The nature of insured risks combined with reinsurance coverage does not create any particular exposure in terms of concentrated insurance risks.
Through its activities, Coface is exposed to two main types of risk. The fi rst is the technical risk constituted by the risk of losses on Coface’s portfolio of insurance policies. The second is the fi nancial risk related to the risk of loss arising from adverse changes in interest rates, exchange rates or the market value of securities or real estate investments. Coface has implemented tools designed to control these risks and to ensure they remain within conservative limits.
On October 1, 2010, a Risk Management Department was set up according to the new Solvency II regulations.
Traditionally, Coface distinguishes between frequency risk and event risk: ● frequency risk represents the risk of a sudden and significant increase in delinquency from a multitude of debtors. This risk is measured for each entity by monitoring the ratio of missed loan payments by business sector (domestic credit), by country (export credit), or by product line (deposit, single risks). Loss ratios for the different underwriting centers are also monitored at the consolidated Coface level. Missed payments are monitored weekly and analyzed monthly; ● event risk represents the risk of abnormally high losses recorded for the same debtor or group of debtors, or of an accumulation of losses for the same country.
The rate of acceptance of non-investment grade risks is monitored on a monthly basis.
● interest rate risk: this risk is limited, as the maximum authorized sensitivity (1) for the bond asset class is deliberately capped at 4; ● liquidity risk: a significant portion of Coface’s held-for-sale securities are invested in the money market (39% at end 2010). The majority of Coface’s other equities and fixed income products are listed on OECD markets. Consequently,
3RISK MANAGEMENT Sensitive exposures in accordance with the recommendations of the Financial Stability Forum 3.7 Sensitive exposures in accordance with the recommendations of the Financial Stability Forum
(These data form an integral part of the fi nancial statements certifi ed by the Statutory Auditors).
Natixis was exposed to the following risks as at December 31, 2010.
Subprime ABS CDOs represented gross exposure of €1.834 billion as at December 31, 2010. €19 million in impairments were recognized (excluding the effect of the BPCE guarantee) in 2010, bringing total impairments to €1.189 billion.
Value adjustments rose by €345 million (excluding the effect of the BPCE guarantee) to €2.086 billion during 2010 from €1.741 billion at year-end 2009.
Breakdowns by rating and type of underlying for US RMBS’ were as follows as at December 31, 2010.
3RISK MANAGEMENT Sensitive exposures in accordance with the recommendations of the Financial Stability Forum
Option asset portfolio (fair value option) 13 0 (13) 0 - - - - - - - -
Available-for-sale asset portfolio 121 0 (4) 117 2 17 32 54 11 1 -
Net exposure as at 12.31.2010 AAA AA A BBB BB B
Asset portfolio (fair value option) 8 0 (8) 0 - - - - - -
I - Opinion on the parent company fi nancial statements 379
I - Agreements and commitments subject to the approval of the Annual General Meeting 381
4 FINANCIAL DATA Management Report for the year ending December 31, 2010 4.1 Management Report for the year ending December 31, 2010 4.1.1 METHODOLOGY
The data included in the management report have been restated to take into account the following: ● at December 31, 2009, Deeply Subordinated Notes (DSN) were reclassified as equity instruments. The interest expense relating to these instruments has not been recognized on the Income Statement since January 1, 2010. The released results for 2009 were restated accordingly; ● equity allocation to Natixis’ businesses amounts to 7% of average Basel II risk-weighted assets (compared with 6% in 2009). This change in capital percentage allocated to businesses was implemented to better reflect the change in prudential requirements related to the solvency margin requirement. This had no impact on Natixis’ overall net revenues but it did affect the income derived from the capital allocated to businesses (against Corporate Center). FY 2009 is presented pro-forma of this analytical restatement.
Furthermore, specifi c normative allocations capital were allocated to insurance subsidiaries, which have their own capital requirements.
− income on the corporate equity of the divisions is eliminated,
− the cost of carrying goodwill is wholly borne by the Corporate Center,
2010 confi rmed Natixis’ recovery and the strong improvement in its ability to generate profi t, with net income (group share) of €1,732 million. Revenue was driven by the performance of its three core businesses: Corporate and Investment Banking, Investment Solutions and Specialized Financial Services.
Income generated during FY 2010 will allow Natixis to offer the General Shareholders’ Meeting, scheduled to be convened on May 26, 2011, a dividend of €0.23 per share (that is, 50% of net income (group share), after recognizing net interest expense relating to DSS), with the option of share-based payment.
The restructuring of the CIB business continued in order to consistently capture cross-selling opportunities and to enhance sales performance thanks to an improved customer monitoring (coverage) structure.
The equities teams were reorganized inside a single Equities business, notably through the merger of the Natixis Securities subsidiary into Natixis S.A.
Finally, a fully integrated debt platform (Europe, Asia and the United States) was created, injecting momentum into asset turnover.
Natixis rolled out its “multi-boutique“ model in Europe: ● a new London-based asset management company, H2O Asset Management, was created; ● Natixis Global Asset Management (NGAM) acquired a majority stake in OSSIAM, a start-up specializing in strategic Exchange-Traded Funds (ETF); ● Natixis strengthened its international business by deploying strategies tailored to the United States, Asia and India. Infrastructure Development Finance Company (IDFC) and Natixis Global Asset Management (NGAM) have entered into a strategic partnership for the public markets asset management business.
La Banque Privée 1818 and Rothschild & Cie Gestion decided to bring together their distribution platforms dedicated to Independent Wealth Management Advisors. This merger process is expected to be completed during the fi rst quarter of 2011.
Natixis Lease integrated all of Groupe BPCE’s leasing activities into the Specialized Financing division through the acquisition of 99.91% of the capital of Cicobail from Crédit Foncier de France, Banque Palatine and Eurosic.
A long-term partnership in the consumer fi nance sector was concluded between Groupe BPCE and BNP Paribas on
July 1, 2010 via their specialized credit subsidiaries, Natixis Financement and BNP Paribas Personal Finance.
GCE Paiements was merged into the Payments business line in the Specialized Financial Services division on September 1, 2010.
Net revenues of the businesses (1) were up 20.4% compared with 2009 and stood at €6,656 million. Excluding the foreign exchange effect and restated for the acquisition in September 2010 of GCE Paiements, the increase is 18.0%. The contribution of the business lines to income increased signifi cantly in 2010. The synergies delivered have exceeded the strategic plan both in terms of additional revenue (via the Groupe BPCE networks) and cost synergies.
Natixis’ growth, underpinned by the increase in client contribution, was supported by a policy focused on reducing exposure to risk. Risk-weighted assets (RWA) measured at the end of the reporting period and after recognition of the impacts of the BPCE guarantee stood at €148 billion at December 31, 2010, taking due account of the change in the accounting treatment of CCIs (see 4.1.1 – Methodology). They have fallen by 11% compared with 2009 (pro forma of the prudential treatment of CCIs). This change stems notably from the impact of the disposal of a GAPC portfolio of complex credit derivatives and the transition to the IRBA approach for calculating credit risk.
