The Compliance Department is equipped with a set of tools to cover all the areas within its remit, namely: operational analysis tools used in conjunction with KYC tools toV detect money laundering and internal fraud and prevent terrorist financing; data-comparison systems to verify client databases and screenV transactions to ensure compliance with embargoes; tools to track sensitive transactions, keep insider lists, manageV conflicts of interest and detect instances of market abuse.
Conflicts of interest are prevented by: using risk maps to identify situations posing a risk of conflict ofV interest; setting up and monitoring of information barriers;V
Information barriers are put in place and reviewed each time the organizational structure changes in order to prevent the unwarranted circulation of confidential information. These barriers function as partitions between business lines and departments. They limit the circulation of information on a need-to-know basis, which means that information is transmitted only in the customer’s interest and only to employees who absolutely require the information to carry out their duties. These barriers may be organizational, physical or electronic and may be permanent or temporary. Natixis has set up a permanent information barrier separating its Asset Management business activities within Natixis Investment Managers from its other activities.
The version upgrade of the detection tool for Corporate & Investment Banking is also part of this process.
The protection of customers’ interests is a core concern for Natixis that is reflected in the policies of every entity in France and abroad, as well as being included in its Code of Conduct. In all circumstances, employees are required to serve customers with diligence, loyalty, honesty and professionalism, and to offer financial products and services that are appropriate to customers’ abilities and needs.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIRisk management 148 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
There is also a specific procedure for cost and expense information, and key information documents for packaged products to be provided to non-professional clients, thus ensuring Natixis’ compliance with PRIIPS obligations.
The procedures for customer onboarding are in line with the various regulatory requirements governing the prevention of money laundering and terrorist financing and compliance with embargoes and sanctions (AML-CTF), the prevention of corruption (Sapin II) and the prevention of tax avoidance (FATCA and AIE). The onboarding procedures are also designed to protect customers through compliance with MiFID, EMIR and the Dodd-Frank Act.
MiFID 2 and IDD established the principle of product governance, which aims to define and regularly review a target market for all financial instruments and insurance products sold by Natixis and to ensure that the product was sold to the intended target.
The Financial Security Department reports to Compliance and manages the anti-money laundering and counter-terrorist financing (AML/CTF), corruption and fraud prevention framework, and ensures that Natixis and its branches and subsidiaries comply with financial sanctions and embargoes.
Natixis’ financial security was ramped up in numerous ways in 2019: stricter management was implemented for Financial Security’sV AML-CTF system; indicators used by the Financial Security Supervisory CommitteeV (AMLSOC) were enhanced and harmonized for the parent company, subsidiaries and branches, both in France and abroad; Natixis’ Financial Security teams continued to expand and aV Steering and Transformation team tasked with managing key projects, along with the Financial Security Supervisory Committee, was created; the international sanction compliance framework continued to beV enhanced, especially the system for screening transactions and client databases; an oversight Committee for first- and second-level controls thatV contribute to the financial security risk management system was created; the control system was enhanced with the creation and executionV of a second-level permanent control plan for the activities of financial security teams in France and abroad.
In accordance with the regulations in force, Natixis’ AML-CTF system primarily consists of the following items: in-depth and up-to-date information about the businessV relationship, both before onboarding and throughout the relationship; a risk-based approach that categorizes clients based on identifiedV risks; a screening system for client databases and transactions thatV uses automated tools or requests; an oversight system using permanent and periodic controls;V
internal transmission of alerts and suspicions to the departmentV authorized to report suspicions to the relevant financial intelligence units; an employee training and information system.V
Furthermore, the a priori AML-CTF referral criteria used by Natixis S.A.’s Financial Security were strengthened and redefined as part of reinforcing monitoring across the consolidated scope of Natixis S.A. and its subsidiaries. Accordingly, before a transaction or financing can be prepared, an opinion on cases that meet one or more criteria on the list of referral criteria must be provided by Natixis S.A.’s Financial Security.
As for counter-terrorist financing, Natixis continued its work on the CTF risk map based on an assessment of the exposure of Natixis’ business lines, branches and subsidiaries. In addition, the geopolitical watch report is distributed internally, thereby keeping people informed of the latest developments in this area and providing them with guidelines on implementing appropriate vigilance measures and dedicated controls.
The framework draws on measures for verifying client databases and screening transactions with a view to identifying, on an ongoing basis, any person or entity subject to financial sanctions, specifically account freezes or restricted access to bank financing. It makes it possible to freeze the accounts of Natixis customers as quickly as possible. It is also able to prevent any transactions linked to sectors, goods or technologies that are subject to restrictions or bans pursuant to embargo measures. Jurisdictions subject to embargo undergo constant supervision and heightened diligence as part of a prudent and restrictive approach.
Natixis’ Chief Executive Officer is responsible for the corruption prevention program. The anti-corruption framework as a whole is managed and coordinated by a dedicated team within Compliance’s Financial Security Department. It relies on a network of anti-corruption officers within all of Natixis’ business lines, subsidiaries and branches, in France and abroad. Governance is provided through existing Risk Management and Control Committees and through the introduction of specific Committees.
Natixis is also integrated within Groupe BPCE’s IT Systems Security, Business Continuity and Personal Data Protection functions. As such, it applies the policies and methods defined by Groupe BPCE.
The ITSS-BC Department coordinates its activities based on risks. It employs a method which identifies, in terms of operational risk, the risk situations of concern to the business lines and their vulnerable IT assets. Risk assessments may be conducted during the annual review or may be completed as part of work done to support another project. In 2019, ITSS-BC monitored close to 450 business line projects, half of which resulted in specific security requirements being issued in order to better manage risks.
The risk-based approach was also used to help define the 2018-2020 strategic program. This program, named NewSec, is intended to convert the current model, which is mainly based on perimeter security, into an “airport”-type model. Consequently, in 2019, the department continued key projects aimed at better protecting Natixis’ IT assets and improving attack detection.
Natixis’ business continuity framework combines incident management based on their consequences (unavailability of the IT system, sites, or critical skills or suppliers) with emergency measures specific to each scenario (overflowing of the Seine, cyberattack, etc.).
Natixis regularly tests this entire framework using first- and second-level controls, crisis management exercises and backup solution tests.
In addition, Natixis has enhanced its cyber crisis continuity framework by implementing a multi-year testing plan and conducting crisis management drills based on cyber-attack scenarios.
Internationally, in the EMEA and APAC regions, gap analysis and remediation projects related to GDPR and applicable local regulations were conducted and will continue in 2020. As for the AMER region, the function’s organization was restructured and their gap analysis and remediation projects are being prepared for launch in 2020.
Furthermore, the liquidators of Fairfield Sentry Limited and Fairfield Sigma Limited have initiated a large number of proceedings against investors that previously received payments from these funds for share redemptions (more than 200 proceedings have been filed in New York). Some Natixis entities have been named as defendants in some of these proceedings. Natixis deems these proceedings to be entirely unfounded and is vigorously defending its position. These proceedings have been suspended for several years, and in October 2016 the bankruptcy court authorized the liquidators to modify their initial claim. The defendants filed joint responses in May and June 2017. In August 2018, the bankruptcy court ruled on a motion to dismiss filed by the defendants (requesting that the case be dismissed on a preliminary basis and prior to any ruling on the merits). The judge only gave a ruling on one of the merits (that of personal jurisdiction), having found that the latter was missing from the claim made against the defendants. In December 2018, the judge ruled on the motion to dismiss, rejecting the liquidators’ common law claims (unjust enrichment, money had and received, mistaken payment and constructive trust) as well as contractual claims. However, it overturned the motion to dismiss in respect of claims founded on British Virgin Islands’ law, while reserving the right to file a plea for the application of the Section 546(e) Safe Harbor provision. In May 2019, the liquidators appealed the bankruptcy court’s ruling before the District Court. The case is ongoing.
In March 2009, the Paris public prosecutor’s office (Parquet de Paris) launched a preliminary investigation into a complaint filed by Natixis minority shareholders and coordinated by the Association de Défense des Actionnaires Minoritaires (ADAM — Association for the Defense of Minority Shareholders). As the plaintiffs have initiated civil proceedings, a judicial investigation opened in 2010. On February 14, 2017, Natixis came under investigation for false and misleading information on account of two messages sent in the second half of 2007, at the beginning of the subprime crisis.
In June 2014, MPS Foundation (Fondazione Monte dei Paschi di Siena), an Italian foundation, filed a claim against 11 banks, including Natixis, which granted it financing in 2011 at the request of its previous executive officers, on the grounds that the financing thus granted was in violation of its bylaws, which state that MPS Foundation cannot hold debt exceeding 20% of its total balance
In addition, UFC-QUE CHOISIR, in its capacity as a consumers’ rights non-profit, brought claims before the Paris District Court on March 5, 2018 against the asset management company to obtain compensation for the financial losses suffered by the holders of the formula funds in question. The case is ongoing.
In December 2015 the South African Strategic Fuel Fund (SFF) entered into agreements to sell certain oil reserves to several international oil traders. Contango Trading S.A. (a Natixis subsidiary) provided funding for the deal.
In its decision of December 17, 2019, the Competition Authority ruled that Natixis had participated in two practices designed to keep new entrants out of the meal voucher market: the exchange of confidential information and the adoption of a series of agreements intended to lock up the market.
Natixis Intertitres received a fine of €4,360,000, along with two other fines totalling €78,962,000, jointly and severally with Natixis.
On September 25, 2019, the Enforcement Committee fined NIM International €2 million. The case is now closed.
Given the predominance of the Investment Solutions activity, the main risks to which Natixis Assurances is exposed are financial. The Company is also exposed to underwriting risks (for both Life and Non-Life Insurance), as well as counterparty risk.
To manage market risk, the sources of return have been diversified, namely via investments in new asset classes (financing the economy, infrastructure, etc.). This diversification is managed by a strategic allocation, defined on a yearly basis, that takes into account regulatory constraints, commitments to policyholders and commercial requirements.
Credit risk is monitored and managed in compliance with Natixis Assurances’ standards and internal limits. At December 31, 2019, 67% of the fixed-income portfolio is invested in securities rated equal to or higher than A-.
The counterparty risk to which Natixis Assurances is exposed mainly concerns reinsurance counterparties. The selection of reinsurers is a key component of managing this risk: Natixis Assurances deals with reinsurers that are subject to aV financial rating by at least one of the three internationally recognized rating agencies, and that have a Standard & Poor’s equivalent rating of A- or higher; using several reinsurers ensures counterparty diversification andV limits counterparty risk.
Credit risk is defined as the risk of loss, due to non-payment by a debtor, of a receivable owed to a policyholder of the group. Coface manages credit risk through a number of procedures, whose scope includes the approval of the terms of policies relating to products, pricing, monitoring of credit risk hedges and portfolio diversification. The concentration of exposure (country, sector, debtors, etc.) may exacerbate credit risk. Traditionally, Coface makes a distinction between frequency risk and event risk: frequency risk represents the risk of a sudden material increase inV delinquency by numerous debtors. This risk is measured for each region and country by monitoring the instantaneous loss ratio(1). As regards exposure and portfolio monitoring, the Group has set up a refined management of its risks Accordingly, delinquent payments are analyzed weekly by the Senior Management Committee and monthly by the Group Underwriting Committee. Loss ratios for the different underwriting regions are also monitored at the consolidated Coface level; event risk represents the risk of abnormally high losses recordedV for the same debtor or group of debtors, or of an accumulation of losses for the same country. Event risk is covered by Coface Re reinsurance.
In addition to weekly and monthly monitoring of each region and country, Coface has implemented a system based on: the centralization of reserves for claims exceeding a certainV amount per debtor which are then analyzed ex-post to improve the information, underwriting and recovery activity’s performance; monitoring at the risk underwriting level, which, above a given levelV of outstandings based on the Debtor Risk Assessment (DRA), generates an approval and the establishment of an overall budget by Coface’s Underwriting Department; and a DRA-based risk assessment system covering all debtors.V
The following chart shows the breakdown of debtors by total credit risk exposure incurred by Coface at December 31, 2019: €5M- €50M
The instantaneous loss ratio is a weekly indicator that reproduces the change in the loss ratio. It is monitored for each region and each country and is reported weekly by (1) Coface to allow underwriters to monitor the change in their portfolio and detect any deterioration and therefore introduce corrective actions as early as possible.
Strategy risks is defined as: the risk inherent to the strategy chosen; orV
Strategy risks are monitored by the Board of Directors, supported by its Strategic Committee, which examines the strategies guiding Natixis’ activities at least once a year. The Board of Directors also approves strategic investment projects and any transactions, particularly acquisitions and disposals, that are likely to significantly affect Natixis’ results, the structure of its balance sheet or its risk profile.
Regulation (EU) No. 575/2013 of the European Parliament and Council of June 26, 2013 (Capital Requirement Regulation or CRR) requires reporting companies (notably lending institutions and investment firms) to publish quantitative and qualitative information on their risk management activities. The framework in place to manage Natixis’ risks and risk exposure is described in this section and in the “Risks Management” section of this registration document.
Since January 1, 2014, the Capital Requirements Directive (CRD) IV and the Capital Requirements Regulation (CRR) have applied Basel 3 regulations in Europe. The CRD IV was enacted into French law by the French Ministerial Order of November 3, 2014.
This regulatory framework, aimed at reinforcing the financial strength of banking institutions, has resulted in: a stricter definition of the capital items eligible to meet regulatoryV capital requirements; reinforced regulatory capital requirements, in particular forV counterparty risk on derivatives; higher ratios to observe, specifically regarding CET1 capital andV capital buffers: a capital conservation buffer, which represents 2.5% of total riskV exposures, a countercyclical capital buffer, i.e. the average of theV countercyclical capital buffer of each country in which Natixis holds risk exposures, weighted by the amount of said exposures. The rate applied in France in 2019 is 0.25%, a systemic risk buffer, i.e. an additional requirement for globalV systemically important banks (G-SIBs), such as BPCE. Natixis is not subject to this buffer; in addition, other mechanisms have been introduced, includingV mechanisms to limit dividend payouts, interest on Additional Tier One (AT1) subordinated debt and variable compensation (Maximum Distributable Amount, or MDA).
Finally, as of November 2014, the European Central Bank is directly responsible for supervising significant European banks. The implementation of this new supervisory framework has continued since then. Drawing on the Supervision Review and Evaluation Process (SREP), the ECB is setting ratio levels for each institution to observe. Each institution under its purview is assigned a Pillar 2 Requirement (P2R) as well as Pillar 2 Guidance (P2G).
In accordance with Article 19 of the CRR, the regulatory consolidation scope is established based on the following principles: Entities, excluding insurance companies, that are fully consolidated or consolidated under the equity method in the statutory consolidation scope (see — Note 19 of Chapter 5.1) are included in the regulatory consolidation scope; the Group’s insurance companies are accounted for under the equity method in the regulatory consolidation scope.
Financial assets at fair value through profit or loss 228,802 228,789 28,730 151,587 3,156 196,925
Loans and receivables due from banks and similar items at amortized cost 48,115 47,558 45,622 1,936 4,345
Customer loans and receivables at amortized cost 71,089 72,303 68,669 3,634 205 1,903
Financial liabilities at fair value through profit or loss 218,279 216,988 (0) 156,347 154 169,503 41,814
Deposits and loans due to banks and similar items 71,927 70,376 5,532 2,191 64,845
Note: Carrying values under scope of regulatory consolidation do not equal the sum of risk type breakdown. An exposure can be subject to several risk types.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 160 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Coface Deutschland (formerly Coface Kredit) – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Germany
Coface Services Austria Full consolidation Equity method Receivables management and data Austria
Coface UK – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services United Kingdom
Coface UK Holdings Limited Full consolidation Equity method Holding company United Kingdom
Coface UK Services Ltd Full consolidation Equity method Receivables management and data United Kingdom
Coface Belgium – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Belgium
Coface Holding America Latina S.A. Full consolidation Equity method Financial data Mexico
Coface Argentina -BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Argentina
Seguradora Brasileira CE (SBCE) Full consolidation Equity method Credit insurance and related services Brazil
Coface Chile – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Chile
Coface Ecuador – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Ecuador
Coface Canada – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Canada
Coface Services North America, Inc. Full consolidation Equity method Holding company United States
Coface Poland (formerly ÖKVC Poland) – BRANCH (Coface Europe) Full consolidation Equity method Insurance Poland
Coface Romania Insurance – BRANCH (Coface Europe) Full consolidation Equity method Insurance Romania
Coface Czech Insurance – BRANCH (Coface Europe) Full consolidation Equity method Insurance Czech Republic
Coface Czech Insurance – BRANCH (Coface Europe) Full consolidation Equity method Insurance Slovakia
Coface Technologie – Roumania – BRANCH (Coface Europe) Full consolidation Equity method Data services Romania
Coface Japan – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Japan
Coface Hong Kong – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Hong Kong
Coface Israel (BRANCH Coface Europe) Full consolidation Equity method Credit insurance Israel
Coface Taiwan – BRANCH (Coface Europe) Full consolidation Equity method Credit insurance and related services Taiwan
FCT NA F ECO IMM II Full consolidation Equity method Insurance investments (Securitization funds) France
Allocation Pilotée Équilibre C Full consolidation Equity method Insurance investment mutual fund France
MIROVA EUROPE ENVIRONNEMENT C Full consolidation Equity method Insurance investment mutual fund France
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 162 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Each category comprises liability items extracted from the consolidated financial statements and restated by automatically applying deductions, either directly or subject to thresholds.
deferred tax assets dependent on future earnings, but not relatedV to temporary differences.
Detailed information on the debt instruments recognized in Additional Tier 1 capital and their characteristics at December 31, 2019, as required by Commission Implementing Regulation No. 1423/2013 (Annex II), is available on the Natixis website (www.natixis.com).
T2 capital comprises: subordinated debt instruments recognized as T2 capital afterV applying phase-in arrangements; deductions made from this category;V
o/w portion not including tax loss carry-forwards and impact of netting 459
Pursuant to Commission Implementing Regulation (EU) No. 1423/2013, the audit trail of regulatory capital as described in Appendix IV of the regulation is provided below.
Common Equity Tier 1 capital: instruments and reserves 1 Capital instruments and the related share premium accounts 9,296 26 (1), 27; 28, 29, EBA list, 26 (3)
Accumulated other comprehensive income (and other reserves, to include unrealized gains and losses under the applicable accounting standards) 2,491 26(1)
5 Minority interests (amount allowed in consolidated CET1) 0 84 5a Independently reviewed interim profits net of any foreseeable charge or dividend 920 26 (2)
6 Common Equity Tier 1 (CET1) capital before regulatory adjustments 16,457 Sum of lines 1 to 5a
Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) (696) 36 (1) (C), 38 11 Fair value reserves related to gains or losses on cash flow hedges (3) 33 (1) (a)
14 Gains or losses on liabilities at fair value resulting from changes in own credit standing (61) 33 (1) (b)
20a Exposure amount of the following items which qualify for a RW of 1,250%, where the institution opts for deduction 36 (1) (k)
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) 0 36 (1) (c), 38, 48 (1) (a)
Other deductions (including irrevocable SRF (Single Resolution Fund) and DGS (Deposit Guarantee and Resolution Fund) payment commitments) (123)
25b Foreseeable tax charges relating to CET1 items (negative amount) 36 (1) (l)
Additional Tier 1 (AT1) capital: instruments 30 Capital instruments and the related share premium accounts 1,791 51, 52 31 o/w classified as equity under applicable accounting standards 1,791 32 o/w classified 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 374 486 (3)
Direct, indirect and synthetic holdings of AT1 instruments of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions) (negative amount) (22) 56 (d), 59, 79 41 Empty set in the EU
43 Total regulatory adjustments to Additional Tier 1 (AT1) capital (22) Sum of lines 37 to 42 44 Additional Tier 1 (AT1) capital 2,143 Line 36 plus line 43 45 Tier 1 capital (T1 = CET1 + AT1) 13,311 Sum of lines 29 and 44
Tier 2 (T2) capital: instruments and provisions 46 Capital instruments and the related share premium accounts 2,950 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 46 486 (4)
Holdings of the T2 instruments and subordinated loans of financial sector entities where those entities have reciprocal cross holdings with the institution designed to artificially inflate the own funds of the institution (negative amount) 0 66 (b), 68
Capital ratios and buffers 61 Common Equity Tier 1 (as a percentage of total risk exposure amount) 11.28% 92 (2) (a)
63 Total capital (as a percentage of total risk exposure amount) 15.73% 92 (2) (c)
Institution specific buffer requirement (CET1 requirement in accordance with Article 92 (1) (a) plus capital conservation and countercyclical buffer requirements, plus systemic risk buffer, plus the systemically important institution buffer expressed as a percentage of risk exposure amount) 2.711% CRD 128, 129, 130, 131, 133 65 o/w capital conservation buffer requirement 2.500%
Direct and indirect holdings of the capital of financial sector entities where the institution does not have a significant investment in those entities (amount below 10% threshold and net of eligible short positions) 221
Direct and indirect holdings by the institution of the CET 1 instruments of financial sector entities where the institution has a significant investment in those entities (amount below 10% threshold and net of eligible short positions) 496 36 (1) (i), 45, 48 74 Empty set in the EU
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) 410 36 (1) (c), 38, 48
Credit risk adjustments included in T2 in respect of exposures subject to standardized approach (prior to the application of the cap) 0 62 77 Cap on inclusion of credit risk adjustments in T2 under standardized approach 13,299 62
81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) 0 484 (3), 486 (2) and (5)
83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) 0 484 (4), 486 (3) and (5)
85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) 0 484 (5), 486 (4) and (5)
In accordance with the Basel 3/CRR regulatory framework, under Pillar I these ratios must exceed the minimum limits of 4.5%, 6% and 8%, respectively, in addition to the cumulative safety buffers of 7.21%, 8.71% and 10.71%, respectively for 2019, and of 7.34%, 8.84% and 10.84%, respectively for 2020.
