The risk department: defines risk measurement and fair value adjustment methods,V then submits them to the Market Risk Committee for validation; examines annual limit reviews (including risk appetite) and ad hocV requests for modifications (VaR, stress tests, operational indicators, loss alerts); raises alerts for areas at risk relating to the business lines or toV Natixis’ senior management; is responsible for the daily analysis and measurement of risks,V daily reporting, and notifying front office and management of any breaches;
Natixis’ internal VaR model was approved by the Autorité de Contrôle Prudentiel et de Résolution (ACPR – French Prudential Supervisory Authority) in January 2009. Natixis uses VaR to calculate capital requirements for market risks within approved scopes, and to manage and supervise market risks. The model is based on a calculation by computer simulation, based on Monte Carlo-type methodology, taking into account a portfolio’s possible non-linear characteristics with respect to different risk factors.
VaR is calculated and monitored daily for all the Natixis trading portfolios. Market data used in the valuation of portfolios (share prices, indices, interest rates, exchange rates, commodity prices and the related volatility) are updated on a daily basis when available, and the statistical data used (standard deviation and correlations) are updated weekly.
Portfolio valuation methods vary according to product and are either based on a total revaluation or on sensitivity to first or second order market inputs to factor in both linear and non-linear effects (in particular for derivative financial instruments).
Due to changing regulatory standards (Basel 2.5), Natixis implemented a daily stressed VaR model (SVaR), which is calculated based on a fixed econometric model over a continuous 12-month period that defines the charge that the bank’s current VaR model would generate under a representative crisis scenario relevant to its portfolio. The calculation method is based on an historical simulation for a one-day horizon and a confidence level of 99%. However, unlike VaR, which uses 260 daily fluctuation scenarios on a sliding one-year period, stressed VaR uses a one-year historical window corresponding to a period of significant financial tension.
The stressed period currently used by Natixis covers the period between April 1, 2008 and March 31, 2009, as it is the most conservative for calculating stressed VaR.
Overall stress tests are subject to continuous review. They are performed daily and can be grouped into two categories: historic stress tests consist of reproducing sets of changesV in market parameters observed during past crises in order to create an ex-post simulation of the P&L changes recorded. While stress tests do not have any predictive value, they do make it possible to gauge the exposure of the portfolio to known scenarios. There are 8 hypothetical stress tests covering the most significant events since 1987, the year of the stock market crash, including the Lehman Brothers collapse in the 2008 period, through to the sovereign debt crisis in 2011, hypothetical stress tests are used to simulate changes inV market parameters for all the activities, based on plausible assumptions regarding 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 division, the front office and Economic Research. A set of seven scenarios has been defined: fall in stock market indices combined with a flattening of1. the yield curve and an increase in credit spreads, strong rise in European interest rates in an inflationary2. environment, failure of a financial institution with a rise in credit spreads3. and interest rates and a moderate fall in equity markets, commodity crisis based on a scenario of disruption to4. supply due to geopolitical events, emerging market crisis reflecting the consequences of a5. sudden withdrawal of capital from an emerging country during a global economic downturn (higher refinancing costs, stock market crash and depreciation of the currency against the dollar), failure of a high-profile corporate based on a credit market6. shock, liquidity crisis characterized mainly by a sharp widening of7. European interbank spreads, a widening of the liquidity spread and higher “peripheral” yields.
In addition, reverse stress tests are used to identify the highest-risk scopes and market environments, as well as concentration and contagion links, while “ad hoc” stress tests are used to characterize any current event that could trigger major shifts in the market. Using plausible scenarios drawn from extremely adverse assumptions of risk factors leading to the breach of a loss threshold, reverse stress tests allow Natixis to implement a risk monitoring and management tool, identify circumstances that may trigger such loss, and adapt the appropriate action plans where necessary. “Ad hoc” stress tests use expected market trends based on economic research that is translated into overall stress-test scenarios. They measure the banks resilience to major current events, and allow hedging strategies to be adapted accordingly.
All stress test mechanisms are defined by the risk division, which is responsible for defining principles, methodology and calibration and scenario choices. The Stress Test Committee is responsible for the operational implementation of stress tests and meets on a monthly basis. The Committee approves work to be carried out, its workload and determines the annual IT budget.
loss alerts by portfolio and aggregated by business line, which2) alert management and the risk division 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; finally, the supervisory framework includes operational3) indicators on an overall and/or by business basis, which focus on more directly observable criteria (sensitivity to changes in the underlying and to volatility, correlation, nominals, etc.). The limits of these qualitative and quantitative indicators are set in line with the VaR and stress test limits.
Independent price verification is carried out by Market Risk’s IPV (Independent Price Verification) teams which, in line with the division’s policy, control the market inputs used in the valuation process for the bank’s transactions. The review of market inputs may lead to valuation adjustments recognized in economic results and the financial statement.
As part of the Risk Governance Department which reports to the chief risk officer, Model Risk Management is responsible for the governance and standards applicable to a model’s life cycle. The various stages of a model’s life cycle – design, IT development, validation, and use – are clearly presented and the roles and responsibilities of each participant specified and detailed.
Internal market risk models are validated by the Natixis Risk division’s Risk Model Validation team, under the authorization of the Groupe BPCE MRM Committee. Valuation models are validated by the Valuation Model Validation team, under the authorization of the Groupe BPCE MRM Committee. The Natixis Validation teams use a six-fold validation process: data and parameters applied by the model: analysis of dataV quality and representativeness, integrity of controls, error reports, comprehensiveness of data, etc.; methodology: analysis of model’s underlying theory, analysis ofV estimates, sizing methods, risk indicators, aggregation rules, model benchmarking, analysis of precision and convergence; usage and robustness test: the validation team ensures that theV internal models are used by qualified staff, that usage procedures are documented and up to date, and conducts independent ex-post controls and stress tests; IT development: counter-implementation, code analysis, tests;V
This Model Risk Management Committee is tasked with supervising the risk model for all of Natixis’ activities by, on one hand, approving validation reports and the related remediation plans and, on the other hand, monitoring consolidated risk model indicators. The Model Oversight Committees are chaired by the Head of the Model Risk & Risk Governance Department. The Model Risk Management Committee is chaired by the Chief Executive Officer of Natixis, directly or indirectly through a specific delegation of authority.
The risk division is tasked with defining and implementing the adjustment policy for Capital Market activities’ management results.
Adjustment amounts are updated on a monthly basis. Changes in methodology applied to adjustment calculations in respect of market and model-related uncertainties are submitted for independent validation by the Model Risk Management teams.
At December 31, 2020, the VaR by business is at a higher level than increase is essentially linked to the COVID-19 health crisis, which led the previous year (€9.3 million compared with €8 million). This to an increase in the shocks used in the calculation of VaR.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 146 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
The increase in consolidated VaR between March and June is explained in part by the increase in VaR in scopes mostly comprising shares due to the sharp volatility of the markets in the context of the COVID-19 crisis.
as a result of uncertainty and the measures taken to stymie the COVID-19 pandemic. These exceptions will not be factored into the calculation of multiplication measures, in accordance with theFour actual and hypothetical backtesting exceptions were recorded authorization granted by the ECB in its communication of April 16,in the first half of 2020 on March 12, 17, 23 and 30. These four 2020.exceptions are explained by sharp volatility on the market brought
Natixis’ regulatory stressed VaR averaged €25.4 million. It bottom out at €14.5 million on February 3, 2020 and peaked at €38.9 million on May 22, 2020, and stood at €22.2 million at December 31, 2020.
31/12/19 31/01/20 29/02/20 31/03/20 30/04/20 31/05/20 30/06/20 31/07/20 31/08/20 30/09/20 31/10/20 30/11/20 31/12/20
D ef a u lt b y a b a n k
The mechanism is managed by Natixis’ Operational Risk Committee which determines the operational risk policy, monitors Natixis’ operational risk exposure and makes final decisions on hedging and reduction. It is the operational extension of the executive body and of which it has full decision-making powers for issues within its area of responsibility. This Committee meets quarterly and is attended by the finance department, the compliance department, ITSS-BC (information technology systems security and business continuity) and the General Inspection Department. It is chaired by the Chief Executive Officer, the chief risk officer (his substitute), with the Head of the Operational Risk Department acting as secretary. The standing members of the Operational Risk function, apart from the Head of the department, are the departments’ Heads of Operational Risk and the Data, Methods & Projects Officer.
The structure of the function mirrors the organization of: the divisions under the responsibility of the operational riskV managers; the foreign offices under the responsibility of the operational riskV managers of the Americas, EMEA and Asia-Pacific platforms. They report hierarchically to the local chief risk officer, and functionally to the head of operational risk; the support and control functions under the responsibility of anV operational risk manager covering – in addition to the activities within his or her remit – overall and systematic operational risks (loss of access to premises or information systems, or loss of employee availability) to which Natixis is exposed.
The function has nearly 70 FTEs dedicated to Natixis’ operational risk management. Within their designated scopes (subsidiary, business line or support function), they are responsible for instilling the operational risk culture, recording and analyzing incidents, mapping risks, proposing and following up corrective actions, compiling reports and escalating information to management. Analyses are carried out across the Bank where the support or control functions are involved, or where the processes have an impact on teams, whether in the front, middle or back office.
Risk mapping is central to operational risk monitoring: Control environment assessment
Every year the department in charge of operational risks, in conjunction with the other control functions, works with each business line, entity and support function to map operational risks. The exercise involves identifying and descriptively analyzing risks, quantifying the risk situations (average frequency, average and maximum loss), and taking into account existing risk management mechanisms. This mapping is based on process analysis and is carried out for all the bank’s activities. Its consistency is verified through backtesting, in other words by using the incident history, as well as external data where relevant.
The risk mapping process serves to identify Natixis’ exposed business lines and its biggest risks in order to be able to manage them through corrective action and indicators.
The mapping of “global and systemic risks” (extreme risk situations occurring infrequently, such as major natural disasters, pandemics, and attacks) draws on external data on incidents in the financial industry, especially for establishing frequency. Also factored in are assumptions on unrealized net revenue items, the effectiveness of risk management mechanisms, as well as contingency and business continuity plans.
In addition to risk mapping, there are over 600 KRIs (key risk indicators) in place with corresponding limits, and which are monitored regularly. KRIs dynamically detect any changes in the operational risk profile and cover the seven Basel categories of loss-generating events. They apply either to Natixis (overall indicators), to the business lines, or to the support functions that, with the operational risk manager, set the indicators as relevant early warning indicators during the mapping process. These indicators are submitted to the Operational Risk Committee for approval. Any breach of their thresholds, that is the subject of a systematic alert, may trigger action to be carried out immediately or requiring OR Committee approval.
The vast majority of operational risk incidents occur frequently and have a low impact per incident.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 152 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
Measures to reduce risk Natixis has implemented measures in every business line and support function to monitor the corrective actions to reduce the Bank’s exposure to operational risks. 70% of the 431 corrective actions initiated in 2020 were implemented by the business lines in charge and are monitored by the business line and central Operational Risk Committees. These actions, defined to reduce and resolve operational risk, are ranked according to three priority levels depending on the risks incurred. An alert system has been set up to prompt assessment by the Natixis Operational Risks Committee of any delays in implementing first-level corrective actions.
Combined “Global Banking (Damage to Valuables & Fraud)” &A/ “Professional Civil Liability” policy with a total maximum payout of €215.5 million per year of insurance including: €72.5 million per year, combined “Fraud/Professional Civila) Liability” insurance available, subordinate to the amounts guaranteed set out in b) and/or c) and/or d) below; €48 million per claim and per year, solely reserved forb) “Global Banking” risk; €25 million per claim and per year, solely reserved forc) “Professional Civil Liability” risk; €70 million per claim and per year, combined “Globald) Banking/Professional Civil Liability” insurance available in addition to or after use of the amounts guaranteed set out in b) and/or c) above.
“Company Directors Civil Liability” for up to €200 million perD/ claim and per year of insurance.
“Property Damage to Offices and to their content” (including ITE/ equipment) and the consecutive “losses in banking activities”, for up to €400 million per claim.
the ALM Department is responsible for updating the ALMV principles, standards, conventions and limits. It submits them to the ALM Committee for approval under the oversight of the Risk division and ensures the management of structural balance sheet risks within the overall ALM limits within its remit, including those in respect of regulatory liquidity ratios and the leverage ratio, the Treasury Department (joint refinancing pool), which comesV under the authority of the financial management department, is responsible for covering the funding requirements of the business lines, providing operational management of liquidity in accordance with applicable limits, implementing the Natixis medium-term refinancing policy adopted by the ALM Committee, and operationally managing compliance with the regulatory liquidity ratio; the risk division, which is responsible for independently evaluatingV the structural ALM risk monitoring system, second-level controls on cash and ALM indicators (ad hoc SBSR Department), and the approval of identified ALM methods for use in a model. The risk division also proposes the limits specified under the risk appetite system, which are validated by the Board of Directors.
This supervision, under the authority of the strategic ALM Committee, is implemented through governance and an overall liquidity risk management and monitoring system that is adapted, shared and harmonized by all affiliates, including Natixis. Steered by the Group’s resilience function, it describes in particular the Group’s funding strategy.
Natixis’ funding structure relies on a Joint Refinancing Pool shared by Natixis and BPCE. Placed under the authority of the Group ALM Committee, this platform was implemented in 2011 in order to secure the Group’s financing and optimize the management and allocation of liquidity within the Group in accordance with predefined rules, in particular with the aim of limiting the use of market financing and reducing funding costs.
help diversify the sources of funding raised by Groupe BPCE (byV geographic area, product and counterparty); and in particular promote inflows of non-financial resources.
Liquidity risk is controlled, managed and monitored as follows: management of each business line’s funding needs: to manage theV bank’s funding needs, liquidity budgets are allocated for each business line as part of the budgetary procedure and approved by the ALM Committee. Consumption is monitored weekly for CIB business lines and monthly for other business lines; management of the bank’s contribution to Groupe BPCE’s netV market footprint: the objective is to match the liquidity allocation system with the Group’s strategic ambitions and operational oversight; management of short-term maturity transformation, which isV measured using liquidity gaps. This indicator is produced daily for a 365-day period in one-day intervals for all parent company transactions, including some subsidiaries. It is governed by four permanent limits validated by the ALM Committee and monitored on a daily basis; management of medium-term maturity transformation, which isV performed using coverage ratios that are defined by maturity tranche, such as the ratio of assets that have not yet matured to liabilities that have not yet matured. These ratios are calculated for long-term cash assets, credit subsidiaries housing medium-term activities, and for Natixis on a consolidated basis, and are restricted by the minimum coverage ratios approved by the ALM Committee and monitored monthly; management of the Bank’s contribution to the short-, medium- andV long-term transformation of Groupe BPCE. This is measured on the basis of Natixis’ consolidated liquidity gaps. These indicators are produced on a monthly basis; simulations of liquidity stress scenarios: the purpose of theseV scenarios is to measure the Group’s ability to continue meeting its commitments and operating in the event of a liquidity crisis. Natixis periodically simulates its contribution to the Group’s stress results based on different crisis scenarios (systemic, specific, combined, etc.) and different levels of intensity (moderate, strong, extreme, etc.) over one-, two- and three-month periods for which assumptions are set by BPCE; funding structure: the funding structure is monitored to ensure thatV resources are well diversified, by type of counterparty, by market segment and by geographic area, in order to mitigate all concentration risk (see section on funding principles and structure on the following page); market depth tests conducted by the Joint Refinancing Pool: theseV liquidity tests aim to explore the limits established by our counterparties on our issues.
Given the Group’s liquidity management organization, which remains under the authority of the central body, the Group’s CFP is unique, covers all affiliates and reports to the Strategic ALM Committee. It describes in particular: the Group’s monitoring system based in particular on a sample ofV advanced quantitative and qualitative indicators of crisis occurrence (the “Early Warning Indicators”) supplemented by a system of thresholds in order to facilitate the decision-making and escalation process regarding the activation or deactivation of the CFP; the organization and governance to be implemented in the event ofV activation; the description of the action levers to be taken to deal with liquidityV stress situations.
The diversification strategy is rolled out Group-wide. The strategy aims to extend the Group’s financing sources by geographic zone, currency, product and counterparty, to limit its stock market footprint while restricting the so-called “market” liquidity needs of consumer business lines. As for Natixis, implementing this strategy will notably involve structured issues made via private placement, as well as deposit taking via corporate bonds in Europe, Asia and the US.
The following charts are established for information purposes on the basis of management data at year-end.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 156 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020 2020 MLT funding program
In 2020, under its annual medium-term funding program, Natixis raised €12.3 billion (and €8.7 billion net of PPS buybacks and calls) in resources compared with €11.5 billion (€7.4 billion net of buybacks and calls). Natixis benefited from the TLTRO resources provided by BPCE to finance the GBLs.
As proof of the return of this confidence and of the current strong appetite of investors for monetary assets, interbank rates (Euribor) have eased steadily from the month of April 2020 and remained below or very close to the deposit facility of the European Central Bank (-0.50%).
Over the year 2020, the outstanding amount of our short-term debt programs expressed in euros decreased by almost 10 billion (9.861), reflecting both lower refinancing requirements within the Group due to the liquidity provided to the market by central banks, the desire to reallocate issues to BPCE programs in the United States in particular and, to a lesser extent, the fall in the exchange rate of the dollar against the euro.
Containing the economic effects of the COVID-19 pandemic and supporting the smooth operation of the market required central bank intervention.
The measures announced in the first quarter by the ECB (deposit rate unchanged but more favorable conditions for the TLTRO III, implementation of the PEPP) were increased in size and the deadline for their application was extended during the year. As a result, the PEPP budget, which initially amounted to €750 billion, was increased to €1,850 billion. The program was also extended until March 2022 (vs. June 2021 initially).
The Fed for its part reduced its Fed Funds Rate twice (-50 bps and -100 bps) at its inter-meeting (0%-0.25%) and announced a near-unlimited quantitative easing program (in the form of purchases of treasury securities and MBS) as well as other facilities (PMCCF and SMCCF programs over the medium-to-long term).
The actions of the central banks drove rates down with a clear reduction in yields and spreads, a favorable move for the valuation of all assets.
In the credit market, the ECB continued purchases of non-financial corporate debt (CSPP) in euros as part of the Asset Program Purchase, thus supporting the primary market. In this segment, the amount issued in 2020 was approximately €484 billion (vs. €449 billion in 2019). Investment Grade (IG) funds recorded net inflows in 2020: €10 billion for IG euro funds and $139 billion for IG funds in US dollars. On the secondary market, euro-denominated senior preferred credit spreads returned to their levels of the beginning of the year. The Itraxx Fin index. Senior Eur, after peaking in March 2020 at 164, ended at 59, i.e. an increase of only 7 bps in 2020.
Issues and outstandings of Natixis’ medium- and long-term debt issuance programs
Targets and policy it establishes a “structural” foreign-exchange position when it purchases foreign currencies to fund net sustainable, strategic investments abroad, in proportion to the consumption of RWA in the currency in question.
Given its risk exposure to many currencies (including the US Dollar), Natixis' CET1 ratio is sensitive to changes in exchange rates. Natixis’ general policy for managing structural exchange risk consists in immunizing the CET1 ratio (CET1 in currency, in relation to RWAs in the same currency) against changes in exchange rates. To this end,
The CET 1 ratio’s sensitivity to exchange rate fluctuations is regularly assessed by the ALM Committee.
