R for each business combination, Natixis chose to determine minority interests: R either based on their share in the identifiable net assets of the acquired entity, measured at their fair value at the purchase date, and therefore without recognizing goodwill on the minority interests (partial goodwill method),
R or based on their fair value at the purchase date, resulting in the recognition of goodwill, both for the Group share and the minority interests (full goodwill method); R hence, goodwill is a residual item determined as the difference between (i) the sum of the purchase price, the fair value at the purchase date of the share of interest held in the acquired entity prior to the purchase date, and the amount of minority interests (determined using the partial or full goodwill method) and (ii) the net amount of the assets and liabilities assumed, measured at their fair value at the purchase date.
Positive goodwill is recorded on a separate line on the asset side of the balance sheet. It is allocated at the purchase date to one or more cash-generating units (CGUs) expected to benefi t from the acquisition. It is tested for impairment at least once per year, and more often where there is objective evidence of impairment. The impairment test consists of comparing the carrying amount of the CGU or group of CGUs including goodwill with its recoverable amount.
Specifi c case of business combinations carried out under joint control: Combinations between entities or operations under joint control are understood to be combinations in which several operations are combined and all interested parties (entities or operations) are ultimately controlled by the same party or parties for a relatively long period preceding the combination. Such combinations do not fall within the scope of IFRS 3R.
FINANCIAL DATA5 Consolidated fi nancial statements and notes The carrying amounts used are those listed in the consolidated fi nancial statements of the ultimate parent company at the date of completion of the transaction.
The assets contributed by the CNCE to Natixis fall into two different categories: V shares in the Wholesale Banking and services subsidiaries; V a portion of the Cooperative Investment Certificates (CCIs) conferring entitlement to the share capital of the Caisses d’Epargne.
An amount of €3.170 million was charged against the issue premium in this respect at December 31, 2006.
In 2012, goodwill increased by €9 million, excluding translation losses of €18 million and write-down losses of €16 million.
The following assumptions have been used: V estimated future cash flows: forecast data drawn from Natixis’ medium-term business plans, established in conjunction with the businesses; V perpetual growth rate: 2.5%;
V discount rate: use of a specific rate for each CGU: 9.90% for Investment Solutions (9.8% in 2011), 11.60% for Specialized Financial Services (11% in 2011), 10% for Coface (same in 2011), 11.60% for Wholesale Banking (10.9% in 2011), 11.10% for Coface «non-core» entities (using the fair value net of disposal costs to determine the recoverable value of that CGU in 2011).
The discount rates were determined by factoring in the following: V for the Investment Solutions, Specialized Financial Services and Wholesale Banking CGUs, the risk-free interest rate of the Euro-Bund zone, averaged over a depth of 10 years, plus a risk premium calculated according to a sample of CGUrepresentative companies; V for the Coface CGU, interest-rate references used by listed companies operating a similar business; V for the Coface non-core CGU, the average of the 10year risk-free interest rates of the countries in which the various entities do business, plus a risk premium calculated according to a sample of companies that are representative of the sector and an additional risk premium to account for the relative size of the CGU.
Similarly, the sensitivity of future business-plan cash fl ows to variations in key assumptions does not signifi cantly affect the recoverable amount of CGUs, with the exception of the recoverable amount of the Coface “non-core” CGU: V for Investment Solutions, a 10% decline in the “equity” market and 50 bp decline in the EONIA would have a negative impact of -6% on the recoverable amount of the CGU and would not lead to any impairment being recorded; V for Specialized Financial Services, a 20 bp drop in the threemonth EURIBOR would result in a drop in annual revenue for Factoring. Recreating a «2008-2009» type crisis on Leasing would have a negative impact on production, the activity’s net banking income, and the activity’s provision for credit losses. The combination of these two factors would have a negative impact on the CGU’s recoverable amount of -6%, but would not result in impairing the CGU; V for Coface, the primary sensitivity vector is the loss ratio. A level of 54% for this ratio (gross reinsurance), reflecting the deterioration of economic conditions, was applied to conduct the test of the CGU’s depreciation at December 31, 2012. A one-point increase in this loss ratio would have no significant impact on the recoverable amount of the CGU. Only an increase of 20 bp or more of the «loss ratio» would lead to impairment of the CGU being recorded; V for the Coface «non-core» CGU, the primary factor in sensitivity is the degree of the business plans’ achievement. A -5% variation in said plans would cause the recoverable amount to fall by about €10 million and an additional depreciation to be found for an equivalent amount.
The dilutive/accretive impact derives from differences in the rights associated with ownership shares (entitlement to dividends) and CCIs (entitlement to dividends at least equal to dividends payable on ownership shares and entitlement to reserves made up of retained earnings).
FINANCIAL DATA5 Consolidated fi nancial statements and notes Income generated from minority interests subject to put options are presented in “Net income for the period – portion attributable to minority interests” on the consolidated income statement.
On December 20, 2011, Natixis entered into an agreement to transfer its Natixis HO CHI MINH branch to BPCE. The transfer is, however, currently on hold pending approval from the Vietnamese regulatory authorities, which is expected for the fi rst half of 2013.
In addition, on December 21, 2012 Natixis recieved a fi rm offer for the sale of its subsidiary Coface Services Belgium .
At December 31, 2012, Natixis maintained the full consolidation of the Natixis HO-CHI MINH branch and the Coface Services Belgium subsidiary and combined, in accordance with the provisions of IFRS 5 “Non-current assets held for sale and discontinued operations”, the assets and liabilities of both entities under two separate balance sheet line items: “Noncurrent Assets Held for Sale” and “Non-current Liabilities Held for Sale”.
In addition, in the fi rst half of 2012, Natixis had signed an agreement on the sale of its subsidiary Coface Serviços Portugal, subject to obtaining the approval of the Portuguese control authorities. In accordance with IFRS 5, Natixis continued to show its subsidiary as fully consolidated in the consolidated statements for the year ended June 30, 2012 and grouped Coface Serviços Portugal’s assets and liabilities in two separate places on the balance sheet: “Non-current Assets Held for Sale” and “Non-current Liabilities Held for Sale”. At December 31, 2012, the buyer having withdrawn, the presentation of Coface Serviços’ Portugal on specifi c lines was abandoned.
Prior to consolidation, the individual fi nancial statements of companies included in the scope of consolidation are restated if necessary to bring them into line with Natixis’ accounting policies described below. Intra-group balances and gains and losses arising on intra-group transactions are eliminated.
Pursuant to paragraph 30 of IFRS 4, insurance policies and investment contracts with discretionary participation (life insurance) are measured using shadow accounting, which consists in recognizing the portion of unrealized gains or losses potentially attributable to policyholders as a deferred participation reserve. The deferred participation reserve thus refl ects the potential entitlement of policyholders to unrealized gains for Financial investments or their portion of unrealized losses. Considering pay-out ratios observed in the past, concerns weighing on assumptions used to estimate net future cash fl ows from fi nancial products and the rate of return to grant policyholders in a highly competitive economic environment, the deferred participation rate adopted on December 31, 2012 is 100%, unchanged from December 31, 2011.
In the event of net unearned losses, a deferred participation asset is recognized up to the amount for which future deferred participation of policyholders is estimated to be highly probable.
The change in the deferred participation asset and liability is recognized: V in equity when it relates to changes in the value of assets classified as “available-for-sale”; V in income when it relates to changes in the value of assets “at fair value through profit and loss” or investment property held to cover insurance policies, as well as changes in provisions for prolonged declines in value in “Assets available-for-sale”: Against a backdrop of improved behaviour on the fi nancial markets, application of the shadow accounting mechanism resulted in the recognition of a deferred participation liability on December 31, 2012, against a deferred participation asset on December 31, 2011.
Pros pective analysis of the deferred participation asset’s recoverability had therefore been carried out in late 2011 to demonstrate the ability and intention of companies to meet liquidity requirements over the remaining recoverability period without selling investments in unrealized losses. This process corresponds to a forward-looking view of future cash fl ows, built following regulatory and contractual conditions applied to contracts and with the help of economic scenarios based on historic probability.
FINANCIAL DATA5 Consolidated fi nancial statements and notes V asset-liability modeling that particularly depends on: R the policyholders’ behaviour: surrenders based on competitiveness of offered rates,
Natixis implemented a transaction with BPCE, called P3CI (loan covering the CCIs) to optimize the Core Tier 1 ratio via a guarantee mechanism based on the prudential equity-method value of the CCIs issued by the Banque Populaire banks and the Caisses d’Epargne.
This transaction consisted in issuing bonds for an amount of €6.9 billion, fully subscribed for by BPCE.
In addition, Natixis redeemed €2.3 billion in deeply subordinated notes subscribed for by BPCE.
The main changes in scope since January 1, 2012 were as follows: 3.2.1 WHOLESALE BANKING/GAPC
V Deconsolidation of Natixis Holding Trust, which fell below the consolidation threshold; V Deconsolidation of Lavender Master Trust, after junior tranches of 12 of the 16 Lavender structures were sold to third-party counterparties;
V Merger of Natixis Transport Finance into Natixis S.A. at July 2, 2012, retroactive to January 1, 2012; V Total transfer of SNC Tolbiac Finance into Natixis S.A. on September 30, 2012; V Disposal of 80% of Natixis Environnement Infrastructure Luxembourg (NEIL) by Natixis Environnement Infrastructure (NEI), with 50.5% going to NGAM P1 and the balance (29.5%) to Cube Infrastructure Partners (CIP), then disposal of NEI by Natixis Alternative Assets to NGAM. These entities are now consolidated in the NGAM scope.
V Creation of Loomis Sayles Investments Asia Pte Ltd.; V Creation of AEW UK Investment Management LLP; V Creation of Natixis Global Asset Management Hong Kong; V Acquisition of McDonnell Investment Management LLC at December 31, 2012.
V Total transfer of Natixis Global Asset Management Participations 2 into Natixis Global Asset Management Participation 1; V Acquisition of 50.5% of NEIL from NEI by NGAM P1, then 100% of NEI from Natixis Alternative Assets by NAM. These entities are now consolidated in the NGAM scope; V Merger of Natixis Multimanager into 1818 Gestion known as Vega Investment Managers.
V Incorporation of Co Assur and Lease Expansion after the consolidation threshold was exceeded; V Creation of FCT Fast, a securitization vehicle for factoring receivables; V Acquisition of Sud-Ouest Bail from CE Aquitaine PoitouCharente.
V Creation of the Vega securitization fund, for the purpose of developing external funding sources by issuing securities backed by factoring receivables. Vega has been fully consolidated, as Natixis holds the majority of the associated risks and benefits.
V Merger of Unistrat Coface with Coface S.A.; V Merger of Coface Deutschland into Coface S.A. at January 1, 2012; V Merger of Coface Austria Insurance into Coface Austria Holding at January 1, 2012.
V Advantages: the right to obtain a majority of the benefits of the SPE’s activities; the right to a majority of any economic benefits distributed in the form of future net cash flows, earnings, net assets or other economic benefits, or rights to the majority of residual interests.
The NGAM sub-group is involved in such funds as manager of the underlying portfolio for third-party investors. Its role is strictly defi ned by the portfolio management agreement, which never provides it with effective control of the structure. Neither NGAM nor any other Natixis entity holds a majority interest in these funds. Natixis thus does not retain a majority of the benefi ts or incur a majority of risks. Consequently, no such fund was consolidated as of December 31, 2012.
On this basis, only two real estate funds managed by the NGAM sub-group were consolidated as of December 31, 2012: V the EPI SLP fund; V the EPI SO SLP fund.
Only the U.S. fund “NPE Caspian IA, L.P. “ is consolidated at December 31, 2012 with regard to the principle set out above.
The interests of the Natixis Assurances sub-group in UCITS and SCIs are subscribed in the form of euro or unit-linked insurance policies: V euro-denominated policies are policies under which the insured party receives a minimum guaranteed return plus the major share of the surpluses generated by the insurance company’s main fund. Any shortfall between the fund’s return and the minimum guaranteed return is borne by the insurer, which thus incurs the risks. The risks and benefits criteria are met for such funds if the insurer holds a majority interest.
For risk analysis purposes, a distinction must be made between the policies taken out by the German subsidiary Coface Kredit and those taken out by Coface in France:
FINANCIAL DATA5 Consolidated fi nancial statements and notes V under the German policies, the credit insurer is only liable for losses in excess of a deductible termed the Aggregate First Loss. This first loss 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. Accordingly, the “majority of risks” criterion is deemed not to be satisfied. The SPEs involved in these structures are accordingly not consolidated; V the French policies taken out by Coface rarely include noncovered “first losses”. But the policies only cover a small portion of the receivables held by the SPE. Furthermore, the quality of portfolio risk covered by Coface, compared to that borne by the other stakeholders (other insurers, sponsors, sellers) is not such as to transfer the majority of the structure’s risks to Coface. Such entities are accordingly not consolidated.