(in millions of euros) 2019 o/w impact of the disposal of the SFS division to BPCE
Amount of Additional Tier 1 (AT1) capital at end of period 2,143
Common Equity Tier 1 (CET1) capital totaled €11.2 billion at December 31, 2019, down slightly by -€0.8 billion over the year attributable notably to: common net income (excluding the capital gain following theV disposal of the retail banking activities) net of dividends forecast at +€0.3 billion; changes in other items of comprehensive income (recyclableV gains and losses directly recognized in shareholders’ equity and exchange rate effect relating to changes in the euro/dollar exchange rate) for +€0.4 billion; prudential deductions relating to goodwill and intangible assetsV (-€0.1 billion), deferred tax assets on losses carried forward (-€0.1 billion) and, for the first time in 2019, security deposits to the SRF and DGS (-€0.1 billion); perpetual deeply subordinated notes (pay and conversion impact)V for -€0.2 billion.
Tier 2 capital came down slightly to €2.3 billion, the discount on issuance totaling €0.1 billion for the period.
At €99.0 billion, risk-weighted assets decreased by -€10.2 billion in 2019.
(in billions of euros) Credit Risk CVA Market risk Operational risk Total RWA
The €9.9 billion decrease in credit risk over the period was primarily due to the following factors: the disposal of the retail banking business of the SpecializedV Financial Services (SFS) division and its acquisition by BPCE S.A. in the first quarter of 2019 (-€12.7 billion), offset by acquisitions in Asset Management (WCM Investment Management, Fiera Capital and Massena Partners), mergers and acquisitions (Azure Capita) and payments (Titres Cadeaux) for +€1.0 billion; the impact of the appreciation of the euro against the dollarV (+€0.3 billion); an increase in outstandings (+€5.8 billion) concentrated inV Corporate & Investment Banking; the impact of risk inputs (-€1.8 billion), mainly due to the reductionV of exposure maturities; a guarantee impact of -€1.5 billion.V
Market risk was up by +€1.6 billion, mostly on the approved scopes, to €11.2 billion at December 31, 2019.
Operational risk decreased by -€1.6 billion. This decrease was related to the disposal of the SFS entities (-€2.0 billion), offset by the replacement of the benchmark indicator for 2019 with that of 2016 (+€0.4 billion), the average calculation using the average indicator for the previous three years.
Including counterparty risk.(a) Of which €32 million of settlement-delivery risk of €1,336 million in CVA RWA.(b) Including Treasury & Collateral Management.(c) Including Financial Investments of €5,440 million.(d)
Capital planning today serves to pre-empts short- to medium-term changes: the entry into force of the new CRR2/CRD5 package, and the implementation of the new BRRD2/SRMR2 resolution provisions as part of the SRB policies.
The Basel Committee has set up a system for managing leverage risk. The system was included in the CRR, defining leverage as being equal to Tier 1 capital divided by on-balance sheet exposures (after certain restatements, notably on derivatives and repurchase agreements) and off-balance sheet exposures (after applying balance sheet equivalent conversion factors). The CRR was amended by a Delegated Act, which entered into force on March 31, 2015. The reporting templates that take those amendments into account have only been used since September 30, 2016, in accordance with the implementation deadlines.
Natixis is already prepared to calculate and publish its leverage ratio (according to the rules set out in the Delegated Act) and to implement the actions needed to converge towards the target ratio under consideration.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 170 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Adjustment for securities financing transactions (repurchase transactions and other types of collateralized loans) (15,612) (17,774)
Accordingly, Natixis established: a governance system under the authority of the ALM Committee,V chaired by the CEO, for managing and monitoring excessive leverage risk (see section 3.2.7.1); a dedicated risk policy for excessive leverage risk; notably, the ALMV Committee decided to test a “Financial Communication” leverage ratio (excluding intra-group transactions from the calculation base) of above 4% at each quarter end, to ensure compliance with the minimum regulatory requirement of 3% as applied to the “strict” ratio.
In accordance with the operational oversight established by the Financial Management Department, Natixis met the target it had been set.
On-balance sheet items (excluding derivatives and SFTs, but including collateral) 250,582 238,045
TOTAL ON-BALANCE SHEET EXPOSURES (EXCLUDING DERIVATIVES AND SFTS) (SUM OF LINES 1 AND 2) 245,416 233,104
Replacement cost associated with all derivative transactions (i.e. net of eligible cash variation margin) 7,618 6,686
(Deductions of receivables assets for cash variation margin provided in derivatives transactions) (14,134) (11,597)
Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions 95,448 99,107
OTHER OFF-BALANCE SHEET EXPOSURES (SUM OF LINES 17 AND 18) 38,494 39,614
Total leverage ratio exposures (sum of lines 3, 11, 16 and 19) 381,876 372,964
Of which the advanced IRB (A-IRB) approach 33,892 34,810 2,711 o/w equity IRB under the simple risk-weighted approach or the IMA 16,402 14,507 1,312 o/w mark to market 1,496 1,678 120 o/w original exposure o/w the standardized approach o/w internal model method (IMM) 3,037 2,338 243 o/w risk exposure amount for contributions to the default fund of a CCP 234 185 19
o/w the standardized approach 1,246 1,619 100 o/w the standardized approach 5,378 5,185 430
Credit risk (excluding CCR) 11,597 o/w the standardized approach 8,185 o/w the foundation IRB (F-IRB) approach 701 o/w the advanced IRB (A-IRB) approach 2,691 o/w equity IRB under the simple risk-weighted approach or the IMA 20
SMEs included in exposures secured by mortgages on immovable property category
Claims on institutions and corporates undergoing a short-term credit assessment 2 13 153 8 177
Claims on institutions and corporates undergoing a short-term credit assessment 103 2 2
IRB – Internal rating – effect on RWA of credit derivatives used as CRM techniques (CR7)
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 176 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Central governments or central banks 27,592 30,595 o/w Specialized Lending 23,085 22,754
Claims on institutions and corporates undergoing a short-term credit assessment 103 143
Central government or central banks 9,946 2,715 494 97 55 444 182 10,455 71 288 808 38 345 66 825 762 27,592
Claims on institutions and corporates undergoing a short-term credit assessment 58 22 5 9 9 103
Sub-total SA 31/12/2019 by geographic area 63,513 1,100 5,089 2 89 1,222 1 34 71,051
Included in category A: Other countries for which the sum (Exposure+Provision) is less than €4 billion.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 180 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
MOODY’S Long term 1 Aaa to Aa3 20 3 Baa1 to Baa3 100 4 Ba1 to Ba3 100 6 Caa, Ca, C 150
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 184 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
S&P Long term 1 AAA to AA- 20 2 A+, A, A3 BBB+ to BBB-
Secured by mortgages on immovable property 217 9 217 5 91 41%
Claims on institutions and corporates undergoing a short-term credit assessment 99 6 99 1 46 46%
Claims on institutions and corporates undergoing a short-term credit assessment 57 26 7 10 100
Of which €46,912 million in exposure to BPCE Group affiliates and excluding exposures to the French Government at 31/12/2019.*
Claims on institutions and corporates undergoing a short-term credit assessment 100% 0% 0% 100% 19.0%
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 188 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Retail 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10 to <100 100.00 (default)
Retail – qualifying revolving 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10 to <100 100.00 (default)
0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10 to <100 100.00 (default)
Retail – Residential mortgage exposures 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10 to <100 100.00 (default)
Other retail exposures 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10 to <100 100.00 (default)
Type and nature of exposure (in millions of euros) IRB Approach Standardized approach Total at 31/12/2019 Total at 31/12/2018
Internal Model Method (for derivatives and SFTs) 9,605 1.4 13,447 3,029
SA – CCR EAD by regulatory portfolio and risk weight (CCR3)
Claims on institutions and corporates undergoing a short-term credit assessment 13 96 14 122
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 194 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 196 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Securitization positions classified under “Available-for-sale assets” are measured at their market value and any changes, excluding income recognized using the effective interest method, are recorded in a specific line in equity. Securitization positions (classified as debt instruments) are tested for impairment at each reporting date and an impairment charge is recorded under “Provisions for credit losses”.
Securitized assets are derecognized when Natixis transfers the contractual rights to receive the financial asset’s cash flows and nearly all the risks and benefits of ownership.
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 198 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
EAD according to Natixis’ role in the securitization trading book (NX31-B)
Securitization exposures in the banking book and associated capital requirements –
3 RISK FACTORS, RISK MANAGEMENT AND PILLAR IIIBasel 3 Pillar III disclosures 200 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Average of the IRC number over the preceding 12 weeks 268 21
Most recent risk number for the correlation trading portfolio (Article 377)
The following information is provided in accordance with Commission Delegated Regulation (EU) 2017/2295 of September 4, 2017, which established technical regulations for the disclosure of encumbered and unencumbered assets.
Assets of the reporting institution 52,229 20,705 350,228 18,387 of which: asset-backed securities 0 0 0 0 426 0 426 0 of which: issued by general governments 6,588 6,415 6,588 6,415 9,897 9,879 9,897 9,879 of which: issued by financial corporations 5,719 0 5,719 0 3,051 0 3,051 0 of which: issued by non-financial corporations 1,003 99 1,003 99 1,672 559 1,672 559
Collateral received by the reporting institution 166,667 149,808 55,531 18,448 of which: covered bonds 1,963 1,449 935 630 of which: asset-backed securities 7,274 3,273 3,345 427 of which: issued by general governments 115,718 115,458 13,770 13,070 of which: issued by financial corporations 2,716 0 2,217 0 of which: issued by non-financial corporations 2,146 590 2,943 904
Natixis considers that the following assets may not be encumbered in the normal course of its business: loans on demand (€29,034 million at 31/12/2019, i.e. 8% ofV unencumbered assets); derivatives (€61,219 million at 31/12/2019, i.e. 17% ofV unencumbered assets).
These new rules were enacted in the European Union through Regulation (EU) No. 575/2013 of June 26, 2013, which laid down the filing obligations in force during the observation period from January 1, 2014 and set forth the conditions of implementation of these prudential requirements. For the LCR, Delegated Regulation (EU) No. 2015/61, published on October 10, 2014, entered into force on October 1, 2015. The NSFR, which the Basel Committee wants to have applied as a minimum requirement from 2018, was implemented in Europe via Regulation (EU) 2019/876 (“CRR2”), which will enter into force, in respect of the NSFR, on June 28, 2021.
To date, European regulations require: compliance with the LCR as from October 1, 2015; requiredV minimum ratio of 80% on January 1, 2017 and 100% from January 1, 2018; quarterly statements on stable funding, which are entirelyV descriptive (amounts and terms) without any weighting applied.
Commission Delegated Regulation (EU) 2015/61 of October 10, 2014 defines liquid assets and the criteria they must meet to be eligible for the liquidity buffer used to cover funding needs in the event of a short-term liquidity crisis.
The liquid asset buffer – in the regulatory sense – is the numerator of the LCR (HQLA) and predominantly consists of: Level 1 liquid assets, i.e. cash deposited with central banks;V
Currency and unit: (in millions of euros) Total non-weighted value (average) Total non-weighted value (average)
Quarter ending on (day month year) 31/03/2019 30/06/2019 30/09/2019 31/12/2019 31/03/2019 30/06/2019 30/09/2019 31/12/2019
Retail deposits and deposits from small business customers, of which: 2,205 2,437 2,581 2,741 220 244 258 274
Non-operational deposits (all counterparties) 48,689 44,483 43,207 41,734 38,635 35,298 34,562 33,588
Collateralized lending transactions (o/w reverse repos) 106,198 105,186 106,793 108,159 12,007 11,930 11,957 11,358
The compensation policy items required in respect of Regulation (EU) 575-2013 (CRR) are provided in Chapter 2 of the present universal registration document.
Article 435 (a) (EBA) CRA – General information about credit risk 115-116
Article 435 (a) (EBA) MRA – Qualitative disclosure requirements related to market risk 127 to 130
Article 436 (b) EU LI3 – Differences between consolidation scopes (entity by entity) 160-161
Article 436 (b) EU LIA – Explanations of differences between accounting and regulatory exposure amounts 157 to 161
Art. 438 (c), (d), (e) and (f) NX01 – EAD, RWA and EFP by approach and by Basel exposure class 124
Article 442 (a) and (b) CRBA – Additional disclosure related to the credit quality of assets 263 to 282
Article 453 (f) and (g) (EBA) EU CR3 – Credit risk mitigation techniques – Overview 174
Article 442 (c) (EBA) EU CRB-B – Total and average net amount of exposures 176
Article 442 (d) (EBA) EU CRB-C – Geographical breakdown of exposures 177
Article 442 (e) (EBA) EU CRB-D – Concentration of exposures by industry or counterparty type 178
Article 444 (e) (EBA) EU CR5 – EAD by asset class and risk weight 185
Article 452 (e) (h) and (j) (EBA) EU CR6 – IRB – Credit risk exposures by portfolio and PD range 187
Article 453 (g) (EBA) EU CR7 – Internal rating – Effect on RWA of credit derivatives used as CRM techniques 174
Article 439 (e), (f) and (i) (EBA) EU CCR1 – Analysis of counterparty credit risk (CCR) exposure by approach 192
Article 452 (e) (EBA) EU CCR4 – CCR exposures by portfolio and PD scale 193
Article 439 (g) and (h) (EBA) EU CCR6 – Credit derivative exposures 195
Article 439 (e) and (f) (EBA) EU CCR8 – Exposures to CCPs 195
(BCBS) SEC4 – Securitization exposures in the banking book and associated regulatory capital requirements – bank acting as investor 199
Article 446 (BCBS) ORA – General qualitative data on operational risk management 134-135
Article 99(5) and article 413(3) (EBA) GOV – Sovereign exposures 180
Transition from shareholder’s equity to prudential capital after applying phase-in arrangements 163
Geographical distribution of credit exposures used in the countercyclical buffer (CCYB1) 166
Changes in prudential capital after applying phase-in arrangements for the period 167
EAD by category and by agency – standardized approach (NX11 BIS) 173
Concentration of exposures by industry or counterparty type (EU CRB – D) 178
Credit quality of performing and non-performing exposures by days past due (NPL3) 181
Risk weights used under SA by category of exposure and by rating grade (CRD-D) 183
Credit risk exposure and credit risk mitigation under SA (EU CR4) 185
Indicative correspondences between internal ratings based on expert judgment and external agency ratings (corporates, banks, Specialized Financing institutions) 118
Statements of credit risk exposure under the IRB approach (EU CR8) 186
Analysis of exposure using counterparty credit risk approach (EU CCR1) 192
Securitization exposures in the banking book and associated capital requirements – Bank acting as investor (SEC4) 199
Macroeconomic context4.1.1 2019 was a year of heightened political and geopolitical uncertainty: the trade war between China and the US, the absence of a Brexit deal and the subsequent political fallout in the UK, the magnitude of the slowdown in China, European elections and the rise of populism, and the Iran-US crisis. Global growth was hit hard, and by summer 2019 the 2019-2020 outlook was revised downward. Nevertheless, the final weeks of 2019 rekindled hopes of a trade agreement between China and the US, and of the UK making an orderly exit from the European Union.
The raising of tariff barriers combined with the prospect of a no-deal Brexit had a direct impact on export volumes and an indirect impact on business. Trade in goods looks set to post just 1.5% annual growth, its lowest since 2015. Global manufacturing output teetered near recession with the PMI manufacturing index dropping below 50 for six consecutive months (averaging 49.6 between May and October), before making a feeble comeback in the last two months of the year. Services output continued to rise, but on the whole was significantly slower over the period.
Global growth will therefore have dropped to its lowest since the recession: Natixis estimates global GDP growth of just 3.1% versus 3.7% in 2018. Current data indicate that US GDP decelerated from 3.1% on average over the first three quarters of 2018 to 2.3% for the same period in 2019. The euro zone experienced a similar slowdown, dropping from 2.1% to 1.3%. Internal growth was resilient, however, and helped to offset the impact of a bleak global environment and the recession in German manufacturing. France’s growth also proved sturdy, stabilizing at close to 1.3% year-on-year. Annual GDP growth in China reached the 6% threshold in the third quarter of 2019. Despite fiscal and monetary stimulus, China’s growth in the first nine months of 2019 averaged 6.2% compared with 6.7% year-on-year. Meanwhile, the economic situation of most emerging economies deteriorated in 2019. Standing out from the crowd was Japan, whose growth accelerated from 0.5% in 2018 to 1.2% in 2019 over the first nine months of the year.
The economic slowdown, together with relatively low oil prices, kept inflation at low to very low levels. Brent crude averaged €64.20 a barrel in 2019, down 10% on 2018, despite a year-on-year average of +14% in December. Moreover, trade barriers have so far had little impact on inflation, which remained at a modest 2.2% and 1.2% for the US and the euro zone respectively.
In summer 2019, the main central banks (the Fed and the European Central Bank) made a policy U-turn by postponing the end of quantitative easing and holding off on hiking interest rates, thereby delaying the normalization of monetary policies. Faced with slower growth, persistent risks and low inflation, central bank policies were
Despite numerous uncertainties and worsening macroeconomic conditions in 2019, virtually all stock market assets posted outstanding double-digit gains in the wake of this fresh wave of monetary easing. The MSCI World USD index recorded its best performance since 2009 (+25%), as did the Euro Stoxx (+23%). The S&P 500 gained close to 29%, and the CAC40 close to 26%. Also reflecting the unique dynamism of 2019 was the fact that the noteworthy performance of risk assets was matched by the equally strong performance of bonds, especially in the US.
Natixis also continued to roll out its New Dimension strategic plan aimed at enhancing its value-added solutions for its clients.
To offer a complete range of services to both French and international UHNWI (Ultra High Net Worth Individuals) / HNWI (High Net Worth Individuals), it is pursuing the transformation of its business model via: the “One Bank” cross-business structure, which has been rolled outV and is improving interactions between the two banks, in France and in Luxembourg, as well as the two asset management companies. The functions that were created have streamlined operational processes and improved collective efficiency; the acquisition of Massena Partners in June. The offering wasV rounded out to include unlisted stock, which clients value and more generally provides a means of diversification. It now offers private equity co-investment funds and a real estate deal club, among others; the Insurance platform continues to stand out as a recognizedV partner to the networks thanks to its increasingly digitized solutions. Satisfaction surveys in progress already show that paperless documentation has enhanced the customer experience.
the implementation of a collective bargaining agreementV procedure has helped to better adapt the workforce following the sale of Sélection 1818 in 2018.
It continued to develop its expertise in green finance through the Green & Sustainable Hub, which assists clients in their energy transition. Of note, Natixis launched its Green Weighting Factor, making it the first bank to actively steer the impact of its balance sheet on climate. Any “green” financing granted by Corporate & Investment Banking is now awarded a bonus, whereas internal profitability is reduced for any “brown” (i.e., high carbon, climate risk inducing) financing. Ultimately, Natixis is aiming for a financing trajectory that is consistent with the objectives of the Paris Agreement on climate change.
Natixis received numerous awards for its expertise and innovation capabilities in the “green” sector: “Deal of the Year” at the SRP Europe Awards Ceremony 2020; “Social Loan of the Year” and “Green Bond of the Year” at the IFR Awards 2019.
