RISKS AND CAPITAL ADEQUACY 99 3.2 Governance and risk management system 108 3.3 Capital management and capital adequacy 111 3.4 Credit and counterparty risks (including country risk) 126 3.6 Market risks 147 3.7 Operational risks 153 3.8 Overall interest rate, liquidity, structural foreign exchange risks 157 3.9 Compliance and reputational risk, Legal risk 164 3.10 Other risks 169 3.11 Sensitive exposures in accordance with the recommendations of the Financial Stability Forum 174
OVERVIEW OF THE FISCAL YEAR 177 4.1 Management report at December 31, 2014 178 4.2 Refi nancing 189 4.3 Post-closing events 190 4.4 Information concerning Natixis S.A. 191
FINANCIAL DATA 193 5.1 Consolidated fi nancial statements and notes 194 5.2 Statutory Auditors’ report on the consolidated fi nancial statements 321 5.3 Parent company fi nancial statements and notes 323 5.4 Statutory Auditors’ report on the parent company fi nancial statements 364
SOCIAL AND ENVIRONMENTAL PERFORMANCE 367 6.1 Strategic outlines and organization of the sustainable development policy 368 6.2 Reporting frameworks and methodology 381 6.3 Labor information 384 6.4 Environmental information 392 6.5 Social information 396 6.6 Social and environmental information for international operations 398 6.7 Report of one of the Statutory Auditors appointed as independent third-party bodies on the consolidated social, environmental and societal information provided in the Management Report 404
ADDITIONAL INFORMATION 453 8.1 Statement by the Person responsible for the registration document 454 8.2 Documents available to the public 455 8.3 Cross-reference table of registration document 456 8.4 Cross-reference table for the annual fi nancial report 458 8.5 Cross-reference table for the management report 459 8.6 Cross-reference table of Social and Environmental information 460
The document has been prepared by the issuer and its signatories incur liability in this regard. This registration document includes all components of the annual fi nancial report mentioned in section I of Article L.451-1-2 of the French Monetary and Financial Code and Article 222-3 of the general regulations of the French Financial Markets Authority. A cross-reference table showing documents referred to in Article 222-3 of the general regulations of the French Financial Markets Authority and the corresponding sections of this registration document appear on page 456.
Over 20 asset management companies (Natixis Asset Management, Loomis-Sayles, Harris Associates, Harris associates, AEW, etc.) applying multiple investment approaches: Life insurance mandates
Individual life insurance, savings, transfer of assets, retirement, death insurance, long-term care insurance and borrower’s insurance
(1) No. 2 in terms of market share in customer savings deposits and customer loans (source: Banque de France Q3 2014, all non-fi nancial customers); No. 2 in terms of market penetration in the individual professional and entrepreneur segments (source: Pépites CSA 2013-2014 survey).
1 PRESENTATION OF NATIXISHistory and links with BPCE 1.2 History and links with BPCE
V The underlying principles of BPCE, the central institution of Groupe BPCE created by Law No. 2009-715 of June 18, 2009, were approved on June 24, 2009 by the BFBP Board of Directors and the CNCE Supervisory Board. The last step in the formation of
Groupe BPCE was completed on July 31, 2009 with the votes at the General Shareholders’ Meetings of BFBP, CNCE and BPCE.
V With the formation of Groupe BPCE, BPCE took the place of CNCE and BFBP, becoming the majority shareholder of Natixis.
Groupe BPCE is the No. 2 banking group in France through its two fl agship brands: Banque Populaire and Caisse d’Epargne. Groupe BPCE and its 108,000 employees serve 36 million customers, of whom 8.9 million are cooperative shareholders. Groupe BPCE develops a broad range of banking and fi nancial services for a wide variety of customers.
At December 31, 2014, BPCE held 71.46% of the share capital of Natixis (71.52% of voting rights) (see section 1.2.2 Financial solidarity mechanism). The structure of Groupe BPCE at December 31, 2014 was as follows: Groupe BPCE
(a) Excluding GAPC (Workout Portfolio Management), FV adjustment on own senior debt and exceptional items, see section 4.1.1 “Methodology” and Appendix to 4.1.3 “Consolidated results”.
(b) Pro forma data, see section 4.1.1 “Methodology” and Appendix to 4.1.3 “Consolidated results”.
BOOK VALUE PER SHARE (in euros)** 5.27 5.17 * Based on the CRR-CRD4 rules without phase-in except for DTAs on tax loss carry forward, including treatment of insurance company securities at 370% in risk-weighted assets.
Financial Investments 76 95 * Pro forma data, see section 4.1.1 “Methodology” for exceptional items and Appendix to 4.1.3 “Consolidated results”.
After market close (subject to modifi cation) 2015 Second Quarter Results
After market close (subject to modifi cation) 2015 Third Quarter Results 1.3.7 CONTACTS
1 PRESENTATION OF NATIXISNatixis’ business lines 1.4 Natixis’ business lines 1.4.1 WHOLESALE BANKING
It completed large-scale structural fi nancing transactions with high added value. It adapted its capital markets strategy to better meet the needs of its clients and achieved some major commercial successes, particularly in equity derivatives. It also improved earnings for its Global Transaction Banking activities.
V Strategic Advisory: advisory activities on mergers and acquisitions, equity capital markets, financial strategy and ratings.
V Capital Markets: Natixis’ experts offer a wide range of diversified, standard and bespoke products on the fixed income, credit, foreign exchange, commodities and equities markets (cash and equity derivatives). They also offer financial engineering solutions in financial investments.
V Research: Natixis is developing company-wide expertise based on joint analyses and targeted themes by merging its equity, credit and economic research teams into a cross-functional research department. This department is recognised and regularly awarded by international investors, and it helps develop strategic dialog with investors and issuers. Natixis also produces recognized quantitative research.
V Global Transaction Banking: Natixis offers its clients four major categories of products and services: treasury and liquidity management, cash management, trade finance, and correspondent banking.
V The Mergers & Acquisitions business line helps customers (commercial and industrial corporations, institutional investors and investment funds) prepare and execute disposals or mergers, fundraising, restructuring or capital protection. In 2014, Natixis advised large European companies on shareholding structure modification and business disposals. Noteworthy was its role as sole financial advisor to Havas for the public offering initiated by the Bolloré Group companies (€2.8 billion) and sole advisor to Mr. Bricolage for the public offering initiated by Kingfisher (€275 million).
V The Equity Capital Markets business provides clients with tailored advisory services in all transactions affecting their capital structure: IPOs, capital increases, share buybacks, convertible or exchangeable bond issues and liquidity contracts.
V The Capital & Rating Advisory business line aims to define the most appropriate equity and debt-based financing strategies for its customers and advise them on their investment decisions and their choice of lenders. Capital market internationalization and disintermediation have led Natixis to develop a rating advisory service within this business line to facilitate its customers’ access to new international sources of liquidity. In 2014, Natixis helped Arkema work with rating agencies for its Bostik acquisition (€1.5 billion). It also helped Darty obtain its first rating for a €250 million bond issue.
V Natixis’ offering in aircraft, export and infrastructure financing combines its advisory expertise in the areas of financial, arrangement, structuring, agent and distribution services. The team is developing optimized financing solutions in both the banking and institutional markets. This enabled it to play an essential role in the EETC (Enhanced Equipment Trust Certificates) market for aircraft financing and in the project bond market.
As a major player in the renewable energy financing sector, Natixis arranged financing for the Gemini project (€2.1 billion) to build a 600 MW offshore wind farm in the North Sea off the Dutch coast. It was also the sole arranger for the first project bond in Italy in the solar energy sector (project Brainwave). Natixis is also very active in the aircraft finance market and acted, in 2014, as global coordinator, lead arranger and swap provider to finance two Boeing 777-300ER purchased by BBAM LP and leased to Cathay Pacific.
V Natixis is a world-class player in Acquisition & Strategic Finance, with more than 20 years of global experience in this sector. In 2014, it set itself apart in France and internationally for its major financing transactions for a variety of acquisitions (public-to-private, spin-off (8), change in control, etc.). Among the landmark transactions in 2014 was Arkema’s acquisition of Bostik (€1.5 billion), the financing of which was arranged by Natixis and refinanced by a capital increase, as well as a hybrid bond issue and senior bond issue led by Natixis. Natixis also financed (€818 million), using an LBO (9), the buyout of Ceva Santé Animale, carried out by its management team.
(6) Loan secured by the oil and gas reserves from pledged hydrocarbon fi elds.
(7 ) Source: Trade & Forfaiting Review – TFR Excellence Awards June 2014 - bronze medal for Best Trade Bank in Metals and Mining.
Buoyed by its positioning on the US CMBS (1) market with more than $1.3 billion in securitization transactions in 2014, Natixis also stood out locally in balance-sheet transactions by arranging the Watchtower deal (financing the purchase of office buildings) for a total of €318 million. Finally, Natixis also expanded its real estate finance business in Canada. It formed a strategic partnership with investor Trez Capital Group to finance real estate transactions, using a global line of more than CAD 600 million.
In fi xed income, credit, forex, commodities and equity markets, Natixis offers its corporate and institutional (both private and public sector) clients and the Groupe BPCE networks a wide range of investment, fi nancing and hedging products that tie into its research expertise.
With more than 15 years of experience on the equity derivative market, Natixis offers its clients investment and fi nancing solutions and hedging strategies. In 2014, it strengthened its fi nancial engineering capacity in order to continue expanding its range of products and design structured solutions for to issues related to asset and liability management, balance sheets, fi nancing, taxes, accounting and regulations. It focused on developing its “Natixis” range of simple, innovative products that are wholly centered on client needs. With trading teams in New York, London, Paris, Tokyo and Hong Kong, Natixis hedges underlying assets worldwide and leverages its expertise in mutual funds. As a leading player in Equity Finance activities, in 2014 Natixis was voted the Best Global Borrower Group 2 on the equity lending market by lenders in the same category (2).
For the fourth year in a row, the debt platform, which combines the primary bond market, loan syndication and Global Structured Credit & Solutions (GSCS), posted a solid performance across all borrower segments. In 2014, Natixis confi rmed its place as a key player on the primary market for euro-denominated bonds with all issuer types, with leading positions: No. 1 bookrunner on the primary market for euro-denominated bonds with French issuers in 2014 (3), No. 1 bookrunner on the primary market for euro-denominated covered bonds in 2014 (4), No. 4 bookrunner on the primary market for eurodenominated bonds with fi nancial institutions (5) in 2014.
On the fi xed income, credit and forex markets, Natixis provides its clients with a broad range of e-trading products with access to the major multi-bank platforms (Tradeweb, Bloomberg, Bondvision, FXall, 360T, RTFX, etc.).
In treasury activities, the joint refi nancing pool between BPCE and Natixis has helped to increase cash infl ows, primarily from international investors, and has thus ensured that the business lines have access to the liquidity needed to implement their plans for growth. In addition to the refi nancing pool, a dedicated sales force and a single securities lending desk were set up to optimize management of Natixis’ collateral.
In 2014, Natixis was recognized for having the Best Credit Research team in seven sectors: ABS, agencies, automobile, covered bonds, retail & consumer goods, telecommunications & media, and utilities (2).
To maximize the use of bank resources when serving clients, Natixis created its Portfolio Management global business line in 2013.
The Global Transaction Banking business line encompasses approximately 400 employees spread out around the world. Its expert teams maintain regular dialog with their clients on subjects linked to their production cycles, cash and cash fl ow management, and international expansion.
Thanks to its renewed sales activity and recognized product innovation, Global Transaction Banking’s earnings improved signifi cantly in 2014, consolidating its development strategy targeting the United States, Latin America, Southeast Asia and Dubai, and expanding its range of products and services.
Following the improvement of the economic environment in the United States, in 2014 the Americas Platform posted solid results in all sectors. This performance stems from a strategy of geographic expansion, closer client relationships and superlative cooperation between the business lines and platforms. The Americas Platform employs just under 600 employees in six countries. It draws on its regional and sectoral experience to meet its clients’ complex needs in terms of investment, fi nancing, risk management and advisory services, while simplifying access to the United States market for international clients looking for fi nancing in US dollars. The platform will pursue its strategy and play a major role in more transactions in order to grow its reputation in all business sectors.
With more than 500 employees in 12 countries (1), the Asia-Pacifi c platform offers customers access to the majority of Wholesale Banking’s fi nancing and capital markets activities.
The platform’s major responsibilities are to increase the number of local customers by offering them the Natixis product line, supporting global (2) and European clients with their development projects in Asia, especially clients of Natixis’ worldwide franchises, and actively contributing to funding infl ows for Groupe BPCE.
The establishment of Corporate Coverage around a new sales structure made it possible to truly refocus on understanding the strategies and needs of corporate clients and to better support their development. As for Coverage for fi nancial institutions, a new team of insurance activity experts was established and made a promising start.
In 2015, the platform will continue to monitor and manage risks resulting from changing market conditions. It will continue its expansion in the region, particularly by reinforcing its presence in China by opening a new branch in Beijing and continuing to develop activities in Japan and Australia in accordance with the New Frontier strategic plan.
All Wholesale Banking business lines are represented on the platform, with the range of services offered to customers varying by country. The bank is developing a strategy that is adapted to each region: V In southern Europe, Natixis has the advantage of a strong historical presence in all Wholesale Banking activities in Italy and Spain, serving both corporate clients and financial institutions. However, its exposure in Greece and Portugal is limited.
V In Central Europe and Africa, Natixis demonstrates selective growth based on structured financing with clear emphasis placed on risks and centralized management from Paris.
The Natixis Investment Solutions business line, which previously covered asset management, private banking and private equity, was reorganized in 2014 to become Investment Solutions & Insurance. This business line now comprises two divisions: Asset Management and Private Banking, and Insurance. The purchase of BPCE Assurances by Natixis together with the new partnership initiated with Groupe BPCE and CNP Assurances led to the creation of a single insurance division that will enable Groupe BPCE to become a fully-fl edged bancassurance player. Furthermore, on March 31, 2014 Natixis Global Asset Management acquired the private equity companies in Europe.
Natixis Global Asset Management’s business model is based on a global distribution platform serviced by multi-specialist asset management companies to meet the needs of a large international client base. Drawing on its diverse range of portfolio management skills, strong distribution network and fl exible business model, Natixis Global Asset Management has consolidated its position as a major international player in asset management. NGAM was ranked 16th among global asset managers (1) at end-2013.
On the global asset management market, 2014 was marked by economic growth, particularly in the United States, and the improvement of US and European fi nancial indices. Natixis Global Asset Management’s results made a marked improvement in 2013, and progressed further in 2014. These results are attributed to the years of investments made by the affi liates to improve their performance and enhance their expertise.
Assets under management rose signifi cantly to a record high of €735.5 billion in 2014 versus €629.2 billion in 2013, an increase of €63.2 billion or 9.4% over the year on a constant euro basis.
(1) Cerrulli Rankings - July 2014 based on AuM at end-2013.
1 PRESENTATION OF NATIXISNatixis’ business lines This increase was driven by substantial net infl ows of €27.7 billion (€32 billion excluding money market investments), the highest since 2006, versus +€13.4 billion at end-2013, and a market effect of €83.4 billion. The United States collected massive net infl ows of €29.9 billion, while net infl ows in Europe were slightly negative at -€2.2 billion. However, the outfl ow was lower than in 2013 (-€9.8 billion) and, excluding money market products and the scope effect on real estate funds, infl ows totaled €5.2 billion.
The global platform generated exceptional gross and net infl ows, with $31.7 billion in net infl ows in 2014. At end-2014, NGAM was ranked 7th in the United Stated for its retail net infl ows on long-term products. In 2014 infl ows were more diversifi ed in terms of countries, customer segments, affi liates and products. The platform generated 90% of NGAM’s net infl ows, justifying the investments required for its development.
At end-2014, total assets under management generated $310.4 billion, representing 35% of Natixis Global Asset Management’s total assets under management. In the United States, distributed assets under management reached $188.3 billion, up 17% over one year. International assets under management (excluding the United States) totaled $122.1 billion, up 7%.
As such, Natixis Global Asset Management distribution now operates in 22 countries as a provider of investment services and solutions. For the last two years, the activity has been using the “durable portfolio construction” approach, which factors in the current market volatility as well as the new expectations of fi nancial investors who require appropriate advisory as part of a long-lasting relationship. The durable portfolio construction approach has a global reach with an array of solutions on an international scale. It also provides the opportunity to invest in the “Natixis Global Asset Management” brand via international marketing and public relations initiatives that have enhanced its visibility and recognition over the last few years.
The European asset management business posted €340.8 billion in assets under management at end-2014 versus €319.8 billion at end-2013, an increase of 6.5%, mainly owing to a positive market effect. In 2014 the European asset management companies returned to a positive trend with €5.3 billion in net infl ows on medium-term products (excluding money market products and the new scope on real estate funds).
O Asset Management (€5.8 billion): global macro multi-strategy and international fi xed income; R Mirova Environnement et Infrastructure (€4.7 billion): infrastructure project fi nancing; R Ossiam (€1.9 billion): strategic ETFs (Exchange Traded Funds); R Natixis Environnement et Infrastructure Luxembourg (€1 billion): brownfi eld infrastructure fi nancing; R Dorval Finance (€0.5 billion): fl exible management; R Darius Capital Partners (€0.3 billion): hedge funds.
0 Asset Management in global macro alternative investment management from London. In addition, Ossiam, which specializes in strategic ETFs (Exchange Traded Funds), expanded its range in 2014.
Further progress was made in the implementation of Natixis Asset Management’s strategic plan structured around six specialized divisions (Fixed Income, European Equities, Investment and Client Solutions, Volatility and Structured Products, Global Emerging and Responsible Investment). In particular, a Networks department was set up to support Groupe BPCE’s banking networks and Mirova, an asset management company dedicated to responsible investment and a leader in several areas of SRI (socially responsible investment) became a subsidiary of Natixis Asset Management on January 1, 2014. Also noteworthy in 2014 was the launch of a Seeyond volatility product on the US market, as well as progress in the “NAM Asia” project for facilitating the sale of Asian products.
Strengthening sales for Natixis Asset Management and its subsidiaries internationally, developing synergies with other Natixis activities and business lines, and contributing to promoting fi nancial savings within the Group remain major priorities. In 2014, 42% of gross infl ows came from outside France, originating mainly from European countries. In the Caisse d’Epargne and Banque Populaire networks, new issues of packaged funds increased on 2013.
Assets under management for the 15 US subsidiaries reached an unprecedented total of $462.9 billion at end-2013, compared to $419.4 billion in 2013, representing growth of $43.5 billion, or 10.4%, generated by strong infl ows. The positive market effect contributed much less to the growth of assets under management than in 2013. In Asia, assets under management rose slightly from $7.1 billion at end-2013 to $8 billion at end-2014.
At end-2014, NGAM acquired 100% of Toronto-based Nexgen Financial (Canada), an innovative asset management company that provides an opening into the Canadian retail market via distribution agreements with the leading players on the market.
The group’s US asset management companies directly provide distribution services for institutional clients in the United States. In the retail banking segment, they benefi t from strong support from the distribution platform, which provides asset management products, advisory and structuring capabilities, and related services that can be tailored to different markets and distribution channels. This platform supplies both volume retailers and private investment advisors. The distribution teams were further expanded, and have posted excellent sales performance over the last few years.
European asset management companies at end-2014 (assets under management in billions of euros): R Euro Private Equity (€1.8 billion): investment advisory in the international private assets segment; R Naxicap Partners (€1.7 billion): private equity in the SME segment primarily in France; R Caspian Private Equity ($1.6 billion): US private equity and mezzanine investment solutions; R Seventure Partners (€0.5 billion): European venture capital; R Alliance Entreprendre (€0.2 billion): buyouts and capital restructuring operations in France; R Eagle Asia Partners ($0.2 billion): primary fund-of-funds in Asia (China, India, South-East Asia).
Its teams work closely together to address all aspects of fi nancial planning using its multi-faceted expertise in wealth engineering, corporate advisory (management package advisory), family offi ce, credit facilities and asset management, and its asset management company VEGA Investment Managers.
In 2014, la Banque Privée 1818 maintained its strong sales momentum with net infl ows of over €1.5 billion.
In 2014, Banque Privée 1818 consolidated the momentum of its sales cooperation with the Banque Populaire banks and Caisses d’Epargne under the national relationship charter initiated by Groupe BPCE. This cooperation has been translated into sales action plans built on shared development ambitions in private banking and wealth management. 2014 also saw the conclusion of service level agreements that will allow the regional banks to benefi t from Banque Privée 1818’s valueadded service offering and direct access to fi nancial and wealth engineering experts.
