At December 31, 2006, total assets stood at €148,435 million versus €127,425 million one year earlier.
BFBP’s and CNCE’s joint control of Natixis and the terms of the shareholders’ agreement between the two shareholders prevent any takeover of Natixis by means of a public offer.
Pursuant to the shareholders’ agreement of November 17, 2006, BFBP and CNCE have also made a commitment to maintain strictly equal stakes in Natixis’s share capital for a stability period of 10 years, which may be extended for successive periods of fi ve years, as well as to maintain the percentage held of Natixis’s share capital at a minimum of 34% for this period. However, should a public offer for all of Natixis’s shares be declared admissible by the
At the end of the stability period, there shall be a reciprocal right of preemption between BFBP and CNCE for their respective interests in Natixis’s share capital. This right of preemption is applicable even in the event of a public offer.
Similarly, under the terms of the protocol agreement between Natixis and the Caisse d’Epargne Group, if BFBP and CNCE cease to exercise joint control of Natixis, CNCE or the Caisses d’Epargne would be able to buy back the cooperative investment certifi cates held by Natixis representing 20% of their share capital.
They represented a challenge that was met successfully by the Company’s teams, under the aegis of the Management Board.
The Supervisory Board has taken note of the company and consolidated fi nancial statements as presented in this report. The Board has also analyzed the information provided in the Management Board’s report and has no particular comments to make regarding this information. Subject to the terms of the resolutions submitted for your approval, you are asked to approve the company and consolidated fi nancial statements for 2006, as well as the allocation of income for the year.
In order to allow for a more meaningful approach than that based on the fi nancial statements alone in the strict sense, pro forma fi nancial statements have been prepared.
HypoVereinsbank (HVB) is planning to transfer its securities processing and custodian activities to the French fi nancial services provider CACEIS. Exclusive negotiations began today in Munich. The sale is to be concluded by the end of 2007, subject to proper regulatory approvals.
For HVB, the planned sale would represent another major step towards tangible and sustained cost savings on the operational front. At the same time, the sale would allow HVB to continue to focus on its core competencies.
After the sale, HVB customers will continue to receive securities services in the accustomed quality and scope. They will, in addition, benefi t from the size and product breadth of CACEIS. German operations of CACEIS will be based in Munich and CACEIS intends to rely on the existing HVB teams.”
Philippe Dupont, Chairman and Chief Executive Offi cer of Banque Fédérale des Banques Populaires and Charles Milhaud, Chairman of the Management Board of Caisse Nationale des Caisses d’Épargne, today signed the agreement under which Natixis will be affi liated by CNCE and BFBP as the central body.
The agreement, which was approved by the CECEI (“ Comité des établissements de crédit et des entreprises d’investissement” ) during its meeting of March 30, constitutes an extension to the creation of Natixis on November 17, 2006, in accordance with the commitments made.
Accrued income, prepaid expenses and other assets 8.7 20,314 4,766 4,089
Due to central banks and post offi ces 658 412 22
Revaluation differences on portfolios hedged against interest rate risk 34 0 0
Equity attributable to equity holders of the parent 17,477 5,357 4,590 - Share capital and reserves 14,394 3,224 3,116 - Unrealized or deferred gains or losses 620 206 35
Net gains or losses on fi nancial instruments at fair value through profi t and loss 9.3 865 555 156
Amortization, depreciation and impairment of property, plant and equipment and intangible assets (97) (74) (77)
Including: - attributable to equity holders of the parent 943 695 488 - attributable to minority interests 56 30 17
Consolidated net income - attributable to equity holders of the parent - per share, calculated on the basis of the average number of shares over the period excluding treasury shares
Equity at January 1, 2005 - EU IFRS 772 2,379 (160)
Equity at December 31, 2005, before appropriation - EU IFRS 784 2,439 (166)
(3) Treasury shares were eliminated through a reduction in share capital
Related to exchange differences Changes in the fair value of fi nancial instruments
(5) The asset contribution of November 17, 2006 had the following effects: - since the transaction went ahead at net carrying amount, the portion of these companies’ unrealized gains and losses (€368 million) attributable to equity holders of the parent was recognized with a corresponding entry in consolidated reserves. In addition, goodwill was set off against the parent company’s share premium; - goodwill and minority interests break down as follows: Ixis CIB
+/- Net charge to depreciation and amortization of property, plant & equipment and intangible assets 97 74 74
+/- Impairment of goodwill and other non-current assets (56) (10) 5
= Total non-cash items included in income before tax and other adjustments 3,359 1,972 1,755
+/- Decrease/(increase) in non-fi nancial assets or liabilities (300 3,196 3,830
= Net decrease/(increase) in operating assets and liabilities 252 (3,528) 517
Total net cash provided/(used) by investing activities (B) (19,178) (2,786) 446
+/- Other cash provided/(used) by fi nancing activities (84) 1,520 (1,721)
Net cash provided/(used) by fi nancing activities (C) (305) 1,404 (1,878)
Cash, central banks, post offi ces (assets & liabilities) (193) 170 124
Cash, central banks, post offi ces (assets & liabilities) (335) (193) 170
NOTE 12 PAYROLL COSTS, NUMBER OF EMPLOYEES, COMPENSATION AND EMPLOYEE BENEFITS 293
The key event of the 2006 fi nancial year was the contribution on November 17, 2006 of the Caisse d’Epargne group’s corporate and investment banking and service subsidiaries to Natexis Banque Populaire, which then changed its name to Natixis, a société anonyme with a Management and Supervisory Board.
Natixis was formed through the following corporate transactions: Caisse Nationale des Caisses d’Epargne (CNCE) contributed some of its corporate and investment banking and service subsidiaries and associates, as well as some of the cooperative certifi cates of investment (hereinafter the “Caisse d’Epargne CCIs”) issued since 2004 by each Caisse d’Epargne et de Prévoyance (except for Caisse de Martinique and Caisse de Nouvelle Calédonie), representing 20% of their share capital; SNC Champion, a vehicle formed by the Banque Fédérale des Banques Populaires (BFBP) and the Banque Populaire banks from the remainder of the Caisses d’Epargne CCIs not contributed by CNCE and that SNC Champion had acquired in advance from CNCE, 1.23% of the share capital
of IXIS CIB and 4.63% of the share capital of IXIS AMG, acquired in advance from San Paolo IMI (SPIMI).
Consideration for these asset contributions was provided in the form of specially issued Natixis shares; Natixis subscribed 20% of each of Banque Populaire banks’ capital in the form of a reserved issue of cooperative certifi cates of investment (the “Banques Populaires CCIs”) fi nanced by debt; and acquired 66% of the share capital of Novacrédit (consumer fi nance) held by the Banque Populaire banks.
The following organization (at December 31, 2006, before the withdrawal of Caisse des Dépôts et Consignations) chart illustrates Natixis’ ownership structure upon completion of all the corporate transactions: In connection with the business combination, BFBP and CNCE entered into a Shareholders’ Agreement (described in paragraph II.2.8 of Document E no. 06-162 dated October 16, 2006) for ten years, the primary purpose of which is to maintain equivalent ownership interests between the two groups and to support the principal shareholders with the development of the combined entity.
The new business will be organized around six types of service: corporate and investment banking;■
asset management; private equity and private asset management; services; receivables management; and retail banking through ownership of the Banques Populaires CCIs and the Caisses d’Epargne CCIs.
As required by European regulation 1606/2002 of July 19, 2002, concerning the application of international accounting standards, Natixis has prepared its consolidated fi nancial statements for the year ended December 31, 2006, using the International Financial Reporting Standards (IFRSs) as adopted in the European Union and applicable on that date. These standards include IAS 1 to 41, IFRS 1 to 6 and their interpretations adopted by the European Union as at December 31, 2006.
Natixis’ consolidated fi nancial statements include a balance sheet, income statement, statements of changes in equity, cash fl ow statement and notes to the fi nancial statements.
The fi nancial statements presented by way of comparison are those published by Natixis in the 2005 registration document: the consolidated fi nancial statements for the year ended December 31, 2005 were prepared in accordance with
Natixis has not elected for early adoption of the following documents: IFRS 7 “Financial instruments: disclosures” will replace as of January 1, 2007 IAS 30 “Disclosures in the fi nancial statements of banks and similar fi nancial institutions” and the disclosures section of IAS 32 “Financial instruments: disclosure and presentation”. This standard applies exclusively to the presentation of fi nancial instruments and
thUS will not have any impact on the level of Natixis’ earnings or equity when it comes into force in 2007; the amendment to IAS 1 “Presentation of Financial Statements” adds further share capital-related disclosures. Its introduction as of January 1, 2007, Natixis will also have no impact on the level of Natixis’ earnings and equity; interpretation IFRIC 7 states the practical arrangements for restating fi nancial statements in line with IAS 29 “Financial reporting in hyperinfl ationary economies” and applies to entities that identify for the fi rst time the existence of hyperinfl ation in respect of an accounting period. No material impact on the Group’s consolidated fi nancial statements is anticipated from the introduction of this interpretation; interpretation IFRIC 8 covers the grant of stock options for no consideration. Since this case has not arisen, no impact is anticipated; IFRIC 9 states that the embedded derivative must be measured at the inception of the contract, except where the terms of the contract undergo a substantial change. Natixis’ practice is consistent with this interpretation, and so application of these standards should not have any impact on the Group’s consolidated fi nancial statements.
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes the contributions to the 2006 pro forma income statements, which include the earnings posted by entities contributed since January 1, 2006.
■ The income statement includes the earnings posted since November 17, 2006 by the entities contributed or acquired as part of the business combination described in Note 1 “Signifi cant events of the fi nancial year”.
Unless otherwise stated, the fi gures shown in the notes to the fi nancial statements are expressed in millions of euros.
decision-making: Natixis has the decision-making powers to control or to obtain control of the SPE or its assets, including certain decision-making powers coming into existence after the formation of the SPE. Such decisionmaking powers may have been delegated by establishing an “autopilot” mechanism.
benefi ts: Natixis has rights to obtain a majority of the benefi ts of the SPE’s activities distributed in the form of future net cash fl ows, earnings, net assets or other economic benefi ts, or rights to majority residual interests.
risks: Natixis substantially retains the majority of residual or ownership risks in order to obtain the economic benefi ts of the SPE’s activities.
IAS 28 and 31 recognize the specifi c nature of the private equity business. Private equity instruments between 20% and 50% do not have to be accounted for using the equity method if they are designated at inception as at fair value through profi t and loss. Natixis has opted for the latter method as it believes this provides investors with more relevant information.
As part of the formation of the new Natixis group, the subscription of the Banques Populaires CCIs and the contribution of the Caisses d’Epargne CCIs give Natixis signifi cant infl uence over the Banque Populaire and Caisses d’Epargne banks. The fi nancial statements of these entities are thUS accounted for under the equity method in Natixis’ fi nancial statements.
Since the Banques Populaires CCIs do not carry any voting rights, Natixis’ signifi cant infl uence over the Banque Populaire banks is characterized by (i) legally enforceable infl uence resulting from Natixis’ participation in the operational and fi nancial management of the Banques Populaires and Caisses d’Epargne networks, and (ii) by de facto infl uence deriving from operational and technical cooperation by the Banque Populaire and Caisses d’Epargne with Natixis.
Natixis’ legally enforceable signifi cant infl uence over the Banque Populaire and Caisses d’Epargne banks derives notably from the following requirements of the preliminary agreements concerning Natixis’ involvement in the operational and fi nancial management of the Banque Populaire and Caisses d’Epargne networks: Natixis’ representation on the Banques Populaires’ and Caisses d’Epargne’s board of directors (Banque Populaires: federal delegate, Caisses d’Epargne: non-voting director); ■
In addition, Natixis and the Banque Populaire banks agreed to maintain the existing industrial and commercial relationships for at least ten years from the subscription date of the Banques Populaires CCIs: provision of IT infrastructure; supply of services (custodial services, payment systems, operational management of foreign currency accounting); design and management of customer products on behalf of the Banque Populaire banks (asset management, insurance products, factoring, leasing, fi nancial engineering, expansion capital, employee benefi ts planning, international engineering, credit insurance and business information).
Assets, liabilities and commitments arising from the institutional activities managed by Natixis on behalf of the State are identifi ed separately in the balance sheet under each line item concerned.
Insurance transactions managed by Coface on behalf of the State are not recognized in the fi nancial statements. However, management fees received are recognized in the income statement under net fee and commission income.
The income statements of foreign subsidiaries and branches whose functional currency is not the euro are translated at average rates for the year. The difference between net income translated at the average rate and the closing rate is also recognized directly in equity.
IFRS 3 on business combinations requires all identifi able assets, liabilities and contingent liabilities acquired to be measured at their fair value on the acquisition date. Adjustments may subsequently be made to these initial fair values for a period of twelve months form the acquisition date.
Goodwill is not amortized but tested for impairment at least once a year and whenever there is objective evidence that the goodwill might be impaired. Impairment testing consists of comparing the carrying amount of the CGU or group of CGUS (including goodwill) with its recoverable amount.
Principles adopted for measuring contributions by the Caisse d’Epargne group to Natixis
For these two categories of assets, the contribution values used for consolidation purposes are the carrying amounts of these assets in CNCE’s consolidated fi nancial statements restated in accordance with IFRSs as adopted in the European Union.
While IFRS 3 recommends accounting for business combinations by applying the purchase method (i.e. at fair value), this does not cover the formation of joint ventures subject to joint control, since paragraph 3 of IFRS 3 states that: “This IFRS does not apply to a) business combinations in which separate entities or businesses are brought together to form a joint venture.”
Furthermore, there are no other standards applicable to the type of transaction observed, given that neither the Banque Populaire group nor the Caisse d’Epargne group exercises majority control over Natixis’ activities and there is a contractual agreement between these two groups that notably: sets out Natixis’ corporate governance rules, by providing for equal representation of both groups on Natixis’ governing bodies; structures Natixis’ decision-making processes, thereby entailing the agreement of both groups with key decisions; defi nes the future relationships between both groups and Natixis; commits both parties to maintaining equivalent ownership interests in Natixis and providing funds in equal amounts to comply with the prudential rules.
Consolidated fi nancial statements and notes it provides a fairer view of the economic substance of the transaction, which aims to allow each of the two founding groups to continue operating the pooled activities within the scope of the larger jointly controlled Natixis operation.
In addition, the difference between the acquisition cost and the Group’s interest in the net assets of the assets contributed does not represent goodwill within the meaning of IFRS 3, since the acquisition cost takes into account the real value of the shares, while the assets were recognized at their net carrying amount. Each of the differences observed were recognized in consolidated retained earnings.
Hence, an amount of €3,170 million was charged against the issue premium as follows: €1,862 million in respect of Ixis AMG, €833 million in respect of Ixis CIB, €150 million in respect of Natixis Garanties, €132 million in respect of CEFI, €111 million for the Caisses d’Epargne CCIs, €78 million for CACEIS, €45 million for La Cie 1818, €1 million for GCE Bail and €1 million for GCE Affacturage. Conversely, negative amounts of €39 million in respect of CIFG and €4 million in respect of Gestitres led to a corresponding increase in the issue premium.
Value in use is determined principally(14) by discounting the expected future cash fl ows from the CGU on the basis of the medium-term business plans drawn by the Group for strategic planning purposes. These plans include the synergies deriving from the tight fi t between the business activities of the former NBP group and those contributed by the Caisse d’Epargne group.
The assumptions underpinning these forecasts were as follows: expected future cash fl ows: forecast data for 3 years taken from the Group’s medium-term business plan(15); perpetual growth rate: various rates ranging between 0% and 2%; discount rate: various rates ranging between 8.7% and 9.6%.
The discount rate applied is based on recent trading data. It represents the projected average rate of return on listed stocks in the sector concerned, based on their current share price, projected earnings for the coming years and extrapolation of these rates on the basis of a constant perpetual growth rate. This is obtained by adding together the risk-free rate (10–year OAT), the risk premium and the historical sector beta, both of which are calculated using a representative sample of listed companies in the sector.
These tests did not give rise to the recognition of any impairment. Likewise, an increase of one percent in the discount rates and a reduction of one percent in the perpetual growth rate did not lead to the recognition of any impairment.
(14) For certain businesses (asset management, securities, payments), value in use is calculated through combined use of the DCF model and a peer comparison. For the private equity business, value in use is calculated on the basis of net assets.
(15) For life insurance, a 10-year forecasting horizon was used.(15) For life insurance, a 10-year forecasting horizon was used.
The dilution/accretion effect derives from the differences in the rights between holders of ownership shares (entitlement to receive dividends) and holders of the CCIs (entitlement to receive dividends at least equal to that of ownership shares and entitlement to the retained earnings accumulated).
The assets and liabilities of subsidiaries which Natixis intends to sell within a maximum period of twelve months and for which it has actively initiated efforts to fi nd a buyer are identifi ed separately in the balance sheets as non-current assets held for sale and liabilities associated with non-current assets held for sale.
The following rules apply to fully consolidated insurance companies: income and expenses are classifi ed by nature in accordance with banking accounting principles and not by function of expense; ■
Contracts managed by the insurance subsidiaries of Coface and Natexis Assurances sub-groups meet the defi nition of insurance contracts or investment contracts with a discretionary participation feature provided for in IFRS 4. Accordingly, they give rise to the recognition of an insurance liability measured in accordance with French GAAP, pending publication of an IFRS standard concerning technical liabilities of insurance companies.
Investment contracts with a discretionary participation feature (life insurance) give rise to the recognition of a deferred participation liability to offset the difference in value between assets and liabilities, in accordance with IFRS 4 (shadow accounting). The deferred participation liability is equal to the portion of gains or losses on investments due to policyholders in respect of their insurance contracts. The amount is calculated on the basis of the average rate of distribution to policyholders (average contractual distribution rate for each product weighted by the value of investments on the calculation date). The change in the deferred participation liability is recognized in equity in respect of changes in the value of assets classifi ed as “available for sale” and in income for changes in the value of assets held at “fair value through profi t and loss”, as well as for
Consolidated fi nancial statements and notes changes in the fair value of investment property held to cover insurance contracts.
The equalization reserve recognized by Coface (credit insurance business) and ABP IARD is a technical reserve permitted under French GAAP to protect insurance companies against catastrophic risks. IFRSs do not permit the recognition of reserves covering risk of a general nature. Accordingly, the equalization reserve has been reclassifi ed in equity as of January 1, 2004. Charges to the equalization reserve made under French GAAP have therefore been eliminated in the IFRS fi nancial statements.
3.10 - Use of estimates in the preparation of the financial statements
Unlisted equity instruments classifi ed as available-or-sale assets primarily comprise investments in non-consolidated companies. The fair value of unlisted non-consolidated investments is obtained principally by using the P/E (price earnings ratio) and DCF (discounted cash fl ow) valuation methods. Use of these methods entails certain choices and assumptions to be made in advance, notably projections of the future cash fl ows expected and relevant discount rates.
First-time adoption of EU IFRS led Natixis to consolidate in 2005 a number of dedicated mutual funds representing insurance company investments. For Natexis Assurances, the mutual funds consolidated are ASM Alternatif Garanti, ABP Actions, ABP Monétaire Plus, ABP Taux, ABP Croissance Rendement and ABP Midcap. For Coface, the mutual funds consolidated are Coface Europe, Cofaction 2, Cofobligations, AKCO Fund and MSL 1 Fund.