Expenses (excluding restructuring costs) stood at €4,402 million, up 1.7% compared with 2009 at constant consolidation scope and foreign exchange rates, i.e. an increase in line with the New Deal Strategic Plan, which provided for keeping expenses at the level of infl ation.
Gross operating income amounted to €2,118 million in 2010, up 22.5% at constant consolidation scope and foreign exchange rates.
Gross operating income of the businesses was €2,306 million in 2010 compared with €1,436 million in 2009, a year that was hit hard by revaluation losses on credit derivatives hedging loans and receivables (the Credit Portfolio Management business), which, in 2009, had generated an expense of €682 million compared 2010’s expense of €60 million.
The share of income from associates, mainly comprising the consolidation of 20% of the earnings of shareholding networks via CCIs, was up 17.5% to €500 million due to the sharp rise in the contribution of Groupe Caisses d’Epargne networks.
Gains or losses on other assets registered a €24 million loss, mainly comprised of disposal expenses and a pricing adjustment associated with the restructuring of private equity operations in France.
After taking into account net restructuring costs after tax, down by half compared with 2009, and the GAPC result, net income (group share) was €1,732 million in 2010.
ROE after tax rose by 8.4% in 2010, confi rming Natixis’ return to profi tability after two consecutive years of losses.
4FINANCIAL DATA Management Report for the year ending December 31, 2010 4.1.4 ANALYSIS BY BUSINESS
Income posted by Commercial Banking fell by 10.5% year-on-year. This drop was due to the decision taken early in the year to lengthen the term of revolving credit backing. Even so, this business posted excellent sales performance in 2010, with origination of €10.0 billion, up 29.0% compared with 2009. This result refl ects the confi dence that clients have in Natixis and the quality of its teams in meeting clients’ needs and expectations. Among the most noteworthy operations of 2010, Accor selected Natixis as fi nancial advisor, Mandated Lead Arranger and Bookrunner for a 5-year €900,000,000 term loan agreement as part of a contribution-spinoff of its hotel and services businesses. This business was also a participant in the Sanofi -Aventis loan to cover its offer for outstanding shares of Genzyme Corporation and the €900 million syndicated credit facility for Lactalis for the acquisition of two Spanish companies. The economic and fi nancial climate remains highly competitive. The margin rates for the average France Corporate fi nancing portfolio experienced a slight short-term decline. Furthermore, the drawing rate on credit lines was relatively low in 2010.
Debt and Financing posted record earnings, soaring by 20.1% year-on-year. All the activities of this business line received a boost from this improvement, with the exception of securitization, which fell 6%. There was a strong pick-up in origination in 2010 to €12.6 billion (x2.9 year-on-year), notably driven by global energy and commodities fi nancing, project fi nancing and export loans, in line with the objectives set by the New Deal strategic plan. This business line was particularly prominent in large-scale transactions. It notably arranged for a US$1.8 billion buyer credit insured by Coface for the US corporation, Iridium, contributing to the fi nancing and launch of a constellation of 72 satellites. It was the co-signer on an export credit loan of €4.3 billion to fi nance the Brazilian navy’s acquisition of fi ve submarines (built in cooperation with DCN naval shipyards). As fi nancial advisor, Natixis played a role in the co-fi nancing of the Exeltium Project (a long-term partnership between EDF and an industrial consortium) for a total of €1.6 billion. These operations did not dampen the profi tability of its operations. The net margin rate on the average portfolio was higher for most structured fi nance segments compared with 2009.
● Unlike the foreign exchange business, the Commodities business slipped following the decline in the volatility of energy-related underlyings, leading to a fall in hedging requirements.
● Revenue from equity derivatives was up sharply, driven by sales and structured trading. Natixis reclaimed its rightful place in the European structured products market, particularly among the institutionals. Sales performance soared 44% year-on-year, with the return of traditional customers.
● The brokerage business lost ground compared with 2009, mainly impacted by the deteriorated volume on the primary and secondary markets.
Income from CPM and other sharply varies from one year to the next. Credit spreads saw substantial tightening in 2009, causing heavy losses on hedging instruments covering loans and receivables measured at market value. There were no such credit spread movements in 2010. Furthermore, the sensitivity of the hedging portfolio was reduced fourfold in 2010, leading to less variability in its results.
This has led to a positive scissors effect on gross operating income, which stands at €1,377 million, up 25.5% year-on-year (+22.9% at constant exchange rates).
Investment Solutions posted revenue up 15.3% year-onyear to €1,799 million (12.4% at constant exchange rates). All the business lines in this division experienced double-digit growth in an environment that was favorable for life insurance (euro-denominated contracts), but adverse for money market funds and unit-linked life insurance (“UC” contracts).
There was strong growth in gross operating income, up 25.6% (22.7% at constant exchange rates), reaching €519 million.
In all regions, the product mix at December 31, 2010 refl ected the predominance of insurance products (29% of assets), which were up 1.4 ppt year-on-year, and bond products (24.5% of assets under management). The share of equity products grew sharply (up 1.4 ppt to 16.4% of assets) while money market products declined by 3.2 ppt (12.9% of assets at the end of December).
Average return rates from assets under management were up 0.3% compared with the end of 2009. Business line net revenues amounted to €1,413 million as at year-end 2010, up 11.5% year-on-year (up 7.9% at constant exchange rates).
For the year, the net revenues of this business line stood at €223 million, up 10.9% compared with 2009. At the same time, the provision for PEP (policyholders’ unallocated benefi t) was increased by a multiplier of 2.7.
The reconstruction of the Private Banking business continued over the course of 2010, notably driven by the implementation of a growth strategy to inject momentum into network (fund picking, sales support, organizing meetings and product presentations) and the revamping of the product offer and the associated pricing per client segment.
Net revenues amounted to €70 million, a big improvement over 2009, thanks to high 2010 business activity and disposals of the largest portfolios.
4FINANCIAL DATA Management Report for the year ending December 31, 2010 4.1.4.3 Specialized Financial Services
The performance of Financial Services was more uneven. Employee Benefit Scheme sales drives resulted in the stabilization of the number of managed employee accounts and mitigated the effects of lower enrolment rates in 2010 and opportunistic redemption. At €17.9 billion, employee savings plan assets were up 2.5% year-on-year. The service voucher business continued to grow: Chèque de Table® market share rose 0.8 point year-on-year to 11.1%. Securities Services continued to suffer from investor resistance to equities, with the volume of transactions falling 10% over the year. Custodial assets under management fell by 16% following the transfer of custodial accounts by HSBC management companies to CACEIS Bank. Following the merger-acquisition of GCE Paiements, Payments strengthened its market positioning with a pool of 16.3 million bank cards.
For the year, Coface posted revenue of €1,622 million, up 3.8% over 2009 (up 1.7% at constant exchange rates and scope of consolidation). Turnover was stronger in Europe (up 3.1% like-for-like), including Germany (+13.6%), Austria (+8.8%) and Italy (+4.9%) than in countries outside the continent (slippage in North America and in Japan, strong growth in China and in Latin America). Credit insurance revenue increased by 4.7% in 2010 (1.7% at constant scope of consolidation and exchange rates), boosted by a rebound in the economy in the second half of the year. Furthermore, the factoring business is moving in the right direction, posting growth in sales of 18.6% for the year while sales in the Services business line (business information and receivables management) slid at the end of the year.