Furthermore, in 2014 the Caisses d’Epargne achieved an excellent performance in wealth management with €268 million in gross infl ows and a sharp increase in gross private banking infl ows across all networks.
In 2014, private bankers showcased their expertise and knowledge in diversifi cation products and cutting-edge fi nancial solutions.
Despite diffi cult and highly competitive business conditions Sélection 1818 collected gross infl ows of €825 million.
Natixis’ private banking business line, which already provided wealth management services in Luxembourg, expanded internationally by opening a branch of Natixis Bank in Brussels in September 2014. This initiative is part of Natixis and Groupe BPCE’s strategic plans to enhance the international presence of their business lines. Like the Luxembourg offi ce, the branch offers expatriates, non-residents and international customers bespoke fi nancial and wealth engineering solutions with its management products in all asset classes (currency management, fl exible investment funds, life insurance policies, etc.).
Natixis provides a wide range of insurance products for retail customers, independent professionals and, to a lesser extent, corporate clients. Pension and life insurance products are mainly distributed by the Banque Populaire network, in synergy with the other business lines of the Investment Solutions & Insurance division. The personal protection insurance business records consistent growth and features a wide variety of solutions distributed by the Banque Populaire and Caisse d’Epargne networks ranging from death benefi t, work cessation and dependency products to payment protection insurance. Lastly, car and home insurance products available to retail customers in the Banque Populaire and Caisse d’Epargne network are rounded out by an offering geared towards professional customers.
Natixis Assurances operates in Luxembourg through its subsidiary Natixis Life, and in Lebanon through an equity stake in a subsidiary in partnership with a local private bank.
Life insurance net infl ows were positive over 2014 - exceeding 2013 levels - and were mostly driven by unit-linked policies. Life insurance returns remain attractive compared to other fi nancial products.
1 PRESENTATION OF NATIXISNatixis’ business lines For its part, Natixis Assurances posted a 32% increase in gross life insurance infl ows, 14% of which in France, representing an increase well above growth in the life insurance market (up 8% – Source FFSA – 2014). Assets rose by 7% to €41.8 billion at end-December 2014 and the share of infl ows invested in unit-linked policies neared 15%.
The non-life insurance market saw contrasting trends in claims (more road injuries, fewer burglaries, more natural disasters) and persistently fi erce competition, with an endless array of innovations intended to stand each player apart. 2014 also saw the digital transformation of the insurance sector with the launch on December 1, 2014 of the French insurance industry’s offi cial application, “e-constat auto”, which enables motorists to submit accident notifi cations directly via their smartphones.
Natixis Assurances continued to record strong business growth, driven by Groupe BPCE’s ambitions under its “Growing Differently” strategic plan for 2014-2017. Overall, property and casualty insurance premium income totaled €1,060 million, representing a 9% increase well above market levels (up 1.5% – Source FFSA – 2014).
The Natixis Factor subsidiary creates and manages solutions designed to enable companies of all sizes to optimize and manage their accounts receivable: factoring and fi nancing, credit insurance, information and receivables management.
Natixis Factor posted annual factored turnover of €31.9 billion at December 31, 2014, up 7%, and had a 14.1% market share (source: ASF at December 31, 2014).
With 2,300 new contracts signed this year, Natixis Factor affi rmed its leading position among professionals and SMEs and bolstered its historical development strategy: supporting companies, from professionals to major corporate clients. The satisfaction rate for its clients, who are primarily from the Groupe BPCE networks, was 92% in 2014.
To improve the customer experience, its smartphone application provides customers with permanent access to the key indicators of their factoring contracts.
■ FACTORED TURNOVER OVER THE PAST 5 YEARS (in billions of euros)
The platform offers a highly diverse range of products tailored to various economic participants: individuals (joint-and-several mortgage guarantees), professionals (business start-ups/transfers, equipment, commercial property), the social economy and social housing, publicprivate partnerships, real estate companies and professionals: builders, developers, third-party management of retail and offi ce space, property administrators and realtors.
CEGC is also present on the business market, with more than 61,000 guarantees issued in 2014, up 21%.
Against a sluggish economic backdrop, new real estate leases decreased by 12% to €600 million.
With €210 million in new leases, Natixis Lease held up well in terms of fi nancing renewable energy, due notably to the increase in the number of transactions carried out with the Caisses d’Epargne.
Natixis Lease continued to roll out its offer in the Banque Populaire banks and Caisses d’Epargne, surpassing 5,000 new orders in longterm vehicle leasing and posting growth of 30% compared to 2013.
It provides the full range of consumer fi nance expertise for Groupe BPCE banks: design and marketing, network coordination, credit scoring, management and carrying of loans, collections and litigation. Despite a very restricted consumer fi nancing backdrop during the year, Natixis Financement maintained solid commercial momentum in both revolving credit and repayment loans.
New loans totaled €8.2 billion (nearly €1.1 billion for revolving credit and more than €7.1 billion for personal repayment loans).
Outstanding loans climbed 9% year-on-year to €16.8 billion at December 31, 2014, thus cementing the company’s No. 3 spot on the French market (source: annual reports, Natixis Financement survey).
At the end of 2014, its outstanding loans totaled €553 million, down 4% compared to 2013. In descending order, they were mainly devoted to the fi nancing of fi lms, television programs and movie theaters. New loans managed by Natixis Cofi ciné amounted to €563 million, down by 10% from 2013, due to a signifi cant slowdown of investments in fi lm production in France over the last three years.
In 2014, Natixis Interépargne consolidated its leading position in employee savings account administration in France, with over 3 million employee accounts under management, i.e. market share of 28.6% (source: AFG at June 30, 2014).
Drawing on the expertise of Natixis Payment Solutions, the leading player in France and in Europe in payment transactions and of Groupe BPCE in payment solutions, Natixis launched Apetiz, the virtual meal voucher with an initial roll-out as a card.
■ CHANGE IN THE NUMBER OF COLLECTIVE PENSION PLAN (PERCO) CLIENTS
Natixis Payment Solutions designs and develops payment platforms and services. To consolidate its leading position in payment-related services in France and Europe, Natixis Paiements, a specialist subsidiary of Natixis, became Natixis Payment Solutions in 2014. This name change refl ects the will to act, within Groupe BPCE’s networks and among its clients, as a provider of innovative and secure payment solutions, particularly with regards to e-payments.
Retailer Holder * Including ex-GCE Paiements transactions, September to December 2010.
Natixis’ EuroTitres Department provides custody services for retail and private banking and has the leading open custody platform in France.
Natixis manages 3.8 million securities accounts for a diversifi ed client base comprising Groupe BPCE’s banking networks, other banking institutions with or without retail networks, fi nancial companies and private banking asset management fi rms.
Its service offer is modular and customizable: secure provision of information systems, all-inclusive back-offi ce services (order routing, transaction accounting, client reporting, securities custody, etc.), dedicated middle-offi ce services and network assistance services.
BPCE and Natixis implemented protective measures to guard against future Natixis losses and the volatility of its results brought on by the GAPC credit portfolio assets. GAPC was closed in June 2014 (through the sale of most of its assets and the transfer of residual positions to Natixis’ continuing activities).
More detailed information concerning this guarantee is available in section [1.4.6] “GAPC”.
In 2014, Coface generated consolidated revenues of €1,440.5 million, up 1.6% on 2013 (1) (stable at constant scope and exchange rates), in line with the guidance given by the Group in June 2014 at the time of its IPO. Its combined ratio before reinsurance was 79.7% (claim ratio: 50.4% and cost ratio: 29.3%), in line with forecasts.
Current operating income including fi nancing costs and excluding restated items (2) amounted to €206.2 million, up 20.7% compared to 2013 (3), in line with forecasts (+19.4% at constant scope and exchange rates).
Net income (group share) totaled €125.1 million. Restated for items linked to hybrid debt issues and non-recurring extraordinary items, net income (group share) increased by 23.2% (1) to €139.9 million in 2014.
Since 2011, Coface Group has refocused on its core business, credit insurance, and carried out a series of structural reforms which put it on the path back to profi table growth. On this new basis, Coface Group was able to enter a new phase in its development with the June 27, 2014 launch of its IPO in Compartment A of the regulated market Euronext Paris.
The offering was well received by French and international institutional investors, giving the group a diversifi ed shareholding structure refl ecting its multinational profi le.
On December 22, 2014, the Coface share was added to the SBF 120, one of the fl agship indices of the Bourse de Paris exchange. The SBF 120 comprises the top 120 stocks on Euronext Paris in terms of liquidity and market cap. The share was also included on the following Euronext Paris indices: CAC Mid 60, CAC Mid and Small, and CAC All-tradable.
On March 27, 2014, Coface S.A. issued subordinated notes for a total nominal amount of €380 million.
As a result, the gearing ratio came out at approximately 19%. This ratio was obtained by dividing subordinated debt by the sum of equity and subordinated debt.
The issue was very well received by a diversifi ed international investor base and was signifi cantly oversubscribed (10 times). Such high demand underscores their confi dence in Coface’s profi table growth model as implemented over the past three years on the basis of enhanced operational and fi nancial fundamentals.
Drawing on an effi cient operating organization and a solid fi nancial structure, Coface focuses its efforts on rolling out its sales strategy to generate profi table growth all around the world.
In January 2014, four new enhanced information centers became operational in Bulgaria, Lithuania, Latvia and Thailand, ensuring more robust risk analyses in these countries. Another new center was also opened in Indonesia over the year.
During the year, the risk underwriting teams carried out several action plans aimed at reducing exposures to vulnerable companies based on specifi c criteria. These plans were conducted in Ukraine, Russia, China, Thailand, Turkey, South Africa and Brazil, among others.
Finally, the improvement of the collections process under the Strong Commitment II business plan helped increase the debt collection rate.
As announced in 2013, the drastic run-off of assets managed by the ring-fencing vehicle, mainly as the result of the successful completion of the 2013 and 2014 disposal plans, led to the closure of GAPC on June 30, 2014 under the following conditions: V the transfer of residual assets, representing €3.1 billion in RWA after guarantee at June 30, 2014, to Wholesale Banking; V the Guarantee mechanism remains unchanged and will continue to apply to the residual RWA under the same conditions; V the performance of ongoing specific and reinforced monitoring of the residual risk-weighted assets within Wholesale Banking; V the net income of GAPC in the second quarter of 2014 totaled -€27 million and included expenses of -€32 million including effects linked to the structure’s closure.
The general mechanism behind the Guarantee is based on the establishment of: (i) two Total Return Swap agreements (TRS), one in dollars and the other in euros, covering 85% of the net value of the assets recognized in the trading portfolio and risks linked to counterparties not providing collateral. The purpose of these TRS is to transfer 85% of the gains or losses of the accounting units in which the assets are recognized at their fair value through profit or loss. On top of these two TRS, Natixis purchased an option from BPCE (the “Option”) allowing it, should it be exercised, to recover, in 10 years’ time, the capitalized net performance of the portfolios covered by the TRS and to terminate the TRS; (ii) a financial guarantee covering 85% of the nominal value of the assets recognized under IFRS as “Loans and receivables” (L&R) and “available-for-sale assets” (AFS), as determined at the effective date of the guarantee (i.e. June 30, 2009), less any amortization expensed prior to June 30, 2009.
Pursuant to the terms of this financial guarantee, in the event of non-payment confirmed on the scheduled contractual payment date of sums due in respect of any of the assets in the guaranteed portfolio, Natixis will be paid by BPCE from the first euro up to 85% of the amount due. The payment will be made in the currency in which the defaulting asset is denominated. The expiry date of the guarantee granted to Natixis is that of the asset in the guaranteed portfolio with the longest maturity – currently April 28, 2099 – plus nine months (bearing in mind that this date may be brought forward to the date of termination of the guarantee in the event of a change in control at Natixis within the meaning of Article L.233-3 of the French Commercial Code). The expiry date of the financial guarantee is the date from which Natixis is no longer required to pay over to BPCE the sums recovered on assets in the guaranteed portfolio having defaulted. It post-dates the expiry date of the guarantee by 15 years.
The implementation of the Guarantee did not have an initial impact on Natixis’ earnings. The consequences since then were as follows: V changes in the value of the portfolio guaranteed, from June 30, 2009, by the TRS will be offset by the TRS up to 85%; V the Option is measured at fair value through profit and loss primarily on the basis of the change in the value of the portfolio guaranteed by the two TRS; V the equivalent value of the €1.183 billion payment in consideration for the financial guarantee is amortized almost symmetrically with the reversal of the provisions for write-down that were funded for this portfolio at June 30, 2009 and the amortization of reclassification discounts.
Natixis benefi ted from a prudential impact, representing a reduction in its risk-weighted assets and its regulatory deductions, resulting in an increase in its Core Tier 1 ratio.
Stock market indexes CAC Next 20, SBF 80, SBF 120, SBF 250 and Euronext 100 1.5.2 BREAKDOWN OF SHARE CAPITAL AT DECEMBER 31, 2014
(b) Calculated using the number of shares at December 31 of the year in question and post dividend payout for 2013 and 2014.
In 2014, Natixis’ share price increased by 28% (from €4.27 at December 31, 2013 to €5.49 at December 31, 2014). Over the same period, the euro zone banking stocks index (DJ Euro Stoxx Bank) decreased by 5%.
V A toll-free number (from a landline in France: 0800 41 41 41) available Monday to Friday from 9 a.m. to 6 p.m. (except on public holidays) gives access to an interactive voice response system providing round-the-clock information on the share price. In 2014, almost 19,500 calls were made to this toll-free number, of which over 1,800 were to make enquiries and over 17,600 to access Natixis’ share price and obtain information on company news.
Shareholders’ Club members are regularly updated on Natixis news where they can fi nd: R monthly newsletters focusing on Club highlights and company fi nancial news,
Shareholders’ Club members take part in events included in the activity program.
V In 2014, this Program included nine events (video conferences and chats) hosted by both external experts (from École de la Bourse, i.e. “stock market investing school”, and the French Federation of Individual Investors and Investment Clubs) and internal experts from Natixis and its subsidiaries, covering economic, financial and stock market news.
To these nine events, we had the pleasure of welcoming: R Gérard Ampeau of the École de la Bourse to participate in the conferences on “Social fi nance: Users’ Guide” and “The How and Why of Investing in Equity in 2015”; R Véronique Guisquet, Eric Dadier and Aldo Sicurani of the Federation of Individual Investors and the Investments Clubs (F2iC), to participate in conferences on “How to effectively manage stock market risk” and “Make a good start on the stock market with the Investment Clubs”,
V Close to 1,000 Club members took part in these events either directly, in our auditorium in the 13th district in Paris or online in real time. Recordings of these events (videos and presentations) were then posted online and were viewed by almost 5,000 Club members.
V Following these discussions, interviews with CCAN members were filmed to update the Natixis Shareholders’ Consultative Committee section of the website.
V The interviews are presented as mini biographies and are available on the website, together with all the meeting themes and minutes since the Committee’s creation in 2008.
On May 20, 2014, the General Shareholders’ Meeting called to approve the 2013 fi nancial statements was attended by some 400 individual shareholders. And all the resolutions were adopted.
In line with the 59% pay-out ratio and above the 50% target, the payment of a €0.16 dividend of per share was approved.
Indeed, under the AFEP-Medef code to which Natixis refers, the advisory opinion of shareholders (“Say on Pay”) on the compensation of the Chief Executive Offi cer of Natixis and of the Chairman of the Board of Directors is required.
2014 Distinction - Natixis receives Le Revenu’s Gold Trophy for Shareholder Relations Le Revenu awarded Natixis its Gold Trophy for best Shareholder Services among the SBF 120 (except CAC 40) companies.
The primary responsibility of the Investor Relations department is to maintain clear and transparent dialog with the fi nancial community on Natixis’ fi nancial standing, strategy, economic environment and any other information that would assist in accurately assessing Natixis’ situation.
The Investor Relations department provides information and resources to analysts and investors. To this end, a variety of sources is used: formal informational meetings during major events (publication of annual, interim and quarterly fi nancial statements, etc.), road shows, conference calls and one-to-one interviews. The materials used in these meetings (press releases, presentations, etc.) as well as any other additional information (fi nancial calendar, regulated information, corporate governance, Annual General Shareholders’ Meeting, etc.) are available on Natixis’ website in the Investor Relations section. From time to time, depending on current events, we also organize specifi c, themed presentations to give our fi nancial partners and colleagues a better understanding of the general climate and Natixis’ specifi c challenges.
Natixis organizes meetings with analysts and institutional investors throughout the year at roadshows or conferences organized by brokers in the main fi nancial marketplaces. In 2014, meetings were held in Paris, London, Copenhagen, Helsinki, Luxembourg, Amsterdam, Frankfurt, Zürich, Geneva, Milano, Chicago, Boston, New York, Toronto, Montreal, Hong Kong, Seoul, Tokyo, etc.
2.1 CORPORATE GOVERNANCE 32 2.1.1 Structure of the Board of Directors 32 2.1.2 Senior management committee and executive committee 32 2.1.3 Specialist committees of board of directors 33 2.2 ADDITIONAL INFORMATION ON THE CORPORATE OFFICERS’ POSITIONS 34 2.3 MANAGEMENT AND OVERSIGHT OF CORPORATE GOVERNANCE 57 2.3.1 Board of Directors 58 2.3.2 Special Committees: offshoots of the Board of Directors 64 2.3.3 Senior Management 69 2.3.4 General Shareholders’ Meetings 71 2.3.5 Potential confl icts of interest 72 2.4 NATIXIS COMPENSATION POLICY 72 2.4.1 General principles 72 2.4.2. Policies and rules established for determining compensation and benefi ts of any kind for members of management bodies 75 2.5 REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS ON INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES 86 2.5.1 General organization 86 2.5.2 First-level permanent control 87 2.5.3 Second-level permanent control: compliance and permanent control 88 2.5.4. Second-level permanent control: IT Systems Security and Business Continuity 90 2.5.5 Second-level permanent control: risk monitoring and control 90 2.5.6 Internal control system relating to accounting and fi nancial information 94 2.5.7 Periodic control 96 2.6 STATUTORY AUDITORS’ REPORT ON THE REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS 98
2 CORPORATE GOVERNANCE 2.1 Corporate governance 2.1.1 STRUCTURE OF THE BOARD OF DIRECTORS
Stéphane About - FGM – Americas Patrick Artus - Chief economist Jacques Beyssade - Risks Nathalie Broutèle - Insurance – Natixis Assurances Stéphane Caminati - SFS – Natixis Interépargne Christophe Carles - SFS – Natixis Factor Marc Cattelin - SFS – EuroTitres Frédéric Chenot - SFS – Natixis Financement Pierre-Henri Denain - FGM – EMEA Europe (except France), Middle East, Africa Elisabeth de Gaulle - Communications and CSR George Éric de la Brunière - Asset Management and Private Banking – Banque Privée 1818 Pierre Debray - FGM – Structured Finance Catherine Fournier - SFS – Natixis Payment Solutions Luc François - FGM – Global Markets
John Hailer - Asset Management and Private Banking – Natixis Global Asset Management U.S. and Asia Hervé Housse - General Inspection Paul Kerangueven - Insurance – BPCE Assurances Christophe Lanne - FGM – Global Portfolio Management & Transaction Banking Christian Le Hir - Corporate Secretariat – Chief Legal Offi cer Nicolas Namias - Strategy François Riahi - FGM – Asia-Pacifi c Anne Sallé-Mongauze - SFS – Compagnie Européenne de Garanties et Cautions Didier Trupin - SFS – Natixis Lease Pascal Voisin - Asset Management and Private Banking – Natixis Asset Managemet
Olivier Perquel - Wholesale Banking – Financing & Global Markets (FGM)
Chairman of the Streering and Supervisory Board of Caisse d’Epargne Languedoc-Roussillon
V Member of the Board of: Arkema (a), Lazard Ltd (a)
Chairman of the Board of Directors First appointed: CSM of 04.30.2009 (Chairman of the Board: Board Meeting of 04.30.2009) Term expires: 2015 AGM (c)
François Pérol has been Chairman of the BPCE Management Board since 2009.
Key advisory skills: expertise in strategy for banking and fi nancial institutions, and in the French and international economic and fi nancial environment.