V As part of its Private Equity operations, Natixis makes equity investments in unlisted companies via venture capital vehicles (Fonds Communs de Placement à Risque – FCPRs – venture capital funds and SICARs – Sociétés d’Investissement à Capital Risque – venture capital companies) and limited partnerships. All SIC 12 criteria (“Activities”, “Decision-making powers”, “Majority of Benefits” and “Majority of Risks”) are assessed on the basis of the level of Natixis’ interest in each investment tranche, and on the basis of any guarantees provided to these entities; V Based on these factors, three entities were consolidated as of December 31, 2012: R DAHLIA SICAR A,
In order to meet project fi nancing requirements (for industrial or infrastructure projects), movable assets (involving air, sea or land transport), real estate, corporate acquisitions (LBO fi nancing) or commodities, Natixis may be required to create SPEs structured around a specifi c fi nancial transaction on behalf of a customer.
Natixis does not hold a majority interest in these entities. Furthermore, the risks and benefits criteria are not met because the risk is either borne by the capital provider or by a third party which provides Natixis with a guarantee as to the value of the assets in the vehicle.
V Natixis Immo Développement invests in real estate assets in partnership with other investors using two types of structures:
R SCI Altaïr 2; V The Natixis Lease sub-group owns a certain number of SPEs which own real estate assets. Four of them are controlled by Natixis (>50% holding) and are significant in nature as of December 31, 2012. Therefore, they are included in the consolidation scope of Natixis on this date: R COASSUR,
Four new SPEs are consolidated at December 31, 2012: V the securitization fund (FCT) “Natixis Corporate Finance,” to which a portfolio of loans originated by Natixis is sold, thereby allowing Natixis to obtain financing from a third-party b ank through the pledging of senior shares issued by the FCT and fully subscribed by Natixis; V the FCT «Naxicap Rendement 2018,» which allows the refinancing of an investment capital portfolio; V the FCT «FAST,» which organizes the securitization of a portfolio of factoring receivables with an objective of medium term refinancing; V the FCT «Naxicap Rendement 2018,» which allows the refinancing of a portfolio of factoring receivables.
It should be noted that at December 31, 2012, one entity was implicitly de facto consolidated, with Natixis remaining the main investor and the risks associated with the underlying assets being factored in via the valuation of the Natixis interest classifi ed under “Instruments at fair value through profi t and loss – Trading” and in respect of which provisions have been fully funded.
The fair value of these assets on initial recognition is determined based on the transaction price. Fair value is reviewed at each subsequent reporting date. Any changes including accrued interest are recorded in “Net gains or losses on fi nancial instruments at fair value through profi t and loss” in the consolidated income statement.
These are non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturities that Natixis has the clear intention and ability to hold through to maturity, other than those that are designated on initial recognition as at fair value through profi t and loss (fair value option) or available-for-sale, and those that meet the defi nition of loans and receivables.
Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted on an active market, other than those designated as at fair value through profi t and loss or available-for-sale. This excludes assets for which the holder cannot recover the majority of the initial investment other than because of a credit deterioration, which should be classifi ed as available-for-sale. The vast majority of loans granted by the Group are classifi ed in this category. Loans and receivables also include the fair value of the hedged component of assets classifi ed in this category (fair value hedges).
On initial recognition, loans and receivables are measured at fair value (i.e., face value) plus transaction costs and less any discount and transaction revenues. In the case of loans, transaction costs include fees and any expenses directly attributable to setting up the loan.
If the amount of the impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the impairment was recognized, all or part of the previously recognized impairment loss may be reversed.
All of the required disclosures regarding reclassifi ed fi nancial assets are provided in Note 6.6.2.
Loans for which the initial fi nancial conditions (rate, term) have been adjusted to prevent, or provide a solution to, the failure of a counterparty are provisioned for credit losses in an amount representative of the variance between the discount at the original effective interest rate of the new recoverable fl ows and the amortized cost of the receivable before restructuring.
Gains or losses arising from changes in the fair value (excluding revenues) of available-for-sale fi nancial assets that are not hedged are recognized directly in equity under “unrealized capital gains or losses”. Accrued or earned income is recognized in the income statement under “interest and similar income” using the effective interest rate method. Available-for-sale fi nancial assets are tested for impairment at each reporting date. Where there is objective evidence that an asset is impaired and a decline in the fair value has already been recognized directly in equity, the cumulative impairment loss is removed from equity and taken to income under “Provision for credit losses” (debt instruments ) or “Net revenues” (equity instruments ).
V reversals of impairment losses on debt instruments are recorded in the amount of the previously recorded impairment loss.
In accordance with IFRS IC 10, impairment losses recorded against equity instruments at interim reporting dates are frozen in income and cannot be reversed until the securities are sold.
Revenues under the fi nance 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 interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes: V the aggregate present value of the minimum lease payments receivable by the lessor and the non-guaranteed residual value, to be equal to the sum of: V the fair value of the leased asset and (ii) any initial direct costs of the lessor, i.e., the costs incurred specifically by the lessor during the set-up of the leasing contract. These two items form the initial value of the asset.
FINANCIAL DATA5 Consolidated fi nancial statements and notes For geographic risk, the analysis takes into account the sovereign rating, which itself includes a number of inputs such as the country’s political situation, its ability to withstand a severe shock, and the fundamentals of the economy (e.g. GDP per capita, external debt), government effi ciency, economic performance and economic outlook. In turn, each of these inputs is itself measured by one or more indicators. Qualitative information from specialist independent agencies is also considered.
Monetary assets and liabilities (mainly bonds and other fi xedincome securities) denominated in foreign currencies are translated into euros at the spot rate prevailing at the reporting date. The resulting exchange gains and losses are recognized directly in income, or in equity for derivatives designated as cash fl ow hedges.
On initial recognition, fair value is the price paid or received. On subsequent reporting dates, fair value is estimated on the following basis: V if the instrument is quoted on an active market, fair value is its quoted price. A financial instrument is regarded as quoted in 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 market transactions on an arm’s length basis; V if the market for a financial instrument is not active, fair value is established using various valuation techniques. Valuation techniques 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 complex products or non-observable data when no pricing or market data are available. The fair values obtained using these models may be adjusted, depending on the instruments concerned and the associated risks, to take account of factors such as the bid-ask spread and modeling risk.
Instruments measured using level 2 inputs also include: V securities not quoted on an active market whose fair value is determined based on observable market data. Example: use of market data published by listed peer companies or the earnings multiple method; V listed securities with low liquidity whose fair value is determined by similar instruments listed on an active market, or identical or similar instruments listed on an inactive market but for which regular transactions have been observed; V shares of UCITS whose NAV is not determined and published on a daily basis, but are subject to regular reporting or offer observable data from recent transactions; V debt issues measured at fair value through profit and loss. The valuation of the “issuer credit risk” component is based on the discounted cash-flow method, using parameters such as yield curves, revaluation spreads, etc. For each issue, this valuation represents the product of its remaining notional amount and its sensitivity, taking into account the existence of calls, and based on the difference between the revaluation spread (based respectively on BPCE’s cash reoffer curve as at December 31, 2012, and BPCE’s cash ask curve as at December 31, 2011) and the average issue spread. Changes in the issuer spread are generally not material for issues with an initial maturity of less than one year.
Level 3 comprises instruments measured using unrecognized models and/or models based on non-observable market data, where they are liable to materially impact the valuation. This mainly includes: V unlisted shares whose fair value could not be determined using observable inputs; V instruments with a deferred day-one margin; V shares of UCITS for which the fund has not published a recent NAV at the valuation date, or for which there is a lock-up period or any other constraint calling for a significant adjustment to available market prices (NAV, etc.) in respect of the low liquidity observed for such shares; V instruments carried at fair value on the balance sheet and for which data are no longer available due to a freeze in trading in the wake of the financial crisis, which were not reclassified within “Loans and receivables” pursuant to the amendment to IAS 39 and IFRS 7 published on October 13, 2008 (see below). When there is a significant drop in trading in a given market, a valuation model is used based on the only available relevant data.
Under IAS 39, day-one profi t should be recognized only if it is generated by a change in the factors that market participants would consider in setting a price, i.e. only if the model and parameters input into the valuation are observable.
FINANCIAL DATA5 Consolidated fi nancial statements and notes At December 31, 2012, instruments on which the recognition of day-one profi t/loss has been deferred included: V structured products with multiple underlyings (equities/ indexes); V options on funds; V hybrid interest rate and inflation-linked products; V interest rate derivatives; V securitization swaps; V structured credit products (CDS, CDOs and FTDs); and
The following assumptions applied in previous years remained unchanged: V the current rating of assets posted as collateral rated CCC+ or below is taken into account by applying a 97% discount to the underlyings. This discount was reduced to 70% for underlying assets initially rated AAA in standard securitization transactions (i.e., excluding Commercial Real Estate CDOs – CRE CDO, ABS CDO, ABS CDO Mezzanine, on which a 97% discount continues to be applied); V non-subprime underlying assets held (excluding U.S. RMBS) are valued using a discount matrix taking into account transaction types, ratings and vintages; V valuation of underlying RMBS and CLOs based on the model used for directly held RMBS and CLO positions.
These instruments are valued based on a calculation of their fair value using historical benchmark spreads contained in the Market database. The benchmarks are defi ned by type of securitization, rating and country, and are associated with spread curves. These values are then adjusted by a coeffi cient designed to factor in liquidity risk.
Consolidated fi nancial statements and notes e) Other instruments not exposed to U.S. housing risk measured by Natixis using a valuation model
The valuation model applied in previous years, based on projected future cash fl ows according to default distribution scenarios, used an approach drawing on bank collateral segmentation and has been refi ned. Previously, it was considered that each bank had to default within an average period of seven years. Now, a statistical approach is applied that deduces the default probability of banks according to their fi nancial ratios. For other sectors, default rates are estimated considering the current ratings of assets.
On November 12, 2009, a BPCE guarantee was set up to protect the assets comprising part of the GAPC portfolios, with retroactive effect at July 1, 2009. With this guarantee, Natixis was able to free up a substantial portion of the capital allocated to ring-fenced assets and guard against the risks of losses associated with these portfolios subsequent to June 30, 2009. This guarantee is centered on two mechanisms: V a sub-participation with the characteristics of a financial guarantee, covering 85% of the face value of assets recognized in “loans and receivables” and “available-for-sale financial assets”. Under this guarantee, Natixis is protected from the very first euro in default up to 85% of the default amount; V two Total Return Swaps (TRS), one in euros and one in U.S.$, transferring to BPCE 85% of unrealized and realized gains and losses on the portfolio of instruments at fair value through profit and loss (cash and derivatives) since July 1, 2009. TRS are derivatives and are therefore carried at fair value on the balance sheet, with a matching entry to income. At the same time, Natixis purchases an option from BPCE which, if exercised, allows it to recover the net gains on this portfolio after a ten-year period in return for the payment of a premium estimated at €367 million. The premium is also recognized at fair value.
The amount of the premium paid in 2009 by Natixis in return for the fi nancial guarantee amounted to €1.183 million.
Investment property, shown separately from other property, plant and equipment on the balance sheet, consists of property held with the aim of generating leasing revenues rather than for operating purposes.
In accordance with Article R.332-210-1 of the French Insurance Code, a fi ve-year appraisal is conducted by an independent expert approved by ACP. Between two appraisals, the market value of property is certifi ed by experts on a half-yearly basis.
A discontinued operation is a clearly identifi able component of an entity that either has been disposed of, or is classifi ed as held for sale, and: V represents a separate major line of business or geographic area of operations; V is part of a single coordinated plan to dispose of a separate major line of business or geographic area of operations; or
At subsequent reporting dates, the securities continue to be valued by the assignor in accordance with the rules applicable to the category in which they were initially classifi ed. In the assignee’s accounts, the amount receivable from the assignor continues to be carried at amortized cost within “Loans and receivables”.
Transactions on derivatives treated with the “LCH Clearnet Ltd” clearing house, whose operating principles meet the two criteria mentioned above, are offset in the balance sheet (see Note 6.1.3).
In accordance with the principles of recognition set out in IAS 19, Natixis has identifi ed the following types of postemployment benefi t: V defined contribution plans, under which an entity has no obligation to pay a specified benefit amount; V defined benefit plans, under which Natixis has a legal or constructive obligation to pay a specified benefit amount.
The amount recognized as a provision on the liabilities side of the balance sheet represents the present value of the obligation under defi ned benefi t plans.
V minus any past service cost not yet recognized in income; V plus or minus any unrecognized actuarial gains or losses arising from: R experience adjustments linked to demographic variables,
R differences between the actual return and expected return on plan assets; V minus the market value of plan assets.