Barring exceptions, fixed-rate financial assets and liabilities are returned against bank offered rates via interest rate swaps and are predominantly housed in Treasury portfolios subject to ongoing management of interest rate risk. Accounting treatment of the hedging system is in accordance with international accounting standards.
sensitivity of economic value calculations: this indicator measuresV the change in this value under different yield curve distortion scenarios (including those defined by the EBA); changes in net interest income calculations: to calculate theV sensitivity of net interest income.
The interest rate gap below factors in all fixed-rate asset and liability positions and adjustable/variable-rate positions until the next date on which the rate is set. This indicator is calculated on a quarterly basis.
Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 2 to 5 years
Financial liabilities designated at fair value through profit or loss 27.9 0.0 1.1 6.0 2.5 3.6 4.4 8.7 1.6 0.0
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In this context, the Compliance Department participates in the implementation of standards, policies and procedures and issues opinions, in particular for the management of new activities, new products or new organizations by ensuring their compliance with the applicable texts.
The compliance function applies the operating and reporting principles of Groupe BPCE.
Natixis organizes its control functions on a global basis in order to ensure that the internal control mechanism is consistent throughout the Company. This organization aims to ensure compliance with the principle of strict independence between, on the one hand, the operational and functional units responsible for initiating and validating transactions, and, on the other hand, the units that control them.
At least one Compliance Officer is appointed for each country in which Natixis operates.
The Compliance Department is equipped with a set of tools to cover all the areas within its remit, namely: operational analysis tools used in conjunction with KYC tools toV detect money laundering and internal fraud and prevent terrorist financing; data-comparison systems to verify client databases and screenV transactions to ensure compliance with embargoes; tools to track sensitive transactions, keep insider lists, manageV conflicts of interest and detect instances of market abuse; tools to ensure all permanent level 2 controls incumbent on theV compliance function.
In accordance with the requirements of the EU Regulation on market abuse, Natixis has set up a framework for detecting transactions likely to constitute market abuse. This framework is incorporated within its internal control system. Alerts are processed and potential cases of market abuse are analyzed by a surveillance tool and dedicated teams. Transactions that could constitute market abuse are reported to the Autorité des Marchés Financiers (AMF – French Financial Markets Authority) or to local regulators, in accordance with the regulations in force.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 162 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
The customer contact entry tool has been rolled out across all Major Clients Banking locations.
MiFID 2 and IDD (Insurance Distribution Directive) established the principle of product governance, which aims to define and regularly review a target market for all financial instruments and insurance products sold by Natixis and to ensure that the product was sold to the intended target. This includes ensuring that the distribution strategy is consistent with and appropriate for the target market. Product governance applies to all kinds of clients, regardless of their classification, and all products regardless of their level of complexity or trading venue.
2020 was a year marked by the continuation of the work undertaken concerning: managing the financial security system;V
the international sanction compliance framework, especially theV system for screening transactions and client databases; the KYC system, notably through revised and harmonizedV governance and the launch of new KYC optimization and digitization projects; the implementation of an automated daily media watch onV Natixis S.A.’s business relationships; work on the convergence of the financial security systems of theV Asset Management entities and the Natixis M&A stores with the Natixis global system; the strengthening of the corruption risk mapping methodology, inV conjunction with BPCE, in line with AFA recommendations.
In accordance with the regulations in force, Natixis’ AML-CTF system primarily consists of the following items: in-depth and up-to-date information about the businessV relationship, both before onboarding and throughout the relationship; a risk-based approach allowing clients to be classified according toV the money laundering and terrorist financing risks identified; a screening system for client databases and transactions thatV uses automated tools or requests; an oversight system using permanent and periodic controls;V
internal transmission of alerts and suspicions to the departmentV authorized to report suspicions to the relevant financial intelligence units; a system for archiving and storing data relating to businessV relationships and operations; an employee training and information system.V
A team of experts dedicated to financial sanctions provides specific assistance and advice to the Bank’s business lines and entities.
Anti-fraud measures are steered by the Anti-fraud Coordination Unit in collaboration with the relevant business lines. This unit is also in charge of drafting and implementing standards and principles for fraud risk management and of coordinating the anti-fraud officers’ network across Natixis’ branches and subsidiaries in France and abroad.
More specifically, risk linked to capital market activities is closely monitored and subject to specific first- and second-level controls overseen and implemented by a dedicated team within CIB Compliance. Social engineering-type payment fraud is also subject to constant vigilance and specific prevention measures, including dedicated training. Finally, the risk of information leaks, which has become a major risk, is the subject of a specific control and
In accordance with the requirements set out in Article 17 of the law of December 9, 2016 on transparency, the prevention of corruption and the modernization of the economy (known as “Sapin II”), Natixis has strengthened and added certain rules and procedures to its compliance framework to align them with the highest international standards in corruption prevention.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 164 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
In accordance with the directives of the European Banking Authority on information and communication technology risks, Natixis has strengthened its technological risk management system. In particular, Natixis has set up two lines of defense, the effective coordination of which is guaranteed by the holding of regular “Cyber security and continuity” Steering Committee Meetings. The IT Department and business line correspondents make up the first level. The Information Systems Security and Business Continuity (ISS-BC) Department, which reports to the Compliance Department, forms the second line of defense. Natixis is also part of Groupe BPCE’s Information Systems Security and Business Continuity divisions. As such, it applies the policies and methods defined by Groupe BPCE.
The ISS-BC Department coordinates its activities based on risks. It employs a method which identifies, in terms of operational risk, the risk situations of concern to the business lines and their vulnerable IT assets. Risk assessments may be conducted during the annual review or may be completed as part of work done to support another project. The business projects monitored by ISS-BC generally give rise to specific security requirements in order to better control risks.
In light of these risks, the ISS-BC Department implements an annual second-level permanent control plan covering all areas of IT system security. Particular attention is paid to checks on access rights and intrusion tests on information assets exposed on the Internet.
Natixis has extended its technological risk management system to include risks related to IT processes (IT governance and strategy, IT production, IT system development management).
The ISS-BC department has modified its risk mapping accordingly and has drawn up operational policies aimed at controlling all these risks. Their deployment should take place in 2021, as well as the associated second-level controls.
Reporting to the Chief Compliance Officer, the Natixis Data Protection Officer coordinates a community of “data privacy liaisons” distributed across all Natixis entities and business lines.
This unit aims to ensure that Natixis complies with all regulations relating to the protection of personal data and, more specifically, to ensure compliance with the European Regulation on the protection of personal data (GDPR). A Data Privacy Committee meets regularly to monitor the function’s activities and manage the remaining alignment measures required. These include the launching by the IT Department of a multi-year project for the remediation of the relevant IT assets.
The most significant disputes are described below. Their inclusion in the list does not indicate that they will necessarily have an impact on Natixis and/or its consolidated subsidiaries. The other disputes are deemed unlikely to have a material impact on Natixis’ financial position or profitability 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.
Outstanding assets exposed to the Madoff affair as expressed in euros were estimated at €503.4 million at December 31, 2020 and were fully provisioned for at that date. The effective impact of this exposure will depend on both the extent of recovery of assets invested for Natixis and the outcome of the measures taken by the bank, notably in terms of legal proceedings. Furthermore, in 2011 a dispute emerged over the application of the insurance policy for professional liability in this case, which had been taken out with successive insurers for a total amount of €123 million. In November 2016, the Paris Court of Appeal vindicated the Commercial Court’s prior ruling that primary insurers were liable to cover the losses incurred by Natixis due to the Madoff fraud, up to the amount for which the bank was insured. On September 19, 2018, the Court of Cassation subsequently annulled the judgment under appeal and referred the case back to the Paris Court of Appeal with a differently constituted bench. On September 24, 2019, the Court ruled against Natixis, overturning the ruling by the Commercial Court of Paris. Natixis filed an appeal with the Court of Cassation in December 2019.
In March 2009, the Paris public prosecutor’s office (Parquet de Paris) launched a preliminary investigation into a complaint filed by Natixis minority shareholders and coordinated by the Association de Défense des Actionnaires Minoritaires (ADAM – Association for the Defense of Minority shareholders). As the plaintiffs have initiated civil proceedings, a judicial investigation opened in 2010. On February 14, 2017, Natixis came under investigation for false and misleading information on account of two messages sent in the second half of 2007, at the beginning of the subprime crisis.
On February 6, 2017, the Commercial Court of Paris dismissed all of MMR Investment Ltd’s claims. This ruling was upheld by the Paris Court of Appeal on October 22, 2018. An appeal was lodged by MMR Investment Ltd. The case is ongoing.
Two of these five proceedings relate to accusations of fraud. One was dismissed in 2015 as time-barred. Some of the claims relating to the second case were also dismissed as time-barred and, in 2018, Natixis settled the outstanding claims before the court issued a final ruling on the merits of the case.
Three of these five proceedings have been brought against Natixis, purportedly on behalf of certificate holders, alleging that Natixis failed to repurchase defective mortgages from certain securitization transactions. Two of them were dismissed as time-barred, and the plaintiffs’ appeals were also dismissed. As for the only action currently in progress, which involves a claim of approximately USD 820 million, Natixis believes that the claims against it are unfounded for a number of reasons. In particular because the actions against it are time-barred (and because the plaintiffs do not have standing) to act.
Selcodis is asking for compensation for the losses purportedly suffered as a result of the court-ordered liquidation of its subsidiary EDA, and is requesting that the defendants be ordered to pay damages and interest, which it assesses to be €32 million. For its part, EDA is requesting that the defendants be ordered to bear the asset shortfall in its entirety, with its amount being calculated by the court-appointed receiver.
In June 2014, MPS Foundation (Fondazione Monte dei Paschi di Siena), an Italian foundation, filed a claim against 11 banks, including Natixis, which granted it financing in 2011 at the request of its previous executive officers, on the grounds that the financing thus granted was in violation of its bylaws, which state that MPS Foundation cannot hold debt exceeding 20% of its total balance sheet. The damages claimed by MPS Foundation against the banks and its former directors amount to €285 million.
Following an objection as to jurisdiction, the Tribunal of Siena referred the case to the Tribunal of Florence on February 23, 2016. The case is ongoing.
Following an inspection by the AMF in February 2015 with regard to Natixis Asset Management’s (now Natixis IM International) compliance with its professional obligations, particularly the management of its formula funds, the AMF’s Enforcement Committee delivered its decision on July 25, 2017, issuing a warning and a fine of €35 million. The Enforcement Committee found a number of failings concerning the redemption fees charged to funds and structuring margins.
All of SWL’s claims were dismissed in a ruling by the Charleroi Commercial Court on November 28, 2014. On September 12, 2016, the Mons Court of Appeal annulled the contested swap agreement and ordered Natixis to repay to SWL the amounts paid by SWL as part of the swap agreement, less any amounts paid by Natixis to SWL under the same agreement and taking into account any amounts that would have been paid had the previous swap agreement not been terminated. The Court of Cassation of Belgium overturned this ruling on June 22, 2018. In February 2019, SWL lodged an appeal procedure with a Court of Appeal.
On April 22, 2020, the Court of Appeal of Liège annulled the contested swap agreement and ordered Natixis to repay to SWL an amount corresponding to the difference between the execution cost of the contested swap agreement and the many amounts that would have been paid had the previous swap agreement not been terminated, in addition to interest at the legal rate.
In its decision on July 21, 2020, the Court of Milan dismissed all Lucchini Spa’s claims and sentenced it to pay cost of proceedings for a total amount of €1.2 million, of which €174 thousand for each bank of group of banks. This decision is subject to appeal.
Natixis Intertitres received a fine of €4,360,000, along with two other fines totaling €78,962,000, jointly and severally with Natixis.
On July 17, 2020, a case was brought against Natixis and another defendant before the English courts in order to request a declaratory judgment recognizing the merits of a set-off made on a transaction financed by Natixis. The plaintiff is also contesting the transfer to Natixis of the payment rights under the transaction. Natixis counterclaimed for payment in the amount of US$55,396,323.46.
In March 2020, cases were brought before the courts of the State of New York following a set-off made by Natixis upon the payment of a standby letter of credit, the set-off taking into account a debt of the recipient of a standby letter of credit. Natixis asks the Court to uphold the merits of the set-off and to dismiss the demand for payment made against the bank in the amount of US$46,076,165.15.
The hearing was held on November 29, 2020 and a decision is expected in the coming months.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 168 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
Market risk Market risk is in large part borne by the subsidiary BPCE Vie on the financial assets that underpin its commitments with guaranteed principal and returns (euro-denominated policies: €59.8 billion on the main fund balance sheet). The Company is exposed to asset impairment risk (fall in the equity or real estate market, widening spreads, interest rate hikes) as well as the risk of lower interest rates which would generate insufficient income to meet its guaranteed principal and returns. To manage this risk, BPCE Vie has only sold policies with a minimum guaranteed return in recent years: more than 95% of the policies have a zero minimum guaranteed return. The minimum guaranteed return averages 0.12%.
Through its activities, Coface is exposed to five types of risk: credit risk, financial risk, strategic risk, reinsurance risk, operational risk, and compliance risk. The two main types of risk are credit risk and financial risk.
Credit risk Credit risk is defined as the risk of loss, due to non-payment by a debtor, of a receivable owed to a policyholder of the group. Coface manages credit risk through a number of procedures, whose scope includes the approval of the terms of policies relating to products, pricing, monitoring of credit risk hedges and portfolio diversification. The concentration of exposure (country, sector, debtors, etc.) may exacerbate credit risk. Traditionally, Coface makes a distinction between frequency risk and event risk: frequency risk represents the risk of a sudden material increase inV delinquency by numerous debtors. This risk is measured for each region and country by monitoring the instantaneous loss ratio(1). As regards exposure and portfolio monitoring, the group has set up a refined management of its risks. Accordingly, delinquent payments are analyzed weekly by the senior management committee and monthly by the group underwriting committee. Loss ratios for the different underwriting regions are also monitored at the consolidated Coface level; The instantaneous loss ratio is a weekly indicator that reproduces the change in the loss ratio. It is monitored for each region and each country and is reported weekly by (1) Coface to allow underwriters to monitor the change in their portfolio and detect any deterioration and therefore introduce corrective actions as early as possible.
Risk management 169NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020www.natixis.com event risk represents the risk of abnormally high losses recordedV for the same debtor or group of debtors, or of an accumulation of losses for the same country. Event risk is covered by Coface Re reinsurance.
In addition to weekly and monthly monitoring of each region and country, Coface has implemented a system based on: the centralization of reserves for claims exceeding a certainV amount per debtor which are then analyzed ex-post to improve the information, underwriting and recovery activity’s performance; a Debtor Risk Assessment (DRA) system covering all debtors; andV
Management of financial risks is thus based on a rigorous system of standards and controls which is regularly reviewed: interest rate risk and credit risk: The majority of Coface’sV allocations are in fixed-income products, ensuring stable and recurring revenues. The overall maximum sensitivity of the bond portfolio has been deliberately capped at 5 and stood at 4.17 at December 31, 2020. There is still no exposure to Greek sovereign debt. As part of the strategic allocation and due to the health crisis, Coface implemented actions aimed at reducing the investment portfolio exposure from the start of the crisis. The risk was controlled thanks to the review of all portfolio counterparties, starting at the end of February, and the reduction in exposure to Italian and Spanish government debt, emerging market debt and high-yield debt, BBB-rated investment grade corporate bonds and equities, with a preference for the money market; foreign exchange risk: the majority of Coface’s investmentV instruments are denominated in euros. Subsidiaries and branches using other currencies must observe the same principles of congruence. In addition, for the majority of the portfolio, which includes all of the group’s European entities, foreign exchange risk is systematically hedged for investments in foreign currencies that do not comply with the matching principle. As a result, as of December 31, 2020, investments in bonds denominated in US dollars, pounds sterling, yen, Norwegian krone and Swedish krona in this portfolio were systematically hedged against euros by the managers in charge of the relevant portfolios. Foreign currency transactions carried out by the subsidiaries are monitored by the Group to decide on a case-by-case basis whether an associated hedge is required; equity risk: exposure is capped at less than 10% of the portfolioV and is concentrated in the euro zone, in connection with its core business. At December 31, 2020, equities represented 5.3% of the investment portfolio, including 5% of equities listed on a euro zone market. These investments were partially hedged on the Eurostoxx 50 index. This hedging can be adjusted in line with investments and the amount of unrealized capital gains or losses on shares held;
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 170 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020 counterparty risk: the maximum exposure to any givenV counterparty is set at 5% of assets under management, with exceptional exemptions for short-term exposures. At December 31, 2020, more than 95% of the bonds held by the group had a median rating equal to or higher than BBB- and no exposure rated CCC by at least one internationally recognized rating agency; a maturity of less than three years as at December 31, 2020 and an increase in securities with a maturity greater than five years (39.8% compared to 31.6% in 2019) due to the increase in maturities of the bond portfolio. The vast majority of the portfolio is listed on OECD markets and carries a liquidity risk that is currently considered as low.
(This information forms an integral part of the financial statements certified by the Statutory Auditors).
The membership of these various bodies is presented in Chapter [2] of this universal registration document. The Internal Rules of the Board of Directors, including the procedure for calling meetings, can be found in Chapter [2] paragraph [2.3.1].
The identification and management of risks linked to social and climate change are presented in Chapter [6] of this universal registration document.
Throughout the financial year ended December 31, 2020, and to date, Natixis has implemented a framework for controls and disclosure procedures to ensure the completeness and accuracy of the information provided in Natixis’ Pillar III.
Since January 1, 2014, the Capital Requirements Directive (CRD) IV and the Capital Requirements regulation (CRR) have applied Basel 3 regulations in Europe. The CRD IV was enacted into French law by the French Ministerial Order of November 3, 2014.
All of these new provisions were accompanied by a phase-in mechanism, with the aim of gradually implementing the new requirements.
In accordance with Article 19 of the CRR, the regulatory consolidation scope is established based on the following principles: Entities, excluding insurance companies, that are fully consolidated or consolidated under the equity method in the statutory consolidation scope (see – Note 17 of Chapter 5.1) are included in the regulatory consolidation scope; the Group’s insurance companies are accounted for under the equity method in the regulatory consolidation scope.
Differences between accounting and regulatory scopes of consolidation and the mapping of financial statement categories with regulatory risk categories (EU LI 1)
Not subject to regulatory capital requirements or subject to deduction from capital
Customer loans and receivables at amortized cost 67,939 66,908 62,705 4,203 - 1,302 -
Deposits and loans due to banks and similar items 84,408 80,242 - 5,093 - 2,711 75,149
Deposits and loans due to customers 29,798 30,054 - 17 - - 30,037
Revaluation adjustments on portfolios hedged against interest rate risk 183 183 - - - - 183
Accrual accounts and other liabilities 6,274 6,004 - - - - 6,004
Liabilities related to insurance policies 104,178 - - - - - -
FCT NA F ECO IMM II Full consolidation Equity method Insurance investments
Until 2021, regulatory capital is subject to phase-in arrangements and grandfathering provisions to support the roll-out of the CRR. Since January 1, 2019, only the grandfathering arrangements are still active, the phasing having ended.