V Chairman of the BPCE Management Board V Chairman of the Board of Directors of Crédit Foncier V Chairman of: CE Holding Promotion, European Savings Bank Group V Member of the Board of: Sopassure, CE Holding Promotion V Permanent Representative of BPCE, manager of SCI Ponant + (until 12.03.2014) V Permanent Representative of BPCE Maroc, member of the Board of Banque
V Chairman of the Board of Directors of: Natixis (a), Crédit Foncier (since 04.26.2010)
V Chief Executive Officer and member of the Board of BP Participations and CE Participations (until 08.05.2010)
V Permanent Representative of BPCE, manager of SNC Bankeo (until 2011)
2 CORPORATE GOVERNANCE Additional information on the corporate offi cers’ positions Daniel KARYOTIS – Permanent Representative of BPCE Member of the BPCE Management Board – Finance, Risk and Operations
Director First appointed: co-opted by the Board on 08.25.2009 and ratifi ed at the CSM of 05.27.2010 Term expires: 2015 AGM (c)
With a degree from the Institut d’Études Politiques in Paris and the Centre de Perfectionnement à l’Analyse Financière, and a postgraduate degree in fi nancial and economic analysis, Daniel Karyotis began his career with Société Générale on the fi nancial markets. From there, he moved to Standard & Poor’s and the banking sector, and then joined Caisse d’Epargne Champagne-Ardenne (CECA) where he held different management positions between 1992 and 1997.
A member of the Management Board and Chief Executive Offi cer of Caisse d’Epargne du Pas-de-Calais from 1998 to 2001, he was appointed Chairman of the Management Board of CECA in January 2002. In February 2007, he became Chairman of the Management Board of Banque Palatine.
In addition, Daniel Karyotis is a member of the Société Française des Analystes Financiers (SFAF – French Society of Financial Analysts).
Daniel Karyotis has been Chief Finance, Risk and Operations Offi cer and a member of the Management Board of BPCE since December 1, 2012.
V Member of the BPCE Management Board - Finance, Risk and Operations V Deputy Chief Executive Officer of CE Holding Promotion V Member of the Board of Directors of Nexity (a)
V Vice-Chairman of the Board of Directors of Eurosic (until 2010)
V Permanent Representative of Banque Palatine, member of the Board of Directors of Palatine Etoile 9
V Member of the Board of Acxior Corporate Finance (until 2011)
V Permanent Representative of BPCE, member of the Board of: Natixis (a) (since 01.28.2013), Crédit Foncier de France (since 12.11.2012)
Christel BORIES (term of offi ce ended 05.21.2014) Deputy Chief Executive Offi cer of Ipsen
Independent director First appointed: co-opted by the Board on 02.22.2011 and ratifi ed at the CSM of 05.26.2011 Date term of offi ce expired: 05.21.2014
Chairman – Appointments and Compensation Committee First appointed: Board Meeting of 02.22.2011 Date term of offi ce expired: 05.21.2014
Member – Strategic Committee First appointed: Board Meeting of 05.11.2011 Date term of offi ce expired: 05.21.2014
Attendance rate in 2014 Board of Directors: 67% Appointments and Compensation Committee: 100% Strategic Committee: N/A
Since 2013, Christel Bories has held the position of Deputy Chief Executive Offi cer of Ipsen.
Key advisory skills: strategic and industrial issues; transformation and restructuring of international corporations.
V Member of the Board of Directors of: Atlas COPCo AB, Sweden (until 2010)
Constellium (until November 2011) V Member of the Board of Le Cercle de l’Industrie (Association of the Chairmen of the leading French industrial companies) (since early 2012)
2 CORPORATE GOVERNANCE Additional information on the corporate offi cers’ positions Thierry CAHN Chairman of the Board of Directors of Banque Populaire Alsace Lorraine Champagne
Attendance rate in 2014 Board of Directors: 75% Strategic Committee: 100%
Thierry Cahn holds a Professional Lawyers’ Certifi cate (Certifi cat d’Aptitude a la Profession d’Avocat - CAPA) and joined the fi rm of Cahn et Associés in 1981. In 1984, he joined the General Council of the Colmar Bar (Conseil de l’Ordre des Avocats de Colmar) of which he is still a member. In 1986, he was named Secretary General to the National Lawyers’ Association (Confédération Nationale des Avocats), which he chaired from 1995 to 1996, before becoming Chairman of the Colmar Bar Association from 1998 to 1999. In addition, since 1985 he has been Head Tutor at the Institut Universitaire de Technologie (IUT) de Haute Alsace and the CRFPA d’Alsace.
Key advisory skills: expertise in legal matters, particularly in business law.
(a) Listed company. (b) Company outside Groupe BPCE. (d) 2018 AGM convened to approve the fi nancial statements for the year ending 12.31.2017. (f) Formerly the Appointments and Compensation Committee.
Ms. Laurence Debroux was Chief Financial and Administrative Offi cer of the JCDecaux Group from 2010 until January 15, 2015 and joined Heineken NV in Amsterdam on March 1, 2015. The Supervisory Board of Heineken NV will submit to the AGM her appointment to the group’s Executive Board as Chief Financial Offi cer for a four-year term from April 24, 2015.
V Director and member of the APG/SGA Audit Committee (since 05.21.2014) V Member of the Supervisory Board of Médiakiosk (S.A.S.)
V Member of the Management Board – Chief Executive Officer of Merial Ltd (until 05.19.2010)
2 CORPORATE GOVERNANCE Additional information on the corporate offi cers’ positions Michel GRASS Chairman of the Board of Directors of Banque Populaire Bourgogne Franche Comté
Director First appointed: co-opted by the Board on 02.19.2014 and ratifi ed at the OGM of 05.20.2014 Term expires: 2015 AGM (c)
Michel Grass has been Chairman of the Board of Directors of Banque Populaire Bourgogne Franche Comté since 2010.
V Member of the Board of: Fédération Hospitalisation Privée, SA CAHPP
V Chairman and Chief Executive Officer of: S.A.S. Polyclinique du Val de Saône, S.A.S. Clinique Paul Picquet
V Chief Executive Officer of: S.A.S. Avenir Santé, S.A.S. Clinique Paul Picquet
V Member of the Supervisory Board of Banque Palatine (since 08.30.2013)
V Director and Chairman of the Audit Committee of BPIfrance Financement (formerly OSEO)
Independent director First appointed: co-opted by the Board of Directors on 02.18.2015 and submitted for the approval of the AGM on 05.19.2015 Term expires: 2015 AGM (c)
Anne Lalou is a graduate of l’École Supérieure des Sciences Économiques et Commerciales (ESSEC). She began her career as a manager, and then as Assistant Director in the Mergers & Acquisitions Department at Lazard in London, before being appointed as Head of Customer Prospection and Development at Havas in Paris. She was the Chairman and Chief Executive Offi cer of Havas Édition Électronique before joining Rothschild & Cie as a Manager. She joined Nexity in 2002, where she held the positions of Secretary General and Director of Development, before being appointed Chief Executive Offi cer of Nexity-Franchises in 2006, and then Deputy Chief Executive Offi cer of the Distribution Division until 2011. Anne Lalou has been Dean and Managing Director of the Web School Factory since 2012. Key advisory skills: entrepreneurial experience, expertise in areas relating to M&A, fi nance and corporate strategy.
V Member and Chairman of the Korian Medica SA (a) Appointments and Compensation Committee
Compliance with rules governing the number of offices held AFEP-MEDEF Code: compliant French Monetary and Financial Code: compliant
V Member of the Executive Committee of Nexity (a-b) (since 2002)
V Member of the Supervisory Board of: Century 21 France (b) (since July 2007)
V Permanent representative of Nexity Franchises (b), member of the Board of Directors of Guy Hoquet L’Immobilier (b) (since December 2009)
V Member of the Eurazeo (a) Board of Directors (since May 2010) and Member of the Financial Committee (since May 2010)
V Chief Executive Officer of Nexity Solutions (b) (since March 2011)
V Member of the Supervisory Board of Foncia Holding (since September 2011)
V Member of the Supervisory Board of Foncia Group (since February 2012)
V Member of the Supervisory Board of Medica (b) (since March 2012)
V Chairman of Centaurus Capital Limited V Member of the Board of: Centaurus Capital Holdings Limited, Centaurus
V Member of the Supervisory Board of HLD V Member of the Board of Emolument Ltd (from 09.25.2014 to 11.17.2014) V Trustee of the École Polytechnique Charitable Trust V Member of the Board of Cnova (a) (since 11.20.2014)
(a) Listed company. (b) Company outside Groupe BPCE. (c) 2015 AGM convened to approve the fi nancial statements for the year ending 12.31.2014.
Stéphanie PAIX Chairman of the Management Board of Caisse d’Epargne Rhône-Alpes
Director First appointed: OGM of 05.29.2012 Term expires: 2018 AGM (d)
Attendance rate in 2014 Board of Directors: 88% Audit Committee: 100% Strategic Committee: 100%
Key advisory skills: extensive knowledge of retail banking and business fi nancing; bank audits.
IT-CE V Permanent Representative of CERA, member of the Board of: Fondation d’Entreprise CERA, Fédération Nationale des Caisses d’Epargne (FNCE) V Permanent Representative of CERA, Treasurer of: Fondation Belem, Habitat en Région V Permanent Representative of CERA, manager of: SCI dans la ville, SCI
V Representative of BPA, member of the Board of Directors of: C3B Immobilier, i-BP Portzamparc, Association des BP pour la Création d’Entreprise, Natixis Assurances (until 09.30.2010)
V Representative of BPA, member of the Supervisory Board of: Atlantique Mur Régions, Ouest Croissance Gestion
V Representative of BPA, Treasurer of Comité des Banques de Pays de la Loire FBF
V Representative of Ouest Croissance, member of the Board of BP Développement
V Member of the Board of Natixis (a) (since 05.29.2012), Siparex Associés (b) (since 03.30.2012)
Director First appointed: CSM of 04.30.2009 Term expires: 2015 AGM (b)
Attendance rate in 2014 Board of Directors: 100% Appointments and Compensation Committee: 100% Strategic Committee: 100%
After holding various fi nancial and sales positions at Caisse d’Epargne des Pays du Hainaut (1992-1999), in 1999 he joined Caisse Nationale des Caisses d’Epargne as Director of Group Development on the local economic markets.
Key advisory skills: extensive knowledge of the regional public sector and regional economic development, expertise in management and fi nancial analysis.
(formerly GCE Capital) (until 06.30.2014) V Member of the Board of: Natixis Coficiné, CE Holding Promotion V Member of the Board (as a qualified person) of Paris Habitat – OPH V Permanent Representative of CEIDF, member of the Board of Directors of: Habitat en Région, Immobilière 3F, Fédération Nationale des Caisses d’Epargne (FNCE)
V Member of the Board of: Natixis (a), CE Holding Promotion (since 06.30.2010), Natixis Coficiné (since 10.19.2010), CE Participations (until 08.05.2010), Natixis Global Asset Management (until 09.01.2010)
V Chairman of the Board of Directors of: SODERO Participations, SA des Marchés de l’Ouest, Mancelle d’Habitation (until 11.17.2010)
V Chairman of the Supervisory Board of: SODERO Gestion, BATIROC Bretagne – Pays de Loire
V Member of the Board of La Mancelle d’Habitation (since 11.17.2010)
Permanent Representative of CEBPL, member of the Supervisory Board of IT-CE (formerly GCE Technologies)
V Permanent Representative of CEBPL, member of the Supervisory Board of GCE Business Services
V Permanent Representative of CEIDF, member of the Board of Directors of: Habitat en Région (since 04.25.2013), Immobilière 3F (since 05.14.2013), FNCE (since 04.25.2013)
Independent director First appointed: CSM of 04.30.2009 Term expires: 2015 AGM (b)
Chairman (g) – Appointments Committee First appointed: Board Meeting of 12.17.2014
Attendance rate in 2014 Board of Directors: 63% Appointments and Compensation Committee: 75% Strategic Committee: 0%
In 2005, he was also named Chairman of the School Council of his alma mater, HEC.
V Member of the Board of Dassault Aviation (a), Thales (a) (since 12.23.2014) V Member of: the High Commission for Transparency and Information on
Safety in Nuclear Facilities (until 11.22.2014), the National Commission for Sectors of Vital Importance (until 02.17.2014), the Committee for Atomic Energy (until 22.11.2014)
V Member of: the High Commission for Transparency and Information on Safety in Nuclear Facilities, the National Commission for Sectors of Vital Importance, the Committee for Atomic Energy
V Chairman of the Board of Directors of: Veolia Propreté, Veolia Transport, Veolia Environnement (until 12.12.2010)
V Member of the Board of: EDF International S.A.S. (since 05.02.2011), EDF Energies Nouvelles (since 09.21.2011)
V Vice-Chairman (until 04.29.2014) then Chairman of the Steering and Supervisory Board of Caisse d’Epargne Île-de-France.
V Chairman of: Société d’Économie Mixte d’Aménagement du Val d’Oise (SEMAVO) (b), Institut de Formation des Animateurs de Collectivités (IFAC – Local Supervisors’ Training Institute) for France and Val d’Oise
V Vice-Chairman of the Steering and Supervisory Board of Caisse d’Epargne Île-de-France
V Member of the Board of SEMAVO (b) Chairman (since 2011)
V Member of the Board of: BPCE Assurances, STIF (b), AFTRP (b), IRIS (b)
Independent director First appointed: OGM of 07.31.2013 Term expires: 2019 AGM (e)
V Permanent Representative of Métropole Télévision, Managing Partner of SCI 107 av Charles de Gaulle
V Member of the Board of Nexans SA (a), GL Events SA (a)
V Representative of RTL Group on the Supervisory Board and ViceChairman of the Compensation Committee of Antena3(a-b)
V Member of the Board of: Home Shopping Service (HSS), Football Club des Girondins de Bordeaux, Extension TV (Série Club), TF6 Gestion (TF6) and Société Nouvelle de Distribution (SND)
V Permanent Representative of Home Shopping Service, member of the Board of MisterGooddeal S.A.
V Chairman of the Board of Directors of SLE Vallée des Gardons
V Member of the Board of: CE Holding Promotion, Clinique Bonnefon (b), Pierre et Lise Immobilier (b), FNCE
V Manager of: SCI Les Trois Cyprès (b), SCI Les Amandiers (b)
V This report was prepared pursuant to Article L. 225-37 of the French Commercial Code.
In accordance with Article 26 of Act No. 2008-649 of July 3, 2008, involving various provisions to adapt Company law to EU law, the Corporate Governance Code, to which reference has voluntarily been made when preparing this report, is the Corporate Governance Code for listed companies published by the Association Française des Entreprises Privées (AFEP – French Association of Private Sector Companies) and the Mouvement des Entreprises de France (Medef – French Business Confederation), hereinafter referred to as the “AFEP-Medef code”, which was revised in June 2013. The AFEP-Medef code is available for consultation at the Company’s head offi ce and on the Natixis website.
V Since the Combined Shareholders’ Meeting of April 30, 2009, Natixis changed its form of governance from a French société anonyme (a public limited company) with a Supervisory Board and a Management Board to a French société anonyme with a Board of Directors.
At its meeting of April 30, 2009, Natixis’ Board of Directors opted to separate the positions of Chairman of the Board and Chief Executive Offi cer. This decision was a result of the Company’s desire to comply with best practices in corporate governance and make a clear distinction between the strategic direction, decisionmaking and control functions that come under the Board of Directors’ responsibilities, and the operational and executive functions that fall to the Chief Executive Offi cer.
Following the merger of Banque Fédérale des Banques Populaires (BFBP) and Caisse Nationale des Caisses d’Epargne (CNCE) that resulted in the creation of BPCE, Natixis has been partly owned by BPCE since August 1, 2009. As of December 31, 2014, BPCE held a 71.52% stake in Natixis.
In accordance with the “apply or explain” rule provided for in Article L.225-37 of the French Commercial Code and addressed in Article 25.1 of the AFEP-Medef code, Natixis believes that its practices comply with the recommendations of the AFEP-Medef code. However, certain recommendations could not be implemented for the reasons given in the table below: Directors’ term of office (Article 14 of the Code) “The term of offi ce for directors as defi ned in the bylaws is not to exceed four years.”
Audit Committee (Article 16.1 of the Code) “At least two-thirds of the Audit Committee members must be independent...”
The number of independent directors on the Natixis Appointments Committee and Compensation Committee is not greater than half the total number of members, as recommended by the AFEPMedef Corporate Code. They have a balanced composition (50% independent, 50% non-independent), and the Committee is chaired by an independent director. Like the Audit Committee, following the AFEP-Medef code recommendations on the composition of the Appointments Committee and the Compensation Committee to the letter would require that Natixis’ Independent Directors sit on more than three Special Committees, at the risk of diluting the quality of those Committees’ work, in light of the resulting increased workload. That is why Natixis promotes a balance of directors within the Committees, which are, additionally, always chaired by an Independent Director.
As indicated above, Natixis’ Board of Directors had 15 members as of March 1, 2015. The members are divided up as follows: V two members from BPCE, namely Mr. Pérol and BPCE; V four members from the Banque Populaire banks, namely Ms. Halberstadt and Messrs. Cahn, Condaminas and Grass; V four members from the Caisses d’Epargne, namely Ms. Paix and Messrs. Patault, Sueur and Valentin; V five independent members, namely Ms. Debroux, Ms. Lalou, and Messrs. Oppetit, Proglio and de Tavernost.
Until January 15, 2015, Ms. Laurence Debroux was Chief Financial and Administrative Offi cer of the JCDecaux S.A. group, the world’s second-largest outdoor advertising group and inventor of the “street furniture” concept. Ms. Debroux joined Heineken NV in Amsterdam on March 1, 2015 (the Supervisory Board of Heineken NV will submit to the General Shareholders’ Meeting her appointment to the group’s Executive Board as Chief Financial Offi cer for a four-year term from April 24, 2015). Ms. Anne Lalou is the Dean of Web School Factory, and CEO of Innovation Factory. Mr. Bernard Oppetit is Chairman of Centaurus Capital, which he founded. Mr. Henri Proglio was Chairman & CEO of EDF until November 21, 2014, and since that time he has been Honorary Chairman of EDF and Chairman of the Board of Directors of Thalès. Mr. Nicolas de Tavernost is Chairman of the Management Board of Groupe M6, which holds leading positions in the media.
At its meeting of December 17, 2014, and following the report submitted by the Appointments and Compensation Committee, Natixis’ Board of Directors examined each director’s expertise, judgment and freedom of thought and expression and, more specifi cally, compliance with the independence criteria laid down in the AFEP-Medef code and incorporated into the Board’s Internal Rules (see 2.3.1.2 - Role and Powers of the Board of Directors).
The Board of Directors paid special attention to the appraisal of whether or not the business relationship between the companies in which the independent directors perform corporate offi cer duties, and Natixis or its corporate group, is signifi cant.
In addition, the Board of Directors, at its meeting on February 18, 2015, co-opted Ms. Anne Lalou to replace Ms. Christel Bories. In view of the Appointments Committee’s report, the Board appraised the independence criteria recommended by the AFEP-Medef code, specifi cally the aforementioned “reference banker” criterion.
V Changes made to the Board of Directors in 2014: R On February 19, 2014, the Board of Directors of Natixis co-opted Michel Grass to replace Stève Gentili for the remainder of his predecessor’s term of offi ce, namely until the end of the General Shareholders’ Meeting called to approve the fi nancial statements for the fi scal year ending on December 31, 2014; R On May 20, 2014, the Natixis Board of Directors acknowledged the resignation of Christel Bories with effect from May 21, 2014.
In order to follow the AFEP-Medef code’s recommendation that terms of offi ce be staggered in such a way as to avoid reappointing large numbers of directors at once and promote the balanced reappointment of Directors, Natixis instituted an action plan in 2012. Thus, the terms of offi ce of four Directors will be staggered compared to those of the other members.
Current term expiration: 2015 AGM BPCE, François Pérol, Thierry Cahn, Laurence Debroux, Michel Grass, Anne Lalou, Bernard Oppetit, Didier Patault, Henri Proglio, Philippe Sueur, Pierre Valentin 2018 AGM * Alain Condaminas, Catherine Halberstadt, Stéphanie Paix 2019 AGM * Nicolas de Tavernost * Subject to the adoption of the 21st resolution of the next General Shareholders’ Meeting on May 19, 2015, the term of offi ce for directors will be reduced from six to four years and will also apply to terms in progress. Consequently, the expiration date for terms of offi ce will be the 2016 AGM and the 2017 AGM.
With respect to the principle of gender parity within the Board of Directors, as set out in the Act of January 27, 2011, Natixis had four female directors out of a total of 15, i.e. 26.7%, at March 1, 2015. Natixis is therefore in compliance with the transitional provisions since its General Shareholders’ Meeting of May 29, 2012.