V Deeply Subordinated Notes and preference shares are classified 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 fi scal year is presented in Note 6.16, “Changes in subordinated debt”, and in Note 12, “Capital management”;
The receivables provided as security have been maintained in Natixis’ consolidated balance sheet with their original classifi cation, since the criteria for derecognition defi ned by IAS 39 are not met. They are included in the “loans and receivables” line item of the table entitled “Financial assets provided as security” presented in Note 6.6.3; Moreover, until 2011, Natixis received fi nancing in the form of undated deeply-subordinated bonds fully subscribed by BPCE. These issues mirrored those subscribed by Groupe BPCE with Société de Prise de Participation de l’État. They were recognized as equity instruments barring any contractual obligation to pay interest. They were fully repaid in the 2011 fi scal year.
This fi nancing is itemized in balance sheet Note 6.1.7. “French State support”
Since 2002, Natixis has implemented fi ve stock option programs. For two of them, the vesting period is not yet complete at December 31, 2012. The details of these programs appear in Note 11.2.4.
FINANCIAL DATA5 Consolidated fi nancial statements and notes Cash-settled retention and performance plans indexed to the value of the Natixis share
The accounting treatment applicable to cash-settled sharebased payments is governed by IFRS 2 “Share-based payment”.
The tax expense for the year comprises: V tax payable by French companies at the standard rate of 36.10%, and by foreign companies and branches at the local rate; The French rate of 36.10% includes the additional contribution of 5% passed in December 2011, affecting the 2011 and 2012 fiscal years, extended in December 2012 to the 2013 and 2014 fiscal years; V deferred taxes arising from temporary differences between the carrying amount of assets and liabilities and their tax basis, which are calculated using the balance sheet liability method.
The French Finance Act for 2013 introduced an exceptional 7% tax on the capitalization reserve of insurance companies existing at January 1, 2010. This tax generated a tax expense of €8.2 million, recorded in the consolidated income statement at December 31, 2010.
The Second Amended Finance Act also provides for an additional exceptional contribution in respect of the systemic bank tax, equivalent to the tax paid in 2011, thereby doubling the contribution owed by banks. This exceptional contribution generated a €21.9 million expense in the second half of 2012. In addition, the Second Amended Finance Act also increased the systemic tax rate from 0.25% of the amount of minimum capital requirements to 0.50%. This new rate will be applied permanently as of January 1, 2013.
At the reporting date, Natixis assesses whether or not there is any objective evidence of impairment for loans and receivables, either on an individual basis or collectively by risk category. To identify evidence of impairment, Natixis analyzes trends in a number of objective criteria, but also relies on the judgment of its own expert teams. Similarly, Natixis may use its expert judgment to establish the likely timing of recoveries (where the aim is to calculate the amount of individual impairment losses), or to adjust the amount of expected losses under the Basel 2 framework, on which the amount of collective provision is based.
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 amount. Where the recoverable amount equals the value in use, it is determined by discounting annual free cash fl ows to infi nity (not including the Private Equity CGU) ( see Note 2.5). Use of the discounted cash fl ow method involves: V estimating future cash flows. Natixis has based these estimates on forecasts included in its business units’ medium-term plans spanning five years; V projecting cash flows for the last year of the plan to infinity, at a rate reflecting the expected annual growth rate; V discounting cash flows at a specific rate for each CGU.
Insurance technical reserves are calculated using estimates and assumptions that may lead to adjustments in amounts reported over the subsequent period: V for personal risk insurance, claims reserves are calculated by modeling claims experience; V for life insurance, underwriting reserves are computed based on economic and financial assumptions, mortality and morbidity tables, and behavioural statistics, for example concerning surrenders; V for credit insurance, claims reserves include an estimate of claims 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 by 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 participation asset, a recoverability test is carried out to verify that liquidity requirements arising from an unfavourable economic environment do not force the sale of assets and generate unrealized losses. This recoverability test relies on projected future cash fl ows based on different economic assumptions about historical redemptions and infl ows.
Average number of shares used to calculate earnings/(loss) per share 3,078,019,240 2,993,705,086
Number of potential dilutive shares resulting from stock option plans and bonus share plans (b) 15,163,611 18,904,018
Loans and receivables designated at fair value through profi t and loss 6.1.1.2 and 6.1.1.3 3,100 418
Securities designated at fair value through profi t and loss 6,369 3,413 9,782 6,776 3,205 9,981 of which: Private Equity securities 15 1,907 1,922 8 1,620 1,628
At December 31, 2012, fi nancial liabilities at fair value through profi t and loss primarily comprised derivatives not used as hedging instruments.
6.1.1.2 Loans and receivables designated at fair value through profi t and loss and credit risk
Exposure to credit risk represents a signifi cant share of the fair value of loans and receivables designated at fair value through profi t and loss shown on the balance sheet. Purchases of credit derivatives covering exposure to credit risk on loans and receivables are shown at their fair value as recognized on the balance sheet.
At December 31, 2012, Natixis did not purchase protection to hedge against credit risk associated with loans and receivables classifi ed as fair value instruments through profi t and loss.
FINANCIAL DATA5 Consolidated fi nancial statements and notes (in millions of euros) Notes 12.31.2012 12.31.2011
Other payables 160 836 6.1.2.1 Financial liabilities designated at fair value through profi t and loss and credit risk
The amount contractually due on loans at maturity represents the principal amount outstanding at the reporting date, plus any accrued interest not yet due. The amount contractually due on securities represents their redemption value.
12.31.2012 12.31.2011 Changes in the fair value of fi nancial liabilities, designated at fair value through profi t and loss, attributable to credit risk
Customer deposits 44 44 6.1.3 DERIVATIVE INSTRUMENTS NOT ELIGIBLE FOR HEDGE ACCOUNTING
FINANCIAL DATA5 Consolidated fi nancial statements and notes (in millions of euros)
The fair value of loans and receivables due from banks totaled €61, 913 million at December 31, 2012, compared with €48, 725 million at December 31, 2011.
6.6 Other information relating to financial assets 6.6.1 RECLASSIFICATION OF FINANCIAL ASSETS OVER THE PERIOD, PURSUANT TO THE AMENDMENT TO IAS 39 AND IFRS 7 PUBLISHED ON OCTOBER 13, 2008
Pursuant to the options provided for by the IASB’s amendment to IAS 39 and IFRS 7 published on October 13, 2008, Natixis reclassifi ed the following items within “Loans and receivables” as at October 1, 2008: V €8.8 billion relating to the fair value of assets previously classified as “Financial assets at fair value through profit and loss – Trading”; V €2.8 billion relating to the fair value of assets previously classified within “Available-for-sale financial assets”.
Instruments reclassifi ed within Loans and Receivables 1,576 2,032 (39) 119 1 6.6.3 FINANCIAL ASSETS PROVIDED AS SECURITY AGAINST LIABILITIES
The table below shows the carrying amount of: V receivables for which ownership has been transferred to BPCE or SFEF as security in connection with the financing indirectly received from SFEF through BPCE; V financial instruments (securities and receivables) deposited with central banks and assignable as collateral to guarantee refinancing operations at any time.
Natixis has continuing involvement in a fully derecognized transferred fi nancial 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.
They are kept on the asset side of the consolidated balance sheet, because virtually all of the benefi ts and risks are maintained, since the securities must be returned to Natixis (unless Natixis defaults).
Fair value of associated liabilities Net position 6.6.4.2 Fully derecognized transferred fi nancial assets for which continuing involvement is maintained
6.6.5 FINANCIAL ASSETS RECEIVED AS SECURITY AND ABLE TO BE SOLD OR REUSED AS SECURITY
The fair value of fi nancial assets acquired under repurchase agreements that Natixis may sell or reuse as security stands at €118 billion at December 31, 2012.
FINANCIAL DATA5 Consolidated fi nancial statements and notes For overdrafts, arrears are counted as of the date when the customer is notifi ed; the amount shown represents the total overdraft.
Loans and receivables due from customers 9 0 0 9 18
The fair value of fi nancial assets carried at fair value on the balance sheet is broken down according to the hierarchy of inputs used to value the assets, as described in Note 5.6.
Other fi nancial assets held for trading 2,366 5 2,360 3,287 61 3,226
Financial assets designated at fair value through profi t and loss 100,659 10,250 89,324 1,085 81,426 9,884 70,275 1,267
Securities designated at fair value through profi t and loss 14,150 10,250 3,026 873 13,589 9,884 2,738 967
Other fi nancial assets designated at fair value through profi t and loss 86,509 86,298 211 67,837 67,537 300
Available-for-sale fi nancial assets 38,485 34,389 3,070 1,025 35,143 30,353 3,584 1,206
Other available-for-sale securities 37,133 34,224 2,644 265 33,565 30,188 3,015 362
Derivative instruments not eligible for hedge accounting (positive fair value) 2,691 (681) (90)
Financial assets designated at fair value through profi t and loss 1,267 (84) 1
Securities designated at fair value through profi t and loss 967 (62) 0
Issues Sales/Redemptions From level 3 To level 3 Other reclassifi cations
Issues Sales/Redemptions From level 3 (b) To level 3 Other reclassifi cations
Sensitivity of the fair value of fi nancial instruments measured using unobservable inputs was estimated at December 31, 2012. With the aid of probable assumptions, this sensitivity was used to estimate the impacts of market fl uctuations in unstable economic environments. This estimate was performed using: V a “ standardized (1)” variation in unobservable inputs for interest-rate and equity instruments. The resulting sensitivity was €0.9 million.
(1) i.e. the standard deviation of consensus prices used to measure the inputs (TOTEM, etc.).
Deferred acquisition costs 215 193 6.8.3.2 Insurance accrual accounts – Liabilities
During FY 2012, Natixis recognized assets obtained by taking possession of guarantees.
The fair value of amounts due to banks totaled €128, 325 million at December 31, 2012, compared with €109, 289 million at December 31, 2011.
Provisions for loans and receivables 2,921 590 (342) (366) (5) 5 27 2,831
Impairment losses taken on availablefor -sale fi nancial assets 1,797 204 (180) (600) (1) (0) 1 1,221
Provisions for loans and receivables 3,313 616 (477) (548) 24 0 (6) 2,921
Provisions for employee benefi ts 354 126 (99) (5) 3 17 396
Impact on the income statement (in millions of euros) Charge Reversal Net impact
(a) Of which €380 million in provisions at December 31, 2011 in respect of Madoff net outstandings.
The fair value of fi nancial liabilities carried at fair value in the balance sheet is broken down according to the hierarchy of inputs used to value the assets, as described in Note 5.6.
Financial liabilities held for trading 113,872 47,195 65,891 786 150,667 28,130 122,348 188
Derivative instruments not eligible for hedge accounting (negative fair value) 66,458 1,961 63,711 786 122,271 2,098 119,985 188
FINANCIAL DATA5 Consolidated fi nancial statements and notes 6.18.1 FINANCIAL LIABILITIES AT FAIR VALUE MEASURED USING LEVEL 3 OF THE FAIR VALUE HIERARCHY
Reclassifi cation to level 3 follows the change in valuation according to unobservable parameters of the Private Finance Initiative CDS (cf. Note 5.6).
Financial liabilities at fair value through profi t and loss - Trading 956 79
Less than 1 month 1 to 3 months 3 months to 1 year 1 to 5 years Over 5 years Total
Other fi nancial liabilities at fair value through profi t and loss 98 13 10 8 9 138
Fiduciary or similar fees and commissions are those that result in assets being held or invested on behalf of individual customers, pension schemes or other institutions. In particular, trust transactions cover Asset Management and custody activities performed on behalf of third parties.
At December 31, 2012, the expense recognized in respect of the premium totaled -€183 million (-€331 million in 2011), of which -€152 million was recognized in net revenues under guarantee commissions (-€232 million in 2011) and -€31 million in Provision for credit losses (-€99 million in 2011).
This item includes gains and losses on fi nancial assets and liabilities at fair value through profi t and loss, and other fi nancial assets measured at their amortized cost, whether held for trading or designated at fair value through profi t and loss, including interest.
Net gains/(losses) on fi nancial assets and liabilities held for trading (a) 1,610 125 o/w derivatives not eligible for hedge accounting 2,218 1,760
At the same time, the reversal of the portfolio-based provision amounted to €99.3 million over the year, versus a provision of €0.3 million in 2011 (excluding the impact of the BPCE guarantee and exchange rate fl uctuations), bringing the cumulative balance to €55.5 million for an exposure of €235.3 million at December 31, 2012 versus €746 million at December 31, 2011.
V At December 31, 2012, the discount against fund units recognized in 2009 based on the selling prices observed on the secondary market totaled €29 million versus €41 million at December 31, 2011, i.e. a decrease of €12 million year on year.
(b) Net gains and losses include the valuation of the issuer spread on issues carried out by Natixis and designated at fair value through profi t and loss with a negative €351 million impact on income for the period versus income of €238 million last year.