Net revenues were €800 million in 2010, double 2009’s fi gure, thanks to the appreciable improvement in the claim rate and increased business. The ratio of credit insurance claims to premiums was 53.1% for the year, compared with 97.7% last year.
Assets under management stood at €1,855 million at the end of 2010.
Net revenues were positive in 2010, standing at €23 million compared with a loss of €42 million in 2009. Disposals amounted €173 million for the year, up 22% over 2009. The most noteworthy disposals related to the Mills IPO and the sale of Instalarme in Brazil.
A number of transactions were booked over the course of the year with a view to scaling down the books or the related risks. Hence, risk-weighted assets (RWA), excluding the guarantee, fell 56.2% year-on-year. Of particular note were: ● disposal of the bulk of complex credit derivatives positions; ● a transaction designed to significantly cut counterparty risk vis-à-vis CDPCs and monoline issuers; ● a reduction in exposure to US commercial real estate; ● the disposal of a significant portion of the equity derivatives portfolio; ● the shedding of convertible bond positions.
Corporate Center’s net revenues stood at -€136 million at December 31, 2010. This year’s results pale in comparison to the results for 2009, a year in which there were several non-recurring items, such as capital gains on securities after reclassifying DSSs as equity (€398 million) and a gain realized on a public offer of exchange of subordinated Natixis securities for BPCE shares (€460 million). This result includes income of €45.6 million as a revaluation adjustment of senior debt linked to specifi c credit risk (issuer spread), against a loss (1) of €301 million in 2009.
Corporate Center expenses declined sharply compared with 2009. The improvement is due primarily to continuing cost-cutting efforts and to an increase in the services reinvoiced to the business lines.
4 FINANCIAL DATA Management Report for the year ending December 31, 2010 4.1.4.7 Retail banking contribution
The combined net income of the two networks (100%) was €2.2 billion at the end of December 2010, up 34.4% on 2009.
(1) At the time of the initial consolidation of the CCIs by Natixis, unrealized capital gains made by the two networks on part of their investment portfolios were treated as capital, limiting recognition of goodwill. The effective realization of these capital gains by the two networks in 2010 generated revenues recognized under net revenues that Natixis cannot recognize twice. These revenues have therefore been deducted (after tax) from the share of net income of associates line.
With a total of €146.1 billion in outstandings, loan volumes grew 4.5% over a year, underpinned by mortgages and, to a lesser extent, equipment credit. At the same time, short-term credit (treasury, consumer) fell slightly.
Contribution to Natixis’ net income 201 94 x2.1 2010 enabled the Caisses d’Epargne network to record an improved sales performance, in line with its strategic plan to “place clients at the heart of the company”.
Outstanding deposits grew by 2.5% to €335 billion. Individual savings are still mainly invested in demand deposits (up 4.3%); whereas fi nancial savings mostly involve life insurance (average outstandings up 5.9%).
Banking services were driven by the launch of new service packages (Liberté, Futéo) and the new Izicarte card, which met with immediate success. Client trust also materialized in the form of changes to the cooperative shareholder base (+200,000) and in the number of active clients (+60,000).
Net income in the Caisses d’Epargne network once again crossed the €1bn-mark (€1,227 million), enabling it to reinforce an already high level of capital.
The provision for credit losses (excluding GAPC) was -€321 million at December 31, 2010, which included -€351 million in individual risks and +€30 million for collective provisions.
Short-term refi nancing 2010 saw signifi cant volatility mainly due to regulatory changes and the sovereign debt crisis.
The fi rst quarter, which was particularly liquid and in line with the second half of 2009, enabled the Group to extend its refi nancing and prepare for the tightening of the regulatory liquidity ratio in France.
The sovereign debt crisis and regulatory changes applied to monetary policies in the US as of the second quarter prompted erratic behavior and investor defi ance towards Europe.
In 2010, it raised a total euro-equivalent amount of 14.2 billion under its medium- and long-term debt issuance programs.
Via its EMTN program, Natixis has raised the equivalent of €2.2 billion, exclusively in a structured form.
On January 1, 2010, Natixis received funds as part of the French government’s regulatory capital support for French banks (SPPE) of €3.15 billion, in the form of Deeply Subordinated Perpetual Notes that BPCE subscribed to. In March, Natixis bought securities from this program for a total of €1 billion and simultaneously issued Deeply Subordinated Notes of €0.75 billion that BPCE subscribed to. In December, a new purchase was carried out for a total of €1.35 billion. Resources were replaced by medium-term senior refi nancing granted by BPCE so that it has no effect on Natixis’ current liquidity. At the end of the fi nancial year, Natixis benefi ted from just €0.8 billion in resources granted through the SPPE program.
With respect to Deeply Subordinated Notes, Natixis carried out one issue in 2010, which BPCE entirely subscribed to and contracted outside existing programs: €750,000,000 – issued on March 25, 2010 – fi xed then fl oating rate; the issue prospectus allows for early redemption as of March 25, 2015 and at every subsequent interest payment date.
There will be no limitations on issuing debt, at the level of the Issuer or of any consolidated subsidiaries. There is no negative pledge in respect of the Notes.”
Refer to Note 14 “post closing events“ in Chapter 4.2 Consolidated fi nancial statement and notes.
Gains or losses on fi xed assets were negative at -€322 million.
Net income was €285 million versus a loss of €2,046 million in 2009.
The third resolution that will be put before the General Shareholders’ Meeting on May 26, 2011 proposes to: ● allocate, to the relevant amount of -€100,632,051.21, part of 2010 net income in order to clear the negative retained earnings balance,
● allocate the distributable profits after subtracting €184,009,648.36 as follows: − charge, to the legal reserve of 5% of the fi scal year’s profi ts, i.e. €9,200,482.42,
− dividend allocation of €174,809,165.94 ; ● subtract from the issue premiums an amount of €494,062,503.45; ● allowing for an overall dividend of €668,871,669.39, i.e. €0.23 per Natixis share.
In accordance with Article L.441-6-1 and D.441-4 of the French Commercial Code, the following table breaks down unpaid supplier invoices by due date: ❚ UNPAID SUPPLIER INVOICES AS OF DECEMBER 31, 2010 AND DECEMBER 31, 2009
❚ 1 – MANAGEMENT RESULTS RECLASSIFIED AS CONSOLIDATED RESULTS IN 2010
Gain or loss on other assets 4 0 (31) (0) (28) (28)
4 FINANCIAL DATA Consolidated fi nancial statements and notes 4.2 Consolidated financial statements and notes
Financial assets at fair value through profi t and loss 6.1 161,208 181,226
Loans and receivables to banks 6.4 68,063 68,677 o/w institutional operations
Due to banks 6.12 106,616 95,510 o/w institutional operations 46 55 o/w institutional operations 854 743
Revaluation adjustments on portfolios hedged against interest rate risk 231 179
Accruals and other liabilities 6.8 21,515 18,784 o/w institutional operations 3 3
Net gains or losses on available-for-sale fi nancial assets 7.4 (43) (306)
Depreciation, amortization and impairment property, plant and equipment and intangible assets (225) (206)
Consolidated net income/(loss) – group share – per share, calculated on the basis of the average number of shares over the period excluding treasury shares 5.24 0.47 (0.60)
Share of gains or losses from equity affi liates recorded directly in equity 8.1 35 (215)
(c) Other equity instruments issued: refers to the undated Deeply Subordinated Notes and preference shares that were reclassifi ed as equity instruments at December 31, 2009 (see Note 5.16).