Its three international platforms continued to expand while extending their expertise and increasing their visibility: In Asia-Pacific, Natixis expanded its M&A advisory services by making a strategic investment in Azure Capital (see below). It also broadened its franchise in the infrastructure sector by funding its first offshore wind farm (WPD Offshore), and also did its first infrastructure financing project in Taiwan.
strengthen its expertise in structured finance, acquisition finance and Capital Markets. It also developed a new activity to extend the lending business to asset management companies.
It sold its banking license in Brazil where it now has a representation office. It also obtained its broker dealer license in Houston.
Natixis ranked No. 8 on the US market for CLO arrangers (sources: Bloomberg/Reuters). LatinFinance magazine also awarded Natixis the “Infrastructure Bank of the Year — Mexico” for the second year running.
The London branch worked on its post-Brexit road map which aims to refocus its resources on UK clients. It also developed initiatives to encourage diversity and inclusion.
Business increased significantly on the credit market. In fixed income, the financial advisory and engineering team created bespoke solutions for its clients, in particular structures that enable growth in a persistently low interest rate environment and amid macro-economic uncertainties. In Equity Derivatives, Natixis continued to flesh out its offering with the addition of thematic indices, such as a water index, for instance.
In its four strategic sectors, Natixis increased its support for its customers by providing a continuum of solutions ranging from financing and investment banking to advisory services. The three business lines Real Assets (Aviation, Infrastructure, Real Estate & Hospitality), Energy and Natural Resources and Distribution and Portfolio Management generated robust activity in both origination and distribution.
The Aviation maintained its strong momentum thanks to innovative structures, particularly in securitization: In 2019, Natixis was voted Bank of the Year in Asia-Pacific by Airline Economics. This award underscored the quality and volume of funds raised by Natixis for its clients in the Asia-Pacific region in 2019.
Natixis also sets itself apart through its commitment to green and SRI finance. It is, in fact, one of the leading issuers of sustainable and green home loans.
Natixis completed a number of landmark deals on a highly active bond market in 2019. Natixis, which signed the Principles for Responsible Banking in September 2019, deepened and demonstrated its commitment to funding the green transition with all categories of issuers. Of note, it won The Banker magazine’s 2019 Deal of the Year award for the Danone social bond issue.
The equity capital markets did brisk business in France and furthered their development with multiple large-scale transactions. On the IPO market, where volumes were on the relatively low side with a very small number of deals, Natixis was Française des Jeux’s global coordinator for France’s largest IPO of the decade (€1.9 billion) and first privatization in 15 years. In 2019, Natixis/ODDO-BHF was ranked No. 1 (first equal) on the IPO market in France (source: Natixis), by number of deals and by volume; No. 3 bookrunner by number of deals, and No. 4 by euro amount on the French equity capital market (source: Bloomberg).
In 2019 the Insurance division reached an important milestone of its New Dimension strategic plan by running major strategic projects that demonstrate the transformation of Natixis Assurances.
Lastly, as part of the #Pop’Timiz project aimed at pooling non-life Middle and Back office activities for the Banque Populaire banks and the Caisse d’Epargne banks, the APS platform was rolled out across the Banque Populaire network in 2019.
In Payments, a key milestone in the construction of the division was reached in 2019 with the creation of a Fintech Campus. This crown jewel for the division topped of the merger and synergy creation initiatives under way for the last several months. Fintech Campus has already welcomed S Money since summer 2019 and by 2021 will host all Payment fintechs, creating a unique space dedicated to innovation and new payment methods. The division kept the recruitment momentum, completing its range of expertise and contribute new essential skills for its development (data, marketing, growth hacking, pricing).
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2019 216 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
driven by strong growth in payment solutions for which transactionV processing volumes continued to rise at a steady pace (+16% for card authorizations and +11% for transaction cards); and by the volume of NIT issuance, up 7%, after the entity was selectedV by the SNCF for its staff restaurant vouchers.
... and fintech activities: the growth of volumes collected by PayPlug and Dalenys, for instance, reached record a record 83% and 21% in 2019 year-on-year.
This development of the business lines went hand-in-hand with: a 6.4% increase in liquidity needs year-on-year;V
the consumption of Basel 3 RWA was stable year-on-year atV €99.0 billion.
At €8,365 million, net revenues generated by the main business lines were up 2.9% at constant exchange rates versus 2018.
Financial investments net revenues totaled €772 million in 2019, up 4.1% compared with 2018, €712 million of which for Coface.
Recurring expenses totaled €6,632, up 2.4% at constant exchange rates compared with 2018. Asset & Wealth Management expenses were up 3% at constant exchange rates. CIB expenses came down very slightly by -0.3% at constant exchange rates, while those of the Insurance and Payments divisions rose 7% and 8.5% respectively. Financial investments expenses were up 6.5%. Corporate Center expenses were stable at€497 million, despite increasing the contribution to the Single Resolution Fund to €170 million in 2019 versus €160 million in 2018.
Headcount at the end of the period stood at 19,639 FTE, up 3% year-on-year, with a 2% increase for the business lines and Financial investments, and 6% growth for the Corporate Center with the strengthening of the control functions and the expansion of the IT teams in Porto.
At €332 million in 2019, provision for credit losses was up sharply compared with first-half 2018 where it totaled €193 million. The provision for credit losses of the main business lines as a
Change in the value of goodwill reached €5 million in 2019.
The recurring tax expenses came to €669 million in 2019, with an effective tax rate of 22.9%.
Consolidated management ROE after tax (excluding non-recurring items) came to 7.8% in 2019, giving an accounting ROE of 11.1%.
Gross operating income rose 8.4% at current exchange rates (+5.7% at constant exchange rates) to €1,268 million.
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2019 218 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019
Assets under management at end-December 2019 totaled €934.1 billion, up 16% at current exchange rates (+14% at constant exchange rates) compared with December 31, 2018, propelled by a favorable market effect (+€96.0 billion), scope effect (+€32.0 billion), especially after the acquisition of WCM in the second quarter of 2019 (+€34.6 billion), and a positive exchange rate effect (+€7.5 billion), partially offset by net outflows for the year (-€10.0 billion).
The business line posted net outflows of €10.0 business line at current exchange rates, i.e. -€10.0 billion on long-term products over the year: in the US, long-term net outflows of -€4.0 billion stemming mainlyV from Harris Associates (-€10.3 billion on equity products) and Gateway Investment Advisers (-€1.8 billion on alternative products), partially offset by in the US from WCM Investment Management (+€4.8 billion on equity products) and Loomis Sales & Co (+€3.8 billion on equity products); Dynamic Solutions, outflows of -€4.1 billion mainly from equityV products (-€3.6 billion) and structured products (-€1.2 billion); in Europe, net outflows of -€2.3 billion primarily from DNCAV Finance and H2O (-€3.4 billion and -€3.0 billion respectively on diversified products), partially offset by inflows from Mirova (+€3.2 billion on equity products) and AEW Europe (+€0.7 billion on real estate products); small net inflow from Private Equity companies of €69.7 million.V
Natixis IM international Distribution contributes to new long-term inflows of €3.6 billion over the year, while Natixis IM US Distribution posted net long-term outflows of -€10.1 billion.
At €859.2 billion, average assets under management at December 31, 2019 were up (0.4%) compared with last year at constant EUR exchange rates. The rate of return on AuM was slightly down to 29.6 points compared with December 31, 2018 at constant exchange rates.
In 2019, Wealth Management posted net inflows of €0.5 billion mostly on the strength of the B2B Private Banking business brought by the networks, and international wealth management.
Assets under management came to €30.4 billion, up 16% year-on-year, with a €1.5 billion scope effect from the acquisition of Massena. Restated for this effect, AuM increased 11% on 2018.
In 2019, the business line’s net revenues were up 3% to €149 million (+€4.7 million) compared with 2018. Restated for the Sélection 1818 and Massena Partners scope effect, the increase is 8%. This increase is mostly due to a strong level of incentive fees recorded in the last quarter of 2019 (+€6.5 million versus 2018), as well as an increase of 8% in fees on AuM over the period.
At December 31, 2019, net revenues were up 6% to €100 million compared with December 31, 2018 on the back of account administration products, financial management fees and other products (Car Lease business).
Expenses stood at €83 million, up 5% compared with December 31, 2018, largely due to higher IT costs.
Capital Market revenues totaled €1,509 million in 2019, up 11.4% compared with 2018 at constant exchange rates.
Revenues from joint ventures (i.e. with income shared equally between Global Markets and Investment Banking to ensure team alignment) were mixed in 2019.
At €1,408 million, Financing revenues including TTS (Trade & Treasury Solutions) as well as Film Industry Financing (Coficiné) fell 4.8% compared with 2018 at constant exchange rates.
Revenues from Investment Banking, including M&A activities, were up 4.8% year-on-year at constant exchange rates for cumulative revenues of €395 million.
Pre-tax profit stood at €786 million, down 13.1% compared with 2018 at current exchange rates and factoring in a capital loss on the disposal of the Brazil subsidiary (€14.5 million) recognized in the first quarter of 2019 under gains or losses on other assets. Excluding non-recurring items, pre-tax profit totaled €827 million, down 12.9% at constant exchange rates.
ROE after tax totaled 8.4% in 2019, down 1.6 points compared with 2018 (10.0%). Excluding non-recurring items, ROE after tax totaled 8.9%.
Operating expenses edged up 6.8% to €478 million. The increase in expenses, which remained below net revenue growth, reflects business development and the implementation of the New Dimension plan’s strategic ambitions: deployment of a new individual personal protection insurance offering, the ongoing roll-out of strategic non-life insurance projects (#Innove2020, Purple#Care and #Pop’Timiz) and preparation for the implementation of IFRS 17.
Management report at December 31, 2019 221NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019www.natixis.com
The Fintech business saw higher volumes collected by PayPlug and Dalenys, which reached new records of 83% and 21% respectively in 2019.
Payments revenues increased to €422.5 million, up 8.5% (+€33 million) year-on-year thanks to the scope effect of acquiring Comitéo, integrated since April 2018 (+€2.7 million) and Titres Cadeaux, consolidated since January 2019 (+€8.4 million). Driving this growth was the performance of the historical payments and service vouchers businesses, but also the acquired fintech businesses. Parallel to this, the issuance business (NPS and S-Money) contributed €4.9 million to revenue growth with the launch of specific and innovative payment products and services, such as Xpollens.
The expenses of the Payments division totaled €370 million, up 9% compared with 2018, mostly on account of the human, IT and digital investments needed to develop the division.
A – Coface 2019 revenues were up 7% to €1.5 billion compared with 2018 in all the regions thanks to record high customer retention and improved loan production particularly on mature markets. At constant exchange rates and scope, revenues were up 6% compared with 2018 (integration of Coface PKZ since April 2019).
The loss ratio net of reinsurance was 45.0% and was stable versus 2018 (45.1%), the increase in the frequency of claims in the second half of 2019 having been offset by claims in lower unit amounts, as well as by reversals on previous claims.
The combined ratio net of reinsurance was 77.7%, an improvement of 1.9 point related to the favorable development of the net cost ratio (-1.8 point).
Operating expenses grew 6% compared with 2018 to €517 million and up 4% at constant scope and exchange rate, restated for non-recurring expenses under the Fit To Win plan.
In 2019, Natixis Private Equity (run-off) pursued its disengagement strategy and decreased its engagements by 19%.
RWA totaled €155.8 million at December 31, 2019, down 13% compared with 2018 due to distributions and lower valuations.
Corporate Center net revenues totaled +€59 million at end-December 2019 versus +€49 million at end-December 2018.
Exchange rate fluctuations on deeply subordinated notes issued inV dollars stood at +€19 million in 2019 compared with +€48 million the previous year; FVA hedging was valued at +€17 million in 2019 compared withV -€55 million in 2018; Foreign currency earnings from the repatriation to Natixis S.A. ofV accumulated retained income in USD was +€3 million in 2019 from the Dubai branch, compared to +€26 million in 2018 for the New York and Singapore branches.
Expenses from the Corporate Center stood at €497 million in 2019 and in 2018.
The contribution to the Single Resolution Fund totaled €170 millionV for 2019 versus €160 million in 2018; Excluding this item, expenses totaled €327 million in 2019 versusV €337 million in 2018; they essentially comprised: expenses from the support functions net reallocations to theV Natixis business lines for €108 million in 2019, down €16 million compared with the first half of 2018; this expense balance was rebilled through net revenues at €133 million in 2019 and €130 million in 2018, primarily to the entities of BPCE, as part of the services put in place following the disposal of the retail banking activities to BPCE S.A., cross-business expenses of €105 million, up €7 million comparedV with 2018 and linked to various costs.
Gross operating income stood at -€437 million in 2019 versus -€448 million in 2018.
Pre-tax profit was positive at +€258 million in 2019 with the contribution of the capital from the disposal of the retail banking activities to BPCE S.A., representing +€697 million recognized under gains on other assets.
Management report at December 31, 2019 223NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019www.natixis.com
In line with the strategy of the New Dimension plan, in 2019 Natixis pursued a policy of targeted acquisitions in Asset Management and CIB.
Strategic investment in Clipperton in France as part of the strategic reinforcement of Natixis’ expertise in Mergers & Acquisitions consulting
Asset Management Disposal of the Axeltis fund distribution platform to MFEX, together with the signing of a long-term partnership to distribute funds on an open-architecture basis
Asset Management Disposal of a 25% stake in IDFC, bought by the Indian group IDFC who owned the remaining 75%
Corporate Center Disposal of the 15% stake in Caceis to Crédit Agricole S.A., making it the sole shareholder once the transaction is complete. This disposal is entirely consistent with the objectives of the New Dimension strategic plan for 2018-2020, particularly the objective of reducing the Corporate Center’s RWA
Corporate Center Disposal of Ellisphere, a financial data specialist in France and internationally, to investment fund AnaCap. The transaction marks the end of Corporate Data Solutions’ business disposals
On February 6, 2020, the Board of Directors approved the 2019 financial statements. On February 25, 2020, Natixis announced the signing of a preliminary agreement for the sale of 29.5% of its stake in Coface for a unit price of €10.70 per share. After the sale — which, given the regulatory authorizations required, may not be completed until several months after the announcement — Natixis will no longer be represented on Coface’s Board of Directors.
At December 31, 2019, Natixis’ gross operating income stood at +€1.292 million, a -€468 million decrease compared with December 31, 2018, due to a €535 decrease in revenues, and despite a €68 million decrease in operating expenses.
Net interest income rose by +€64 million: +€23 million for business in Mainland France and +€41 million for foreign branches. Net fee and commission income increased by +€27 million, resulting from a +€36 million increase in Mainland France and a decrease of -€9 million in business recorded by foreign branches. This change in fee and commission income can be broken down into +€73 million in net fee and commission income on off-balance sheet transactions, -€22 million on transactions with customers, +€35 million in securities transactions, and -€59 million in financial service or payment instrument transactions.
Dividends paid by Natixis subsidiaries decreased by €570 million, of which -€457 can be attributed to the lower dividend paid by the Asset Management subsidiary Natixis Investment Managers, -€186 million to the dividends paid by the subsidiaries of SFS, sold to BPCE, +€45 million from Natixis Assurances and +€28 million from Coface.
Operating expenses fell €68 million, including -€28 million in payroll costs, -€26 million in external services net of rebilling and -€15 million in costs and taxes.
The net provision for credit losses was up €201 million (of which +€145 million for activity in Mainland France) to -€429 million.
Net income after tax was +€2,242 million versus +€1,834 million in 2018.
Natixis’ financial statements at December 31, 2019, showed positive net income of €2,242,111,898.15 and, taking into account retained earnings of €1,008,081,398.50, showed distributable earnings of €3,250,193,296.65.
The third resolution that will be put before the General Shareholders’ Meeting on May 28, 2020, proposes to: pay an ordinary dividend of €977,454,329.42 (i.e. €0.31 per share);V
Total amount of invoices affected, including tax (in millions of euros)
Combined with what is expected to remain a loose policy mix (particularly as central banks maintain the status quo) and a relatively tight job market, this cyclical recovery will support growth over the next quarters. We can therefore expect to see a 2.5% increase in GDP in the US in 2020. With the risk of escalation in the US-China trade war now limited, China can expect its growth to slow to 5.7%, which has more to do with structural factors than external trade risks. Recovery in the euro zone will be relatively slack in the first part of the year but is expected to gradually firm up (0.8% expected in 2020 after 1.2% in 2019). France should outperform the euro zone with stable growth in the region of 1.2%, while Germany will see its second consecutive year of weak growth (0.5%).
In 2020, Natixis will complete the implementation of the New Dimension strategic plan to give clients a broader range of high added-value solutions through three powerful initiatives: deepening the transformation of the business model that successfully began under the New Frontier plan; allocating a significant portion of
The information is available at the following link: financial-reports the overview of the 2017 financial year on pages 177 to 192 of theV 2017 Registration Document submitted on March 23, 2018.
Financial Investments is isolated and includes Coface, NatixisV Algérie and the Private Equity run-off activities; the Corporate Center is refocused on the centralized holdingV company and ALM functions of Natixis and is responsible for the contribution to the Single Resolution Fund.
To ensure comparability in the presentation of the management report, 2018 figures are presented according to the new organization of the Natixis business lines.
The earnings of the Natixis business lines are presented in accordance with the Basel 3 regulatory framework. Capital allocation specific to the Insurance businesses is based on the Basel 3 accounting treatment for investments in insurance companies, as enacted in the EU via CRD4 and CRR (the “Danish compromise”).
The conventions applied to determine the earnings generated by the various business lines are as follows: the business divisions record the return on regulatory capitalV allocated to them. By convention, the rate of return on regulatory capital is 2%; the return on the issued share capital of the entities comprising theV divisions is eliminated; the cost of Tier Two debt subordination is charged to the divisionsV in proportion to their regulatory capital; the divisions are invoiced for an amount representing the bulk ofV Natixis’ overhead. The uninvoiced portion accounts for less than 3% (excluding the Single Resolution Fund) of Natixis’ total overhead. The Single Resolution Fund (SRF) contribution is covered by the Corporate Center and is not charged back to the divisions.
ROE and ROTE for Natixis and the business lines are calculated as follows: the profit measure used to determine Natixis’ ROE is net incomeV (group share) minus the post-tax interest expense on DSNs. Equity capital is average shareholders’ equity Group share as defined by IFRS, after payout of dividends, excluding average hybrid debt, and excluding unrealized or deferred gains and losses recognized in equity (OCI); the calculation of business line ROE is based on:V
Statutory Auditors’ report 5.4 on the parent company financial statements 426
Depreciation, amortization and impairment on property, plant and equipment and intangible assets (b) (447) (254)
Net income/(loss) for the period 2,276 1,880 o/w Group share 1,897 1,577 o/w attributable to non-controlling interests 380 304
The information reported at December 31, 2018 has not been restated for the impact of the first-time application of IFRS 16 “Leases”, in accordance with (a) the option available under this standard and the amendment to IAS 12 “Income Taxes”. The impacts of the first-time application of the amendment to IAS 12 and to IFRS 16 on the opening balance sheet at January 1, 2019 are presented in detail in Notes 1 and 2, respectively. Income generated by the Factoring, Sureties and Financial Guarantees, Leasing, Consumer Finance and Securities Services business lines (SFS division), sold to BPCE in the first quarter of 2019 (see Note 3.6 and 4.1), has not been restated for the presentation of revenues at December 31, 2018. Of which the amortization of rights of use recorded under IFRS 16 as applicable from January 1, 2019 (see Note 8.10).(b)
Share of gains and losses recognized directly in the equity of associates non-recyclable to income - -
The information reported at December 31, 2018 has not been restated for the impact of the first-time application of IFRS 16 “Leases”, in accordance (a) with the option available under this standard and the amendment to IAS 12 “Income Taxes”. The impacts of the first-time application of the amendment to IAS 12 and to IFRS 16 on the opening balance sheet at January 1, 2019 are presented in detail in Notes 1 and 2, respectively. Corresponds to the SFS business lines recognized in non-current assets held for sale as at December 31, 2018 (see Notes 3.6 and 4.1).(b)
(in millions of euros) Gross Income tax Net Gross Income tax Net
Revaluation of available-for-sale financial assets 254 (62) 191 (197) 77 (121)
Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss (226) 60 (166) 384 (110) 275
Revaluation of equity instruments recognized at fair value through other comprehensive income 47 (12) 34 (7) 1 (7)
Revaluation of hedging derivatives of equity financial assets recognized at fair value through other comprehensive income 0 0 0 0 0 0
Corresponds to the SFS business lines recognized in non-current assets held for sale as at December 31, 2018 (see Notes 3.6 and 4.1).(a)
Loans and receivables due from banks and similar items at amortized cost 8.6.1 48,115 27,285
Due to banks and similar items 8.13 71,927 73,234 o/w institutional operations 46 46 o/w institutional operations 964 952
The information reported at December 31, 2018 has not been restated for the impact of the first-time application of IFRS 16 “Leases”, in accordance (a) with the option available under this standard and the amendment to IAS 12 “Income Taxes”. The impacts of the first-time application of the amendment to IAS 12 and to IFRS 16 on the opening balance sheet at January 1, 2019 are presented in detail in Notes 1 and 2, respectively. Corresponds to the SFS business lines recognized in non-current assets held for sale as at December 31, 2018 and sold to BPCE in the first quarter of 2019 (b) (see Notes 3.6 and 4.1).