Consolidated fi nancial statements and notes 7.4 Net gains or losses on available-forsale financial assets
(a) Syndicated loans: Loans with a theoretical syndication date expired as at December 31, 2012 amounted to €47 million. These loans were analyzed on a case-by-case basis to take into account the market discounts observed at the reporting date within income. Cumulative discounts amounted to €16 million at December 31, 2012, versus €29 million the previous year.
Net charge to/reversal of insurance companies’ technical reserves 2,229 2,229 0 2,969 2,969
FINANCIAL DATA5 Consolidated fi nancial statements and notes Insurance income includes changes recorded in income in respect of a -€0.9 billion drop in reinsurers’ share of technical reserves offset by €0.9 billion increase in “Other insurance income and expenses.”
(a) “Life insurance premium income” includes income, compared to the previous fi scal year, from the €0.9 billion in revenue resulting from the change in the reinsurance share (see Note 7.5).
Operating expenses mainly comprise payroll costs, including wages and salaries net of rebilled expenses, social security expenses and employee benefi ts such as pensions (defi ned benefi t plans), and expenses relating to share-based payment recognized in accordance with IFRS 2. The itemized expenses appear in Note 11.
Pensions and other employee benefi ts 11.2.2 & 11.2.3 (200) (232)
This item mainly comprises the costs associated with the risk inherent to credit transactions: net charges to specifi c and collective provisions, loans and receivables written off during the period and recoveries on bad debts written off.
Provisions for impairments of fi nancial assets (651) 322 (124) 22 (431) (862) 553 (35) 14 (329)
The provision for permanent impairment recognized on Greek sovereign securities at December 31, 2011 and in Q1,2012 was wholly reversed, for an amount of -€184.4 million, following the sale of the securities in H1,2012.
Share of net assets Share of net income Share of net assets Share of net income
Summary fi nancial information for affi liates is provided in Note 15.2, “related parties.”
Consolidated fi nancial statements and notes 7.9 Gains or losses on other assets
Net capital gains/(losses) on disposals (3) (4) (7) 31 (2) 29 7.10 Reconciliation of the tax expense in the financial statements and the theoretical tax expense
+ Impairment of goodwill 16 43 - Share in income from associates (480) (594)
Revaluation of available-for-sale fi nancial assets 360 (24) 337 (149) 16 (133)
Shares in unrealized or deferred gains/(losses) of associates 510 (76) 434 (687) 81 (606)
TOTAL CHANGES IN UNREALIZED OR DEFERRED GAINS OR LOSSES 541 (76) 465 (639) 112 (526)
In 2009, Natixis carried out an in-depth review of its business lines and developed the New Deal plan in response: proprietary activities were reduced signifi cantly, and synergies with the networks were developed. In 2012, in light of regulatory constraints and a still-uncertain economic environment, Natixis pursued its transformation policy. In particular, in terms of Corporate and Investment Banking, its organization was adapted to place customer relations at the core of development and, as a result, the division was renamed Wholesale Banking.
From these successive changes came an organization grouped around three core business lines: V Wholesale Banking, which advises businesses, institutional investors, insurance companies, banks and public sector entities and offers them a diversified line of financing solutions as well as access to the capital markets. Its mission is threefold: strengthen the bank’s customer orientation, be a meeting place between issuers and investors, deploy the “Originate to Distribute” model to optimize the rotation of the bank’s balance sheet via active management of the credit portfolio; V Investment Solutions, which includes Asset Management, life insurance, Private Banking and the third-party investment capital business line that resulted from the spin-off of Natixis Private Equity in 2010; V Specialized Financial Services, which includes Factoring, Lease Financing, Consumer Credit, Guarantees, Employee Benefits Planning, and Payment and Securities Services. These services are the key growth drivers for the retail banking business of Groupe BPCE.
Coface reorganized its business in 2011, refocusing on core business lines (credit insurance and factoring in Germany and Poland), while non-strategic, service activities were grouped under Coface non-core.
This new-look organization is used by management to monitor divisional performance, draw up business plans and manage the business from an operational perspective. In accordance with IFRS 8 “Operating Segments”, this is the segmentation used by Natixis to defi ne its operating segments.
Wholesale Banking advises businesses, institutional investors, insurance companies, banks and public sector entities and offers them a diversifi ed line of customized fi nancing solutions as well as access to the capital markets.
R structured Financing, which originates and develops fi nancing for aircraft, exports and infrastructure, energy and commodities, Strategic and Acquisition Finance, Real Estate Finance and Equity Linked Finance,
R steering of international platforms, in line with the bank’s overall objectives: North and South America, Asia-Pacifi c and EMEA (Europe (except France), Middle East and Africa).
This business line groups together a number of service businesses primarily serving the Caisse d’Epargne and Banque Populaire networks, and other Natixis business lines: V Factoring: provides companies with invoicing management solutions such as financing, insurance, and collection. Natixis Factor uses the Banque Populaire and Caisse d’Epargne networks, which account for a significant portion of its business; V Financial Guarantees and Sureties: this business line is operated by Natixis Garanties and notably includes guarantees for mortgage loans granted to retail and business customers by the Caisse d’Epargne, and more recently the Banque Populaire networks, along with legal guarantees and bail bonds; V Consumer Finance: this Natixis business line includes a broad range of activities throughout the value chain for revolving loans (marketing, origination, administrative management, out-of-court collection) and administrative management services for personal loans. These activities are operated by Natixis Financement, which manages revolving loans granted by the BPCE Group networks, and manages personal loans granted by the Caisse d’Epargne and more recently by the Banque Populaire banks; V Leasing: this business line provides financing solutions for real estate and non-real estate that is managed under finance leases or other long-term leasing arrangements; V Employee Savings Scheme: (a comprehensive B2B employee benefits planning range of products), employee savings: administration of employee accounts, fund administration and accounting, collective life insurance, and special payment vouchers; V Securities Services: custody (account administration, back office outsourcing, depositary control) and office services; V Payments: electronic banking, issuance and collection of high-volume electronic transfers, check processing; V Film Industry Financing: this business line is operated via Coficiné, a subsidiary specializing in structured loans for film and audiovisual activities in France and Europe.
V Insurance: Natixis Assurances is a holding company for various operating insurance subsidiaries. It offers a comprehensive range of individual and collective life insurance, personal risk insurance and property and casualty insurance solutions. These diversified, customized solutions are designed for retail and small business customers, farmers, companies and associations.
V Private Banking: this business line encompasses wealth management activities in France and Luxembourg, financial planning solutions, and services for independent wealth management advisors (IWMAs). Banque Privée 1818, created from the merger between Banque Privée Saint Dominique (BPSD) and La Compagnie 1818, has taken its place as a major player on the French market. Its clientele derives mainly from Caisses d’Epargne and Banque Populaire banks, and to a lesser extent from Natixis. Private Banking offers advisory services, financial planning and expertise, and fund management solutions.
V Private Equity for third party clients: this business is centered around a Natixis department: Natixis Capital Investissement (NCI). The teams have extensive expertise in equity financing for generally unlisted, small and mediumsized enterprises in France and Europe via sponsored equity holdings. NCI covers the Private Equity segments for third party investors, such as Private Equity deals (top-line funding for mature companies), venture capital (new, innovative companies) and funds of funds.
This business covers proprietary Private Equity transactions, some sponsored funds, and third party management of assets not held by Natixis. After the October 2010 sale to AXA Private Equity of the majority of the proprietary operations in France, the international segment remains, and is divided into several small teams of investors. The teams have extensive expertise in equity fi nancing for generally unlisted, small and medium-sized enterprises outside France via equity holdings.
At December 31, 2012, the scope of activities covered by GAPC was as follows: V GAPC 0 – Management; V GAPC 1 – Structured Credit Euro; V GAPC 2 – Structured Credit U.S.; V GAPC 3 – Vanilla Credit; V GAPC 4 – Correlation Trading; V GAPC 5 – Complex Interest Rate Derivatives; V GAPC 8 – Fund-Based Structured Products (formerly Alternative Assets).
FINANCIAL DATA5 Consolidated fi nancial statements and notes 9.9 Segment reporting 9.9.1 SEGMENT REPORTING IN THE INCOME STATEMENT
(a) Variation between December 31, 2012 and December 31, 2011 (pro forma fi gures).
12.31.2011 – pro forma accounting for 2012 scope of consolidation changes
Available-for-sale fi nancial assets 1,771 30,690 1,566 1,490 5 285 2,678 38,485
Loans and receivables to fi nancial institutions 42,084 1,251 629 200 20 3,000 1,459 48,643
Financial liabilities at fair value through profi t and loss 176,322 92 0 0 0 55,678 92 232,184
The 2011 segment balance sheet was not restated for the reclassifi cation of Coface’s “non-core” businesses owing to its nonmaterial nature.
(in millions of euros) France Other EU North America Other OECD Other Total
Net income for the period (Group share) 839 227 409 8 80 1,562
As a lending institution, Natixis is subject to banking regulations and to supervision by the Autorité de Contrôle Prudentiel. Supervision is on a consolidated and individual basis and is designed to set a number of rules guaranteeing the bank’s capital adequacy, liquidity and fi nancial equilibrium. The resources applied to achieve these objectives are essentially a quantitative mechanism: solvency ratios, major risk control ratios and liquidity ratios, along with a qualitative mechanism based on internal audit requirements.
The liquidity ratio is established on an individual basis and designed to ensure that liquid assets with maturities of less than one month are equal to or exceed liabilities falling due within the same period. It is defi ned as the ratio between cash/cash-equivalents and liabilities falling due in less than one month.
The minimum liquidity ratio under prudential rules is 100%. At December 31, 2012, Natixis’ liquidity ratio was 124%.
The information on risk management required under IFRS 7, with the exception of the disclosures given below, is presented in pillar 3 in section 4.2 of Chapter 4, “Risk Management”.
Available-for-sale fi nancial assets (excluding variable-income securities) 32,979 149 (112) 33,016 29,744
Loans and receivables due from customers 96,721 5,315 (2,617)* 99,418 111,822
Held-to-maturity fi nancial assets 3,510 0 (4) 3,506 4,037 * Including collective provisions.
The reclassifi cation of consolidated accounting volumes as gross exposure and exposure at default with respect to prudential credit risk (explained in the Chapter 4 “Risk Management” Section 4.2.5.3, “Credit Risk”), involves the following key operations: V exclusion of equity-accounted insurance companies in the prudential scope; V exclusion of exposure classified in the trading scope; V inclusion of netting agreements on market transactions; V restatement of factoring positions to take into account exposure to the risk of default and a position in risk dilution; V application of a credit-equivalent conversion factor on financing and guarantee commitments.
Loans and receivables due from customers 72,601 5,286 (2,470) 75,417 1,543 31,539 87,071 5,163 (2,724) 89,510 2,084 32,312
TOTAL EXPOSURE AND IMPACT OF GUARANTEES 244,809 5,836 (2,783 ) 247,862 1,690 39,179 238,568 5,727 (3,011) 241,284 2,181 41,656
The amounts of the guarantees shown are those used under Basel 2 prudential regulations to reduce capital requirements. Guarantees for insurance companies accounted for by the equity method in the prudential accounting scope are therefore excluded, as are exposures relative to these entities.
FINANCIAL DATA5 Consolidated fi nancial statements and notes 10.2.3 BREAKDOWN OF INDIVIDUAL AND COLLECTIVE PROVISIONS BY GEOGRAPHIC AREA
Individual risks Collective risks Total risks Individual impairment losses Collective impairment losses Total impairments
(in millions of euros) Provisions as at 12.31.2011 Additions (+) Reversals (-) Translation difference Provisions as at 12.31.2012
FINANCIAL DATA5 Consolidated fi nancial statements and notes 10.3 Market risk, overall interest rate risk, liquidity risk and structural foreign exchange risk
The disclosures on the management of market risk, overall interest rate risk, liquidity risk and structural foreign exchange risk required under IFRS 7 are presented in sections 4.2 and 4.3 of Chapter 4, “Risk Management”.
At December 31, 2012, exposure to sovereign risk in the European Union countries listed below is presented according to the methodology applied for the stress tests conducted by the EBA (European Banking Authority), excluding insurance operations: Exposure at December 31, 2012: (in millions of euros)
(b) The Greek sovereign exposures held directly by Natixis were sold in Q2, 2012, generating a capital loss of €3.5 million at June 30, 2012; the CDS positions were unwound, with no material impact on the income statement. Residual exposure of €3 million is linked to securities held by transparent funds.
(c) The difference of €59 million in available-for-sale fi nancial assets is linked to the disposal of securities on Hungary.
(e) The difference of €9 million in loans and receivables on Italy is linked to the change in the balance of the current account opened with the Bank of Italy.