Pursuant to the new Article L.511-99 of the French Monetary and Financial Code, the Board of Directors, in view of the report by the Appointments and Compensation Committee, at its meeting on December 17, 2014, set a target with regard to gender parity within the Board of Directors, by adding two seats for women to the Board of Directors at the next General Shareholders’ Meeting (in place of the two men whose terms of offi ce are expiring at the end of the next General Shareholders’ Meetings).
In accordance with Article 9 of the Natixis bylaws, each director must own at least one hundred forty (140) Company shares during their term of offi ce. Furthermore, in accordance with the recommendations of the AFEP-Medef code and the provisions of Article 3 of the Compliance Charter for members of the Board of Directors (see 2.3.1.2-C), the Directors are asked to hold at least one thousand (1,000) Company shares within 18 months of joining the Board.
Pursuant to the law and the bylaws, the Natixis Board of Directors, assisted by the Board’s Special Committees: V defines the strategy governing the Company’s activities and oversees its implementation. Within the limits of the Company’s corporate purpose and the powers expressly granted by law or its bylaws to the General Shareholders’ Meetings, the Board concerns itself with all matters affecting the Company’s performance and governs by virtue of its deliberations. The Board of Directors shall perform the inspections and verifications it deems appropriate; V defines the Company’s senior management policy, with the caveat that the Board may only deliberate on this matter when it features on the agenda sent out at least 15 days prior to the Board Meeting and when at least two-thirds of the directors are present or represented; V may appoint a Chief Executive Officer from among the directors or otherwise, whom it may dismiss at any time; V may, at the proposal of the Chief Executive Officer, appoint one to five individuals as Deputy Chief Executive Officers whose role is to assist the Chief Executive Officer; V convenes all General Shareholders’ Meetings, sets the agenda and oversees the execution of all decisions taken; V may, at the proposal of the Chairman, decide to set up its own Committees to deliberate on those issues submitted for examination by the Board itself or its Chairman. It determines the structure and powers of these Committees, which conduct their activities under its responsibility;
2 CORPORATE GOVERNANCE Management and oversight of corporate governance V regularly adopts and revises the general principles of the compensation policy and controls its implementation; V reviews the governance provision as set out in Article L. 511-55 of the French Monetary and Financial Code, periodically assesses its effectiveness, and ensures that corrective measures have been taken to remedy any shortcomings; V regularly approves and revises the strategies and policies governing the taking, management, monitoring and reduction of the risks to which Natixis is or could be exposed, including risks created by the economic environment; V determines the guidelines and controls the de facto directors’ implementation of the supervisory mechanisms to guarantee the effective and prudent management of the Company, specifically the separation of duties and the prevention of conflicts of interest; V controls the process of publishing and disclosing the quality and reliability of the information intended for publishing and disclosure by Natixis.
The Board of Directors appoints the de facto directors (within the meaning of Article L.511-13 of the French Monetary and Financial Code) (see section [2.3.3] Senior Management for more information on de facto directors).
Finally, the Chairman of the Board of Directors sees to it that the operation of the Board runs smoothly, by creating a climate of discussion that is conducive to constructive decision-making. He ensures that the Board spends the required time on its duties.
V criteria used to qualify members of the Board of Directors as “independent”: An independent director is a person who has no ties with the management, Company or Group of a nature liable to compromise their freedom of judgment or create a confl ict of interest with the management, Company or Group.
Accordingly, an independent member of the Board of Directors may not: R be an employee or a corporate offi cer of Natixis or the Group, or an employee or Board member of a shareholder with a controlling interest, either on its own or in concert, in Natixis (as per Article L.233-3 of the French Commercial Code) or in a Company consolidated by it, or have served in such a capacity during the previous fi ve years; R be a corporate offi cer of a company in which Natixis holds a directorship either directly or indirectly, or in which a designated employee of Natixis or a corporate offi cer of Natixis (currently or within the last fi ve years) holds a directorship; R be a customer, supplier, investment or corporate banker: R that is material for Natixis or the Group,
R or for which Natixis or the Group represents a significant portion of such person’s business,
R have a close family relationship with a corporate offi cer of Natixis or the Group; R have been an auditor of Natixis or a Group company during the last fi ve years; R have been a member of Natixis’ Board of Directors for more than 12 years; R receive or have received signifi cant additional compensation from Natixis or the Group, excluding directors’ fees, including participation in any stock option plan or other performance-based compensation.
The independent status of each member of the Board of Directors is examined by the Appointments Committee (the composition and role of which are described below), which prepares a report for the Board (see Summary Table, above); V Board operating procedures specified in the Internal Rules: In particular, the Internal Rules stipulate that, except for decisions related to the preparation of parent company and consolidated fi nancial statements and management reports (Company and Group), directors participating in a Board Meeting by videoconference or through the use of telecommunication facilities transmitting at least the member’s voice and whose technical characteristics allow for continuous and simultaneous streaming of the proceedings, shall be deemed present for the purposes of quorum and majority.
R the Board of Directors’ authorization to terminate the duties of the Head of the Risk Management Division.
The directors of Natixis agree to comply with the guidelines contained in this Charter.
In keeping with the laws in force, each director must enter the shares he holds in registered form.
Directors should be attentive to the risk that is incurred whenever people close to them, specifi cally those with very close ties (spouse, child, live-in parent, or legal person or entity run, administered, managed or controlled by the director or his spouse, child, live-in parent or for which one of them receives the majority of economic benefi ts) perform transactions in Natixis shares.
Natixis may also ask each director to provide any information in relation to the trading of listed companies’ securities necessary for it to fulfi ll its reporting obligations to all authorities such as stock market authorities, both in France and abroad.
The director strives to preserve his independence in judgment, decision and action in all circumstances. He refuses to be infl uenced by any element foreign to the corporate interest of Natixis, which it is his remit to defend.
Directors must refrain from acting in confl ict of interest with Natixis or the companies it controls. Specifi cally, when there is a planned transaction in which a director or non-voting director is directly or indirectly involved (e.g. when a director is affi liated: with the partner bank or the supplier’s fi nancing bank, or the partner bank or fi nancing bank of a Natixis competitor for the transaction in question), the director or non-voting director in question must inform the Chairman of the Board of Directors as soon as he has knowledge of such a plan, and inform him that he is directly or indirectly interested and in what capacity. The director or non-voting director in question must abstain from participating in the meeting of the Board of Directors or any one of its Committees regarding the plan in question. Consequently, he does not participate in the Board’s deliberations, or in voting on the plan in question, and the section of the minutes relative to the plan in question is not submitted to him.
Each director must become familiar with and must request, within the appropriate time, that the Chairman of the Board of Directors and/or the Special Committees of which he is a member, provide the information critical to useful action on the topics on the agenda of the Board or the Special Committees.
At its meeting of February 17, 2013, the Board of Directors of Natixis drew up an internal charter on “related party agreements” in accordance with AMF recommendation No. 2012-05, updated on December 17, 2014 to include the changes made by Order No. 2014-863 of July 31, 2014.
In particular, it sets out the procedure to be followed, from the notifi cation of the Board of Directors to approval by the General Shareholders’ Meeting, in light of the Statutory Auditors’ special report (see Statutory Auditors’ special report on related party agreements in Chapter [7] “Legal Information”).
In accordance with regulations in effect during fi scal year 2014, the Board approved related party agreements prior to their signing. It also reviewed all related party agreements that have been authorized by the Board over previous fi nancial years, which continued to have an impact during the period (for more detailed information on related party agreements, see Statutory Auditors’ special report on said agreements in Chapter [7] “Legal Information”).
The Chief Executive Offi cer attended all meetings, thereby enabling the Board members to hear his opinion on important issues and to ask him any questions that they deemed to be relevant. At each meeting, he reviewed the economic environment and benchmarks, as well as business conditions.
The Chief Finance and Risk Offi cer, Corporate Secretary and, as and when required, or one or more business-line heads were invited to provide further information on subjects raised in meetings. The Central Works Council representatives also attended the meetings.
The main topics addressed by the Board of Directors in 2014 were as follows: Natixis’ fi nancial, cash and commitment position
V Reports on terms for exercising internal control and on measuring and monitoring risk V Report on internal control activity and results V Adoption of the Chairman’s report on the Board’s work and on internal control and risk management procedures
V Review of the classifi cation of the status of directors as independent members V Co-opting of a director V Appointing a Chairman to the Appointments and Compensation Committee V Review of the summary assessment of the Board of Directors’ work V Convocation to the General Shareholders’ Meeting and the annual meeting for holders of participating securities
V Creation of new special Board Committees and update of the Internal Rules of each of those Committees and the Board of Directors
V Presentation of the responses by Natixis to these follow-up letters and correspondence V Authorization of the signature of various related party agreements V Implementation of the process set out in Article L.2323-7-1 of the French Labor Code on strategic guidelines
V Submission of the work by the Appointments and Compensation Committee V Fixed compensation of the Board Chairman V Fixed and variable compensation of the CEO V Profi t-sharing bonus V New distribution of directors’ fees V Set-up of a performance share allocation plan for company offi cers
V Renewal of issue authorizations (Bonds, warrants, certifi cates of deposit, negotiable midterm notes, euro commercial paper)
V Opening of branches and representative branches internationally V Closure of Natixis’ Central Branch
2 CORPORATE GOVERNANCE Management and oversight of corporate governance 2.3.1.4 Assessment of the Board’s work in 2014
For the 2010 and 2013 fi scal years, Natixis used the services of an outside fi rm. For the 2011 and 2012 fi scal years, Natixis carried out an internal assessment, based on individual interviews and a questionnaire.
For the 2014 fi scal year, Natixis decided to study the follow-up on decisions made as a result of the in-depth evaluations conducted from 2010 to 2013. The outcome of this investigation shall be described in detail in the update to this registration document to be released in August 2015.
To assist it in its review process and prepare some of its deliberations, Natixis’ Board of Directors surrounded itself with three Special Committees: an Audit Committee, an Appointments and Compensation Committee, and a Strategic Committee, each chaired by an independent director, until December 17, 2014.
At its December 17, 2014 meeting, Natixis’ Board of Directors decided to create a Risk Committee separate from the Audit Committee, and to split the existing Appointments and Compensation Committee into two independent Committees, in order to comply with the new provisions of the French Monetary and Financial Code. The duties previously assigned to the Audit Committee were divided between the Audit Committee and the Risk Committee, and supplemented with the new texts. Likewise, the duties previously assigned to the Appointments and Compensation Committee were split between the Appointments Committee and the Compensation Committee and duly completed.
V No change was made to the Audit Committee in 2014.
Minutes of the Audit Committee Meetings are prepared by the secretary of the Board of Directors. These minutes are shared with the Audit Committee members and approved at the following session. The Board of Directors is made aware of the Audit Committee’s work so that it can make fully informed decisions.
Natixis’ Audit Committee met fi ve times in FY 2014. Its members’ attendance rate was 92% for the year as a whole (vs. 96% in 2013).
V Non-compliance risk monitoring V Review of the business continuity mechanism V Check on outsourced essential services V Review of results of check processing program delivery V Focus on IT risk V Review of the Chairman’s draft report on the Work of the Board and on Internal Control in 2013 V Presentation of reports on internal control and risk measurement and monitoring V Presentation of the proposed audit program for 2015 V Monitoring implementation of recommendations made by Natixis’ Internal Audit Department
As of March 1, 2015, the Risk Committee is composed as follows: Bernard Oppetit Chairman
Now, under the Natixis Board of Directors’ responsibility, the Risk Committee’s primary duties are: V advising the Board of Directors on the bank’s overall strategy and risk appetite, both current and future; V assisting the Board of Directors when it checks the implementation of that strategy by the de facto directors and by the Head of Risk Management.
The remit of the Risk Committee is also: V to issue an opinion on the procedures established by Natixis that are used to ensure compliance with regulations as well as risk monitoring and control; to that end, it receives the reports of Natixis’ Risk Committees and those of its subsidiaries, as well as the reporting on risks, specifically operational, market or counterparty risks, performed at the behest of the Company’s CEO; V to monitor the effectiveness of the internal control and risk management systems; V to assist the Board of Directors in determining the guidelines and controlling the implementation by de facto directors of the supervisory mechanisms to guarantee the effective and prudent management of the Company, specifically the separation of duties and the prevention of conflicts of interest; V to review, pursuant to its remit, whether the prices of products and services proposed to clients are compatible with Natixis’ risk strategy. If these prices do not correctly reflect the risks, it presents the Board of Directors with an action plan to remedy it; V to review, without prejudice, the duties of the Compensation Committee, if the incentives set out by Natixis’ compensation policy and practices are compatible with this latter’s situation with regard to the risks to which it is exposed, its capital, its liquidity and the probability and time phasing of the expected benefits; V to assist the Board of Directors in reviewing the aforementioned governance mechanism, in assessing its effectiveness and ensuring that corrective measures have been taken to remedy any shortcomings; V to regularly examine the strategies and policies governing the taking, management, monitoring and reduction of the risks to which Natixis is or could be exposed, including risks created by the economic environment; V to examine non-compliance risk monitoring-related items at least once a year, pursuant to Article 253 of the Order of November 3, 2014 on internal control of banking sector businesses, payment services, and investment services; V to give opinions on the appointment or dismissal of the Head of Internal Audit at Natixis; V to see to it that the findings of assignments by the Internal Audit Department and by regulatory and supervisory authorities (specifically the Autorité de Contrôle Prudentiel et de Résolution (ACPR - French Prudential Supervisory Authority for the Banking and Insurance Sector) are followed up on; to that end, a summary
The Risk Committee was created on December 17, 2014 and therefore did not meet in 2014.
The primary duties exercised by the Risk Committee in Internal Audit and Risk Management, and previously exercised by the Audit Committee, are described above in the section on Work of the Audit Committee in 2014.
During 2014, the Appointments & Compensation Committee comprised six members: Ms. Bories (until May 21, 2014) and Messrs. Condaminas, Patault, Proglio, Sueur and de Tavernost.
At March 1, 2015 the Compensation Committee is composed as follows: Nicolas de Tavernost Chairman
Three of the six members are independent (Ms. Lalou and Messrs. Proglio and de Tavernost). The number of independent directors on the Compensation Committee is not greater than half the total number of members as recommended by the AFEP-Medef Corporate Governance Code. It has a balanced composition (50% independent, 50% non-independent) and the Committee is chaired by an independent director (see summary table of compliance with AFEPMedef corporate governance code in section [2.3] of this chapter).
R On May 20, 2014, Nicolas de Tavernost was appointed Chairman of the Appointments and Compensation Committee, replacing Christel Bories, who resigned.
V Changes made to the Compensation Committee since January 1, 2015: R On February 18, 2015, Anne Lalou was appointed a member of the Compensation Committee.
The Compensation Committee is responsible for submitting proposals to Natixis’ Board of Directors concerning: V the level and terms of compensation paid to the Chairman of the Board of Directors of Natixis, including benefits in kind, pension plans and collective provident insurance, as well as the allocation of stock options or share purchases; V the level and terms of compensation paid to the CEO and, where applicable, one or more Deputy CEOs, including benefits in kind, pension plans and collective provident insurance, as well as the allocation of stock options or share purchases; V rules for allocating directors’ fees to Natixis’ Directors and the total amount submitted to a decision by Natixis’ General Shareholders’ Meeting; V annual review of Natixis’ compensation policy, specifically those employee categories whose professional activities are likely to have a significant impact on the risk profile of the Natixis or the Group; V reviewing the compensation of the Head of Risk Management and the Head of Compliance.
The Compensation Committee may have cause to review and issue an opinion on the insurance taken out by Natixis to cover its offi cers’ liability.
The Compensation Committee reviews proposals related to the employee savings plan, including plans for a capital increase reserved for Natixis employees, and, where applicable, plans for a stock subscription or purchase, or for an allocation of free shares to be submitted to the General Shareholders’ Meeting.
V Consulting with shareholders on the individual compensation of corporate offi cers (“Say on pay”) V Allocating a long-term compensation plan to corporate offi cers in the form of a free allocation of performance shares
Directors’ fees V Reviewing the provisions on disbursing the attendance fees allocated to directors
V Reviewing the compliance of Natixis’ compensation policy with regulations, including for the “regulated population” addressed in the Order of November 3, 2014
V Analyzing compensation awarded to the highest-paid employees V Reviewing and monitoring the achievement of performance conditions applicable to deferred variable compensation and long-term profi t-sharing plans established within Natixis
V Evaluating the Board of Directors’ work in 2013 V Evaluating the knowledge, skills and experience of Directors, both individually and collectively V Evaluating the balance and diversity of knowledge, skills and experience that the Board members have, both individually and collectively
Other V Identifying a person or a dominant group within the Board of Directors who might be detrimental to Natixis’ interests 2.3.2.4 Appointments Committee (since December 17, 2014)
The roles that devolve to Natixis’ Appointments Committee are, in essence, reviewing the selection of corporate offi cers and directors, and evaluating the directors’ individual and collective skills as well as the effectiveness of the Board of Directors. The Appointments Committee’s powers and operating procedures are described in greater detail in the Internal Rules of the Board of Directors, the latest version of which was approved on December 17, 2014.
The Committee’s primary remits are: V giving an opinion and, upon request from Natixis’ Board, making proposals and recommendations to the Board on the appointment of a CEO and, when appropriate, one or more Deputy CEOs of Natixis; V issuing an opinion and making recommendations to the Board of Directors on the selection/appointment of directors;
The Strategic Committee meets once a year. The members of the Board of Directors and members of the Senior Management Committee are invited to this meeting.
The Strategic Committee has been chaired by Laurence Debroux, an independent director, since its inception in 2011.
The Chief Executive Offi cer subsequently set up a Senior Management Committee that he chairs, made up of the heads of Natixis’ three core businesses (Wholesale Banking, Investment Solutions and Insurance, Specialized Financial Services), and support functions.
On December 31, 2014, members included: Luc-Emmanuel Auberger (Cultural Change, Innovation and Digital), Gils Berrous (Specialized Financial Services), Jean Cheval (Finance and Risks), Norbert Cron (Operations and Information Systems), Alain Delouis (Human Resources), Jean-François Lequoy (Investment Solutions – Insurance), André-Jean Olivier (Corporate Secretariat), Olivier Perquel (Wholesale Banking – Financing & Global Markets), Pierre Servant (Investment Solutions - Asset Management and Private Banking), and Marc Vincent (Wholesale Banking – Coverage & Advisory).
As Natixis’ decision-making body, the Senior Management Committee’s remit is to examine and validate the Company’s core strategy and oversee its management, notably as regards the effective application of the Company’s strategy and budget, all major projects and investments, its organization and human resources, the performance of its business lines and its results, and the control of its activities.
Lastly, Natixis has an Executive Committee comprising the members of the Senior Management Committee and the heads of certain business lines and support functions essential to the Company’s success (see members of the Executive Committee, section [2.1] of this chapter). The Committee’s role mainly focuses on information and monitoring.
In this capacity, Messrs. Mignon and Cheval stand surety for, and assume full liability toward the supervisory authorities, specifi cally the Autorité de Contrôle Prudentiel et de Résolution (ACPR - French Prudential Supervisory Authority for the Banking and Insurance Sector), for the following activities: V the senior management of the bank, within the meaning of Article L.511-13 of the French Monetary and Financial Code; V disclosure to the ACPR of any accounting or financial document that the ACPR may request, as well as a response to any request for information or any question, per Articles L.571-4 to L.571-9 of the same code;
In this context, the Senior managers are authorized to request and accept all useful information from any division, department, controlled entity or subsidiary of Natixis.
The Board of Directors may appoint a Chief Executive Offi cer selected from among its directors or otherwise.
In addition, the Senior Management Committee was attentive to continuing the development of trade cooperation with the networks.
It supervised the creation of a major Insurance division within Natixis, by fi nalizing the acquisition of the subsidiary BPCE Assurances from BPCE, and defi ning the principles for a new industrial agreement with CNP as part of the “Assurément #2016” project. It also led the preparation and completion of the Coface IPO, via the disposal of nearly 60% of Natixis’ stake.
Furthermore, the Senior Management Committee strengthened the cultural frontiers of the New Frontier plan, and defi ned the projects to be led for this purpose as part of a strategic seminar. Next, it examined the fi ndings from these projects and approved the resulting action plans before their implementation.
In 2014, The Senior Management Committee pursued actions undertaken in 2013 regarding the operational effi ciency of Natixis. The recommendations of the various sub-programs were presented to it for approval before implementation. At the same time, the Senior Management Committee supervised the implementation and execution of both phases of Natixis’ workforce adjustment plan in France, as part of the framework agreement with employee representatives signed in 2013.
Finally, the Senior Management Committee monitored the management and risk management measures within Natixis, and regularly reviewed changes in the Company’s risks.