Shareholders’ equity at December 31, 2017 after appropriation of income 5,020 5,956 2,232 (25) 6,159
Total activity related to relations with shareholders 21 39 0 (3) (1,148)
Interest paid on perpetual deeply subordinated notes and preference shares (97)
Appropriation to a reserve of income from the sale of equity instruments at FV through other comprehensive income that cannot be reclassified completed during the period 1
+/- Net charge to other provisions (including insurance companies’ technical reserves) 8,455 5,778
+/- Decrease/(increase) in property, plant and equipment and intangible assets (204) (361)
The decrease/(increase) in financial assets and investments in associates included:(a) - cash flows related to investments in consolidated associates for +€2,631 million, consisting of: the acquisition of a 98% stake in Massena Partners (-€54 million), 52% of Azure Capital (-€10.7 million), 100% of Titres Cadeaux (-€11.5 million), an additional consideration for MV Crédit (-€6.3 million) and for Vermilion (-€1.3 million), the buyout of Caspian PE LLC minority interests (-€3.1 million) and those of Mirova Natural Capital (-€8.3 million), the acquisition of another 9% stake in Coficiné (-€2.4 million), 13% in Natixis Partners (-€11.6 million), 5% in Natixis Partners España (-€1.6 million), 11% in Payplug (-€4.4 million), 5% in Dorval Finance (-€12.3 million), 10% in Darius Capital Partners (-€1.1 million), +€12 million in cash acquired (of which +€10 million on Natixis Investment Managers’ acquisitions and +€2 million on Azure Capital), and the disposals of the SFS division’s retail banking entities to BPCE (+€2,705 million) and of Natixis Brasil (+€43 million); - cash flows related to investments in non-consolidated associates for -€395 million, including -€253.1 million related to the stake acquired in WCM Investment Managers and -€85.3 million related to Fiera Capital; - cash flows related to assets held to maturity (+€416 million).
Including cash flows in relation to lease liabilities, amounting to -€231.8 million at December 31, 2019.(d)
Impact of the first-time application Note 2 of IFRS 16 at January 1, 2019
Currency conversion of the statements 3.9 of foreign subsidiaries and branches
Non-consolidated structured entities 5.3 in which Natixis is involved only as a sponsor
Impairment of assets at amortized cost 6.3 and at fair value through other comprehensive income and provisions for financing and guarantee commitments
Property, plant and equipment, 6.8 intangible assets (excluding goodwill) and investment property
Net gains or losses resulting from 7.5 the derecognition of financial instruments at amortized cost
As required by Regulation (EC) No 1606/2002 of July 19, 2002, Natixis has prepared its consolidated financial statements for the year ended December 31, 2019 in accordance with IAS/IFRS standards and IFRIC interpretations as adopted by the European Union and applicable on that date(1).
The financial statements presented for comparative purposes were published by Natixis in the 2018 registration document filed with the Autorité des Marchés Financiers (AMF – French Financial Markets Authority) on March 15, 2019. In accordance with Regulation (EU) 2017/1129 relating to the publication of prospectuses and Commission Delegated Regulation (EU) 2019/980 relating to the information contained in prospectuses, the financial statements for the year ended December 31, 2017, which were published in the 2017 registration document filed with the AMF on March 23, 2018, are included for reference in this registration document.
Natixis elected to take the option offered by IFRS 9 not to apply the standard’s provisions pertaining to hedge accounting and to continue applying IAS 39 for the purpose of recognizing hedging transactions, as adopted by the European Union, i.e. excluding certain macro-hedging provisions.
The complete body of standards adopted by the European Union may be consulted on the European Commission website at: (1)
244 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019 of the various possible scenarios). IFRIC 23 also calls for the assessment of income tax uncertainties to be monitored.
the amendment to IAS 28 “Long-Term Interests in AssociatesV and Joint Ventures” adopted by the European Commission on February 8, 2019 with mandatory application in Natixis’ financial statements from January 1, 2019. Long-term interests are items for which settlement is neither planned nor likely to occur in the foreseeable future that form part of the entity’s net investment in the associate or joint venture. The amendment specifies that IFRS 9 “Financial Instruments” (including the provisions related to impairment) apply to financial instruments representing long-term interests in associates or joint ventures where said instruments are not accounted for by the equity method. This amendment had no impact on Natixis’ financial statements; the amendment to IAS 19 “Plan Amendment, Curtailment orV Settlement” adopted by the European Commission on March 13, 2019 with mandatory application in Natixis’ financial statements from January 1, 2019. This amendment states that, when a change to a plan takes place, the amount of any past service cost and net interest subsequent to the change shall be determined based on updated actuarial assumptions used at the date of the change. This amendment had no impact on Natixis’ financial statements.
As such, interest due on perpetual deeply subordinated notes from January 1, 2019 was classified as dividends and the resulting tax saving is henceforth recognized in income. The tax saving on the payment of coupons to holders of such instruments had hitherto been recorded in consolidated reserves. The impact on the income statement came to +€47.6 million at December 31, 2019.
The other amendments in “Annual Improvements to IFRSs 2015-2017 cycle” did not have any impact on Natixis’ consolidated financial statements; the amendments to IFRS 9, IAS 39 and IFRS 7 “Interest RateV Benchmark Reform” published by the IASB on September 26, 2019. These amendments stipulate the exceptions to the application criteria for hedge accounting provided for under IFRS 9 and IAS 39 and specify the information to be provided on the effects of the benchmark interest rate reform. These amendments were adopted by the European Commission on January 15, 2020. The date of their application was set at January 1, 2020, with an option for early application. Natixis opted for early application at
Under these amendments, the entities must, in respect of the hedged items and/or the hedging instruments, apply the assumption that the current benchmark rate will not be changed when assessing compliance with the “highly probable” requirement for future hedged cash flows, and conduct prospective tests of the effectiveness of fair value hedging and cash flow hedging. These amendments also authorize hedging relationships to be maintained if retrospective tests fall outside the 80%-125% range during the transition period. However, the inefficiency of hedging relationships continues to be recognized in the income statement. Finally, these amendments stipulate that a company only has to assess whether a risk component designated as a hedged item based on a benchmark rate is separately identifiable on the date that said designation occurs.
These amendments apply until such time as uncertainties in relation to the reform are eliminated or the hedging relationships cease to exist.
Natixis believes all of these hedging contracts, which have either a Bor or Eonia component, are affected by the reform and may therefore benefit from said amendments for as long as uncertainty remains with regard to the contractual changes to be implemented as a result of the regulations, the replacement index to be applied or the period of application of provisional interest rates. Natixis’ derivative contracts, loan contracts and borrowings are chiefly exposed to the Euribor, Eonia and Libor rates. Hedging derivatives are presented in Note 8.2. Almost all interest rate swaps used in a hedging relationships are indexed to a Bor or Eonia index.
The uncertainties arising from the interest rate benchmark reform are presented in Note 6.23.
These accounting changes could change the profile of insurance inactivities (particularly for life insurance) and also introduce greater income volatility.
Despite the uncertainties still surrounding implementation of the standard (application date, possible changes in the text, exposure draft published on June 26, 2019), Groupe BPCE's insurance entities have project teams in place tasked with addressing the changes resulting from the standard and are continuing their preparations: examination and documentation of choices permitted by the standard, modeling, adjustments to systems and organizational structures, accounting production and transition strategy, financial communication and change management.
Furthermore, in valuing its financial instruments for the consolidated financial statements established at December 31, 2019, Natixis took into account the recommendation published on October 15, 2008 by the AMF, the Conseil National de la Comptabilité (CNC – French National Accounting Board), the Commission Bancaire (French Banking Commission) and the Autorité de Contrôle des Assurances et des Mutuelles (ACAM – French insurance regulator), and the guide published by the IASB on October 31, 2008, entitled “Measuring and disclosing the fair value of financial instruments in markets that are no longer active”. These two texts underline the importance of using judgment to determine fair value in illiquid markets. Natixis no longer systematically uses models based on observable data as a result of this recommendation.
The consolidated financial statements are based on the individual financial statements at December 31, 2019 of the entities included in Natixis’ consolidation scope.
Under IFRS 16, the definition of leases implies the identification of an asset and control by the lessee of the right to use the asset. Control is established if the lessee holds the following two rights throughout the period of use: the right to obtain almost all of the economic benefits arising fromV use of the asset; the right to decide how the asset is used.V
In accordance with the exemption provided for by IFRS 16, Natixis has not changed the accounting treatment of short-term leases (less than 12 months) or leases relating to low-value underlying assets. Rents pertaining to these leases are expensed over the period under operating expenses. Natixis used the indicative threshold of USD 5,000 provided by the IASB (in the Basis of Conclusions) to define low-value assets and elected to exclude certain contracts where such exceptions have a non-material impact on its financial statements. These notably include vehicle leasing contracts.
The application of IFRS 16 had no impact on the amount of Natixis’ opening shareholders’ equity.
At January 1, 2019, IFRS 16 lease liabilities recorded under “Accrual accounts and other liabilities” (Note 8.9) in the consolidated balance sheet amounted to €1.3 billion. This amount comprised the discounted value of lease payments remaining over the lease term (within the meaning of IFRS 16) at that date. The weighted average discount rate used at that date was 1.52%.
The impact of lease liabilities may be compared with the information presented in Note 16.1 of Chapter 5.1 “Financial data – Consolidated financial statements and notes” in the 2018 Registration Document on the recognition by the lessee of minimum future payments in respect of operating leases and finance leases, including the following differences: rents under contracts already signed but whose underlying assetsV had not yet been made available on the date of transition to IFRS 16 are not included in the calculation of rights of use and lease liabilities. These lease payments are, however, included in off-balance sheet commitments. These commitments stood at -€350 million at January 1, 2019; lease liabilities are initially determined by discounting the leaseV payments over the term of the contracts in accordance with IFRS 16. The rents included in off-balance sheet commitments at December 31, 2018 were not discounted. The discounting effect observed at January 1, 2019 amounted to -€104 million; lease liabilities are initially determined based on rents excludingV VAT (whether or not it is recoverable). The rents recorded as off-balance sheet commitments at December 31, 2018 include non-recoverable VAT, however; contracts relating to low-value assets and short-term contractsV (including short-term contracts in force at the IFRS 16 transition date) are excluded from the calculation of lease liabilities in accordance with the exemptions provided for by IFRS 16. Short-term contracts are, however, included in off-balance sheet commitments at December 31, 2018.
The initial value of right-of-use assets at January 1, 2019 came to €1.2 billion and is recorded under “Property, Plant and Equipment” (see Note 8.10). It corresponds to (i) the initial amount of lease liabilities (ii) less the amount of provisions for rent-free periods existing at December 31, 2018 recognized in accordance with IAS 17 (subject to reversal at the date of first application and subtracted from the right of use).
The scope of Natixis’ consolidated entities is provided in Note 19 to the financial statements.
exposure or entitlement to variable returns by virtue of its relationsV with the entity; the ability to exercise its power over the entity to influence theV variable returns obtained.
Full consolidation involves replacing the carrying amount of investments with the full value of all of the subsidiary’s assets and liabilities.
If Natixis’ share in the losses of a company consolidated using the equity method is greater than or equal to its interest in the Company, Natixis ceases to take its share in future losses into account. In such cases, the investment is presented as having zero value. Associates’ additional losses are only provisioned if Natixis has a legal or implied obligation to hedge them or if it has made payments on behalf of the Company.
Significant influence is the power to participate in the financial and operating policy decisions of the corporate entity owned without having control over such policies. A significant influence is presumed to exist if Natixis directly or indirectly owns at least 20% of the voting rights of the company in question. IAS 28 defines companies over which a significant influence is exercised as associates. These are consolidated using the equity method in accordance with the same
In the event of the loss of control of a consolidated subsidiary, any equity share retained is measured at fair value and the gains or losses on disposal are recognized in “Gains or losses on other assets” in the consolidated income statement.
Income generated from minority interests subject to put options is presented in “Net income/(loss for the period – share attributable to minority interests” in the consolidated income statement.
Application of IFRS 3 to business combinations carried out beforeV January 1, 2010: minority interests are determined based on their share in theV identifiable net assets of the acquired entity, measured at their fair value at the purchase date (partial goodwill method); goodwill is the difference between the cost of the businessV combination and the share of the purchasing entity’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities.
Application of IFRS 3R to business combinations carried out afterV January 1, 2010: for each business combination, Natixis chose to determineV minority interests: either based on their share in the identifiable net assets of theV acquired entity, measured at their fair value at the purchase date, and therefore without recognizing goodwill on the minority interests (partial goodwill method), or based on their fair value at the purchase date, resulting inV the recognition of goodwill, both for the Group share and the minority interests (full goodwill method); hence, goodwill is a residual item determined as the differenceV between (i) the sum of the purchase price, the fair value at the purchase date of the percentage interest held in the acquired entity prior to the purchase date, and the amount of the minority interests (determined using the partial goodwill method, in the majority of cases, or the full goodwill method) and (ii) the net amount of the assets and liabilities assumed, measured at their fair value at the purchase date.
there is objective evidence of impairment. The impairment test consists of comparing the carrying amount of the CGU or group of CGUs including goodwill with its recoverable value.
Positive goodwill is recorded on a separate line on the asset side of the balance sheet if it relates to a controlled entity. It is allocated at the purchase date to one or more cash-generating units (CGUs) expected to benefit from the acquisition and is not amortized. It is tested for impairment at least once per year, and more often where
Goodwill related to an associate or joint venture is included in the carrying amount of “Investments in associates” under assets if it is positive; however, it cannot subsequently be amortized. It is tested for impairment at least once a year. If it is negative, it is immediately recognized in income under “Share in income of associates”.
Combinations of entities or operations under joint control are understood to be combinations in which several operations are combined and all of the interested parties (entities or operations) are ultimately controlled by the same party or parties for a relatively long period before and after the combination. Such combinations do not fall within the scope of IFRS 3R.
The assets contributed by the CNCE to Natixis fall into two categories: shares in the Corporate & Investment Banking and serviceV subsidiaries; a portion of the cooperative investment certificates (CCIs)V conferring entitlement to the share capital of the Caisses d’Epargne.
The contribution values used for consolidation purposes in respect of both categories of assets are the carrying amounts of these assets in the former CNCE’s consolidated financial statements, restated in accordance with IFRS as adopted in the European Union.
A 30 bp increase in discount rates (assumption based on the historical annual variability observed over one year using 2012-2019 historical data) combined with a 50 bp reduction in perpetual growth rates would reduce the value in use of CGUs by: -9.7% for the Asset & Wealth Management CGU;V
and would not lead to the recognition of any impairment losses for these CGUs.
Similarly, the sensitivity of future business plan cash flows to changes in key assumptions does not significantly affect the recoverable value of the CGUs: for Asset & Wealth Management, a 10% decline in the equityV markets (uniform decline across all years) would have a -6% negative impact on the CGU’s recoverable value and would not lead to the recognition of an impairment loss; for Corporate & Investment Banking, sensitivity to the dollar or toV higher liquidity costs would have a limited impact on net revenues and would not lead to any impairment being recorded; for Insurance, the main vector of sensitivity for life insurance isV interest rates, but various steps are being taken to reduce their impact (diversification of investments, reserves, etc.). Accordingly, the impact on the income statement is limited and would not significantly affect the CGU’s value;
Prior to consolidation, the individual financial statements of companies included in the scope of consolidation are restated if necessary to bring them into line with Natixis’ accounting policies described below.
In accordance with Article 41 of the Amended Finance Act for 1997 (No. 97-1239 of December 29, 2007), amended by Article 121 of the Amended Finance Act for 2008 (No. 2008-1443 of December 30, 2008), Article 5 of the Amended Finance Act for 2014 (No. 2014-1655 of December 29, 2014) and the agreement signed with the French State on May 10, 2017, Natixis manages certain public procedures on behalf of the French State, mainly consisting of loans and gifts to foreign States conferred within the framework of Public Development Aid, non-concessional loans to foreign States, gifts to the “Fund for Private Sector Aid and Studies” and the stabilization of interest rates for export credit guaranteed by the State. The related transactions, some of which may be guaranteed by the State, are recognized separately in the financial statements. The State and other related creditors have a specific right over the assets and liabilities allocated to these institutional operations. The bank’s assets and liabilities relative to these operations are identified on the balance sheet under each of the headings concerned with these operations.
Currency conversion 3.9 of the statements of foreign subsidiaries and branches
Transfer to BPCE S.A. of the entities of the Specialised Financial Services business lines (SFS)
In accordance with the established timetable, the subsidiary shares and EuroTitres assets and liabilities were transferred on March 31, 2019 once the conditions precedent had been lifted.
Control of the subsidiaries was gradually transferred to BPCE over the period which, combined with the other characteristics specific to the deal, resulted in loss of control being recognized retroactively at January 1, 2019. Consequently, Natixis did not incorporate income from the subsidiaries sold to BPCE generated in the first quarter prior to the disposal in its consolidated financial statements for the first half of 2019.
On December 18, 2019, the French antitrust body, the Autorité de la Concurrence, published a press release on its website announcing that France's four historical meal voucher companies were to be fined a total of nearly €415 million for price fixing.
On a financial level, the fine incurred by Natixis came to €83.3 million (of which €4.4 million for Natixis Intertitres alone, with Natixis being severally liable for the balance).
On December 19, 2019, Groupe BPCE, Natixis and La Banque Postale announced plans to merge some of their Asset Management activities in France, as part of their business partnership.
The plan is to combine Ostrum Asset Management and LBP Asset Management's euro fixed-income and credit management activities as well as their Insurance management activities at Ostrum Asset Management, with a view to creating a player that fully complies with the principles of socially responsible investment (SRI).
Acquisition by Natixis Holdings (Hong Kong) Limited of M&AV Advisory firm Azure Capital in the second quarter of 2019. The following entities were added to the scope of consolidation: Azure Capital Holdings Pty Ltd, Azure Capital Securities Pty Ltd, The Azure Capital Trust and Azure Capital Limited. Natixis exercises control over these entities in accordance with IFRS 10, and fully consolidates them. This transaction generated goodwill of €11.6 million as at December 31, 2019, as determined using the partial goodwill method. Natixis also holds put options on minority interests in the amount of €9.1 million.
Consolidation of Natixis Holdings (Hong Kong) Limited (the holdingV company that owns the stake in Azure Capital) in the second quarter of 2019.
Deconsolidation of Nexgen Reinsurance Designated ActivityV Company in the third quarter of 2019 following its liquidation.
In the third quarter of 2019, the interest in Natixis Partners SpainV increased from 75% to 80% following a buyback of executive officers' shares.
Acquisition of asset manager and investment advisory firmV Massena Partners in the second quarter of 2019. The following entities were added to the scope of consolidation: Massena Partners S.A., Massena Wealth Management SARL and the French branch Massena Partners. Natixis exercises control over these entities in accordance with IFRS 10, and fully consolidates them. This transaction generated goodwill of €42.1 million at December 31, 2019, as determined using the partial goodwill method. Natixis also holds put options on minority interests in the amount of €1 million.
Consolidation of securitization vehicle Purple Finance CLO 2 in theV second of quarter 2019, after the percentage interest rose above regulatory thresholds.
In May 2019, Natixis Investment Managers bought an 11% stake inV Fiera, the leading publicly traded independent distribution platform in Canada. This investment is carried by a holding company, Natixis IM Canada Holdings Ltd, wholly-owned by Natixis IM and now consolidated.
Consolidation of Mirova US LLC in the second quarter of 2019 forV the purpose of restructuring the US operations of Seeyond and Mirova. Seeyond’s US operations were consolidated by Natixis Advisors LP, while Mirova’s were transferred to a new company, Mirova US, wholly-owned by Mirova.
AEW Capital Management LP created several legal structuresV involved in managing several of its new funds: AEW Partners Real Estate Fund VIII, AEW Senior Housing Investors III, AEW Senior Housing Investors IV and AEW Value Investors Asia III. These entities are wholly-owned by AEW Capital Management LP and were added to the scope of consolidation at end-June 2019.