(d) In accordance with the accounting principles presented in Note 2: ● additional goodwill related to buyback commitments granted to the minority shareholders of fully consolidated subsidiaries and buybacks of minority interests subsequent to the exclusive takeover are booked to equity; ● income from minority interests held by shareholders with the option to sell their shares to Natixis is booked to consolidated reserves (group share).
Changes in cash related to investment operations result from cash fl ows related to acquisitions and disposals of investments in consolidated and non-consolidated affi liates, property plant and equipment and intangible fi xed assets, and acquisitions and disposals of investment property, property provided under operating leases and fi nancial assets held to maturity.
+/- Decrease/(increase) in property, plant and equipment and intangible assets (325) (247)
Impact of exchange rate changes on cash and cash equivalents (24) (2)
NOTE 8 STATEMENT OF NET INCOME/(LOSS), GAINS AND LOSSES RECORDED DIRECTLY IN EQUITY 266
The fi nancial statements presented for comparative purposes were published by Natixis in the 2009 registration document fi led with the French securities regulator (Autorité des Marchés Financiers – AMF) on April 30, 2010.
− in the event of a decrease in the percentage of an equity investment, the difference between the selling price and the carrying value of the minority interests is booked to consolidated reserves (group share).
According to the provisions of IFRS 3 (revised), business combinations are recorded using the purchase method. This method consists in comparing, at the purchase date, the sum of: − the amount paid in respect of the business combination,
STANDARDS, AMENDMENTS AND INTERPRETATIONS ADOPTED BY THE EUROPEAN UNION AS AT DECEMBER 31, 2010, BUT NOT EARLY ADOPTED IN THE 2010 CONSOLIDATED FINANCIAL STATEMENTS
Natixis did not early adopt the following standards, interpretations and amendments adopted by the European Union at December 31, 2010: ● amendment to IAS 32 on the “Classification of rights issues”, adopted by the European Commission on December 23, 2009 and subject to mandatory application for annual accounting periods beginning on or after February 1, 2010. This amendment modifies the accounting treatment of subscription rights issued in a currency other than the issuer’s functional currency. When certain conditions are met, these rights will no longer be recorded as derivatives but as equity instruments. This amendment should have no impact on Natixis’ consolidated financial statements; ● amendment to IFRS 1 (“Limited exemption from capital comparative IFRS 7 ‘Disclosures for first-time adopters’”), adopted by the European Commission on June 30, 2010 and subject to mandatory application for accounting periods beginning on or after July 1, 2010. This amendment exempts first-time adopters of IFRS from the obligation to make the additional disclosures stipulated by the amendments published in March 2009, entitled “Amendments to IFRS 7 - Financial Instruments: Disclosures – Issued on March 9, 2009”. This amendment should not have any impact on Natixis’ financial statements; ● IAS 24, as revised (“Related party disclosures”), adopted by the European Commission on July 19, 2010 and subject to mandatory application for annual accounting periods beginning on or after January 1, 2011. The changes implemented by the revised standard mainly include simplifications of the provisions concerning disclosures on entities related to government administrations and a clarification of the definition of a related party. This amendment should not have any impact on Natixis’ financial statements; ● amendment to IFRIC 14 entitled “Prepayments of a minimum funding requirement”, adopted by the European Commission on July 19, 2010. According to the changes made to IFRIC 14, when an employee savings scheme requires minimum contributions, such prepayments must be booked to assets, as must any other prepayments. This amendment is subject to mandatory application for accounting periods beginning on or after January 1, 2011. This amendment will not have any impact on Natixis’ financial statements; ● IFRIC 19 (“Extinguishing financial iabilities with equity instruments”), adopted by the European Commission on July 23, 2010 and subject to mandatory application for annual accounting periods beginning on or after July 1, 2010. This interpretation clarifies the accounting treatment, on the debtor’s books, of transactions carried out for the purpose of extinguishing financial liabilities with equity instruments. This interpretation should not have any impact on Natixis’ financial statements.
The scope of consolidation includes all material entities over which Natixis exercises control or signifi cant infl uence. Three relationships of control are identifi ed under IFRS: exclusive control, joint control and signifi cant infl uence. Determining the type of control that exists is based on an analysis of the economic and legal relations between the parent and its subsidiaries, as well as any voting rights held.
A review of potential voting rights held by Natixis had no impact on the entries into scope in 2010.
Natixis and the Banques Populaires banks have also agreed to maintain any existing industry and commercial relationships for a minimum period of 10 years as from the subscription date for the Banques Populaires CCIs: ● provision of IT infrastructure; ● supply of industry services (custodial services, payment systems, operational management of foreign currency accounting); ● design and management of customer products on behalf of the Banques Populaires (asset management, insurance products, factoring, lease financing, financial engineering, expansion capital, employee benefits planning, international operations, credit insurance and business information).
Lastly, Natixis and the Caisses d’Epargne banks have agreed to maintain, for a minimum period of 10 years as from the date of the contributions, any industry and commercial relations existing in the following areas: ● custody; ● design and management of customer products (asset management, revolving credit facilities, guarantee insurance for borrowers, factoring and non-real estate lease financing, financial engineering and capital market products, local authority financing and debt management); ● securities and derivatives brokerage.
Revenues derived from the management of public procedures represent the fees paid by the French State. These fees are set out in a fi nancial agreement between the State and Coface.
The balance sheets of foreign subsidiaries and branches whose functional currency is not the euro are translated into euros at the closing exchange rate, except for share capital, reserves and capital allocations, which are translated at the historic exchange rate. The income statements of foreign subsidiaries and branches whose functional currency is not the euro are translated at the average exchange rate for the year. Any resulting translation gains or losses arising on both balance sheet and income statement items are recognized in equity under “Translation differences” for the portion attributable to the Group and “Minority interests” for the portion attributable to third parties.
The following accounting treatment is applied to business combinations giving rise to control: ● IFRS 3, prior to revision, for business combinations having taken place before January 1, 2010, with the exception of those having taken place before January 1, 2004. On its first-time application of IFRS, Natixis elected to use the option available under IFRS 1 for first-time adopters, i.e. not to retrospectively restate business combinations carried out prior to January 1, 2004 in accordance with the provisions of IFRS 3; ● IFRS 3, as revised (IFRS 3R), for business combinations carried out after January 1, 2010. IFRS 3R is subject to retrospective application for business combinations for which the purchase date was on or after the implementation date of IFRS 3R.