Meetings take place either at the registered offi ce or at another location specifi ed in the notice.
Decisions are made by a two-thirds majority vote of the shareholders present or represented at the meeting.
An authorized proxy (namely the shareholder’s spouse or another shareholder, a partner with whom the shareholder has a civil partnership, or any other individual or legal entity of his choice) may always represent a shareholder at shareholders’ meetings. This proxy may not represent another person.
With respect to holders of bearer shares, it is their authorized intermediaries which hold accounts of bearer shares which prove their clients’ status as a shareholder directly to the centralizing body of the meeting. They do so by producing a certifi cate that they attach to the voting form or admission card request in the name of the shareholder or the name of the registered intermediary acting on behalf of the shareholder. A certifi cate is also delivered to shareholders wishing to attend the meeting in person and who have not received an admission card by D-2, 12 midnight, Paris time.
In accordance with regulations, a list of the functions performed by the corporate offi cers of Natixis is included in this document. The brief summary of their curriculum vitae shows that they all possess recognized business expertise acquired through their positions as executives of banks or large industrial companies or as former bank executives.
In accordance with the enforcement decree of EU Directive 2003/71 (Article 14.1 of Appendix 1 of Regulation 809/2004), none of the members of the Board of Directors or Senior Management has been convicted of fraud, subject to bankruptcy, liquidation or receivership, convicted or punished by offi cial or regulatory bodies, disqualifi ed from acting as a member of administrative, management or supervisory bodies of an issuer, or from participating in the management or conduct of the business of an issuer within at least the previous fi ve years.
Natixis and its subsidiaries maintain business relationships with their main shareholder and Board member BPCE or some of its subsidiaries.
Natixis’ compensation policy is a key tool for the implementation of the Company’s strategy. The policy aims to offer competitive levels of compensation relative to the benchmark markets and is structured so as to encourage the long-term commitment of the Company’s employees while ensuring appropriate risk management and compliance. It refl ects the individual and collective performance of its business lines.
Natixis’ overall compensation is structured around the following three components: V Fixed compensation; V Variable compensation; V Collective compensation associated with employee savings plans.
In France, Natixis’ collective compensation and employee savings plans are underpinned by common social standards that include: V a profit-sharing agreement (accord de participation); V an employee savings plan (“PES”); V a employee retirment savings plan (“PERCO”).
These agreements are aimed at associating all employees with Natixis’ annual fi nancial results.
Since 2013, Natixis has also offered its employees in France and in foreign countries the opportunity to become shareholders of their company under preferential terms and conditions by participating in share issues reserved to employees, called MAUVE operations.
Nearly 5,800 employees in France and internationally participated in Mauve 2014, i.e. an overall subscription rate of 45.5%.
In accordance with those criteria, these individuals are identifi ed either by applying 15 qualitative criteria because of their functions, their level of responsibility and their authority to materially commit the bank to transactions in terms of credit and risk profi les, or by considering their total level of compensation during the preceding fi scal year, consistent with the three quantitative criteria defi ned by regulation.
The functions concerned include Senior bankers, heads of structured fi nance and, regarding capital market activities, structurers and sales.
2 CORPORATE GOVERNANCE Natixis Compensation Policy Rules for compensating regulated categories of staff for 2014
Furthermore, employees are expected to meet targets predetermined each year in the area of risk and compliance.
The use of individual hedging or insurance strategies in the area of compensation or liability strategies which would limit the scope of the risks inherent in compensation packages is prohibited.
Finally, Natixis continues to apply to the front offi ce employees of its capital market activities mechanisms to control variable compensation similar to those applied to regulated categories of staff (i.e. variable remuneration partly deferred over three years and partial payment in shares or the equivalent), with the exception of the performance condition.
On May 20, 2014, the General Shareholders’ Meeting capped the variable component at 200% of the fi xed component of the total remuneration for each member of the regulated categories of staff.
In accordance with regulations, 2014 compensation for regulated employees will be reported in detail in a subsequent publication.
The compensation system for risk control and compliance staff and, in general, support staff and staff tasked with the validation of transactions is based on specifi c objectives, which is independent of the system for the business lines whose transactions they validate or control.
Since 2009 and each year thereafter, the Chairman of the Board has consistently waived any and all compensation for his position as Chairman of the Board.
2.4.2.2 Compensation and benefi ts of any kind for members of the Board of Directors
R Appointments and Compensation Committee: Chairman: R fixed portion: €8,000 per year (prorated to the term of office),
On an annual basis of six Board of Directors meetings; six Audit Committee Meetings; fi ve Appointments and Compensation Committee Meetings; one Strategic Committee Meeting 2014 fi scal year - gross maximum directors’ fees amounts
Member BoD + SC + Audit Committee (AuditC) €33,000 39.39 60.61
The fi xed gross annual compensation of Laurent Mignon in connection with his duties as CEO of Natixis was €800,000 for the 2014 fi scal year. This fi xed compensation has not been changed since he arrived in 2009.
Variable compensation consists of: V quantitative targets (70%), 25% of which are based on performance relative to the budget of Groupe BPCE (net revenues (4%), net income, Group share (13%) and cost/income ratio (8%) and 45%
based on the performance of Natixis net revenues (11.25%), net income, Group share (11.25%), cost/income ratio (11.25%), and Core Tier 1 ratio (11.25%); V individual strategic targets (30%) linked to the success of the Coface IPO, synergies with the Banque Populaire and Caisse d’Epargne networks, the development of projects in the Insurance business and managerial performance. Each of these four criteria is assigned a weighting of 7.5%.
Compensation of the Chief Executive Offi cer – 2014 fi scal year
V 13% net income, Group share V 8% cost/income ratio V 4% net revenues
■ CHANGE IN THE TOTAL COMPENSATION OF THE CHIEF EXECUTIVE OFFICER SINCE 2010
R RULES FOR DETERMINING VARIABLE COMPENSATION FOR 2015 Quantitative and strategic criteria for determining the Chief Executive Offi cer’s variable compensation for 2015 were approved by the Board of Directors on February 18, 2015 after review by the Compensation Committee.
V 7.5% development of the strategic plan V 7.5% operational effi ciency plan V 7.5% managerial performance
V No stock options were granted to Mr. Laurent Mignon during fiscal year 2014; V To strengthen the alignment over time between shareholders’ interests and those of the Chief Executive Offi cer as part of the implementation of the New Frontier Strategic Plan, and based on the positive opinion of the Appointments and Compensation Committee, Natixis’ Board of Directors, at its meeting on July 31, 2014, granted the free allocation of 31,955 performance shares to the executive corporate offi cer (the Chief Executive Offi cer of Natixis).
This allocation forms part of the authorization granted by the Natixis General Shareholders’ Meeting of May 21, 2013 in virtue of its 17th resolution, and represents 0.001% of Natixis’ share capital at July 31, 2014.
Furthermore, 30% of the shares delivered to the corporate offi cer at the end of the Vesting Period will be subject to a lock-in period ending with the termination of the offi ce as Chief Executive Offi cer of Natixis.
Laurent Mignon receives a company car and a family supplement, in accordance with the same rules as those applied to Natixis employees in France.
Laurent Mignon does not benefi t from a supplementary pension plan.
Furthermore, in line with the provisions of the AFEP-Medef Corporate Governance Code, the right to a benefi t is contingent on meeting performance criteria and requirements, such as net income, Group share, ROE and the cost/income ratio reported for the two years prior to leaving the Company. If necessary, the fulfi llment of these criteria will be verifi ed by the Board of Directors.
The non-compete agreement is limited to a period of six months and carries an indemnity equal to six months of fi xed compensation, as in force on the date on which the CEO leaves offi ce.
In accordance with the recommendations of the AFEP-Medef code, upon the departure of the Chief Executive Offi cer, the Board of Directors must make a decision regarding whether to enforce the non-compete clause provided for under this agreement.
Value of performance shares granted during the fi scal year €160,000(b) €350(b)
(a) Of which €1,176 company car benefi t + €2,962 family supplement.
(a) This amount includes the payment of deferred variable compensation in respect of preceding fi scal years.
(b) Of which €1,176 company car benefi t + €2,962 family supplement.
R TABLE 3 Table showing directors’ fees and other compensation received by non-executive corporate officers of Natixis from January 1 to December 31, 2014
In respect of BPCE and its subsidiaries 27,500 40,000 25,500 36,500
Member of the Appointments and Compensation Committee 7,000 7,000 8,000 12,000
In respect of BPCE and its subsidiaries 19,000 28,000 18,000 19,000
In respect of BPCE and its subsidiaries 6,000 6,000 3,000 3,000
In respect of BPCE and its subsidiaries 35,000 48,500 32,500 34,500
Benefi ts in kind in respect of BPCE 5,244 5,244 2,621 2,621
2 CORPORATE GOVERNANCE Natixis Compensation Policy (in euros) Non-executive corporate offi cers
In respect of BPCE and its subsidiaries 8,700 8,700 9,300 12,300
Benefi ts in kind in respect of BPCE (14) 5,292 5,292 5,292 5,292
Member of the Natixis Appointments and Compensation Committee 6,000 6,000 8,000 9,000
Member of the Natixis Appointments and Compensation Committee 7,000 7,000 8,000 9,000
In respect of BPCE and its subsidiaries 29,900 43,400 36,125 60,125
(3) No multi-year variable compensation or free shares awarded over fi scal year 2014.
(5) Variable compensation for fi scal year 2013, of which €215,999 (50%) paid in 2014 and the balance deferred (50%) over three years in equal shares of €72,000. The fi nal allocated amount in 2015 will be €77,076 (after application of an index ratio).
(7) Variable compensation for fi scal year 2014, of which €206,511 (50%) paid in 2015 and the balance deferred (50%) over three years in equal shares of €68,837.
(11) Amount paid in 2013 for the variable compensation for fi scal year 2012, or €225,028, for the deferred portion of the variable compensation for fi scal year 2011, or €92,746, and for the deferred portion of the variable compensation for fi scal year 2010, or €192,217.
(12) Variable compensation for fi scal year 2014, or €340,743 (40%) paid in 2015, and the balance deferred (60%) over three years in equal shares of €170,372.
Number of options granted during the period Exercise price Exercise period
Performance shares granted by the General Shareholders’ Meeting during the period to each executive corporate offi cer by the issuer and by all Group companies Date of plan
Valuation of options according to the method adopted for the consolidated fi nancial statements Date vested Date of transferability Performance conditions
Performance shares that became transferable during the period for each executive corporate officer
Number of exercisable options, including those exercisable by: 14,103,277 4,760,945 1) Natixis Directors in 2014: 376,530 158,205
Cumulative number of outstanding subscription options at end of period 0 4,760,945
(a) Due to the special dividend approved by the Company’s General Shareholders’ Meeting on July 31, 2013, subsequent to the buyback of the cooperative investment certifi cates held by Natixis by each Banque Populaire bank and Caisse d’Epargne, the number of options and the subscription prices were adjusted, in accordance with the provisions of the French Commercial Code.
(b) In consideration of the individual waivers of stock options granted in 2008, given the material losses recorded over the 2008 fi scal year.
Options held in respect of the issuer and the companies referred to above, exercised during the period, by the top ten salaried employees of the issuer and of these companies who hold the most options purchased or subscribed in this way 0 n/a n/a 0 n/a n/a
R TABLE 10 Record of the award of free shares for each executive corporate officer
Allocated shares remaining at the end of the fi scal year
Laurent Mignon, CEO Date term of offi ce commenced: May 14, 2009 Date term of offi ce expires: (a) Pension plan benefi ts for all personnel.
2.4.2.5 Components of compensation due or granted in respect of the fi scal year ended December 31, 2014 to Laurent Mignon, Chief Executive Offi cer of Natixis
In accordance with the AFEP-Medef Corporate Governance Code as revised in June 2013, the components of the compensation due or granted to each executive corporate offi cer in respect of fi scal year 2014 must be submitted to Natixis’ General Shareholders’ Meeting for approval. For Natixis, this recommendation concerns the remuneration of Laurent Mignon.
Gross fi xed compensation in respect of 2014. Laurent Mignon’s gross annual fi xed compensation in respect of his offi ce as CEO has remained unchanged since he took offi ce.
The variable compensation in respect of fi scal year 2014 was calculated on the basis of quantitative and strategic criteria fi rst reviewed by the Compensation Committee then validated by the Board of Directors. Variable compensation consists of: V quantitative targets (70%), 25% of which based on fi nancial performance in relation to the Groupe BPCE budget (net revenues (4%), net income Group share (13%) and cost/income ratio 8%) and 45% based on the performance of Natixis (net revenues (11.25%, net income Group share (11.25%), cost/income ratio (11.25%) and Core Tier 1 ratio (11.25%).
V 30% individual strategic objectives relating to the success of the Coface initial public offering, synergies with the BP and CE networks, the development of projects in the Insurance business line and managerial performance, with each of these criteria assigned a 7.5% weighting.
The amount of variable compensation for fi scal year 2014 was therefore set at €1,017,374 i.e. 127.17% of the target fi xed compensation: V - €355,374 will be paid in 2015, 50% of which will be index-linked to the Natixis share price.
Multi-annual variable compensation - In 2014 Laurent Mignon did not receive any multi-annual variable compensation.
This grant falls within the authorization granted by Natixis’ General Shareholders’ Meeting held on May 21, 2013 in its 17th resolution, and represented 0.0011% of Natixis’ share capital as at July 31, 2014.
The Chief Executive Offi cer is forbidden from using individual hedging or insurance strategies intended to limit the impact of risks inherent in variable compensation packages, including for the award of Natixis performance shares.
At its February 19, 2014 meeting, the Board of Directors approved the amendment to the undertaking regarding severance payments, and the implementation of a non-compete clause. These undertakings and agreements were subject to a shareholder vote and approved at the Ordinary General Shareholders’ Meeting of May 20, 2014 (fi fth resolution). Calculation of amount of severance pay: The Monthly Reference Compensation is equal to one-twelfth of the sum of the fi xed compensation paid in respect of the last calendar year in activity and the average variable compensation paid over the last three calendar years of activity.
The amount of severance pay is equal to: Monthly Reference Compensation x (12 months + 1 month per year of seniority). The Chief Executive Offi cer will not receive severance payments in the event of gross negligence or willful misconduct, if he leaves the Company at his initiative to take another position or changes his position within Groupe BPCE. Furthermore, in accordance with the provisions of the AFEP-Medef Corporate Governance Code, the right to severance pay is subject to a number of criteria and performance conditions, such as net income Group share, ROE and the cost/income ratio over the two years preceding the departure. Adherence to these criteria will be verifi ed by the Board of Directors as necessary.
Supplementary pension plan - In 2014 Laurent Mignon did not benefi t from a supplementary pension plan.
2 CORPORATE GOVERNANCE Report of the Chairman of the Board of Directors on internal control and risk management procedures 2.5 Report of the Chairman of the Board of Directors on internal control and risk management procedures
Natixis’ internal control system notably complies with the provisions set forth in the French Ministerial Order of November 3, 2014 on internal control by companies in the banking, payment services and investment services sector. It is structured in a manner consistent with the principles set out by BPCE, with the objective of ensuring a consolidated approach to risk within the framework of the control exercised by the shareholding group.
Senior management, under the supervision of the Board of Directors, is responsible for the whole of Natixis’ internal control system.
Natixis’ internal control system is based on a structure that distinguishes: V First-level permanent control, carried out by operational staff on the transactions they perform, following internal procedures and legal and regulatory requirements (level 1.1 control). Transactions may be subject to a separate first-level control (level 1.2) by line management or by a functional department responsible for validating transactions (accounting, legal or middle office functions).
The overall internal control system is coordinated by the Control Functions Coordination Committee (CFCC), which is chaired by the Natixis Chief Executive Offi cer or his substitute, the Corporate Secretary. The Committee is attended by the Chief Financial and Risk Offi cer and the Heads of Risk, Compliance and Internal Audit, as well as Heads of operational or functional departments as necessary. The CFCC’s remit is to: V address all issues pertaining to the organization and planning of control services;
V highlight areas of emerging or recurring risk within the scope under consideration and report any significant anomalies observed to the executive body; V provide the executive body with updates on ongoing controls performed by internal or external control functions, or by regulators, and ensure that the conclusions from these undertakings are taken into account by the operational business lines.
Following the implementation of a function-based compliance and permanent control structure in 2010, Natixis reinforced its system in response to the requirements relative to the consolidated supervision of credit institutions (Ministerial Order of November 3, 2014). To this end, the Heads of Compliance and Permanent Control in the subsidiaries report directly to Natixis’ Chief Compliance Offi cer. This direct reporting line means that all decisions regarding the appointment or removal of these individuals, their position, their objectives, their compensation and the monitoring of their progress and results must be taken in agreement by the subsidiary in question and Natixis’ Chief Compliance Offi cer.
As part of a broader Compliance function, Natixis’ Compliance Department provides direction and impetus to Compliance managers in subsidiaries and branches through a strong functional link of a hierarchical nature. Compliance managers in subsidiaries and branches report to the executive body or, exceptionally, if the size of the entity warrants it, to a permanent control manager who, in turn, reports to the executive body, and to Natixis’ Chief Compliance Offi cer through a strong functional link of a hierarchical nature.
At Natixis, the Code of Conduct refers to the set of rules applicable to the professional conduct expected of our employees when providing investment services. These rules are set out in the General Regulation of the Autorité des Marchés Financiers (AMF - French Financial Markets Authority) and are meant to safeguard the integrity of the markets and ensure that customers’ interests prevail.
Throughout the year Compliance continued to reinforce these systems, in particular as part of the reorganizations completed within Natixis and the roll-out of ODEON.
Compliance Day provided the opportunity to review the latest regulatory developments in all of Natixis’ offi ces in France and abroad.
The purpose of the Financial Security Department, which reports to Compliance management, is to organize the system for combating money laundering, terrorist fi nancing and fraud at Natixis and its subsidiaries. In addition to this standing supervisory task, the Financial Security department may directly spearhead specifi c initiatives on behalf of some business lines.
In 2014 the main efforts focused on: V enhancing the embargo management system. In order to maintain the top level of security, in 2014 Natixis completed an action plan it had launched the previous year covering different aspects ranging from the implementation of specialized training initiatives to enhancing the consistency of filtering systems on the four SWIFT platforms used by the consolidated Natixis scope; V oversight of the financial security function for Natixis’ consolidated scope, with emphasis on enhancing coordination between procedures and software in the international Wholesale Banking entities; V monitoring the review of Wholesale Banking customer files and the implementation of new first-level controls; V providing specialized classroom training sessions on anti-money laundering and terrorist financing for business line staff, in particular those in correspondent banking and commodities finance. E-learning efforts also continued: several thousand employees followed training modules, including a new e-learning course on combating terrorist financing and complying with embargoes. A new e-learning program, “AML fundamentals” was developed during the year, for roll-out in 2015; V anti-fraud measures; the Compliance software SAFIR (supervision of fraud in market activities) was further upgraded over the course of the year. Key developments included the extension of fraud protection systems to cover social engineering-type payments, which require ongoing awareness and training initiatives among staff and customers.
The Compliance and Permanent Control department organizes the fi rst-level permanent control system, in particular through its oversight of the First Level Internal Control project, which identifi es and centralizes fi rst-level controls (1.1 and 1.2) in a dedicated software package.
As well as supporting the operational and functional departments in defi ning the fi rst-level controls they must apply, the Compliance and Permanent Control department ensures that the methodology is duly followed and verifi es the overall consistency of the system. It also draws on this system to organize the second-level control schedule, as described below.
V the application of procedures. This control involves ensuring that procedures exist and are effectively applied (in accordance with Articles 254 and 255 of the Ministerial Order of November 3, 2014), and that they are compliant with the rules governing the various types of risk.
The Compliance Department may perform three types of controls: V controls based on indicators arising from the first-level controls; V controls based on warnings issued by automated control systems, especially under the framework of anti-money laundering and market abuse detection plans; V controls through checks on accounting documents and, if appropriate, on-site checks, so as to ensure that automated controls are relevant. They can also be used to check the application of more qualitative rules (customer knowledge and classification, application of Chinese walls, management of conflicts of interest, etc.).
Over the year, 2,463 second-level controls were performed on the consolidated Natixis scope via the software tool SCAN.
The objectives of the IT Systems Security and Business Continuity department, which is organized as a function, are to ensure a level of security in accordance with the annual plan validated by the Senior Management Committee, to inform and exercise its authority when major risks are identifi ed, to maintain expertise and provide appropriate advice to the business lines and to keep the overall crisis set-up in working order.