The main changes in the scope of consolidation in 2006 were as follows: Additions
Company or group of companies Percentage control Percentage ownership Method of consolidation 28 metropolitan Caisses d’Epargne (CCIs) 20% 20% Equity method
In consideration for the assets contributed (including the SPIMI shareholdings acquired jointly by CNCE and SNC Champion in Ixis CIB and Ixis AMG) by CNCE and SNC Champion to Natixis, Natixis issued 56,136,390 new shares to CNCE by means of an increase in its share capital amounting to €898,182,240 and 16,995,086 new shares to SNC Champion by means of an increase in its share capital of €271,921,376.
Accordingly, Natixis’ share capital increased from €803,072,720 to €1,973,176,336, divided into 123,323,521 shares, each with a par value of €16, following a ten-for-one stock split.
The capital increase gave rise to a contribution premium of €13,128,041,797.
The methods used aim to value Natixis without taking into account the impacts deriving from the combination between Natixis and the Contributed Assets, notably any synergies that may be harnessed.
Based on the work resulting from adoption of the methods described above, a valuation of Natixis (excluding the contributed entities) of €9,500 million was adopted as the basis for the calculation of exchange ratios. This represented €195.51 per Natixis share (before the ten-for-one stock split).
Ixis Corporate and Investment Bank (Ixis CIB): activities focused on investment and fi nancing services for public and private-sector customers, institutional investors, businesses and local authorities. They are organized into fi ve business lines: fi xed-income (trading and distribution of fi xed-income and hybrid interest-rate and credit derivative products), equity (trading, arbitrage, securities borrowing/lending and equities and equity derivative product brokerage), fi nancing and credit (corporate banking, structured fi nance, trading and hybrid credit products), corporate fi nance (advisory services and fi nancial engineering, share issues and placements), alternative risks (expertise in arranging sophisticated madeto -measure products, such as structuring, managing, hosting and distributing alternative fund products); Ixis Asset Management Group (IAMG): the leading institutional fund management group in France, Ixis AMG is a holding company with 17 subsidiaries specialized in investment management for institutional and private clients; la Compagnie 1818 – Banquiers Privés: the Caisse d’Epargne group’s wealth management bank, this entity was formed from the merger of the Caisse d’Epargne group’s portfolio and wealth management activities and entities. With its subsidiaries, La Compagnie 1818 – Banquiers Privés boasts the full spectrum of wealth management expertise, including: asset management, real estate services, fi nancing and credit, premium banking services (payment services), and expert fi nancial engineering services; Crédit Agricole Caisse d’Epargne Investor Services (Caseis): a holding company jointly owned by Crédit
The main withdrawal from the scope of consolidation was Sopromec (Société de Promotion Economique), which belonged to the private equity business and was sold during the fourth quarter. This disposal did not give rise to any gains or losses because the sale price was identical to the subsidiary’s consolidated value including the unrealized capital gains on the portfolio in line with the option chosen by Natixis of classifying investments held by these subsidiaries as assets at fair value through profi t and loss.
All the corporate assets of Société Financière BFCE, Auxiliaire Antin and Sépia were transferred to their parent company Natixis during the year.
AEW Capital Management, LP (27) Asset Management 85 85 - - - -
AEW II Corporation(27) Asset Management 85 85 - - - -
AEW Investment Group, Inc .(27) Asset Management 85 85 - - - -
AEW Real Estate Advisors, Inc .(27) Asset Management 85 85 - - - -
AEW VIF Investors, Inc .(27) Asset Management 85 85 - - - -
Assurances Banque Populaire Vie Life insurance 100 100 100 100 100 100
Bail Expansion Lease fi nancing 100 100 100 100 100 100
CACEIS Corporate Trust* (27) Issuer services 50 50 - - - -
Caspian Capital Management, LLC(27) Asset Management 43 43 - - - -
Cia de Seguros de Creditos Coface Chile SA (Formerly COFACE CHILI SA)(21)
AK Coface Finanz (Formerly Allgemeine Kredit Finanz Service AKFS) Factoring 100 100 100 100 100 100
Coface Receivable Finances (Formerly London Bridge Finance Ltd .) Factoring 100 100 100 100 100 100
Coface Services North America Group (Formerly Veritas South Group) Holding company 100 100 100 100 100 100
Crea Western Investors I, Inc.(27) Asset Management 85 85 - - - -
Curzon Global Advisory Ltd.(27) Asset Management 85 85 - - - -
Curzon Global Ltd.(27) Asset Management 85 85 - - - -
Curzon Global UK Ltd.(27) Asset Management 85 85 - - - -
Ecureuil Gestion Fonds Commun De Placement(27) Asset Management 80 80 - - - -
Federal Street Management, Inc.(27)Asset Management 85 85 - - - -
Groupe Coface Central Europe Holding (Formerly Coface Intercredit Holding AG) Holding company 75 75 75 75 75 75
Harris Associates Securities, LP(27) Distribution 85 85 - - - -
Harris Associates, Inc.(27) Asset Management 85 85 - - - -
Invest Kappa (Formerly Line Bourse)(17) Online broker - - 100 100 100 100
Ixis AEW Europe SA(27) Asset Management 85 85 - - - -
Ixis AEW Italia(27) Asset Management 85 85 - - - -
Ixis Alternative Investments Limited(27) Fund management 100 100 - - - -
Ixis Asset Management (Australia) Holdings, LLC(27) Holding company 85 85 - - - -
Ixis Asset Management Advisers, LP(27) Distribution 85 85 - - - -
Ixis Asset Management Associates, Inc..(27) Distribution 85 85 - - - -
Ixis Asset Management Australia Limited(27) Distribution 85 85 - - - -
Ixis Asset Management Distribution Corporation(27) Distribution 85 85 - - - -
Ixis Asset Management Group(27) Holding company 85 85 - - - -
Ixis Asset Management Holdings, LLC(27) Holding company 85 85 - - - -
Ixis Asset Management Japan, Ltd.(27) Asset Management 85 85 - - - -
Ixis Asset Management Participations 2(27) Holding company 85 85 - - - -
Ixis Asset Management Services, Inc.(27) Services 85 85 - - - -
Ixis Asset Management UK(27) Distribution 85 85 - - - -
Ixis Asset Management Us, LLC(27) Holding company 85 85 - - - -
Ixis Capital Markets North America Inc(27) Holding company 100 100 - - - -
Ixis Corporate & Investment Bank Holding company 100 100 - - - -
Ixis Environnement & Infrastructures(27) Venture capital 100 100 - - - -
Ixis Financial Products Inc.(27) Derivatives trading 100 100 - - - -
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes
Ixis Securities North America Inc.(27) Stock brokerage 100 100 - - - -
Ixis SP S.A. – Compartiment Prévie(27) Mutual funds 100 100 - - - -
Loomis Sayles & Company, LP (27) Asset Management 85 85 - - - -
Loomis Sayles Consumer Discretionary, LLC (27) Asset Management 85 85 - - - -
Loomis Sayles Distributors, LP (27) Distribution 85 85 - - - -
Loomis Sayles Energy, LLC (27) Asset Management 85 85 - - - -
Loomis Sayles Futures, LLC (27) Asset Management 85 85 - - - -
Mc Management, Inc.(27) Holding company 85 85 - - - -
Mc Management, LP (27) Holding company 85 85 - - - -
Natexis Actions Capital Structurant Expansion capital 63 63 56 56 58 58
Natexis Banques Populaires Invest Mutual funds 100 100 100 100 100 100
Natexis Pramex International Holding company 99 99 99 99 99 99
Natexis Private Equity International Singapour Private equity 100 100 100 100 100 100
Natexis Private Equity Opportunities** Private equity 100 89 100 89 100 100
Natexis Venture Selection Investment fund 100 100 100 100 100 100
Natixis Transport Finance (Formerly Société de Banque Francaise et Internationale) Bank 100 100 100 100 100 100
Reich & Tang Asset Management, LLC (27) Asset Management 85 85 - - - -
Reich & Tang Distributors, Inc.(27) Distribution 85 85 - - - -
Reich & Tang Services, Inc.(27) Asset Management 85 85 - - - -
Vaughan Nelson Investment Management, Inc.(27) Asset Management 85 85 - - - -
Vaughan Nelson Investment Management, LP (27) Asset Management 85 85 - - - -
Westpeak Global Advisors, LP(27) Asset Management 85 85 - - - -
Westpeak Investment Advisors Australia, Limited Pty.(27) Asset Management 85 85 - - - -
Cgw Gestion d’actifs(27) Asset Management 28 28 - - - -
expansion in scope of business 20 20 - - - -
expansion in scope of business 8 8 - - - -
(4) Merged on October 1, 2005 with LEID acquired on April 1, 2005.
(5) Minority interests bought out, increasing the Group’s stake to 100% on May 18, 2006.
(8) Minority interests bought out, increasing the Group’s stake to 100%.
(15) Sold on September 9, 2005, with effect from June 30, 2005.
(18) Some minority interests bought out to achieve 94% ownership with effect from January 1, 2006.
(20) Liquidated following sale of Coface SCRL’s head offi ce on September 30, 2005.
(21) Consolidated for the fi rst time from December 31, 2005.
(22) Minority interests bought out, increasing the Group’s stake to 100%, followed by disposal on October 13, 2005, with effect from September 30, 2005.
(27) Joined the scope of companies contributed by CNCE and BFBP on November 17, 2006.
(47) Minorities bought out after the Finatem-FinatemCoInvest merger on January 1, 2006.
(49) Sold on December 25, 2005, with effect from September 30, 2005.
(50) Absorbed by La Compagnie 1818 - Banquiers Privés in December 2006.
The 2006 pro forma income statement includes all the income and expenses in the 2006 fi nancial year generated by the entities contributed or acquired as part of the business combination.
5.2 - Principles used to prepare the 2005 pro forma income statement and balance sheet
and CEFI, as well as some of the Caisses d’Epargne CCIs (representing 6.40% of the share capital of each Caisse d’Epargne), in return for Natixis shares; contribution by SNC Champion, which had previously acquired them, of the remaining Caisses d’Epargne CCIs, representing 13.60% of the latters’ share capital, 1.23% of the share capital of Ixis CIB and 4.63% of the share capital of Ixis AMG, in return for Natixis shares; subscription by Natixis of CCIs (cooperative certifi cates of investment) issued by each of the Banques Populaires banks and representing 20% of their share capital after the issue; acquisition of 66% of Novacrédit.
Company or group of companies Percentage control Percentage ownership Method of onsolidation 28 metropolitan Caisses d’Epargne (CCIs) 20% 20% Equity method
Banques Populaires that have issued CCIs subscribed by Natixis 20% 20% Equity method
Goodwill arising on the other entities was calculated as at January 1, 2005 based on the Group’s interest in the IFRS net assets of companies at January 1, 2005.
Reclassification of both issues of supersubordinated notes booked as equity on Ixis CIB’s balance sheet to subordinated debt and of the corresponding expenses to net banking income
The issues of the Banques Populaires CCIs were deemed to be refi nanced based on the following assumptions: 50% in 10-year redeemable subordinated notes at 3-month Euribor +0.3%; 50% in 10-year bullet subordinated notes at 3-month Euribor +0.18%.
The income deriving from the CCIs and corresponding tax effects have been added back to net income for the 2005 fi nancial year based on the payouts actually made (Caisses d’Epargne CCIs) in 2006 in respect of 2005 or through models (Banques Populaires CCIs).
Cash and balances with central banks and post offi ces 292 31 323
Financial assets at fair value through profi t and loss 38,923 137,980 176,903
Due to central banks and post offi ces 613 45 658
Financial liabilities at fair value through profi t and loss 12,389 121,003 133,392
Equity attributable to equity holders of the parent 17,238 187 20 32 17,477
Unrealized or deferred gains or losses 252 200 168 620 * Including the impact of the Natixis transaction.
Net gains or losses on available for-sale fi nancial assets 217 30 247 345 123
Amortization, depreciation and impairment of property, plant and equipment and intangible assets (88) (9) (97) (74) (77)
Gains or losses on other assets 10 1 11 98 (1
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 6.3 - Contributions to the 2005 pro forma consolidated balance sheet
Accrued income, prepaid expenses and other assets 4,766 10,859 (4,061) (4,212) 14,357 21,709
Equity attributable to equity holders of the parent 5,358 0 10,453 15,811
Net gains or losses on fi nancial instruments at fair value through profi t and loss 555 1,101 1,656
Amortization, depreciation and impairment of property, plant and equipment and intangible assets (74) (56) (130)
Amortization, depreciation and impairment of property, plant and equipment and intangible assets (88) (66) (154)
Trading account securities, securities held for sale, debt securities held for investment: Securities are classifi ed according to the purpose of the transaction regardless of their legal form (equities, bonds and notes, treasury bills, certifi cates of deposits, negotiable instruments, money market securities etc.) based on the following rules: trading account securities: these are securities traded on liquid markets, which are bought or sold with the intention of reselling or repurchasing them within a short period. They are carried in the balance sheet at cost, including transaction expenses and accrued interest. At the period-end, they are marked to market based on the mid point of the closing bid/ offer spread, and any resulting unrealized gains or losses are recognized in income. Trading account securities that are still in the portfolio six months from the date of acquisition are transferred to “securities held for sale” at their market price on the transfer date; securities held for sale: these are securities acquired with the intention of holding them for a period of more than six months. They are valued individually at year-end at the lower of cost and estimated fair value. A provision is set aside for unrealized losses but unrealized gains are not recognized. Premiums and discounts, corresponding to the difference between the cost of fi xed-income securities (excluding accrued interest) and their redemption price, are recognized in income over the remaining life of the securities; debt securities held for investment: these are fi xed-income securities acquired with the intention of being held to maturity. They are either match-funded or hedged against interest rate risk. They are recorded at cost (excluding accrued interest) and any premium or discount between cost and redemption price is deferred and recognized in income over the remaining life of the securities. In accordance with French banking regulations, no provisions are set aside for unrealized losses, unless there is an intention to dispose of the securities in the short term. In this case, provisions for
market risk are charged to net gains/(losses) on disposals of non-current assets and provisions for counterparty risk to impairment charges and other credit provisions.
Income, value adjustments and gains or losses on securities: Income from variable-income securities is recorded on a cash basis.
Upon their initial recognition, these assets are measured at fair value, which is determined on the basis of the bid price. Fair value is reviewed on each subsequent reporting date, and any changes including accrued interest are recognized in income on a separate line item entitled “gains or losses on fi nancial instruments at fair value through profi t and loss”.
These are non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturity that Natixis has the positive intention and ability to hold through to maturity, other than those that are designated upon initial recognition as at fair value through profi t and loss, those designated as available for sale and those that meet the defi nition of loans and advances.
When loans are granted at conditions that are less favorable than market conditions, a discount corresponding to the difference between the face value of the loan and the sum of future cash fl ows discounted at the market rate of interest is deducted from the face value of the loan. The market rate of interest is the rate implemented by the vast majority of fi nancial institutions at a given time for instruments and counterparties with similar characteristics. These discounts represented an insignifi cant amount as at January 1, 2005, and December 31, 2005.
The fair value of listed non-consolidated investments is determined to the last listed price prior to the balance sheet date. The fair value of unlisted non-consolidated investments is obtained using the P/E (price earnings ratio) and DCF (discounted cash fl ow) valuation methods.
Consolidated fi nancial statements and notes instruments and by deduction from net banking income in the case of variable-income instruments.
IAS 17 gives fi ve examples of situations that individually or in combination would normally lead to a lease being classifi ed as a fi nance lease: the lease transfers ownership of the asset to the lessee by the end of the lease term; the lessee has the option to purchase the asset at a price that is expected to be suffi ciently below the fair value at the date the option becomes exercisable for it to be reasonable certain, at the inception of the lease, that the option will be exercised; the lease term covers the majority of the useful life of the asset; at the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; the leased assets are of such a specialized nature that only the lessee can use them without major modifi cations.
IAS 17 also describes three indicators that individually or in combination could also lead to a lease being classifi ed as a fi nance lease: if the lessee can cancel the lease, the lessor’s losses associated with the cancellation are borne by the lessee; gains or losses from the change in the fair value of the residual accrue to the lessee; the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than the market rent.
Finance income is recognized based on a pattern refl ecting a constant period rate of return on the net investment in the fi nance lease, using the interest rate implicit in the lease. The rate of return implicit in the lease is the discount rate at which: the aggregate present value of minimum lease payments receivable by the lessor, plus the unguaranteed residual value, is equal to the initial value of the asset (i.e. fair value at the inception of the lease, plus any direct initial costs comprising expenses incurred specifi cally by the lessor to set up the lease).
Assets subject to operating leases are presented in the balance sheet under property, plant & equipment or intangible assets in the case of equipment leases, and under investment property in the case of property leases. Lease income from operating leases is recognized in the income statement on a straight-line basis over the lease term under “other net banking income” or “expenses from other activities”.
Loan principal Where there is a risk of partial or total non-recovery of loans or non-compliance with loan terms or covenants, provisions are set aside and charged to the income statement under “impairment charges and other credit provisions”.
Non-performing loans are identifi ed and accounted for in accordance with standard CRC 2002-03 and the opinion issued by the CNC Urgent Issues Task Force on December 18, 2003, which set out the rules for classifying loans as non-performing and irrecoverable.
At each balance sheet date, assets classifi ed as loans and advances are reviewed to evaluate whether there is any objective evidence of impairment as the result of one or more events occurring after the initial recognition of the asset with an impact on estimated future cash fl ows.
If an asset is found to be impaired, the recoverable amount of the asset is estimated and discounted at the original effective interest rate, taking account of any available guarantees. The difference between the carrying amount of the asset and the estimated recoverable amount is recognized in income under impairment charges.
Where there is no objective evidence of impairment for an individually assessed fi nancial asset at amortized cost, the asset is included in a group of assets with similar credit risk characteristics and collectively assessed for impairment. Impairment losses are recognized on a collective basis pending identifi cation of impairment losses on individual assets in the group.
Financial assets are grouped according to three key characteristics: credit rating for personal customers and small businesses, and industry risk and country for other counterparties such as corporate or sovereign borrowers.
As regards personal customer and small business risks, loans in default in accordance with Basel II are recognized as impaired.
The accounting treatment depends on the instruments involved and the purpose of the transaction (hedging or trading).
The fi rst two categories are treated for income statement purposes as equivalent to lending/borrowing transactions and the amounts received or paid are taken to the income statement on an accruals basis.
In the case of specialized management of a trading portfolio, each instrument is marked to market on an individual basis. Changes in value during the period are taken immediately to the income statement. Valuations are adjusted for counterparty risk and the discounted value of future contractual management costs.
Income and expenses hedging transactions are recognized on a symmetrical basis with the income and expenses on the hedged items.
Income and expenses arising on institutional activities (swaps and exchange rate guarantees) are charged to or paid to the French Treasury in accordance with agreed terms and conditions.
Under IAS 39, derivative fi nancial instruments are measured at their fair value, whether they are held for trading or hedging purposes.
Derivative fi nancial instruments designated as hedges are those which meet the conditions required by IAS 39 at inception and throughout the term of the hedging relationship, particularly with respect to documentation of an effective relationship between the hedging instrument and the hedged item, both prospectively and retrospectively. Hedging relationships are presumed to be effective when the ratio of actual changes in the value of the hedging instrument and the hedged item is between 80% and 125%.