● Application of IFRS 3 to business combinations carried out before January 1, 2010: − minority interests are determined based on their share in the identifi able net assets of the acquired entity, measured at their fair value at the purchase date (partial goodwill method);
− or based on their fair value at the purchase date, resulting in the recognition of goodwill, both for the group share and the minority interests (full goodwill method); − hence, goodwill is a residual item determined as the difference between (i) the sum of the purchase price, the fair value at the purchase date of the share of interest held in the acquired entity prior to the purchase date, and the amount of minority interests (determined using the partial or full goodwill method) and (ii) the net amount of the assets and liabilities assumed, measured at their fair value at the purchase date.
Entities considered to be under joint control include in particular two entities controlled by Natixis and those involving an entity controlled by Natixis and an entity controlled by BPCE.
The assets contributed by the CNCE to Natixis fall into two different categories: ● shares in the corporate and investment banking and services subsidiaries; ● a portion of the Cooperative Investment Certificates (CCIs) conferring entitlement to the share capital of the Caisses d’Epargne banks.
The goodwill arising from business combinations amounted to €484 million, which breaks down as follows: €229 million on IAMG, €21 million on IXIS CIB and €8 million on Novacrédit, plus the goodwill recorded in “Investments in associates” relating to the Caisses d’Epargne CCIs (€190 million) and the Banques Populaires CCIs (€36 million).
● Natixis Asset Management’s acquisition of 50% of H2O and 51% of OSSIAM led to the recognition of goodwill in the amount of €10.7 million (determined with the partial goodwill method) and €4.2 million (determined with the full goodwill method), respectively.
● An additional price consideration on TKB and the exercise of a put option by Business Data’s minority shareholders added €3 million to goodwill.
● The sale of 100% of subsidiary Antéis owned by BP 1818 resulted in a decrease of €0.5 million in goodwill.
● The non-exercise of the call on the minority interests in Coface Finance A/S Danmark for €5.9 million, combined with a business disposal (civil claims) by Coface Services for €2.1 million, resulted in an €8 million decrease in goodwill.
Changes to the operational structure of Natixis’ businesses in 2009 and 2010, described in Note 9, called for modifi cations to the composition of the CGUs, and consequently a reallocation of goodwill.
The following assumptions have been used: ● estimated future cash flows: forecast data covering the next 5 years drawn from Natixis’ medium-term business plans, established in conjunction with the businesses. These assumptions are underpinned by external information sources published by the Economic Research Department; ● perpetual growth rate: 2.5%, except for Coface (2%); ● discount rate: use of a specific rate for each CGU: 9.6% for Investment Solutions, 10.2% for Specialized Financial Services, 10.0% for Coface and 10.7% for Corporate and Investment Banking.
The write-back of the depreciation on Natixis Algérie’s fi xed assets did not have a material impact on Natixis’ income statement at December 31, 2010.
Insurance company investments are classifi ed in the balance sheet under the various categories of investments defi ned in IAS 39.
Deferred participation assets and liabilities arise mainly on: ● the remeasurement of available-for-sale financial assets and financial assets at fair value through profit and loss; ● the remeasurement of real estate assets held to cover insurance policies; ● the restatement in the consolidated financial statements of the capital reserve and the liquidity risk reserve.
The following key legal operations were carried out in 2010, within the framework of the Company’s new strategic directions: MERGER OF NATIXIS’ AND BPCE’S PAYMENT INSTRUMENTS ACTIVITIES
The merger of Natixis subsidiary Natixis Paiements with BPCE subsidiary GCE Paiements on September 1, 2010 gave rise to the creation of a single payment operator at Groupe BPCE level, wholly-owned by Natixis. The new operator’s business will be centered on activities related to payment processes servicing the Groupe BPCE networks and an external customer base.
3.2 Changes in the scope of consolidation since January 1, 2010 3.2.1 CORPORATE AND INVESTMENT BANKING & GAPC
● Incorporation of Natixis Environnement & Infrastructure Luxembourg, 61%-owned by Natixis Environnement et Infrastructure.
● The following entities, which had become non-material, were deconsolidated in 2010: − Natixis Alternative Investment Ltd; − Ixis Alternative Holding Ltd; − Natixis Investment Management Corp; − Natixis Municipal Products Inc.; − Lido Appartements LLC.
● Acquisition in Q2 2010 of 48.9% of the minority interests of Antéis Epargne by Banque Privée 1818, bringing its share of ownership to 100%; goodwill of €1 million was generated and booked to equity in accordance with IAS 27 (revised). In Q4 2010, Banque Privée 1818 then sold 100% of its shares in Antéis Epargne to Initiatives Financières. This disposal generated a capital gain of €1.7 million.
● Deconsolidation of AEW Global Real Estate Securities Fund and Loomis Sayles Consumer Discretionary LLC after their liquidation.
● Incorporation of investment firms Natixis Private Equity Caspian 1A and Natixis Private Equity Caspian 1B after their consolidation thresholds were crossed.
● Acquisition of 99.91% of Cicobail by Natixis Lease from Groupe BPCE (93.51%) and Eurosic (6.40%). This acquisition was treated as a transaction under joint control, outside the scope of IFRS 3R; goodwill of €29.1 million was directly deducted from consolidated equity.
● Acquisition by Natixis Lease of 99.09% of Océor Lease Nouméa and 100% of Océor Lease Réunion and Océor Lease Tahiti.
● Acquisition of 6% of Natixis Coficiné’s minority interests by Natixis, bringing its equity holding to 100%; goodwill of €3 million was generated and booked to equity in accordance with IAS 27 (revised).
● Sale of FCPR Ixen I, FCPR Ixen II, Initiative et Finance Investissement, Natixis Investissement, Natexis and Industries SCR IXEN to Axa Private Equity. This disposal generated a capital loss of €27.9 million.
As a result of an analysis which determined that a share of ownership existed in SLEs (local investments companies) and umbrella companies (limited joint stock companies), these entities were incorporated into the consolidation scope and generated an increase in consolidated reserves via the consolidation of the CCIs.
The following are the umbrella companies of the newly consolidated Banques Populaires: ● Sociétariat BP des Alpes; ● Sociétariat BP d’Alsace; ● Sociétariat BP Centre Atlantique; ● Sociétariat BP de Bourgogne Franche-Comté; ● Sociétariat BP Atlantique (Ludovic de Besse); ● Sociétariat BP Côte d’Azur; ● Sociétariat BP Loire et Lyonnais; ● Sociétariat BP Lorraine Champagne; ● Sociétariat BP Massif Central; ● Sociétariat BP du Nord; ● Sociétariat BP Occitane; ● Sociétariat BP de l’Ouest; ● Sociétariat BP Provençale et Corse; ● Sociétariat BP Rives de Paris; ● Sociétariat BP Sud; ● Sociétariat BP Sud-ouest; ● Sociétariat BP Val de France; ● Sociétariat Crédit Coopératif/BP.