Banking book Trading book Residual maturity o/w other loans and receivables o/w availablefor -sale assets o/w other fi nancial liabilities designated at fair value through profi t and loss
Gross exposure at December 31, 2011 Gross exposure at December 31, 2012 1 year 2 years 3 years 5 years 10 years >10 years Total 1 year 2 years 3 years 5 years 10 years >10 years Total 10.4.2 GREEK NON-SOVEREIGN PORTFOLIO
At December 31, 2012, exposure to Greek non-sovereign risk held directly by Natixis was as follows: (in millions of euros) Gross exposure at December 31, 2012 Provisions
Asset fi nancing and structured transactions (a) 347 ( 79) 269
(a) Exposure is primarily linked to the «shipping fi nancing» sector for €205 million.
This private sector plan consists of a security exchange including a 53.5% haircut on the nominal value of the securities eligible for trade and the receipt of new shares issued by the European Financial Stability Facility (EFSF) and the Greek government, representing 15% and 31.5%, respectively, of the nominal value
In the second quarter of 2012, Natixis sold all of its positions in new Greek government securities, generating an additional capital loss of €4.0 million after the application of profi t-sharing rules.
At the European Summit of October 26, 2011, eurozone government leaders confi rmed that the private sector’s contribution will remain specifi c to the exceptional situation of Greece and that there is no debt-restructuring plan for Ireland or Portugal, which have received an aid package from the European Union. In exchange, those two countries undertook to implement substantial debt-reduction measures.
Based on these developments, none of these countries were facing default at the end of December 31, 2012. Consequently, their sovereign debt was not subject to permanent impairment at that date. There was also no change in their accounting category.
The fair value of these assets was recorded under level 1 in the special release on the fair value hierarchy (see Note 6.6.7), with the exception of Portuguese sovereign securities, whose fair value was recorded under level 2 given the widening of bid/ask spreads in market prices.
This item includes wages and salaries paid within twelve months of the end of the reporting period in which the related services were rendered, employee incentives and profi tsharing, meeting the defi nition of short-term benefi ts under IAS 19R “Employee Benefi ts”. In accordance with this standard, short-term benefi ts are expensed in the period in which the employees render the services giving rise to such benefi ts.
This plan is considered to fall within the scope of IAS 19 and is accounted for as a long-term benefi t. As the rights to such benefi ts vest over the period during which the related services are provided, the obligation representing the likely amount of benefi ts payable is recognized gradually over the vesting period. The calculation of the obligation takes into account actuarial assumptions regarding the likelihood that benefi ciaries will meet the presence conditions and the performance and exercise criteria. These assumptions are revised on a regular basis. The Company does not apply the “corridor” method, and all actuarial gains and losses are therefore recognized immediately in income. At the reporting date, the obligation represents an actuarial assessment carried out in the same way as for obligations under defi ned-benefi t plans.
Year of plan Grant date Initial number of units granted* Acquisition dates Number of units acquired by benefi ciaries
Deferred retention and performance bonuses paid in cash are awarded to some staff. These bonuses are subject to presence and performance criteria. In terms of accounting treatment, they are recorded under “Other long-term employee benefi ts”. The estimated expense is based on an actuarial estimate of the probability of these conditions being met. The expense is recognized over the vesting period. The amount recognized in respect of fi scal year 2012 was: Year of plan Grant date Acquisition dates Expense for 2012
Post-employment defi ned-benefi t plans include all postemployment benefi ts for which Natixis has committed to pay a specifi ed level of benefi ts. These plans include: banking sector top-up pension plans, end-of-career awards, mutual health insurance funds and other contractual benefi ts accruing to retirees.
Consolidated fi nancial statements and notes a) Main actuarial assumptions at December 31, 2012
Remaining average working lives of employees (in years) 13 10 13 12 8 14
Future salary increases are estimated by grade based on a constant population and a three-year average.
FINANCIAL DATA5 Consolidated fi nancial statements and notes b) Employee benefi t obligations at December 31, 2012
Benefi ts paid over the period (18) (4) (3) (26) (51)
Actuarial gains and losses on benefi t obligations 60 (2) (0) 58
Actuarial gains and losses over the year 29 1 30 9 (1) 8
Impact of changes in exchange rates (1) 0 (1) 2 2
Fair value of plan assets 209 129 12 2 22 373 236 66 11 8 31 352 e) Experience adjustments relating to post-employment defi ned-benefi t plans and other long-term employee benefi ts
Impact on present value of gross benefi t obligations at December 31 3.30% 2.73%
12.3 Equity Instruments Issued 12.3.1 UNDATED DEEPLY SUBORDINATED NOTES AND PREFERENCE SHARES
Natixis entered a liquidity contract with an independent service provider, and in accordance with the Compliance Charter established with the French Financial Markets Association (Association des Marchés Financiers) on September 23, 2008, approved by the Autorité des Marchés Financiers on October 1, 2008.
A fi nancial guarantee is a contract that requires the issuer to compensate the holder of the contract for a loss that the holder incurs because a debtor fails to make payment when due. The exercise of these rights is subject to the occurrence of an uncertain future event.
The amounts shown represent the nominal value of the commitment undertaken: (in millions of euros) 12.31.2012 12.31.2011
The following fi nancing commitments fall within the scope of IAS 39: V commitments classified as financial liabilities at fair value through profit and loss. If an entity has a practice of reselling or securitizing loans immediately after they are issued, these loans are accounted for in accordance with IAS 39 as from the date the loan commitment is undertaken; V those which are settled net (i.e. sold); V commitments which result in a loan granted at lower-thanmarket interest rates.
Given the timetable for completing the Transaction, the CCIs will be stated as available-for-sale assets as of the start of FY 2013. Therefore, they will no longer be consolidated and will no longer be recognized as share in income from associates. As a result, the carrying cost of the CCIs between January 1, 2013 and the actual performance date of the transaction would be added to the total redemption price of the CCIs disclosed above. Likewise, the interest on the loan covering the CCIs will be adjusted to account for the theoretical disappearance of the risks hedged by the loan covering the CCIs from January 1, 2013 until the date on which the Transaction is complete.
FINANCIAL DATA5 Consolidated fi nancial statements and notes NOTE 15 OTHER DISCLOSURES
Unsecured residual value accruing to lessor 660 16 676 600 17 617 15.1.2 LEASES AS LESSEE
Financial liabilities at fair value through profi t and loss 5,816 1,188 4,418 6,079 913 3,891
Net gains or losses on fi nancial instruments at fair value through profi t and loss (1,546) 150 1,451 (1,482) 455 2,635
Net gains or losses on available-for-sale fi nancial assets 267 0 428
Income and expenses from other activities 15 (13) (37) (67) (20) (40)
Financial assets at fair value through profi t and loss 6,001 4,851
Revaluation adjustments on portfolios hedged against interest rate risk 229 1,370
Financial liabilities at fair value through profi t and loss 1,356 1,287
Revaluation adjustments on portfolios hedged against interest rate risk 66 292
Net gains or losses on available-for-sale fi nancial assets 73 98
(b) The amounts shown for 2011 and 2012 represent the total amount of compensation (fi xed, variable, benefi ts in kind, etc.) paid to the members of the Management Board in the 2011 and 2012 fi nancial year. Because changes were made in the composition of the Management Board in 2012 (three members left, two came in), the Management Board composition that was applied when determining the total compensation awarded is that of December 31, 2011 and December 31, 2012, respectively.
It also shows the consolidated contribution by insurance companies in banking format.
As regards net revenues, in the interest of consistency, insurance income and expenses that are similar to banking income and expenses (principally interest and fees and commissions) are reclassifi ed under the corresponding line items in the banking format. Technical reserves and claims expenses are charged to net banking income rather than recognized as provisions for credit losses.
* Tranche A corresponds to the fraction of annual compensation between €0 and €37, 032.
Capital gains and losses on disposal of investments (net of reversals, writedowns and amortization) 174 163 163 12 174
FINANCIAL DATA5 Consolidated fi nancial statements and notes 15.3.2 INSURANCE COMPANY CONTRIBUTIONS TO THE CONSOLIDATED INCOME STATEMENT
The mandate of Mazars was renewed by the shareholders at the General Meeting of May 2012, for a term of six years ending as of the General Shareholders’ Meeting called to approve the 2018 fi nancial statements. The mandate of Deloitte & Associés was renewed by the shareholders at the General Meeting of May 2010, for a term of six years ending as of the General Shareholders’ Meeting called to approve the 2016 fi nancial statements. KPMG Audit was appointed in replacement of Salustro Reydel by the shareholders at the General Meeting of May 2010, for a term of six years ending as of the General Shareholders’ Meeting called to approve the 2016 fi nancial statements.
V Independent audit, certifi cation and examination of the separate and consolidated accounts 7,318 7,730 69% 72% 3,917 4,629 80% 85% 3,163 3,416 84 % 94%
V Other procedures and services directly related to the Statutory Auditors’ engagement 807 1,018 8 % 9% 195 24 4 % 0% 389 77 10 % 2%
The Deputy Auditors are: V BEAS, 7-9 Villa Houssay – 92200 Neuilly-sur-Seine; V Mr. Malcolm McLarty, 1 cours Valmy – 92923 Paris La Défense Cedex; V Mr. Franck Boyer, Immeuble Exaltis – 61, rue Henri-Régnault – 92075 La Défense cedex.
FINANCIAL DATA5 Consolidated fi nancial statements and notes NOTE 16 COMPARATIVE CONSOLIDATION SCOPE
NATIXIS BRASIL S.A. (p) Financial institution FC 100 100 0 0 Brazil
Management of venture capital mutual funds FC 51 51 0 0 Luxembourg
OTHER ACTIVITIES NATIXIS ALGERIE Bank FC 100 100 100 100 Algeria
(b) Removed from the consolidation scope at January 1, 2012, as holding fell below the materiality threshold.
(x) Exercise of a put by minority shareholders on December 31, 2012.
We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated fi nancial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the consolidated fi nancial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.
The Group recognizes impairment losses against available for-sale fi nancial assets when there is objective evidence that such assets have suffered a decline in value (Notes 5.1, 6.3, 7.4 and 7.7 to the consolidated fi nancial statements). We examined the control procedures relating to the identifi cation of evidence of impairment and measurement of the largest impairment losses, as well as the estimates made in recognizing impairment losses to cover the decline in value of these assets where applicable.
The Group recognized technical provisions in respect of risks related to insurance contracts (Notes 6.8.3, 6.14 and 7.5.2 to the consolidated fi nancial statements). We examined the methodology used to measure these insurance contracts, as well as the main assumptions and parameters used.
See note no. Off-balance sheet items - Commitments given 2012 2011
Balance of transactions on fi nancial instruments 2,146 2,758 30 Net gains/(losses) on transactions on securities held for sale (586) 253
OPERATING INCOME 1,086 741 34 Net gains/(losses) on fi xed assets (204) 60
FINANCIAL DATA5 Parent company fi nancial statements and notes NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
NOTE 5 BONDS, SHARES AND OTHER FIXED- AND VARIABLE-INCOME SECURITIES 360
Natixis’ separate fi nancial statements have been prepared and presented in accordance with the standards applicable to credit institutions laid out by the Comité de la réglementation comptable (CRC – French Accounting Regulation Committee) and Comité de la réglementation bancaire et fi nancière (CRBF – French Banking and Financial Regulation Committee).
Accrued interest is credited to the corresponding receivables item on the income statement
Loans that have been granted on an irrevocable basis but have not yet given rise to any transfer of funds are included in offbalance sheet items under “Financing commitments given”.
Non-performing loans are identifi ed and recognized in accordance with CRC Regulation 2002-03 as amended. This regulation and the notice issued by the CNC Urgent Issues Task Force on December 18, 2003 set out the regulations for classifying non-performing loans and reclassifying them as irrecoverable loans.
In particular, loans that include payments over 90 days overdue, more than six months overdue in the case of real estate loans or more than nine months overdue in the case of municipal loans, as well as loans to borrowers that are the subject of a legal dispute are classifi ed as non-performing loans.
FINANCIAL DATA5 Parent company fi nancial statements and notes WRITEDOWNS FOR NON-SPECIFIC CREDIT RISK
In accordance with Comité de la réglementation bancaire Regulation no. 90-01 on recognizing securities transactions, as amended, the following rules are applied regardless of the legal form of the security concerned (shares, bonds and notes, treasury bills, certifi cates of deposit, negotiable instruments, promissory notes, etc.). The buying and selling of securities are recorded in the balance sheet at the settlement-delivery date.
Unrealized loss is subject to a provision for impairment; V Other long-term securities: investments made by Natixis in the form of securities, with the intention of forging lasting professional relationships and creating a special professional relationship with the issuing company, but without any influence over the management of the corporate entities in which investments were made due to the low percentage of voting rights held. They are recognized at their acquisition date at the purchase price excluding acquisition costs. They are included in the balance sheet at the lower of historical cost or value in use. Unrealized loss is subject to a provision for impairment; V Investments in associates: investments that give Natixis significant influence over the corporate bodies of the issuing companies and strategic stakes for the development of Natixis’ operations. They are recognized at their acquisition date at the purchase price excluding acquisition costs.