Cash flow hedges Cash fl ow hedging is used by Natixis principally to hedge structurally parent company Natixis’ interest-rate risk.
This type of IFRS documentation corresponds to the use of cash fl ow hedges.
Hedging of variable-rate loans Natixis uses plain vanilla interest rate swaps lending fi xed rates to fi x future variable-rate borrowing costs.
The prospective test entails the establishment of (by index type and currency): a schedule of cumulative variable-rate borrowings and fi xedrate borrower swaps by maturity; a schedule of cumulative variable-rate loans and fi xed-rate lender swaps by maturity category.
Tests are carried out on a quarterly basis. In addition, each time a new swap is implemented, checks are made to ensure that there are suffi cient resources.
At each period-end, changes in the fair value excluding accrued interest of hedging instruments are compared with those of hypothetical derivative instruments (synthetic instruments representing assets and liabilities and management’s intention). The ratio of their respective changes should be between 80% and 125%.
Accounting methods Changes in the fair value of derivative instruments are recorded in equity for the effective portion of hedge. Only the ineffective portion of hedges affects the income statement at the balance sheet date under “net gains or losses on fi nancial instruments at fair value through profi t and loss”.
Hedged items are not subject to any specifi c entries (other than those that would arise if they were not hedged).
Fair value hedges Hedging of fi xed-rate borrowings and issues Natixis uses plain vanilla interest rate swaps lending fi xed rates to protect itself against unfavorable changes in interest rates.
At each balance sheet date, changes in the fair value excluding accrued interest of hedging instruments are compared with those of hypothetical assets and liabilities (synthetic instruments representing assets and liabilities to be hedged at the risk-free rate). The ratio of their respective changes should be between 80% and 125%.
At the same time, changes in the fair value of hedged risk items (in the form of “hypothetical” assets and liabilities) are also recorded in the income statement.
Changes in the fair value excluding accrued interest of hedging instruments are recorded in the income statement under “gains or losses on fi nancial instruments at fair value through profi t and loss”. Accrued interest relating to these instruments is recorded under “interest and similar income” or “interest and similar expenses”.
If the composite instrument (host contract and derivative) is not measured at fair value through profi t and loss, the embedded derivative is separated from the host contract if it meets the defi nition of a derivative, and its fi nancial characteristics and associated risks are not closely related to those of the host contract.
Derivatives split from host contracts are included in assets and liabilities at fair value through profi t and loss.
A number of internal contracts exist between Natixis and its subsidiaries. To qualify as a hedge at consolidated level, Natixis ensures from time to time that the relevant transactions are hedged correctly in the market.
Assets, liabilities and off-balance sheet commitments denominated in foreign currencies are translated into euros at
year-end exchange rates. Realized and unrealized exchange gains and losses are taken to the income statement. Conversely, exchange differences arising on translation of borrowings for which the currency risk is guaranteed by the State or which relate to institutional activities are recorded in an accruals account.
Derivative fi nancial instruments held for trading are measured at their market value on the reporting date. If there is no active market in the instruments, market value is generally determined using internal models. A discount to market value may be applied depending on the instruments concerned and the associated risks.
Upon their initial recognition, fair value is the price paid or received. On subsequent reporting dates, fair value is estimated on the following basis: if the instrument is quoted on an active market, it is measured at its quoted price. A fi nancial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis; if the market for a fi nancial instrument is not active, fair value is established using various valuation techniques. Valuation techniques may refer to observable data from recent transactions, the current fair value of another instrument that is substantially the same, discounted cash fl ow analysis and option pricing models. Values may be adjusted, depending on the instrument concerned and the associated risks, notably to take account of factors such as the bid-ask spread and modeling risk in the case of hybrid instruments.
These are listed securities and derivatives on organized markets, such as futures and options, which are in liquidity zones that can be demonstrated as such (active market). All transactions in which Natixis is involved on listed markets are included in this category.
Valuations are determined using generally accepted models (discounted future cash fl ows, Black and Scholes model, interpolation techniques) and on the basis of directly observable parameters.
For all of these instruments, the parameter has been demonstrated to be observable in nature. In terms of methodology, the observability of parameters is based on four key criteria: the parameter is derived from external sources (via a recognized contributor if possible); the parameter is updated periodically; ■
The margin generated on the trading of these instruments is deferred and recognized in income over the duration of the transaction or until the date the parameter in default becomes observable.
Consolidated fi nancial statements and notes the production and preparation of the software. Expenses incurred during the development phase are only recognized as intangible assets if they meet the conditions required by IAS 38 in terms of technical feasibility, intention to complete the asset for internal use or sale, probability of future economic benefi ts, availability of resources and ability to measure the development expenditure reliably. Expenses incurred during the research phase are recognized as expenses when they are incurred.
Other items of property, plant and equipment are depreciated over their estimated useful lives, which range from fi ve to ten years.
Purchased software is amortized over its estimated useful life, which in most cases is less than fi ve years. Internallygenerated software is amortized over a period which may not exceed fi fteen years.
Assets are tested for impairment whenever there is objective evidence that the asset may be impaired and at least once a year in the case of intangible assets with an indefi nite useful life. Evidence of impairment is assessed on each reporting date. Impairment testing consists of estimating the recoverable amount of an asset, or if that is not possible, the cash-generating unit to which it belongs. Recoverable amount is the higher of fair value less costs to sell and value in use, which is the present value of future cash fl ows expected to be derived from continuing use of the asset or cash-generating unit. If the recoverable amount of an asset or CGU is lower than its carrying amount, an impairment loss is recognized in the income statement under the heading “depreciation, amortization and provisions for impairment of property, plant and equipment and intangible assets”.
The impairment tests carried out at December 31, 2006 did not result in the recognition of any impairment of intangible assets.
Impairment losses are recognized in the income statement under “depreciation and amortization” and “provisions for impairment of property, plant & equipment or intangible risks”. They may be reversed if conditions change (e.g. no more evidence of impairment).
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes locate a buyer has been initiated are identifi ed separately in the balance sheet. An impairment loss is recognized if the carrying amount falls below fair value less costs to sell.
Associated liabilities are also identifi ed separately in the balance sheet.
At December 31, 2006, Natixis did not have any non-current assets held for sale.
A fi nancial liability is derecognized when it is settled, discharged or cancelled or expires.
Securities sold are not derecognized. Natixis recognizes a liability representing the commitment to return funds received (“securities sold under repurchase agreements”). This fi nancial liability is recorded at amortized cost, not at fair value.
Securities bought are not recognized but a receivable on the assignee representing the funds provided is recognized. The amount disbursed in respect of the asset is recognized under “securities bought under repurchase agreements”. This receivable is recorded under “loans and advances”.
equity on the transition date, i.e. in the opening balance sheet at January 1, 2004.
Preferred shares issued by Natixis are classifi ed in equity (minority interests).
An analysis of the contractual agreements covering the subordinated notes, super-subordinated notes and the three preferred share issues led to their classifi cation as debt, since one of the clauses in these agreements made payment of a coupon by Natixis obligatory.
In addition, the issuing vehicle is contemplating repaying the initial preferred share issue on June 30, 2008, the fi rst date on which the call may be exercised, provided that it secures authorization from the French Banking Commission’s General Secretariat. Natixis’ Management Board validated this decision.
Lastly, two issues of super-subordinated notes shown on Ixis CIB’s balance sheet as equity were reclassifi ed in Natixis’ consolidated fi nancial statements as debt given the high probability of Ixis CIB’s being integrated within Natixis and the pre-existence of an issue ranking pari passu with them, making payment of a coupon obligatory on these two supersubordinated notes.
Natixis and certain consolidated entities have set up compensation and benefi t plans for some of their employees
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes based on their own shares. Payments are made either directly through the remittance of shares or through cash settlement.
Since 2002, Natixis has set up four stock option plans, the characteristics of which are shown in Note 12.4; payments based on Ixis Asset Management Group shares relate to option plans settled in cash. Options are stated at their fair value based on a binomial model incorporating the volatility-related impact of a sample of comparable companies. Their fair value is recognized as an expense under “wages and salaries” over the vesting period, with a corresponding reduction in liabilities on the balance sheet (“deferred income and accrued charges”). This liability is reassessed at each balance sheet date until the settlement date through the income statement.
price. These transactions give rise to recognition of personnel costs and a corresponding entry in equity when the plan is set up. The cost of these plans is measured as the difference, on the purchase date, between the fair value of the shares purchased taking account of the lock-up period, and the price paid by employees. The total expense recognized on the plans set up in 2006 came to less than €300,000.
In accordance with IAS 32, minority interests in equity of dedicated mutual funds represent a fi nancial liability recognized under “Financial liabilities at fair value through profi t and loss”.
As of January 1, 2005, fees and commissions that form an integral part of the effective yield of an instrument, such as commitment fees or loan set-up fees, are recognized as an adjustment to the effective interest rate over the term of the loan. They are therefore treated as interest income.
Deferred income tax assets and liabilities are set off at the level of each tax entity. The tax entity may either be a single entity or a group of entities that have elected for group tax relief. Natixis does not recognize net deferred tax assets unless it is reasonably certain that they will be used to offset a future tax charge. Accordingly, the effect of tax losses is not recognized if the tax entity has incurred losses in the previous two years, as it is presumed that the future tax benefi t will not be recovered. On this basis, €209 million of deferred tax assets were not recognized at December 31, 2006.
The capitalization reserve recognized in the individual fi nancial statements of insurance companies is intended to defer capital gains arising on the sale of certain bonds to offset subsequent capital losses. The portion presumed unlikely ever to be used is reclassifi ed in equity. Under French GAAP, no deferred taxation is recognized. Under IAS 12, it is treated as a temporary difference that gives rise to a deferred tax liability.
In addition, in line with US legislation, goodwill arising on the Nvest sub-group by Ixis Asset Management Group is deductible for tax purposes. In accordance with paragraph 15 and 21 of IAS 12, a deferred tax liability was recognized on the temporary difference between the carrying amount and value for tax purposes of the goodwill. Pursuant to the tax treaty between the United States and France, the tax rate applied is that applicable in France to long-term capital gains insofar as it was considered that: the goodwill was inseparable from the business activities and accordingly could not be sold separately from the entity carrying it; the temporary difference arising on the goodwill could be recovered only through the sale of the entity’s shares.
Financial guarantee commitments not classifi ed as derivatives are contracts requiring the issuer to make specifi c payments to repay the business guaranteed for a loss that it has actually
In accordance with paragraph 43 of the amendment to IAS 39 and IFRS 4 (published by the IASB in August 2005 and adopted by the European Union), fi nancial guarantees given are carried at their fair value plus any transaction costs directly attributable to the issuance of the guarantees. For independent agreements entered into at market rates, fair value at the inception of the agreement is theoretically equal to the amount of the premium(s) received.
All the fi nancial guarantees issued within the Natixis group are entered into at market rates.
All the fi nancial guarantees issued by insurance subsidiaries that also meet the defi nition of an insurance contract were accounted for in line with the requirements of IFRS 4 “Insurance contracts”, as permitted in paragraph AG64(a) of the amendment.
IAS 32 requires the notes to the fi nancial statements to state the fair value of all fi nancial instruments recognized at amortized cost, including loans. The following valuation methods are used to determine the fair value as presented in the notes to the fi nancial statements: Loans recognized as “loans and advances” and finance lease outstandings
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes for a loan with similar characteristics. As these are primarily variable-rate loans, the contractual rate is adjusted according to the trend in market lending rates and in counterparty risk.
Average number of ordinary shares in circulation over the period 584,970,228 48,338,000 48,052,000
Average number of treasury shares in circulation over the period 14,493,127 1,627,484 1,498,654
Number of potential dilutive shares resulting from stock option plans 6,808,166 403,001 119,745
These assets and liabilities are measured at fair value at the balance sheet date, with changes in value, including interest, recognized in income under “gains or losses on fi nancial instruments at fair value through profi t and loss”.
No impairment is recognized in these assets since counterparty risk is refl ected in their market value.
Loans and advances designated as at fair value 11,657 820 730
Securities designated as at fair value through profi t and loss 878 2,902 3,780 o/w securities held for trading within the Private Equity portfolio 21 1,060 1,081
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 8.1.2 - Financial liabilities at fair value through profit and loss
At December 31, 2006, fi nancial liabilities at fair value through profi t and loss comprised primarily derivatives not used as hedging instruments and liabilities deriving from the short sale of fi nancial assets (securities).
Securities designated as at fair value through profi t and loss 49,231 0 0
Derivative fi nancial instruments held for trading 8.1.3 55,154 4,423 3,906 8.1.3 - Derivatives held for trading
Derivative fi nancial instruments not held for hedging purposes are held for trading, irrespective of the period for which they are held.
(1) At December 31, 2005, the notional amount of €1,888 million was included in the amount of other options transactions on the over-the-counter market.
Hedging of net investments in foreign currencies 0 0 0 0 0 0 0 0
At December 31, 2006, the fair value of loans and advances to banks, calculated in accordance with the methods set out in note VII, amounted to €114,906 million.
At December 31, 2006, the fair value of loans and advances to customers, calculated in accordance with the methods set out in note VII, amounted to €91,772 million.
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 8.4.2.2 - Lease financing
(1) The hedging rate of non-performing loans was 33% at December 31, 2006 compared with 26% at December 31, 2005.
Cash loans and consumer credit 25,182 15,050 11,168 8.5 - Held-to-maturity financial assets
Financial instruments at fair value through equity (AFS+CFH) (469) (218) (105)
Accrued income and prepaid expenses - insurance companies 8.7.3.1 1,194 988 841
Accrued interest payable (1) 5 11 8.7.2 - Accrued income and prepaid expenses and deferred income and accrued charges 8.7.2.1 - Accrued income and prepaid expenses
Consolidated fi nancial statements and notes 8.8 - Property, plant & equipment, intangible assets, investment property 8.8.1 - Changes in non-current assets over the period
Shares in non-trading real estate companies 0 0 0 0 0 0 0 0
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 8.8.2 - Investment property
At December 31, 2006, the fair value of deposits from banks was €141,435 million.
Borrowings and debt securities at fi xed rates are discounted on the basis of the value of market fi xed rates at the balance sheet date for a debt with the same residual maturity.
At December 31, 2006, the fair value of debt securities in issue was €54,215 million.
In sum, life insurance reserves refl ect the payments received, plus investment income paid out to policyholders less exit benefi ts. These reserves are topped up by the management reserve, which is intended to cover future management costs on life insurance contracts.
The deferred participation reserve represents the portion of investment income attributable to policyholders, but not yet paid out. These reserves are due to be paid out within eight years.
EU IFRS Issue(1) Redemption Exchange differences Change in scope of consolidation (2) Other
Central banks and post offi ces 4 (39) (34) 2 (7) (5) 2 0 2
The method of accounting for fees and commissions received in respect of services or fi nancial instruments depends on the ultimate purpose of the services rendered and the method of accounting for the fi nancial instruments to which the service relates. Fees and commissions for one-off services, such as business-provider commission, are recognized in income immediately when the service is provided. Fees and commissions for ongoing services such as guarantee commissions or management fees are spread over the period during which the service is provided.
Variable income securities classifi ed as available-for-sale are tested for impairment and an impairment loss recognized if their carrying amount is lower than their recoverable amount.
Impairment losses on variable income securities (28) (22) 52 9.5 - Other income and expenses
This item also includes income and expenses relating to insurance activities, in particular life insurance premium income, paid benefi ts and claims and changes in insurance liabilities.
Other insurance income and expense 9 .5.2 5,267 (3,255) 2,012 4,269 (3,010) 1,259 3,354 (2,555) 798
Other related income and expenses 9 .5.3 500 (157) 343 420 (126) 294 396 (112) 284
Other related income and expenses 124 (109) 16 120 (107) 13 107 (106) 1 9.5.2 - Other insurance income and expense
(1) These services correspond to sales of credit information services, marketing information services and receivables collection services provided by Coface subsidiaries.
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 9.6 - Operating expenses
This item comprises mainly impairment charges and other credit provisions relating to credit transactions: charges net of reversals of individual and collective provisions, receivables written off during the period and recoveries on bad debts written off.
At December 31, 2005 and December 31, 2006, “Write-offs of individual receivables” included securities classifi ed as loans and advances in accordance with IAS 32 and IAS 39.
Since IAS 32 and 39 were not applied in the year ended December 31, 2004, charges and reversals were left under the Other category.
Financial assets at amortized cost (268) 167 (8) 16 (93) (83)
Impairment charges and other credit provisions (329) 251 (13) 18 (74) (294) 204 (8) 16 (81) (101)
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 9.9 - Gains or losses on other assets
Capital gains on disposals of property, plant and equipment and intangible assets during 2005 include €95 million arising on the sale of Liberté 2+A223.
This item includes amortization of positive goodwill. Amortization is recognized where there is evidence of impairment.
Consolidated fi nancial statements and notes 9.11 - Reconciliation of the tax charge in the financial statements and the theoretical tax charge
+ Income tax charge 369 342 239 - Share of income of associates (64) (14) (10)
The organization and internal reporting structure within the Management Board and Supervisory Board constitute the basis of identifi cation of sectors.
This business line comprises: securities - securities back-offi ce services: custody (account administration, back-offi ce outsourcing, depository control), fund administration and accounting, issuer services, order receipt and transmission, offi ce services. The addition of CACEIS’ and Gestitres’ activities has helped to strengthen Natixis’ presence in this business; payments - Systems and infrastructure: electronic banking, issuance and collection of high-volume electronic transfers, check processing; insurance: savings, investment and insurance products and services marketed through two business lines: insurance (individual life, collective life, non-life insurance, personal risk insurance); employee benefi ts planning (design and marketing of products, management of employee investment funds, employee savings account management, fund administration and accounting); consumer fi nance: The consumer fi nance business line encompasses within Natixis a wide variety of activities
focused on the revolving credit value chain (marketing, grant, administration and non-litigious collection, etc.) and personal loan administration activities. These activities are carried out through Novacrédit, which houses and manages some of the Banques Populaires’ revolving credit outstandings, and CEFI, which manages all the Caisses d’Epargne revolving credit facilities and manages their personal loans; guarantees and bonds: This business line was contributed in its entirety by the Caisse d’Epargne group in the form of the Natixis Garanties sub-group. It provides several services provided to customers primarily through the retail banking networks: guarantees for loans to personal and small business customers and developers, legal guarantees, fi nancial bonds.
This business includes Coface, Natexis Factor and GCE Affacturage, which have a shared management structure. It includes trade receivables management and offers customers tailored products to manage, protect and fi nance their receivables.
Consolidated fi nancial statements and notes have forged a strong reputation, such as Harris Associates, Loomis Sayles, Ixis AMG and Natexis Asset Management.
Together, these specialized companies enable the Group to provide a full range of expertise meeting demand from all the various customer segments. Coverage of the various customer segments is optimized by the organization of distribution around the Advisors/Global Advisors platform and the business franchises developed over the long term by the management companies, notably to the groups clientele. Nonetheless, the management companies continue to handle distribution via the retail banking networks in France.
This business line boasts a strong presence in the US thanks to the assets contributed with Ixis Asset Management Group.