● Merger of Socama Bas Rhin and Socama Huat Rhin with Socama Alsace.
● Risks: Natixis substantially retains the majority of the residual risks or risks inherent in ownership of the SPE or its assets in order to obtain benefits from its activities.
In the course of its business, Natixis has dealings with many SPEs on whose behalf it acts as lender, investor, guarantor, manager, sponsor or arranger as the case may be.
The analysis differs depending on whether Natixis is a guarantor of the fund: 1. Non-guaranteed mutual funds
4 FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 2. Guaranteed mutual funds
Natixis guarantees the capital and/or performance of certain Mutual Funds. An analysis of the risks incurred by Natixis as a result of such guarantees shows that such risks are controlled, either via the management policies and control procedures applied, via the composition of the funds (money market assets), via rigorous monitoring of counterparty risk, or via systematic hedging of swaps in the market (when Natixis is the counterparty to the performance swap set up by the fund). Accordingly, these mutual funds are not consolidated.
The NGAM sub-group is involved in such funds as manager of the underlying portfolio for third-party investors. Its role is strictly defi ned by the portfolio management agreement, which never provides it with effective control of the structure. Neither NGAM nor any other Natixis entity holds a majority interest in these funds. Natixis thus does not retain a majority of the benefi ts or incur a majority of risks. Consequently, no such fund was consolidated as of December 31, 2010.
The interests of the Natixis Assurances sub-group in UCITS and SCIs are subscribed in the form of euro or unit-linked insurance policies.
At December 31, 2010, the Natixis Assurances sub-group held a majority interest in 5 funds which are material to the consolidated financial statements and were thus consolidated in the Natixis consolidated financial statements: − ABP ACTIONS; − ABP Croissance Rendement; − ABP MIDCAP; − Fructifoncier; − NAMI INVESTMENT; ● unit-linked policies are policies under which the insured party selects the funds in which the insurer invests on its behalf. The value of the insurer’s interest in such funds in the form of unit-linked policies is reflected in the insurance policies, the remuneration of which is not guaranteed. The risks and benefits inherent to these investments are borne by the insured party. Such funds do not therefore require consolidation.
4FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 4.2.3 CREDIT INSURANCE SPES (COFACE SUB-GROUP)
Such entities do not meet any of the SIC 12 consolidation criteria because: ● the SPE’s activities are conducted first and foremost on behalf of the customer; ● Natixis is rarely a shareholder in such entities and when it is, it generally holds a minority interest. Auto-pilot mechanisms are generally in place and Natixis has not structured them for its benefit; ● Natixis merely acts as a lender to such structures; most credit facilities are syndicated and the risks are equitably shared between the lenders in proportion to the amounts they have lent.
Accordingly, none of these entities had been consolidated as of December 31, 2010.
● SPEs may be used to transform a debt type instrument (on the asset side of their balance sheet) into a more equity type instrument (on the liability side of their balance sheet), through the issue of preference shares for example. Within the scope consolidated and controlled by Natixis, the following three material entities were consolidated as of December 31, 2010: − Natexis Banque Populaire Preferred Capital 1; − Natexis Banque Populaire Preferred Capital 2; − Natexis Banque Populaire Preferred Capital 3.
● Natixis Immo Développement invests in real estate assets in partnership with other investors using two types of structures: − SEP type structures, which are not consolidated inasmuch as each partner recognizes its share of the SEP’s assets, liabilities and results; − other structures under which a separate legal entity (SCI, SAS, SNC etc.) acquires the assets. Natixis Immo Développement does not have any interest in structures that could have a material impact on Natixis’ consolidated fi nancial statements. Accordingly, no such entity was consolidated as of December 31, 2010.
● Natixis controls a certain number of SPEs designed to own or lease real estate assets intended to be re-let or otherwise made available to other Group subsidiaries or third parties. Such SPEs are consolidated once Natixis has a majority interest in these vehicles and where they are material to the consolidated financial statements. Three SPEs meet these criteria and were thus consolidated as of December 31, 2010: − Natixis Immo Exploitation; − SCI Altair 1; − SCI Altair 2.
● Natixis Garanties owns three SCIs that hold the business line’s operating property. All three were included in Natixis’ scope of consolidation as of December 31, 2010: − SCI Champs-Élysées; − SCI La Boétie; − SCI SACCEF.
4.2.8 CIB’S SECURITIZATION ENTITIES (PARIS – NATIXIS CAPITAL MARKETS NEW YORK) WITHIN THE REMIT OF GAPC (WORKOUT PORTFOLIO MANAGEMENT)
Natixis is mainly involved in structures employing securitization entities in its capacity as: ● structurer of securitization transactions; ● originator of securities or loans held as assets and pending securitization; ● credit risk intermediary between the market and the securitization entity.
Given the segregation of risk and their aim of spreading credit risk for investors other than Natixis, securitization conduits do not generally require consolidation under IFRS: ● the activities have been principally conducted on behalf of third party investors so as to provide them with access to diversified portfolios; ● a third party entity manages the assets to the extent required. Natixis has no decision-making or management powers within such entities; ● in comparison to third party investors, Natixis never derives the majority of the benefits; ● Natixis only holds the most senior shares in these structures and is thus not exposed to the majority of risks.
The main changes in entity scope in 2010 were as follows: ● Magenta: a new ABCP conduit (named Magenta) was created in the first quarter of 2010 in order to centralize the shortterm receivables funding operations of multiple vendors. The purpose of the conduit is to acquire trade receivables and ABS. This fund is not consolidated, as it does not meet the SIC 12 consolidation criteria.
Securities valued under this option fall into one of the following three categories: ● hybrid instruments that contain one or more significant and separable embedded derivative features; ● instruments belonging to a group of financial assets valued and managed on a fair value basis; ● instruments that present an inconsistency in accounting treatment with a related financial liability.
As stated in Note 2, Natixis has elected to use the option provided by IAS 28, i.e. not to account for Private Equity investments between 20% and 50%-owned using the equity method if they are designated as “Financial assets at fair value through profi t and loss”. In accordance with the fair value option amendment, Private Equity investments less than 20%-owned are also recognized as “Financial assets at fair value through profi t and loss”, since managing and measuring these investments at fair value is a well-established practice within Private Equity companies.
Loans outstanding with a theoretical syndication date expired as at December 31, 2010 were analyzed on a case-by-case basis in order to take into account the market discounts observed at the end of the reporting period. Changes in the discounts recognized for the period are shown in “Net gains or losses on available-for-sale fi nancial assets” and are discussed in Note 7.4.
Determining whether there is objective evidence of impairment is based on a multi-criteria approach and independent expert opinions, particularly in the case of debt instruments. Evidence of impairment includes: ● for debt instruments: default on interest or principal payments, existence of mediation, warning or legal reorganization procedures; counterparty bankruptcy and any other indicator pointing to a material decline in the counterparty’s financial position, such as losses on completion projected by discounted cash flow models or stress tests; ● for equity instruments (excluding investments in unlisted companies): indications suggesting that the entity is unlikely to recover all or part of its initial investment. Securities presenting an unrealized capital loss of over 30% on their face value, or presenting an unrealized capital loss for a period of more than six months, are systematically tested for
− reversals of impairment losses on debt instruments are recorded in the amount of the previously recorded impairment loss.