CET1 is calculated using shareholders’ equity (excluding reclassified hybrid securities), with the following restatements: estimated dividend;V
own credit risk on debts issued and financial instruments (DebitV Value Adjustment); prudent valuation adjustments;V
amount exceeding threshold 1 on non-material holdings of capitalV instruments issued by financial entities; amount exceeding threshold 2 on material holdings of capitalV instruments issued by financial entities; amount exceeding threshold 2 on deferred tax assets dependentV on future earnings and resulting from temporary differences; amount exceeding threshold 3 common to amounts not deductedV in respect of threshold 2; any surplus deduction of Additional Tier One capital (see below);V
AT1 capital comprises: subordinated debt instruments recognized as AT1 after applyingV phase-in arrangements; deductions made from this category;V
Own credit risk: liabilities and derivatives net of deferred taxes 91
Accumulated other comprehensive income (and other reserves, to include unrealized gains and losses under the applicable accounting standards) 2,321 26 (1)
4 Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to phase out from CET1 0 486 (2)
Common Equity Tier 1 capital: regulatory adjustments 7 Additional value adjustments (negative amount) (389) 34, 105 8 Intangible assets (net of related tax liability) (negative amount) (3,645) 36 (1) (b), 37 9 Empty set in the EU
14 Gains or losses on liabilities at fair value resulting from changes in own credit standing (53) 33 (1) (b)
20b o/w qualifying holdings outside the financial sector (negative amount) 0 36 (1) (k) (i), 89 to 91 20c o/w securitization positions (negative amount) 0 36 (1) (k) (ii), 243 (1) (b), 244 (1) (b), 258 20d o/w free deliveries (negative amount) 0 36 (1) (k) (iii), 379 (3)
o/w direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities; 0 36 (1) (i), 48 (1) (b)
25 o/w deferred tax assets arising from temporary differences 0 36 (1) (c), 38, 48 (1) (a)
28 Total regulatory adjustments to Common Equity Tier 1 (CET1) (4,980) Sum of lines 7 to 20a, 21, 22 and 25a to 29 Common Equity Tier 1 (CET1) 12,143 Line 6 plus line 28
36 Additional Tier 1 (AT1) capital before regulatory adjustments 2,073 Sum of lines 30, 33 and 34
43 Total regulatory adjustments to Additional Tier 1 (AT1) capital (22) Sum of lines 37 to 42 44 Additional Tier 1 (AT1) capital 2,051 Line 36 + line 43 45 Tier 1 capital (T1 = CET1 + AT1) 14,194 Sum of lines 29 and 44
67a o/w global Systemically Important Institution (G-SII) or Other Systemically Important Institution (O-SII) buffer 0.000%
Direct and indirect holdings of the capital of financial sector entities where the institution does not have a significant investment in those entities (amount below 10% threshold and net of eligible short positions) 199
Dividends proposed to the General Shareholders’ Meeting and expenses (189) (977)
(in millions of euros) Equity Interest rates FX Credit Commodity Total o/w: in trading portfolio o/w: in banking book
Holdings of own funds instruments of a financial sector entity where the institution has a significant investment not deducted from own funds (before risk-weighting) 3,074
Deferred tax assets that rely on future earnings (excluding temporary differences) 7
Impact of phase-in arrangements 0 o/w impact of changes in phase-in rate 0 o/w impact of change in basis subject to phase-in arrangements 0
Amount of Additional Tier 1 (AT1) capital at end of period 2,051
At €105.0 billion, risk-weighted assets increased by +€6 billion in 2020.
(in billions of euros) Credit risk CVA Market risk Operational risks Total RWA
Market risks were up +€1.9 billion, mainly due to market conditions in view of the health crisis, totaling €13.1 billion at December 31, 2020.
Operational risk decreased by -€0.8 billion. This change is attributable the replacement of the benchmark indicator for 2020 with that of 2017, the standard calculation using the average indicator for the previous three years.
The capital planning system adapts all processes with the aim of ultimately meeting the requirements of the supervisory authorities, shareholders and investors: continuously maintaining the targets set in terms of capitalV adequacy; developing an internal approach for measuring capitalV requirements (normative and economic) and overseeing Natixis’ resilience under stress scenarios (ICAAP); projecting capital requirements specific to business line activity,V within the framework of Natixis’ overall capital adequacy policy; anticipating regulatory changes and their impact on Natixis’V various business lines; implementing a system for analyzing the capital consumption ofV the businesses and their profitability on the basis of Basel 3/CRR risk-weighted assets; allocating capital to the business lines, within the framework ofV strategic plan and annual budget procedures, taking into account business requirements, profitability and balance between the core business divisions.
Together with Groupe BPCE as a whole, Natixis contributes to collecting detailed information on liabilities, as required by the SRB in 2018. The mechanisms for monitoring and anticipating this new ratio have yet to be defined, in conjunction with Groupe BPCE.
The Basel Committee has set up a system for managing leverage account have only been used since September 30, 2016, in risk. The system was included in the CRR, defining leverage as being accordance with the implementation deadlines. equal to Tier 1 capital divided by on-balance sheet exposures (after certain restatements, notably on derivatives and repurchase agreements) and off-balance sheet exposures (after applying balance sheet equivalent conversion factors). The CRR was amended by a Delegated Act, which entered into force on March 31, 2015. The reporting templates that take those amendments into
Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation (112,079) (105,920)
Adjustment for securities financing transactions (repurchase transactions and other types of collateralized loans) (1,575) (15,612)
minimum regulatory requirement of 3% applied to the “strict” ratio (including transactions with BPCE and other affiliates of Groupe BPCE). This system was supplemented from the summer of 2020 by “strict” monthly measures as part of the implementation of the COVID-19 report requested by regulatory authorities.
Since 2015, Natixis has kept its “Financial Communication” leverage ratio (excluding transactions with BPCE and other affiliates of the Groupe BPCE) above 4% at the end of each quarter. This threshold set by the ALM Committee aims to ensure compliance with the
Natixis complied with its internal rules governing leverage risk throughout the year. Their management was facilitated this year, on the one hand, by the retention of the 2019 dividend from March, and by the exclusion (under certain conditions) from the exposure base of the cash invested in the Banque de France deposit facility.
TOTAL ON-BALANCE SHEET EXPOSURES (EXCLUDING DERIVATIVES AND SFTS) (SUM OF LINES 1 AND 2) 237,114 245,416
Replacement cost associated with all derivative transactions (i.e. net of eligible cash variation margin) 9,215 7,618
(Deductions of receivables assets for cash variation margin provided in derivatives transactions) (14,505) (14,134)
(Adjusted effective notional offsets and add-on deductions for written credit derivatives) (13,649) (9,010)
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 184 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions 87,317 95,448
(Exemption of intra-group exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No. 575/2013 (on and off-balance sheet))
Total leverage ratio exposures (sum of lines 3, 11, 16 and 19) 370,669 381,876
Choice on phase-in arrangements for the definition of the capital measure
Leverage ratio: based on delegated act rules, without phase-in measures (presentation including 2019 earnings, net of dividends (1) declared) and with the * assumption that non-eligible subordinated notes under Basel 3 are renewed by eligible notes. Repo transactions with central counterparties are offset in accordance with IAS 32 rules without maturity or currency criteria. The ratio is presented after canceling transactions with affiliates, pending ECB authorization. [1] In accordance with the ECB’s recommendations, the 2019 dividend was reintegrated into the share capital of Natixis and no dividend accrual was made in the first nine months of the year 2020 - see press release dated March 31, 2020. Proposed dividend for 2020 deducted from regulatory capital as from the fourth quarter of 2020.
banner known as “Head of Group”. Compliance with these regulations is measured daily, ensuring that risk-weighted assets (RWA) relating to each Head of Group are systematically lower than the Large Exposure Limit, currently set at 10% of Natixis’ total capital. Natixis complied with this regulation throughout 2020.The objective of these regulations is to limit Natixis’ exposure to the risks associated with a set of counterparties, grouped under a
Following the implementation of the new securitization framework, only subtotal securitization for 2019 is presented in this report.*
Exposures to institutions and corporates with a short-term credit assessment 11 45 109 1 166
Defaulted exposures Non-defaulted exposures Allowances/impairments Net values (a + b - c)
Exposures to institutions and corporates with a short-term credit assessment 95 95
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 190 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
Exposures to institutions and corporates with a short-term credit assessment 93 106
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 192 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
Central government or central banks 486 427 227 5,671 463 7,274
Exposures to institutions and corporates with a short-term credit assessment 9 39 9 10 1 9 6 10 93
Sub-total SA 31/12/2020 by geographic area 61,750 729 6,909 1 6,909 118 600 17 35 70,158
TOTAL AT 31/12/2020 BY GEOGRAPHIC AREA 156,682 35,244 19,512 6,012 7,597 3,824 4,568 1,531 234,969
TOTAL AT 31/12/2019 BY GEOGRAPHIC AREA 149,514 34,776 20,936 8,069 7,545 4,939 6,017 1,641 233,437
Secured by mortgages on immovable property 12 110 3 157 282
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 196 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
o/w step 1 o/w step 2 o/w step 2 o/w step 3 o/w step 1 o/w step 2 o/w step 2 o/w step 3
S&P Long term 1 AAA to AA- 20 2 A+ to A3 BBB+ to BBB-
Credit risk exposures: standardized approach SA – Credit risk exposure and crm effects (EU CR4)
Secured by mortgages on immovable property 276 5 276 3 112 40%
Exposures to institutions and corporates with a short-term credit assessment 39 21 16 11 87
Exposures to institutions and corporates with a short-term credit assessment 100% 0% 0% 100% 10.6%
As of 31/12/2020 the United Kingdom is still considered in the EU.*
RWA flow statements of credit risk exposure under the IRB approach (CR8)
Central governments and central banks 0.15 to <0.25 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10 to <100 100.00 (default)
Retail – qualifying revolving 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10 to <100 100.00 (default)
Retail – Residential mortgage exposures 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10 to <100 100.00 (default)
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 206 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
IRB – Specialized lending and equities under the simple risk weight method (excluding impact of thresholds) (CR10)
Simple risk-weighted approach on specialized lending only applied by the SFS entities sold in BPCE in early 2019.*
(in millions of euros) On-balance sheet exposure Off-balance sheet exposure Total risk weight EAD RWA
Type and nature of exposure (in millions of euros) IRB Approach Standardized approach Total at 31/12/2020 Total at 31/12/2019
Internal Model Method (for derivatives and SFTs) 12,28 1.4 17,260 4,181
Exposures to institutions and corporates with a short-term credit assessment 6 55 18 79
Of which €2,776 million in exposure to Groupe BPCE affiliates at December 31, 2020.*
Institutions 0.50 to <0.75 0.75 to <2.50 10.00 to <100.00 100.00 (default)
Central governments and central banks 0.50 to <0.75 0.75 to <2.50 10.00 to <100.00 100.00 (default)
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 210 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
RWA flow statements of CCR exposures under internal model method (IMM) (EU CCR7)
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 212 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
(See Consolidated financial statements and notes – Note 5 Accounting principles and valuation methods.)
Securitization positions classified under Faire value through equity are measured at their market value and any changes, excluding income recognized using the effective interest method, are recorded in a specific line in equity. Securitization positions (classified as debt instruments) are tested for impairment at each reporting date and an impairment charge is recorded under “Provisions for credit losses”.
The market value is measured according to principles described in Note 5.6 of Accounting principles which can be found in Section 5.1 “Consolidated financial statements and notes” to Chapter [5] “Financial data”. Gains or losses on the disposal of securitization positions are recognized in line with the rules applicable to the category in which the positions sold were initially classified.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 214 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
EAD and RWA according to natixis’ role in the banking book (NX31-A)
Securitization exposures in the banking book and associated capital requirements – Bank acting as investor (SEC4)
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 216 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
Nature of risk (in millions of euros) RWA Regulatory capital requirement
Average of the daily VaR (Article 365 (1) of the CRR) on each of the preceding 60 business days x multiplication factor (in line with Article 366) 2,240 179
Average of the daily SVaR (Article 365 (2) of the CRR) during the preceding 60 business days x multiplication factor (Article 366) 4,473 358
The measurement and monitoring of interest rate risk is presented in section [3.2.7 “Risk management – Overall interest rate risk”].
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 218 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
Template A – Encumbered and unencumbered assets (in millions of euros)
Loans and receivables other than call loans 0 0 2,605 0
At December 31, 2020, total balance sheet assets and encumbered guarantees received totaled €214,622 million. These can be broken down by type and source of liabilities: securities transactions, including in particular securities lendingV and repurchase agreements, for a total of €198,368 million; encumbered receivables securing covered bond vehicles (NatixisV Pfandbriefbank), for a total of €1,132 million; encumbered receivables in vehicles other than covered bond assetV pools, such as central bank refinancing or other market vehicles, for a total of €519 million; assets encumbered by the payment of margin calls on derivativeV positions, for a total of €16,461 million.
These new rules were enacted in the European Union through Regulation (EU) No. 575/2013 of June 26, 2013, which laid down the filing obligations in force during the observation period from January 1, 2014 and set forth the conditions of implementation of these prudential requirements. For the LCR, Delegated Regulation (EU) No. 2015/61, published on October 10, 2014, entered into force on October 1, 2015. This regulation was amended by Delegated Regulation (EU) 2018/1620, published on July, 13 2018 and applicable as from April 30, 2020.
To date, European Regulations require: compliance with the LCR as from October 1, 2015; requiredV minimum ratio of 80% on January 1, 2017 and 100% from January 1, 2018; quarterly statements on stable funding, which are entirelyV descriptive (amounts and terms) without any weighting applied.
The liquid asset buffer – in the regulatory sense – is the numerator of the LCR (HQLA) and predominantly consists of: level 1 liquid assets, i.e. cash deposited with central banks;V
other level 1 liquid assets, consisting mainly of marketableV securities representing claims on, or guarantees by, sovereigns, central banks and public sector entities, and high-rated covered bonds; level 2 liquid securities consisting mainly of covered bonds andV debt securities issued by sovereigns or public sector entities not eligible for level 1, corporate debt securities and equities listed on active markets that satisfy certain conditions.
Inflows from fully performing exposures 21,764 21,892 20,966 19,084 20,454 20,617 19,776 17,965
(Difference between total weighted cash inflows and total weighted cash outflows resulting from transactions conducted in other countries applying restrictions on transfers or which are denominated in non-convertible currencies) 0 0 0 0
Cash inflows (exempt from cap) 0 0 0 0 0 0 0 0
Operational liquidity reserves From an operational standpoint, Natixis has liquidity reserves that contribute to Groupe BPCE’s reserves: reserves of liquid assets eligible for central bank collateralizedV refinancing operations to secure intra-day settlements; denominated in EUR, US Dollar and JPY, these are located at Natixis Paris, Natixis New-York and Natixis Japan Securities respectively, which are the access points to the drawing and deposit facilities of the Banque de France, the US Fed and Bank of Japan; a liquidity reserve established in advance to meet a liquidity crisisV similar to the one simulated by the LCR; it is mainly composed of cash deposited at the Central Bank deposit facilities. A portion of this reserve is allocated to a portfolio of HQLA level 1 and level 2 securities, the management of which is supervised by the Buffer Committee chaired by two members of the Senior Management Committee, respectively in charge of Finance Division and Risks Division and included in the Group’s “Liquidity Management Plan” (LMP). This reserve includes a reserve carried by the American platform composed of cash, HQLA securities and receivables and held within the framework of the regulation “Dodd-Frank Enhanced Prudential Standards” and the program “Borrower-in-Custody”.
Monitoring of rating trigger clauses In the event the Bank’s external credit rating is downgraded, it may be required to provide additional collateral to investors under agreements that include rating triggers. In particular, in calculating the liquidity coverage ratio (LCR), the amounts of these additional cash outflows and additional collateral requirements are measured. These amounts comprise the payment the bank would have to make within 30 calendar days in the event its credit rating were downgraded by as much as three notches.
The compensation policy items required in respect of Regulation (EU) 575-2013 (CRR) are provided in Chapter [2] of this universal registration document.
Article 435 (a) (EBA) EU OVA – Bank risk management approach 124 -128
Article 435 (a) (EBA) MRA – Qualitative disclosure requirements related to market risk 140-144
Article 438 (c) (f) (EBA) EU OV1 – Overview of RWA 185
Art. 442 (d), (e) and (f) NX05 – EAD by geography and by exposure class 138
Art. 453 (d) NX17 – Secured exposure by rating and by type of guarantor 186
Article 453 (f) and (g) (EBA) EU CR3 – Credit risk mitigation techniques – Overview 187
Article 442 (c) (EBA) EU CRB-B – Total and average net amount of exposures 191
Article 442 (d) (EBA) EU CRB-C – Geographical breakdown of exposures 192
Article 442 (f) (EBA) EU CRB-E – Maturity of exposures 194
Article 453 (f) and (g) (EBA) EU CR4 – Standardized approach – credit risk exposure and Credit Risk Mitigation (CRM) effects 200
Article 452 (a) (c) (EBA) EU CRE – Qualitative disclosures related to IRB models 117
Article 453 (g) (EBA) EU CR7 – Internal rating – Effect on RWA of credit derivatives used as CRM techniques 187
(EBA) EU CR8 – RWA flow statements of credit risk exposures under IRB 208
Article 92 (3) and 438 (d) (EBA) EU CCR7 – RWA flow statements of CCR exposures under the IMM 211
Article 439 (e), (f) and (i) (EBA) EU CCR1 – Analysis of counterparty credit risk (CCR) exposure by approach 208
Article 439 (e) and (f) (EBA) EU CCR2 – Credit valuation adjustment (CVA) capital charge 212
Article 444 (e) (EBA) EU CCR3 – Standardized approach of CCR exposures by regulatory portfolio and risk weight 208
Article 439 (g) and (h) (EBA) EU CCR6 – Credit derivative exposures 211
Article 449 (BCBS) SEC4 – Securitization exposures in the banking book and associated regulatory capital requirements – bank acting as investor 215
Article 105 and Article 455 (c) (EBA) EU MRB A – Qualitative disclosures for banks using the Internal Models Approach (IMA) 130-134
Article 455 (a) and (b) (EBA) EU MRB B – Qualitative disclosures for banks using the Internal Models Approach (IMA) 130-134
Article 455 (e) (EBA) EU MR2 – A – Market risk under internal models approach 217
Article 455 (d) (EBA) EU MR3 – IMA values for trading books 216
Article 446 (BCBS) ORA – General qualitative data on operational risk management 148
Article 377 (6) and Article 105 (BCBS) PV1 – Prudential valuation adjustments 180
Article 99 (5) and Article 415 (3) (EBA) GOV – Sovereign exposures 195
Article 16(3) (EBA) NPL 1 – Credit quality of forborne exposures 196
Differences between accounting and regulatory scopes of consolidation and the mapping of financial statement categories with regulatory risk categories (EU LI 1) 172-173
Transition from shareholder’s equity to prudential capital after applying phase-in arrangements 176
EAD by category and by agency – standardized approach (NX11 BIS) 186
Credit quality of performing and non-performing exposures by days past due (NPL3) 196
S.A. – exposures (EAD) by asset classes and risk weights (CR5) 200
Main internal models: PD, LGD, CCF and volatility discounts (EU CRE) 134
IRB – specialized lending and equities using the simple risk-weighted asset method (excluding impact of thresholds) (EU CR10) 206
Breakdown of equity exposures by main Natixis business line (NX23) 207
Standardized approach – CCR exposures by regulatory portfolio and risk weight (EU CCR3) 208
IRB – CCR exposures by portfolio and PD scale (EU CCR4) 209
Securitization exposures in the banking book and associated capital requirements – Bank acting as originator or as sponsor (SEC3) 215
Securitization exposures in the banking book and associated capital requirements – Bank acting as investor (SEC4) 215
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 224 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020
NII sensitivity and economic value of equity (IRRBB – Table B) 158
Information about Natixis S.A.4.5 243 Natixis S.A.’s parent company 4.5.1 income statement 243
Growth and monetary policies4.1.1.1 2020 will have been an unprecedented year in modern history, with the COVID-19 pandemic causing the most severe post-war global recession and simultaneously hitting the largest number of countries since the 1870s (according to the World Bank).