Natixis integrates these business activities through its 20% ownership of the Banques Populaires’ and the Caisses d’Epargne retail banking networks and from the business lines distributed by the networks. Both shareholder groups’ networks hold distinct, yet complementary market positions. The Caisses d’Epargne banks have a strong presence in the personal customer segment, offering a full spectrum of products and services. They also boast robust local roots and are prime movers in the development of regions, offering local authorities, social housing organizations and businesses an extensive range of products and services. The Banque Populaire network focuses on small businesses, SMEs and personal customers. Other activities not covered by these six core businesses are grouped under “Other businesses”, a category primarily comprising the functional departments (information systems, human resources, fi nance and internal audit).
Natixis has four geographical regions: France; Other EU countries; North America (Canada, US); Other OECD countries.
Natixis’ risk management system complied with French banking regulations and with the corporate governance principles of the Banque Populaire Group. There were three levels of control coordinated by Executive Management: self-assessment, with second and third-tier controls being performed by the internal audit department. The main units involved in second-tier control, all of which were independent of the business lines, were the risk management, compliance and internal control departments, which report to the General Secretariat, and the information systems security department, which reports to information systems and logistics. Under the regulations, the General Secretary, a member of the Executive Management Committee, was responsible for permanent controls.
The risk committees established by each of the core businesses included the business line heads and representatives of the risk management and internal audit departments, with greater emphasis on operational aspects and with meetings scheduled on a more regular basis. They included: credit committee of corporate and institutional banking and markets and the subsidiaries that report to it; country risk committee; risk committees of the services business; risk management committees and investment committees of the private equity and wealth management business line; risk management committees of the receivables management business line (Coface and Natexis Factorem); various limit violation committees; operational risk committees.
Its guiding principles are as follows: the separation between risk-taking and control functions within the Natixis group, notably including: separation between front and back offi ce functions, the existence of fi rst-tier controls at an operational level, a distinction between periodic and permanent controls; a global organization based on control functions within the Natixis group ensuring the consistency of the internal system; a specifi c central body role being assigned jointly to the Caisse d’Epargne group and the Banque Populaire group.
The joint control system was rolled out in late 2006 and is structured around three confederal standing committees that meet on a monthly basis. The role of the standards and methods committee is to lay down or validate items in the event of delegation of joint standards. In particular, these standards relate to the general organization of the risk management function, risk assessment methods and reporting as part of consolidated supervision. The risk information systems committee is charged with handling all aspects of project supervision related to risk information systems common to both shareholder groups and Natixis and requiring the exercise of supervision on a consolidated basis. The toplevel confederal risk management committee approves the aggregate risk limits proposed by Natixis, decides whether to approve commitments exceeding the unit limit for large commitments set for Natixis and monitors its large exposures. Governance responsibility for the overall system falls to Natixis’ Management Board and Supervisory Board, with the latter being supported in the performance of its duties by the audit committee.
Within Natixis, permanent controls are conducted by the risk management, controls and compliance departments. These departments are independent of the business lines. A control coordination committee that meets on a monthly basis coordinates and ensures the effi ciency of the system.
Natixis’ risk management system will continue to evolve and adapt during 2007 in terms of its organization and risk management systems and assessment in accordance with the undertakings given in the document submitted to the AMF (document E, Appendix B).
Likewise, it submits to the executive body principles and rules concerning: the decision process for risk-taking; arrangements for the delegation of authority; risk measurement; risk monitoring.
Natixis actively pursued its preparations for the reform of the Basel II capital adequacy ratio in conjunction with Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne. From January 1, 2008, Natixis intends to adopt the internal ratings based approach to calculate the capital requirements for almost all its risk portfolio, subject to the French banking commission’s approval.
The project was led within Natixis by a cross-divisional unit bringing together the risk management, fi nance and information systems departments and organized into sub-projects (ratings, defaults, management of guarantees received, information, deployment, calculation of the ratio). At Ixis -CIB, the risk management and fi nance departments played a key role in the smooth running of the project. Immediately after November 17, 2006, the project was reconfi gured to address merger-related issues, secure approval for Natixis and launch programs that will enable Natixis to switch over to the proposed internal ratings based approach.
All the accomplishments made by the Basel II program at both Natixis and its subsidiaries are an integral part of the permanent risk management system.
The market risk department defi nes the risk measurement methodologies, examines restrictions and monitors all the market risks within the scope of Natixis. The market risk management procedures are implemented based on a system of delegation of authority, with the group risk management committee at its summit and the market risk committee playing a key role within it.
Natixis’ risk management procedures (scope of the former Natexis Banques Populaires)
Lastly, the internal audit department is responsible for the operational component of second tier controls, which consist in: ensuring that adequate procedures are in place and periodically assessing their appropriateness, particularly with regard to business activities and regulations; ensuring that procedures are properly and correctly followed; making recommendations on the risk management system; more generally, ensuring that procedures governing the management and monitoring of market risks are respected.
The risk management system is structured around the following committees: a market risk committee, which meets monthly and comprises the heads of the various control levels together with front offi ce managers. It is chaired by the head of capital markets activities. The committee validates new limits, proposes changes to limits and reviews any identifi ed limit overruns; a risk monitoring and supervision committee, which meets on a quarterly basis, comprising front offi ce and middle offi ce managers, the risk management department and the internal audit department to present new methods for measuring risks and divide up developments for their implementation; a new products committee, enabling capital markets activities to launch new products safely, after identifying and analyzing the different risk factors that may affect the value of the product. The new products committee meets around every six weeks and is backed up by theme-based working parties that meet every week. The committee examines the different risks inherent to a new product, in particular market, counterparty, legal, accounting, tax and non-conformity risks.
Ixis Corporate & Investment Bank’s risk management department defi nes the market risk assessment principles, reviews the limits and conducts follow-up on a completely separate basis from the business units.
Market risk control procedures are based on a complex measurement system, precise procedures and close monitoring. The entire system is overseen by the market risk committee, which is chaired by the Chairman of the Management Board. The committee’s role is to: examine risk exposure; defi ne the various limits and related delegations of authority; validate the measurement methods and monitoring procedures; ensure market risk procedures are observed properly.
Control of Ixis Corporate & Investment Bank’s market risks is performed by the market risks department, which is part of the risk management department. This department defi nes the risk measurement principles in complete independence and autonomously designs the corresponding systems. The department in charge of controlling market risks comprises four business monitoring units, which correspond to the principal business lines of Ixis Corporate & Investment Bank’s front offi ces, namely fi xed income, equity and equity
Another of their duties is to determine the appropriate risk measurement methodologies for their unit.
This type of control takes the form of daily and weekly management charts, which are reviewed by the Management Board and Executive Committee. In addition, the status of and trend in market risks are presented on a weekly basis to the Chairman of the Management Board and on a monthly basis to the market risk committee. Ixis Corporate & Investment Bank has been authorized since 1997 to use Scénarisk, its internal model monitoring market risks (general interest rate, equity, currency risk and specifi c equity risks). This authorization was extended by the French banking commission in February 2006.
Adverse stress consisted in “applying a shock” to the various market parameters carrying signifi cant sensitivity. Shocks are applied on a unit-by-unit basis (or by coherent group of
parameters) and provide insight into the potential changes in P&L on a business-by-business basis. The risk scenarios defi ned by Ixis Corporate & Investment Bank (over 250 in all) will be extended over the medium term to cover the entire scope of Natixis’ operations.
The key standard metrics used are: sensitivity to a +/- 1% change in interest rates (overall and by maturity); yield curve exposure expressed as the potential loss; currency exposure; equity exposure; sensitivity to a +/- 1% change in implied volatilities in the equity, foreign exchange and fi xed income markets (overall, by maturity and by strike); sensitivity to a change in delta of an underlying (equities, fi xed income and currency); sensitivity to dividend levels; sensitivity to a change in swap spreads; sensitivity to a change in issuer spreads; sensitivity to a change in correlations; monthly and annual loss alerts.
Principal limits The principal limits are as follows: maximum sensitivity of interest rate maturity schedules to a +/-1% shift in the yield curve was €125 million at December 31, 2006; the foreign exchange risk limit stands at €3 million. It is stated as a potential one-day loss with a confi dence interval of 99%; the limit on sensitivity to a change in issuer spreads on the fi xed-income secondary trading portfolio stands at €11.5 million. It is stated as a potential one-day loss with a confi dence interval of 99%; Volatility limits for interest rate, currency and equity options are: €4.5 million for a 1% change in interest rate volatility, €3 million for a 1% change in equity volatility, €0.731 million to €0.975 million per currency for a 1% change in foreign exchange volatility.
These overall indicators are supported by more precise measurements by underlying, maturity and strike price.
Several developments occurred during 2006, representing the continuation of previous programs. New models were developed and studies were carried out to quantify the model risk and enhance the various pricing models taking these market developments into account.
increase in alpha limits in delta and outstandings, following the expansion of the business; increase in the hybrid fi xed-income, exotic and equity fi nance delta limits . Note that the limits applicable to Natexis Arbitrage’s activities were restored to Natixis’ portfolios as of January 1, 2006; increase in the market risk limits for Natexis Bleichroeder Inc. (NBI), notably the total VaR limit; increased sensitivity to overall interest rates for the capital markets activities (including the treasury desks); increased sensitivity to yields on short-term and long-term treasury instruments and reduced sensitivity to returns on the treasury strategies desk; deployment of the yield curve risk indicator for the scope of the former Natexis Banques Populaires completed.
Since late November 2004, Ixis Corporate & Investment Bank has employed a VaR calculated using digital modeling based on Monte Carlo methodology, which makes it possible to take into account any non-linear relationships between portfolios depending on the various risk parameters; stress test metrics, which consist in measuring potential losses on portfolios in extreme market confi gurations. These confi gurations are established using scenarios based on historical studies (economic scenarios) and hypothetical portfolio-specifi c scenarios; operational indicators making it possible to oversee the business either as a whole and/or by consistent segment using parameters that may be observed more directly (e.g. nominal amount, sensitivities, stop-loss, diversifi cation and market penetration indicators). The limits corresponding to these operational indicators complement the VaR limits and stress tests. They are determined consistently with the latter limits, notably where they correspond with the delegations of authority used by the front offi ce. This applies in particular to stop losses, which are used to trigger alerts on strategies giving rise to losses, with a very high level of granularity (limits per trader). These stop losses are monitored on a permanent basis and, where they are breached, they trigger a decision by management on the relevant positions (closing out, hedging, no action, etc.).
* N.B. Xsi is an indicator originating with the former Natexis Banques Populaires, which measures the issuer spread risk (idiosyncratic risk).* N.B. Xsi is an indicator originating with the former Natexis Banques Populaires, which measures the issuer spread risk (idiosyncratic risk).
Harmonization of the monitoring and management of Natixis’ structural balance sheet risk will be continued during 2007 in keeping with the risk convergence and the ALM action plan undertakings.
Structural interest rate, currency and liquidity risk for Natixis (scope of the former Natexis Banques Populaires)
by delegation from the ALM committee. Subsidiaries are refi nanced by the treasury department. Since subsidiaries enjoy autonomous management of liquidity and structural interest rate risk by delegation of the ALM committee, they have their own treasury or balance sheet management committee for the management of rules and limits validated by the ALM committee.
Change in economic value based on a ±200bp shock 100 80 16 8 204
Sensitivity metrics are produced on a daily basis for the scope of the treasury department. They are produced on a monthly basis for the relevant subsidiaries.
In 2006, a yield curve risk indicator calculated on a daily basis was deployed for the treasury portfolios(17) in conjunction with the following limits: ST treasury desk (Paris) €1.5 million
Lastly, interest income sensitivity metrics are produced from time to time for various scenarios without any limit-based constraints.
(17) The indicator and its associated limit for the New York short-term treasury desk are currently being rolled out.(17) The indicator and its associated limit for the New York short-term treasury desk are currently being rolled out.
Centralization of the overall refi nancing requirements in a large number of foreign currencies within the treasury department in the short, medium and long term helps to minimize liquidity costs on a permanent basis for the Group as a whole. This approach helps to facilitate an issuance policy based on continuous efforts to achieve maximum diversifi cation of debt placement in terms of issues and geographical region.
Lastly, the liquidity risk monitoring system is rounded out with liquidity stress scenarios, which are currently being prepared.
With respect to the second component, the ALM committee approved coverage of the headquarters’ USD income as forecast in the budgeting procedure through forward sales of the US dollar against the euro, which are reversed as and when the USD income accrues.
Structural balance sheet risks, structural interest rate risk, structural currency risk and liquidity risk are overseen and managed by Ixis Corporate & Investment Bank’s balance sheet management committee. This committee, which notably comprises representatives from the fi nance and risk management departments, is chaired by a member of the Management Board.
Structural interest rate risk The structural interest-rate risk has a VaR limit of €18 million. Use of this limit is calculated on a daily basis by the risk management department, with the fi nance department monitoring and overseeing management of the risk.
In addition, the balance sheet management committee uses monthly indicators concerning the structural interest rate position on banking book activities, in particular the static gap by maturity category, as well as sensitivity analysis of the net present value on the basis of several yield curve scenarios (increases or decreases, steepening, fl attening, development of factors in a multi-factor model).
Medium to long-term liquidity requirements are monitored on a monthly basis by the same committee.
Structural currency risks Since Ixis CIB has chosen to fi nance its foreign currency assets through borrowings in the corresponding currency, the position exposed to structural interest rate risk is therefore entirely in euros, excluding foreign currency income, which is subject to specifi c management.
Within the framework of its structural interest rate risk management, Natixis uses primarily plain vanilla interest rate swaps as hedging instruments.
Since Natixis Assurances sells mainly savings products, the main risks arising from insurance contracts are fi nancial in nature.
ABP Vie has identifi ed the population of policyholders for which the buyback risk is high. The discriminating factors are age, tax record and amount of capital involved.
The liability adequacy test conducted in accordance with IFRS 4 showed that insurance liabilities valued under French GAAP were higher at fair value, taking into account the buyback
To contend with the provisioning risk in the event of a steep fall in the equity market, ABP View limits its equity investment and also invests in real estate.
The sensitivity analysis carried out at year-end 2006 shows that: a 10% decline in the equity market would have a negative impact of €15 million on equity, i.e. 2% of capital; a 10% decline in the real estate market would have a negative impact of €4 million on equity, i.e. 0.5% of capital.
In personal risk insurance, the risks insured are short-cycle risks, since reserves liquidated over a period of more than one year do not represent a very signifi cant amount.
The personal risk insurance business is covered by an annual reinsurance plan. This plan seeks to diversify reinsurers and to deal only with parties with a high-quality rating. No reinsurance treaties are entered into or renewed with parties that do not have an investment grade rating. In practice, the Group’s reinsurers have a rating of between A- and AA-.
To reduce mortality and morbidity risks, Natixis Assurances conducts an advance medical assessment of its new policyholders.
Given the nature of its activities, Coface is exposed to two main types of risk
Credit risk (technical risk) is the risk of losses generated by the insurance policy portfolio. A distinction is made between frequency risk and target risk: frequency risk represents the risk of a sudden and substantial increase in outstanding debts due from a large number of debtors. This risk is measured for each business unit by monitoring the loss ratio (claims to premiums ratio), by business sector (domestic credit), by country (export credit) or by product line (guarantees, single risks etc.). The loss ratios of the various underwriting centers are also monitored at Group level, as are the amounts and number of outstanding debts per month; target risk represents the risk of unusually high losses from a single debtor or group of debtors, or accumulated losses in the same country.
the “major risks committee”, which sets the maximum amount of risk for Coface accepted out of the group’s 400 largest risks (commitments of over €80 million and severity of over €25 million) and sets maximum levels for each emerging market; a rating system for corporate risks and country risks; a system for the statistical assessment of “severity” (potential maximum loss in the event of a loss claim) by debtor, group of debtors or emerging market.
Diversification of the credit risk portfolio Coface maintains a diversifi ed credit risk portfolio in order to minimize the risks of default by a debtor, the slowdown in a particular business sector or an unfavorable event in a particular country, which may have a disproportionate impact on Coface’s overall loss ratio. In addition, the majority of risks to which Coface is exposed are short-term in nature, which enables it to reduce the risk on a particular debtor or group of debtors relatively quickly after deterioration in their solvency is observed.
The following table shows the breakdown of credit insurance debtors as at December 31, 2006, based on the total level of risk borne by Coface in thousands of euros: ■
OUTSTANDING LOANS BY LOAN SIZE AS AT DECEMBER 31, 2006 (AGREED POLICIES)
Risks are controlled in line with the following principles: zero-risk underwriting (the premium does not represent reward for risk); transactions are at least rated BBB- prior to issuance of the guarantee (i.e. they are investment grade issues); the approach is in line with standards and practices accepted by rating agencies for fi nancial guarantees. The review of operations covers all types of transaction and all geographical regions on a centralized basis to guarantee
The risk management and investment policies implemented are conservative, in keeping with the CIFG group’s triple A rating. CIFG continuously ensures that its underwriting policy is in keeping with the constraints imposed by rating agencies to preserve its AAA/Aaa/AAA ratings. It maintains contact and meets with the rating agencies on a very regular basis, enabling it to ensure that each transaction has been reviewed properly by the agencies.
NOTE 12 PAYROLL COSTS, NUMBER OF EMPLOYEES, COMPENSATION AND EMPLOYEE BENEFITS
Payroll costs not only include wages and salaries net of rebilled expenses but also employee benefi ts such as pensions (defi ned benefi t plans) and share-based payments in accordance with IFRS 2.
The annual charge for defi ned benefi t plans comprises: additional entitlements vested with all employees; interest costs (discount effect); the gross yield on plan assets; amortization of actuarial gains and losses (application of the so-called corridor approach) and past service cost.
(1) Full-time equivalents active within the Natixis group at December 31, 2006.
The main provisions for employee-related liabilities concern: CAR supplementary banking pension; Natexis Banques Populaires supplementary banking pension; end-of-career awards and allowances; long service awards.
The Banque Populaire group’s CAR (‘Caisse Autonome des Retraites’) pension fund, for which Natixis employees from the former Caisse Centrale des Banques Populaires were also eligible, was closed on December 31, 1993, in accordance with the professional agreement of September 13, 1993, applicable to the Banque Populaire banks under the Group agreement of January 7, 1994.
Pension liabilities to active and retired employees comprise supplementary pensions specifi c to the Banque Populaire group and a residual supplementary banking pension calculated on the basis of the difference between banking rights at December 31, 1993, and social security pensions.
For end-of-career allowances, consolidated entities cover all or part of their commitments through insurance policies with ABP Vie, the life insurance subsidiary of Natixis, which is fully consolidated.
A ministerial decree of July 18, 2005, resulted in the modifi cation of the end-of-career award system. Departures on the initiative of the employer before the age of 65 are no longer subject to social security contributions where a special agreement or relevant collective bargaining agreement provides for offset measures in terms of jobs and professional training. An agreement of this type was entered within the Banque Populaire group in 2005. The impact of this change was treated as a past service cost, spread out over the remaining vesting period determined for each entity.
For end-of-career awards and long service awards, employee turnover is calculated by age bracket and grade based on a three-year average. The rate is 0% for employees over 55. Future salary increases are estimated by grade based on a constant population and a three-year average.