These securities are valued individually at the lower of their value in use at the reporting date and their acquisition cost. Unrealized loss is subject to a provision for impairment; V Investments in related companies: shares and other securities in related corporate entities over which Natixis exercises exclusive control, i.e. corporate entities likely to be fully consolidated in Natixis group. They are recognized at their acquisition date at the purchase price excluding acquisition costs. These securities are valued individually at the lower of their value in use at the reporting date and their acquisition cost. Unrealized loss is subject to a provision for impairment.
R an average beta as refl ected in a sample of equivalent companies; V Treasury shares: Natixis holds treasury shares to regulate the share price under a liquidity agreement. These shares are recognized as securities held for trading and follow the same rules as other securities in this category.
R as a provision for credit losses on fi xed-rate securities in the portfolio of securities held for sale or for investment when adjustments in value relate to risk exposure to a counterparty,
The regulation allows banks to sell all or part of the securities reclassifi ed as “held for investment” if the following two conditions are met: V the transfer was motivated by exceptional circumstances; V the market for these securities has become active again.
FINANCIAL DATA5 Parent company fi nancial statements and notes 1.3 Property, plant and equipment and intangible assets
In line with applicable accounting principles, a specifi c amortization schedule is defi ned for each signifi cant component of an item of property, plant and equipment which has a different useful life or is expected to consume future economic benefi ts differently from the item as a whole. For buildings comprising business and investment property, the following components and depreciation periods are applied: V land: non-depreciable; V non-destructible building (of historical importance): nondepreciable; V walls, roofs and waterproofing: 20 to 40 years; V foundations and framework: 30 to 60 years; V external rendering: 10 to 20 years; V equipment and installations: 10 to 20 years; V internal fixtures and fittings: 8 to 15 years.
Original issue premiums or redemptions of bond issues are amortized over the life of the issues in question and the related expense is recognized under the heading “Interest and similar expenses” on the income statement.
The bonds’ redemption value at maturity provides a hedge against any fall in the prudential value of the CCIs (accounted for by the equity method) over the term of the transaction, i.e. 10 years.
For accounting purposes, the P3CI issue is treated as a debt security issued at par whose redemption value is adjusted in the event of a drop in the prudential value of the CCIs. On each reporting date over the lifetime of the transaction, the carrying value of P3CI is adjusted to take account of changes in the prudential value of the CCIs (accounted for by the equity method). In accordance with the principle of prudence, the corresponding adjustment is not recognized in income but is instead recorded under assets on the accruals line.
Accrued interest payable relating to this issue is disclosed separately as a related payable, with an offsetting entry in the income statement under “Interest and similar expenses on bonds and other fi xed-income securities”.
The notional amount of these instruments is recorded offbalance sheet for internal monitoring and regulatory purposes, but is not included in the published statement of off-balance sheet items. Details for these instruments are provided in the notes.
The amount recognized as a provision in the balance sheet represents the present value of the obligation under defi ned benefi t plans: V minus any past service cost not yet recognized in income; V plus or minus any unrecognized actuarial gains or losses in accordance with the corridor principle arising from: R experience adjustments linked to demographic variables,
Off-balance sheet receivables, debts and commitments denominated in foreign currencies are converted to euros at the going exchange rate at the balance sheet date through the revaluation of foreign exchange positions. The difference
On November 12, 2009, an arrangement was introduced by BPCE to protect assets of a portion of the GAPC portfolios with retroactive effect at July 1, 2009. With this guarantee mechanism, Natixis was able to free up a signifi cant portion of its equity allocated to ring-fenced assets and to protect itself against the risk of loss from these portfolios subsequent to June 30, 2009. This protective arrangement is based on two mechanisms: V a sub-participation in terms of risk which acts as a financial guarantee on 85% of the nominal value of assets recognized as “securities held for investment”, “securities held for trading”, “securities held for sale” and “receivables”. Under this guarantee, Natixis is protected from the very first euro in default up to 85% of the default amount; V two total return swaps (TRS), one in euros and another in dollars, which transfer to BPCE 85% of the profit or loss recognized as from July 1, 2009. The instruments hedged by these TRS are mostly represented by “securities held for trading” and to a lesser extent by “securities held for sale”. At the same time, Natixis has bought an option from BPCE which, if exercised, will allow it to recover in 10 years’ time any net positive performance by the portfolio in exchange for payment of a premium.
Securities held for sale 1,586 1,560 o/w accrued interest 12 18 o/w non-performing 75 o/w write-downs (14)
Advances to banks 127,365 115,757 o/w accrued interest 1 o/w non-performing 1 1 o/w write-downs of non-performing (1) (1)
INTERBANK AND SIMILAR TRANSACTIONS 202,334 143,347 * o/w subordinated loans: non-performing 0 0 accrued interest 3 0 o/w reverse repurchased securities: 62,491 61,932 o/w accrued interest 22 87
Current accounts overdrawn 2,953 3,223 o/w accrued interest 6 8 o/w non-performing 28 212 o/w write-downs of non-performing (13) (85)
Commercial loans 824 436 o/w accrued interest 15 3 o/w non-performing 13 4 o/w write-downs of non-performing
Cash and consumer credit 20,005 24,886 o/w accrued interest 41 182
Other loans 28,405 32,881 o/w accrued interest 43 70 o/w non-performing 3,777 2,769 o/w write-downs of non-performing (1,318) (1,068)
FINANCIAL DATA5 Parent company fi nancial statements and notes NOTE 8 INVENTORY – INVESTMENT PORTFOLIO AT DECEMBER 31, 2012
The table below was drawn up in accordance with the provisions of Article L.247-1 of the French Commercial Code: Number of shares at 12.31.2012
Banque Privée 1818 50 AVENUE MONTAIGNE 78008 PARIS EUR88,402 EUR87,854 100.00%
NATIXIS ALGÉRIE 62, CHEMIN DRARENI MOHAMED HYDRA ALGERIA DZD10,000,002 DZD 3,247,347 100.00%
NATIXIS ASIA LIMITED SUITE 1911-1922-19 F TWO 88 QUEENSWAY PACIFIC PLACE HKD632,395 HKD(65,247) 100.00%
NATIXIS ASSURANCES 30 AV PIERRE MENDES FRANCE 75013 PARIS EUR110,677 EUR696,756 100.00%
NATIXIS IMMO EXPLOITATION 30 RUE PIERRE MENDES-FRANCE 75013 PARIS EUR117,036 EUR16,743 100.00%
NATIXIS LEASE 30 AV PIERRE MENDES FRANCE 75013 PARIS EUR267,242 EUR274,231 100.00%
NATIXIS TRUST 51 AVENUE JOHN F. KENNEDY L-1855 Luxembourg EUR609,865 EUR28,480 100.00%
NATIXIS PRIVATE EQUITY 5-7 RUE DE MONTTESSUY 75007 PARIS EUR585,633 EUR219,068 100.00%
NUSHI 399 BOYLSTON ST 13TH FLOOR MA 02116 BOSTON USA USD1,227,285 USD3,123,559 100.00%
(in millions of euros) End 2011 Charges Reversals Others End 2012
Other payables 85,307 64,706 o/w accrued interest 1 8 o/w other amounts due 2 1 o/w accrued interest 21 65 o/w security deposits 925 1,250
Interbank and money market instruments 31,394 29,489 o/w accrued interest 46 68 o/w accrued interest 625 127
The remaining average working lives of employees, for all benefi ts, is 17 years.
Benefi ts paid over the period (10) (1) (2) (20) (33) (7) (2) (61) (70)
Payments to the fund during the period (8) (8) (3) (3)
Recognized actuarial gains and losses over the period 2 (1) 1 1 2 3
Change in obligation taken to income (8) 13 1 36 42 1 13 3 (20) (3)
Other items (change in consolidation scope, etc.) 7 5 (4) 8 (1) 12 11
Change in actuarial gains and losses not recognized 4 (7) 0 8 5 15 12 2 2 31
Total transfer of assets and liabilities - Natixis Participations 1 4 4
STATEMENT OF ASSETS, LIABILITIES AND COMMITMENTS RELATED TO MANAGEMENT OF PUBLIC PROCEDURES
NOTE 30 GAINS (LOSSES) ON SECURITIES HELD FOR SALE AND SIMILAR
The tax consolidation agreement at Natixis group is based on the principle of neutrality, whereby each subsidiary determines its tax and contributes to the group tax as if it were not consolidated. On an exceptional basis, Natixis performed tax reallocations in order to eliminate the impacts of the Fillon Act on certain subsidiaries, thus limiting the deduction of tax loss carryforwards to 6 0% of taxable profi t.
FINANCIAL DATA5 Parent company fi nancial statements and notes NOTE 36 OFF-BALANCE SHEET ITEMS - FORWARD FINANCIAL INSTRUMENTS
INTEREST RATE INSTRUMENTS 5,910,570 5,951,765 On organized markets 15 150 Swaps
EXCHANGE RATE INSTRUMENTS 199,321 241,689 On organized markets 149,500 67,085 Swaps
FINANCIAL DATA5 Parent company fi nancial statements and notes Currency trading
(in millions of euros) -1 year 1-5 years > 5 years
Independent audit, certifi cation and examination of the separate and consolidated accounts 4.7 5.5
Other procedures and services directly related to the Statutory Auditor’s assignment 1.0 1.8
Income after tax, but before depreciation, amortization and provisions (0.82) (0.52) 0.26 0.00 0.28
Income after tax, depreciation, amortization and provisions (1.74) (0.70) 0.10 0.28 0.29
The Company uses internal models and methodologies to measure fi nancial instruments that are not traded on an active market, as well as to book certain impairment losses (Notes 1.6, 18, 29 and 36 to the company fi nancial statements). We examined the control procedures relating to the assessment of whether a given market was inactive, to the validation of models and to the defi nition of the parameters used.
The Company recognizes provisions to cover employee benefi ts (Notes 1.7, 18 and 32 to the company fi nancial statements). We examined the methodology used to measure these benefi t obligations, as well as the main assumptions and parameters applied.
The Company recognizes provisions to cover risks and litigations related to its activity (Notes 1.1, 1.2, 1.6 and 18 to the company fi nancial statements). We examined the methodology used to measure these provisions, as well as the main assumptions applied.
In addition, we are required to inform you in accordance with Article R.225-31 of the French Commercial Code concerning the execution during the year of the agreements and commitments already approved by the General Shareholders’ Meeting.
I- AGREEMENTS AND COMMITMENTS SUBMITTED FOR APPROVAL BY THE GENERAL SHAREHOLDERS’ MEETING
On February 17, 2013, the Board of Directors authorized amendment no. 1 to the P3CI subscription agreement between Natixis and BPCE on January 5, 2012. This preliminary agreement provides in particular for the buyback and cancellation of Cooperative Investment Certifi cates held by Natixis, and the repayment of P3CI and related operations.
II- AGREEMENTS AND COMMITMENTS ALREADY APPROVED BY THE GENERAL SHAREHOLDERS’ MEETING
In accordance with Article R.225-30 of the French Commercial Code, we were informed that the execution of the following agreements and commitments, already approved by the General Shareholders’ Meeting in previous years, was continued in 2012.
On July 10, 2009, the Board of Directors approved the tripartite agreements between Natixis, SFEF and each of the central institutions (BFBP and CNCE) designed to set up trust accounts (comptes d’affectation spéciaux (CAS)) to allow Natixis collateral to be pledged directly to SFEF. The agreements also established SFEF’s direct right of recourse against Natixis. The agreements cover: V “délégation imparfaite” agreements (agreements in which the original debtor remains liable as well as the person instructed to pay on its behalf), establishing SFEF’s right of recourse against Natixis, between (i) Natixis, BFBP and SFEF, and (ii) Natixis, CNCE and SFEF; V subsidiary financial guarantee master agreements, allowing collateral to be pledged directly to SFEF, between (i) Natixis, BFBP and SFEF, and (ii) Natixis, CNCE and SFEF; V trust agreements, setting up trust accounts (comptes d’affectation spéciaux (CAS)) between (i) Natixis, BFBP and SFEF, and (ii) Natixis, CNCE and SFEF ; V representation agreements, allowing Natixis’ central institutions to represent it in its dealings with SFEF, between (i) Natixis and BFBP, and (ii) Natixis and CNCE; V side agreements aimed at limiting the credit risk incurred by Natixis in respect of its central institutions by allowing early repayments to be made at Natixis’ initiative, between (i) Natixis and CNCE, and (ii) Natixis and BFBP; V amendments to the revised intra-group financial guarantee master agreements signed in 2008 with BFBP and CNCE (see section 2.1.11 below), between (i) Natixis and CNCE, and (ii) Natixis and BFBP.
On August 25, 2009, the Board of Directors approved an agreement between Natixis and BPCE regarding the purchase of securities as well as the issuance and subscription of undated deeply subordinated notes.