In addition to its role in enforcing standards and controls, the ITSS-BC department provides awareness-raising and training programs on security and business continuity. It is important to regularly inform users, who are responsible for the Company’s security at their own level.
The second-level control plan has two parts, one shared with Groupe BPCE and another specifi c to Natixis. The controls are carried out based on the fi rst-level controls reported by the contributors (Information Systems Security department or the appropriate security representatives for authorizations).
To confi rm the effectiveness of their BCPs, in 2014 Natixis’ business lines and support functions in France and abroad performed: V 75 backup user site exercises; V 41 IT backup tests; V 1 remote working exercise involving 400 staff (working from home); V 22 crisis management practice exercises.
Consistent with the organization of Groupe BPCE, the second-level permanent control mechanism is organized under the authority of the Compliance function and the Risk function, in accordance with their respective powers. These two functions oversee the proper functioning of the chain of fi rst- and second-level controls.
Its scope of action extends to the following risks: V credit and counterparty risk (including country risk); V market risk; V overall interest rate, liquidity and structural foreign-exchange risk; V operational risk; and covers all entities consolidated by Natixis. Natixis’ highest-level risk governance authority is the Global Risk Committee, which defi nes the key elements of risk policy, analyzes the main risks and validates the main risk standards and methods implemented.
The main responsibilities of the Risk Department are to: V propose a risk policy for Natixis in line with the Company’s strategy, and monitor its regular application and updates; V define methods and standards that make it possible to measure risks and approve risk taking (models, reports, limits, limit authorizations) in compliance with Groupe BPCE’s standards; V provide a second opinion on business-line cases based on workflow and Committees, for which the Risk Department undertakes preparation and supervision and acts as secretary; V set out supervision and risk monitoring procedures at the individual and consolidated level;
V produce risk reports for the Senior Management Committee, the business lines, BPCE and regulatory authorities. Finally, it provides information to the Natixis Board of Directors and Risk Committee by providing summary information and one-off analysis; V foster a risk culture at all levels and the sharing of best practices within its organization.
In accordance with Articles 98 and 247 of the Ministerial Order of November 3, 2014, alert procedures for serious incidents were introduced with alert thresholds set by type of risk. In 2014, the alert system was activated on one occasion, when an operation on which Natixis has an exposure of over €150 million was placed on the level 3 watch-list. The requisite information was transmitted to the Audit Committee and the Autorité de Contrôle Prudentiel et de Résolution (French Prudential Supervisory Authority for the Banking and Insurance Sector).
In addition, Natixis regularly conducts methodological work aimed at assessing the relevance of its credit stress tests.
The Risk Department provides senior management and the bank’s business line managers with reports analyzing Natixis’ risks: trend analyses, scorecards, stress test results, etc.
As regards limit breaches, the dedicated monthly Committee Meeting analyzes changes in limit breaches using specifi c indicators (number, total, duration, business lines concerned, etc.), and examines major breaches and monitors their correction.
Quarterly monitoring of watch-listed counterparties and the process for determining specifi c additions to and reversals of provisions are examined simultaneously. This examination relies on preparatory Committees organized by the Risk Department and the managers of the various business lines within the bank.
2 CORPORATE GOVERNANCE Report of the Chairman of the Board of Directors on internal control and risk management procedures Collective provisions
In addition to specifi c provisions, Natixis also sets aside provisions to cover country risk and sector risk. These collective provisions are based on groups of homogeneous assets and formed according to three criteria: V ratings for loans to private individuals and professionals; V sector risk; V geographic risk for other counterparties (corporate, sovereign, etc.).
The Risk Department: V defines risk measurement and fair value adjustment methods and submits them to the Market Risk Committee for approval; V suggests limits or examines limit requests (VaR, stress tests, operational limits, loss alerts); V provides alerts for areas at risk relating to the business lines or to senior management; V is responsible for the daily analysis and measurement of risks, daily reporting, and notifying front office and the management of any breaches; V approves the pricing models (pricers) used by front office management tools.
Natixis uses VaR, SVaR and IRC to calculate capital requirements for market risks over acceptable periods.
The vast majority of Natixis’ exposure is in euros and US dollars and uses a short-term fl oating rate. As a result, Natixis’ overall interestrate risk is essentially linear and concerns contractual operations.
Liquidity risk is notably controlled, managed and monitored in the following manner: V management of each business line’s liquidity consumption: to manage the bank’s refinancing needs, liquidity budgets are allocated for each business line as part of the budget procedure and approved by the ALM Committee. Consumption is monitored weekly for Wholesale Banking business lines and monthly for other business lines; V management of the bank’s contribution to Groupe BPCE’s net market footprint: this ensures that the liquidity allocation system is in line with the Group’s strategic ambitions and operational oversight; V supervision of short-term mismatching, which is measured using liquidity gaps. This indicator is produced daily for a one-year horizon in intervals of one day, based on all of the parent company’s transactions, including its US subsidiaries. It is subject to four permanent limits validated by the ALM Committee and monitored daily (overnight market exposure, 60-day, 150-day and 330-day static gaps); V supervision of medium-term mismatching, which is measured on the basis of liquidity gaps and asset/liability hedging ratios. These ratios, calculated for all currencies combined and for the US dollar, are subject to minimum hedging ratios validated by the ALM Committee. They are monitored monthly; V simulations of liquidity stress scenarios: the purpose of these simulations is to measure the Group’s ability to continue to respect its commitments and operate in the event of a liquidity crisis. Natixis periodically simulates its contribution to the Group’s earnings based on different crisis scenarios (systemic, specific, combined) and different levels of intensity (moderate, strong, extreme) over one-, two- and three-month periods, for which assumptions are set by BPCE; V the refinancing structure is monitored to ensure that resources are well diversified, by type of counterparty, by market segment and by geographic area, in order to manage all consolidation risk;
Natixis’ structural forex risk for the most part concerns structural positions in US dollars refl ecting the presence of foreign branches and subsidiaries funded in this currency within Natixis’ scope of consolidation. Given the existence of weighted risks denominated in currencies other than the euro (in particular the US dollar), the ALM Committee has approved currency purchases to fund long-term investments in order to protect the bank’s capital adequacy ratio against changes in the euro-US dollar exchange rate.
The duties and organization related to operational risk are described in the operational risk policies and procedures validated by the Natixis Operational Risk Committee. This document sets out: V the procedures for detecting, analyzing and measuring operational risk: R recording incidents,
R environmental indicators and variables; V operational risk control procedures: R drawing up and monitoring action plans.
The mechanism is managed by Natixis’ Operational Risk Committee, a specialized body overseeing operational risks policy. It is the operational extension of the executive body and, as such, possesses full decision-making powers for issues within its area of responsibility. This Committee meets quarterly and is chaired by the Chief Executive Offi cer or his substitute the Chief Finance and Risk Offi cer, with the Head of the Operational Risk Department acting as secretary.
As a listed company, Natixis prepares separate consolidated fi nancial and regulatory statements, although the sub-group it leads has been included in the BPCE consolidation group formed by the Banque Populaire banks and the Caisses d’Epargne since July 1, 2009.
In order to perfect its overall data collection system, Natixis is continuing to roll out new modules in its consolidation package. After integrating the items needed for the calculation of regulatory capital requirements in 2013, the production of the new FINREP reporting was rolled out in 2014.
For all these scopes, Natixis and its subsidiaries are continuing to upgrade their accounting and fi nancial control procedures and equip themselves with suitable audit trail tools. In this respect, Natixis’ Finance Department supervises, assists and monitors the various controls performed by the subsidiaries.
The accounting and regulatory reporting control system is primarily based on the following fundamental principles: V separation of the accounting production and control functions; V standardization of control processes within the Group’s different business lines and entities: methods, software, reporting and frequency; V ensuring the size of the team is suited to the objectives set.
It also draws on: V the application of the principles established in the BPCE charter, which specifies the scopes governed by the two-level control processes and stipulates an approach covering supervision of the control teams; V two kinds of assignments (operational or organizational) to be carried out either as part of the account closing process or in periodic assignments;
In 2014, the highlights of the accounting and fi nancial control environment included: V a tighter timetable for publishing the financial statements; V the development and roll-out of the loan management tool and the accounting system used in Paris throughout Europe (Milan, Madrid and London); V the roll-out of a new data input platform for the accounting software for market transactions; V the launch of a project to streamline the information systems used for market transactions (front and back office systems), which resulted in the migration of the first tools in the second half of the year; V the strengthening of prudential and fiscal controls; V the reinforcement of monitoring of local control systems and support for the Review officers.
In addition to the control procedures followed by the Finance Departments responsible for preparing individual or consolidated accounts, the quality of accounting controls is verifi ed by: V ad hoc audit assignments conducted by BPCE’s General Inspection and Natixis’ Internal Audit Department; V audits required by the Single Supervisory Mechanism in its role as banking regulator; V audits conducted by Statutory Auditors. This work is carried out by three firms working in a uniform manner each quarter on most of the entities falling within Natixis’ scope of consolidation and whose opinions rely, in particular, on compliance with Natixis policies and the effectiveness of local internal control procedures.
The Internal Audit Department reports directly to Natixis’ Chief Executive Offi cer. It has strong functional ties with Groupe BPCE’s General Inspection, in accordance with the principles approved by the CECEI (the French Credit Institutions and Investment Firms Committee) in its decision of November 15, 2007, the BPCE General Inspection’s charter and Natixis’ internal audit charter as revised in 2013. Also in accordance with these principles, the Internal Audit Department coordinates a global audit function.
Natixis’ Internal Audit Department is responsible for verifying the Bank’s controls and is one of the bodies responsible for the proper operation of the Bank’s internal control system within the meaning of the Ministerial Order of November 3, 2014. In this respect, it is independent of all operational entities and support functions. It has no operational role and can therefore never fi nd itself in a position of confl ict of interest.
The Internal Audit Department conducts audit assignments across the whole of Natixis (parent company, subsidiaries and branches) and covers all classes of risk arising from the various business activities carried out. It has full and unrestricted access to all information, confi dential or otherwise. Its fi eld of investigation encompasses all of Natixis’ operational activities (including workout portfolio management activities), its functional departments – notably including entities in charge of permanent control assignments – and its outsourced activities. In all business lines, it carries out in-depth analyses of operations, as well as the front-to-back processes by which operations are carried out. These analyses lead to an assessment of the suitability of existing control points in the processes audited as well as an appraisal of the risks arising from the relevant activities. They lead to recommendations to strengthen the comprehensiveness and robustness of the mechanisms for controlling or managing the risks audited. These recommendations are ranked by order of priority.
Natixis’ annual and multi-year audit plans are approved by its Chief Executive Offi cer and by BPCE’s General Inspection. The Annual Audit Plan is examined by the Audit Committee. In 2014, the Internal Audit Department conducted audit assignments on all risk classes to which
Several specialist projects involved all Internal Audit staff in 2014. These included in particular: V the implementation of new governance for the Internal Audit Department, centered around the organization and formalization of regular relations between the Internal Audit Department and the international and subsidiary audit teams via monthly Committee Meetings; V the continuation of workshops focusing on the production and enhancement of standards and procedures, in particular for human resources management, relations with BPCE’s General Inspection and the external auditors, and the operating framework of local audit teams (risk assessment, risk mapping and audit planning); V the creation of a dedicated team bringing together “quantitative” auditors (one lead auditor and five auditors) to support the development of data management techniques in audit work, as initiated in 2013, and to provide a better response to the growing number of regulatory audits needed to certify and validate internal models (Basel 2 and Solvency 2); V the enhancement of the recommendations monitoring system, with the generalized deployment of the dedicated software Reco! proposed by BPCE in the subsidiaries and international entities, and the implementation of an alert system to flag recommendations where the implementation is too far behind schedule (which can include the sending of a follow-up letter from the BPCE Head of General Inspection or from the BPCE Chairman); V the completion of several internal quality assessments (general self-assessment, quality of follow-up) and external quality reviews (quality reviews of organization and audits for BPCE); V the considerable efforts made by all Audit staff during the ECB’s Asset Quality Review (AQR).
STATUTORY AUDITORS’ REPORT ON THE REPORT BY THE CHAIRMAN OF THE NATIXIS BOARD OF DIRECTORS, PREPARED IN ACCORDANCE WITH ARTICLE L. 225-235 OF THE FRENCH COMMERCIAL CODE
It is the Chairman’s responsibility to prepare, and submit to the Board of Directors for approval, a report on the internal control and risk management procedures implemented by the Company and containing the other disclosures required by Article L. 225-37 of the French Commercial Code, particularly in terms of corporate governance.
These procedures primarily consisted in: V obtaining an understanding of the internal control and risk management procedures relating to the preparation and processing of the accounting and financial information on which the information presented in the Chairman’s report is based, and the existing documentation; V obtaining an understanding of the work involved in the preparation of this information and the existing documentation; V determining whether any significant weaknesses in the internal control procedures relating to the preparation and processing of the accounting and financial information that we may have noted during the course of our assignment are properly disclosed in the Chairman’s report.
On the basis of our work, we have no matters to report on the information provided regarding the company’s internal control and risk management procedures relating to the preparation and processing of the accounting and fi nancial information contained in the report prepared by the Chairman of the Board of Directors in accordance with article L. 225-37 of the French Commercial Code.
We certify that the Chairman’s report includes the other disclosures required by Article L. 225-37 of the French Commercial Code.
3.1.1 Summary of annual risks 102 3.1.2 Risk factors 103 3.2 GOVERNANCE AND RISK MANAGEMENT SYSTEM 108 3.2.2 Risk culture 109 3.2.3 Risk typology 109 3.3 CAPITAL MANAGEMENT AND CAPITAL ADEQUACY 111 3.3.1 Regulatory framework 111 3.3.2 Prudential consolidation scope 111 3.3.3 Composition of capital 113 3.3.4 Changes in regulatory capital, regulatory own funds requirements and ratios in 2014 122 3.3.5 Capital planning 125 3.3.6 O ther regulatory ratios 125 3.4 CREDIT AND COUNTERPARTY RISKS (INCLUDING COUNTRY RISK) 126 3.4.1 Targets and policies 126 3.4.2 General principles governing approval and management of credit risk 126 3.4.3 Risk measurement and internal ratings 126 3.4.4 Rating tool performance monitoring and backtesting 127 3.4.5 Credit risk reduction techniques 129 3.4.6 Commitment monitoring procedures 129 3.4.7 Credit risk exposure 130 3.4.8 Counterparty credit risk exposure 139 3.4.9 Equity exposures in the banking book 141 3.5.1 Management of risks related to securitization transactions 143 3.5.2 Outstandings and positions 143 3.6 MARKET RISKS 147 3.6.1 Targets and policies 147 3.6.2 Organization of market risk management 147 3.6.3 Market risk measurement methods 147 3.6.4 Quantitative data for measuring market risk 148 3.7 OPERATIONAL RISKS 153 3.7.1 Targets and policies 153 3.7.2 Operational risk monitoring 154 3.7.3 Risk profi le 156 3.7.4 Operational risk insurance 156 3.8 OVERALL INTEREST RATE, LIQUIDITY, STRUCTURAL FOREIGN EXCHANGE RISKS 157 3.8.2 Overall interest rate risk 157 3.8.3 Structural foreign exchange risk 157 3.8.4 Liquidity risk and refi nancing strategy 158 3.9 COMPLIANCE AND REPUTATIONAL RISK, LEGAL RISKS 164 3.9.1 Compliance and reputational risk 164 3.9.2 Legal risks 166 3.10 OTHER RISKS 169 3.10.1 Risks related to insurance activities 169 3.10.2 Strategy risks 173 3.10.3 Environmental and social risks 173 3.11 SENSITIVE EXPOSURES IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE FINANCIAL STABILITY FORUM 174
In addition, since 2013, Natixis has been working to implement all of the recommendations of the working group organized by the Financial Stability Board (FSB) aimed at improving banks’ fi nancial communication about risks (Enhanced Disclosure Task Force, EDTF).
Registration document page number 3.4.3 Capital adequacy ratio Table 1 – EAD, RWA and own funds requirements by Basel approach and category of exposure 438 § c and d 124
Table 6 – EAD by geographic area 442 § d 132
Table 8 – EAD by residual maturity and by asset class 442 § f 134
Table 9 – Exposures and provisions by key Natixis business line 442 § g 134
Table 10 – Exposures and provisions by geographic area 442 § h 134
Table 12 – EAD by internal rating (S&P equivalent) N/A 135
Table 16 – PD and LGD by geographic area 452 § j 138
Table 18 – Exposure by credit risk mitigation technique 453 § f and g 139 3.4.8 Counterparty risk exposure Table 19 – Impact of risk-reduction techniques on credit derivatives 439 § e to h 139
Table 20 – Impact of risk-reduction techniques on derivatives other than credit derivatives 439 § e to h 140
Table 21 – Notional and EAD on derivatives other than credit derivatives 439 § e to h 140
Table 28 – Fraction of amounts of unrealized gains or losses included in CET1 447 § d and e 14 2 3.5 Securitization exposure Table 29 – Exposure by type of securitization in the banking book 449 § n (i) 14 3
Table 30 – Exposure by type of securitization in the trading book 449 § n (i) 14 3
Table 31 – Securitization positions according to the role played by Natixis 449 § n (i) and (ii) 14 4
Table 32 – EAD by approach and by weighting 449 § o (i) 14 5
Table 34 – Re-securitization exposures before and after substitution 449 § o (ii) 146
Main and emerging risks V Risk factors V Summary of annual risks
V Changes in regulatory capital, regulatory own funds requirements and ratios in 2014
V Changes in prudential capital after applying transitional arrangements for the period
V Table 1 – EAD, RWA and own funds requirements by Basel approach and category of exposure
Table summary of encumbered and unencumbered assets by category of instruments on the balance sheet V Encumbered and unencumbered assets 163
Table of assets, liabilities and off-balance sheet commitments by residual contractual maturity
V Breakdown of fi nancials assets and liabilities by contractual maturity
Main risk market factors V Market risk: additional information about the risk factors
V VaR and monitoring of VaR V Analysis of backtesting exceptions
V Techniques and methods V Stressed VaR, IRC V Stress tests, scenarios and result analyses
V Operational risks V Risks related to insurance activities V Compliance and reputational risk, legal risk
Analyses of losses related to other risks V Quantitative data, risks and disputes 155 ; 167 3.1.1 SUMMARY OF ANNUAL RISKS
Natixis is exposed to a number of different risk factors that may be put into the following categories: V risks related to the macroeconomic environment and the financial crisis; V risks related to links with BPCE; V risks related to Natixis’ operations and the banking sector; V other risks including risks related to Natixis’ reputation and image, and changes to laws and regulations.
Natixis’ businesses are sensitive to changes in the fi nancial markets and more generally to economic conditions in France, Europe and the rest of the world.
In 2014, Natixis was faced with a persistently fragile euro zone economy and a stalled rebound in global growth in the second half of the year. Despite some signs of improvement, particularly in the economies of English-speaking countries, major risks continue to weigh on global growth (high public debt, volatile fi nancial markets, geopolitical risks, the precarity of some major emerging economies, the unprecedented policy mix experiment in Japan and virtual defl ation in the euro zone) and could cause major disruptions to lending and market trends.
If the economy rebounds strongly and wages rise substantially in the US, the Fed could tighten its monetary policy more than currently expected by the markets. Similarly, the ECB could adjust its policy on access to liquidity if infl ation expectations and the credit cycle make a turn for the better, which could lead to a sudden contraction of liquidity on these markets and in the economy in general. Such developments could potentially have a negative impact on the environment in which fi nancial institutions operate and, consequently, on Natixis’ fi nancial position and results.
It is too early to accurately determine the scale and the impact these measures (in particular those still being examined or not yet fi nalized) may have on fi nancial markets in general and on Natixis in particular.
Natixis’ principal shareholder has a significant influence on certain corporate actions
At December 31, 2014, Natixis’ main shareholder, BPCE, held 71.46% of the share capital (and 71.52% of the voting rights). BPCE is therefore in a position to exercise signifi cant infl uence over the appointment of Natixis’ corporate offi cers and executive managers, and on any other corporate decisions requiring shareholder approval. BPCE’s interests in relation to these decisions may differ from those of other Natixis shareholders.