(In € millions) Supplementary pensions End-of-career allowances Long-service awards Other Total
Change in scheme recognized over the period 2 (1) 0 2
Actuarial gain or loss on return on plan assets 0 0 0
Change in actuarial gains or losses not recognized 10 (1) (1) 7
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 12.4 - Share-based payment plans
Number of options allotted Exercisable as of Expiry date Exercise price
This charge concerns share-based payment plans allocated within the scope of Natixis
Financial liabilities at fair value through profi t and loss 134,429 2 115 59 (1,213) 133,392
The key income statement lines shown above are broken down into six business segments, refl ecting the six business lines identifi ed in Natixis’ organization structure: Retail banking [1] encompasses the Banque Populaire and Caisse d’Epargne activities, which are accounted for by Natixis through its 20% shareholding; Corporate and I nvestment B anking [2] houses the fi nancing and capital markets activities serving large corporate customers. It brings together Ixis CIB’s expertise in capital markets with Natixis’ know-how in fi nancing; Asset M anagement [3] holds the asset management activities performed by various subsidiaries including Ixis AMG and Natixis Asset Management; Private E quity and Private Banking [4] comprises private equity (Natixis Private Equity) and wealth management (Banque Privée Saint Dominique, La Compagnie 1818-Banquiers Privés and Natexis Private Banking Luxembourg); the Services business [5] houses the remaining activities: Securities back-offi ce services (CACEIS and Gestitres
strengthening Natixis’ position), Payments, Insurance (Natixis Assurances), Employee benefi ts planning (Natixis Interépargne), Consumer fi nance (Novacrédit, CEFI), Financial guarantees and bonds (contributed in full by the Caisse d’Epargne group through Natixis Garanties); Receivables M anagement [6] encompasses the credit insurance and credit management services provided by Coface plus the factoring businesses of Natixis Factor and GCE Affacturage; other businesses [7] are a category housing Natixis activities that are not directly operational, notably its own holding company activities serving its direct subsidiaries. Net banking income derives from the management of its corporate treasury, real estate income and institutional activities performed on behalf of the French State. General operating expenses refl ect overhead not allocated to the individual business lines. The Other businesses category also includes certain consolidation adjustments that cannot be assigned to business segments.
Impairment charges and other credit provisions (155) 70 18 0 (7) 0 (74)
Gains or losses on other assets 4 2 5 0 0 0 11
Change in value of goodwill 0 0 (1) 0 0 0 (1)
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 433 308 138 5 59 0 943 13.2.2 - Balance sheet
Financial assets at fair value through profi t and loss 137,780 12,485 25,732 828 1,593 (1,515) 176,903
Technical reserves of insurance companies 29,453 1,547 49 14 57 (62) 31,058
In accordance with IAS 39 (§ 2), fi nancing commitments outside the scope of IAS 39 are recognized in accordance with IAS 37, “Provisions, contingent liabilities and contingent assets”.
To customers 51,019 - Other confi rmed lines of credit 42,319 25,455 18,426
IAS 32 requires information about exposure to interest rate risk. The following table shows assets and liabilities by remaining contractual maturity.
Financial assets at fair value through profi t and loss 79,470 13,982 9,261 24,835 40,144 9,211 176,903
Financial liabilities at fair value through profi t and loss 69,689 3,258 7,198 24,939 28,307 1 133,39 2 15.2 - Breakdown of assets and liabilities by currency
Consolidated fi nancial statements and notes 15.3 - Information about finance leases and operating leases 15.3.1 - Leases as lessor
Total Less than 1 year > or equal to 1 year and <
FINANCIAL DATA 6 Financial data Consolidated fi nancial statements and notes 15.3.2 - Leases as lessee
The principal transactions between Natixis and consolidated companies (the Banque Populaire group including Banque Fédérale and its subsidiaries, the Caisse d’Epargne group including CNCE and its subsidiaries and the Caisses d’Epargne banks and their subsidiaries, proportionally consolidated investments with respect to the portion not eliminated for consolidation purposes and all equity associates) are described below: CONTENTS < >
Financial assets at fair value through profi t and loss 2,135 1,874 10 859 127
Net gains or losses on fi nancial instruments at fair value through profi t and loss (64) (96) (75)
In euros Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
(2) Total gross compensation paid to members of Natixis’ Executive Management Committee during their term of offi ce during the period, including members of the Management Board. Number of members of the Management Board: 13 in 2006, 11 in 2005, 11 in 2004.
Dominique Ferrero, Chief Executive Offi cer and Member of Natixis’ Management Board (compensation from November 17, 2006) 120,048
The number of stock options allotted in respect of offi ces held in the issuing company and associated undertakings was as follows: Number of options allotted Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2004
In this regard, the aggregate amount of pensions paid to directors may not exceed 60% of revenues for the period, up to a maximum of €335,000. For directors appointed after January 1, 2005, this has been lowered to 50%.
On retirement or early retirement, a payment is made equal to one-fortieth of annual compensation per year of service at the Banque Populaire group, up to a maximum of 40/40ths of annual compensation.
The companies within Natixis’ scope using the insurance format are: Coface and its subsidiaries (credit insurance, business information and debt management services), Natixis Assurance and its subsidiaries (life insurance, personal risk insurance, non-life insurance), Foncier Assurance (life insurance), Natixis Garanties (legal guarantees and bonds) and CIFG (fi nancial guarantees).
Mark-to-market gains on assets 263 263 - 263 - - 263
Consolidated fi nancial statements and notes 15.5.2 - Insurance companies’ contribution to the consolidated income statement
Net gains or losses on fi nancial instruments at fair value through profi t and loss (627) 91 (148)
Net gains or losses on available-for-sale fi nancial assets 189 242 23
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 215 213 142
In accordance with our appointment as Statutory Auditors at the annual general meeting, we have audited the accompanying consolidated fi nancial statements of Natixis SA for the year ended December 31, 2006.
The consolidated fi nancial statements have been approved by the Management Board. Our responsibility is to express an opinion on these fi nancial statements based on our audit.
Note 3.5 to the fi nancial statements describes the accounting treatment used for the transfers of assets from Caisse Nationale des Caisses d’Epargne at the extraordinary shareholders’ meeting of November 17, 2006.
We verifi ed that the accounting treatment used does not go against the general principles of IFRS as adopted by the European Union and that note 3.5 gives appropriate information in this respect.
The pro forma information provided in notes 6.3 and 6.4 to the fi nancial statements has been prepared in order to illustrate the effects that the transactions described in note 5 may have had on Natixis’s consolidated balance sheet to December 31, 2006, and December 31, 2005, had they taken place as at January 1, 2005.
We verifi ed that the basis for the establishment of this pro forma information is consistent with the items described in note 5 to the fi nancial statements concerning the pro forma accounts, of examining the evidence supporting the pro forma restatements and collecting information and explanations from Natixis’s executive management that we have deemed necessary.
FINANCIAL DATA 6 Statutory Auditors’ report on the consolidated fi nancial statements
The assessments were made in the context of our audit of the consolidated fi nancial statements, taken as a whole, and therefore contributed to the formation of the unqualifi ed opinion expressed in the fi rst part of this report.
We also verifi ed the information provided in the management report, in accordance with professional standards applicable in France.
1 Cash and balances with central banks and post offi ces 44 24 15 1 Government securities and equivalent 3,977 4,894 5,775 1 Loans and advances to banks 54,110 65,174 47,782 16 of which institutional activities: 166 250 333 16 of which institutional activities: 400 697 1,133 3 Bonds and other fi xed-income securities 15,586 13,934 11,228 3 Equities and other variable income securities 3,873 1,339 977
Investments in associates and other securities held for investment 8,996 162 165
Share capital subscribed not paid in - - 6 Accrued income and prepaid expenses 1,011 1,842 1,827
Commitments received from customers 2,783 2,878 2,640 16 of which institutional activities: 183 263 345
7 Due to central banks and post offi ces 613 412 22 16 of which institutional activities: 239 322 408 16 of which institutional activities: 523 727 1,166 9 Debt securities in issue 48,484 34,463 29,007 10 Deferred income and accrued charges 2,924 2,376 2,456 16 of which institutional activities: 3 2 11 Provisions for contingencies and charges 1,067 934 796
See Note Year ended December 31 2006 2005 2004 17 Interest and similar income 5,416 4,471 3,807
Other interest and similar income 170 315 210 18 Interest and similar expenses (5,318) (3,979) (3,302)
In addition, Natixis subscribed to the issue of Cooperative Certifi cates of Investment (CCIs) by Banques Populaires for €4.2 billion.
The Natixis fi nancial statements have been prepared in accordance with generally accepted accounting principles applicable to credit institutions, including standard CRC 2000-03 on fi nancial statement presentation.
Irrecoverable loans include loans where an event of default has occurred, restructured loans where the borrower has once again defaulted and loans classifi ed as non-performing for more than one year once a write-off has been envisaged.
2.1.2 - Loan interest In accordance with banking regulations: unpaid accrued interest on loans to borrowers subject to bankruptcy proceedings is deducted from the interest account in which it was initially recorded. If the interest is subsequently recovered, it is credited to income upon receipt through the same account; interest on non-performing loans three, or where applicable, six or nine months past due is also provided for in full by deduction from the interest account in which it was initially recorded; all other loans made to these customers are also classifi ed as non-performing, even where the risk appraisal does not call for an impairment charge against the principal amount outstanding; the same rules apply to lease fi nancing transactions, where a provision is taken for the amount outstanding when a lease payment or any incidental costs are more than three months (equipment) or six months (real estate) past due.
FINANCIAL DATA 6 Financial data Parent company fi nancial statements and notes 2.1.3 - Restatement of former BFCE sovereign risks In 1991 and 1992, a defeasance transaction was carried out and a put option was purchased on BFCE sovereign risks. The defeasance structure, Edval Investment Ltd, and the vehicle set up to hold the put option, Worledge Investment Ltd, were consolidated for the fi rst time at December 31, 2002. In accordance with paragraph 10052 of standard CRC 99-07, consolidation of these two entities led to an adjustment of provisions covering at-risk loans covered by the put option.
These provisions cover certain businesses of Natixis that carry potential future risks. These businesses are reviewed quarterly and where necessary included in the basis of provisioning for sound exposure in countries or industries likely to experience diffi culties. During these quarterly reviews, the country and industry provisioning rates are adjusted according to Natixis’ perception of how the businesses will evolve, either negatively or positively. In 2003, additional provisions of €90 million were taken to cover potential risks arising as a result of major issues in the European marketplaces. This sum was maintained in the balance sheet at December 31, 2004.
As of January 1, 2005, assets that are not specifi cally identifi ed as impaired are divided into groups of assets with similar credit risk characteristics on an industry by industry basis. Each group of assets is assessed for objective evidence of impairment based on observable data indicating a probable decrease in the estimated recoverable cash fl ows for that group of assets. Collective provisions are taken to cover any estimated losses. Assets that are subsequently specifi cally identifi ed as impaired are no longer included in the groups of assets assessed collectively.
Securitizations are transactions that transfer credit risk without disposing of the underlying portfolios. They consist
of synthetic securitizations based on credit derivatives carried out jointly with third party banks and special purpose vehicles. In substance, the credit derivatives are equivalent to credit insurance protecting Natixis against the risk of borrower default or debt rescheduling.
Assets, liabilities and off-balance sheet commitments denominated in foreign currencies are converted into euros at the year-end exchange rates. Realized and unrealized exchange gains and losses are taken to the income statement.
5 - Securities portfolio 5.1 - Securities transactions (trading account securities, securities held for sale, debt securities held for investment)
In accordance with French banking regulations, provisions are not systematically taken for unrealized losses, unless there is an intention to dispose of the securities in the short
Parent company fi nancial statements and notes term. In this case, provisions for market risk are charged to “net gains/(losses) on disposals of non-current assets” and provisions for counterparty risk to “impairment charges and other credit provisions”; treasury shares are purchased for different purposes: i) to regulate the market price under a liquidity agreement, ii) to pay for acquisitions and iii) for their cancellation through a reduction in the share capital. To this end, all the shares held in the treasury stock portfolio at November 28, 2006 (15,552,460 shares) were cancelled through a reduction in share capital.
5.2 - Investments in associates and equity securities held for investment
Consolidated investments were valued at their net present value using the discounted cash fl ow method based on business plans drawn up by management of the main subsidiaries and validated by Natixis Executive Management.
Equity securities held for investment are securities acquired with the intention of being held in the medium to long-term in order to sell them at a profi t. They are booked at cost and an impairment charge taken if their net book value is higher than their estimated value (based on recent transaction values, profi tability, market price for listed securities or other valuation methods used at the time of acquisition).
Value adjustments and gains or losses on disposal of securities appear under different headings depending on the nature of the transaction: ■
trading account securities, securities held for sale and equity securities held for investment: value adjustments and gains or losses are recorded in net banking income; debt securities held for investment: value adjustments and gains or losses are recorded under “impairment charges and other credit provisions” where they refl ect counterparty risk, and “net gains/(losses) on disposals of non-current assets” where they refl ect market risk or the result of disposal; investments in associates and other long-term equity investments: value adjustments and gains or losses are recorded under “net gains/(losses) on disposals of noncurrent assets”.
7 - Property, plant & equipment and intangible assets 7.1 - Measurement on initial recognition
Internally-generated computer software is measured at the total cost of development, including related hardware costs, service costs and personnel costs directly attributable to the production and preparation of the software. Expenses incurred during the development phase are only recognized as intangible assets if they meet conditions of technical feasibility, intention to complete the asset for internal use or sale, probability of future economic benefi ts, availability of resources and ability to measure the development expenditure reliably. Expenses incurred during the research phase are recognized in income when they are incurred.
Spot currency transactions outstanding at the year end are valued at the year-end rate.
Forward currency hedging transactions are recognized in income on an accruals basis, either as premiums or discounts where they are intended to hedge commercial transactions, or as accrued interest where they are intended to hedge long-term assets and liabilities denominated in foreign currencies.
13.3 - Interest rate, currency and equity options and forward contracts
The main provisions for employee-related liabilities concern: end-of-career awards and allowances; supplementary banking pension; early-retirement and supplementary pension benefi ts; “CATS” early retirement plan benefi ts; ■
Natixis uses independent actuaries to measure its main liabilities, as well as the supplementary banking pension.
In accordance with CNC recommendation R. 2003-01, Natixis provides for the entire amount of employee benefi t obligations.
In accordance with the current wording of CRBF regulation 90-01 and instruction CB 94-07, premiums and discounts on debt securities held for investment are deferred over the residual term to maturity of the debt securities using either an actuarial or straight-line method. Previously, Natixis had opted for straight-line amortization, but following the changeover to new software, it is now using the actuarial method. The impact of this change of method (negative impact of €1 million) was recognized through opening 2006 equity.
Cash and balances with central banks and post offi ces 44 24 15
INTERBANK AND MONEY MARKET ASSETS 58,131 70,092 53,572 accrued interest receivable 5 2 2 s ecurities received under repurchase agreements: 19,186 36,582 28,502 accrued interest receivable 329 332 179
Current accounts in debit 5,315 4,347 4,238 a ccrued interest receivable 18 13 13 n on-performing loans 81 200 78 n on-performing loans 27 20 19
At December 31, 2004, in accordance with the opinion issued by the CNC Urgent Issues Task Force on December 18, 2003, irrecoverable loans comprise loans where an event of default has occurred and loans classifi ed as non-performing for more than one year, where a write-off is envisaged.
NOTE 4 INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES, OTHER SECURITIES HELD FOR INVESTMENT AND TREASURY STOCK
INVESTMENTS IN ASSOCIATES AND OTHER SECURITIES HELD FOR INVESTMENT 8,996 162 165
D) Investments with a carrying value of less than or equal to € 15,000 - 15,730.10
This information is provided pursuant to the provisions of Article L. 247-1 of the French Commercial Code: % at Decem ber 31, 2006
NOTE 4.2 DISCLOSURE OF SIGNIFICANT SHAREHOLDINGS IN FRENCH COMPANIES DURING THE YEAR
CCI BP Val de France – St Quentin en Yvelines 20.00% 1,175,000
NATEXIS ASSURANCES 68-76, quai de la Rapée, 75012 Paris 65,681 EUR 387,787 EUR 100.00%
NATEXIS ASSET MANAGEMENT 68-76, quai de la Rapée, 75012 Paris 30,468 EUR 9,223 EUR 87.45%
NATEXIS PRIVATE BANKING 45, rue Saint-Dominique, 75007 Paris 53,957 EUR 1 EUR 100.00%
COFACE 12, cours Michelet, La Défense 10, 92800 Puteaux 69,795 EUR 482,271 EUR 98.26%
NATEXIS IMMO EXPLOITATION 45, rue Saint-Dominique, 75007 Paris 117,036 EUR 2,754 EUR 100.00%
INVEST KAPPA (formerly Line Bourse) 45, rue Saint-Dominique, 75007 Paris 5,761 EUR 1,699 EUR 100.00%
NATEXIS LUXEMBOURG SA 51, avenue J.F. Kennedy L-1855 Luxembourg 100,000 EUR 18,379 EUR 100.00%
NATEXIS BLEICHROEDER SA 100, rue Réaumur, 75002 Paris 73,636 EUR (26,669) EUR 100.00%
NATEXIS PRIVATE EQUITY 5-7, rue de Monttessuy, 75007 Paris 438,456 EUR 147,622 EUR 100.00%
NATEXIS TRANPORT FINANCE (SBFI) 45, rue Saint-Dominique, 75007 Paris 95,626 EUR 80,037 EUR 100.00%
FONCIER ASSURANCE 19, rue des Capucines, 75001 Paris 48,483 EUR 4,712 EUR 60.00%
SPAFICA 115, rue Montmartre, 75002 Paris 685 EUR 62,859 EUR 99.98%
VAL A 115, rue Montmartre, 75002 Paris 167,200 EUR 180,256 EUR 100.00%
NATEXIS MOSCOW Business Center Parus, 1th Tverskaya, Yanskaya Street 23/1 125047 Moscow, Russia 1,153,089 RUR 181,382 RUR 100.00%
NATEXIS AMBS (New York) 645, Fifth Avenue, NY 10022, New York 562,050 USD (4,623) USD 100.00%
COMPAGNIE 1818 50, avenue Montaigne, 75008 PARIS 48,346 EUR 77,053 EUR 57.85%
CACEIS 1, place Valhubert, 75013 Paris 300,000 EUR 201,921 EUR 50.00%
GCE BAIL 32, rue Beaujon, 75008 Paris 45,448 EUR (7,097) EUR 100.00%
GCE FINANCIAL SERVICIES 74, avenue du Docteur-Arnold-Netter, 75012 Paris 8,058 EUR (657) EUR 100.00%
Ixis CORPORATE & INVESTMENT BANK (Ixis CIB) 47, quai d’Austerlitz, 75648 Paris Cedex 13 1,909,411 EUR 1,360,076 EUR 100.00%
GESTITRES 24, vla Baudran, 94742 Arcueil 28,504 EUR 4,684 EUR 100.00%
B - Other interests - Other interests not included under A
Property, plant & equipment and intangible assets used in the business 347 (172) 175 286 (165) 121 272 (161) 111
Intangible assets used in the business 43 9 (5) 0 47
INTERBANK AND MONEY MARKET LIABILITIES 50,880 54,518 39,869 (*) including securities delivered under repurchase agreements: 21,577 31,474 23,747 accrued interest payable 239 346 162
(*) i ncluding securities delivered under repurchase agreements: 1,108 7,324 7,252 accrued interest payable 6 80 49
In € millions Share capital Share premium Legal reserve General reserve
Transfer of long-term capital gains reserve - - - - (192) 187 5 0
NOTE 16 STATEMENT OF ASSETS, LIABILITIES AND COMMITMENTS RELATED TO MANAGEMENT OF PUBLIC PROCEDURES
Charges to provisions for contingencies and charges (pension commitments) 6 (4) (2)
Investments in associates and other securities held for investment 85 13 8
Investments in associates and other securities held for investment 9 38 45
Investments in associates and other securities held for investment 2 3 (2)
(1) Compensation on termination of lease contract over the Liberté 2 building.