On November 12, 2009, the Board of Directors approved a number of agreements regarding the guarantee covering certain GAPC assets: V the Financial Guarantee agreement, under which BPCE agrees to grant Natixis a financial guarantee (term: the agreement will end on the final maturity date); V the ISDA Master Agreement and appendix, between BPCE and Natixis; V total return swap agreements between Natixis and BPCE, one of which relates to euro-denominated assets and the other to US dollar-denominated assets; V the call option granted by BPCE to Natixis; V the “Miroir NLI” Financial Guarantee between Natixis and Natixis Luxembourg Investissements; V the “Miroir NFP” Financial Guarantee between Natixis and Natixis Financial Products Inc; V the “Miroir NFUSA” Financial Guarantee between Natixis and Natixis Funding USA, LLC; V the “Miroir Ixis CMNA Australia” Financial Guarantee between Natixis and Ixis CMNA Australia No2 SCA; V the “Miroir NFP” Total Return Swap agreement between Natixis and Natixis Financial Products Inc.; V the “Miroir NREC” Total Return Swap agreement between Natixis and Natixis Real Estate Capital Inc.; V governance arrangements set up in respect of the GAPC guarantee (including in particular draft operating charters for the Guarantee Supervision Committee and Workout Portfolio Management Committee).
The purpose of this amendment was to clarify the application of certain provisions of the Guarantee to covered assets subject to a write-down.
Income recognized by Natixis in respect of cancellation payments came to €39,152,576.95 in the 2012 fi scal year.
2.1.5 AGREEMENT REGARDING MIFID DIRECTIVE BETWEEN NATIXIS, BPCE AND CRÉDIT FONCIER DE FRANCE (CFF)
Income recognized by Natixis in respect of these agreements amounted to €9,769,061.60 for the fi scal year ended December 31, 2012.
To enable Natixis to act as the arranger for the €25 billion issue launched by BFBP, on November 23, 2007 the Supervisory Board approved: V credit and financial guarantee master agreements between BPCB, BFBP, Natixis, and initially, seven Banques Populaires banks; V a letter setting out hedging agreements between BPCB, BFBP and Natixis.
2.1.8 AGREEMENT ON A SEVERANCE PAYMENT IN THE EVENT OF THE EARLY TERMINATION OF THE CHIEF EXECUTIVE OFFICER
2.1.10 AUTHORIZATION OF AN AGREEMENT BETWEEN NATIXIS AND BPCE PERTAINING TO THE “COCCINELLE” PROJECT
This mechanism is based on Natixis’ issuance of a structured product (in the form of a debt security issue) subscribed for by BPCE and covering some of the prudential value of the equitymethod recognition of the cooperative investment certifi cates issued by the Caisses d’Epargne and Banques Populaires, namely the P3CIs.
With a nominal value of €6,930,000,000, the P3CIs were fully subscribed for by BPCE.
The P3CI is issued for a term of 10 years except in the event of early redemption.
Expenses recognized by Natixis in respect of this agreement totaled €510,484,572.51 for the fi scal year ended December 31, 2012.
2.1.11 CREDIT AND FINANCIAL GUARANTEE MASTER AGREEMENTS BETWEEN (I) NATIXIS AND BFBP AND (II) NATIXIS AND CNCE
Natixis’ General Shareholders’ Meeting of April 30, 2009 expressly approved and ratifi ed the credit and fi nancial guarantee master agreements set up in December 2008 between (i) Natixis and BFBP, and (ii) Natixis and CNCE, within the scope of agreements signed by BFBP and CNCE with SFEF.
Under the agreements, Natixis can indirectly benefi t from the facilities granted by SFEF, according to the following principles: V each central institution borrows from SFEF against a pledge of collateral; V all or part of the income arising on this arrangement is used to grant Natixis a loan, in return for a guarantee in the form of collateral, which will be pledged by the central institution to SFEF to secure the loan.
The expenses recognized by Natixis in respect of these agreements came to €30,902,000.08 for the fi scal year ended December 31, 2012.
Statutory Auditors’ special report on related party agreements and commitments 2.1.14 AGREEMENT PROVIDING FOR THE DISTRIBUTION OF NATIXIS PRODUCTS AND SERVICES TO THE REGIONAL BANKS ACQUIRED BY GROUPE BANQUE POPULAIRE FROM HSBC
Similarly, Ixis CIB signed a number of letters of joint and several guarantees and commitments with its US subsidiaries e.g. Natixis Municipal Products Inc. (formerly CDC Municipal Products Inc.), Natixis Derivatives Inc. (formerly CDC Derivatives Inc.), Natixis Financial Products Inc. (formerly CDC Financial Products Inc.), Natixis Funding Corp. (formerly CDC Ixis Funding Corp.) and Natixis Commercial Paper Corp. (formerly CDC Ixis Commercial Paper Corp.).
On December 19, 2001, the Supervisory Board approved a de facto association agreement between CDC, CNCE (acquired by CDC Ixis) and Ixis CIB (formerly CDC Ixis Capital Markets). This agreement, automatically renewed every three years, replaced the agreement entered into on August 30, 1996 between CDC and CDC Ixis Capital Markets (formerly CDC Marchés).
FINANCIAL DATA5 Statutory Auditors’ special report on related party agreements and commitments 2.2 AGREEMENTS AND
We have been informed that the following agreement, already approved by the General Shareholders’ Meeting of May 29, 2012, which reviewed the statutory auditors’ special report of March 23, 2012, was performed during the past fi scal year.
This new invoicing agreement is aimed at better refl ecting the proportion of BPCE’s governance functions that relate to affi liated entities. It provides for annual billing based on the actual cost of the tasks performed by BPCE.
Expenses recognized by Natixis in respect of this agreement totaled €33,560,000.00 for the fi scal year ended December 31, 2012.
Legal information 6.3.2 Ownership of shares by members of management and supervisory bodies 414 6.3.3 Treasury shares 414 6.3.4 Employee shareholding 415 6.3.5 Changes in the shareholder base over the past three years 415 6.3.6 Natural or legal persons exercising or potentially exercising control over Natixis 415 6.4 INFORMATION FROM ARTICLE L.225-1003 OF THE FRENCH COMMERCIAL CODE 416 6.5 PURPOSE AND DRAFT RESOLUTIONS SUBMITTED TO THE COMBINED SHAREHOLDERS’ MEETING OF MAY 21, 2013 417 6.5.1 Report of the Board of Directors on the resolutions submitted to the Shareholders’ Meeting 417 6.5.2 Agenda and draft resolutions of the Combined General Shareholders’ Meeting of May 21, 2013 428
The name of the Company is “Natixis”. The Company’s registered offi ce is in Paris (13th), at 30, avenue Pierre-MendèsFrance.
The share capital has been set at €4,943 ,850 ,243 .2 0 , divided into 3,089 ,906 ,402 fully paid-up shares of €1.60 each.
The Company may, under the conditions stipulated by the laws and regulations in force, request of any organization or authorized intermediary communication of all information regarding the holders of securities conferring immediately or in the future voting rights in its Shareholders’ Meetings, in particular their identity, nationality, address, the number of securities they own and the restrictions that these securities may be subject to.
In the event of non-compliance with the notifi cation requirement provided for in the previous paragraph and upon request, recorded in the minutes of the meeting from a shareholder representing at least 1 % of the voting rights, the shares exceeding the fraction which should have been declared will lose their voting rights for a period of 2 years following the notifi cation compliance date.
Prior to the meeting, and with suffi cient notice, the directors must be given the information enabling them to make an enlightened decision.
The shareholders and third parties are informed of this choice under the conditions defi ned by the legal and regulatory provisions in force.
Corporate offi cers are liable vis-à-vis the Company or third parties, either for breaches of the legal or regulatory provisions governing joint stock companies, or for breaches of these bylaws, or for misconduct in their management, under the conditions and subject to the penalities stipulated by the laws in force.
LEGAL INFORMATION6 Natixis Bylaws A shareholder may always be represented at General Shareholders’ Meetings by a duly authorized proxy. This proxy may not represent another person.
Shareholders may vote by post form or by proxy in accordance with the legal and regulatory provisions in force. In accordance with the decision of the Board of Directors, shareholders may participate in General Meetings by means of video-conferencing and may vote using all means of telecommunications and remote transmission, including the Internet, in accordance with the applicable regulations at the time of their use. This decision is disclosed in the notice of meeting published in the BALO (Bulletin des Annonces Légales Obligatoires – Bulletin of Mandatory Legal Notices]). Those shareholders who use the electronic voting form offered on the website created by the meeting organizer, by the required deadline, are considered present or represented shareholders. The electronic form can be fi lled out and signed directly on that site by any process provided for by the Board of Directors that meets the conditions defi ned in the fi rst sentence of the second paragraph of Article 1316-4 of the French Civil Code [i.e. the use of a reliable identifi cation procedure guaranteeing that the signature is linked to the form], which may consist of a user name and password.
The Combined General Shareholders’ Meeting resolved that these capital increases, which may not exceed an overall par value ceiling of three (3) billion euros , could be carried out either through issuing shares or through issuing securities that give access to share capital, particularly in the form of fi nancial instruments representing debt securities.
In addition, the Combined General Shareholders’ Meeting of May 27, 2010 authorized the Board of Directors to allocate free new shares to employees and corporate offi cers of Natixis and related companies, for a period of 38 months and on one or more occasions, for a total nominal amount of €233 million, to be deducted from the overall three (3) billion euro ceiling mentioned above.
Report of the Board of Directors on the use of capital increase authorizations in 2012
During the 2012 fi scal year, in its session on February 22, 2012, the Board of Directors used the authorization that was granted to it by the Combined General Shareholders’ Meeting on May 27, 2010 pertaining to the allocation of free shares for fi nancial market professionals, having their tax residence in France, as well as certain employees falling within the scope of the deferred compensation mechanism implemented by Natixis.
Overall in 2012, Natixis allocated 6,119,373 shares that will automatically increase the capital by a maximum amount of €9,790,997 (number of shares multiplied by nominal value of shares) at the end of the vesting period for the issue of allocated shares.
Amount authorized Duration Date used Amount used 05.27.2010 18 In order to allocate free shares €233 m (a) 38 months €10,552,493 (c)
In order to carry out, in accordance with Article L.225-136 of the French Commercial Code, one or more issues of shares without preferential subscription rights by means of a private placement offer, referred to in Article L.411-2 (II) of the French Monetary and Financial Code 20% of the share capital (a)
In order to carry out a reduction in the share capital by canceling treasury shares 10% of the shares making up the capital of the Company 26 months None None
In order to determine the issue price of new shares in the event of a capital increase without preferential subscription rights maintained 10% of the share capital (b) 26 months None None
In order to increase the share capital by issuing shares or securities giving access to the Company’s capital, reserved for members of employee savings plans with waiving of preferential subscription rights in favor of said members, pursuant to
Article L.225-129-6 of the French Commercial Code €48 m (b) 26 months 02.17. 2013
(a) Amount deducted from the ceiling decided in resolution no. 13 of the General Shareholders’ Meeting of April 30, 2009.
(b) Amount deducted from the ceiling decided in resolution no. 13 of the General Shareholders’ Meeting of May 26, 2011.
On November 25, 1985, Banque Française du Commerce Extérieur issued 140,000 non-voting shares with a par value of FRF 5,000 (€762.25). The coupon is payable annually on November 25. Redemptions are at the initiative of the borrower. At December 31, 2012, 57,000 non-voting shares were outstanding.
On November 17, 2006, the Combined General Shareholders’ Meeting authorized the Natixis Management Board to grant, on one or more occasions, stock options to some, or all, employees or corporate offi cers of the Company or of related companies, within the meaning of Article L.225-180 of the French Commercial Code. This authorization involved a maximum of 10,000,000 shares (i.e. 15,400,000 shares following the adjustment resulting from the September 2008 capital increase).
In 2008, the Natixis Management Board approved a plan to grant stock options to certain employees and corporate offi cers of Groupe Banque Populaire and Groupe Caisse d’Epargne. The corporate offi cers of these two groups waived their right to their options.
Fiscal year Heading Number of shares Share capital (in euros) Issue premiums on capital increases (in euros)
Free shares awarded 3,868,906 6,190,249.60 6.2.7 OTHER INFORMATION ON THE CAPITAL
At December 31, 2012, Natixis’ main shareholders were as follows: % capital % voting rights
Under the share buyback program authorized by the General Shareholders’ Meeting of May 29, 2012, Natixis owned 6,845,700 treasury shares at December 31, 2012.
The portion of Natixis’ capital held by Groupe BPCE employees (ESOPs and Bonus share grant plan) stood at 1.17 % at December 31, 2012.