In accordance with IFRIC 10, impairment losses recorded against equity instruments at interim reporting dates are frozen in income and cannot be reversed until the securities are sold.
IAS 17, which sets forth the accounting treatment of leases, gives fi ve examples of situations where substantially all of the risks and rewards incidental to ownership are transferred to the lessee: ● 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 sufficiently below the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; ● the lease term is for the major part of the economic 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 modifications.
IAS 17 requires that non-guaranteed residual value be reviewed on a regular basis. If there has been a reduction
Financial assets measured at amortized cost for which there is no objective evidence of impairment are included in a group of assets with similar risk characteristics. Where objective evidence of impairment is found to exist for a given group of assets, a collective impairment loss is recorded regardless of whether or not the risk has yet affected one or more individual loans.
Financial assets are grouped according to three characteristics: credit rating for loans to individual and small business customers, and industry risk and geographical risk for corporate, sovereign and other similar counterparties.
For geographical risk, the analysis takes into account the sovereign rating, which itself includes a number of inputs such as the country’s political situation, its ability to withstand extreme stress, economic fundamentals (e.g. GDP per capita, external debt), government effi ciency, economic performance and economic outlook. In turn, each of these inputs is itself measured by one or more indicators. Analyses also draw on information published by major rating agencies for country and sovereign risk in order to establish the thresholds for assessing a given situation and the solidity of the country’s banking system. Qualitative information from specialist independent agencies is also considered.
Derivatives may only be designated as hedging instruments if they meet the criteria set out in IAS 39 at inception and throughout the term of the hedge. These criteria include formal documentation that the hedging relation between the derivatives and the hedged items is both prospectively and retrospectively effective. Hedging relationships are presumed to be effective when changes in the value of the hedging instrument offset changes in the value of the hedged item in a range of 80%-125%.
Natixis uses interest rate swaps borrowing at fi xed rates to fi x future costs of interbank borrowings and public/private issues.
Prospective hedge effectiveness tests involve establishing repricing schedules (by index and currency) for (i) cumulative variable-rate borrowings and fi xed-rate borrower swaps by maturity bracket, and (ii) cumulative variable-rate loans and fi xed-rate lender swaps, by maturity bracket.
Retrospective hedge effectiveness tests are used to verify whether or not the hedge was effective at different reporting dates. At each such date, changes in the fair value of hedging instruments (excluding accrued interest) are compared with changes in the fair value of the hypothetical derivatives (synthetic instruments representative of hedged assets or liabilities and management intentions). To be effective, changes in the fair value of hedging instruments must offset changes in the fair value of hedged items in a range of 80%-125%. Outside these limits, the hedge would no longer qualify for hedge accounting under IFRS.
If a hedging relationship is discontinued, for example when hedge effectiveness is outside the 80%-125% range, the derivative must be reclassifi ed in fi nancial instruments at fair value through profi t and loss, while the cumulative amount relating to the effective portion of the hedge that has been carried in equity under “Unrealized or deferred gains or losses” is recycled to income when the hedged item itself affects income.
Natixis uses plain vanilla interest rate swaps lending at fi xed rates to protect itself against the impact of unfavorable changes in interest rates on its fi xed-rate borrowings and issues. Plain vanilla swaps borrowing at fi xed rates are used to protect it from the impact of unfavorable changes in interest rates on its fi xed-rate loans and securities.
The prospective hedge effectiveness test is used to ensure that the fi nancial characteristics of the hedged item and hedging instrument are essentially the same: value date, maturity, notional amount, fi xed rate, payment frequency.
At each such date, changes in the fair value of hedging instruments (excluding accrued interest) are compared with changes in the fair value of the hypothetical assets and liabilities hedged (synthetic instruments representative of the assets and liabilities to be hedged). To be effective, changes in the fair value of hedging instruments must offset changes in the fair value of hedged items in a range of 80%-125%.
When a hedging relationship is discontinued, the hedging instrument is reclassifi ed in fi nancial instruments at fair value through profi t and loss, while the unrealized gain or loss on the hedged item is fi xed at its amount on the date the hedge is discontinued and taken to income through to maturity.
Net investment hedges are used to hedge the exchange risk arising on net foreign currency investments (consolidated subsidiary or investment). They are accounted for in the same way as cash fl ow hedges. The effective portion of changes in the fair value of hedging instruments (monetary derivative or liability denominated in foreign currency) is recognized in equity, while the ineffective portion is recognized in income. Unrealized gains or losses recognized in equity are transferred to income when all or part of the net investment is sold.
The following criteria are used to determine whether or not a market is active: ● a significant drop in market activity; ● the length of historical data of prices observed in similar market transactions; ● scarcity of prices recovered by a service provider; ● disappearance of the primary market; ● sharp bid-ask price spread; ● steep price volatility over time or between different market participants.
Level 2 comprises instruments not directly quoted on an active market, measured using a valuation technique incorporating parameters that are either directly observable (prices) or indirectly observable (price derivatives) through to maturity. This mainly includes: Simple instruments
At December 31, 2010, instruments on which the recognition of day-one profi t/loss has been deferred include: ● structured products with multiple underlyings (equities/ indexes); ● options on funds; ● hybrid interest rate and inflation-linked products; ● interest rate derivatives; ● securitization swaps; ● structured credit products (CDS, CDOs and FTDs); ● and carbon-based derivative instruments.
In the absence of observable market data, directly-held ABS CDO portfolios with subprime exposure are measured using a valuation method which has been refi ned since the previous reporting dates. The adjustment to the valuation method was based on a discounted cash fl ow approach using Intex modeling.
These instruments are valued based on a calculation of their fair value using historical benchmark spreads contained in the Markit database. The benchmarks are defi ned by type of securitization, rating and country, and are associated with spread curves. These values are then adjusted by a coeffi cient designed to factor in liquidity risk.
These instruments are valued using a credit stress approach based on a valuation model drawing on projected future cash fl ows and cumulative loss rates per structure. The cumulative loss rates per structure were established based on loss rates for the underlying loans, set at 10%. A minimum valuation (fl oor) was applied representing 3% for CRE CDOs and CMBS rated AAA, and 5% for other CMBS, in line with the estimated interest fl ows given the current ratings of the structures.
The valuation method for US RMBS including subprime RMBS, European RMBS, CMBS, and CLOs reclassifi ed to “Loans and receivables” is the same as that used for identical instruments classifi ed as “Instruments at fair value through profi t and loss” and “Available-for-sale assets”.
Loans classifi ed as “Loans and receivables” and amounts payable under fi nance leases
The fair value of loans with an initial term of less than one year is considered to be their carrying amount.
The amount of the premium paid by Natixis in return for the fi nancial guarantee amounts to €1,183 million.