INTEREST RATE INSTRUMENTS 957,843 681,193 554,364 Organized markets 13 29 Swaps
Income before tax, depreciation, amortization and provisions 269,073,078.06 213,068,968.00 280,959,662.75 457,665,461.91 677,795,500.73
Social security, pension costs and other employee benefi ts (in euros) 130,778,397.65 144,067,570.23 166,610,951.72 193,645,949.43 233,880,070.04
In accordance with our appointment as Statutory Auditors at the annual general meeting, we hereby present our report for the year ended December 31, 2006 on: our audit of the accompanying fi nancial statements of Natixis; justifi cation of our assessments; the specifi c verifi cations and disclosures required by law.
Natixis uses signifi cant estimates within the context of its banking activities: the company records provisions to cover the credit risks inherent in its business (paragraph 2 of the section on accounting policies and valuation methods). We examined the control procedures applicable for monitoring credit risks, provisioning methodologies, assessing the risks of non-recovery and determining the related specifi c and collective provisions; the company uses internal models and methodologies to measure fi nancial instruments that are not traded on active markets, as well as to book certain provisions (paragraph 13 of the section on accounting policies and valuation methods). We have examined the control procedures relating to the verifi cation of the models and determination of the parameters used.
Natixis records provisions to cover employee benefi ts (paragraph 16 of the section on accounting policies and valuation methods). We examined the methodology used to value these commitments, as well as the assumptions and parameters used. We have assessed the reasonable nature of these estimates.
It is not our responsibility to ascertain the existence of such agreements, nor to comment on their relevance or substance. We are simply required to report to shareholders, based on the information provided, on the basic terms and conditions of agreements that have been disclosed to us. Under the provisions of article R. 225-58 of the French Commercial Code, it is the shareholders’ responsibility to determine whether the agreements are appropriate and should be approved.
Agreements approved during the year: Authorization of a protocol agreement of June 6, 6006, and the implementation agreement of October 2, 2006, concerning the issuance of CCI certifi cates (cooperative investment certifi cates) of September 26, 2006
These agreements, which were subject to prior authorization by the Board of Directors on June 2 and September 14, 2006, were approved by the combined general meeting of November 17, 2006, and were executed until December 31, 2006, in particular: Natixis subscribed to the issuance of Banque Populaire CCI certifi cates representing 20% of the share capital of each Banque Populaire bank, for a total price of €4.167 million on November 17, 2006; the transaction carried out in December 2006 consisted of the placement on the market by CNCE and SNC Champion of some of their Natixis shares in order to increase Natixis’s free fl oat while maintaining a strict balance between the respective stakes held by the Banque Populaire Group and the Caisse d’Epargne Group. After the transaction, BFBP and CNCE each owned 34.44% of the Group’s share capital.
Authorization of the agreement between Natixis and the selling shareholders, SNC Champion and Caisse Nationale des Caisses d’Epargne, concerning the sharing of expenses relating to the transaction
The directors concerned are: Mr Milhaud, Mr Tourret, Mr Comolet, Mr Comas, Mr Cordel, Mr Crequit, Mr Gentili, Mr de La Porte du Theil, Banque Fédérale des Banques Populaires, represented by Mr Goudard, Caisse Nationale des Caisses d’Epargne, represented by Mr Mérindol.
In respect of this agreement, expenses incurred by Natixis amounted to €8,078,000 excluding tax out of a total of €24,265,000 excluding tax.
Natixis and Natexis Bleichroeder have signed a framework agreement formalizing the implementation of counter-guarantee demands from Natexis Bleichroeder, notably in respect of the global security and investment agreement relating to the Offer.
Authorization of a protocol agreement with the fi nancial institutions guaranteeing the open price offer
Agreements approved in prior years and still in effect during the year: Collateralized Loan Obligation, to which Natixis, Natexis Asset Management and Vallauris CLO plc are party
Natixis received €1,510,468 in fees from Vallauris CLO plc, of which €151,047 was passed on to Natexis Asset Management.
This report has been prepared and signed by Charles Milhaud, Chairman of Natixis’ Supervisory Board as at December 31, 2006, having been informed in advance by Philippe Dupont, Chairman of the Management Board from January 1 to November 17, 2006, of the company’s corporate governance system and its internal control procedures over the period.
Formerly Natexis Banques Populaires, Natixis was formed from the merging of the corporate and investment banking and services arms of the Banque Populaire Group and the Caisse d’Epargne Group on November 17, 2006, after obtaining authorization from the CECEI on October 11, 2006. Natixis’ shareholders and future central bodies are Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne.
In reference to its regulatory requirements and commitments made to the CECEI, Natixis has structured its internal control system around a periodic control body carrying out audits and units in charge of permanent compliance and transaction security checks, as well as verifying the effectiveness of the bank’s risk control and monitoring procedures.
Natixis is also subject to the joint controls of its two shareholders and future central bodies, Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne, which each have to ensure that risk monitoring requirements are respected by the respective groups on a consolidated basis. Structures and systems for the coordination of permanent and periodic controls, required to ensure overall consistency, have therefore been implemented within the framework of the creation of Natixis. Similarly, the Risk Management, Compliance and Audit departments are integrated into the corresponding business units of each of the two shareholders.
The continuous and periodic controls implemented by Natixis are organized as operational or functional fi rst-tier controls, up to the highest level. Their structure is based on three core principles: ■
Natixis separates its functions between risk- taking and control functions, as well as between the different control levels, which results in: distinction between front and back offi ce functions, the existence of fi rst-tier controls at an operational level, distinction between periodic and permanent controls.
First-tier permanent controls are an essential foundation of Natixis’ internal control system.
These controls are carried out by the operational or functional departments under managerial supervision. These entities are responsible in particular for: verifying the compliance of transaction handling procedures; providing supporting evidence for the accounting balances of account movements relating to transactions carried out.
Depending on the situation and activities, these fi rst-tier controls are carried out by the operating units themselves or by ad-hoc control units, such as middle offi ce or accounting control units.
The main departments involved in Natixis’ second-tier control are Risk Management (counterparty, market, country, operational risk etc.), Information Systems Security (IT clearances, information systems fraud etc.) and Group Compliance.
The Internal Control department is structured into fi ve subdepartments covering all business lines and support functions of the former Natexis Banques Populaires (parent company, subsidiaries and branches). Since November 17, 2006, the Internal Control department has reported to Natixis’ Risk Management and Control department. It is unique in that it is decentralized. Team members are based locally in all operating entities, reporting hierarchically (parent company) or functionally (subsidiaries and branches) to the Internal Control department. Functional ties are strong, as the head of Internal Audit approves the appointment and departure of team members, as well as setting their targets, plans, budgets, evaluations and promotions.
The role of the Internal Control department’s second-tier permanent controls is set out in a detailed instruction issued by the Chief Executive Offi cer on November 18, 2003. Its key responsibility is to ensure that the business lines comply with internal regulations. It is also involved in monitoring operational risks (including non-compliance), arising primarily from credit or capital market activities, and provides second-tier accounting controls. The department is also responsible for following up the implementation of recommendations resulting from internal and external audit assignments.
This mission has been drilled down to operating unit level in the form of a charter setting out the rights and duties of both parties. At the end of 2006, 40 charters had been signed covering almost all of the entities of the former Natexis Banques Populaires (excluding Coface). The department has been built up steadily over the last three years and will continue to expand further in 2007, notably extending its control duties to the subsidiaries transferred by the Caisse d’Epargne Group at the time of the creation of Natixis, which do not have a similar organization of their own.
Finally, as regards IT queries relating to controls, efforts to make databases available continued in 2006. They now form part of the developments made in the context of a data warehouse project dedicated to control functions, for which production began in the second half of 2006.
The Finance department is responsible for the quality of fi nancial reporting. In 2004, the entire fi nancial reporting control system was radically restructured. A three-tier control system was established. The fi rst level comprises accounting controllers based in and reporting to each business line. Their reports are then centralized and analyzed at the second level by internal control offi cers working in the Internal Control department. Third-tier control is the responsibility of the Finance department’s accounting control teams. All of these reports are produced using leading-edge shared information systems tools.
The purpose of the compliance control procedures implemented at Natixis in the context of carrying out its activities is to prevent risks of non-compliance as defi ned in CRBF rule n° 97-02.
As regards ethics and compliance, Natixis is subject to the following requirements: legislative or regulatory provisions and professional practices as a credit institution, the provisions of the French Monetary and Financial Code and CRBF rule n° 97-02 relating to internal control; as an investment services provider, the provisions of the General Regulations of the Autorité des Marchés Financiers (AMF), including the best practice rules applicable to capital market operations and customer relations; legislative and regulatory provisions relating to the fi ght against money laundering and fi nancing of terrorism; professional codes of conduct, in particular those recommended by the AMF; as regards the company’s branches and subsidiaries outside France, activities carried out locally are governed by local regulations, in particular those of the regulator of the country concerned (Financial Services Authority in the United Kingdom, Bundesanstalt für Finanzdienstleistungsaufsicht in Germany, Banca d’Italia in Italy, Securities and Exchange Commission in the United States, Comision Nacional de Mercados de Valores in Spain, Commission de Surveillance du Secteur Financier in Luxembourg etc.).
Natixis’ compliance control system is centered around several sets of internal rules: the compliance charter, governing compliance procedures setting out rules for personal and professional ethics applicable to Natixis employees, compliance procedures for business lines, subsidiaries and branches, which represent the operational level of governing procedures.
training and raising the awareness of employees about compliance issues; continuous supervision, through three types of checks: checks of the conformity of procedures; ad hoc checks of operations conducted as a result of warning tools; checks of the correct application of compliance procedures.
2006 saw the implementation of a compliance control unit, organized as a decentralized structure. Each compliance offi cer in the company’s business lines and entities is responsible for compliance checks. These can be carried out directly or delegated to the Internal Control department, which reports on its observations and recommendations.
The Group Compliance department covers the compliance of operations, procedures and organizations with rules applicable to banking and fi nancial activities.
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL (ARTICLE L.225-68 OF THE FRENCH COMMERCIAL CODE)7 Internal Control Procedures
In addition to being responsible for general coordination, monitoring of sensitive employees and overseeing fi nancial transactions (surveillance, suspension and insider dealing lists), the Group Compliance department oversees the activities of compliance offi cers based in the business lines.
Finally, the functions of the New Products committee have also been changed. The head of compliance of the business line concerned by the launch of a new product or service now systematically provides an opinion thereon. A dedicated procedure has also been implemented for new products launched by Natixis or its subsidiaries and intended for marketing by the Banque Populaire and Caisse d’Epargne bank networks.
Controls The central Group Compliance department coordinates the efforts of all compliance offi cers in order to ensure the success of all compliance missions, as set out in CRBF rule n° 97-02. To this effect, non-compliance risks have been mapped out.
Coordination with other control functions outside the Group Compliance department is ensured by the Control Functions Coordination committee on a regular basis with the Internal Control management teams within each business line.
The information systems security offi cer plays a central role in designing, developing and overseeing information systems security. His role is as follows: devising, on the basis of risks arising, the information systems security policy for all of Natixis’ operations; promoting this policy and ensuring that it is respected at all levels; providing the necessary security services, if applicable; verifying that this policy is respected and ensuring global reporting throughout the group.
The department’s main ongoing responsibilities are as follows: logical security, covering administrative management of granting rights and supporting local logical security correspondents in defi ning business profi les; ongoing checks into the compliance of security systems with applicable standards and rules; helping the business lines to integrate security issues into their projects; regulatory supervision, publishing material to raise employees’ awareness of legal issues in areas relating to information systems; advanced monitoring of risks of damage to the company’s image, that of its directors and monitoring new types of threat; implementing and testing business recovery plans.
The department’s main actions in 2006 related to: development of the bank’s security policy and raising employee awareness: Natixis developed its security policy in 2006, entailing in particular: the roll-out of a program to raise awareness about information systems targeted a large number of employees,
adaptation of the security charter for digital and technological information resources intended for the most sensitive IT activities, taking into account security targets for online banking and fi nancial services in order to ensure Natixis’ compliance with the internet protection profi le implemented by the French Banking Commission and Banque de France; business recovery
The aim of this project was to modernize and improve the control and traceability of the management of electronic clearances by using standardized industrial processes and banking authorization profi les. Signifi cant advances were made in this area in 2006, as demonstrated by: the consolidation of a network of logical security correspondents in all business lines. These correspondents, who report functionally to the head of Information Systems Security, are responsible for implementing the bank’s logical security policy on a local level, the continuing review of banking application authorizations (implementation of business profi les), in particular in the “central system” environment. This process was close to completion at the end of 2006. A similar process was initiated in other environments, notably the capital markets division, industrialization of logical authorization management: providing a centralized list of authorizations and rolling out the various procedures; ■
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL (ARTICLE L.225-68 OF THE FRENCH COMMERCIAL CODE)7 Internal Control Procedures analysis of information technology risks
The position of Security Manager was created in order to support the various business lines in integrating the bank’s security policy into all stages of the project lifecycle.
Systematic risk assessment is therefore carried out for projects benefi ting from this organization. Plans to reduce these risks are devised on the basis of this risk analysis.
Third-tier or periodic control is the responsibility of the Internal Audit department.
The Internal Audit department reports directly to the Chairman of Natixis’ Management Board. It has strong functional ties, of a hierarchical nature, to the internal audit departments of Natixis’ shareholders and future central bodies, Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne, as approved by the CECEI in its decision
The Internal Audit department conducts audit assignments through the entire Natixis group (parent company, subsidiaries and branches), covering all categories of risk involved in the bank’s various business activities. It has full and unrestricted access to all information, confi dential or otherwise. Its fi eld of investigation encompasses all of Natixis’ operational activities, as well as its functional departments - including in particular entities in charge of permanent controls - and outsourced activities.
Internal audit reports are sent to the audited units , with a copy to the members and Chairman of Natixis’ Management Board. The internal audit departments of Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne also receive a copy of all internal audit reports issued by Natixis, in accordance with the provisions set out in the fi le approved by the CECEI in its decision of October 11, 2006.
Until November 2006, the former Natexis Banques Populaires’ Executive Management organized a monthly meeting of an overarching committee, comprising the G eneral Secretary, the heads of Internal Control, Risk Management, Internal Audit, Finance, Group Compliance, Ethics and Compliance, Fraud Prevention and Information Systems Security.
The committee dealt with all issues concerning the internal control structure and the results of internal or external audit assignments.
In 2006, the committee reviewed the results of continuous and periodic internal controls and audits carried out by external organizations (Banque Fédérale des Banques Populaires, French Banking Commission etc.).
Following the dissolution of the committee in October 2006 because of operations relating to the merger, the committee’s functions will be resumed at Natixis in 2007.
In the context of its various business activities, Natixis is exposed to the following risks: credit risk; market risk; interest rate, currency and liquidity risk; operational risk, non-compliance risk; information systems risks.
The Risk Management department plays a key role in the bank’s internal control system, with the aim of identifying, measuring and controlling risk. It makes proposals to the Management Board and keeps the Management Board and the Supervisory Board informed about Natixis’ commitments and the development thereof.
The Risk Management Committee oversees the bank’s risk and defi nes the key elements of its risk policy, analyzes the main risks and validates the principal standards and methodologies applied.
Natixis’ risk management system is coordinated and consistent with those of the Banque Populaire Group and the Caisse d’Epargne Group. This is based on a tripartite agreement and structured around three governing committees: the confederal Risk Management Committee; the confederal Standards and Methods Committee; the confederal Information Systems Risk Committee.
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL (ARTICLE L.225-68 OF THE FRENCH COMMERCIAL CODE)7 Internal Control Procedures information about the company’s profi tability.
Credit decisions are made either under authorized limits or using a delegation system integrating a risk-related dimension, or by credit committees on the basis of credit risk analysis.
A shared tripartite organization was also developed in collaboration with the Banque Populaire Group and the Caisse d’Epargne Group concerning the roles and rules of play in terms of client ratings, in order to ensure uniformity and consistency in methods used and ratings given.
Since the creation of Natixis, an IT application has been used to ensure consolidation of credit limits and exposure covering Natixis and the majority of its subsidiaries. The creation of counterparty groups is integrated into the Third Party reference system, which is subject to specifi c maintenance.
At major dates or on a monthly basis, the Risk Management department reports to the Management Board and the bank’s business line heads on its analysis of Natixis’ business assets, including development reports, management reports etc. Natixis’ commitments and the development thereof are presented on the basis of risk indicators.
Each core business has a provisioning committee grouping together the relevant departments, which meets quarterly to review any loans that might require provisions and to determine the appropriate level.
Natixis’ provisioning policy includes provisions for country and industry risk, as well as specifi c provisions. To accompany the transition to IFRS, these provisions were adapted into collective provisions, based on similar assets by asset class: credit rating for loans to individuals and small businesses; sector risk and geographical risk for other borrowers (corporate, sovereign loans etc.).
Risk diversifi cation represents a fundamental risk management rule. At the former Natexis Banques Populaires, until November 17, 2006, it was governed by external regulations and the internal rules set out by the Banque Populaire Group.
Natixis complied with internal guidance and external regulations at end-December 2006.
Commission. Scénarisk is currently implemented throughout IXIS CIB and is being extended to cover the former Natexis Banques Populaires in order to calculate consolidated VaR. After choosing target front offi ce management systems, the VaR calculation is refi ned to take account of the convexity of positions transferred from the former Natexis Banques Populaires.
The risk supervision system is based on a validated risk measurement method, the allocation of limits of intervention to the various business lines and ex-post checks that these limits are respected.
As regards the setting of limits, a market risk committee was set up on the creation of Natixis, which meets under the chairmanship of the Chief Executive Offi cer or the Deputy Chief Executive Offi cer.
All requests must be instructed in advance by the Risk Management department.
Global risk reporting is sent to members of the Management Board and front offi ce business line managers.
The Risk Management department carries out daily checks to ensure that limits are respected. A procedure is in place for monitoring any violations.
measurement and monitoring of liquidity risk; measurement and monitoring of structural currency risk; management of equity.
The ALM Committee validates agreements and overall limits for the monitoring of structural balance sheet risks before they are approved by the Risk Management committee; overall limits are presented to the Supervisory Board on the proposal of the Risk Management department.
At the former Natexis Banques Populaires, maximum sensitivity of interest rate maturity schedules to a +/-1% shift in the yield curve is €125 million. This was amended by the ALM Committee meeting of July 5, 2006. This limit applies to capital market activities, including cash portfolios.
As regards liquidity risk, the centralized refi nancing system permits optimum management of liquidity risk through detailed knowledge of the various gaps. Observation ratios have been approved by the ALM Committee. In conjunction with the Finance Department, the refi nancing unit is also responsible for monitoring prudential requirements (short-term liquidity ratio and long-term fi nancing ratio) and internal prudential ratios validated by the ALM Committee.