In the first half of 2020, the COVID-19 crisis plunged the global economy into a recession of unprecedented magnitude and deep uncertainty. From March onwards, most countries imposed more or less strict lockdown measures, which resulted in a sharp drop in activity and a collapse in global trade. The figures for the first quarter gave the first glimpse of the shock. In China, where the epidemic originated, GDP plummeted 9.8% in the first quarter. The euro zone lost 3.8%, the UK 2.2% and the US 1.2% (5% at an annualized rate). The second quarter saw much sharper falls (around 12% in the euro zone) in a context of generalized confinement.
In this context, central banks acted swiftly and vigorously to deploy an arsenal of both conventional and unconventional measures to limit liquidity risk and avoid the price of certain assets, and especially corporate debt, from going into freefall. Several banks thus lowered their key rates, reinstated or ramped up their asset purchase programs to maintain long rates at a low level, and strengthened their currency swap agreements to ease dollar funding stress.
After the record drop in activity in the first half of the year, business in the second half of 2020 experienced upward and downward trends. The gradual lifting of lockdowns and mobility restrictions at the end of the spring automatically resulted in a sharp improvement in global activity in the third quarter and of an exceptional scale. In China, GDP increased by 4.9% in the third quarter while the increase reached 5.3% in Japan, 7.5% in the United States, 12.5% in the euro zone and 16% in the United Kingdom. France recorded the strongest improvement, posting quarterly growth of 18.7%.
In Europe, partial unemployment schemes continued in the fourth quarter, thereby mitigating the impact on household income and job losses. After a window-dressing fall in the second quarter, unemployment rates rose in the third quarter in the euro zone, increasing from 7.2% in February to 8.3% in December. In France, the increase was 8.9% in December according to Eurostat, i.e. 1.4 points more than in February 2020.
In Europe, bond yields were more stable over the first-half as a result of the ECB not lowering its key interest rates. The ECB managed to avoid a massive widening of European sovereign spreads. Although they were volatile in March, they returned to their pre-crisis levels in June.
Even though the second half of the year was characterized by a bounce-back in economic activity, this did not lead to an increase in interest rates, particularly in the euro zone. In fact, French and German ten-year sovereign yields lost 22bp and 12bp respectively over the half-year, to end the financial year at -0.57% and -0.34% respectively. This downward trend, which is also reflected in peripheral debt, including Italy (-71 bps in the second half with an end-of-year level of 0.54%, a historic record), is mainly due to: the sharp fall in inflation and associated expectations in the euroV zone; the sharp increase in excess liquidity in the euro zone;V
In the United States, the trend was different in the second half of the year. Indeed, the ten-year yields increased by almost 26 bps during the half-year, ending 2020 at around 0.90%. The victory of Joe Biden, the sharp uptrend in equity indices and inflation projections notably supported the rate hike observed across the Atlantic.
At the end of the year, the United Kingdom and the European Union reached an agreement that will constitute a framework for relations between the two partners as of January 1, 2021. After depreciating by 6.8% in the first half of the year against the euro, the pound sterling appreciated by 1.4% in the second half and closed 2020 at 0.8956 per euro.
Regarding emerging currencies, the yuan strengthened by 8.3% against the dollar in the second half of the year and ended the year at its highest level for two and a half years.
In the first quarter of 2020, a selling movement of unprecedented magnitude was triggered by the spread of the health crisis. The maximum cumulative loss over the first quarter between February 19 and March 23 was 34% for the S&P 500 and 38% for the SXXP (Eurostoxx 600). Actual and implied volatilities reached record levels. In the sectors, those hardest hit were the cyclicals, particularly the travel/leisure sectors, as well as oil stocks which were affected by the fall in the oil price, while the defensive sectors (food, pharmaceuticals and technology) outperformed.
Ultimately, although US equities rose sharply in 2020 (+16% for the S&P 500), the improvement that began in the second quarter did not offset the fall in the first quarter in Europe and the CAC40 ended the year down by 7% year-on-year, for a Eurostoxx 50 index down by 5% year-on-year.
The 2020 fiscal year began with the announcement of the sale of a 29.5% stake of Coface’s capital to specialized US insurer Arch Capital group in February. Completion of the transaction is subject to the usual conditions, in particular regulatory approval, which could take between six and twelve months. From the March 31, 2020 closing, Coface’s contribution was therefore deconsolidated from Natixis’ financial statements, creating a positive impact of 15 bps on the CET1 solvency ratio.
In addition, Natixis continued to roll out its various business lines.
In Asset & Wealth Management, Natixis IM first reached a milestone in its development in 2020 by signing an agreement to merge the fixed income and insurance-related management activities conducted by Natixis Investment Managers and La Banque Postale respective subsidiaries Ostrum Asset Management and La Banque postale Asset Management on June 28, 2020.
After obtaining the required regulatory approvals, Natixis and La Banque Postale were able to finalize on October 31, 2020, the merger of the fixed income and Insurance-related management activities of Ostrum Asset Management and La Banque Postale Asset Management. This merger marks the creation of a leader in Asset Management in Europe, with over €430 billion in assets under management and over €590 billion managed through its services platform at the end of September 2020. A total of €177 billion in assets under management and 96 employees were transferred from La Banque Postale to Ostrum.
As part of this project, Ostrum US (a subsidiary of Ostrum in the United States and specializing in private debt management) was closed in the third quarter of 2020. In addition, certain Ostrum activities were transferred on October 1, 2020 to other Natixis Investment Managers subsidiaries: non-insurance thematic equity management activity (€1.1 billion inV assets under management) transferred to the Asset Management company Thematics; management of convertible shares and other non-insuranceV shares (€7.2 billion in assets under management) transferred to DNCA; private debt and real assets management activity in FranceV (€2.9 billion in assets under management) transferred to Natixis IM International.
In addition, Natixis announced on November 5, 2020 that it had entered into discussions with H2O for the progressive and orderly unwinding of their partnership. Such discussions include a progressive sale of Natixis IM’s stake in H2O AM, which resulted in the signing of a disposal agreement, and the orderly assumption by H2O AM of its distribution over a transition period until the end of 2021. Such evolution is subject to consideration and approval by relevant regulatory authorities.
In 2020, Natixis IM earned the following major awards: Insurance Asset Risk: Mirova received the 2020 ResponsibleV Investor award; year-on-year performance. Natixis Investment Managers was ranked No. 2 in the World Equity category; Barron’s: Natixis Investment Managers earned 11th position on theV 2019 “Barron’s Best Fund Families” ranking in the US for its in addition, at the Lipper Fund Awards 2020 Natixis and itsV subsidiaries were recognized across several categories and countries (US, France, UK, Germany, Switzerland, Austria, Netherlands); environmental Finance/Impact Awards 2020:V
Loomis, Sayles & Company – Asset Management companyV awarded in the “Regional Leader US” category (25-50 managers).
The strong financial results of Private Banking in 2020 (with an increase in net revenues of 19% compared to 2019), despite the context of the health crisis, are the result of momentum fueled by the commitment of all Natixis Wealth Management entities.
Wealth Management featured several notable events: growth in the lending business (+6%) under controlled riskV conditions; business development in structured products (with a 68% increaseV in revenues from EMTN clubs).
For the VEGA IM subsidiary, 2020 was marked by: strong sales momentum at Caisse d’Epargne banks despite theV context of the health crisis, reflected in the level of total net inflows, which reached €440 million; management performance, driven by “growth”, generating theV highest ever performance fees; the extension of the range with the VEGA ResponsibleV Transformation thematic fund, following the partnership established with the independent impact rating agency Impak Finance, as well as the first agreements in pension and employee savings schemes; the creation of VEGA IM’s “Club ESG – Responsible InvestmentV Expertise division”: oversight of the Responsible Investment policy and its application, overall portfolio design process, transparency commitments (Transparency Code, non-financial reporting), development of the RI range (labels, mutual funds, Discretionary Asset Management, etc.), implementation of dedicated controls.
Natixis, after the roll-out of its Green Weighting Factor in 2019, worked on the dynamic management of its own energy trajectory.
In Asia Pacific, Natixis capitalized on its expertise in green finance by supporting clients in their sustainable transition through emblematic transactions, notably with the Bank of China, which issued the first blue bond for a commercial bank. In Australia, Natixis and M&A boutique Azure Capital provided advisory services for the creation and sale of Engie ANZ’s innovative equity financing platform: the Australian Renewable Energy Trust (ARET).
Natixis was awarded several times for a number of transactions as part of the The Asset Triple A and the Air Finance Journal awards and chairs the Fintech working group of the Asia Securities Industry & Financial Markets Association (ASIFMA).
The Americas platform continued to expand its range of solutions and strengthen its expertise in structured finance, acquisition finance and Capital Markets. In particular, it has created an Investment Banking team combining the Coverage, Real Assets, Investment Banking and Trade teams to strengthen synergies with clients.
Natixis New York Branch is now a sponsor of the Fixed Income Clearing Corporation (FICC) Sponsored Repo program for the financing of global securities.
Natixis acted as active MLA and Joint Bookrunner for the Embraer bond issue and the prepayment facility with BNDES in 2020.
Natixis ranked No. 7 on the US market for CLO arrangers (sources: Bloomberg/Reuters). The Company was also named 2019 Enterprise Latin America MLA of the year trophy by IJGLobal magazine.
In the Spanish market, the Madrid branch continued to grow and ranked second in volume for MLA syndicated home loans – FY2020 (source: Dealogic).
In Italy, Natixis was involved in a significant number of ESR transactions for corporate clients, particularly in the infrastructure and real estate sectors. The bank was appointed Deal Manager and Bookrunner for Generali Assicurazioni in the transition for repurchasing subordinated notes followed by the placement of a new green bond.
Lastly, in Russia, the bank participated in the financing of the Amur Gaz regional project.
On Capital Markets Natixis was able to adapt to the exceptional and unprecedented health crisis conditions by remaining close to its customers and partners by adapting its offering and know-how to their new needs. The Company upheld its position with institutional investors and supranationals and strengthened its position with large corporations. In Fixed Income, the teams were heavily involved in helping industrial and institutional investors adapt their risk hedging and investment policies during the COVID-19 crisis.
The bank received two awards, one from The Banker magazine and the other from Structured Retail Products magazine. (Source (1) Investment Bank of the Year for Equity-linked Products, (2) Deal of the Year 2020).
The passenger air transport sector was particularly affected by the COVID-19 epidemic. It is beginning to recover slowly, driven by domestic and tourism flights, with a low level of business and international travel. In this challenging period, Natixis continued to support its clients, both airlines and leasing companies, by providing liquidity facilities, portfolio financing and transactions guaranteed by export credit agencies.
Natixis ranked second in the IJ Global League Table for its performance in Global Telecoms MLA, fourth in Latam Infrastructure Finance MLA and eighth worldwide, reflecting its expertise in infrastructure financing.
In addition, Treasury Solutions continued to innovate in the digital field, for example with the international payments traceability.
Natixis and the M&A affiliates network carried out numerous large-scale transactions this year.
In Investment Banking, strategic and acquisition financing supported the corporate coverage teams, by arranging numerous financing arrangements (liquidity lines, EMP in France) to strengthen the balance sheet on behalf of Natixis’ clients.
In terms of acquisition finance, many transactions were conducted by corporate buyers, including the acquisition of Endemol Shine group by Banijay, enabling the Group to become the largest independent TV programs producer worldwide.
Natixis remained leader in terms of volumes acquired on the French market and number of transactions (source: regulated information from the websites of the 120 SBF issuers in 2020).
The bond market was particularly active in 2020 for corporates. Natixis was selected by many French companies for the launch of their public bonds and stood at the top of the league table of the “non-dilutive hybrid segment in France” (Number 1 LT hybrid and senior corporate FR; source: dealogic).
The COVID-19 crisis took its toll on the Insurance division, which adapted by taking measures to preserve business continuity and remain operational for its clients. The division contributed €14 million to the Solidarity Fund for VSEs set up by the government.
Life and health insurance and non-life insurance adapted to the lockdown periods by widely implementing remote working from the first lockdown, by maintaining on-site only critical activities in order to secure work and by setting up a system for monitoring underwriting and management activities daily in order to maintain a high level of service quality for our clients.
For Non-Life Insurance, from a technical and financial standpoint, the crisis resulted in a decrease in sales and terminations following the confinement measures, a financial impact because of the contraction of the financial markets, and an improvement in the current-year claims expense during lockdowns, especially in the auto insurance, multi-risk home insurance and personal accident insurance segments.
BPCE Assurances has thus become the sole Non-Life Insurance platform for BPCE IARD retail customers, the platform dedicated to professionals for both the Caisse d’Epargne and Banque Populaire networks.
In 2020, Natixis’ Payments activity played a key role in supporting its customers during the pandemic. Since the beginning of the health crisis, Natixis Payments has been committed to guaranteeing the same standard of service to the Banque Populaire and Caisse d’Epargne networks and to their direct customers in all areas (issuance, acquisition, payment processing, fraud prevention).
The Payments division also supported the change in consumer purchasing and payment behaviors, in particular contactless and mobile payment: its experts worked actively to implement the new €50 ceiling forV contactless payments as from May 11 and the increased ceiling for restaurant vouchers in June; an unprecedented context of retail digitization, Natixis PaymentsV also supported retailers of all sizes in developing their online sales, thanks to the omnichannel platforms of its fintech Dalenys, whose ranges are designed for both small and large retailers, and its fintech PayPlug, which is intended for SMEs, either directly or in synergy with the Banque Populaire and Caisse d’Epargne banking networks; with regard to processing activities, ten new banking institutions,V including Bank Audi and Volkswagen Financial Services, chose to entrust Natixis Payments with the processing and clearing of their electronic payments. In a particularly complex context, this was a migration project on an unprecedented scale.
This capacity for customer-centric care and response boosted the resilience of the payments business and led to increased net revenues compared to 2019.
innovation remained more than ever a major priority to prepare forV the upcoming months: new Android POS terminals range launched in September 2020, omnichannel e-commerce offerings for SMEs and larger businesses, new application for the Apetiz meal voucher in July 2020 (rated best application in the industry); several successful commercial achievements can also be noted,V such as the renewal by NIT of its restaurant vouchers contract with the French Ministry of the Economy and Finance, the acquisition of new direct customers and cross-selling via banking networks. For this last topic, the Network Development Department enabled Natixis Payments to move from producer to expert partner for networks and fintechs to develop their business. As a result, PayPlug achieved sales volumes of €61 million with the networks in 2020 compared to €9 million in 2019.
Lastly, the Payments division also implemented its new organization in October 2020 in order to accelerate its business development and synergies between its business lines. This new organization is based on three Business Units (BU): the Processing BU with a customer-centric and product-orientedV organization to improve agility and performance; the Digital Payment BU (Dalenys, PayPlug, S-money) with strongV offering and organization integration to increase the impact on the market in the face of competition; the Benefits BU (NIT, Titres Cado, Comitéo and Lakooz) withV enhanced synergies between entities.
Natixis Payments entered for the time the FW500 ranking (French Tech ranking for companies contributing to the digital transformation of France) at the 11th place, positioning itself as the leading company in the field of Payments and Financial Services in general.
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For the purposes of comparability, following the sale of 29.5% of Coface’s capital, its contribution has been presented separately at the bottom of the income statement.
Analysis of changes in the main items comprising the consolidated income statement
At €7,360 million, net revenues generated by the main business lines were down 11.4% at constant exchange rates versus 2019. The AWM and CIB divisions posted declining revenues in the context of the COVID-19 crisis, while the Insurance and Payments divisions were up. Asset & Wealth Management net revenues fell 13.4% at constant exchange rates. Corporate & Investment Banking net revenues were down 15.3% at constant exchange rates. Insurance net revenues were up 6.5% (+8.1% excluding contributions to the solidarity funds totaling -€14 million), and Payments net revenues were up 1.9%.
Headcount at the end of the period stood at 16,943 FTE, up 3% year-on-year, up slightly by 2% for the business lines, and up 5% for the Corporate Center after expanding the control functions and IT teams in Porto.
Gross operating income totaled €1,478 million in 2020, sharply down by 37% compared with 2019 at constant exchange rates.
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Revenues from Associates totaled or came to -€6 million in 2020 versus +€21 million in 2019.
The recurring tax expenses came to €204 million in 2020, with an effective tax rate of 27.4%.
Expenses shrank 3% at constant exchange rates (-4% at current exchange rates) to €2.4 billion.
Gross operating income fell 33% at constant exchange rates (-34% at current exchange rates) to €837.8 million.
in the United States, net inflows amounted to €7.4 billion, mainlyV at Loomis Sales & Co. (+$13.2 billion, fixed income), and at WCM Investment Management (+$12.4 billion, equity products) and at AEW Capital Management (+$2.7 billion, real estate products) partially offset by outflows at Harris Associates (-$19.8 billion, mainly equity products) and Gateway Investment Advisers, LLC (-$1.6 billion, alternative products); Private Equity companies reported net inflows of €2.7 billion,V mainly Vauban Infrastructure Partners (+€1.6 billion) and MV Credit (€0.5 billion); the Europe region recorded a net outflow of €2.6 billion with netV inflows from Mirova (+€5.5 billion, equity and bond products), AEW Europe (+€1.5 billion, real estate products) and Ostrum (+€1.3 billion, mainly money market products), more than offset by H2O (-€7.3 billion, mainly bond products) and DNCA Finance (-€3.6 billion, diversified and fixed income products); there was a net outflow in Asia (-€1.3 billion), mainly in equityV products; for Retail, outflows of €1.0 billion mainly relate to DynamicV Solutions diversified products (-€0.5 billion), structured products (-€0.5 billion) and equity products (-€0.4 billion).
At €881.1 billion, average assets under management at December 31, 2020 were up (+3.5% or stable when restated to include the LBPAM contribution) compared with last year at constant EUR exchange rates. The rate of return on outstandings, at 26.7 points, was down by 9.4% compared to December 31, 2019 at constant exchange rates, a smaller decline when restated to include the LBPAM contribution (-6.6%).
At December 31, 2020, Net revenues of €2,948.0 million were down by €562.7 million (-16%) compared to December 31, 2019. (-15% at constant exchange rates) with a scope effect related to LBPAM contributions limited to €4.4 million in 2020. The change in net revenues year-on-year was affected by the sharp decrease in outperformance fees, mainly in Europe at H2O, and to a lesser extent in management fees in the United States and Europe in connection with the fall in the rate of return, as well as the decline in interest income.
Expenses amounted to €2,156.5 million, down by €94.8 million (-4%) compared to December 31, 2019, (-3% at constant exchange rates) with an LBPAM scope effect of €5.5 million in 2020. The favorable change in expenses was driven by the significant decrease in variable compensation (decrease mainly in the United States, Europe and the Federation) in line with the change in results and, to a lesser extent, in operating expenses (a mainly in travel and hospitality expenses, and communication and advertising related to the health crisis, which more than offset the increase in consulting, documentation and market data expenses). Fixed internal payroll costs were up, driven by the increase in headcount, while premises and logistics were also up compared to 2019.