Creation in 2019 and consolidation in the fourth quarter of 2019 ofV Thematics Asset Management, which is destined to become Natixis’ key partner in thematic investment in international equities. Natixis Investment Managers also holds put options on minority interests (60%) in the amount of €30.2 million.
Consolidation in the fourth quarter of 2019 of AEW Promote LPV Ltd, which arranges financing for the fund AEW European Value Partners, through which AEW collects interest income in relation to fund performance.
In accordance with the provisions of the shareholders’ agreementV establishing Société des Cadres DNCA, which was created in December 2016, the structure’s percentage of ownership in DNCA Finance increased from 9% to 12% at January 1, 2019. Subsequently, the percentage interest of DNCA Finance and its subsidiaries (DNCA Courtage, DNCA Luxembourg and DNCA Finance – Milan branch) fell from 82% to 79%.
In the first quarter of 2019, Natixis Investment Managers finalizedV the launch of asset management firm Flexstone Partners SAS to house three of its Private Equity affiliates: Euro-PE, Caspian Private Equity and Eagle Asia, in a bid to promote its Private Equity expertise on the international market.
Under this plan, Caspian PE was contributed to Flexstone Partners SAS. The Caspian PE managers who owned a portion of the Company’s share capital exchanged their shares for a percentage interest in Flexstone Partners SAS. Natixis Investment Managers also sold part of its stake in Flexstone Partners SAS to the Company’s European managers. Subsequent to these various transactions, Natixis Investment Managers owned 84% of Flexstone Partners SAS as of March 31, 2019 versus 100% at
Deconsolidation of Ostrum Multi Asset Global Income fromV March 31, 2019 after the fund’s seed money investment was fully repaid.
Consolidation in the third quarter of 2019 of the fund NAV Financement de l’économie – Immocorp II compartment, after the percentage interest rose above regulatory thresholds.
Deconsolidation of the following funds in the second quarter ofV 2019 as the percentage interest fell below regulatory thresholds: Fructifonds Profil 6, Fructifonds Profil 9 and ABP Vie Mandat FCPI.
The percentage interest in Payplug increased from 84% to 99%V following the buyback of the founders’ shares in the second and fourth quarters of 2019 and the capital increase conducted in the fourth quarter of 2019 to which Natixis Paiement Holding fully subscribed.
In the fourth quarter of 2019, the percentage interest in LakoozV increased from 96% to 100% following a buyback of executive officers’ shares and the application of IFRS 2 subsequent to the implementation of a bonus share allocation plan in 2017 and conducted at the end of 2019.
Acquisition of Coface PKZ, specializing in credit insurance inV Slovenia, in the second quarter of 2019. This transaction generated badwill of €4.7 million at December 31, 2019, as determined using the partial goodwill method recognized in profit or loss.
The Luxembourg branch operations were taken over by CofaceV Belgium in the first quarter of 2019.
Impact of changes in percentage 4.3.2 holdings in subsidiaries still under control at December 31, 2019
Despite the application of exchange controls in some countries, Natixis did not encounter difficulties transferring the dividends of subsidiaries located in these countries during the period.
Natixis’ main investment consolidated using the equity method at December 31, 2019 is the EDF Investment Group (EIG) entity.
Natixis did not encounter significant restrictions on interests held in associates and joint ventures.
There are no unrecognized shares in the losses of joint ventures or associates over the period following the application of the equity method.
or any other role in which it has a decisive impact on theV structuring or management of the transaction.
Consequently, the following are not included in the consolidation scope (IFRS 10) or in the scope applicable to the disclosure of additional information (IFRS 12): structured entities linked to Natixis solely through an ongoingV transaction. This corresponds to an unstructured financial instrument which does not generally have a material impact on the variability of the structured entity’s returns and which may be concluded by Natixis with structured entities or with traditionally-governed entities alike. Ongoing transactions are most commonly: vanilla fixed-income/currency derivatives, derivatives with otherV underlying assets, the lending/borrowing of securities and repos, guarantees and plain vanilla financing granted to family SCIsV or certain holding companies; external structured entities for which Natixis acts simply as anV investor. This mainly includes: investments in external mutual funds not managed by Natixis,V with the exception of those in which Natixis owns virtually all of the units, interests held in external securitization vehicles for which NatixisV acts simply as a minority investor, a restricted scope of interests held in real estate funds andV external Private Equity funds for which Natixis acts simply as a minority investor.
Auto-pilot mechanisms are generally in place for these structures. In the case of lease contracts, the transaction must be structured such that its income always amounts to zero. This means that only default events are able to modify the structured entity’s income, by leading to the disposal of the rights over the assets once the guarantees have been exercised. Natixis has the power to have the assets sold in the case of a default event, acting either alone or via the bank syndicate’s agent. This right equates to a protective right because Natixis would never benefit from the income from the sale beyond the amount of the balance due under the loan agreement. Natixis does not therefore have power over such entities’ relevant activities.
In the context of mutual funds, relevant activities are investment and divestment activities involving securities in fund assets. These activities are managed in a discretionary manner on behalf of investors by Natixis Investment Managers’ and Natixis Wealth Management’s management companies.
Natixis guarantees the capital and/or performance of certain mutual funds. These packaged funds are passively-managed funds. Once the structuring is established initially, it is fixed for the fund’s entire lifetime. Natixis has relatively limited exposure to negative variable returns thanks to the fund’s strict management by the NAM management company and a robust risk control system put in place upon structuring and monitored throughout the fund’s lifetime. These controls significantly limit the risk of guarantee activation.
number of people and holds material variable returns). Real estate funds subject to consolidation but not consolidated due to their materiality are listed in Note 19.1.
As part of its Private Equity operations, Natixis makes equity investments in unlisted companies via Private Equity investment vehicles (Fonds Communs de Placement à Risque – FCPRs – Private Equity investment funds and SICARs – Sociétés d’Investissement à Capital Risque – venture capital companies) and limited partnerships which it typically manages.
for Structured Financing, to the amount of the remaining loanV outstandings due to banks in the pool (drawn outstandings); for other activities, to the total assets.V
The maximum risk exposure corresponds to the cumulative amount of interests recorded under balance sheet assets and commitments given, minus contingency reserves recorded under liabilities and guarantees received: the “Notional amount of derivatives” item corresponds toV the notional amount of option and CDS sales agreed to by Natixis with structured entities; guarantees received are guarantees granted by third parties toV Natixis to cover its exposure related to structured entities. They are only included on the “Guarantees received” line and are not deducted from the asset items.
Financial assets at amortized cost 6,368 1,248 11,370 708 19,695 5,979 1,638 12,217 696 20,531
Financial instruments measured using the fair value option - 6,392 - - 6,392 - 4,494 - - 4,494
Available-for-sale financial assets 557 3,809 - - 4,366 908 2,994 - - 3,902
MAXIMUM EXPOSURE TO RISK OF LOSS 611 12,700 - - 13,311 1,253 12,340 - - 13,593
Revenues net of fees and commissions 1 142 143 148 148
The carrying amount of assets transferred to these vehicles corresponds to the assets sold by Natixis during 2019 and 2018, if the information on the amounts * sold by all of the investors is not available.
In accordance with IFRS 9 “Financial instruments”, on initial recognition, financial assets are recorded at amortized cost, at fair value through other comprehensive income, or at fair value through profit or loss. For debt instruments, the classification depends on the business model applicable to the instruments in question and the characteristics of their contractual cash flows (whether they represent Solely Payments of Principal and Interest [SPPI] or not).
For Natixis, the hold to collect model applies mainly to financing activities (excluding the loan syndication activity) carried out by the Corporate & Investment Banking business; hold to collect and sell model: a mixed business model underV which assets are managed with the objective of both receiving contractual cash flows and selling financial assets. In this model, financial assets are sold to achieve the purpose of the activity.
Basic financial assets (those that generate SPPI) are debt instruments such as fixed-rate loans, variable-rate loans without an interest rate tenor mismatch or that are not linked to a security or to a market index, and fixed-rate or variable-rate debt securities.
Specific case of loans restructured due to the debtor’s financial situation
“Restructured” loans correspond to loans with modified terms under which Natixis grants a concession to borrowers facing or likely to face financial difficulties. They are a combination of a concession granted by Natixis and financial difficulties experienced by the borrower.
The modified terms of restructured loans must put the borrower in a more favorable situation (e.g., suspension of interest or principal payment, extension of term, etc.) and are confirmed by the use of amendments that modify the terms of an existing contract or by the full or partial refinancing of an existing loan.
For loans restructured by amending the terms of the existing contract, with no derecognition of the initial asset, a discount must be recorded, corresponding to the difference between: the present value of the contractual cash flows initially expected; andV
the present value of the revised contractual cash flows discountedV at the original effective interest rate.
The discount is recorded in the income statement under “Provision for credit losses”, taking into account the characteristics of the loan prior to the restructuring operation (non-performing loan). It is written back to net interest income in the income statement over the remaining life of the loan.
Financial assets at fair value through 6.1.4 recyclable and non-recyclable other comprehensive income
At the reporting date, they are measured at fair value by applying the market price to listed securities, and changes in fair value are recorded under “Gains and losses recognized directly in recyclable other comprehensive income”.
Equity instruments may be measured at fair value through other comprehensive income under an irrevocable option. This irrevocable option applies on a case-by-case basis and only to equity instruments not held for trading purposes.
Financial assets recorded in the fair value through profit or loss category correspond to: financial assets held for trading: these are debt and equityV instruments acquired or originated by Natixis principally to be sold in the near term and those forming part of a portfolio of financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Guarantee deposits and the corresponding margin calls relating to securities sold under repurchase agreements and derivatives transactions recorded under liabilities in the balance sheet are also included in this item; financial assets under the fair value option: these are SPPIV instruments not held for trading. They are designated at fair value through profit or loss on initial recognition under IFRS 9 only if this option reduces a measurement inconsistency with a related financial asset/liability in income; financial assets at fair value through profit or loss because of theirV characteristics: these are debt instruments that do not meet the SPPI criteria (see Note 6.1.2), for example mutual fund units, which are considered debt instruments without SPPI characteristics under IFRS 9. Non-SPPI debt instruments held for trading are presented with assets held for trading.
When repurchase and reverse repurchase transactions are recognized in “Assets and liabilities at fair value through profit or loss”, the repurchase commitment is recognized as a forward interest rate derivative.
After the sale of its leasing business to BPCE in the first quarter of 2019, Natixis’ leasing business line is no longer significant at December 31, 2019 (see Notes 3.1 and 8.6.2.2).
Leases are classified as finance leases when substantially all of the risks and rewards incidental to ownership are transferred to the lessee. All other leases are classified as operating leases.
The use of rights is amortized on a straight-line basis and financial liabilities are amortized on an actuarial basis over the term of the lease. IFRS 16 defines the lease term as the non-cancellable period of a lease, together with both (a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. In general, the term is 9 years for “3/6/9” real estate leases under French law. Outside France, and particularly in English-speaking countries (e.g., Natixis’ US subsidiaries), the term of real estate leases may range from 10 to 15 years. It is stipulated that a lease is no longer enforceable when the lessee and the lessor each has the right to terminate the lease without permission from the other party with no more than an insignificant penalty.
costs relating to the termination of the lease (negotiation costs,V relocation costs, costs of identifying another underlying asset suitable for the lessee’s needs, costs associated with returning the underlying asset in a contractually specified condition, etc.); the importance of the underlying asset for Natixis’ operationsV considering whether it is a specialized asset or its location; its past practice of renewing leases of similar assets, but also itsV strategy regarding the future use of the assets.
Lease liabilities are booked under “Accrual accounts and other liabilities” in the consolidated balance sheet. The interest expense relating to the financial liability is recognized under “Interest and similar expenses”.
At the inception of the lease, the right-of-use asset is recognized at a value equal to the lease liability amount at that date, adjusting for payments made to the lessor prior to or on that date and not therefore included in the measurement of the lease liability, less any lease incentives received. Where applicable, this amount is adjusted to take into account the initial direct costs incurred by the lessee and an estimate of the costs of dismantling and refitting, to the extent that the terms and conditions of the lease so require, in which case an outflow is likely and can be estimated to a sufficient degree of reliability.
Right-of-use assets are recognized under “Property, Plant and Equipment” in the consolidated balance sheet, within the same line item as assets of the same nature and which are wholly owned.
Impairment of assets 6.3 at amortized cost and at fair value through other comprehensive income and provisions for financing and guarantee commitments
These financial assets will be divided into three categories depending on the increase in credit risk observed since their initial recognition. An impairment charge shall be recorded on outstanding amounts in each category, as follows: Stage 1 (or S1)
The standard provides that the credit risk of a financial instrument has not increased materially since its initial recognition if this risk is considered to be low at the end of the fiscal year. This provision is applied to certain investment grade debt securities managed under Natixis’ liquidity reserve, as defined by Basel 3 regulations. “Investment grade” status refers to securities with a rating of BBB- or higher and equivalent at Standard and Poor’s, Moody's or Fitch. .
Accordingly, loans and receivables are categorized as Stage 3 if both of the following conditions are met: there is objective evidence of impairment on an individual orV portfolio basis: there are “triggering events” or “loss events” identifying counterparty risk occurring after the initial recognition of the loans in question. On an individual basis, probable credit risk arises from default events defined in Article 178 of Regulation (EU) No 575/2013 dated June 26, 2013 relating to prudential requirements applicable to credit institutions. Objective evidence of impairment includes any payments that are past due by at least three months, or regardless of whether any payment has been missed, the observation of financial hardship experienced by the counterparty leading to the expectation that some or all of the amounts owed may not be recovered or to the initiation of legal proceedings; these events are liable to lead to the recognition of incurred losses,V that is, expected losses for which the probability of occurrence has become certain.
which is the sum, discounted for each projection year, of the product of the EAD, PD and LGD parameters: EAD(t) (Exposure At Default): the amount of loss that the institutionV may be exposed to on the loan in question during year t, including accelerated amortization and credit conversion factors where necessary; PD(t) (Probability of Default): the probability that the counterpartyV will default during year t; LGD (Loss Given Default): the amount of unrecovered contractualV cash flows after the recovery phase in the event that the counterparty defaults on the loan in question.
Natixis draws on existing concepts and mechanisms to define these inputs, and in particular on internal models developed to calculate regulatory capital requirements (capital adequacy ratios) and on projection models similar to those used in the stress test system. Certain adjustments are made to comply with the specifics of IFRS 9: IFRS 9 parameters therefore aim to provide an accurate estimateV of losses for accounting provision purposes, whereas prudential parameters are more cautious for regulatory framework purposes. Several safety buffers included in the prudential parameters are therefore restated, such as the PD and LGD downturn add-on, regulatory floors and internal costs); the IFRS 9 parameters used to calculate provisions on loansV classified as Stage 2 must enable lifetime expected credit losses to be calculated, whereas prudential parameters are defined for the purposes of defining 12-month default rates. 12-month parameters are thus projected over longer timescales; IFRS 9 parameters must be forward-looking and take into accountV the expected economic environment over the projection period, whereas prudential parameters correspond to the cycle’s average estimates (for PD) or bottom-of-the-cycle estimates (for LGD and the flows expected over the lifetime of the instrument). The PD and LGD prudential parameters are therefore also adjusted based on the expected economic environment.
Parameters are adjusted to economic conditions by defining three economic scenarios developed over a three-year period. The central scenario corresponds to the budget scenario, to ensure consistency with financial oversight processes. Two variants – an optimistic view and a pessimistic view – are also developed around this scenario based on observations of macroeconomic parameters.
The best case and worst case economic scenarios aim to represent the uncertainty surrounding the estimated economic variables in the central scenario. More specifically, these scenarios are developed, where possible, based on the variability between the various contributions to the market consensuses (maximum and minimum values contributed by the various banks operating in the market place for a given variable). If a consensus is not available for a variable, the best case and worst case scenarios are developed from the observed historical variability of the variable.
The method for determining probabilities of occurrence is based on an analysis of the market economic consensus and a measurement of the distance between the Group’s economic scenarios and this market consensus. This means that the closer an economic scenario is to the consensus, the higher its probability of occurrence.
All three scenarios are defined using the same organization structure and governance as for the budget process, with an annual review based on proposals from the Economic Research Department. The scenarios’ probability of occurrence is reviewed on a quarterly basis by drawing on the observed changes in the macroeconomic parameters used in the economic scenario.
For the purposes of measuring expected credit losses, pledged assets and other credit enhancements that form an integral part of the contractual conditions of the instrument and that the entity does not recognize separately are taken into account in the estimate of expected cash flow shortfalls.
After initial recognition, changes in fair value are recorded in the income statement under “Net gains or losses on financial instruments at fair value through profit or loss”. The interest accrued on such instruments is also included on this line.
Natixis uses interest rate swaps borrowing at fixed rates to fix future costs of interbank borrowings and public/private issues.
Hedging is demonstrated if, for each maturity, the nominal amount of the items to be hedged is greater than the notional amount of the hedging derivatives.
Retrospective hedge effectiveness tests are used to verify whether the hedge was effective at different reporting dates. At each such date, changes in the fair value of hedging instruments (excluding accrued interest) are compared with changes in the fair value of the hypothetical derivative instruments hedged (synthetic instruments representative of hedged assets or liabilities and management intentions). Changes in the fair value of hedging instruments must offset changes in the fair value of hedged items in a range of 80%-125%. Outside these limits, the hedge would no longer qualify.
The effective portion of the gain or loss on the hedge is recognized directly in equity, while the ineffective portion is taken to income at each reporting date under “Net gains or losses on financial instruments at fair value through profit or loss”. No specific entries are made to hedged items (other than those that would be made if they were not hedged).
The subsidiary Natixis Financial Products LLC documents overall hedging of its interest rate risk in accordance with fair value hedging rules. To account for these transactions, the subsidiary applies the carve-out provisions of IAS 39 as adopted by the European Union. The accounting treatment of derivative financial instruments designated for accounting purposes as structural fair value hedges is similar to that applied to fair value hedging derivatives. Changes in the fair value of portfolios of hedged instruments are reported on a specific line of the balance sheet (“Revaluation adjustments on portfolios hedged against interest rate risk”), with a corresponding entry in income.
Non-monetary items denominated in foreign currencies and measured at historical cost are translated at the exchange rate on the transaction date (or the date of reclassification in equity for the perpetual deeply subordinated notes issued: see Note 13.3.1).
Non-monetary items denominated in foreign currencies and measured at fair value are translated at the prevailing exchange rate at the end of the reporting period. Gains or losses on a non-monetary item (e.g., equity instruments) denominated in a foreign currency are recognized as income if the asset is classified as “Financial assets at fair value through profit or loss” and in equity if the asset is classified as “Financial assets at fair value through other comprehensive income”, unless the financial asset is designated as a hedged item in a fair value hedge, in which case foreign exchange gains and losses are recorded in income.
Additional valuation adjustments incorporate factors related to valuation uncertainties, such as market and credit risk premiums in order to account for the costs resulting from an exit transaction on the main market. Similarly, an assumptions-based Funding Value Adjustment (FVA), aiming to factor in the costs associated with the funding of future cash flows of uncollateralized derivatives or imperfectly collateralized derivatives, is also taken into account.
This adjustment takes into account the imperfections of the valuation techniques used – in particular, the risk factors that are not considered, even when observable market inputs are available. This is the case where risks inherent to various instruments differ from those considered by the observable inputs used in valuation.
Observing certain prices or inputs used in valuation techniques may be difficult or the price or input may be too regularly unavailable to determine the selling price. Under these circumstances, an adjustment may be necessary to reflect the probability of different values being used for the same inputs when evaluating the fair value of the financial instrument adopted by the market participants.
The valuation control procedure is presented in section 3.2.5 “Market risks” of Chapter 3 “Risk factors, risk management and Pillar III”.
Financial assets and liabilities measured and presented at fair value are categorized based on the following scale: Level 1: market value is determined directly using prices quoted onV active markets for identical assets and liabilities; Level 2: market value is determined using valuation techniquesV based on significant data that may be directly or indirectly observed on the markets.
Level 3: market value is determined using unrecognized modelsV and/or models based on non-observable market data, where they are liable to materially impact the valuation.
On November 12, 2009, an arrangement was made by BPCE to protect a portion of the portfolios of the former GAPC hive-off vehicle with retroactive effect at July 1, 2009. With this guarantee mechanism, Natixis was able to free up a significant portion of its equity allocated to segregated assets and to protect itself against the risk of loss from these portfolios subsequent to June 30, 2009. This protective arrangement was based on two mechanisms: a sub-participation with the characteristics of a financialV guarantee, covering 85% of the face value of assets recognized in “loans and receivables” and “available-for-sale financial assets”. Under this guarantee, Natixis was protected from the very first euro in default up to 85% of the default amount; The amount of the premium paid in 2009 by Natixis in return for the financial guarantee amounted to €1,183 million.