Currency risk is broken down into two components: operational currency risk, generated by trading activities. This risk is monitored by the Market Risks Committee and the ALM Committee. The currency risk limit is €3 million expressed in terms of a one-day potential loss with a 99% confi dence level; structural currency risk, which is monitored by the ALM Committee.
Implementation of the system was completed at the end of 2006 for the former Natexis Banques Populaires’ activities.
This project, placed under the responsibility of the Risk Management department, is based on a bottom-up systematic and homogenous approach, enabling each core business to: identify operational risks on a self-assessment basis; among these risks, defi ning the risks to be managed within the business line, implementing a system for monitoring and reducing these risks using indicators and plans of action; ■
identify the type of operational risk incidents and losses relating to the business line; defi ne the infl ow process for these incidents.
At the end of the pilot phase, each business line implemented its own permanent operational risk management system, based primarily on dedicated human resources (Operational Risk correspondents), an organization, an Operational Risks committee in each business line and a system for reporting to the Risk Management department.
Analysis of accounting losses at the parent company continued in 2006.
At end-December 2006, this system covered all activities eligible for Basel II.
Caisse Nationale des Caisses d’Epargne managed the roll-out of an operational risk management and monitoring system throughout the entire Caisse d’Epargne Group.
Ixis CIB had implemented a system for the identifi cation, measurement and control of operational risk, in accordance with the procedure in place within the Caisse d’Epargne Group. Management and supervision of operational risk at Ixis CIB is provided by the Operational Risk division of the Risk Management department.
The operational risk management system implemented by Ixis AM aims to improve the bank’s structures and procedures for operational risk management, compliance with banking regulations (Basel II and adaptations), reliability of fi nancial information (income statement/net banking income) and appropriate allocation of capital.
The information provided was taken from the fi nancial statements prepared in accordance with IFRS, either directly by the subsidiaries’ accounts teams (in the case of consolidation subgroups) or by CNCE’s accounts departments (in the case of individual entities).
The accounting and fi nancial information collected concerned both real (statutory fi nancial statements) and pro forma information.
As part of the convergence of accounting policies and valuation methods, fi ve areas were examined in advance, resulting in the harmonization as at December 31, 2006, of: company liabilities discounted on the basis of a single reference curve: the OAT curve; tax credits recognized in Natixis’ fi nancial statements according to the gross revenues principle; the parameters used to value fi nancial instruments in order to ensure the quality and consistency of information for the entire scope of consolidation. Convergence related in particular to the choice of reference curves and price sources; the parameters used to calculate collective provisions on the basis of convergence efforts of the Risk Management department concerning credit ratings; fi nancial communications, in order to adjust the communications of the three groups: CNCE, BFBP and Natixis.
These efforts, as well as other efforts initiated in 2006, are set to continue in 2007, including in particular an extensive review of the methods used to value fi nancial instruments.
Refl ecting the decentralized nature of the group, as most subsidiaries have their own management and control functions, internal control procedures are tailored to the organization of each of the consolidated entities. In all cases, the process includes several layers of controls: basic permanent and local controls are included in processing programs at operational level and formalized in clearly defi ned working programs; second-tier independent checks of processing operations performed by the Finance and Accounting departments, to ensure the accuracy and completeness of accounting data; third-tier controls by the Internal Audit department.
These continuous and periodic controls include reviews of account analyses produced by the various departments, checks to ensure that suspense items are cleared, accounting-management reconciliation (for both balance sheet outstandings and the income statement), compliance with rules concerning the correct reporting of income and expenses, the correction of errors identifi ed through these controls and the documentation of analysis thereof.
They are conducted using the various accounting information systems throughout the Group.
For the Natixis parent company, the projects concerning the development of an enterprise systems development plan and the restructuring of the accounting control system continued in 2006.
In order to accompany these phases and defi ne the target organizations and processes, a program dedicated to the transition procedure was initiated in September 2006.
Within the scope of the Natixis group, the change in consolidation tools and the decentralization of inputs have helped to the systematization and quality of controls of accounting and fi nancial information carried out by consolidated entities.
Within Natixis’ Finance department, additional human resources have been provided to increase the number of consistency controls and analysis of packages, as well as to ensure the monitoring of second-tier controls carried out by the fi nance or accounting departments of each entity.
second-tier controls at a central level, reporting to the Management Board, responsible for the use and analysis of supporting evidence and reporting and carrying out additional controls.
In addition to the self-checking procedures performed by the local fi nance departments responsible for preparing individual or consolidated accounts, the quality of accounting controls is verifi ed by: ad hoc audit assignments carried out by internal audit departments of the shareholders and future central bodies (CNCE, BFBP) and Natixis’ Internal Audit department; ■
While the majority of 2006 (ten and a half months) fell under the Natexis Banques Populaires fl ag, the Group ended the year as Natixis. 2006 was therefore a year of transition.
Until November 2006, each of Natixis’ divisions continued with its strategies to enhance corporate governance, control and risk monitoring procedures, with the aim of continuing to comply with the regulatory, technical and professional standards applicable to its business activities.
In becoming Natixis, the bank adopted a Management Board and Supervisory Board, while the former Natexis Banques Populaires was run until November 17, 2006, as a “société anonyme” with a Board of Directors. This change was accompanied by new corporate governance rules stemming from the shareholders’ pact signed on November 17, 2006, between Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne.
Since the start of the second half of 2006, a number of projects have been launched with the aim of reconciling the permanent and periodic control procedures of the former Natexis Banques Populaires and the entities transferred to Natixis by Caisse Nationale des Caisses d’Epargne, as well as integrating them into control units set up by the shareholders and future central bodies of the bank.
These projects aim to merge and harmonize Natixis’ internal control systems, as well as ensuring that they are extended to all of the bank’s operations. In this respect, the continuation of these efforts will constitute one of the main challenges for Natixis in 2007.
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL (ARTICLE L.225-68 OF THE FRENCH COMMERCIAL CODE)7 Auditors’ report on Chairman’s report
It is our responsibility to report to you on the information and statements contained in the Chairman’s report with respect to internal control over the fi nancial reporting process.
Shareholders may always be represented at general meetings by a properly authorized proxy. Such proxies are not entitled to be replaced by another person.
In the fi rst resolution, the Management Board seeks approval of Natexis Banques Populaires parent company fi nancial statements for the year ended December 31, 2006, reporting net income for the year of €744,399,468.97.
The purpose of the sixth resolution is to renew the authority granted to the Management Board to grant stock options to employees or company offi cers of the Company or of companies associated with the Company within the meaning of article L.225-180 of the French Commercial Code, the authorization granted on November 17, 2006, having been used in full. The subscription price shall be set in accordance with applicable legal requirements pursuant to Article R. 225144 of the French Commercial Code.” .
The purpose of the seventh resolution is to enable the Management Board to allocate a maximum of 6,600,000 existing shares or shares to be issued to employees or certain categories of employee of the Company and/or of companies directly or indirectly associated with the Company under the conditions provided by article L.225-197-2 of the French Commercial Code, in order to cover all the staff of the groups concerned. This authority cancels and replaces the authority granted by the General Meeting on November 17, 2006 with an upper limit of 6,000,000 shares.
Having received and considered: the management report on the operations of Natixis for the year ended December 31, 2006; the fi nancial statements for that year; the observations of the Supervisory Board on the report of the Management Board and on the fi nancial statements for the for the year ended December 31, 2006; and the reports of the Acting Auditors; the shareholders hereby approve the fi nancial statements as presented, including the following transfers to and from the retained earnings account since December 31, 2005: ■
Change of accounting method in respect of the for spreading of premiums/discounts (€961,183.63); retained earnings at December 31, 2006 €16,584,314.50.
Having considered the appropriation of earnings proposed by the Management Board, the shareholders hereby approve their proposal and resolve as follows: fi rst: to allocate the year’s net earnings of €744,399,468.97, plus the balance held on retained earnings in the sum of €16,584,314.50, to the legal reserve in the sum of €37,219,973.45, leaving a sum available for distribution of €723,763,810.02; second: to pay a total dividend of €1,049,083,323.80, by appropriation of the distributable profi t in the sum of €723,763,810.02, and by deduction from reserves of the sum of €325,320,000.00, and to allocate the balance to retained earnings, namely €486.22.
The dividend for the year ended December 31, 2006 is therefore €0.86 per share for each of the 1,219,864,330 shares comprising the capital stock.
Number of shares remunerated* 48,045,139 48,255,962 48,995,480 * Before division of the nominal value by 10.
Having received and considered: the management report on the operations of Natixis and its consolidated subsidiaries for the year ended December 31, 2006; the consolidated fi nancial statements for that year; and the report of the Acting Auditors on the consolidated fi nancial statements; the shareholders hereby approve the consolidated fi nancial statements as presented.
The shares may be bought, sold, exchanged or transferred by any means, on the stock market or over-the-counter, including by means of block trading, public tender offers, the use of derivative fi nancial instruments or warrants or negotiable securities conferring a right to shares of the Company, or by the use of options-based strategies, under the conditions provided by market authorities and in accordance with the regulations.
The entire authority may be used to purchase or sell the shares by means of block trading.
Trading may take place at any time within the limits authorized by the regulations in force, including in periods of public tender offers or public exchange offers initiated by the Company or in relation to the Company’s shares.
The shareholders resolve that the number of shares that may be purchased pursuant to this resolution may not exceed 5% of the Company’s capital stock, namely a total of 60,993,216 shares on the date of this meeting, and that the total investment cost may not exceed €1,830 million.
The shareholders resolve that the purchase price may not exceed €30 per share, on the understanding that in the event of subsequent capital transactions, particularly involving the incorporation of reserves, the free allocation of shares, or a share split or consolidation, the price indicated above will be adjusted accordingly.
The general meeting on November 17, 2006 authorized the Management Board, on one or more occasions, to allocate a maximum of 6,000,000 existing shares or shares to be issued to employees or certain categories of employee of the Company and/or of companies directly or indirectly associated with the Company under the conditions provided by article L.225-1972 of the French Commercial Code.
The shareholders delegate all necessary powers to the Management Board, including the power to subdelegate to its Chairman and/or and to one of its members with the Chairman’s agreement, under the conditions provided by law, to implement this authority, particularly in order to determine the dates and terms of the allocations, and generally to take any necessary steps and enter into any agreements to complete the envisaged allocations successfully, to record the resulting increase or increases in the capital resulting from any allocation made pursuant to this authority, and to make any consequential amendments to the bylaws.
With effect from the date of this meeting, this authority cancels and replaces any similar authority previously granted, and in particular that granted by the 21st resolution of the general meeting on November 17, 2006.
Natixis is a société anonyme with a Management Board and a Supervisory Board. It is governed by French company law, the provisions of the French Monetary and Financial Code (Code monétaire et fi nancier) and its bylaws.
The Company was incorporated on November 20, 1919 under the name Crédit National. Its term was increased to 99 years on November 9, 1994, unless extended or wound up early. The name “Natixis” was adopted by the shareholders at their meeting on November 17, 2006.
All documents concerning the company, including its bylaws, fi nancial statements and reports presented to general meetings of shareholders by the Management Board or the Statutory Auditors are available at the company’s head offi ce.
The company’s fi nancial year runs from January 1 to December 31.
The Company shall be managed by a Management Board comprising between two and seven members appointed by the Supervisory Board. It shall carry out its functions under the supervision of the Supervisory Board, in accordance with the law and with these bylaws.
The members of the Management Board need not be shareholders of the Company, but must be natural persons. They may be re-elected. Members of the Supervisory Board may not also be members of the Management Board.
The Management Board shall be appointed for a term of six (6) years. In the event of a vacancy for a member of the Management Board, the Supervisory Board shall appoint a replacement for the remainder of the term of offi ce of his or her predecessor, as provided by law.
Any member of the Management Board may be dismissed, either by the Supervisory Board or by the general meeting of shareholders. If the dismissal takes place without just cause, it may give rise to the payment of damages. The dismissal of a member of the Management Board shall not result in the termination of his or her employment contract.
The functions of the Chairman, and, if applicable, of the Chief Executive Offi cer allocated to members of the Management Board, may be withdrawn at any time by the Supervisory Board.
Meetings shall be chaired by the Executive Chairman or, in his or her absence, by the Chief Executive Offi cer appointed by the Chairman. The Management Board may only validly deliberate if at least half its members are present. Decisions shall be taken by a majority of the votes of members present or represented. In the event of a tied vote, the Chairman of the meeting shall have a casting vote.
The proceedings of the Management Board shall be recorded in minutes contained in a special minute book and signed by the members of the Management Board that attended the meeting.
No restriction on the Management Board’s powers shall be enforceable against third parties, which may commence legal action against the Company to enforce obligations entered into on its behalf by the Executive Chairman or by a Chief Executive Offi cer, on condition that their appointments were properly published.
The Management Board may appoint one or more of its members or any non-member of the Management Board to carry out such special permanent or temporary missions as it shall determine, and may delegate to them the powers it considers necessary for one or more particular purposes, with or without the power to subdelegate.
The Management Board shall prepare and present reports, budgets and quarterly, half-yearly and annual fi nancial statements to the Supervisory Board under the conditions provided by law and by the bylaws. The Management Board shall convene all general meetings of shareholders, decide their agenda and execute their decisions.
Article 13 – Remuneration of the members of the Management Board
The Supervisory Board shall fi x the manner and amount of the remuneration of each of the members of the Management Board.
The Supervisory Board shall comprise no less than three (3) and no more than eighteen (18) members, subject to the derogation provided by law in the event of a merger.
When it has been determined in accordance with current regulations that the percentage of the capital stock owned by employee shareholders is in excess of the threshold provided by law, a member of the Supervisory Board shall be appointed by the general meeting from among candidates put forward by the Supervisory Board of the Employee Share Ownership Plan or Plans. The member of the Supervisory Board appointed in this way shall not be taken into account in the calculation of the maximum number of members provided for by the fi rst subparagraph of this article.
The member of the Supervisory Board appointed in this way shall be entitled to vote on the Supervisory Board and shall be subject to the same rights and obligations as the other members thereof.
No more than one third of the members of the Supervisory Board in offi ce may be more than 70 years of age. When this proportion is exceeded, the oldest of the members of the Supervisory Board, except for the Chairman, shall cease to hold offi ce at the end of the next ordinary general meeting of shareholders.
The Supervisory Board shall elect a Chairman and two ViceChairmen from among its members, for the duration of their term of offi ce. They must be natural persons.
The Supervisory Board shall determine their remuneration, whether fi xed or variable.
Subject to Urgent Business as defi ned below, the Board of Directors must be given reasonable prior notice of the date of its meetings. Notices of meetings shall include the detailed agenda for the meeting.
Meetings of the Supervisory Board shall be chaired by its Chairman or by one of its Vice-Chairmen.
The Supervisory Board may appoint a secretary from among its members or elsewhere.
Minutes of meetings of the Supervisory Board shall be prepared, and copies or extracts thereof shall be issued and certifi ed in accordance with the law.
16.2 In the event of urgent business as defi ned below (“Urgent Business”), the accelerated procedure set out below may be applied.
In the event of Urgent Business, the time limits for the convening and conduct of meetings of the Supervisory Board shall not be subject to article 16 above, on condition that the Chairman of the Supervisory Board of the Company has: fi rst sent a notice to the members of the Supervisory Board justifying the existence of the Urgent Business within the meaning of the defi nition set out above; and provided all the members of the Supervisory Board with all the information necessary for them to analyze the situation, together with the notice of meeting.
Article 17 – Powers of the Supervisory Board 17.1 The Supervisory Board shall exercise permanent control over the management of the Company by the Management Board.
The Management Board shall present it with a report at least once a quarter, summarizing the main acts or other matters in connection with the management of the Company, and including all the information necessary for the Supervisory Board to be informed of developments in the Company’s business, together with the quarterly and half-yearly fi nancial statements.
After the closing of each fi nancial year and within the time limits provided by the regulations, the Management Board shall present the Supervisory Board with the annual and consolidated fi nancial statements and with its report to the general meeting, for verifi cation and inspection. The Supervisory Board shall present the annual general meeting with its observations on the report of the Management Board and on the annual, parent company and consolidated, fi nancial statements.
The Supervisory Board shall settle the draft resolution proposing the appointment of statutory auditors by the general meeting of shareholders, under the conditions provided by law.
The Supervisory Board may decide to set up committees responsible for considering matters referred by the Supervisory Board or its Chairman for examination and for an opinion. It shall determine the composition and powers of such committees, and shall be responsible for the conduct of their business.
17.2 The following operations shall be subject to the prior authorization of the Supervisory Board: (a) pursuant to current legal and regulatory provisions: the sale of land and other immovable assets (immeubles par nature), the total or partial sale of shareholdings, any agreement subject to article L.225-86 of the French Commercial Code; (b) pursuant to these bylaws: any increase of the capital stock, immediate or future, while maintaining preferential subscription rights, with a value including premium in excess of €75 million, any extension of the activities of Natixis to signifi cant businesses not carried on by Natixis, any appointment of members of the Supervisory Boards, Boards of Directors or Management Boards, and, if applicable, of Chief Executive Offi cers and Deputy Chief Executive Offi cers of the Principal Subsidiaries (as defi ned in article 16.2), any acquisition or increase of a shareholding, and any investments or disinvestments (including the transfer of cooperative investment certifi cates issued by the Caisses d’Epargne or Banques Populaires) or the formation of joint ventures by Natixis or any of its subsidiaries, in an amount in excess of €150 million, any asset transfer, merger or spin-off transaction to which Natixis or any of the Principal Subsidiaries (as defi ned in article 16.2) or Dedicated Subsidiaries (the term Dedicated Subsidiaries referring to Compagnie 1818–Banquiers Privés, CEFI, Banque Privée Saint Dominique, Natexis Assurances, Novacrédit, GCE Garantie, Ecureuil Gestion and Foncier Assurance, or any company that might be substituted for them) may be party, any increase of the capital stock of Natixis, immediate or future, while cancelling preferential subscription rights, approval of the Company’s business plan prepared by the Management Board including, in particular, profi tability targets and risk policy (the “Strategic Plan”) together with any signifi cant amendment of the Strategic Plan, any proposal to the general meeting of shareholders of an amendment to the bylaws.
The ordinary general meeting of shareholders can appoint one or more non-voting directors, whose term of offi ce shall be six (6) years. They may be re-elected, and may be dismissed by the general meeting of shareholders.
They may be appointed temporarily by the Supervisory Board subject to ratifi cation by the next general meeting of shareholders.
They may receive remuneration the amount of which shall be determined by the Supervisory Board.
At their general meeting on November 17, 2006, the shareholders conferred authorities on the Management Board in accordance with Article L.225-129-2, L.228-92 and L.228-93 of the French Commercial Code, and for a period
of 26 months with effect from the date of the meeting, to increase the capital on one or more occasions, with or without preferential subscription rights, in a maximum nominal amount of €150 million, by the issuance of shares or any marketable securities conferring rights in the capital stock.
This general meeting of shareholders also decided, in accordance with the regulations: that in the event of excess demand, the issuances of shares decided on could be increased by a maximum of 15% of the initial issuance; that the Management Board could make issuances of up to 10% of the capital stock in the form of equity capital or marketable securities conferring rights in the capital stock, in order to pay for contributions in kind to the company.