In 2020, Wealth Management posted net inflows of €919 million mostly on the strength of the B2B Private Banking business brought by the networks, and significant Institutional inflows in Luxembourg.
Average assets under management amounted to €25.8 billion over the year, down (-10%) year-on-year, mainly affected by the loss of Sanofi assets at the end of 2019.
As of December 31, 2020, net revenues at €99.1 million was down by €1.1 million, or 1% compared to December 31, 2019, attributable to the transfer of the Car Lease distance selling activities to BPCE Lease from June 2020, partially offset by the increase in net subscription fees from Car Lease (investor arbitrage).
Expenses amounted to €77 million and were down by €5.9 million or 7% compared to December 31, 2019, due to more capitalized IT projects (PACTE project), and lower operating expenses (impact of COVID-19 and cost control effort), partially offset by the increase in internal payroll costs, mainly fixed internal payroll costs (increase in provisions for paid leave and increase in employee benefits).
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Revenues from Fixed Income, Forex, Credit, Commodities and Treasury activities stood at €1,114 million in 2020, stable on 2019 at constant exchange rates. The following changes were observed in each segment: Fixed Income and Forex revenues were up 2.5% with FixedV income down 9.4%, attributable to the slowdown in sales and persistently low interest rates, and Forex activities jumped 23.5% as currencies fluctuated sharply in the first four months of the year, creating a high demand for hedging from clients; revenues from Credit activities were down 9.1% compared to 2019,V penalized by the slowdown in the securitization market in the first half of the year, its acceleration during the second quarter allowing to reduce the fall compared to 2019; revenues from Repo activities, now evenly split between FixedV Income and Equity are down 21% compared to 2019, with particularly slow business in the second quarter following the implementation of a new TLTRO by the Central Bank on June which resulted in a large amount of liquidity.
With revenues negative by €263 million, Equity activities endured extreme market conditions in the first-half, with steep volatility on the equity markets and changes to dividend payout policies, which had a major impact on the exposure of the Equity Derivatives business line.
Revenues from joint ventures (i.e. with income shared equally between Global Markets and Investment Banking to ensure team alignment) were sound in 2020.
Revenues from syndication on the bond market were up 17.9% compared to 2019 in an extremely dynamic primary bond market throughout the year and across the client segments.
At €1,300 million, Financing revenues including TTS (Trade & Treasury Solutions) as well as Film Industry Financing (Coficiné) fell 6.5% compared with 2019 at constant exchange rates.
Revenue from origination and syndication are down 28.2% compared to 2019 as a result of the steep downturn in activity across different sectors: in commodities, with the collapse of the oil price which remained lower than in 2019, in aviation in the context of the COVID-19 crisis, and the real-estate financial securitization market in the US which remained closed most of 2020. The financing portfolio were virtually stable at constant exchange rates. The decrease observed in net interest income on financing portfolio outstanding in the context of less origination was mitigated by the increased margin on the Corporate portfolio, supported by a sharp increase in liquidity line drawdowns in the second half of the year and by the granting of new loans. ENR (Energy & Natural Resources) and Trade Finance revenues are down 13.9% at constant exchange rates due to a weaker average per-barrel oil price than last year, and the strategic refocusing of this activity aimed at reducing the number of clients.
Gross operating income totaled €704 million, up 35.6% compared with 2019 at constant exchange rates. The cost/income ratio stood at 74.9% in 2020, down 7.9 points compared to 2019 (67.0%).
At €819 million, provision for credit losses increased sharply compared to 2019, underpinned by the deterioration of risk on several loans in aviation and Corporate & Investment Banking as well as the impact of fraud and IFRS 9 provisioning.
Pre-tax profit was negative €105 million compared to positive €786 million in 2019 at current exchange rates which included a capital loss on the disposal of the Brazil subsidiary (-€14,5 million) recognized in the first quarter of 2019 as a non-recurring item under gains or losses on other assets.
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(in millions of euros) 2020 2019 pro forma Change 2020 vs. 2019
With €8.1 billion in direct business premiums, life insurance inflows fell 19% compared to 2019. Premiums on unit-linked assets totaled €2.9 billion and made up 35.4% of total gross inflows, down 5 points compared to 2019, and 1 point higher than the market average at end-December. Gross inflows invested in the “Euro” fund decreased by 25% to €5.3 billion.
At €1,053 million, premiums on personal protection insurance and payment protection insurance (ADE) continued to climb (+6%). Premiums on personal protection insurance grew 10%, mostly driven by the Caisse d’Epargne network (17%) which now represents 39% of activity. Payment Protection Insurance was up 5%, with no material impact from the Bourquin amendment of the public health crisis.
In Non-Life Insurance, the portfolio grew 5% (excluding NBFI) to reach 6.4 million contracts. Gross sales decreased fell 2% due to the health crisis and the impact of lockdowns; they did however benefit from the success of the stimulus plan put in place in May 2020 and the deployment of the #INNOVE2020 program across the two networks. At €1,654 million, earned premiums gained 5% year-on-year with identical business growth in the Caisse d’Epargne and Banque Populaire networks (+5% and +5% respectively). Growth was driven by the core offering, with auto insurance up +5%, multi-risk home insurance up +7%, Pers. acc./Multi-risk acc. insurance up 5%, in line with growth in the portfolio and updated tariffs.
Net revenues for Insurance businesses totaled €901 million, up 6% compared with 2019, resulting from: 11% net revenue growth in personal insurance, which benefitedV from the 6% increase in outstandings but was impacted by the public health crisis and the downturn in the financial markets (mitigated by existing equity hedges). The growth in net revenues also attributable to the resistance of the Personal Protection Insurance and Payment Protection Insurance, with a drop in the claims expense for ADE (in connection with the update of final accounts for the previous year) and the deterioration in Protection insurance claims due to work cessation guarantees; the 3% increase in property & casualty insurance with a decrease inV the claims expense for individual customer products on account of the lockdown, especially in the auto segment. The combined ratio totaled 89.2%, an improvement on 2019 (89.6%); the one-off contribution to the insurance solidarity Fund set up byV the French government, which had an impact of €13.9 million.
Operating expenses stood at €491 million, up 2.5%. This increase reflected the implementation of the ambitions under the New Dimension plan: to support business growth and implementation of strategic projects, and in particular #INNOVE2020.
At 29.3%, the division’s ROE improved by 1.4 points compared to 2019.
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At €430.6 million, net revenue from Payments was up 2% (+€8.1 million) compared to 2019, with growth mainly driven by the legacy electronic payment activities, which in particular developed new offerings for mass transfers & debits and fraud prevention, as well as by the contribution of the Fintechs of the Merchant Solutions Business Unit (BU). It should be noted that for the Prepaid & Issuing BU, the sound performance of the Gifts activities (gifts and marketplace offers) more than offset by the NIT revenues penalized by the closure of places that accept these vouchers.
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Natixis Algérie posted a 19% decrease in net revenues to €56.8 million compared with 2019. Excluding the exchange rate effect, net revenues were down 13% due mainly to fee income on forex transactions following the decision of the Algerian government to reduce the margins on forex transactions to 0.10% (versus 1%) from March 24, 2020.
Compared to 2019, cash-at-risk commitments fell 23% to €40.5 million (mainly due to the depreciation effect of the Venture funds). At €13.4 million, off-balance sheet commitments were down 2% compared with 2019.
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Cross-business functions net revenues totaled -€114 million at end-December 2020 versus +€59 million at end-December 2019.
exchange rate fluctuations on deeply subordinated notes issued inV dollars stood at -€86 million at end-2020 compared to +€19 million the previous year.
the contribution to the Single Resolution Fund totaled €165 millionV for 2020 versus €170 million in 2019.
Gross operating income stood at -€514 million at end-2020 versus -€420 million at end-2019.
Pre-tax profit was -€508 million at end-2020 versus +€267 million at end-2019 with the contribution of the capital from the disposal of the retail banking activities to BPCE S.A., representing +€697 million recognized under gains on other assets.
The provision for credit losses was -€851 million at December 31, credit losses was -€330 million at December 31, 2019, of which 2020, of which -€685 million were in respect of non-performing loans -€345 million were in respect of non-performing loans and and -€166 million in respect of performing loans. The provision for €15 million in respect of performing loans.
Total provision for credit losses by geographic area (2019 excluding Coface)
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Appendix to 4.2.2 – Consolidated Results 1 – Management results reclassified as consolidated results in 2020
Gains or losses on other assets 2 (15) 697 685 0 2 687
Reportable net income Group share 1,370 (6) (34) (4) (3) 577 (2) 1,897 0 0 1,897
Asset Management The merger of the fixed-income and insurance management activities of Ostrum Asset Management and La Banque Postale Asset Management was completed on October 31, 2020. This merger marks the creation of a leader in Asset Management in Europe, with over €430 billion in assets under management and over €590 billion managed through its services platform at the end of September 2020.
Private Banking Acquisition of asset manager and investment advisory firm Massena Partners, a partner of Natixis Wealth Management for 20 years. The deal allows Natixis Wealth Management to bolster its Private Equity and real estate club deal offering by leveraging on the long-standing partnerships formed with Massena Partners and other leading players in these segments.
CIB Acquisition of a majority stake in Azure Capital, one of Australia’s top M&A advisory boutiques.
Asset management Acquisition of European credit specialist MV Crédit as part of the expansion of Natixis Investment Managers’ private debt offering.
CIB Strategic investment in Vermillion Partners in China as part of the strategic enhancement of Natixis’ expertise in Mergers & Acquisitions advisory services.
CIB Long-term partnership to create a leading player in equity brokerage and equity Capital Markets in continental Europe. This partnership includes: the transfer of Natixis’ equity brokerage and equity research activities in France to ODDO BHF;V the integration of both players’ equity Capital Markets activities in France at Natixis.V
Asset management Announced disvestment of Natixis Investment Managers from its 50.01% stake in the capital of H20 Asset Management. Such transaction would be subject to consideration and approval by relevant regulatory authorities.
Wealth Management Disposal of Sélection 1818, a major Wealth Management Advisor, as part of Natixis Wealth Management’s strategic repositioning. Signing of a partnership with the buyer, Nortia, for the distribution of funds on an open-architecture basis.
For details of these post-closing events, please refer to chapter [5.1] Note 1.3 "Post -closing events".
Income/(loss) for the year 185 (89) (42) (108) 143 (94) 1,736 506 2,242
Natixis Investment Managers, asset management subsidiary, a -€51 million decrease in dividends paid by Coface and an increase of €79 million from Natixis Assurances.
Dividends paid by Natixis subsidiaries decreased by -€174 million, including in particular a -€164 million decrease in dividends from the
Gains on trading portfolio transactions decreased by €567 million, of which -€603 million attributable to operations in Mainland France and +€37 million to transactions carried out by foreign branches.
The net provision for credit losses was up €265 million (of which +€285 million for activity in International branches) to -€694 million. Excluding portfolio-based provisions, the cost of risk was -€667 million in 2020 compared to -€324 million in 2019, marking a
244 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020 significant increase in the cost of individual risk in the context of the COVID -19 health crisis (in particular air transport industry). It also includes the impact of the provisions for outstandings of independent American oil & gas producers in the United States, whose withdrawal has been announced by Natixis, as well as that related to credit fraud identified in particular in Asia.
At December 31, 2020, the gains or losses on fixed assets amounted to -€110 million, a decrease of -€1,369 million. The balance for 2019 mainly corresponds to the €1,092 million capital gain from the sale to BPCE of the Sureties & Financial Guarantees, Leasing, Factoring,
Net income after tax was +€143 million versus +€2,242 million in 2019.
At December 31, 2020, the balance sheet totaled €345,669 million versus €438,497 million at December 31, 2019. This significant decrease is mainly due to the application of ANC Regulation No. 2020-10 on the presentation of security borrowing, with a pro forma impact of -€66,577 million on the total balance sheet for 2019 and to a change in the presentation of premiums with a pro-forma impact on the total balance sheet for 2019 of -€16,416 million.
Percentage of total amountof purchases including tax for the fiscal year 2.68% 0.05% 0.00% 0.00% 0.02% 0.08%
For debt and receivables associated with Natixis S.A. clients, please refer to Note 37 of Chapter [5.3] on assets and liabilities by maturity, which provides information on their residual maturity.
After a year marked in 2020 by the COVID-19 crisis, a clearer horizon for 2021 is expected with a potential reduction in risk. Nevertheless, challenges remain present in a world where growth will be significantly different from one region to another due to their different ways of responding to the crisis. The expected success of the vaccine deployment has raised growth prospects for the next two years and improved visibility of the economic cycle. If interest rates should increase slightly although remaining at low levels, the outlook should be more promising for equities, which started to bounce back at the end of 2020.
Growth trends should vary between China, the United States and the euro zone. The situation will remain robust in China with sustained growth in 2021 on the back of an import substitution strategy even if there will be financial risks. The level of GDP in 2021 is expected to be higher than in 2019. The American situation should be more complex given the very violent resurgence of the health crisis. Expected growth is expected to be low, possibly negative in the first quarter and has led to the implementation of a stimulus plan already approved by the House of Representatives in February 2021. GDP is not expected to return to the level of 2019 at the end of 2021. In the euro zone, the health crisis is still very present at the beginning of 2021. In the euro zone, the various stimulus plans should nevertheless make it possible to catch up in 2021 without reaching the 2019 GDP level before the end of the first quarter of 2022.
The fiscal policy of the States will central to the macroeconomic momentum, and monetary policies will support this movement. This should help to maintain low interest rates for all maturities. The level of public debt, particularly in Europe and the United States, with still limited growth and fiscal policies remaining accommodative for a long time, will be a focus area. In this context, questions arose in early 2021 about the risks of inflation, and long-term interest rates rose in the United States.
Over the period, the yields of the Bund 10Y and the UST 10Y should gradually move towards 30 bps and +1.70% respectively at the end of 2021, which would be associated with a steepening of the curve. In a less risky environment, peripheral spreads should also continue to tighten. Lastly, the equity markets should benefit from growth recovery and improved earnings forecasts.
In Asset Management, the operational merger between Ostrum AM and LBP AM has now been completed while a sale agreement has been signed for the sale of Natixis IM’s 50.01% stake in H2O AM to the asset management company's management.
With regard to Corporate & Investment Banking, a repositioning of the equity derivatives business line intended to discontinue the most complex products and reduce exposure limits was implemented towards the end of the fourth quarter of 2020. This repositioning should lead to annual revenues for the equities business of around €300 million. Also concerning Corporate & Investment Banking, while a refocusing of the trade finance activity was carried out during 2020, the reduction of exposures related to shale gas and oil should continue, with the aim of a full exit by 2022.
It should also be noted that on February 9, 2021, Groupe BPCE announced its intention to file a takeover bid for around 29.3% of the share capital of Natixis that it does not hold (based on the issued and fully paid-up share capital as of December 31, 2020) at a price of €4 per Natixis share (dividend attached). BPCE has announced its intention to implement a squeeze-out procedure for all the shares not held by it in the event that the minority shareholders do not hold more than 10% of the Company's share capital and voting rights following the offer. This proposed offer would be part of an ambitious industrial project for the development of Natixis' business lines and the simplification of its functional channels, which Groupe BPCE intends to review. On February 10, 2021, BPCE S.A. filed an information document (which includes, in particular, the projected timetable of the transaction) with the French Financial Markets Authority (Autorité des Marchés Financiers), which can be consulted at the following address: qu%C3%A9%20norm%C3%A9%20du%20d%C3%A9p%C3%B4t%20du %20projet%20de%20note%20d%27information%20-%20ENG.pdf
The information is available at the following link: document-rpaz5_114884.html the overview of the 2018 fiscal year on pages 219 to 238V of the 2018 Registration Document submitted on March 15, 2019.
The presentation of the income statement of Natixis has been amended to reflect the deconsolidation of Coface following the disposal of 29.5% of its capital. The remaining contribution of Coface has been presented separately at the bottom of the income statement. The other components under Financial Investments (Natixis Algérie, capital investments put into run-off) are now incorporated under the Corporate Center. For the purposes of comparability in the presentation of this management report, 2019 figures are presented according to the new organization.
As a reminder, the earnings of the Natixis business lines are presented in accordance with the Basel 3 regulatory framework. Capital allocation specific to the Insurance businesses is based on the Basel 3 accounting treatment for investments in insurance companies, as transposed into the CRD4 and CRR (“Danish compromise”).
The conventions applied to determine the earnings generated by the various business lines are as follows: the Business divisions record the return on regulatory capitalV allocated to them. By convention, the rate of return on normative capital is 2%; the return on the issued share capital of the entities comprising theV divisions is eliminated; the cost of Tier Two debt subordination is charged to the divisionsV in proportion to their regulatory capital; the divisions are invoiced for an amount representing the bulk ofV Natixis’ overhead. The uninvoiced portion accounts for less than 3% (excluding Single Resolution Fund) of Natixis’ total overhead. The Single Resolution Fund (SRF) contribution is covered by the Corporate Center and is not charged back to the divisions.
ROE and ROTE for Natixis and the business lines are calculated as follows: the profit measure used to determine Natixis’ ROE is net incomeV (Group share) minus the post-tax interest expense on DSNs. Equity capital is average shareholders’ equity Group share as defined by IFRS, after payout of dividends, excluding average hybrid debt, and excluding unrealized or deferred gains and losses recognized in equity (OCI); the calculation of business line ROE is based on:V
Internal control procedures 5.5 relating to accounting and financial information 455
Net gains or losses on financial instruments at fair value through equity 6.4 72 40
Depreciation, amortization and provisions for impairment of fixed assets intangible and tangible (412) (447)
Net income/(loss) for the period 182 2,276 o/w Group share 101 1,897 o/w attributable to non-controlling interests 81 380
Revaluation of hedging derivatives of financial assets recognized at fair value through other comprehensive income 0 0
Share of gains and losses recognized directly in the equity of associates non-recyclable to income (0) 0
Revaluation of financial assets (debt instruments) at fair value through other comprehensive income recyclable to income 9 (2) 8 14 (3) 11
Revaluation of available-for-sale financial assets 125 (41) 84 254 (62) 191
Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss (21) 5 (16) (226) 60 (166)
Revaluation of hedging derivatives of financial assets recognized at fair value through other comprehensive income 0 0 0 0 0 0
Shares in unrealized or deferred gains/(losses) of associates (1) (0) (1) 9 (2) 7
Non-current assets held for sale 0 0 0 0 0 0
Financial assets at fair value through profit or loss* 7.1 210,378 220,714
Loans and receivables due from customers at amortized cost 7.6.2 67,939 71,089 o/w institutional operations 886 852
Due to banks and similar items 7.13 84,408 71,927 o/w institutional operations 46 46
Amounts due to customers 7.13 29,798 30,485 o/w institutional operations 987 964
Revaluation adjustments on portfolios hedged against interest rate risk 183 157
Liabilities associated with non-current assets held for sale 1.2 55 0
Non-recyclable gains and losses recognized V directly in equity (100) (212)
Shareholders’ equity at December 31, 2018 after appropriation of income 5,040 5,995 1,978 (27) 6,279
Equity component of share-based payment plans 9 2018 dividend paid in 2019 (2,451)
Equity component of share-based payment plans 6 2019 dividend paid in 2020 0
Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss(c)
+/- Net charge to depreciation and amortization of property, plant and equipment and intangible assets 397 454
+/- Net charge to other provisions (including insurance companies’ technical reserves) 4,737 8,455
+/- Decrease/(increase) in non-financial assets or liabilities (e) (419) 1,349 - Income taxes paid (491) (630)
Cash flow on assets and liabilities held for sale (235) 0
Cash flows from financing activities can be broken down as follows:(c) - interest paid on subordinated notes for -€81 million; - interest paid on deeply subordinated notes recorded in equity for -€66 million. Corresponds to Coface and H20 cash (see Note 1.2).(d) Including cash flows in relation to lease liabilities, amounting to -€225 million at December 31, 2020.(e)
Currency conversion of the statements 2.9 of foreign subsidiaries and branches
Gains and losses on financial assets and 6.3 liabilities at fair value through profit or loss
Reconciliation of the tax expense 6.10 in the financial statements and the theoretical tax expense
Information to be disclosed 8.6 about the temporary exemption from the application of IFRS 9 for insurance activities
Market risk, overall interest rate risk, 10.3 liquidity risk and structural foreign exchange risk
It should be noted that the new IFRS 9, “Financial Instruments”, adopted by the European Commission on November 22, 2016, is applicable as of January 1, 2018.