Instead, the premium is initially recognized on the accruals line and taken to income over the same period, in the same amount and on the same line as: reversals of provisions for impairment (in “Provision for creditV losses”), the deferred recognition of the discount (under net revenues)V arising on October 1, 2008 on assets reclassified within “Loans and receivables” at that date pursuant to the amendments to IAS 39 and IFRS 7 published on October 13, 2008.
At December 31, 2019, this financial guarantee, which had virtually no impact at December 31, 2018, was terminated and gave rise to a €6.1 million gain; two Total Return Swaps (TRS), one in euros and one in US$,V transferring to BPCE 85% of unrealized and realized gains and losses on the portfolio of instruments at fair value through profit or loss (cash and derivatives) since July 1, 2009. TRS are derivatives and are therefore carried at fair value on the balance sheet, with a matching entry to income. At the same time, Natixis had purchased an option from BPCE which allows it to recover the net gains on this portfolio after a ten-year period in return for the payment of a premium estimated at €367 million. The premium is also recognized at fair value.
Depreciation and amortization economic benefits are consumed. The residual value of the asset is deducted from its depreciable or amortizable amount when it can be measured reliably. Natixis does not believe it can reliably measure the residual value of items other than land and non-destructible buildings classified as historical monuments. They are therefore assigned a residual value of zero.
As soon as they are in a condition to be used by Natixis in the manner in which they were intended, property, plant and equipment and intangible assets are depreciated or amortized over their estimated useful lives on a straight-line, declining or increasing balance basis, whichever best reflects the pattern in which the
Depreciation periods must be reviewed annually and, where applicable, the impact of any change in estimate is recognized prospectively, in income, from the date of the change.
A sale is highly likely if: a plan to sell the asset (or group of assets) involving activeV marketing is made by management; a non-binding offer has been submitted by at least one potential buyer;V
A discontinued operation is a clearly identifiable component of an entity that either has been disposed of, or is classified as held for sale, and: represents a separate major line of business or geographic area ofV operations; is part of a single coordinated plan to dispose of a separate majorV line of business or geographic area of operations; or is a subsidiary acquired exclusively with a view to resale.V
Assets and liabilities relating to discontinued operations are accounted for in the balance sheet in the same way as groups of assets held for sale. Gains or losses from these operations are presented on a separate line of the income statement and include the post-tax gain or loss resulting from operations discontinued before disposal and from the sale or valuation of assets or groups of assets held for sale at fair value less selling costs.
These are financial liabilities held for trading (including derivatives) or classified in this category on a voluntary basis at initial recognition using the fair value option available under IFRS 9.
Securities valued under this irrevocable option fall into one of the following three categories: instruments that are part of a group of financial assets measuredV and managed at fair value: the option applies to liabilities managed and measured at fair value, provided the management follows a fair value risk management policy; instruments showing an accounting mismatch with a relatedV financial asset/liability: applying the option enables the elimination of accounting mismatches stemming from the application of different valuation rules to instruments managed under a single strategy; hybrid instruments with one or more significant, separableV embedded derivatives: an embedded derivative is the component of a financial or non-financial hybrid instrument that qualifies as a derivative. The option allows the entire instrument to be measured at fair value, and therefore avoids the need to extract, recognize or separately measure the embedded derivative.
Continuing involvement is evidenced by the existence of contractual conditions such as: an option or obligation to repurchase the assets transferred;V
Securities lending/borrowing transactions do not involve the transfer of a financial asset within the meaning of IFRS. Consequently, these transactions do not lead to the derecognition of the securities loaned. Securities loaned are not identified in IFRS: they remain recorded in their original IFRS category and measured accordingly. Borrowed securities are not recognized by the borrower.
In accordance with IAS 32, Natixis offsets financial assets and liabilities, and a net balance is presented on the balance sheet, on the twofold condition that it has the legally enforceable right to offset the recorded amounts, and the intention either to settle the net amount or to simultaneously realize the asset and settle the liability.
Transactions on derivatives and repurchase agreements carried out with clearing houses, whose operating principles meet the two criteria mentioned above, are offset in the balance sheet (see Note 8.3).
A provision for restructuring costs is recognized when the following standard criteria for recognizing provisions and the two following conditions are met: There is a detailed formal plan for the restructuring on the closingV date, identifying at least: the operations or part of the operations concerned,V
A description of the main risks and litigation to which Natixis is exposed is given in Section 3.2.9 of Chapter 3, “Risk factors, risk management and Pillar III”.
payments on that instrument are treated in the same way asV dividends. However, the tax consequences of these distributions are recognized, depending on the origin of the amounts distributed, in the consolidated reserves, as gains or losses recorded directly in equity or in income, in accordance with the amendment to IAS 12 of December 2017 entering into force on January 1, 2019. Accordingly, when the distribution corresponds to the IFRS 9 definition of dividends, the tax consequences are recorded in income. This provision is to be applied to any interest income from deeply super subordinated notes treated as dividends for accounting purposes, it is fixed at its historical value resulting from converting it toV euros on the date it was initially classified under equity; the share of third party investors in the net assets of dedicatedV mutual funds included in Natixis’ consolidation scope comprises a financial liability recorded on the balance sheet under “Financial liabilities at fair value through profit or loss”. The share of third party investors in the profits of the mutual funds is recorded in “Net gains or losses on financial instruments at fair value through profit or loss” in the consolidated income statement; the units held by third party investors in dated funds, which areV fully consolidated by Natixis, entitling the unit-holders to the repayment of a share of the fund’s net assets upon its liquidation, are classified in liabilities on the consolidated balance sheet under “Accruals and other liabilities”. The share of third party investors in the fund’s profits is recorded under “Interest and similar expenses” on the consolidated income statement.
The expense is recognized on a straight-line basis over the vesting period. The expense is adjusted over the vesting period to reflect any losses of rights.
Detailed information about these plans and their quantified impacts over the period are provided in Note 12.2.2.
Treasury share derivatives are recognized differently depending on how they are unwound: as equity instruments, if they are unwound by trading a fixedV number of treasury shares for a fixed amount of cash or another financial asset, and if this trade is the only possible unwinding method. In such case, the instruments are not subsequently revalued; as derivatives, if they are unwound via a net cash settlement or aV net treasury shares settlement. In such case, the fair value changes in the instruments are recorded in the income statement.
As of January 1, 2019, compensation amounting to less than 2.5 times the French minimum wage no longer qualifies for the Competitiveness and Employment Tax Credit (CICE) following the decrease in employer contributions granted thereto. Natixis does not therefore benefit from the CICE in respect of 2019 (since this tax credit fell within the scope of IAS 19 “Employee Benefits”, it had been presented as a deduction from the related payroll costs).
Financial guarantee commitments not classified as derivatives are contracts requiring the issuer to make specific payments to repay the business guaranteed for a loss that it has incurred owing to the failure of a debtor to make the contractual installments due. The exercise of these rights is subject to the occurrence of an uncertain future event.
All of the financial guarantees issued by insurance subsidiaries that also meet the definition of an insurance contract were accounted for in line with the requirements of IFRS 4 “Insurance Contracts” (see Note 9).
They were recorded under “Other bonds and endorsements given” for €5,383 million at December 31, 2018.
Financing commitments are irrevocable commitments by Natixis to grant a loan under pre-defined conditions.
Contributions to banking 6.22 resolution mechanisms are non-refundable in the event of a voluntary withdrawal of approval to operate) recorded in income as “Taxes and regulatory contributions” among other operating expenses (see Note 7.7).
The procedure for setting up the deposit and resolution guarantee fund was changed by a French Ministerial Order dated October 27, 2015. Contributions made to the deposit and resolution guarantee fund may be paid in the form of partner or association certificates and cash security deposits (guarantee of irrevocable commitment) recognized as assets on the balance sheet and contributions (which
Directive 2014/59/EU (BRRD – Bank Recovery and Resolution Directive) which establishes the framework for the recovery and resolution of banks and investment firms and Regulation (EU) No 806/2014 (SRM regulation) established the introduction of a resolution fund as of 2015. In 2016, this fund became a Single Resolution Fund (SRF) between the member States participating in the Single Supervisory Mechanism (SSM). The SRF is a resolution financing mechanism available to the resolution authority (Single Resolution Board). The latter may use this fund when implementing resolution procedures.
The valuation models used to price illiquid financial instruments are described in Note 8.5.
The political and economic consequences of Brexit are now contingent upon the agreements reached over the course of 2020, bearing in mind that European legislators already consider this schedule much too tight.
In light of this situation, Natixis has prepared for the various possible withdrawal outcomes and will be closely monitoring the conclusions of these negotiations so that, where necessary, these may be factored into the assumptions and estimates made when preparing the consolidated financial statements. The potential non-recognition of British CCP under European regulations is no longer a risk in the short term.
Uncertainties related to the application of certain provisions of the BMR
Regulation (EU) 2016/1011 of June 8, 2016 on the indices used as benchmarks (“the Benchmark Regulation” or “BMR”) introduces a common framework aimed at guaranteeing the accuracy and integrity of the indices used as benchmarks for financial instruments and contracts, or to measure the performance of investment funds within the European Union.
In the euro zone, most of the uncertainties surrounding the definition of new benchmark rates were cleared up in the first of half 2019. Indeed, the work done to propose new indices was finalized in the case of Eonia, which became a €STER tracker on October 1, 2019 and will continue to be one until December 31, 2021. The latter will replace the so-called “recalibrated” Eonia from January 1, 2022. As regards the Euribor, a new calculation methodology (recognized by the Belgian regulator as complying with BMR requirements), aimed at switching to a “hybrid” Euribor, was finalized in November 2019.
As far as the Libor is concerned, alternative “risk-free-rates” have been defined for the GBP, USD; CHF and JPY Libor, although proposals are still being developed for forward structures based on these alternative rates. As it stands, there is still significantly more uncertainty surrounding transactions using the Libor.
Since the first half of 2018, Natixis has had a project team in place tasked with anticipating the impacts associated with the benchmark index reform from a legal, commercial, financial and accounting standpoint. Governance involving all four Natixis business lines has been set up to analyze the operational aspects of this issue. In 2019, it focused on the Euribor reform and the transition from Eonia to €STR. A new, more operational phase began in 2020 on the transition and the reduction of exposure to benchmarks that may disappear. It covers the use of new indices, inventory remediation and more active communication with bank clients.
Net earnings/(loss) attributable to shareholders (in millions of euros) (a) 1,758 1,480
Average number of treasury shares outstanding over the period 2,446,353 2,256,353
Number of potential dilutive shares resulting from stock option plans and bonus share awards (b) 7,988,464 8,450,160
Average number of shares used to calculate diluted earnings/(loss) per share 3,158,161,981 3,150,384,808
The difference between net income (Group share) and net income/(loss) attributable to shareholders corresponds to the interest generated on deeply (a) subordinated notes and on preference shares, i.e. -€138.1 million at December 31, 2019 and -€96.5 million at December 31, 2018 (gross amount of -€141.2 million and tax impact of +€44.7 million). This number of shares refers to the shares granted under the 2017, 2018 and 2019 Bonus Share Plans (PAGA), the 2016, 2017 and 2019 Long-Term Incentive (b) Plans (LTIP) and the 2018 Payment Business Line Plan (PMP).
Financial assets at fair value through other comprehensive income 104 104 97 97
Financial instruments to be valued at fair value through profit or loss 56 56 81 81
pension schemes or other institutions. In particular, trust transactions cover Asset Management and custody activities performed on behalf of third parties.
Fiduciary or similar fees and commissions are those that result in assets being held or invested on behalf of individual customers,
As stipulated by the contractual provisions in their prospectuses, performance fees will be paid on certain funds managed by Natixis Investment Managers affiliates that outperform.
Financing, guarantee, securities and derivative commitments 235 (117) 118 266 (134) 132
Of which performance fees in the amount of €627 million (of which €537 million for Europe) at December 31, 2019, versus €426 million (of which €420 million (a) for Europe) at December 31, 2018.
Of which net fee and commission income of -€1,243 million at December 31, 2019, versus -€1,170 million at December 31, 2018, for insurance activities, for (b) which the related income is presented as “Net income from insurance activities”.
At December 31, 2018, the SFS division’s retail banking entities recognized in assets held for sale contributed +€107 million to net fee and commission income.(c)
“Hedging derivatives” include changes in the fair value of derivatives classified as fair value hedges, excluding interest, plus the symmetrical revaluation of the items hedged. They also include the “ineffective” portion of cash flow hedges.
Insofar as the expenses and income presented in the income statement are classified by type and not by function, the net income of activities on financial (a) instruments at fair value through profit and loss should be considered as a whole. The results presented above do not include the refinancing cost of these financial instruments, which is recorded in interest income or expenses. “Net gains/(losses) on financial assets and liabilities held for trading” include:(b) - impairments taken against the fair value of CDS entered into with monoline insurers: an increase of €1.8 million in cumulative impairments during fiscal year 2019, versus a decrease of €39.9 million (income) in cumulative impairments at December 31, 2018 (excluding the currency impact and the impact of the BPCE guarantee), bringing cumulative impairments to €25.1 million at December 31, 2019, versus €23.3 million at December 31, 2018; - at December 31, 2019, recognized own credit risk adjustments to derivatives (debit valuation adjustments or DVA) stood at -€35.4 million (expense), versus €13.9 million (income) at December 31, 2018.
The table below shows net gains and losses in financial assets at fair value through other comprehensive income recognized in net income over the period. They primarily consist of: income on the sale of debt instruments net of the impact ofV hedging instruments; dividends on equity instruments.V
losses recorded following the sale of financial assets at amortized cost and (versus -€4 million at December 31, 2018) and -€3 million of losses related to the sale of debt securities at amortized cost (versus +€1 million at December 31, 2018).
At December 31, 2019, net gains or losses resulting from the derecognition of instruments at amortized cost include -€7 million in
Operating expenses mainly comprise payroll costs, including wages and salaries net of rebilled expenses, social security expenses and employee benefits such as pensions (defined benefit plans), and expenses relating to share-based payment recognized in accordance with IFRS 2. A breakdown of these expenses is provided in Note 12.
Of which €7.5 million in respect of the Competitiveness and Employment Tax Credit (CICE) at December 31, 2018. The CICE was eliminated from January 1, 2019.(a) The amount recognized for 2019 in respect of the retention and performance plans includes an expense of €44 million (versus €27 million at December 31, (b) 2018) for the portion of compensation paid in cash and indexed to the Natixis share price and an additional expense of €10 million (versus €17 million at December 31, 2018) for the portion of compensation settled in Natixis shares; Of which €1.8 million at December 31, 2018 related to the Coface restructuring plan;(c) Of which a contribution of €169.7 million to the Single Resolution Fund (SRF) at December 31, 2019, versus €163.8 million at December 31, 2018;(d) Of which the Social Security and Solidarity Contribution (C3S) for €33.8 million at December 31, 2019, versus €37.7 million at December 31, 2018.
Unimpaired financial assets – Lifetime expected credit losses (244) 266 0 0 22 (326) 418 0 0 92
Impaired financing commitments – Lifetime expected credit losses (75) 50 (0) 0 (25) (31) 34 (1) 0 2
Net capital gains/(losses) on disposals 627 60 687 49 5 54
Including €697.1 million for the sale of the SFS business lines (see Note 3.1) and -€14.7 million for the sale of Natixis Brasil.(a) Including +€7.6 million related to the settlement of the previously completed disposal of a portion of the Private Equity business and -€2.2 million related to the (b) disposal of Cofacrédit (held by Coface). Including +€4.2 million following the disposal and decommissioning of intangible assets.(c)
Reconciliation of the tax expense in the financial statements 7.10 and the theoretical tax expense
+ Impairment of goodwill (5) 0 - Share in income of associates (21) (29)
= Consolidated net income/(loss) before tax, goodwill amortization and share in income of associates 2,919 2,632
= Consolidated taxable income/(loss) 2,809 2,909 x Theoretical tax rate (b) 34.43% 34.43%
Amounts restated relative to the financial statements published in 2018.* Permanent differences includes the share of the tax-exempt long-term capital gain relating to the sale of the SFS business lines to BPCE (-€454 million) and the (a) non-deductible capital loss on the disposal of Natixis Brasil (+€14.7 million), as well as the impacts of the non-deductible regulatory contributions of +€130 million at 31/12/2019 versus +€131.4 million at 31/12/2018. In 2019, the theoretical tax rate incorporates the 3.3% social security contribution on the corporate tax amount. For the sake of comparison, 2018 data were (b) restated.
Financial assets and liabilities 8.1 at fair value through profit and loss
The criteria for classifying financial assets at fair value through profit or loss if they do not meet the SPPI criterion used by Natixis are provided in Note 6.1.2.(a) Only in the case of an accounting mismatch as defined by IFRS 9 (see Note 6.1.5).(b) The information presented takes into account the impact of offsetting carried out in accordance with IAS 32 (see Note 8.3).(c)
Financial liabilities under the fair value option for which credit risk is recognized in shareholders’ equity
Balancing payments relating to the early redemption of Natixis issues recognized in shareholders’ equity over the 2019 fiscal year totaled -€2 million versus (a) €5.3 million over the 2018 fiscal year. The fair value, determined using the calculation method described in Note 8.5, recorded in respect of internal credit risk on Natixis issues, totaled €113.5 million (b) at December 31, 2019 versus -€114.9 million at December 31, 2018. Besides changes in the outstanding amount, this difference reflects changes in the Natixis spread since the close of the previous year’s accounts.
Loans and receivables due from banks 7,909 154 1 9,732 116 (2)
Fair value of hedging derivative o/w effective portion o/w ineffective portion
Cash flow hedging – Analysis of other items of comprehensive income8.2.3.1
Amount of OCI for CFH transactions (38) 29 (0) 6 (3) 2 (4) (5)
The table below presents the amounts offset on the Natixis balance sheet meeting the criteria set out in IAS 32, as well as the impacts linked to the existence of an enforceable right of set-off under a master netting arrangement or similar agreements that do not meet the criteria set out in IAS 32 dealing with offsetting.
for asset switches that have similar nominal amounts and identicalV maturities and currencies, Natixis presents these transactions as a single financial asset or liability.
Loans and receivables due from banks 3,036 1,100 1,936 1,614 700 914
Loans and receivables due from customers 3,541 3,541 3,144 0 3,144
Financial liabilities at fair value through profit or loss 203,577 47,826 155,751 176,949 28,977 147,972
In 2019, Natixis Investment Managers acquired stakes in Fiera Capital in the amount of €85.3 million and in US asset management company WCM Investment (c) Management in the amount of €253.1 million.
Variations linked to changes in exchange rates 86 (0) 86 (0)
Investments in unlisted and unconsolidated companies 513 30 0 4 1 126 2 0 12 (4)
Derivative instruments not eligible for hedge accounting (positive fair value) 60,880 924 57,749 2,207 57,161 1,449 53,162 2,548
Derivative instruments not eligible for hedge accounting (negative fair value) 59,718 674 57,146 1,898 57,161 1,036 54,071 2,054
Financial liabilities designated under the fair value option 28,692 3,696 15,627 9,368 26,711 3,726 22,800 185 o/w securities under the fair value option 24,759 15,393 9,366 22,132 21,950 182 o/w other financial liabilities under the fair value option 3,933 3,696 235 2 4,579 3,726 851 3
The data regarding the fair value measurements for the insurance activities are presented in Note 9.4.4.
Level 2 fair value comprises instruments other than those mentioned in Level 1 fair value and instruments measured using a valuation technique incorporating inputs that are either directly observable (prices) or indirectly observable (price derivatives) through to maturity. This mainly includes: Simple instruments
Instruments measured using Level 2 inputs also include: securities that are less liquid than those classified as Level 1,V whose fair value is determined based on external prices put forward by a reasonable number of active market makers and which are regularly observable without necessarily being directly executable (prices mainly taken from contribution and consensus databases); where these criteria are not met, the securities are classified as Level 3 fair value; securities not quoted on an active market whose fair value isV determined based on observable market date. E.g. use of market data published by listed peer companies or the multiple method from techniques commonly used by market participants; Greek sovereign securities, whose fair value was recorded underV Level 2 given the wide bid-ask price spread on market prices; mutual fund units whose NAV is not determined and published onV a daily basis, but are subject to regular reporting or offer observable data from recent transactions; debt issues measured under the fair value option where theV underlying derivatives are classified in Level 2.