As the central body, BPCE is required to ensure that all of Groupe BPCE – to which Natixis belongs – complies with regulations in force governing the banking sector in France in areas such as regulatory capital adequacy and risk management requirements. As a result, BPCE has been vested with signifi cant rights of approval over important aspects of Natixis’ risk management policies. In particular,
3 RISKS AND CAPITAL ADEQUACYIntroduction BPCE has the power to approve the appointment or removal of Natixis’ Head of Risk, as well as certain aspects of risk management such as the approval of credit limits and the classifi cation of loans granted to joint Natixis-Groupe BCPE customers as doubtful loans. For further information on the risk management policies and procedures at Natixis, please refer to section [2.5], “Chairman’s report on internal control procedures”. BPCE’s interests (on behalf of Groupe BPCE) concerning risk management may differ from those of Natixis.
Since the inception of BPCE, Natixis’ medium-to-long-term funding requirements for the sub-fund public offerings have been met by Groupe BPCE through BPCE S.A. (see Chapter [4]). In the event market conditions deteriorate in the future, BPCE, which obtains fi nancing on the international debt markets, among other sources, may have diffi culty issuing debt instruments under reasonable terms and conditions.
Following on from the “New Deal” strategic plan, Natixis launched its new 2014-2017 strategic plan entitled “New Frontier” in November 2013. Guidelines for “New Frontier” are in line with Groupe BPCE’s plan. This new strategy aims to develop value-added customer solutions, step up the bank’s international expansion, create an Insurance division for the Group and continue to identify synergies among the three core business lines and the networks of Caisses d’Epargne and Banque Populaire banks.
Natixis’ ability to attract and retain qualified employees is critical to the success of its business and failure to do so may significantly affect its performance
Natixis’ employees are one of its most important resources and there is intense competition to attract qualifi ed employees in many areas of the fi nancial services industry. Natixis’ results depend on its ability to attract new employees and to retain and motivate existing employees.
Natixis may generate lower revenues from brokerage and other fee-based businesses during market downturns
Natixis’ risk management policies and procedures may not be effective in limiting its exposure to all types of market environments or all types of risk, including risks that Natixis has not been able to identify or anticipate. Furthermore, the risk management procedures and policies used by Natixis do not guarantee effective risk reduction in all market confi gurations. These procedures may not be effective against certain risks, particularly those that Natixis has not previously identifi ed or anticipated. Some of Natixis’ qualitative tools and metrics used to manage risk are based on its use of observed historical market behavior. Natixis then carries out a mostly statistical analysis to quantify its risk exposure. The tools and metrics used may provide inaccurate conclusions on future risk exposures, mainly because of factors that Natixis has not anticipated or correctly assessed in its statistical models, or because of unexpected and unprecedented market trends. This inaccuracy would limit Natixis’ ability to manage its risks, and the losses borne by Natixis could prove far greater than those forecast based on historical averages. Moreover, Natixis’ quantitative models do not incorporate all risks. Certain risks are subject to a more qualitative analysis that could prove insuffi cient and thus expose Natixis to signifi cant and unanticipated losses. In addition, while no material issue has been identifi ed to date, the risk management systems are subject to the risk of operational failure, including fraud. (Please refer to section [3.7] for a more detailed presentation of the policies, procedures and methods used by Natixis to identify, monitor and manage its risks).
Natixis could suffer losses if any of the instruments and hedging strategies it uses to hedge the various types of risk to which it is exposed prove ineffective. Many of these strategies are based on observation of historical market behavior and historical correlation analysis. For example, if Natixis holds a long position in an asset, it could hedge the risk by taking a short position in another asset whose past trend has allowed it to offset the trend in the long position. In some cases, Natixis may only be partially hedged, or its strategies may not fully hedge future risks or effectively reduce risk in all market confi gurations, or may even cause an increase in risks. Any unexpected change in the market can also reduce the effectiveness of these hedging strategies. In addition, the manner in which gains and losses resulting from certain ineffective hedges are recorded may increase the volatility of Natixis’ reported earnings.
Natixis may consider external growth or partnership opportunities from time to time. While Natixis closely reviews the companies it plans to acquire and the joint ventures it plans to engage in, it is generally not feasible for these reviews to be entirely comprehensive. As a result, Natixis may have to assume unforeseen liabilities. Similarly, an acquisition or joint venture may not live up to expectations, expected synergies may only partially be realized, or the transaction may even give rise to higher-than-expected costs. Natixis may also encounter diffi culties in consolidating a new entity. The failure of an announced external growth operation or the failure to consolidate the new entity or joint venture is likely to materially affect Natixis’ profi tability. This situation could also lead to the departure of key employees. Insofar as Natixis may feel compelled to offer its employees fi nancial incentives in order to retain them, this situation could also result in increased costs and an erosion of profi tability. In the case of joint ventures, Natixis is subject to additional risks and uncertainties in that it may be dependent on systems, controls and personnel not under its control and which could subject Natixis to liability, losses or reputational damage. In addition, confl icts or disagreements between Natixis and its joint venture partners may undermine the benefi ts sought by the joint venture.
3 RISKS AND CAPITAL ADEQUACYIntroduction The financial soundness and behavior of other financial institutions and market participants could have an adverse impact on Natixis
The processes for the management of information system security risks are described in greater detail in Chapter [2], section [2.5.4].
Such changes could include, but are not limited to, the following: V monetary, interest rate and other policies of central banks and regulatory authorities; V general changes in government or regulatory policies liable to significantly influence investor decisions, in particular in markets where Natixis operates; V general changes in regulatory requirements, notably prudential rules relating to the regulatory capital adequacy framework; V submitting of Groupe BPCE, including Natixis, to the ECB’s (European Central Bank) regulations in connection with the European Banking Union; V changes in rules and procedures relating to internal controls; V changes in the competitive environment and prices; V changes in financial reporting rules; V expropriation, nationalization, price controls, exchange controls, confiscation of assets and changes in legislation relating to foreign ownership rights; and
Natixis’ profi tability and business outlook could be adversely affected by reputational and legal risk
Inadequate management of these issues could also give rise to additional legal risk for Natixis and cause an increase in the number of legal proceedings and the amount of damages claimed against Natixis, or expose Natixis to sanctions from the regulatory authorities (for further details, please refer to section [3.9.2]).
The system described above relies on three levels of coordinated controls: V internal controls, carried out by operational or functional departments under the supervision of their management: business lines are responsible for the risks that they incur in their transactions, until their maturity. Depending on the precise situation and activities, first-level controls are conducted either by personnel themselves or by an ad hoc body, such as a middle office or an accounting control department, or, where appropriate, by both acting together; V second-level controls (within the meaning of Article 13 of the Order of November 3, 2014), carried out by dedicated bodies acting independently from operational departments; V third-level controls, also known as periodic controls, carried out by the Internal Audit Department.
The Risk and Compliance Departments carry out permanent controls. The control system comes under the overall supervision of the Chief Executive Offi cer and Board of Directors of Natixis. The Board is assisted in its duties by the Risk Committee since December 17, 2014 and was previously assisted by the Audit Committee.
The Risk Department recommends risk policies consistent with those of Groupe BPCE to Senior Management for approval and it makes proposals to the executive body concerning principles and rules in the following areas: V risk acceptance procedures; V limit authorizations; V risk assessment; V risk supervision.
At bank level, a major risk is a proven risk that may have a substantial impact on Natixis’ fi nancial results, reputation or continuing activity, in a given risk category, business sector or geographic region, and may arise in the short term.
An emerging risk is a threat whose occurrence in the long term might have a substantial impact on Natixis’ commercial strategy if it materialized.
Financial risks are identifi ed and managed through a number of measures: V a monthly consolidated dashboard sent to the members of the Senior Management Committee and commented on quarterly during the Risk Committee meeting (previously during the Audit Committee) presents the main events and any red flags; V sector and geographic monitoring is carried out to identify emerging risks (for further details, please refer to paragraph [3.4.6]).
Securitization: Securitization transactions consist of transferring fi nancial assets, such as receivables or loans, to investors, by transforming these receivables, by going through an ad hoc company, into fi nancial securities issued on the capital market.
Market risk affects Natixis’ trading and investment portfolios. In investment portfolios, market risk encompasses: V the overall interest rate risk associated with asset and liability management, which is the risk to earnings arising from asset and liability mismatches in the bank book or in the insurance business; V the risk associated with investment operations, which depends directly on fluctuations in the value of assets invested in securities portfolios; V the risk associated with other operations, notably real estate, which is indirectly affected by changes in the value of tradable assets held in the normal course of business; V concentration risk which maps the biggest areas of exposure as well as non-diversified exposure, the monitoring of which are presented to the dedicated committees.
Operational risk is the risk of losses due to inadequate or failed internal processes, or due to external events, whether deliberate, accidental or natural occurrences. Internal procedures include, but are not limited to, Human Resources and information systems. External events include, but are not limited to, natural disasters, fraud or terrorist attacks. Furthermore, any interruptions or failures of Natixis or third party information systems may result in lost earnings and thus generate losses. Similarly, unforeseen events may cause an interruption in the continuity of Natixis’ operations, thus generating material losses and additional costs.
This risk is a sub-category of operational risk, by defi nition. Noncompliance risk may have consequences that go beyond a pure loss of economic value, however, and may damage the institution’s reputation. The Bank handles non-compliance risk accordingly.
Reputational risk is essentially a risk contingent on the other risks incurred by the Bank.
Since January 1, 2014, the Capital Requirements Directive (CRD) 4 and the Capital Requirements Regulation (CRR) with immediate effect have applied Basel 3 regulations in Europe. The CRD4 was enacted into French law by the Ministerial Order of November 3, 2014.
In application of the article 19 of the CRR, the prudential consolidation scope is established based on the following principles: Entities, excluding insurance companies, that are fully consolidated or accounted for by the equity method under the statutory scope (see Chapter [5.1] note 17) are included in the prudential scope; the Group’s insurance companies are accounted for by the equity method under the prudential scope.
The two tables below show the transition from the consolidated fi nancial balance sheet view to the prudential balance sheet view, for both assets and liabilities.
3 RISKS AND CAPITAL ADEQUACYCapital management and capital adequacy R TRANSITION FROM THE ACCOUNTING BALANCE SHEET TO THE PRUDENTIAL BALANCE SHEET AT DECEMBER 31, 2014
Financial assets designated at fair value through profi t and loss 254,560 (9,503) 245,056
Revaluation adjustments on portfolios hedged against interest rate risk 0 0 0
Financial liabilities at fair value through profi t and loss 220,622 (184) 220,438
R excess of threshold 1 on minor holdings of capital instruments issued by fi nancial entities,
R excess of threshold 3 common to amounts not deducted in respect of threshold 2,
R any surplus deduction of Additional Tier 1 capital (see below).
AT1 capital comprises: V subordinated debt instruments recognized as Additional Tier 1 after applying transitional arrangements; V deductions made to this category via the transitional arrangements applied to CET1 capital; V any surplus deduction of Tier 2 capital (see below).
Tier 2 capital comprises: V debt instruments recognized as Tier 2 capital after applying transitional arrangements; V deductions made to this category via the phase-in provisions applied to CET1; V any surplus provision in relation to expected losses.
Provided below are details of debt instruments recognized in Tier 2 capital and their characteristics, at December 31, 2014, as required by regulation No. 1423/2013 (Appendix II).
3 RISKS AND CAPITAL ADEQUACYCapital management and capital adequacy R ISSUANCE OF AT1 CAPITAL INSTRUMENTS
(in millions of euros) Additional Tier 1 instruments 1 Issuer NATIXIS (formerly NBP) NATIXIS (formerly NBP)
2 Unique identifi er (eg CUSIP, ISIN or Bloomberg identifi er for private placement) FR0010154278 FR0010347880 3 Governing law(s) of the instrument French French
10 Accounting classifi cation Shareholders’ equity Shareholders’ equity 11 Original date of issuance 01.25.2005 06.30.2006 12 Perpetual or dated Perpetual Perpetual 13 Original maturity date N/A N/A
Mandatory after two profi t-making fi scal years following the end of the “Supervisory Event” (subject to compliance with regulatory ratios), or in the case of dividend distribution, the liquidation of the issuer 35 Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument)
CRR Article 52 CRR Article 52 CRR Article 52 CRR Article 52
The exercise date of the redemption option for the full issue at par at 07.30.2015
The exercise date of the redemption option for the full issue at par at 04.30.2018
At each coupon payment date (10.30, 01.30, 04.30 and 07.30 of each year)
At each coupon payment date (01.30, 04.30, 07.30 and 10.30 of each year)
Mandatory after two profi t-making fi scal years following the end of the “Supervisory Event” (subject to compliance with regulatory ratios), or in the case of dividend distribution, the liquidation of the issuer
Participating or subordinated loans and securities Participating or subordinated loans and securities Participating or subordinated loans and securities Participating or subordinated loans and securities
(in millions of euros) Tier 2 instruments 1 Issuer Natixis (formerly BFCE)
5 Post-transitional CRR rules Ineligible Tier 2 Tier 2 Ineligible Ineligible Tier 2 Tier 2 Tier 2 6 Eligible at solo/(sub-)consolidated/solo & (sub-)consolidated
Liability – amortized cost 12 Perpetual or dated Perpetual Dated D ated D ated D ated D ated D ated D ated 14 Issuer call subject to prior supervisory approval Yes N/A N/A N/A N/A N/A N/A N/A
At any time with one month’s prior notice and at 120% of the price
N/A Conditional redemption option at any time, at par and for the full issue if changes occur in tax/regulatory legislation
16 Subsequent call dates, if applicable N/A N/A N/A N/A N/A N/A N/A N/A
19 Existence of a dividend stopper No N o N o N o N o N o N o N o 20a Fully discretionary, partially discretionary or mandatory (in terms of timing)
Mandatory M andatory M andatory M andatory M andatory M andatory M andatory M andatory 20b Fully discretionary, partially discretionary or mandatory (in terms of amount)
30 Write-down features no N/A N/A N/A N/A N/A N/A N/A
33 If write-down, permanent or temporary N/A N/A N/A N/A N/A N/A N/A N/A
Unsecured creditors 36 Non-compliant transitioned features N/A N/A N/A N/A N/A N/A N/A N/A
CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63
EUR 900M EUR 493M EUR 106M EUR 20M EUR 100M EUR 46M EUR 53M EUR 10M EUR 0.6M EUR 1M
N/A N/A At any time, at par At any time, from December 18, 2008
E3M+2% CMS10y CMS10Y E6M+0.37% E3M+1.94% 5.375% 5.4% E1M capitalized + 0.20%
No N o N o N o N o N o N o N o N o N o
C umulative C umulative C umulative C umulative C umulative C umulative C umulative Cumulative N/A N/A
Non-convertible N on-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible
Ordinary bonds Ordinary bonds Ordinary bonds Ordinary bonds Ordinary bonds Unsecured creditors
3 RISKS AND CAPITAL ADEQUACYCapital management and capital adequacy At December 31, 2014, the transition from shareholder’s equity to prudential CET1 capital, Tier 1 capital and total capital is summarized in the table below.
Other instruments to be reclassifi ed as Additional Tier 1 capital 989
Own credit risk: liabilities and derivatives net of deferred taxes 30
Total Additional Tier 1 (AT1) 1,156 Total Tier 1 capital 13,773 Subordinated debt instruments
5 Minority interests (amount allowed in consolidated CET1) 40 84,479,480 5a Independently reviewed interim profi ts net of any foreseeable charge or dividend 48 26 (2)
11 Fair value reserves related to gains or losses on cash fl ow hedges 527 33 (a) 0 12 Negative amounts resulting from the calculation of expected loss amounts (71) 36 (1) (d), 40, 159, 472 (6) 0 13 Any increase in equity that results from securitised assets (negative amount) 0 32 (1) 0 14 Gains or losses on liabilities valued at fair value resulting from changes in own credit standing (371) 33 (b) 0 15 Defi ned-benefi t pension fund assets (negative amount) 0 36 (1) (e), 41, 472 (7) 0 16 Direct and indirect holdings by an institution of own CET1 instruments (negative amount) (3) 36 (1) (f), 42, 472 (8) (11)
20a Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the deduction alternative 20b o/w: qualifying holdings outside the fi nancial sector (negative amount) 0 36 (1) (k) (i), 89 to 91 0 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) 0 21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability where the conditions in 38 (3) are met) (negative amount)
23 o/w: direct and indirect holdings by the institution of the CET1 instruments of fi nancial sector entities where the institution has a signifi cant investment in those entities 24 Empty set in the EU
25 o/w: deferred tax assets arising from temporary differences (16) 36 (1) (c), 38, 48 (1) (a), 470, 472 (5)
26 Regulatory adjustments applied to Common Equity Tier 1 in respect of amounts subject to pre-CRR treatment 26a Regulatory adjustments relating to unrealised gains and losses pursuant to Articles 467 and 468 (726)
Additional Tier 1 (AT1) capital: instruments 30 Capital instruments and the related share premium accounts 0 51, 52 31 o/w: classifi ed as equity under applicable accounting standards 0 32 o/w: classifi ed as liabilities under applicable accounting standards 33 Amount of qualifying items referred to in Article 484 (4) and the related share premium accounts subject to phase out from AT1
40 Direct and indirect holdings by the institution of the AT1 instruments of fi nancial sector entities where the institution has a signifi cant investment in those entities (amount above the 10% threshold net of eligible short positions) (negative amount)
41a Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to Article 472 of Regulation (EU) No. 575/2013 o/w: own capital instruments (11)
41b Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Tier 2 capital during the transitional period pursuant to Article 475 of Regulation (EU) No. 575/2013 o/ w : Own capital instruments 0 o/ w : non-signifi cant investments in the capital of other fi nancial sector entities 0 o/ w : signifi cant investments in the capital of other fi nancial sector entities (217)
Tier 2 (T2) capital: instruments and provisions 46 Capital instruments and the related share premium accounts 1,968 62, 63 47 Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase out from T2
Public sector capital injections grandfathered until 1 January 2018 0 483 (4)
48 Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties 49 o/ w : instruments issued by subsidiaries subject to phase out 0 486 (4)
54 Direct and indirect holdings of the T2 instruments and subordinated loans of fi nancial sector entities where the institution does not have a signifi cant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount)
56a Residual amounts deducted from Tier 2 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to Article 472 of Regulation (EU) No. 575/2013 o/ w : own capital instruments o/ w : non-signifi cant investments in the capital of other fi nancial sector entities 0 o/ w : signifi cant investments in the capital of other fi nancial sector entities (40)
56b Residual amounts deducted from Tier 2 capital with regard to deduction from Additional Tier 1 capital during the transitional period pursuant to Article 475 of Regulation (EU) No. 575/2013 o/ w: Own capital instruments 0 o/ w: non-signifi cant investments in the capital of other fi nancial sector entities 0 o/ w: signifi cant investments in the capital of other fi nancial sector entities (16)
56c Amount to be deducted from or added to Tier 2 capital with regard to additional fi lters and deductions required pre CRR 467, 468, 481 57 Total regulatory adjustments to Tier 2 (T2) capital (387)
o/ w : adjustment of the 15% threshold, deferred tax assets part, items not deducted from CET1 (Regulation (EU) No. 575/2013 residual amounts)
o/ w : items not deducted from AT1 items (Regulation (EU) No. 575/2013 residual amounts) 475, 475 (2) (b), 475 (2) (c), 475 (4) (b)
Items not deducted from T2 items (Regulation (EU) No. 575/2013 residual amounts) 477, 477 (2) (b), 477 (2) (c), 477 (4) (b)
Capital ratios and buffers 61 Common Equity Tier 1 (as a percentage of risk exposure amount) 11.0% 92 (2) (a), 465 62 Tier 1 (as a percentage of risk exposure amount) 12.0% 92 (2) (b), 465 63 Total capital (as a percentage of risk exposure amount) 13.8% 92 (2) (c)
65 o/ w : capital conservation buffer requirement 0 66 o/ w : countercyclical buffer requirement 0 67 o/ w : systemic risk buffer requirement 0 67a o/ w : Global Systemically Important Institution (G-511) or Other Systemically Important Institution (0-SII) buffer CRD 131 68 Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 7.0% CRD 128 69 [not relevant in EU regulation]
Capital ratios and buffers 72 Direct and indirect holdings of the capital of fi nancial sector entities where the institution does not have a signifi cant investment in those entities (amount below 10% threshold and net of eligible short positions)
75 Deferred tax assets arising from temporary differences (amount below 10% threshold, net of related tax liability where the conditions in Article 38 (3) are met)
77 Cap on inclusion of credit risk adjustments in T2 under standardised approach 16,066 62 78 Credit risk adjustments included in T2 in respect of exposures subject to internai ratings-based approach (prior to the application of the cap)
81 Amount excluded from CET1 due to cap (excess over cap atter redemptions and maturities) 0 484 (3), 486 (2) & (5)
84 Current cap on T2 instruments subject to phase-out arrangements 1,749 484 (5), 486 (4) & (5)
3 RISKS AND CAPITAL ADEQUACYCapital management and capital adequacy 3.3.4 CHANGES IN REGULATORY CAPITAL, REGULATORY OWN FUNDS REQUIREMENTS
* In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as par Natixis’ registration document fi led on March 14, 2014.