As a reminder, Natixis elected to take the option offered by IFRS 9 not to apply the standard’s provisions pertaining to hedge accounting and to continue applying IAS 39 for the purpose of recognizing hedging transactions, as adopted by the European Union, i.e. excluding certain macro-hedging provisions.
As a financial conglomerate, Natixis elected to apply this provision for its insurance operations, which will continue to be covered by IAS 39. The main entities concerned by this measure are the Coface insurance subsidiaries, Natixis Assurances, BPCE Vie and its consolidated funds, Natixis Life, BPCE Prévoyance, BPCE Assurances and BPCE IARD.
transfers of financial instruments measured at fair value through profit or loss by both sectors involved.
The accounting principles and methods used to prepare the consolidated financial statements of Natixis at December 31, 2020 are identical to those used to prepare the consolidated financial statements for the fiscal year ended December 31, 2019, prepared in accordance with IFRS as adopted in the European Union and detailed in Note 1.1 “Basis of presentation” to the consolidated financial statements for fiscal year 2019 (presented in Chapter [5.1] “Financial data – Consolidated financial statements and notes” of the 2019 universal registration document), with the exception of the standards, amendments and interpretations, which took effect as of January 1, 2020: the amendments to IAS 1 and IAS 8 “Definition of Material”V adopted by the European Commission on November 29, 2019 with mandatory application from January 1, 2020. These amendments provide clarification of the term “material” in order to facilitate assessments of the significance, or otherwise, of a piece of information, and to improve the relevance of the information presented in the notes to the financial statements. These amendments had no impact on Natixis’ financial statements; the amendment to the “Conceptual framework” adopted by theV European Commission on November 29, 2019 and applicable on a mandatory basis from January 1, 2020. The aim of this amendment is to replace existing references to previous frameworks, in respect of several standards and interpretations, with references to the revised conceptual framework. This amendment had no impact on Natixis’ financial statements; the amendment to IFRS 3, “Business Combinations”, adopted byV the European Commission on April 21, 2020 and applicable as of January 1, 2020. This amendment clarifies the definition of a business and enables a simpler analysis to determine whether an acquisition constitutes a business combination or a mere acquisition of assets. This amendment had no impact on Natixis’ financial statements; the amendment to IFRS 16 “Rental concessions-COVID-19”,V adopted by the European Commission on October 9, 2020 and applicable retrospectively from June 1, 2020. This amendment provides for optional and temporary operational relief related to the COVID-19 health crisis for tenants benefiting from rent concessions. This amendment had no impact on Natixis’ financial statements; amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16V “Reform of benchmark interest rates – Phase 2” adopted by the European Commission on January 13, 2021 and applicable from January 1, 2021 with an application possible. Natixis opted for early application at December 31, 2020.
These amendments aim to define the accounting procedures for changes affecting financial assets and liabilities (including lease liabilities) that would result from the transition to alternative benchmark rates. They also provide for some relaxation in the application of hedge accounting in order to allow hedging relationships to be maintained beyond the modification of the reference rates. Natixis is mainly exposed through its derivative contracts and its lending and borrowing contracts at EURIBOR, EONIA and LIBOR rates. The amount of financial assets, financial liabilities and the notional amount of derivatives indexed to these indices, with maturities greater than December 31, 2021, are presented in Note 5.22.
The definition of defaulted loans is specified by: the introduction of a relative threshold and an absolute thresholdV to be applied to payment arrears to identify default situations; the clarification of the criteria for a return to sound outstandingsV with the imposition of a probationary period (three months for a return to sound and twelve months for restructured assets); and the introduction of explicit criteria for classifying restructured loansV as default.
Natixis applied these new provisions for the identification of defaulted outstandings from October 22, 2020.
Liabilities under these contracts, which are currently valued at historical cost, will have to be recognized at present value under IFRS 17. As such, insurance contracts will be valued based on their future cash flows, including a risk margin in order to factor in the uncertainty relating to these cash flows. IFRS 17 also introduces the concept of the contractual service margin. This represents the insurer’s unearned profit and will be released over time as services are rendered to the insured. The standard demands a more detailed level of granularity in calculations than previously as it requires estimates by group of contracts.
These accounting changes could change the profile of insurance activities (particularly for life insurance) and also introduce greater income volatility.
The insurance entities have set up project structures that are in line with the changes brought about by the standard and are continuing preparatory work: examination and documentation of the normative choices, modeling, adaptation of systems and organizations, production of financial statements and changeover strategy, financial communication and change management.
Year-end1.1.3 The consolidated financial statements are based on the individual financial statements at December 31, 2020 of the entities included in Natixis’ consolidation scope.
Coface1.2.1 Natixis announced on February 25, 2020 that it had signed a sale contract with Arch Capital Group (an insurer and reinsurer in the United States) for 29.5% of the share capital and voting rights of Coface at a unit price per share of €10.70. This price was revised on August 28, 2020 to €9.95 per share, bringing the capital loss recorded to €145.6 million. The completion of the deal is contingent on approval from regulatory authorities.
The signing of the contract of sale led Natixis to reassess the nature of its controlling interest in Coface. As the criteria that define exclusive control under IFRS 10 were no longer being met, it has been determined that Natixis no longer exercised exclusive control over Coface and as such no longer needed to fully consolidate it into its consolidated financial statements of February 25, 2020.
However, Natixis continues to exercise significant influence. Natixis’ remaining 12.7% stake in Coface consequently was consolidated using the equity method effective January 1, 2020, for simplicity’s sake and to better reflect the impacts of that transaction in its consolidated financial statements.
A parent company’s loss of exclusive control over a subsidiary is treated as two different types of transactions: first, (i) the sale of all shares in the subsidiary, and second, (ii) a new investment corresponding to the retained stake.
At December 31, 2020, Natixis maintained the full consolidation of the entity and presented, in accordance with the provisions of IFRS 5 “Non-current assets held for sale and discontinued operations”, the assets and liabilities of this entity grouped under two separate balance sheet items: “Non-current assets held for sale” for €281.5 million and “Non-current liabilities held for sale” for €54.7 million. Completion of the sale is subject to obtaining regulatory approvals. The estimated gain on disposal of -€47.6 million is recorded in Gains and losses on fixed assets (excluding tax effects).
At the end of this asset contribution, Natixis retains a 55% stake in Ostrum, while La Banque Postale now holds a 45% stake. Prior to this merger, Ostrum’s activities, unrelated to interest rate and insurance management activities, were transferred to other companies belonging to the Natixis IM group.
This transaction can be analyzed from an accounting point of view as two transactions: a takeover of the LBP AM entity accounted for using theV acquisition method with recognition of goodwill amounting to €52.3 million at December 31, 2020; a decrease in the percentage interest without loss of control inV Ostrum AM, in respect of the dilution, the effects of which are recognized in “Equity – Group share” for +€11.8 million.
COVID-191.2.4 The COVID-19 health crisis has had significant repercussions on the economic activities of many countries. Restrictions on mobility in the affected areas and closures of companies and retailers have a clear impact on economic value chains in the affected geographical areas and business sectors (tourism, catering, air transport, local sales, etc.).
In order to support the economy during this crisis, Natixis took part in measures to support the economy (loans guaranteed by the State and moratoriums) in order to provide financial assistance to the affected business sectors.
The COVID-19 crisis also spread to the financial world, particularly leading to very high volatility and erratic market fluctuations. In an environment marked by a high degree of uncertainty, Natixis took into account the effects of the crisis and the measures taken by certain governments in determining the valuation of financial assets and liabilities as well as impairments and provisions.
This proposed public offer, at a price of €4.00 per share (dividend attached), will be submitted to the AMF for review and will, if applicable, be followed by a squeeze-out if the conditions of implementation work are satisfied.
This proposed offer would be part of an ambitious industrial project for the development of Natixis’ business lines and the simplification of its functional channels, which Groupe BPCE intends to study as part of its preparation. of its strategic plan.
This transaction had no impact on the consolidated financial statements of Natixis at December 31, 2020.
Natixis and Arch Capital group Ltd. announced the completion of the contract to sell 29.5% of Coface’s share capital.
The strategic review of the equity derivatives business also confirmed its importance for Natixis and repositioned it on strategic clients while reducing the level of risk. The implementation of this announcement would lead to the elimination of 36 jobs.
To implement the various components of these projects under the best possible conditions following the consultation of the Social and Economic Committee (CSE), an ambitious internal and external mobility plan is planned within the areas concerned. In parallel with the consultation on this project, negotiations will be held with the trade unions to define in detail the measures to support internal and external mobility.
Given the date of announcement of these measures, and the concomitant opening of negotiations on the accompanying measures, it is not possible to provide an estimate of their financial effects on that date.
The rapid global spread of the COVID-19 pandemic led most of the affected countries to impose lockdown measures on their populations during the year 2020, thereby heavily reducing business, which led to a worsening of the economic situation of numerous business sectors as well as a major disruption to financial markets.
Despite the uncertainties as to changes in the economic environment, Natixis also carried out goodwill impairment tests for all of its CGUs (see Note 2.5).
Economic support measures1.4.1 Measures to support the economy were taken during the year 2020 involving credit institutions.
Government-backed loans1.4.1.1 Government-backed loans (GBLs) are a support measure enacted through Article 6 of the 2020 French Finance Reconciliation Law 2020-289 of March 23, 2020 and by the order of the Minister of the Economy and Finance of March 23, 2020 granting a government guarantee to lending institutions and financing companies effective March 16, 2020 by the French government in order to address the cash flow needs of companies affected by the COVID-19 health crisis. The characteristics of the GBLs (purpose, interest) are the same for all banks.
The GBL is a one-year cash loan with repayment deferred over that period. Recipient companies will be able to decide at the end of the first year to pay off the GBL over a period of 1 to 5 additional years. At the end of the first year, the beneficiary companies will be able to extend the deferred amortization by an additional year, during this period, only the interest and the cost of the State guarantee will be paid.
Given the characteristics described above, the EMPs meet the solely payment of principal and interest (SPPI) criteria (see Note 5.1.2). They are recognized in the category of “receivables at amortized cost” since they are held in a collection management model whose objective is to hold the loans in order to collect the cash flows (see Note 5.1.3). On subsequent balance sheet dates, they will be measured at amortized cost using the effective interest rate method.
As of December 31, 2020, Natixis had granted 86 GBL applications for an outstanding amount of €2,503 million (including €800 million for the automotive industry, €783.5 million for the air transport sector and €118.5 million for the hotel and catering sector) and the related guarantees received from the State totaled €2,269 million. Of these, 12 are classified as Purchased or Originated Credit Impaired (POCI) for an amount of €72.3 million and 19 are classified as restructured loans for an amount of €69.9 million.
Of these projects, only 24 projects, representing €269.3 million, are classified as restructured assets under concession. Provisions related to these restructured loans amount to €9 million as of
Impairment of assets at amortized 1.4.2 cost and at fair value through other comprehensive income and provisions for financing and guarantee commitments
In order to determine the amount of expected losses at December 31, 2020 for all of its exposures eligible for provisioning, Natixis applied the methodology relating to impairments or provisions for expected credit losses described in Note 5.3, but made changes thereto, in order to take into account the recommendations published in the context of the health crisis by standard setters and supervisory authorities: Scenario determination The health crisis has had a major impact on the economy, with significant repercussions on many business sectors. Due to the exceptional circumstances and uncertainties, Natixis relied on the various press releases published by ESMA, the EBA, the ECB and the IASB to determine the expected credit losses in the context of the COVID-19 crisis.
Following the historic economic shock related to the COVID-19 crisis in 2020, the central scenario forecasts a strong recovery in GDP from 2021, and then return to the gradually in subsequent years at a more usual long -term pace of economic activity. Economic activity should thus return to its pre-crisis level (2019) in 2023.
Given this proximity between the different sets of assumptions, IFRS 9 provisions for performing loans were therefore determined on the basis of the scenarios validated in September adjusted by the weightings validated in December 2020.
Sensitivity test The application of a greater weighting to the optimistic or pessimistic scenarios makes it possible to estimate the sensitivity of the amount of expected losses according to the spread of the achievement of the central scenario over future years.
Against this backdrop, CIB’s activities were exposed to significant remarking of certain value factors, such as the “dividend” component: the announcement by some companies that they would suspendV their dividends led to a near-elimination of most short-term dividends and was also reflected in the consensus values used for the remarking of this factor; due to a stressed market environment that generated significantV fluctuations, the “volatility” factor was also remarked for all of the transactions involved.
Stakes held in non-publicly-traded Private Equity funds (seed money portfolio) are valued using IPEV (International Private Equity and Venture Capital Valuation) Guidelines, which are also recommended by Invest Europe
Only subsidiaries making a material contribution to the Group’s financial statements are consolidated.
Materiality is determined based on specific thresholds for each of the Group’s business lines and on a qualitative assessment of the relevance of each entity’s contribution to the consolidated financial statements of Natixis. The main thresholds applicable are as follows: Business lines (in millions of euros) Total balance sheet Net revenues Net income
In determining whether it exercises control or has a significant influence, Natixis considers current voting rights and potential voting rights if they are exercisable or convertible at any time, and if they grant power over the entity’s relevant activities. Potential voting rights arise from stock options on ordinary shares or from the conversion of bonds into new ordinary shares. However, potential voting rights are not taken into account when determining the percentage of ownership except if it is concluded that these voting rights provide access to economic benefits attached to the underlying shares.
The percentage of ownership and the voting rights held are indicated for each entity within the consolidation scope. The percentage of ownership represents the equity share directly and indirectly held by Natixis in the entities within the consolidation scope. The percentage of ownership is used to determine Natixis’ share in the net assets of the company owned.
When voting rights or similar rights are fundamental to an entity’s governance, control is generally understood to mean holding over 50% of voting rights.
If this is not the case, control is determined through the exercise of judgment and by taking into account all facts and circumstances, such as: the objectives, terms and circumstances surrounding the creationV of the entity; the nature of the entity’s relevant activities and the decision-makingV processes concerning these activities; the scope of Natixis’ decision-making rights (from voting rights orV contractual agreements) over the management of the entity’s relevant activities (i.e. activities having a significant impact on the entity’s returns); exposure to variability in the entity’s returns (the significance of theV returns received by Natixis compared with the returns received by the other investors, etc.); rights held by other parties (withdrawal rights, early redemptionV rights, rights regarding the dissolution of the entity, etc.).
Significant influence over associates2.2.3 terms as those applicable to joint ventures (see above), with the exception of Private Equity investments, which Natixis classifies under financial assets at fair value through profit or loss, in accordance with the option available under IAS 28.
In the event of an increase in Natixis’ percentage of ownership in an already-controlled entity, the difference between the acquisition cost of the additional percentage interest and the share in the entity’s net assets acquired at this date is recorded in “Consolidated reserves”. In the event that Natixis’ percentage of ownership in an entity decreases without resulting in a loss of control, the difference between the selling price and the carrying amount of the percentage interest sold is also recorded in “Consolidated reserves”.
In such cases, goodwill is determined only once based on the fair value of the assets acquired and the liabilities assumed on the date that control over the entity is assumed.
The following accounting treatment is applied to business combinations giving rise to control: IFRS 3 before revision if they occurred prior to January 1, 2010,V except for those that occurred before January 1, 2004. On the initial application date of IFRS, Natixis chose the option offered by IFRS 1 “First-Time Adoption of IFRS” to not retrospectively restate business combinations made prior to January 1, 2004, pursuant to IFRS 3; revised IFRS 3 (IFRS 3R) if they occur after January 1, 2010.V IFRS 3R can be applied prospectively to business combinations if their acquisition date is the same or later than the adoption date of IFRS 3R.
The method used to measure non-controlling interests and goodwill may differ depending on whether IFRS 3 or IFRS 3R is applied.
Application of IFRS 3 to business combinations carried out beforeV January 1, 2010: minority interests are determined based on their share in theV identifiable net assets of the acquired entity, measured at their fair value at the purchase date (partial goodwill method), goodwill is the difference between the cost of the businessV combination and the share of the purchasing entity’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities.
Application of IFRS 3R to business combinations carried out afterV January 1, 2010: for each business combination, Natixis chose to determineV non-controlling interests either based on their share in the identifiable net assets of theV acquired entity, measured at their fair value at the purchase date, and therefore without recognizing goodwill on the non-controlling interests (partial goodwill method), or based on their fair value at the purchase date, resulting inV the recognition of goodwill, both for the Group share and the non-controlling interests (full goodwill method); hence, goodwill is a residual item determined as the differenceV between (i) the sum of the purchase price, the fair value at the purchase date of the percentage interest held in the acquired entity prior to the purchase date, and the amount of the minority interests (determined using the partial goodwill method, in the majority of cases, or the full goodwill method) and (ii) the net amount of the assets and liabilities assumed, measured at their fair value at the purchase date.
Transactions involving two entities controlled by Natixis and those involving an entity controlled by Natixis and an entity controlled by BPCE are considered to have been carried out by entities under joint control.
Goodwill arising in connection with the above-mentioned business combination on December 31, 2006 was accounted for as follows: Goodwill on contributed entities As the contributions were recognized at their net carrying amount under IFRS, no valuation adjustments have been recorded for the various assets and liabilities contributed. The difference between the acquisition cost and the Group’s interest in the net assets of the contributed entities does not constitute goodwill within the meaning of IFRS 3, since the acquisition cost takes into account the real value of the shares, while the contributions were recognized at their net carrying amount. Each of the differences observed was recognized in “Consolidated reserves”.
Goodwill on other transactions The goodwill arising from the transaction resulting in the creation of Natixis amounted to €484 million, which breaks down as follows: €229 million for the former IAMG, €21 million for the former IXIS CIB and €8 million for the former Novacrédit, plus the goodwill recorded in “Investments in associates” relating to the Caisse d’Epargne CCIs (€190 million) and the Banque Populaire CCIs (€36 million).
Other goodwill During the fiscal year 2020, excluding translation differences (-€129 million), goodwill decreased by -€229 million (see Note 7.12).
Impairment tests All items of goodwill are impaired, based on the value in use of the cash-generating units (CGUs) to which they have been allocated.