Issuer credit risk is also considered as observable. The valuation of the “issuer credit risk” component is based on the discounted cash-flow method, using inputs such as yield curves, revaluation spreads, etc. For each issue, this valuation represents the product of its remaining notional amount and its sensitivity, taking into account the existence of calls, and based on the difference between the revaluation spread (based on BPCE’s cash reoffer curve at December 31, 2019, as on previous reporting dates) and the average issue spread. Changes in the issuer spread are generally not material for issues with an initial maturity of less than one year.
Some more hybrid and/or long-maturity financial instruments are measured using a recognized model on the basis of market inputs derived from observable data such as yield curves, implied volatility layers of options, market consensus data or active over-the-counter markets.
The products traded may be mono-underlying, multi-underlying or hybrid (e.g., fixed income/equity) products.
their characteristics are identical to the characteristics ofV the transaction. If necessary, a proxy may be used, provided that the relevance of such an arrangement is demonstrated and documented.
The fair value of instruments obtained using valuation models is adjusted to take account of liquidity risk (bid-ask), counterparty risk, the risk relating to the cost of funding uncollateralized or imperfectly collateralized derivatives, own credit risk (measurement of liability derivative positions), modeling risk and input risk.
Level 3 comprises instruments measured using unrecognized models and/or models based on non-observable market data, where they are liable to materially impact the valuation. This mainly includes: unlisted shares whose fair value could not be determined usingV observable inputs; Private Equity securities not listed on an active market, measured atV fair value with models commonly used by market participants, in accordance with International Private Equity Valuation (IPEV) standards, but which are sensitive to market fluctuations and whose fair value determination necessarily involves a judgment call; structured or representative of private placements, held by theV Insurance business line; hybrid interest rate and currency derivatives and credit derivativesV that are not classified in Level 2; loans in the syndication process for which there is no secondaryV market price; loans in the securitization process for which fair value isV determined based on an expert appraisal; investment property whose fair value is obtained using aV multi-criteria approach based on the capitalization of rents at the market rate combined with a comparison with market transactions; instruments with a deferred day-one margin;V
mutual fund units for which the fund has not published a recent NAVV at the valuation date, or for which there is a lock-up period or any other constraint calling for a significant adjustment to available market prices (NAV, etc.) given the low liquidity observed for such securities; debt issues measured under the fair value option are classifiedV in Level 3 where the underlying derivatives are classified in Level 3. The associated issuer credit risk is deemed observable and thus classified in Level 2; instruments carried at fair value on the balance sheet and forV which data are no longer available due to a freeze in trading in the wake of the financial crisis, which were not reclassified as “Loans and receivables” pursuant to the amendment to IAS 39 and IFRS 7 published on October 13, 2008 (see below). When there is a significant drop in trading in a given market, a valuation model is used based on the only available relevant data; plain vanilla derivatives are also classified as Level 3 in the fairV value hierarchy when exposure is beyond the liquidity horizon determined by underlying currencies or by volatility surface (e.g., certain foreign currency options and volatility caps/floors).
Forex Helvetix: Strip of long-term options, Strip of quanto options, Strip of digital options
Transfers between fair value levels are reviewed and validated by the Valuation Committee, predominantly including representatives of the Finance fonction, Risk and Business Lines. The Committee considers various indicators of market activity and liquidity as described in the General Principles.
The main reclassifications in the 2019 fiscal year consisted of Bermuda accreter swaptions (in EUR and AUD), certain complex multi- or mono-underlying derivatives indexed to indices, and associated liabilities measured under the fair value option. These instruments were reclassified from Level 2 to Level 3 of the fair value hierarchy (see Notes 8.5.1 and 8.5.3) subsequent to the observability review conducted during the period, which found a lack of observed prices for the corresponding inputs and products, serving as a basis for their reclassification to Level 3 of the fair value hierarchy.
Note: at December 31, 2018, a portfolio of complex derivatives in Asia had been transferred to Level 3 in the fair value hierarchy. The portfolio consisted of products indexed to the worst performance of an underlying Equity basket (indices and shares) allowing investors to receive enhanced periodic coupons in return for a risk of loss of capital at maturity, with the possibility that the product may expire early. The outstandings in question had a fair value recorded on the asset side of the balance sheet of €131 million at December 31, 2018. The bear market in Asia had underscored the limitations of the
Since December 31, 2015, the valuation model used to measure write-downs on CDS contracted with monoline insurers has moved more in line, in terms of method, with the adjustment made for counterparty risk (Credit Valuation Adjustment – CVA). It also takes account of the expected depreciation of exposures and the counterparty spread implied from market data.
In 2018, the value of TruPS CDOs was measured using a valuation model. This model is based on projected future cash flows and default rates determined according to a statistical approach that deduces the default probability of banks according to their financial ratios. For other sectors, default rates were estimated considering the current ratings of assets.
Financial assets at fair value through equity 48 1 26 256 (2) (8) (0) 321 o/w debt instruments in the form of securities o/w loans and receivables
TOTAL FINANCIAL ASSETS RECORDED AT FAIR VALUE 6,975 958 (160) 26 9,369 (10,218) (455) 495 (14) (4) 88 7,060
Financial liabilities under the fair value option through profit or loss 185 475 (2) 3,339 (1,905) 4,975 2,296 5 9,368 o/w securities under the fair value option 182 475 (2) 3,339 (1,905) 4,975 2,296 5 9,366 o/w other financial liabilities under the fair value option 3 (1) 2
The flows presented under the “Reclassifications in the period” columns of the above table are determined on the basis of outstanding transactions at December 31, 2019.
Financial assets held for trading 151 2,448 2,598 60 88 7,550 (7,482) (0) 14 (0) 61 2,889 o/w debt instruments in the form of securities 151 (12) 139 (68) 1 56 (68) (0) 14 (0) 2 75
Financial assets at fair value through equity 74 74 (16) 6 (16) (0) 0 0 48 o/w debt instruments in the form of securities 6 6 (6) 0 o/w loans and receivables
Derivative instruments not eligible for hedge accounting (negative fair value) 1,945 (11) 1,934 471 (482) 454 (162) (176) 13 2 2,054
Other financial liabilities held for trading 1,097 1,097 38 (78) 1,138 (1,019) 0 1,176
Financial liabilities under the fair value option through profit or loss 1,469 (1,097) 373 (15) 1 11 (190) 1 4 1 185 o/w securities under the fair value option 373 373 (14) 1 11 (190) 1 1 182 o/w other financial liabilities under the fair value option 1,097 (1,097) (1) 4 3
Sensitivity analysis of the fair value of financial instruments measured according to Level 3 –
Financial assets at fair value through profit or loss 306 230 495 455 111 235 322 206
Financial assets held for trading 289 119 6 116 89 150 14 o/w debt instruments in the form of securities 233 119 6 0 89 150 14 o/w equity instruments 2 o/w loans and receivables 116 o/w security deposits paid 54
Loans and receivables due from banks at amortized cost 48,115 48,580 48,276 303 27,285 27,558 26,533 1,026
Debt instruments in the form of securities at amortized cost 1,558 1,609 686 923 1,193 1,229 461 767
The fair value of repurchase agreements is calculated by discounting expected cash flows at the market rate on the closing date and adding a liquidity spread.
The fair value of loans with an initial term of less than one year is considered to be the same as their carrying amount. This is also generally the case for financial assets with a term of one year or less and current accounts. The corresponding receivables are classified in Level 2 of the fair value hierarchy.
These are SPPI financial assets held under a “hold to collect” model. The vast majority of loans granted by the Group are classified in this category.
Value adjustments for credit losses (3) (48) (51) (2) (48) (50)
Reconciliation table for loans and receivables due from banks at amortized cost
Contracts fully repaid or sold during the period (22,441) 0 (376) 1 (9) 7 (22,827) 8
Variations linked to changes in exchange rates 299 (0) 16 (0) 1 (2) 316 (2)
New originated or acquired contracts 24,396 0 71 0 24,467 0
Variations linked to changes in credit risk parameters (excluding transfers) (7,046) 0 110 (1) 2 0 (6,933) (2)
Gross carrying amount excluding insurance company contributions, i.e. €558 million at million at December 31, 2019 (versus €887 million at December 31, 2018).(a) Corresponds to the SFS business lines recognized in non-current assets held for sale as at December 31, 2018 (see Notes 3.6 and 4.1).(b) Corresponds to outstanding loans with the SFS division’s retail banking entities sold to BPCE in the amount of €14,734 million at January 1, 2019.(c)
Value adjustments for credit losses (119) (1,255) (1,375) (125) (1,114) (1,239)
Corresponds to unimpaired financial assets for which value adjustments are calculated based on 12-month expected credit losses (Stage 1) or lifetime expected credit losses (Stage 2);(a) Impaired financial assets (Stage 3) are assets for which a default event has been identified as defined in Article 178 of the EU Regulation of June 26, 2013 on regulatory requirements for credit institutions.(b)
New originated or acquired contracts 21,745 (26) 4,602 (25) 0 0 16 (1) 26,363 (52)
Variations linked to changes in exchange rates 890 (1) 669 (1) 6 (13) 11 (2) 1,576 (17)
Changes in the model used 0 0 0 0 0 0 0 0 0 0
Corresponds to unimpaired financial assets for which value adjustments are calculated based on 12-month expected credit losses (Stage 1) or lifetime (a) expected credit losses (Stage 2). Impaired financial assets (Stage 3) are assets for which a default event has been identified as defined in Article 178 of the EU Regulation of June 26, 2013 (b) on regulatory requirements for credit institutions.
Contracts fully repaid or sold during the period (78) (126) 8 (52) 10 (256) 18
Variations linked to changes in exchange rates 15 (1) 15 (1)
Variations linked to changes in credit risk parameters (excluding transfers) 26 (0) 19 (1) 39 (24) 83 (25)
The table below shows, inter alia, the carrying amount of: the underlying assets of the covered bond issues;V
The tables below show financial asset transfers according to the amendment to IFRS 7, which distinguishes two categories of transferred assets: transferred financial assets that are not, partially or wholly, derecognized, and transferred financial assets that are fully derecognized, for which Natixis maintains continuing involvement.
A financial asset is partially or wholly transferred if Natixis transfers the contractual rights to collect cash flow from the financial asset, or retains the contractual rights to collect cash flow from the financial asset but assumes a contractual obligation to pay those cash flows to one or more beneficiaries.
Financial assets at fair value through profit or loss 9,208 8,989 7,455 6,648
Fully derecognized transferred financial assets for which continuing involvement 8.7.2.2 is maintained
At December 31, 2019 (as at December 31, 2018), there was no material impact from continuing involvement in a securitization vehicle maintained by Natixis.
Other sources of deferred tax through profit or loss (141) (121)
TOTAL SOURCES OF DEFERRED TAX THROUGH PROFIT OR LOSS 3,083 1,350 476 3,542 1,416 398
Sources of deferred tax on recyclable OCI (745) (7) 164 (388) 2 83
Sources of deferred tax on non-recyclable OCI 274 45 (24) 40 38 23
Positive amounts represent sources of deferred tax giving rise to deferred tax assets, while negative amounts represent sources giving rise to deferred tax (a) liabilities. Deferred tax related to the tax amortization of goodwill in the United States.(b)
This heading corresponds to technical accounts, details of which are given below: Other assets8.9.1
Of which €129 million in contract liabilities (prepaid expenses) at December 31, 2019 versus €125 million at December 31, 2018.(a) The application of IFRS 16 had an impact of €1,318 million at January 1, 2019 (see Note 2).(b)
Rights of use in respect of lease agreements (lessees) (a) 1,232 (209) 1,023
At December 31, 2018, intangible assets reclassified as assets held for sale pursuant to IFRS 5 totaled €127 million.
At December 31, 2019 and December 31, 2018, Natixis did not have any assets obtained by taking possession of guarantees on its balance sheet.
Of which +€42.1 million in goodwill recorded on the acquisition of Massena Partners. In addition, a goodwill adjustment of -€1.0 million for MV Crédit was made (a) within the one-year allocation period.
carrying amount of the goodwill and its tax value. This difference in treatment generated a deferred tax liability of €346.6 million as at December 31, 2019.Certain goodwill recorded for the United States gives rise to a tax amortization over 15 years due to the difference between the
Furthermore, goodwill on entities consolidated using the equity method amounted to €3.3 million at December 31, 2018.
Including €1,509 million for the insurance entities at December 31, 2019, versus €4,358 million at December 31, 2018.(a) The fair value of debts due to banks is provided in Note 8.5.4.
The main features of the subordinated note issues are outlined in Chapter 14 of the Pillar III report.
Issues of debts and subordinated notes consist of a €300.5 million issue of a new subordinated note underwritten by BPCE.(a) Other changes mainly pertained to the revaluation of debts subject to hedging and variations in intra-group securities held by Natixis Funding for the purposes (b) of market making with respect to Natixis’ debt on the secondary market.
The table below does not include value adjustments for credit losses associated with financial assets at amortized cost (see Note 6.1.3), or at fair value through other comprehensive income (see Note 6.1.4), or loan and guarantee commitments given (see Note 6.21).
The table below presents the balances of financial assets and as having a “perpetual” maturity. Likewise, delinquencies and liabilities by contractual maturity in the balance sheet. non-performing loans are deemed to have a “perpetual” maturity. Variable-income assets, derivative financial instruments for trading and hedging purposes as well as revaluations of components hedged or unhedged by financial assets and liabilities are considered
Loans and receivables due from credit institutions 7 4 16 10 10 1 48 7 1 10 8 1 0 27
Debt instruments at amortized cost 0 0 0 1 0 2 0 0 0 0 0 0 1
Assets at fair value through profit and loss – excluding trading derivatives 0 0 2 0 2 19 23 0 0 0 1 1 21 22
Available-for-sale financial assets 0 0 3 13 25 10 51 0 1 2 14 21 10 48
Financial liabilities at fair value through profit or loss 12 1 0 1 11 133 159 2 0 1 6 14 128 151 o/w senior debt o/w senior debt
Amounts due to credit institutions 17 14 12 24 3 2 72 20 15 9 24 2 4 73 o/w secured debt
The “Insurance business investments” line on the asset side of the balance sheet consists of insurance business assets representative of: financial investments (i.e. in financial instruments) includingV advances to policyholders; financial investments in unit-linked products;V
On the liability side of the balance sheet, the “Liabilities related to insurance policies” line consists of: insurance companies’ technical reserves;V
These are instruments held for trading purposes or designated at fair value through profit or loss on initial recognition in accordance with the fair value option amendment to IAS 39 (published by the IASB in June 2005 and adopted by the European Union on
Available-for-sale financial assets include non-derivative financial assets that are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Securities classified in this category are initially recognized at their market value. At the reporting date, they are remeasured at their market value determined based on the market price for listed instruments.
The impairment criteria for non-amortizing securities categorized as available-for-sale assets are as follows: automatic impairment if there are unrealized losses of more thanV 50% at the reporting date; automatic impairment if there are unrealized losses for a period ofV more than 24 consecutive months; case-by-case analysis of securities presenting unrealized losses ofV more than 30% at the reporting date; case-by-case analysis of securities presenting unrealized lossesV for more than six consecutive months.
Identified securities give rise to an impairment charge based on their total carrying amount so that their post-impairment value reflects the recoverable value. The impairment charge is never reversed.
Insurance transactions are recognized before reinsurance transfers. Reinsurance transfers are recognized in accordance with the terms of the different reinsurance treaties.
No Natixis reinsurance policies fall under the scope of IAS 39.
Pursuant to paragraph 30 of IFRS 4, insurance policies and investment contracts with discretionary participation (life insurance) are measured using shadow accounting, which consists in recognizing the portion of unrealized gains or losses potentially attributable to policyholders as a deferred profit-sharing reserve. The deferred profit-sharing reserve thus reflects the potential entitlement of policyholders to unrealized gains for financial investments or their portion of unrealized losses. Considering the pay-out ratio in the 2019 budget and in accordance with the pay-out ratio recorded for 2018, the deferred profit-sharing rate adopted at December 31, 2019 was 89% compared with 88% at December 31, 2018.
Application of the shadow accounting mechanism resulted in the recognition of a deferred profit-sharing liability on December 31, 2019 as on December 31, 2018.
In the case of deferred profit-sharing assets, a recoverability test is carried out. Deferred profit-sharing may be recovered depending on the intention and ability of companies to steer future compensation of contracts according to resources. These are sensitive to: changes in the equity and bond markets;V
Capital gains and losses on disposal of investments (net of reversals, write-downs and amortization) 262 204 (5) 0 200 (0) 0 62 262
Change in fair value of investments carried at fair value through profit or loss 1,829 1,833 (4) 0 1,829 0 0 0 1,829
Investment income (net of expenses) 3,560 3,484 26 (14) 3,497 0 0 62 3,560
Change in unearned premium income (152) (175) 23 0 (152) 0 0 0 (152)
Revenues and income from other activities 152 133 19 0 152 0 0 0 152
Share in income of associates 15 0 0 0 0 0 0 15 15
Securities under the fair value option through profit or loss 9.4.1.1 21,055 17,501
Investment property – At historical cost 40 (14) 26 40 (13) 27
The fair value of investment property, for which the valuation techniques are described in Note 8.5.3, is classified in Level 3 of the fair value hierarchy of IFRS 13.
Changes in fair value give rise to the symmetrical recognition of a deferred profit-sharing reserve equal to 89% of the related base amount on average at December 31, 2019, compared with 88% at December 31, 2018 (see Note 9.2.5).
Fair value of financial assets and liabilities carried at fair value in the balance sheet9.4.4
Financial assets at fair value through profit or loss 23,360 17,505 4,569 1,286 22,328 19,519 1,570 1,238
Income securities held for trading 2,286 2,202 84 4,810 4,726 84 o/w debt instruments in the form of securities
Financial assets designated under the fair value option through profit or loss 21,055 15,289 4,480 1,286 17,501 14,789 1,473 1,238 o/w debt instruments in the form of securities 2,046 98 663 1,285 1,582 89 255 1,238 o/w loans and receivables o/w investments backed by unit-linked policies 18,224 15,065 3,159 0 15,553 14,617 936
Available-for-sale securities – Equity investments 240 0 0 240 208 0 0 208
Other available-for-sale securities 51,151 43,317 5,279 2,554 47,593 39,708 5,617 2,267 o/w debt instruments in the form of securities 43,033 37,311 3,189 2,534 40,874 34,443 4,213 2,218 o/w other available-for-sale financial assets
Financial assets at fair value measured using level 3 of the fair value hierarchy
Financial assets at fair value through profit or loss 1,238 87 (3) 0
o/w debt instruments in the form of securities 1,238 87 (3)
Other available-for-sale securities 2,267 (11) 51 3 o/w debt instruments in the form of securities 2,218 (11) (4) 3 o/w equity instruments 49 55 o/w other available-for-sale financial assets 0
Financial assets at fair value through profit and loss – Trading 1,465 (29) (2) 0
Derivative instruments not eligible for hedge accounting (positive fair value) 4 0 0 0 o/w currency derivatives 4 o/w equity derivatives 0 o/w other
Of which €11,602 million for guarantee deposits made for the acceptance of reinsurance treaties, compared with €11,598 million at December 31, 2018.(a)
Loans and receivables due from customers 13,312 13,312 51 13,259 2 12,760 12,760 47 12,712
The information about debt securities required by IFRS 7 is presented in Note 8.14.
The information about subordinated debt required by IFRS 7 is presented in Note 8.15.
Information to be disclosed about the temporary exemption from the application 9.5.5 of IFRS 9 for insurance activities
Fair value Change in fair value over the period Fair value Change in fair value over the period
This table does not include financial assets recognized at fair value through profit or loss, or reinsurance activities.
Excluding €5,994 million in mutual funds classified as available-for-sale assets at December 31, 2019 versus €5,067 million at December 31, 2018.(a)
Together, these specialized asset management companies enableV the Group to provide a full range of expertise meeting demand from all customer segments. Coverage of the various customer segments is optimized by the organization of distribution around a shared platform and the business franchises developed over the long term by the Asset Management companies. Since the start of 2014, Private Equity companies for third party clients have been transferred to Natixis Investment Managers and a sponsoring vehicle was set up to monitor Natixis' commitments in the funds. The teams have extensive expertise in equity financing for generally unlisted, small and medium-sized enterprises in France and Europe via sponsored equity holdings. This business line covers the Private Equity segments for third party investors, such as Private Equity deals (top-line funding for mature companies), venture capital (new, innovative companies) and funds of funds.