By the resolution of November 12, 2007 and on the basis of the authorization of the Combined General Shareholders’ Meeting of May 24, 2007, the Management Board had granted a maximum of 6,600,000 bonus shares, split equally between employees of Natixis and of companies that are directly or indirectly related to it as per Article L.225-197-1 and following of the French Commercial Code.
Furthermore, in accordance with Articles L.225-1971 and following of the French Commercial Code and resolution 18 adopted by the shareholders during the General Meeting of May 27, 2010: V the Natixis Board of Directors, at its meeting on August 5, 2010, decided to grant 6,595,308 free shares to certain employees of Natixis and its subsidiaries by virtue of their employment contracts; V the Natixis Board of Directors, at its meeting on February 22, 2011, decided to grant 6,893,424 free shares to certain employees of Natixis and its subsidiaries by virtue of their employment contracts; V the Natixis Board of Directors, at its meeting on February 22, 2012, decided to grant 6,119,373 free shares to certain employees of Natixis and its subsidiaries by virtue of their employment contracts.
Employee shareholding (ESOPs and Bonus share grant plan) 1.17% 1.00% 0.96%
Natixis’ main shareholder, BPCE, held 72.17% of the capital and 72.33% of the voting rights of Natixis at December 31, 2012. In light of this capital structure, Natixis considers that a hostile takeover would be unlikely to succeed.
However, should the plan to sell all the CCIs held by Natixis take place (more information on this plan is available in section [5.2], “Consolidated fi nancial statements,” Note 14 “Postclosing events”), these buyback rights will become irrelevant .
(1) Please refer to the Notice of Meeting for the Natixis General Shareholders’ Meeting, which will be available on the Natixis website (www.natixis.com).
6.5.1 REPORT OF THE BOARD OF DIRECTORS ON THE RESOLUTIONS SUBMITTED TO THE SHAREHOLDERS’ MEETING
You may refer to this 2012 registration document for the statement on the fi nancial condition, activity and results of the Company and its group during the past fi scal year and the various disclosures required by the legal and regulatory provisions in effect (also available on the Natixis website www. natixis.com).
These resolutions will be divided into two groups: V the first eight resolutions (resolutions One through Eight) concern ordinary business during fiscal year 2012 (approval of the financial statements and related party agreements), the approval of co-optations that occurred during Board of Directors’ Meetings held after the last General Shareholders’ Meeting as well as the appointment of a new director and trading by the Company in its own shares; V the following eleven resolutions (resolutions Nine through Nineteen) concern extraordinary business and in particular the renewal of all financial authorizations and delegations which provide your Company with the necessary financial resources to develop and to implement its strategy.
In resolutions One and Two, the General Shareholders’ Meeting is asked to approve the Natixis 2012 parent company and consolidated fi nancial statements, respectively.
Natixis’ fi nancial statements as at December 31, 2012 show net income of €907,172,429.97 and, taking into account retained earnings of €523,181,556.29 distributable profi ts of €1,430,353,986.26 .
Resolution Three proposes to: V allocate €45,358,621.50 to the legal reserve; V allocate a dividend of €308,621,479.40 ; V allocate the remaining distributable profits to retained earnings, i.e. €1,076,373,885.36 .
Accordingly, the dividend per share is set at €0.10 (10 cent s).
The dividend will be detached from the share on May 24, 2013 and paid starting on May 29, 2013.
LEGAL INFORMATION6 Purpose and draft resolutions submitted to the Combined Shareholders’ Meeting of May 21, 2013(1) In accordance with legal provisions, we remind you that for the three fi scal years prior to fi scal year 2012, the following dividends were distributed: Fiscal year Number of shares on which a dividend was paid Dividend per share
Resolution Four concerns the approval of related party agreements*, pursuant to Articles L.225-38 et seq. of the French Commercial Code, authorized by the Board of Directors during fi scal year 2012 and after this date up until this Shareholders’ Meeting. These commitments and agreements are presented in the Statutory Auditors’ special report along with those entered into prior to fi scal year 2012 and still effective, which do not require new approval by the shareholders (see page section [5.6] of this registration document).
For Natixis, this includes the following related party agreements: V the authorization that was granted by the Board of Directors in 2012 regarding the invoicing agreement between Natixis and BPCE pertaining to Natixis’ affiliation with BPCE replacing the current affiliation agreement. This new agreement aims to take into account the share of BPCE’s governance role in affiliated entities by providing for annual invoicing of the actual cost of the duties completed by BPCE; V the authorization that was granted by the Board of Directors on February 17, 2013 regarding the guarantee given to BPCE by Natixis NY Branch so that BPCE could implement a debt issuance program in the United States (the “3a2” program); V the authorization that was granted by the Board of Directors on February 17, 2013 regarding Amendment No. 1 to the P3CI subscription contract between Natixis and BPCE signed on January 5, 2012 . Furthermore, a protocol provides for the buyback and cancellation of Cooperative Investment Certificates held by Natixis as well as for the redemption of the P3CI and other transactions.
Resolutions Five and Six ask the General Shareholders’ Meeting to approve respectively: V the co-opting of Thierry Cahn as Director, in accordance with the decision of the Board of Directors on January 28, 2013 (following approval by the Appointments and Compensation Committee), to replace Philippe Queuille, who resigned, for the remainder of the term of office of the latter, i.e. until the General Shareholders’ Meeting called to approve the financial statements for the fiscal year ending December 31, 2014. It was agreed, in particular, that Thierry Cahn’s legal experience would be useful in ensuring the efficient operation of Natixis’ Board of Directors.
Thierry Cahn, aged 56, is Chairman of the Banque Populaire Alsace’s Board of Directors (see Thierry Cahn’s résumé in Chapter 3 “Corporate Governance” - paragraph 3.2.4 of this registration document); V the co-opting of Pierre Valentin as Director, in accordance with the decision of the Board of Directors on January 28, 2013 (following approval by the Appointments and Compensation Committee), to replace Olivier Klein, who resigned, for the remainder of the term of office of the latter, i.e. until the General Shareholders’ Meeting called to approve the financial statements for the fiscal year ending December 31, 2014. It was agreed, in particular, that Pierre Valentin’s knowledge of the Caisse d’Epargne network along with his entrepreneurial skills were needed for Natixis’ Board of Directors; Pierre Valentin, aged 60, is Chairman of the Steering and Supervisory Board of the Caisse d’Epargne LanguedocRoussillon (see Pierre Valentin’s résumé in Chapter 3 “Corporate Governance” - paragraph 3.2.4 of this registration document).
The new director will be appointed for a term of six (6) years, i.e. until the end of the Ordinary General Shareholders’ Meeting called in 2019 to approve the fi nancial statements for the fi scal year ending December 31, 2018.
If resolutions Five through Seven are approved by the Ordinary General Shareholders’ Meeting, Natixis’ Board of Directors will have fi fteen (15) members, including fi ve (5) independent members, XX% of which will be female and XX% male. Henceforth, the terms of offi ce of four members of the Board of Directors will be staggered compared to the other members.
Resolution Eight asks the General Shareholders’ Meeting to renew for a period of 18 months the authorization to buy back shares granted to the Board of Directors .
Resolution Nine asks the Extraordinary Shareholders’ Meeting to renew for a period of 26 months the authorization granted to the Board of Directors to cancel, through a reduction in share capital, all or part of the treasury shares held by Natixis or acquired under the authorization granted by the Ordinary Shareholders’ Meeting (resolution Eight), up to 10% of the total share capital over each 24 month period. This authorization cancels and replaces the unused portion of any earlier authorizations to the same effect (see below the summary table on the financial resolutions submitted to the shareholders).
The Board of Directors was granted fi nancial authorizations and delegations in 2011 which expire in 2013.
The aim of these fi nancial authorizations and delegations is to provide your Board of Directors, over a period of 26 months from this Extraordinary Shareholders’ Meeting, fl exibility in choosing from a range of types of issue, and to enable the Board - at the appropriate time - to adapt the nature of the fi nancial instruments issued in light of conditions in the French or international fi nancial markets and of the opportunities available in those markets.
Your Board of Directors asks that you grant it, for some of these resolutions, the authority to waive these preferential subscription rights. This cancellation could be preferable, even necessary, to issue common shares under the best conditions, taking account of market conditions, the nature of the investors concerned by the issue and the type of securities issued, for example, when speed is essential to the success of an issue or when an issue is made on foreign fi nancial markets. Waiving preferential subscription rights may lead to the raising of more capital due to more favorable terms of issue. Finally, this cancellation is sometimes governed by law: in particular, the voting of a delegation to authorize your Board of Directors to issue shares reserved for members of employee savings plans (resolution Seventeen) would lead, by law, to the waiving of preferential subscription rights to the advantage of the benefi ciaries of these issues or allocations.
Under certain circumstances, the Board of Directors may (see below the summary table on the financial resolutions submitted to the shareholders): V determine the issue price of the shares, within the limit of 10% of the share capital per year, as part of a capital increase with waiving of preferential subscription rights: this is the aim of the resolution Twelve; V decide to increase capital with waiving of preferential subscription rights through an offer as set out in Article L.411-2(II) of the French Monetary and Financial Code: this is the aim of resolution Thirteen. This resolution would authorize the Board of Directors to carry out private placement transactions* for qualified investors or a small circle of investors, within the maximum legal limit of 20% of the share capital per year; V decide to increase capital with waiving of preferential subscription rights with a view to remunerating contributions in kind granted to the Company, within the limit of 10% of the share capital at the time of the issue: this is the aim of the resolution Fourteen. This resolution aims to authorize the Board of Directors to carry out merger and acquisition transactions through the issue of shares or securities giving access to capital in the Company as remuneration for contributions in kind to the Company in the form of shares or securities giving access to the capital; V decide to increase capital via the incorporation of premiums, reserves, retained earnings or other items: this is the aim of resolution Fifteen. This resolution aims to authorize the Board of Directors to carry out, on one or several occasions, capital increases via the incorporation of premiums, reserves, retained earnings or other items for which this is allowable under general law and Company bylaws; V decide to increase the number of securities to be issued, within the legal limits, in the event of capital increases with or without preferential subscription rights: this is the aim of the resolution Sixteen; V decide to increase the share capital with waiving of preferential subscription rights reserved for members of an employee savings plan, up to the par value limit of forty-eight (48) million euros : this is the aim of resolution Seventeen. One of the purposes of an implementation of a capital increase reserved for members of an employee savings plan would be to strengthen this ownership and involve employees closely in the Company’s development.
AWARDING FREE SHARES TO EMPLOYEES OR CORPORATE OFFICERS OF NATIXIS AND RELATED COMPANIES (RESOLUTION EIGHTEEN)
Thus, under the conditions set out by the Board of Directors, the free shares will be vested to benefi ciaries after a minimum period of two (2) years (or more depending on local laws), provided that, in particular, the benefi ciary is still a Group employee on the date of defi nitive allocation.
Following this vesting period, the shares must be held for an extra period (retention period) of at least two (2) years during which benefi ciaries cannot sell their shares.
SUMMARY TABLE ON THE FINANCIAL RESOLUTIONS SUBMITTED TO THE SHAREHOLDERS’ MEETING BY YOUR BOARD OF DIRECTORS
V Tendering shares upon exercising rights attached to securities giving access to the capital
26 months V May be used as an exemption from rules fi xing the minimum issue price for capital increases without PSRs*
Special ceiling Price or procedures for determining the price Other information and comments
V The number of shares acquired with a view to holding them or subsequently tendering them in connection with a merger, spinoff or contribution may not exceed 5% of the share capital
V Price set by your Board of Directors V May introduce a reducible subscription right*
V May authorize the issue of shares or securities giving access to the Company’s capital* to be issued following the issue of securities giving access to your Company’s capital by your Company’s Subsidiaries*
V May authorize the issue of securities giving access to the capital of your Company’s Subsidiaries*
V Minimum price equal to the average of the last three trading days before the determination of the issue price, after deduction of a maximum discount of 15%
LEGAL INFORMATION6 Purpose and draft resolutions submitted to the Combined Shareholders’ Meeting of May 21, 2013 13 Issue with PSRs waived of shares and/or securities giving access to the Company’s capital* and/ or the issue of securities entitling holders to the allotment of debt securities* through an offer as set out in Article L.4112 (II) of the French Monetary and Financial Code 26 months V May be used by your Board of Directors to decide on these issues and proceed with issues through private placement*
14 Issue of shares or securities giving access to share capital* as remuneration for contributions in kind involving securities of unlisted companies 26 months V May be used to carry out any merger and acquisition transactions 15 Incorporation of premiums, reserves, retained earnings or other items 26 months V May be used to incorporate reserves, retained earnings or other items in the share capital, in order to increase the capital without any need to introduce new capital 16 Increase in the number of securities to be issued in the event of a capital increase with or without PSRs*
V Three (3) billion euros V May under no circumstances exceed the legal ceiling set for this type of issue (currently 20% of the share capital per year)
V Price of shares and securities giving access to the share capital* set in the same way as in resolution Twelve