At December 31, 2020, the following assumptions were used: estimated future cash flows: forecast data from the latestV multi-year profit trajectory forecasts for the business lines drawn up as part of the preparation of Natixis’ strategic plan; perpetual growth rate: the perpetual rate set at 2.5% for theV Insurance and Payments CGUs and for the M&A activity of CIB, due to the prospects for sustained growth in their activity and their resilience. in the context of the crisis. The perpetuity rate is maintained at +2% for the AWM CGU in a context still marked by high volatility on stock market indices. As a reminder, the perpetual rate had been reduced to +2% for all CGUs for the test at June 30, 2020; discount rate: use of a specific rate for each CGU: 7.6% for Asset &V Wealth Management (9.1% as of December 31, 2019), 9.5% for CIB (11.4% as of December 31, 2019), 7.6% for Insurance (10.6% as of December 31, 2019) and 6.7% for Payments (6.9% as of
In addition, and in more detail, the discount rates were determined taking into account: for the Insurance and Payments CGUs, the risk-free 10-year FrenchV Treasury bond rate averaged over a period of 5 years; for the Asset & Wealth Management and Corporate & InvestmentV Banking CGUs, the average of the 10-year French Treasury bond and 10-year US Treasury, averaged over a period of five years.
These tests did not result in the recognition of impairment losses at
The sensitivity to key assumptions does not significantly affect the recoverable amount of the CGUs: for Asset & Wealth Management, a 10% decline in the equityV markets (uniform decline across all years) would have a -10% negative impact on the CGU’s recoverable value and would not lead to the recognition of an impairment loss; for Corporate & Investment Banking, sensitivity to the dollar or toV higher liquidity costs would have a limited impact on net revenues and would not lead to any impairment being recorded; for Insurance:V
Consolidated financial statements and notes 269NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2020www.natixis.com for Payments, with regard to business activity, the CGU has aV diversified business model with, on the one hand, a long-standing payments business serving the Groupe BPCE networks, which has generated high volumes of activity over the years (and strong momentum in electronic payments) and, on the other hand, a portfolio of Fintech companies offering a wide range of products, both to Group clients and externally (digitized securities, merchant solutions, e-commerce, solutions for company works councils, etc.). This business model implies a lower level of earnings volatility.
Entities treated under IFRS 5 as of December 31, 2020 are presented in Note 1.2 Significant events.
In the context of Article 41 of the Amending Finance law for 1997 (No. 97-1239 of December 29, 1997) amended by Article 121 of the Amended Finance Act for 2008 (No. 2008-1443 of December 30, 2008), Article 5 of the Amended Finance Act for 2014 (No. 2014-1655 of December 29, 2014) and the agreement signed with the French State on December 24, 2019, Natixis manages certain public procedures on behalf of the French State, mainly consisting of loans and gifts to foreign States conferred within the framework of Public Development Aid, non-concessional loans to foreign States, gifts to the “Fund for Private Sector Aid and Studies” and the stabilization of interest rates for export credit guaranteed by the State. The related transactions, some of which may be guaranteed by the State, are recognized separately in the financial statements. The State and other related creditors have a specific right over the assets and liabilities allocated to these institutional operations. The bank’s assets and liabilities relative to these operations are identified on the balance sheet under each of the headings concerned with these operations.
Currency conversion 2.9 of the statements of foreign subsidiaries and branches
The balance sheets of foreign subsidiaries and branches whose functional currency is not the euro are translated into euros at the closing exchange rate, except for share capital, reserves and capital allocations, which are translated at the historical exchange rate. The income statements of foreign subsidiaries and branches whose functional currency is not the euro are translated at the average exchange rate for the year. Any resulting translation gains or losses arising regarding both balance sheet and income statement items are recognized in equity under “Translation adjustments” for the portion attributable to the Group and “Non-controlling interests” for the portion attributable to third parties.
In the second quarter of 2020, the stake in Natixis CoficinéV increased from 99.9% to 100% following the buyback of shares from the executive officers.
The shareholding rate in the Azure entities increased from 52.2% toV 53.1% following the exit of non-controlling interests in the first and fourth quarter of 2020.
During the fourth quarter of 2020, an additional Seed Money wasV invested in the Thematics Subscription Economy fund, bringing Natixis IM’s stake to over 30%. On this occasion, the seeding period was extended beyond one year. As a result, this fund, whose assets exceed €60 million, is consolidated at December 31, 2020.
DNCA Finance has created a branch in Luxembourg to house theV former activities of its subsidiary DNCA Luxembourg. This branch was consolidated in the fourth quarter of 2020.
In the fourth quarter of 2020, AEW Capital Management createdV the Seaport Strategic Property Program I Co-Investors, LLC, in the context of the management of a new real estate fund in the United States. This entity, wholly owned by AEW Capital Management, is consolidated as of December 31, 2020.
Deconsolidation in the fourth quarter of 2020 of the followingV entities following their liquidation: AEW Central Europe Romania, Arctic Blue Capital Ltd, Arctic Blue Capital Management Ltd, Loomis Sayles Solutions, LLC and CREA Western Investors I, Inc.
As part of the simplification of the DNCA Group’s structure, theV companies DNCA Courtage and DNCA Luxembourg were subject to a Universal Transfer of Assets to DNCA Finance in the fourth quarter of 2020. In addition, DNCA Management, an entity wholly owned by NIM P3 and with a controlling stake in DNCA Finance, was absorbed by NIM P3.
Deconsolidation in the fourth quarter of 2020 of the Thematics AIV and Robotics Fund after falling below the consolidation thresholds.
Dorval Finance: the structure’s managers exercised their putV options and redeemed shares at the end of the first quarter of 2020. Following these transactions, Natixis IM’s ownership stake and control of Dorval became 88.7%.
During the first half of 2020, some of the seed money invested inV the Thematics AI and Robotics fund was redeemed. As a result, Natixis IM’s share of that fund became 31%.
As part of the merger of the interest rate management andV insurance activities of Natixis IM and La Banque Postale AM, a large portion of LBP AM’s activities were transferred to Ostrum in the fourth quarter of 2020. Following this asset contribution, Natixis IM retains 55% of the capital of Ostrum, while La Banque Postale acquires a 45% stake.
NIM simplified the organizational structure of the AM holdingV companies in the United States.
On January 1, 2020, Natixis Investment Managers LP absorbed Natixis Investment Managers Holdings LLC, a holding company that indirectly holds an insignificant stake (1% to 2%) in the various US affiliates (Loomis, Harris, AEW Capital Management, Vaughan Nelson, etc.), affiliates whose residual capital was also wholly owned by Natixis Investment Managers LP. As part of this transaction, Natixis Investment Managers LP was transformed into a limited liability company (LLC), then renamed Natixis Investment Managers LLC.
Deconsolidation in the first quarter of 2020 of the SelectionV Protection 85 fund after falling below the thresholds.
Closure within Dalenys of the entity Rentabiliweb in Romania in theV fourth quarter of 2020.
The impact of acquisitions and disposals were as follows at December 31, 2019: Investment Managers also holds put options on non-controlling interests (60%) in the amount of -€30.2 million. At Massena Partners, a put option on non-controlling interests (2%) was recorded in the amount of -€0.9 million. Finally, for the Payments business, a put option on the non-controlling interests at Lakooz (0.1%) was recorded in the amount of -€0.2 million; the recognition of new put options granted to minorityV shareholders relating to acquisitions, for -€44.2 million. For the Corporate Banking business line, as part of the acquisition of Azure Capital, a mergers and acquisitions consulting firm, a put of -€9 million was recorded on the 48% non-controlling interests. In addition, a -€0.3 million put was recorded on Natixis Coficiné non-controlling interests (0.01% of share capital). In the case of the Asset & Wealth Management business line, Natixis Investment Managers sold part of its stake in Flexstone Partners SAS, thus decreasing Natixis’ ownership interest from 100% to 84%. A put option on non-controlling interests was recorded on the 16% non-controlling stake for -€3.6 million. In addition, Thematics Asset Management, which was co-founded by its managing partners and Natixis Investment Managers in 2019, was consolidated in the accounts. The intention is for the firm to become Natixis’ partner of choice for thematic investing in international equities. Natixis concerning puts on non-controlling interests at the beginning ofV the fiscal year in the amount of +€12.7 million. This impact stems from the change in fair value of these put options over the period, resulting from the negative revaluation of financial debt for +€29.5 million and the effects of unwinding the discount on this financial debt, for -€16.8 million; the effect of changes in the percentage of ownership without aV loss of control of consolidated entities, in the amount of -€13 million, of which -€4.4 million for Coface and -€11.5 million in losses for the buyout of 49% of non-controlling interests of Mirova Natural Capital Limited; the recycling to profit or loss (resulting from the disposal of theV SFS business lines to BPCE) in particular of unrealized reserves on available-for-sale assets from the CEGC portfolio for -€70 million, recyclable hedging derivatives reserves for +€106 million and revaluation adjustments on defined benefit plans for +€2 million; the recycling through profit or loss (resulting from the disposal ofV Natixis Brasil) of translation adjustments for +€21.9 million and recyclable OCI on fixed income securities for +€0.8 million; the translation adjustment recycling for -€5.6 million following theV repayment by the Dubai branch of part of its capital ($94.4 million) in order to reduce the Group’s global exposure to USD/EUR foreign exchange risk.
The effects of acquisitions and disposals are as follows at December 31, 2020: concerning puts on non-controlling interests at the beginning ofV the fiscal year for +€19.1 million. These effects are related to the change in the fair value of these puts over the period for +€13.7 million, generated by the downward revaluation of the financial debt for +€16.1 million, of which +€19.4 million for the AWM division (including +€7.8 million for Dorval Finance and +€10.2 million for IML), and an amount of -€2.4 million generated by the effects of the unwinding of the discount on this financial debt. The transfer of the positive change in the share of net non-controlling interests of these entities representing these puts was +€5.4 million over the period; new puts on non-controlling interests during the period amountedV to -€18.1 million. As part of the merger of the interest rate management and insurance activities of Natixis IM and La Banque Postale AM, a large part of the activities of LBP AM were transferred to Ostrum in the fourth quarter of 2020. Following this contribution of assets, Natixis IM retains 55% of the capital of Ostrum, while La Banque Postale acquires a 45% stake, as Natixis granted a put to the latter. The effect in equity of -€18.1 million corresponds to the difference between the valuation of the put (€79.5 million) and the non-controlling interests of the new entity (€61.4 million); changes in the percentage of interest without loss of control ofV consolidated entities in the amount of +€11.4 million, mainly corresponding to the result of dilution following the disposal of 45% of Ostrum to La Banque Postale AM for +€11.8 million carried out in the fourth quarter of 2020; reclassification of actuarial gains and losses resulting from theV application of IAS 19R as reserves in connection with the loss of control of Coface for -€10.9 million.
After obtaining the required regulatory approvals, Natixis and La Banque Postale were able to finalize on October 31, 2020, the merger of the fixed income and insurance-related management activities of Ostrum Asset Management and La Banque Postale Asset Management announced in 2019. This transaction resulted in the contribution of LBP AM’s activities to Ostrum (see note 1.2.3).
Impact of the loss of control during 3.3.3 the period of a subsidiary in which an interest has been retained
Pillar III” Note 3.2.7 “Balance sheet management” of the universal registration document).
Natixis is subject to liquidity risk supervision, which requires the creation of a liquidity reserve limiting the use of the assets of which it is composed (see Chapter [3] “Risk factors, risk management and
The share of encumbered assets that cannot be freely used is presented in Section 3.3.4 of Chapter [3] “Risk factors, risk management and Pillar III” of the universal registration document.
Coface’s net income includes -€57.4 million for the impairment of the stake held by Natixis. The market value of the stake in Coface using the equity method (a) is €158.5 million as of December 31, 2020. The net income of other entities of -€16 million at December 31, 2020 includes a depreciation of -€11.5 million on the Adir entity, bringing the value (b) of the equity method to zero.
Summarized financial information pertaining to material joint ventures and associates3.4.2 The summarized financial data pertaining to material associates and/or joint ventures under significant influence are presented below.
The data for EIG and Coface established on December 31, 2020 and with the accounting principles and valuation methods applied to comply with IFRS as adopted by the European Union on that date Natixis’ consolidated financial statements as presented in Note 5.
Natixis’ share in the equity of the associate 216 521 520
Risks associated with interests in joint 3.4.4 ventures and associates held by entities
Structured entities generally have one or more of the following characteristics: restricted and narrowly-defined activities and objectives;V
General principles4.1.1 In accordance with IFRS 12, Natixis discloses information for all of the structured entities in which it holds interests and for which it acts in one or more of the following roles: originator/structurer/arranger;V
any other role in which it has a decisive impact on the structuringV or management of the transaction.
Interest in an entity is understood to mean a contractual or non-contractual relationship that exposes the entity to the risk of variable returns associated with the performance of another entity. Interests in other entities may be evidenced by, among other things, ownership of equity instruments or debt securities, as well as by other links, such as financing, cash loans, credit enhancement and the issuing of guarantees or structured derivatives.
Structured finance transactions4.1.2 In order to meet financing requirements for movable assets (involving air, sea or land transportation), real estate, corporate acquisitions (LBO financing) or commodities, Natixis may be required to create structured entities for a specific financial transaction on behalf of a customer.
Asset Management transactions4.1.3 Mutual funds In general, seed money investments held for less than one year were not consolidated.
Non-guaranteed mutual funds1. In the context of mutual funds, relevant activities are investment and divestment activities involving securities in fund assets. These activities are managed in a discretionary manner on behalf of investors by Natixis Investment Managers’ and Natixis Wealth Management’s management companies.
The compensation of Natixis Investment Managers and Natixis Wealth Management as managers is marginal compared with the returns generated for investors. Indeed, the management and incentive fees are obtained on the market and are consistent with the services rendered, since the Asset Management activity takes place on a competitive and international market.
In the absence of rights held by third parties (e.g., withdrawal or fund redemption/liquidation rights), the control of mutual funds managed by Natixis Investment Managers and Natixis Wealth Management is assessed according to the combined interests held by the entities and business lines within Natixis’ consolidated scope: as managers, Natixis Investment Managers and Natixis WealthV Management do not invest in the funds and generally own only a few units; Natixis Assurances may take out interests in mutual fundsV managed by Natixis Investment Managers via its insurance subsidiaries. These interests are subscribed in the form of euro-denominated or unit-linked insurance policies: euro-denominated policies are policies under which the insuredV 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, unit-linked policies are policies under which the insured partyV selects the funds in which the insurer invests on its behalf. The value of the insurer’s interest in such funds is reflected in the insurance policies. Invested funds representing unit-linked policies are consolidated under IFRS 10 if all of the control criteria are met cumulatively and if the funds have a material impact; other Natixis entities and business lines may hold minorityV interests, intended mainly to meet cash investment needs.
Non-guaranteed mutual funds subject to consolidation but not consolidated due to their materiality are listed in Note 17.1.
Guaranteed mutual funds2. Natixis guarantees the capital and/or performance of certain mutual funds. These packaged funds are passively-managed funds. Once the structuring is established initially, it is fixed for the fund’s entire lifetime. Natixis has relatively limited exposure to negative variable returns thanks to the fund’s strict management by Natixis TradEx Solutions (formerly Natixis Asset Management Finance) and a robust risk control system put in place upon structuring and monitored throughout the fund’s lifetime. These controls significantly limit the risk of guarantee activation.
Real estate funds The relevant activities of these funds are those involving the investment and divestment of real estate assets. These funds are managed on behalf of investors by Natixis Investment Managers’ management companies (AEW Europe, AEW Central Europe, etc.).
Private Equity funds As part of its Private Equity operations, Natixis makes equity investments in unlisted companies via Private Equity investment vehicles (Fonds Communs de Placement à Risque – FCPRs – Private Equity investment funds and SICARs – Sociétés d’Investissement à Capital Risque – venture capital companies) and limited partnerships which it typically manages.
The analysis criteria for IFRS 10 consolidation applied to Private Equity funds are the same as those applied to real estate funds. A fund is subject to consolidation if Natixis acts as principal (e.g., Natixis is a manager and is not revocable by a limited number of people and holds material variable returns). Private Equity funds subject to consolidation but not consolidated due to their materiality are listed in Note 17.1.
Natixis is mainly involved in these entities in its capacity as: structurer/arranger of securitization transactions;V
Natixis completed various securitization transactions in 2020, as in 2019, relating to commercial real estate financing originated by Natixis Real Estate Capital LLC.
Securitization vehicles subject to consolidation but not consolidated due to their materiality are listed in Note 17.1.
Management of CDO Asset Management structures Natixis Investment Managers is involved in such funds as manager of the underlying portfolio for third-party investors. Its role is strictly defined by the portfolio management agreement, which never provides it with effective control of the structure but rather with the role of agent. Furthermore, neither Natixis Investment Managers nor any other Natixis entity holds a material interest in these funds. Natixis is therefore not significantly exposed to the variability of returns.
Other transactions4.1.5 Natixis controls a certain number of vehicles whose purpose is toV manage operating property and non-operating property. The relevant activity is mainly the management of property as sources of returns for shareholders. Natixis generally has power over these activities. Such SPEs are consolidated once Natixis has a material interest and if they are material to the consolidated financial statements of Natixis.
Film Industry Financing companies (SOFICA). Natixis holds aV non-material stake in these SOFICAs and receives management fees at market rates consistent with the services rendered. Natixis does not hold any other interests in these structured entities. They are therefore not subject to consolidation under IFRS 10.
The size of structured entities equates: for Securitization, to the total issues on the liability side of theV balance sheet; for Asset Management, to the fund’s net assets;V
Financial instruments to be valued at fair value through profit or loss 54 1,619 213 12 1,897 81 1,012 223 14 1,330
Financial liabilities at fair value through profit or loss (derivatives) 5 82 140 249 476 45 90 903 182 1,221
Notional amount of sales of options and CDS 814 - 6,556 281 7,652 555 - 5,043 377 5,974
MAXIMUM EXPOSURE TO RISK OF LOSS 14,206 3,134 20,223 2,176 39,739 13,092 3,307 19,923 2,065 38,387
Financial assets at fair value through profit or loss - 12,641 - - 12,641 - 8,594 - - 8,594
Financial instruments measured using the fair value option - 7,307 - - 7,307 - 6,392 - - 6,392
Financial liabilities at fair value through profit or loss (derivatives) - - - - - - - - - -
Notional amount of sales of options and CDS - - - - - - - - - -
MAXIMUM EXPOSURE TO RISK OF LOSS 553 18,125 - - 18,678 611 12,700 - - 13,311
Where Natixis’ participation is simply as an advisor, arranger, custodian or placement agent, the structured entity is presumed not to be sponsored by Natixis.
Carrying value of the assets transferred from the entity during the year* 252 - 252 948 - 948
The choice of business model must take into account all information regarding the manner in which cash flows were generated in the past, along with all other relevant information, for example: the way in which the performance of financial assets is assessedV and presented to the main executive officers; the risks that have an impact on the business model’sV performance, in particular the way in which these risks are managed; the way in which executive officers are paid (for example, if pay isV based on the fair value of assets under management or on the contractual cash flows received); the frequency, volume and purpose of sales.V
IFRS 9 provides for three business models: hold to collect model: in this model, financial assets are held inV order to receive contractual cash flows over the life of the assets. This model, under which the concept of “holding” is relatively similar to holding to maturity, remains valid if sales are made under the following conditions: the disposals are due to an increase in credit risk,V
Natixis applies the “hold to collect and sell” model primarily to portfolio management activities for securities in the liquidity reserve; other model: a model intended for other financial assets,V especially those held for trading, for which the collection of contractual cash flows is incidental.