On November 25, 1985, Banque Française du Commerce Extérieur (the French Foreign Trade Bank) issued 140,000 redeemable shares with a face value of FFR 5,000. Dividends are paid on November 25 of each year. Redemptions are made on the initiative of the borrower. At December 31, 2006, there were 113,000 redeemable shares outstanding.
As indicated in the table below, 15,827,050 exercisable or yet to be exercised options to subscribe for new or purchase existing shares were in existence at December 31, 2006.
The exercise price is equal to the average price quoted in the 20 trading sessions preceding the date on which the Management Board fi xed the terms and conditions of the annual options plan.
Options to subscribe for shares granted to the top 10 employees other than company offi cers
The general meeting of shareholders on November 17, 2006 granted the Management Board authority, for a period of 38 months with effect from the date of the meeting, to allocate options to subscribe for new shares or to purchase existing shares, on one of more occasions, to employees or company offi cers of Natixis and of companies associated with Natixis within the meaning of article L.225-180 of the French Commercial Code.
* Including 1,109,911,689 shares in respect of the division of the nominal value on November 17, 2006.
The following table shows the amount of the issue premiums for each of the operations relating to the capital.
2002 Number of shares at the start of the fi nancial year 44,314,352 709,029,632 shares in respect of ESOPs 5,355 85,680 286,620.37 shares arising from the conversion of TSDIC 1,717,431 27,478,896 86,413,090.39 shares in respect of the exercise of subscription options 4,400 70,400 108,393.66 shares attributable to the transfer of Arnhold & S. Bleichroeder securities 1,401,082 22,417,312 83,448,443.92 shares resulting from the merger with the property company ABC 217 3,472 3,943.16 shares in respect of ESOPs 3,756 60,096 161,981.00 shares in respect of the exercise of subscription options 43,340 693,440 1,733,850.39 shares attributable to the transfer of Banque du DômeCrédifrance Factor securities 218,559 3,496,944 14,643,375.64 shares attributable to the transfer of Sopromec Participations securities 336,647 5,386,352 25,248,563.45 shares in respect of ESOPs 3,086 49,376 175,126.36 shares in respect of the exercise of subscription options 207,737 3,323,792 10,204,917.64 shares in respect of FCPE 3,043 48,688 225,259.18 shares in respect of the exercise of subscription options 480,436 7,686,976 33,653,461.26 shares in respect of the increase in capital reserved for Banque Fédérale des Banques Populaires 256,039 4,096,624 25,903,465.63 payment of the dividend in shares 1,103,281 17,652,496 185,075,387.75 shares in respect of ESOPs 10,010 160,160 1,529,227.70 shares in respect of the exercise of subscription options 83,274 1,332,384 5,773,940.85 shares in respect of asset transfers from CNCE and SNC CHAMPION 73,131,476 1,170,103,616 13,128,041,797.00
shares in respect of the exercise of subscription options 2,181,580 3,490,528 13,635,082.21
At December 31 2006, the principal shareholders of Natixis were as follows: % of the capital % of the voting rights
* SNC Champion was dissolved without liquidation on January 19, 2007, its assets having been transferred to its sole shareholder, BFBP.
As far as Natixis is aware, there are no shareholders that own more than 5% of the capital or voting rights other than those listed in the above table.
Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’ Epargne have entered into a shareholders’ agreement pursuant to which they act in concert, the principal provisions of which are described in page 393 .
The members of the Supervisory Board, whether natural or legal persons, owned 68.88% of the capital of Natixis (almost all of this amount being owned by BFBP and CNCE), at December 31, 2006.
The table below shows the number percentage of shares owned as treasury stock at March 30, 2007.
In the context of the share buyback program authorized by the general meeting of shareholders on November 17, 2006, Natixis no longer owned any treasury stock at December 31, 2006.
The 15,552,460 shares held as treasury stock were cancelled pursuant to a decision of the Management Board dated December 4, 2006.
During 2006, the proportion of the capital of Natixis owned by the employees of Banque Populaire Group decreased sharply due to the combined effect of two factors: the arrival at maturity in July 2006 of the “Alizé” Plan, the fi rst Group Shareholding Plan that had been set up in June 2001. The proportion of the capital owned by employees decreased from 3.43% at December 31, 2005 to 1.56% at September 14, 2006; the increase in the capital on November 17, 2006, which automatically reduced the proportion of the capital owned by employees to 0.60%.
The general meeting of shareholders on November 17, 2006 granted the Management Board authority, for a period of 38 months with effect from the date of the meeting, to allocate free shares one or more occasions to employees of Natixis and of companies directly or indirectly associated with Natixis within the meaning of article L.225-197-2 of the French Commercial Code.
Natural or legal persons exercising or capable of exercising control over Natixis
The Banque Populaire and Caisse d’Epargne Groups have the responsibilities provided by the banking regulations, by reason of their position as the principal shareholders of Natixis.
Consequently, any acquisition or sale of Natixis shares is prohibited during this period, with the exception: of sales of shares carried out in the context of the market operation that took place at the end of 2006; of joint sales by each of the shareholders of an identical number of Natixis shares, on condition that upon completion of the sale, each shareholder retains a strictly identical investment in terms of number of shares, and which is greater than or equal to 34% of the capital of Natixis on a fully-diluted basis; of sales of shares to a natural person appointed as a member of the Supervisory Board, up to the number of shares required by the bylaws; of acquisitions of shares carried out in the event of “dilutive” circumstances after which the investment of each shareholder would be less than 34% of the capital on a fullydiluted basis, subject to a limit of investment of 34% of the capital on a fully-diluted basis, on the understanding that such acquisitions of shares shall be carried out on behalf of the two shareholders by a jointly-appointed investment services provider; of the subscription on an irreducible basis of increases in the capital of Natixis while maintaining preferential subscription rights, and of subscriptions of increases in the capital necessary to maintain the prudential equity capital of Natixis.
The shareholders shall meet every two years with effect from the date of signature of the agreement in order to re-examine the best way to ensure the durability and stability of their agreement and the stability of their investments in the capital of Natixis, whether by the creation of a joint holding company
to which they would transfer their respective investments in the capital of Natixis, or by the extension of the 10-year stability period.
In order to guarantee compliance with this stability obligation, Natixis shares owned by each of the shareholders have been registered in pure registered accounts on the books of the Company and a custody agreement has been entered into with a fi nancial institution, under the terms of which the company can only transfer those shares upon the instructions of the said fi nancial institution given under the conditions provided by its agreement.
In the event that either of the shareholders owns a number of shares in excess of the number of shares owned by the other shareholder, that shareholder shall waive its voting rights in respect of the excess shares, and undertakes to sell them at the latest on the fi fth trading day following the date of their acquisition. In default, that shareholder: shall be solely responsible for the costs and obligations resulting there from pursuant to the applicable stock exchange regulations, particularly as regards the compulsory fi ling of a takeover bid for Natixis; undertakes (by way of a sale undertaking) to sell half of the excess shares thus owned to the other shareholder, at a price equal to their par value.
The Supervisory Board of Natixis is composed of 18 members of whom 7 are appointed on a proposal from BFBP and 7 are appointed on a proposal from CNCE, 4 independent members being appointed on a joint proposal from BFBP and CNCE. The
Supervisory Board is chaired alternately by a representative of one of the two shareholders for a period of six fi nancial years. The fi rst Chairman of the Supervisory Board is Mr. Charles Milhaud. The Vice-Chairman of the Supervisory Board is a representative of the shareholder whose representative is not the Chairman of the Supervisory Board. The two shareholders are represented equally on the Audit Committee and on the Remuneration Committee, each of which has six members of whom two are appointed on a proposal from CNCE and two on a proposal from BFBP, two independent members being appointed jointly by CNCE and BFBP.
The Executive Chairman is appointed by the Supervisory Board for a term of six years. The fi rst Chairman of the Management Board is Mr. Philippe Dupont. The dismissal of all or any of the members of the Management Board by the general meeting of shareholders requires the prior agreement of the two shareholders.
the proposal of any amendment of the bylaws to the general meeting of shareholders.
In the event of disagreement relating to an essential decision, the matter will be referred to the Chairmen and, if applicable, the Supervisory Boards and Boards of Directors (as the case may be) of each of the shareholders in order for them to consult and arrive at a joint position. If the disagreement persists at the time of a second meeting of the Supervisory Board of Natixis, the essential decision concerned will not be implemented, without either of the two shareholders having the benefi t of an exit right.
The shareholders’ agreement entered into on November 17, 2006 provides for the appointment of the directors (Management Board, General Management) of the principal subsidiaries of Natixis (namely, Ixis Corporate & Investment Bank, Ixis Asset Management Group, Coface and Natexis Asset Management) to be subject to the prior approval of the Supervisory Board.
The agreement contains a commitment on the part of BFBP and CNCE, for as long as they remain shareholders of Natixis, and including in the event of disagreement between them, to contribute any funds that may be necessary for Natixis to comply with the provisions of banking legislation and regulations as regards prudential equity capital.
■ At the end of the period of 15 years, the agreement will automatically be renewed for successive periods of fi ve years (including the stability period if one of the two shareholders has not terminated it in accordance with the terms and conditions mentioned above), unless notice to terminate is given by either of the two shareholders at least 6 months before its expiry.
Dividends distributed in respect of the last fi ve fi nancial years: Financial year ending Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2005 Dec. 31, 2006
Number of shares comprising the capital stock 47,442,837 48,045,139 48,255,962 48,995,480 1,219,864,330 * This proposal – which takes into account the division of the nominal value of the shares by 10 – will be submitted to the general meeting of shareholders on
Dividends to be paid by Natixis in 2007 in respect of the fi nancial year 2006 will be paid in cash.
In the event that approval is refused, and in default of abandonment by the vendor of its proposed sale, the Banque Populaire whose CCI are the subject of the proposed sale must buy back the said Banques Populaires CCI (with the consent of the vendor) or must arrange for them to be purchased by a third party, at a sale price that takes account of the proportion of the net assets to which the Banques Populaires CCI confer a right, and which complies with the valuation methods used to value the Banques Populaires CCI at the time of their issue. In the absence of agreement between the vendor and the Banque Populaire concerned, the purchase price of the Banques Populaires CCI will be determined by an expert.
The particular legal infl uence of Natixis over the Banques Populaires will arise particularly from the following provisions of the Banques Populaires CCI Agreement: (i) the extension of the mission of the federal representative representing BFBP on the Boards of Directors of the Banques Populaires to take into account the interests of
Natixis in terms of the consistency of the development of each Banque Populaire with the objectives of Natixis; (ii) the representation of Natixis on the Audit and Group Risks Committee of BFBP (whose mission will be extended to examine the operational and fi nancial relationships existing between Natixis and the Banques Populaires, having regard to the investment of Natixis in the capital of the Banques Populaires), and on the Group Technology Committee, the Group Development Committee and the Strategic Committee acting under the authority of the Board of Directors of BFBP; (iii) the prior consultation of Natixis in its capacity as a nonvoting director as of right on the Board of Directors of BFBP, for all decisions of the Board of Directors which relate to its mission as the central body of the Banques Populaires network of BFBP (in particular, defi nition of the policy and strategic direction of the Banques Populaires network, the negotiation and conclusion of national and international agreements on behalf of the Banques Populaires network, the approval of the directors of the Banques Populaires, the approval of increases in the capital, of bond issues and of acquisitions and sales of investments, and the centralization of cash fl ow surpluses of the Banques Populaires and their refi nancing); (iv) the right of Natixis to request a second resolution in the event that the Board of Directors of BFBP decides not to follow the advice given by Natixis on a decision likely to cause harm to its fundamental interests; (v) the right of Natixis to full and complete information regarding the operational and fi nancial management of the Banques Populaires; (vi) the rights of Natixis in respect of the audit of the Banques Populaires, and particularly the association of Natixis, in its capacity as a non-voting director, with the decisions taken by the Board of Directors of BFBP relating to administrative, technical and fi nancial control of the organization of the management of the Banques Populaires; (vii) the delegation of powers by BFBP to Natixis as regards the defi nition of standards and methods of assessment of risks common to BFBP, CNCE and Natixis.
The Banques Populaires CCI may be bought back from Natixis on the initiative of each Banque Populaire, without the prior authorization of the special general meeting of CCI holders and with the prior authorization of the Board of Directors of BFBP, in the following circumstances: any substantial alteration in the balance of the respective shareholdings of BFBP and CNCE in Natixis and/or an end to the joint control exercised by CNCE and BFBP over Natixis; any reform of 1947 Law involving a substantial alteration of the rights of CCI holders.
During this period, Natixis has undertaken to provide its services at the market price and on market conditions. If the Banques Populaires consider that the products and/or services provided by Natixis are not competitive, the matter will be referred to BFBP which may, if necessary, commission an expert to carry out an external assessment and, if appropriate, to propose measures to improve the competitiveness of the said products and/or services.
Since the Caisses d’Epargne CCI do not carry voting rights, the particular infl uence of Natixis over the Caisses d’Epargne will be characterized (i) by its legal infl uence arising from Natixis having the means to assess and make known its assessment of the consequences for Natixis of operational and fi nancial management decisions made by the Caisses d’Epargne provided for in the Caisses d’Epargne CCI Agreement, and (ii) by its “de facto” infl uence arising from the industrial and technical cooperation between the Caisses d’Epargne and Natixis, organized by the Caisses d’Epargne CCI Agreement.
There are numerous economic ties between the Transferred Subsidiaries and the Caisses d’Epargne and these are likely to continue and to develop with the creation of Natixis.
Natixis and the Caisses d’Epargne will maintain and develop their close cooperation in industrial and commercial areas.
In the context of the development of this industrial and commercial cooperation, Natixis and the Caisses d’Epargne
ADDITIONAL INFORMATION 8 Additional information have agreed to maintain the existing industrial and commercial relations described above for a period of at least 10 years with effect from the Date of Completion.
In addition, without prejudice to the benefi t of paragraph (iii), in the event of a legislative amendment conferring a voting right on the holders of CCI, Natixis undertakes to act in concert with CNCE and the Caisses d’Epargne and with their agreement, to make the necessary adaptations while either maintaining the rights and characteristics of the securities issued, or replacing the Caisses d’Epargne CCI with securities having the same characteristics, and particularly without voting rights and with Natixis having the ability to consolidate the profi t of the Caisses d’Epargne by the equity method in proportion to its investment in the capital.
In the event that CNCE and the Caisse d’Epargne concerned exercise their right to buy back the Caisses d’Epargne CCI in cases (i), (ii) and (iv), CNCE’s right will have priority over that of the Caisse d’Epargne concerned.
In the event that CNCE and the Caisse d’Epargne concerned exercise their right to buy back the Caisses d’Epargne CCI in case (iii), the Caisse d’Epargne’s right will have priority over that of CNCE.
The buyback value of the Caisses d’Epargne CCI will be calculated using the method of valuation used when they were issued, and must take account of the proportion of the net assets to which the CCI confer a right. In the absence of agreement between Natixis and CNCE or the Caisse d’Epargne concerned, this buyback value will be determined by an expert.
Under the terms of these undertakings, Natixis undertook to purchase 238,480 shares representing 37.22% of the capital stock and voting rights of Compagnie 1818 – Banquiers Privés from Banque Palatine, Foncier Participations and Crédit Foncier de France. Banque Palatine, Foncier Participations and Crédit Foncier de France reciprocally undertook to sell their investment in Compagnie 1818 – Banquiers Privés to Natixis.
Banques Populaires, which was approved by the shareholders of Natexis Banques Populaires on November 17, 2006.
CCBP was founded in 1921 to support the expansion of the Banque Populaire regional banks, and to conduct both institutional activities on behalf of the Banque Populaire regional banks (managing and monitoring their cash surpluses, special assignments on behalf of the Chambre Syndicale des Banques Populaires, bond and similar issuance) and banking activities in the competitive market sector.
In October 1997, CCBP acquired a 23.35% holding in Natexis S.A. This was followed by a friendly takeover bid as a result of which the Banque Populaire Group held 71.4% of Natexis S.A. on June 2, 1998.This percentage was raised to 74.36% at the end of 1998.
Following the transfer of its operating activities to Natexis S.A. in July 1999, CCBP became the Banque Fédérale des Banques Populaires (BFBP).
Under the law of May 15, 2001, BFBP replaced CCBP as the central body of the Banque Populaire Group.
At their extraordinary general meeting on June 28, 2000, the shareholders of Natexis Banques Populaires approved the merger of Natexis Banque into Natexis Banques Populaires, with effect from June 30, 2000. As the transaction involved a wholly-owned subsidiary, it took place under the simplifi ed merger regime and no new shares were issued.
In May 2002, the German bank DZ Bank AG acquired shares in Natexis Banques Populaires as part of its partnership with the Banque Populaire Group.
In July 2002, pursuant to an agreement with Arnhold & S. Bleichroeder Holdings Inc. (“ASB”), Natexis Banques Populaires agreed to acquire the entire capital stock of Arnhold & S. Bleichroeder Inc. (“ASB”), a company incorporated under the laws of New York State, for the sum of USD105 million, payable in Natexis Banques Populaires shares.
At an extraordinary general meeting held on December 6, 2002, the shareholders of Natexis Banques Populaires approved all the provisions of this agreement, as well as the transfer value of the shares transferred by ASB. The shareholders also approved a capital increase of €22,417,312 to pay for the acquisition, through the issuance of 1,401,082 fully paid-up shares with a par value of €16 each.
I have obtained a letter from the statutory auditors certifying the completion of their work, in which they indicate that they have verifi ed the information relating to the fi nancial situation and the accounts given in this report and have read the whole of the report.”
This shelf-registration document is available on the website of the Autorite of the Marches Financiers (www.amf-france.org) and under the heading “Shareholders and investors” on the company’s institutional website at www.natixis.com.
5. Information about the issuer 5.1 History and development of the issuer 10; 399 6. Business overview 6.3. Exceptional factors N.A.
6.4. Extent to which the issuer is dependent on patents or licenses, industrial, commercial or fi nancial contracts or new manufacturing processes 174 6.5. The basis for any statements made by the issuer regarding its competitive position. 66 - 87 7. Organizational structure 7.1. Brief description of the Group 1 7.2. List of signifi cant subsidiaries 8 8. Property, plant and equipment 8.1. Existing or planned material tangible fi xed assets 250 - 251 8.2. Environmental issues that may affect the issuer’s utilization of the tangible fi xed assets 116 - 121 9. Operating and fi nancial review 10. Capital resources 10.1. Information concerning the issuer’s capital resources 176 ; 188 10.2. Sources and amounts of the issuer’s cash fl ows 190 10.3. Information on the issuer’s borrowing requirements and funding structure 177 - 178 10.4. Information regarding any restrictions on the use of capital resources that have materially affected, or could materially affect, the issuer’s operations. N.A. 10.5. Information regarding the anticipated sources of funds needed to fulfi ll commitments referred to in items 5.2. and 8.1 175 - 177 11. Research and development, patents and licenses N.A.
Heading Registration document page number 16. Board practices 16.1. Date of expiration of current term of offi ce 22 to 24 16.2. Service contracts with members of the administrative bodies 62 16.3. Information about the issuer’s audit committee and remuneration committee 51 - 53 16.4. Whether or not the issuer complies with the corporate governance regime(s)
the consolidated fi nancial statements for the year ended December 31, 2004, the statutory auditors’ report thereon and the Group management report, on pages 108 to 155, 156 to 157 and 83 to 106 of the registration document fi led with the AMF on March 25, 2005 under number D.050285.