Other, including prudential adjustments and transitional arrangements 130 o/w impact of changes in phase-in rate 105 o/w other impact of changes in basis 25
Amount of Additional Tier 1 (AT1) capital at end of period 1,156
Over 2014, Basel 3/CRR prudential capital, after applying transitional arrangements, evolved as follows: Common Equity Tier 1 (CET1) capital totaled €12.6 billion at December 31, 2014, up €0.1 billion over the year.
The €0.97 billion increase in accounting shareholders’ equity group share to €18.9 billion was mainly due to the incorporation of net income for the year for +€1.14 billion, and the favorable impact of the dollar rise on exchange conversion for +€0.6 billion. These items were offset by the payment of the dividend for 2013 (€0.5 billion) and the impact of acquisitions and disposals during the period on consolidated reserves for €0.3 billion.
Tier 2 capital increased owing to new issues of redeemable subordinated notes (+€1 billion), which were partially offset by the early redemption of certain redeemable subordinated notes (-€0.5 billion), the regulatory amortization of lines nearing maturity and the negative impact of the change in phase-in rate.
Operational risk increased by €1.3 billion due to the replacement of the reference indicator for fi scal year 2011 with that of fi scal year 2014 (standard practice is to calculate operational risk using the average indicator for the previous three years).
Exposures to institutions and corporates with a short-term credit assessment 328 259 21
Operational risk (standardized approach) 11,958 957 10,647 852 * In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as per Natixis’ registration document fi led on March 14, 2014.
The capital planning system comprises the following components: V forecasts of own funds requirementrelating to business line activity, as part of the Group’s overall capital adequacy policy; V a system for analyzing the capital consumption of the business lines and their profitability on the basis of Basel 3/CRR risk-weighted assets; V allocation of capital to the business lines taking into account business requirements and profitability targets (in the frame of strategic planning and annual budget procedures); V calculation of economic capital based on four types of risk (credit, market, operational and business risk).
Regulations on the monitoring of large exposures were revised in 2014 and are now part of the CRR. They aim to prevent an excessive concentration of risks for sets of counterparties that are related in such a way that if one encountered fi nancial problems, the others would also be likely to experience funding or repayment problems. The standard is based on a permanent obligation: all risks associated with a single counterparty cannot exceed 25% of the bank’s capital. Natixis complied with this requirement in 2014.
The Basel Committee has set up a system for managing leverage risk. The system was included in the CRR, defi ning leverage as being equal to Tier 1 capital divided by the accounting measure of 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 applies as of March 1, 2015.
Under Pillar 2, the leverage ratio must be calculated and reported to the regulator as of January 1, 2014. Its publication is mandatory as of January 1, 2015. After an observation period, it could become more restrictive under Pillar 1 as of 2018.
Natixis’ risk policies have been defi ned, starting in 2010-2011, as a component of the bank’s overall credit risk control and management system. These policies, which are the product of consultation between the Risk Department and the bank’s various business lines, are intended to establish a framework for risk-taking while outlining Natixis’ strategic vision for each of its business lines by translating it into the risk appetite for each business line or sector.
Natixis now has nearly 20 risk policies, which are regularly revised and cover the various Wholesale Banking business lines (corporate, LBO, aircraft fi nance, real estate fi nance, project fi nance, commodities fi nance, banks, insurance, hedge funds, and so on) and the subsidiaries’ various activities (e.g. leasing for Natixis Lease and factoring for Natixis Factor).
The quantitative framework is generally based on: V commitment ceilings by business line; V commitment sub-limits or alert thresholds by type of sector, type of counterparty, type of product, or sometimes geographic region.
The qualitative framework is for its part structured around the following criteria: V business sectors: preferred sectors, banned sectors; V targets: customers to be targeted or excluded based on various criteria (size, rating, country of operation, etc.); V structuring: maximum durations, financial ratios, contractual clauses, collateral arrangement, etc.
Natixis’ credit risk measurement and management procedures are based on: V a standardized risk-taking process, structured via a system of limit authorizations and decision-making Committees; V independent analyses carried out by the Risk Department during the loan approval review process; V rating tools and methodologies providing standardized and tailored assessments of counterparty risk, thereby making it possible to evaluate the probability of default within one year and the loss given default; V information systems that give an overview of outstanding loans and credit limits.
Pursuant to regulatory requirements, all counterparties in the banking book and the related exposures must have an internal rating if they: V carry a loan or are assigned a credit limit; V guarantee a loan; V issue securities used as collateral for a loan.
V procedures and controls that place internal ratings at the heart of the risk-management system, from transaction origination to expost analysis of defaulting counterparties and the losses incurred on the relevant loans; V periodic reviews of rating methodologies, the method for calculating the LGD and the underlying risk parameters.
With respect to country risk, the system is based on sovereign ratings and country ratings which cap ratings that can be given to non-sovereign counterparties. These ratings are reviewed annually or more often if necessary.
Since September 30, 2010 Natixis has used internal rating methods specifi c to the different asset classes approved by the Autorité de Contrôle Prudentiel et de Résolution (ACPR – French Prudential Supervisory Authority), and that use the advanced internal ratingsbased method (IRBA) to rate corporate, sovereign, bank, specialized fi nancing and some categories of consumer fi nance exposures.
R INDICATIVE CORRESPONDENCES BETWEEN INTERNAL RATINGS BASED ON EXPERT APPRAISALS AND EXTERNAL AGENCY RATINGS (CORPORATE, BANKS AND SPECIALIZED FINANCING)
Internal rating S&P/Fitch equivalent Moody’s equivalent Probability of default within 1 year
The rating scale varies according to the type of counterparty and includes 21 notches for major corporates, banks and specialized fi nancing.
3 RISKS AND CAPITAL ADEQUACYCredit and counterparty risks (including country risk) Alerts are triggered by performance rules and indicators where appropriate.
The role of the Rating Analysis Committee is to: V allow the presentation of the performance and stability measurement results; V analyze the indicators whose alert thresholds have been exceeded; V decide on any measures to be taken to correct any deviations or anomalies. These measures may take different forms, including changes to rating practices, methodologies, performance analyses or alert threshold values.
The change in the portfolio’s credit quality over one year is also analyzed by looking at the internal rating migrations. This aspect of the analysis process gives an overview of the positioning of the Bank’s credit portfolio.
Additional indicators are also calculated to verify the internal risk ranking (Gini Index, average rating, one year previously, of counterparties that have defaulted) and provide statistics as a supplement to the qualitative analyses.
Rating Analysis Committee meetings are chaired by the heads of the Specifi c Credit Risk Departments and the Risk Department’s Chief Operating Offi cer, or by representatives designated by them. The follow-up on the decisions made during Committee meetings are presented at subsequent meetings, particularly if thresholds have been breached and this situation has not been rectifi ed.
All of this analysis work is also presented each quarter to the Head of Risk and communicated to the regulator.
LGD are backtested by the Risk Department’s teams to: V verify that the model is correctly calibrated; V assess the model’s discriminating power; V assess the model’s stability over time.
The losses given default arrived at using internal methods for the calculation of capital requirements are also monitored quarterly during Rating Analysis Committee meetings. Corporate and Bank LGD monitoring has therefore been rolled out over the past few months and is gradually being extended to all of the IRB-A-approved portfolios (Specialized Financing and Sovereigns).
The LGD, ELBE (see glossary) and CCF (see glossary) levels for the different lending scopes undergo backtesting at least once a year (based on the updated internal data), as do the rating models and the associated PD, to verify the reliability of the estimates over time. The parameters of the models for the Specialized Financing and Financial Collateral scope are regularly updated, so that they refl ect the business lines’ reality as accurately as possible. Both the market parameters and the recovery parameters are updated.
The results of the backtesting may result in the risk parameter’s recalibration, where appropriate.
The backtesting report and the reviews are presented to the Head of Risk and the Group Risk Standard and Method Committee (BPCE CNMRG). They are sent to the regulator once a year.
The collateral or guarantees may include: V personal guarantees, in which the credit protection consists of a commitment by a third party to pay in the event of default, e.g. on-demand guarantees, joint-and-several guarantees or ownership clauses; V asset guarantees representing a transferable asset pledged to secure the reimbursement of a loan in the event that the borrower fails to meet its payment obligations (financial and tangible assets including cash, shares and bonds and pledges of stock, mortgages on real estate or ships, and so on).
Natixis may take steps to reduce commitments in order to lower concentration risk by counterparty, sector and geographic area. Concentration risk is rounded out with an analysis, based on stress test methodologies (migration of ratings according to macroeconomic scenarios).
These transactions are subject to decision-making and monitoring procedures that apply to derivative transactions.
It is used particularly to review the change in Natixis’ exposures by business sector and the distribution of these exposures by geographic region and by rating. Aside from this regular and systematic monitoring, this sector monitoring may also give rise to occasional reports describing emerging sector risks or issuing warnings about changes in specifi c sector risks.
Moreover, the Credit Committee’s decisions regarding transactions with a signifi cant exposure in terms of the total amount, country situation or type of the transaction under review are based on an analysis of country risk.
They are then considered for the watch list, a decision which falls upon the Risk Department or the competent Credit Committee depending on the level of exposure.
3 RISKS AND CAPITAL ADEQUACYCredit and counterparty risks (including country risk) Impact of stress scenarios
The system is a real management tool, with scenarios that are regularly introduced and revised. New subsidiary scopes and models have therefore been added to the stresses since the stress test program was fi rst introduced. The Risk Department regularly works on improving the methods used and adding to the scopes defi ned for the stresses, particularly bearing in mind the market stress requirements.
This stress testing is regularly applied to the Natixis consolidation scope to evaluate the risk generated in the event of an adverse trend in the economic and fi nancial data. The results are regularly presented to the Global Risk Committee, which also validates the selected scenarios. The stress-testing approach factors in counterparty ratings and default rates (stressed PD scales, migration matrices, specifi c denotching by sovereign counterparty, and so on) and includes stresses on the unsecured LGD (Corporates, Banks and Sovereigns, etc.) and the secured LGD (asset or collateral values by business line).
The tables below show exposure to credit risk according to Basel 3 regulations (European regulation of June 26, 2014). This is defi ned as EAD (Exposure at Default, see glossary in section [8.7]).
Exposures to institutions and corporates with a short-term credit assessment 1,926 334 1,922 330 1,412
3 RISKS AND CAPITAL ADEQUACYCredit and counterparty risks (including country risk) R TABLE 5: EAD BY GEOGRAPHIC AREA AND BY ASSET CLASS
(in millions of euros) Category of exposure France Europe North America Other Total
Exposures to institutions and corporates with a short-term credit assessment 1,025 636 2 259 1,922 * In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as per Natixis’ registration document fi led on March 14, 2014, less other assets and third parties grouped into homogenous risk classes.
■ TABLE 6: EAD BY GEOGRAPHIC AREA (Data certifi ed by the Statutory Auditors in accordance with IFRS 7)
R TABLE 7: EAD BY ASSET CLASS AND BY APPROACH The standardized approach is used for European banking subsidiaries and exposures to listed derivatives, deferred tax assets, retail customers and real-estate leasing.
Exposures secured by mortgages on immovable property 2,543 2,543 Exposures on institutions and corporates with a short-term credit assessment 1,922 1,922 Exposures at default 870 870 * In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as per Natixis’ registration document fi led on March 14, 2014.
3 RISKS AND CAPITAL ADEQUACYCredit and counterparty risks (including country risk) R TABLE 8: EAD BY RESIDUAL MATURITY AND BY ASSET CLASS
(in millions of euros) Category of exposure ≤ 3 month ≤ 1 year ≤ 2 years ≤ 5 years > 5 years Total
Other than SMEs and SF 29,392 19,091 10,791 28,354 8,492 96,120
Exposures secured by mortgages on immovable property 8 33 53 331 2,118 2,543
Exposures on institutions and corporates with a short-term credit assessment 1,539 383 1,922
R TABLE 11: EXPOSURES USING RATINGS ISSUED BY AN ECAI Exposures stated under the standardized approach and using the rating issued by an external credit assessment institution (ECAI).
R TABLE 12: EAD BY INTERNAL RATING (S&P EQUIVALENT) (Data certifi ed by the Statutory Auditors in accordance with IFRS 7)
The following table shows the breakdown of exposures at risk by internal rating (S&P equivalent) for asset classes measured using the IRB approach, excluding: V exposures to equities (calculated using a simple weighting); V pool-based exposures (acquired portfolios) and third parties grouped into homogenous risk classes; V securitization positions.
3 RISKS AND CAPITAL ADEQUACYCredit and counterparty risks (including country risk) R TABLE 13: EAD BY CATEGORY OF EXPOSURE AND BY INTERNAL RATING
Only on exposures under the IRB-A approach, excluding securitizations and other items .
Generic (b) and non-rated (a) third parties 3,843 1,633 2,210 2,450 2,887 117.8%
R TABLE 14: AVERAGE WEIGHTING BY INTERNAL RATING (S&P EQUIVALENT) FOR ASSET CLASSES MEASURED UNDER THE IRB APPROACH
R TABLE 16: PD AND LGD BY GEOGRAPHIC AREA For exposures measured under the internal ratings-based approach. The Probability of Default (PD) and Loss Given Default (LGD) rates are averages weighted by Exposures At Default (EAD).
BBB+, BBB, BBB- * Excluding exposures on Groupe BPCE’ affi liates.
3 RISKS AND CAPITAL ADEQUACYCredit and counterparty risks (including country risk) R TABLE 20: IMPACT OF RISK-REDUCTION TECHNIQUES ON DERIVATIVES OTHER THAN CREDIT DERIVATIVES
Credit risk equivalent Collateral receivedGross positive Net positive Before collateral After collateral
R TABLE 21: NOTIONAL AND EAD ON DERIVATIVES OTHER THAN CREDIT DERIVATIVES
Exposures on institutions and corporates with a short-term credit assessment 86
Sub-total 20,068 13,706 * In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as per Natixis’ registration document fi led on March 14, 2014.
R TABLE 24: EAD BY TYPE AND NATURE OF EXPOSURE (EXCLUDING IMPACT OF THRESHOLDS) Investments in insurance companies are included in EAD as they are weighted as RWA.
Equities – standardized approach 40 40 * In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as per Natixis’ registration document fi led on March 14, 2014.
TOTAL AT 12.31.2013* 91 * In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as per Natixis’ registration document fi led on March 14, 2014.
Natixis’ clients use securitization as an alternative source of fi nancing. Two main methods are used: V firstly, for Corporate clients, the term financing of portfolios of commercial receivables or operational assets (such as vehicle fleets); V secondly, for financial institution clients, or some asset managers, the financing of diversified asset portfolios (including credit card outstandings, real estate loans and corporate loans). In this case, the financing is only temporary and is intended to help the client to accumulate an adequate amount of outstanding assets. These are then refinanced on the capital markets through a public securitization transaction and the resulting instruments are sold to Natixis’ investor clients.
A counter-analysis is then carried out by the Risk Department and, if necessary, a quantitative analysis of the portfolio’s default risks. Transactions are examined and decisions are made based on all of the loan application’s parameters, including the expected profi t margin on the loan, the capital burn and compliance with the current risk policy.
R TABLE 30: EAD BY TYPE OF SECURITIZATION IN THE TRADING BOOK
Synthetic securitization * In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as per Natixis’ registration document fi led on March 14, 2014.
(in millions of euros) Total EAD RWA Capital requirement * In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as per Natixis’ registration document fi led on March 14, 2014.
Trading book * In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as per Natixis’ registration document fi led on March 14, 2014.
3 RISKS AND CAPITAL ADEQUACYSecuritization R TABLE 33: EAD BY S&P EQUIVALENT RATING
R TABLE 35: SECURITIZATION POSITIONS ACCORDING TO THE MAIN CATEGORIES OF UNDERLYING
(a) In accordance with the Ministerial Order of February 20, 2007 (Basel 2) applicable at December 31, 2013 and as per Natixis’ registration document fi led on March 14, 2014.
The Risk Department’s main responsibilities are: V the definition of all applicable risk measurement methods and risk indicators; V the analysis and daily control of market risks and the corresponding reporting for each business; V the validation of valuation models (pricers); V the definition of provisioning and fair value adjustment policies (for liquidity risks, risks related to non-hedgeable parameters, model risks, etc.); V the drawing up and communication of all consolidated reports presented to management and to control and supervisory bodies; V the introduction of standards and procedures common to all entities (subsidiaries and branches) carrying market risks; V the production of the VaR, the stressed VaR, the IRC (the Incremental Risk Charge, see Glossary), the stress tests and the backtesting.
In accordance with the recommendations of France’s Lagarde report, the Risk Department also ensures adherence to the limit notifi cation procedure. This procedure ensures that each trader sends e-mail confi rmation that they belong to the desk where they are authorized to trade and that they agree to the allocated limits.
R To this end, a statistical model has been constructed to track the combined behavior of market parameters affecting portfolio value. The calculation method is based on an econometric model whose standard deviations are calculated as being the maximum (risk factor by risk factor) standard deviations calculated over rolling 12-month and 3-month periods.This method makes VaR more responsive if the markets suddenly become more volatile.
Natixis uses VaR calculated by numerical simulation, based on Monte Carlo-type methodology taking into account a portfolio’s possible non-linear characteristics with respect to different risk factors. Calculation methods are harmonized using a single calculation tool.
The reliability of the VaR is measured regularly through comparison with the changes in the daily trading results, a process also known as backtesting. This exercise allows an ex-post comparison of the potential losses, as projected ex-ante by the VaR, with the actual losses.
As part of changing regulatory standards (Basel 2.5), Natixis implemented a stressed VaR model (SVaR), which is calculated based on a fi xed econometric model over a continuous 12-month period that defi nes the charge that the bank’s current VaR model would generate under a representative crisis scenario relevant to its portfolio, and has calculated an IRC (Incremental Risk Charge) that estimates the migration and default risks of market
3 RISKS AND CAPITAL ADEQUACYMarket risks instruments. The IRC is based on a one-year capital horizon at a 99.9% confi dence level. These indicators are calculated on a daily basis.
Overall stress tests are reviewed on a continuous basis. They are performed daily and can be grouped into two categories: R historic stress tests consist of reproducing sets of changes 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 gage the exposure of the portfolio to known scenarios; R hypothetical stress tests are used to simulate changes in market parameters for all of 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 Department, the front offi ce and Natixis economists.
All market stress test mechanisms (including liquidity stress tests) are defi ned by the Risk Department, which is responsible for defi ning principles, methodology and calibration and scenario choices. The Market Stress Test Committee, which is co-chaired by the Head of Risk and the Head of Global Markets, is responsible for the operational implementation of stress tests and meets on a monthly basis. The Committee validates work to be carried out, its workload and determines the annual IT budget.
The model validation charter defi nes all procedures, scopes (valuation model, market data used, etc.), as well as the various analyses to be carried out, particularly in terms of use (restrictions to certain markets, underlyings, currencies, etc.), recommendations (ranked by importance) and adjustments (to models, exotic parameters, unhedged risk, etc.).
These models may be subject to backtesting and monitoring in terms of quality and solidity to ensure that the applied risk parameters correspond to the value ranges projected upon their validation. These models also undergo a periodic review by the Model Validation Committee, which meets once per quarter. This Committee is tasked with verifying that the bank’s model risks have been properly identifi ed, quantifi ed and supervised and with documenting the follow-up on the recommendations issued in model validation notes.
The chart below presents the trading VaR history between December 31, 2013 and December 31, 2014 for the entire scope and for Workout Portfolio Management after accounting for BPCE’s guarantee, as well as Wholesale Banking’s VaR history.
■ OVERALL NATIXIS VAR INCLUDING THE BPCE GUARANTEE – TRADING PORTFOLIO (1 DAY VAR 99%)
Overall VaR including the BPCE guarantee VaR GAPC including the BPCE guarantee VaR BGC
Overall stress test levels were very slightly down compared to 2013, averaging -€27.9 million at December 31, 2014, versus -€29.5 million at December 31, 2013.
The hypothetical stress test replicating the fall in the stock market indices gave the maximum loss (-€90 million at December 31, 2014).
3 RISKS AND CAPITAL ADEQUACYMarket risks ■ OVERALL STRESS TESTS AS AT DECEMBER 31, 2014 (INCLUDING THE BPCE GUARANTEE)
Em er gi ng m ar ke t c ris is