The SPPI test5.1.2 A financial asset is considered as basic if its contractual terms give rise, on specific dates, to cash flows that are solely payments of principal and interest on the outstanding amount due.
The instrument’s contractual terms must be taken into account to assess whether contractual cash flows are solely payments of principal and interest. All elements that may cast doubts as to whether only the time value of money is represented must therefore be analyzed. For example: events that would change the amount and date of the cash flows;V
Financial assets at amortized cost5.1.3 Financial assets recognized at amortized cost correspond to debt instruments, in particular loans and receivables due from credit institutions and customers as well as securities carried at amortized cost such as treasury bills and bonds.
Specific case of loans restructured due to the debtor’s financial situation “Restructured” loans correspond to loans with modified terms under which Natixis grants a concession to borrowers facing or likely to face financial difficulties. They are a combination of a concession granted by Natixis and financial difficulties experienced by the borrower.
The modified terms of “restructured” loans must put the borrower in a more favorable situation (e.g. suspension of interest or principal payment, extension of term, etc.) and are confirmed by the use of amendments that modify the terms of an existing contract or by the full or partial refinancing of an existing loan.
For loans restructured by amending the terms of the existing contract, with no derecognition of the initial asset, a discount must be recorded, corresponding to the difference between: the present value of the contractual cash flows initially expected;V and the present value of the revised contractual cash flows discountedV at the original effective interest rate.
regular and material repayments (principal and interest) have beenV made over a period of at least one year.
For restructured loans either fully or partially converted into a substantially different asset (such as an equity instrument or an instrument changing from fixed rate to variable rate and vice versa) or that have given rise to a change of counterparty: the new instruments are booked at fair value;V
the difference between the carrying amount of the derecognizedV loan and the fair value of the assets received in exchange is recorded in income under the provision for credit losses; any provision previously recorded on the loan is adjusted and fullyV reversed if the loan is fully converted into a new asset.
Financial assets recorded in the fair value through profit or loss category correspond to: financial assets held for trading: these are debt and equityV instruments acquired or originated by Natixis principally to be sold in the near term and those forming part of a portfolio of financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Guarantee deposits and the corresponding margin calls relating to securities sold under repurchase agreements and derivatives transactions recorded under liabilities in the balance sheet are also included in this item; financial assets under the fair value option: these are SPPIV instruments not held for trading. They are designated at fair value through profit or loss on initial recognition under IFRS 9 only if this option reduces a measurement inconsistency with a related financial asset/liability in income; financial assets at fair value through profit or loss because of theirV characteristics: these are debt instruments that do not meet the SPPI criteria (see Note 5.1.2), for example mutual fund units, which are considered debt instruments without SPPI characteristics under IFRS 9. Non-SPPI debt instruments held for trading are presented with assets held for trading.
The value of rights of use may be subsequently adjusted in the event the lease is amended or the lease term re-estimated, and to factor in any contractual rent changes stemming from the application of an index or rate.
Stage 3 (or S3) Loans that are “impaired” as defined by IFRS 9 are transferred to this category. These are loans for which there is objective evidence of impairment loss due to an event that represents a counterparty risk occurring after the initial recognition of the instrument in question. The new definition of default, defined by the guidelines of the European Banking Authority (EBA) on the application of the definition of default under Article 178 of Regulation (EU) No. 575/2013 applicable from January 1, 2021, and the provisions of Regulation (EU) 2018/1845 of the European Central Bank relating to the threshold for assessing the importance of arrears on credit obligations, applicable no later than December 31, 2020, reinforce the consistency of practices of European credit institutions in identifying defaults.
The definition of defaulted outstandings is thus clarified by the introduction of a relative threshold and an absolute threshold, to be applied to payment arrears to identify situations of default, the clarification of the criteria for returning to healthy outstandings with the imposition of a probationary period and the introduction of explicit criteria for classifying restructured loans in default (see Note 5.1.3). Natixis applies these new provisions for the identification of defaulted outstandings from October 22, 2020.
The internal parameters used to calculate expected credit losses will be monitored as part of dedicated backtesting exercises and as a sufficient history of defaults is built up according to this new definition. However, Natixis’ exposures are to portfolios deemed to have a low number of defaults (Sovereign, Financial Institutions, Large Corporate and Specialized Financing), and estimates of the impact on the risk parameters induced by the application of the new provisions relating to outstandings in default have not resulted in a significant change in Natixis’ consolidated financial statements.
The analysis is carried out individually, each situation being specific. Beyond the factors that clearly prove that all or part of the receivable will not be recovered (e.g. cessation of recovery actions, receipt of the certificate of non-recoverability), groups of indicators may also be taken into account, these assessments include entry into liquidation, the disappearance or insufficiency of residual assets and/or the absence of collateral, etc.
If there is no rating on the date the loan is granted or on the reporting date, it is automatically categorized as Stage 2.
The standard provides that the credit risk of a financial instrument has not increased materially since its initial recognition if this risk is considered to be low at the end of the fiscal year. This provision is applied to certain investment grade debt securities managed under
If the downgrading since the start is no longer recorded, the impairment is recognized in losses expected within 12 months.
Accordingly, loans and receivables are categorized as Stage 3 if both of the following conditions are met: there are objective indications of impairment: these are “triggerV events” or “loss events” that characterize a counterparty risk and occur after the initial recognition of the loans concerned. On an individual basis, probable credit risk arises from default events defined in Article 178 of Regulation (EU) No. 575/2013 dated June 26, 2013 relating to prudential requirements applicable to credit institutions. Objective evidence of impairment includes any payments exceeding the relative and absolute thresholds by €500 or 1% of gross exposure, that are past due by at least 90 consecutive days, or regardless of whether any payment has been missed, the observation of financial hardship experienced by the counterparty leading to the expectation that some or all of the amounts owed may not be recovered or to the initiation of legal proceedings. Restructured loans are classified as defaulted when the loss is greater than 1% of the difference between the net present value before restructuring and the net present value after restructuring; these events are liable to lead to the recognition of incurred losses,V that is, expected losses for which the probability of occurrence has become certain.
which is the sum, discounted for each projection year, of the product of the EAD, PD and LGD parameters: EAD(t) (Exposure At Default): the amount of loss that the institutionV may be exposed to on the loan in question during year t, including accelerated amortization and credit conversion factors where necessary;
The best case and worst case economic scenarios aim to represent the uncertainty surrounding the estimated economic variables in the central scenario.
All three scenarios are defined using the same organization structure and governance as for the budget process, with an annual review based on proposals from the Economic Research Department. For 2020, given the context of the health crisis, the review was repeated on two occasions. The scenarios’ probability of occurrence is reviewed on a quarterly basis by drawing on the observed changes in the macroeconomic parameters used in the economic scenario.
At December 31, 2020, the weightings of each scenario were as follows: central scenario: 85%;V
However, certain entities whose own fund requirements are calculated using the standardized method and whose exposures are not integrated into a ratings system have implemented a methodology for calculating provisions on performing loans based on historical loss rates calibrated specifically by the entity.
Special case of embedded derivatives for financial liabilities An embedded derivative is a component of a host contract which causes some or all of the cash flows of that contract to change in response to changes in an underlying (interest rate, share price, exchange rate or other index).
Change in presentation of option premiums At December 31, 2020, Natixis modified the presentation of conditional derivatives purchased or sold with a staggered or paid premium.
The instruments concerned are mainly foreign exchange and interest rate options. This change had no impact on the income statement.
The following table summarizes the effects of this change in presentation on the various items: (in billions of euros)
Financial assets at fair value through profit or loss 228.8 (8.1) 220.7 218 (7.6) 210.4
Financial liabilities at fair value through profit or loss 218.3 (8.3) 210 216.4 (7.9) 208.5
Derivatives may only be designated as hedges if they meet the criteria set out in IAS 39 at inception and throughout the term of the hedge. These criteria include formal documentation that the hedging relationship between the derivatives and the hedged items is both prospectively and retrospectively effective. Hedging relationships are
When a hedging relationship is interrupted, in particular when the efficiency ratio goes out of range [80%; 125%], the accounting treatment then consists of reclassifying the derivative as financial instruments at fair value through profit or loss and reversing through profit or loss, as and when the hedged transaction has its effects in profit or loss, the amount of the derivative efficiency accumulated for previous hedging periods in equity that can be recycled under “Gains and losses recognized directly in equity”.
Fair value hedging Fair value hedging is intended to hedge the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment.
At each such date, changes in the fair value of hedging instruments (excluding accrued interest) are compared with changes in the fair value of the hypothetical assets and liabilities hedged (synthetic instruments representative of hedged assets or liabilities). Changes in the fair value of hedging instruments must offset changes in the fair value of hedged items in a range of 80%-125%.
Accounting for fair value hedges Changes in the fair value of the derivatives are recognized as income for both the effective and ineffective portions.
Changes in the fair value of hedging derivatives excluding accrued interest are recorded in income under “Net gains or losses on financial instruments at fair value through profit or loss”. Accrued interest relating to these instruments is recorded under “Interest and similar income” or “Interest and similar expenses”.
Hedging of a net investment in a foreign operation Net investment hedges are used to hedge the exchange risk arising on net foreign currency investments (consolidated subsidiary or investment). They are accounted for in the same way as cash flow hedges. The effective portion of changes in the fair value of hedging instruments (monetary derivative or liability denominated in foreign currency) is recognized in equity. These changes in fair value are offset against the translation adjustments recognized when the entity was consolidated (see Note 2.9). The ineffective portion of changes in fair value is recognized in income. Unrealized gains or losses recognized directly in equity are transferred to income when all or part of the net investment is sold.
Non-monetary items denominated in foreign currencies and measured at historical cost are translated at the exchange rate on the transaction date (or the date of reclassification in equity for the perpetual deeply subordinated notes issued: see Note 12.3.1).
The main additional Funding Value Adjustments are as follows: Bid/ask adjustment – Liquidity risk This adjustment is the difference between the bid price and the ask price corresponding with the selling costs. It reflects the remuneration requested by a market player in respect of the risk of acquiring a position or of selling at a price proposed by another market player.
Credit Valuation Adjustment (CVA) This adjustment applies to valuations that do not account for the counterparty’s credit quality. It corresponds to the expected loss related to the risk of default by a counterparty and aims to account for the fact that Natixis cannot recover all of the transactions’ market value.
Debit Valuation Adjustment – DVA The DVA is symmetrical to the CVA and represents the expected loss, from the counterparty’s perspective, on liability valuations of derivative financial instruments. It reflects the impact of Natixis’ credit quality on the valuation of these instruments. The adjustment is made by observing “zero-coupon” spreads on a sample of comparable entities, taking into account the liquidity of BPCE’s “zero coupon” spread over the period. The funding valuation adjustment (FVA) is taken into account in the DVA calculation.
The valuation control procedures are presented in section 3.2.5 “Market risks” of Chapter [3] “Risk factors, risk management and Pillar III”.
For both, the fair value is obtained using a multi-criteria approach based on the capitalization of rents at the market rate combined with a comparison with market transactions.
As soon as they are in a condition to be used by Natixis in the manner in which they were intended, property, plant and equipment and intangible assets are depreciated or amortized over their estimated useful lives on a straight-line, declining or increasing balance basis, whichever best reflects the pattern in which the economic benefits are consumed. The residual value of the asset is deducted from its depreciable or amortizable amount when it can be measured reliably. Natixis does not believe it can reliably measure the residual value of items other than land and non-destructible buildings classified as historical monuments. They are therefore assigned a residual value of zero.
Assets are tested for impairment whenever there is objective evidence that they may be impaired and at least annually in the case of intangible assets with an indefinite useful life. Natixis considers whether there is any evidence of impairment at each reporting date. If any such evidence exists, the recoverable value of the individual asset is estimated wherever possible; otherwise the recoverable value of the CGU to which the asset belongs is estimated. The recoverable value is the higher of fair value less selling costs and
The discontinuation of IT projects under development results in their derecognition. A corresponding expense is posted to “Gains or losses on property, plant and equipment and intangible assets” on the consolidated income statement.
The subsidiaries for which Natixis has committed to a plan to sell assets are listed in Note 2.6 “Subsidiaries held for sale”.
A discontinued operation is a clearly identifiable component of an entity that either has been disposed of, or is classified as held for sale, and: represents a separate major line of business or geographic area ofV operations; without constituting a separate major line of business orV geographic area of operations, the component is part of a single coordinated plan to dispose of a separate major line of business or geographic area of operations; or is a subsidiary acquired exclusively with a view to resale.V
liabilities at fair value through profit or loss, as such recognition does not create or increase an accounting mismatch. Changes in value attributable to own credit risk are recorded under “Revaluation of own credit risk on financial liabilities at fair value through profit or loss” under “Gains and losses recognized directly in other comprehensive income”.
Natixis derecognizes all or part of a financial asset if the contractual rights over the cash flows from the financial asset expire. Natixis also derecognizes all or part of a financial asset if these contractual rights or substantially all of the risks and rewards of ownership are transferred.
collection of financial compensation linked to the performance ofV the asset transferred.
A financial liability is derecognized when it is settled, canceled or expires.
Transactions on derivatives and repurchase agreements carried out with clearing houses, whose operating principles meet the two criteria mentioned above, are offset in the balance sheet (see Note 7.3).
a) Restructuring provision A provision for restructuring costs is recognized when the following standard criteria for recognizing provisions and the two following conditions are met: there is a detailed formal plan for the restructuring on the closingV date, identifying at least: the operations or part of the operations concerned,V
Natixis has raised a valid expectation in those affected that it willV carry out the restructuring by starting to implement that plan or announcing its main features on the closing date.
b) Provisions for risks and litigation A description of the main risks and litigation to which Natixis is exposed is given in Section 3.2.9 of Chapter 3 “Risk factors, risk management and Pillar III”.
Revaluation adjustments for actuarial debt related to changes in actuarial assumptions and experience adjustments (impact of differences between actuarial assumptions and actual experience) are booked under items not recycled to comprehensive income among “Gains and losses recognized directly in equity”.
Other long-term benefits are valued using the same actuarial method as that applied to post-employment benefits under defined benefit plans, except that liability revaluation items are recognized directly as an expense.
The lock-up valuation method is based on the cost of a two-step strategy consisting of a five-year forward sale of the locked-up shares and purchasing the same number of shares in cash, by financing the purchase with a loan ultimately repayable at the end of the five years with the income from the forward sale. The loan interest rate is that which would have been granted to a market player seeking a non-affected cash loan repayable in five years with an average risk profile.
Share-based employee retention and performance recognition plans The variable compensation policy is in keeping with the regulatory framework, including the European Regulation CRD IV. It also meets transparency requirements with regard to the ACPR, the ECB and the AMF.
Employee retention and performance plans settled in shares Under IFRS 2 “Share-based payment”, employee bonus share awards give rise to an expense representing the fair value of the goods or services received at the grant date. This payroll expense is recognized against equity. The fair value of the services received is calculated by reference to the fair value of the shares at the grant date, less the present value of dividends forfeited by employees during the vesting period, taking the continued service requirements into account.
Detailed information about these plans and their quantified impacts over the period are provided in Note 11.2.2.
Under IFRS 15 “Revenue from contracts with customers”, the entity must recognize income arising from ordinary activities in an amount that reflects the consideration that the entity expects to receive in exchange for the transfer of goods and services promised to customers. Revenue is recognized in five stages: identification of contracts with customers;V
identification of specific performance obligations (or items) to beV recognized separately from one another; determination of overall transaction price;V
The tax expense for the year comprises: tax payable by French companies at the rate of 32.02% for theV fraction of the profit exceeding €500,000 (28% of €0 to €500,000) or at the rate in force locally for foreign companies and branches; deferred taxes arising from temporary differences between theV carrying amount of assets and liabilities and their tax basis, which are calculated using the balance sheet liability method.
The deferred tax rate applied in France takes account of the tax cuts introduced by parliament through the various Finance laws. The rate of corporate tax will decline (excluding a social security contribution impact of 3.3%) to 27.5% in 2021 (for all taxable income) and to 25% in 2022 and subsequent years.
These guarantees are recorded as derivatives and are measured at fair value in accordance with the provisions of IFRS 13.
Guarantee commitments received There are no IFRS standards covering financial guarantees received (other than derivatives or insurance contracts). In the absence of specific guidance, the accounting treatment applied must be determined by analogy with the accounting treatment prescribed by other standards in similar situations. Accordingly, guarantees received meeting the definition of a financial guarantee for an issuer are accounted for in accordance with: IFRS 9, for guarantees received in respect of financial assets (debtV instruments). The measurement of the expected credit losses associated with financial assets must in fact take into account the flows generated by guarantees considered an integral part of the debt instrument; IAS 37, for guarantees received in respect of non-financial liabilitiesV falling within the scope of IAS 37.
The vast majority of the financing commitments granted by Natixis give rise to loans granted at market rates at the grant date and recognized at amortized cost. As such, and in accordance with IFRS 9, the commitment to lend and the loan itself are considered successive stages of one and the same instrument. The commitment to lend does not, therefore, fall within the scope of IFRS 9: it is treated as an off-balance sheet transaction and is not revalued. Financing commitments are eligible for the provisioning mechanism under IFRS 9, however (see Note 5.3). IFRS 9 provides that the issuer of a financing commitment must apply provisioning criteria to loan commitments that do not fall within the scope of this standard. The provisions recognized in respect of these commitments are presented in Note 7.16 “Summary of provisions”.
Directive 2014/59/EU (BRRD – Bank Recovery and Resolution Directive) which establishes the framework for the recovery and resolution of banks and investment firms and Regulation (EU) 806/2014 (SRM regulation) established the introduction of a resolution fund as of 2015. In 2016, this fund became a Single Resolution Fund (SRF) between the member States participating in the Single Supervisory Mechanism (SSM). The SRF is a resolution financing mechanism available to the resolution authority (Single Resolution Board). The latter may use this fund when implementing resolution procedures.
In preparing its financial statements, Natixis is required to make certain estimates and assumptions based on available information that is likely to require expert judgment. This exercise has been made particularly difficult given the current health crisis, which has had unprecedented repercussions on the global economy.
These estimates and assumptions constitute sources of uncertainty which may affect the calculation of income and expenses in the income statement, the value of assets and liabilities in the balance sheet and/or certain disclosures in the notes to the financial statements. Thus, the future results of certain transactions could prove to be significantly different from the estimates used for the closing of the financial statements at December 31, 2020, especially in the current circumstances of extreme uncertainty.
Accounting estimates requiring assumptions to be made are mainly used to measure the items set out below: Financial instruments recorded at fair value
The highly uncertain environment caused by the health crisis on the global economy has required close attention in 2020 in order to make reasonable, justifiable forecasts. Natixis has thus constructed a new scenario central management, based in particular on macroeconomic projections and validated by its governing bodies (see Note 1.4.2).
As of December 31, 2020, despite the high degree of uncertainty regarding the economic outlook, which consequently affects the future net income of Natixis’ business lines, all of the cash-generating units (CGUs) had their value assessed. The CGU impairment tests are presented in Note 2.5.
Natixis calls on independent actuaries to calculate its principal employee benefits. These commitments are determined using assumptions such as the salary growth rate, discount rates and rates of return on plan assets. These discount rates and rates of return are based on observed market rates at the end of each calculation period (e.g. the yield curve on AA Corporate bonds for discount rates). When applied to long-term benefit obligations, these rates introduce uncertainty into the valuations.