Employee savings plans: this business line offers companies anV employee savings management solution (administration of employee accounts, fund administration and accounting); Corporate & Investment 10.2
This business line provides tools, infrastructure, and services for payments: electronic banking, issuance and collection of mass electronic transfers, check processing, service vouchers, e-commerce, etc. Under the New Dimension plan, Payments is designed to become a pure play on the payment segment in Europe and accelerate its digital transformation. Thus, the business line recently acquired several start-ups specializing in electronic payment and e-commerce, namely: Payplug, S Money, Dalenys and Comiteo; Financial Investments10.5
The Corporate Center operates alongside the operating divisions. The Corporate Center recognizes the central funding mechanisms and income from Natixis’ asset and liability management. To this end, it includes all Treasury activities, including the short-term Treasury business, which has been part of Natixis’ Finance Department since the start of 2017 (it was previously part of Corporate & Investment Banking). It also records income on the bank’s portfolio of equity investments not belonging to a division. In terms of costs, the Corporate Center recognizes the bank’s structural costs and the contribution to the Single Resolution Fund.
Net revenues and operating expenses attributable to the Corporate Center include the residual impact of the activities sold to BPCE in the first quarter, subsequent to their deconsolidation at March 31, 2019. The impact on (d) net revenues came to €22.3 million and the impact on operating expenses amounted to €22.5 million , both are primarily related to EuroTitres
Of which €1,535 million excluding the net revenues of the XVA desks, which break down into €1,118 million in net revenues for FICT and €417 million in net revenues for Equities.(a)
This information is determined based on the accounting principles applied in accordance with IFRS as adopted by the European Union at December 31, 2018.
Of which €1,319 million excluding the net revenues of the XVA desks, which break down into €1,158 million in net revenues for FICT and €161 million for Equities.(a)
Financial assets at fair value through profit or loss 2,076 227,466 4 22 (136) (630) 228,802
Financial assets at fair value through profit or loss 2,101 212,589 (8) 86 27 (708) 214,086
Non-current assets held for sale 0 0 0 25,646 0 0 25,646
Net income for the period – group share 657 517 505 14 203 1,897
Financial assets at fair value through profit or loss 170,943 10,746 36,934 9,906 272 228,802
Loans and receivables due from banks and similar items at amortized cost 45,236 521 241 67 2,050 48,115
Loans and receivables due from customers at amortized cost 33,590 10,752 15,354 7 11,386 71,089
Financial assets at fair value through other comprehensive income 7,700 173 0 0 2,925 10,798
Loans and receivables due from customers at amortized cost 34,816 10,672 13,436 7 10,348 69,279
The information on risk management required under IFRS 7, with the exception of the disclosures given below, is presented in Section 3.2.3 of Chapter 3, “Risk factors, risk management and Pillar III”.
This table aims to present the breakdown by credit risk category of the various accounting outstandings eligible for IFRS 9 provisioning (broken down into Stages S1, S2 and S3), and the corresponding impairments and provisions. The credit risk categories are represented by the IFRS 9 probability of default ranges associated with the central scenario (see Note 6.3).
Loans and receivables due from customers at amortized cost 66,966 119 253 481 1,048 519 6 3,072 114 5 0 0 0 0 1 1,255 71,089
The following table presents the exposure of all of Natixis's financial assets to credit and counterparty risk. This exposure to credit risk (determined without taking into account the effect of unrecognized netting and collateral) and counterparty risk is equal to the net carrying amount of the financial assets.
Assets impaired after their origination/acquisition (Stage 3) or on their origination/acquisition (POCI).(a) Gross carrying amount.(b) Carrying amount on the balance sheet.(c)
Full-time equivalent current employees of Natixis at the reporting date (a) (including 1,989 employees of entities restated under IFRS 5 at December 31, 2018).
Payroll costs totaled €3,980 million at December 31, 2019, versus €4,061 million at December 31, 2018.
Natixis subsidiaries may also implement share-based payment plans based on their own shares. Taken individually, the impact of these plans is not material for Natixis at the consolidated level. As such, their characteristics are not outlined in the paragraphs that follow.
Deferred retention and performance bonuses paid in cash are awarded to some staff. These bonuses are subject to a continued service requirement and performance criteria. In terms of accounting treatment, they are recorded under “Other long-term employee benefits”. The estimated expense is based on an actuarial estimate of the probability of these conditions being met. The expense is recognized over the vesting period. The amount recognized in respect of fiscal year 2019 was: Year of plan Grant date Acquisition dates
2015 plan 10/02/2016 March 2017 2016 plan 10/04/2017 March 2018 2017 plan 23/02/2018 March 2019 2018 plan 26/02/2019 March 2020 2019 plan 22/01/2020 March 2021
The amount of the recognized provision on the liability side of the balance sheet corresponds to the value of the actuarial liabilities under the defined benefit plans, less the market value of the assets to hedge these benefit liabilities.
Fair value of plan assets (422) (104) 0 0 (526) (255) (102) 0 0 (357)
Effect of ceiling on assets 0 0 0 0 0 2 0 0 0 2
NET AMOUNT RECOGNIZED IN BALANCE SHEET 168 105 54 127 455 126 86 51 144 406
Revaluation adjustments on other long-term employee benefits 0 0 4 2 5 0 0 (1) (0) (1)
Changes associated with non-current assets held for sale (a) 0 0 0 0 0 (10) (31) (10) (1) (52)
Changes recognized directly in other comprehensive income with no recycling 2 1 3 (14) 3 (10)
Revaluation adjustments – Return on assets 2 1 3 (14) 3 (10)
Changes associated with non-current assets held for sale (a) 0 0 0 (6) (2) (7)
356 NATIXIS UNIVERSAL REGISTRATION DOCUMENT 2019 d) Composition of plan assets
TOTAL REVALUATION ADJUSTMENTS AT END OF PERIOD 328 30 358 233 12 245
o/w effect of ceiling on plan assets 2 0 2 5 0 5
TOTAL REVALUATION ADJUSTMENTS AT END OF PERIOD 129 3 132 45 2 47 o/w effect of ceiling on assets 1 0 1 (2) 0 (2)
Revaluation adjustments over the period (29) 1 (29) (14) 3 (10)
Supplementary pension benefits and other End-of-career awards Long-service awards Other Total Total
TOTAL EXPENSE FOR THE YEAR 7 13 5 28 53 94 g) Main actuarial assumptions at December 31, 2019
The amount of the provision for post-employment defined-benefit plans is calculated on an actuarial basis using a number of demographic and financial assumptions.
Rate of increase in salaries 2.27% 2.58% 3.99% 2.29% 2.58% 4.00%
Rate of increase in healthcare costs 2.42% 0.00% 3.90% 2.77% 4.20% 5.00%
+1% change in rate of increase in salaries and income (incl. inflation) 11.39% 12.24% 8.03% 12.19% 12.29% 8.23%
Other share-based plans12.2.4 a) Employee stock option plans under the Company employee savings plan
There were 2,083,199 treasury shares at December 31, 2019, and 3,716,978 shares at December 31, 2018.
The capital increase (in the first half of 2019) corresponds to the allocation of bonus shares to certain Natixis employees under the 2016 and 2017 share-based payment Retention and Performance Plans.
Deeply subordinated notes amounted to €1,978 million at December 31, 2019 (no change compared to December 31, 2018).
This authorization is based on the twenty-fourth resolution of the General Shareholders’ Meeting of May 28, 2019. It authorizes Natixis to acquire, at a maximum price of €10 per share, a number of shares not exceeding 10% of the shares making up the capital of Natixis.
Based on an in-depth review of the determination of fair value conducted in H1 2019, these guarantees are now recorded as derivatives measured at fair value in accordance with IFRS 13.
Transfer to non-current assets held for sale (c) (11) 0 0 0 0 0 (11) 0
Fully sold, called or matured commitments (5,840) 0 (1,439) 2 (18) 1 (7,296) 4
Fully sold, called or matured commitments (1,837) 1 (5,318) 11 (10) 2 0 0 (7,166) 15
The amount recognized for rights of use in respect of lease contracts as lessee came to €1,023 million at December 31, 2019 of which €1,011 million related to leases of real estate (see Note 8.10).
Impact on the income statement of lease agreements recognized in the balance sheet (247)
Impact on the income statement of lease agreements not recognized in the balance sheet (5)
Breakdown of lease liabilities and off-balance sheet commitments 16.1.3 by contractual maturity
Non-discounted lease liabilities (before deduction of financial expenses) 43 16 59 119 213 451 343 1,244
Present value of minimum lease payments receivable 14 9 7 4 2 0 36 152 20 1 36
Minimum payments receivable under irrevocable leases 64 49 41 34 29 94 311 55 206 118 379
The main transactions between Natixis and related parties (BPCE and subsidiaries, Banque Populaire group including Banque Populaire banks and their subsidiaries, the Caisse d’Epargne network including the Caisses d’Epargne and their subsidiaries and all of the affiliates consolidated using the equity method) are described below: (in millions of euros)
Financial assets at fair value through profit or loss 14,376 224 3,196 5,408 17,577 3,139 4,330
Financial liabilities designated at fair value through profit or loss 7,970 264 1,590 3,940 6,304 1,633 3,325
Deposits and loans due to banks and similar items 46,359 1,002 1,726 102 47,925 1,468 3
Liabilities related to insurance policies 0 0 81 0 1 73
Net fee and commission income (54) (46) (377) (245) (57) (373) (194)
Corresponds to the following entities: Factoring, Consumer Finance, Leasing, Sureties & Financial guarantees and retail banking.(a)
In 2019 and 2018, compensation paid to members of the Board of Directors included a fixed portion (€8,000 per person) and a variable portion (a) (€2,000 per Board Meeting, per person). Members of the Audit Committee and the Risk Committee received a fixed payment of €3,000 (€17,000 for its Chairman) and a variable payment of €1,000 per Board Meeting and per person (€2,000 for its Chairman). Members of the Appointment Committee and Compensation Committee received a fixed payment of €2,000 (€15,000 for its Chairman) and a variable payment of €1,000 per Board Meeting and per person (€2,000 for its Chairman). The members of the Strategic Committee received a variable payment of €2,000 and the Chairman of the Strategic Committee received a fixed payment of €12,000. The amounts shown represent the total amount of compensation paid or delivered to the members of the Senior Management Committee.(b)
Value of bonus shares granted during the fiscal year €0 €0
Natixis’ Chief Executive Officer receives the retirement benefits plan offered to senior management officers (“hors classification”).
AGIRC-ARRCO supplementary pension regime in tranche 2 cappedV at 4x the PASS (1) (3.86%); AGIRC-ARRCO regime in tranche 2 (1) (21.59%).V
Average Natixis net income Group share for the period in1. question equal to or higher than 75% of the expected budget average (2) for the period; Average Natixis ROE for the period in question equal to2. or higher than 75% of the expected budget average* for the period; Natixis’ cost/income ratio less than 75% at the time of leaving3. (last half-year closed).
The annual social security contribution ceiling (PASS) is €40,524. Tranche 1 corresponds to the fraction of annual compensation between €0 and €40,524. Tranche 2 (1) corresponds to the fraction of annual compensation between €40,524 and €324,192. Tranche 2 capped at 4x the PASS corresponds to the fraction of annual compensation between €40,524 and €162,096. Average performance achieved over the two years prior to leaving (the measurement shall be based on the known results for the four quarters prior to leaving).(2)
The bank’s financial statements are audited by two independent accounting firms.
Deloitte & Associés and PriceWaterhouseCoopers are registered as Statutory Auditors with the “Compagnie Régionale des Commissaires aux Comptes of Versailles” and are under the supervision of the “Haut Conseil du Commissariat aux Comptes”.
Services other than the certification of accounts include: technical assistance assignments amounting to 1.1 million;V
assistance with ensuring the compliance of mechanismsV implemented amounting to €1.5 million; tax audits, primarily performed outside the European Union,V amounted to €0.7 million, assignments involving services rendered during the acquisition ofV entities amounting to €0.6 million; assistance with changes in standards and regulations amountingV to €0.5 million; along with other audits including a benchmarking audit on aV multi-affiliate model for Asset Management that cost €0.7 million.
Article 7 of Law No. 2013-672 of the French Monetary and Financial Code of July 26, 2013, amending Article L.511-45 requires credit institutions to publish information on their locations and activities in each country or territory.
COFACE BELGIUM – BRANCH (COFACE EUROPE) Credit insurance and related services
COFACE ECUADOR – BRANCH (COFACE EUROPE) Credit insurance and related services
FCT NA FINANCEMENT DE L'ÉCONOMIE – COMPARTIMENT IMMOCORP II Insurance investments (Securitization funds)
COFACE UK – BRANCH (COFACE EUROPE) Credit insurance and related services
COFACE HONG KONG – BRANCH (COFACE EUROPE) Credit insurance and related services
COFACE IRELAND – BRANCH (COFACE EUROPE) Credit insurance and related services
COFACE PORTUGAL – BRANCH (COFACE EUROPE) Credit insurance and related services
Net revenues, pre-tax profit, taxes and headcount 18.2 by country at December 31, 2019
Profit or loss before taxes, including operating taxes Profit or loss before tax Corporate income tax Headcount (FTE)
Natixis Bank JSC, Moscow Bank FC 100 100 100 100 Russia
NATINIUM FINANCIAL PRODUCTS (a) Securitization vehicle FC 100 100 100 100 Ireland
NATIXIS PFANDBRIEFBANK AG (a) Credit institution FC 100 100 100 100 Germany
Natixis Partners (r) Mergers and acquisitions advisory services FC 100 100 87 87 France
EOLE Collateral (a) Securitization vehicle FC 100 100 100 100 France
Natixis Structured Issuance Issuing vehicle FC 100 100 100 100 Luxembourg
Fenchurch Partners LLP Mergers and acquisitions advisory services FC 51 51 51 51 United Kingdom
Natixis Holdings (Hong Kong) Limited (o) Holding company FC 100 100 Hong Kong
The Azure Capital Trust (n) Holding company FC 52 52 Australia
NATIXIS LONDON Financial institution FC 100 100 100 100 United Kingdom
Peter J. Solomon Securities Company LLC Brokerage FC 51 51 51 51 United States
CM REO HOLDINGS TRUST (a) Secondary markets finance FC 100 100 100 100 United States
CM REO TRUST (a) Secondary markets finance FC 100 100 100 100 United States
Natixis US MTN Program LLC Issuing vehicle FC 100 100 100 100 United States
Investors Mutual Limited Asset Management FC 52 52 52 52 Australia
Arctic Blue Capital Management Ltd (u) Asset Management FC 50 29 Cayman Islands
AEW PARTNERS IV, INC. (gg) Asset Management 100 100 United States
AEW Value Investors Asia II GP Limited Asset Management FC 100 100 100 100 United States
AEW Senior Housing Investors III LLC (y) Asset Management FC 100 100 United States
CREA WESTERN INVESTORS I, INC. Asset Management FC 100 100 100 100 United States
EPI SO SLP LLC (a) Asset Management FC 60 60 60 60 United States
LOOMIS SAYLES & COMPANY, INC. Asset Management FC 100 100 100 100 United States
LOOMIS SAYLES ALPHA, LLC. (a) Asset Management FC 100 100 100 100 United States
Natixis Distribution Corporation Distribution FC 100 100 100 100 United States
VAUGHAN NELSON INVESTMENT MANAGEMENT, INC. Asset Management FC 100 100 100 100 United States
Flexstone Partners SAS (l) Asset Management FC 84 84 100 100 France
Natixis Investment Managers International Distribution FC 100 100 100 100 France
AEW EUROPE INVESTMENT LTD (a) Asset Management FC 60 60 60 60 United Kingdom
AEW EUROPE LLP (a) Asset Management FC 60 60 60 60 United Kingdom
LOOMIS SAYLES INVESTMENTS LTD (UK) Asset Management FC 100 100 100 100 United Kingdom
Mirova Natural Capital Limited (formerly Mirova-Althelia Limited) (pp)* Asset Management FC 100 100 51 51 United Kingdom
Artic Blue Capital Ltd (u) Asset Management FC 50 29 United Kingdom
Poincaré Holdings Ltd (u) Asset Management FC 50 25 Hong Kong
Poincaré Capital Management Ltd (u) Asset Management FC 50 25 Hong Kong
ASAHI NVEST INVESTMENT ADVISORY CO, LTD Distribution Equity 49 49 49 49 Japan
H2O ASSET MANAGEMENT HOLDING Asset Management FC 50 50 50 50 Luxembourg
NATIXIS INVESTMENT MANAGERS S.A. Distribution FC 100 100 100 100 Luxembourg
MV Credit SARL Asset Management FC 100 100 100 100 Luxembourg
Thematics AI and Robotics Fund (ff) Asset Management FC 47 47 Luxembourg
Natixis IM Mexico, S. de RL de CV Asset Management FC 100 100 100 100 Mexico
H2O AM Asia Pte Ltd (u) Asset Management FC 50 50 Singapore
NATIXIS INVESTMENT MANAGERS SECURITIES INVESTMENT CONSULTING Co. LTD Asset Management FC 100 100 100 100 Taiwan
AEW Central Europe Romania Distribution FC 60 60 60 60 Romania
AEW Ciloger Italian Branch Distribution FC 60 60 60 60 Italy
Natixis Investment Managers, Nederlands Distribution FC 100 100 100 100 Netherlands
DNCA Finance Milan Branch (k) Asset management FC 92 79 92 82 Italy
REAUMUR ACTIONS (formerly ABP DIVERSIFIE) (a) Insurance investment mutual fund// FC 100 100 100 100 France
Ostrum Ultra Short Term Bonds Plus SI (C) EUR (a) (f) Insurance investment mutual fund FC 31 31 France
BPCE RELATION ASSURANCES Service provider FC 100 100 100 100 France
FRUCTIFONDS PROFIL 6 (p) Insurance investment mutual fund 73 73 France
ABP VIE MANDAT FPCI (p) Private Equity fund 100 100 France
SELECTIZ Insurance investment mutual fund FC 55 55 53 53 France
ALLOCATION PILOTEE EQUILIBRE C Insurance investment mutual fund FC 40 40 38 38 France
FCT NA Financement de l’économie – compartiment Immocorp II (bb) Insurance investments
ALTER CE (COMITEO) Online service for Central works councils FC 70 70 70 70 France
NATIXIS INTERTITRES Service vouchers offers FC 100 100 100 100 France
RENTABILIWEB SERVICES Internal services provider FC 100 100 100 100 France
COFACE DEBITOREN Receivables management and data FC 42 42 43 43 Germany
COFACE HOLDING AMERICA LATINA Financial data FC 42 42 43 43 Mexico
COFACE HOLDING ISRAEL Holding company FC 42 42 43 43 Israel
COFACE NEDERLAND SERVICES Receivables management and data FC 42 42 43 43 Netherlands
COFACE NORTH AMERICA Credit insurance and related services FC 42 42 43 43 United States
COFACE SERVICES AUSTRIA Receivables management and data FC 42 42 43 43 Austria
COFACE UK HOLDING Holding company FC 42 42 43 43 United Kingdom
COFACE SOUTH AFRICA SERVICES Insurance FC 42 42 43 43 South Africa
COFACERATING HOLDING Receivables management and data FC 42 42 43 43 Germany
COFINPAR Credit insurance and related services FC 42 42 43 43 France
Fonds Colombes Mutual fund investments FC 42 42 43 43 France
Fonds Lausanne Mutual fund investments FC 42 42 43 43 Switzerland
SEGURO BRASILEIRA C.E Credit insurance and related services FC 42 42 43 33 Brazil
COFACE DENMARK – BRANCH (COFACE KREDIT) Insurance FC 42 42 43 43 Denmark
COFACE CANADA – BRANCH (COFACE Europe) Credit insurance and related services FC 42 42 43 43 Canada
COFACE POLAND – BRANCH (COFACE AUSTRIA) Insurance FC 42 42 43 43 Poland
COFACE CZECH INSURANCE – BRANCH (COFACE AUSTRIA) Insurance FC 42 42 43 43 Czech Republic
COFACE SLOVAKIA INSURANCE – BRANCH (COFACE AUSTRIA) Insurance FC 42 42 43 43 Slovakia
COFACE ECUADOR – BRANCH (COFACE Europe) Credit insurance and related services FC 42 42 43 43 Ecuador
COFACE AUSTRALIA – BRANCH (COFACE Europe) Credit insurance and related services FC 42 42 43 43 Australia
COFACE TAIWAN – BRANCH (COFACE Europe) Credit insurance and related services FC 42 42 43 43 Taiwan
COFACE ASSICURAZIONI SPA Credit insurance and related services FC 42 42 43 43 Italy
COFACE DEUTSCHLAND Credit insurance and related services FC 42 42 43 43 Germany