Expenses incurred during the development phase are capitalized if they meet the criteria for recognition as intangible assets set out in IAS 38: these include technical feasibility, the intention to complete the asset and use or sell it, the probability that the asset will generate future economic benefi ts, the availability of resources, and the ability to reliably measure the expenditure attributable during the asset’s development. Costs incurred during the research phase are not capitalized but are recognized in expenses.
Other intangible assets primarily comprise: ● purchased goodwill with an indefinite useful life, which is not amortized but tested for impairment at least annually; ● components of the Coface portfolio, which are amortized over the term of the contracts (eight to ten years for France).
The charge to writedown or amortization is recognized in the consolidated income statement under the heading “Depreciation, amortization and impairment of property, plant and equipment and intangible assets”.
The expense incurred from the scrapping of a fi xed asset is booked to “Depreciation, amortisation and impairment of property, plant and equipment and intangible assets” on the consolidated income statement.
If the disposal has not taken place within twelve months of classifi cation in “Non-current assets held for sale”, the asset ceases to be classifi ed in this category, barring special circumstances independent of Natixis’ control.
A discontinued operation is a clearly identifi able component of an entity that either has been disposed of, or is classifi ed as held for sale, and: ● represents a separate major line of business or geographical area of operations; ● is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
● is a subsidiary acquired exclusively with a view to resale.
At December 31, 2010, Natixis had entered into exclusive negotiations for the sale of equity investments held by the fully consolidated private equity fund NPE Natixis Mercosul Fund.
Financial liabilities in this category are carried at fair value at the reporting date and shown in the balance sheet as “Financial liabilities at fair value through profi t and loss”. Changes in fair value (including the issuer spread) are recognized in the income statement under “Net gains or losses on fi nancial instruments at fair value through profi t and loss”.
A fi nancial liability is derecognized when it is settled, cancelled or expires.
4 FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 5.13 Offsetting financial assets and liabilities
− the location, function, and approximate number of employees who will be compensated upon termination of their services,
− the dat the plan will be implemented; ● the Group has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.
A provision of €365 million was booked at December 31, 2010 in relation to the Madoff assets.
A description of the main risks and litigation to which Natixis is exposed is given in section 3.5, “Legal Risks”, in the Risk Management chapter.
The provisions posted to liabilities on Natixis’ books at December 31, 2010, are presented in Note 6.15.2, “Provisions”. Charges to these provisions are disclosed in Note 7.6, “Operating expenses”, and Note 7.7, “Provision for credit losses”.
In accordance with IAS 19, employee benefi ts are classifi ed in one of four categories: ● “Short-term benefits”, including salaries, social security contributions, annual leave, employee profit-sharing, incentive plans, top-up contributions and variable compensation payable within twelve months of the end of the year in which the services were rendered; ● “Termination benefits”, which should be recognized when the entity is demonstrably committed to terminating the employment of an employee before the normal retirement date, or providing termination benefits as a result of an offer made in order to encourage voluntary redundancy; ● “Post-employment benefits”, such as pensions, other supplementary retirement benefits applicable to the banking industry, end-of-career awards and other contractual benefits payable to retirees; ● ”Other long-term employee benefits”, including longservice awards and deferred compensation payable in cash 12 months or more after the end of the fiscal year in which the services were rendered.
In the event of changes to an existing plan or the implementation of a new plan, past service cost is recognized in income over the period until the benefi ts become vested.
The amount recognized as a provision in the balance sheet represents the present value of the obligation under defi ned benefi t plans.
The annual payroll costs recognized in respect of defi ned benefi ts plans consist of: ● rights vested by beneficiaries over the period; ● the interest cost reflecting the impact of unwinding the discount on the obligation; ● the expected return on plan assets; ● amortization of actuarial gains and losses and past service costs; ● the effects of plan curtailments and settlements.
● Deeply Subordinated Notes and preference shares are classified in equity in light of the 2009 renegotiation of a clause making the payment of interest non-optional in the event of positive consolidated income and which has since become discretionary. The change over the fiscal year is presented in Note 6.16, “Changes in subordinated debt”, and in Note 12, “Capital management”; ● the share of third party investors in the net assets of dedicated mutual funds included in Natixis’ consolidation scope comprise a financial liability recorded on the balance sheet under “Financial liabilities at fair value through profit and loss”. The share of third party investors in the profits of the mutual funds is recorded in “Net gains or losses on financial instruments at fair value through profit and loss” in the consolidated income statement; ● the units held by third party investors in dated funds, which are fully consolidated by Natixis, entitling the unitholders to the repayment of a share of the fund’s net assets upon its liquidation, are classified in liabilities on the balance sheet under “Other liabilities”. The share of third party investors in the fund’s profits is recorded under “Interest and similar expenses” on the consolidated income statement.
Through its principal shareholder BPCE, Natixis indirectly benefi ts from fi nancing made available under the fi nancial sector bail-out plan approved by the European Commission in 2008. This plan has two key components: ● inter-bank medium-term loans guaranteed by the transfer of full ownership of receivables meeting certain eligibility criteria. The transfer of ownership enables the lenders to pledge the receivables with Société de Financement de
Natixis has set up 5 stock option plans since 2002. The vesting periods for two of these plans had not ended at December 31, 2010. The details of these plans are provided in Note 11.
The expense is recognized on a straight-line basis over the vesting period. The fi rst date for recognizing the expense is the beginning of the period in which the employees started to provide the related services. The expense is adjusted over the vesting period to refl ect any losses of rights.
Cash-settled variable compensation plans indexed to the value of the Natixis share
Where the payment of compensation is subject to presence conditions and takes place more than 12 months after the end of the period in which the services were provided, the corresponding expense is recorded over the acquisition period on a straight-line basis. The fi rst date for recognizing the expense is the beginning of the period in which the employees started to provide the related services.
The details of these plans and their quantifi ed impacts over the period are provided in Notes 11.2.2 and 11.2.4.
All treasury shares held by Natixis are deducted from equity regardless of the purpose for which they are acquired/ held. Any gains or losses recognized in the parent company fi nancial statements in respect of the sale, measurement or impairment of treasury shares held for trading or available-forsale are eliminated in the consolidated fi nancial statements through equity.
Treasury share derivatives are recognized differently depending on how they are unwound: ● as equity instruments, if they are unwound by trading a fixed number of treasury shares for a fixed amount of cash or another financial asset, and if this trade is the only possible unwinding method. In such case, the instruments are not subsequently revalued; ● as derivatives, if they are unwound via a net cash settlement or a net treasury shares settlement. In such case, the fair value changes in the instruments are recorded in the income statement.
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 estimated term of the loan. Accordingly, they are treated as interest income.
The French Finance Act for 2011 instigated an exceptional 10% tax on the capitalisation reserve of insurance companies existing at January 1, 2010. This tax generated a tax expense of €18.3 million, recorded in the consolidated income statement at December 31, 2010.
With the application of this exceptional tax and non-taxability of subsequent activity, there is no longer any justifi cation for the deferred tax liability on restatements of the capitalisation reserve for the previous fi scal years. The entire deferred tax liability was therefore reversed to the consolidated income statement at December 31, 2010.
In preparing its fi nancial statements, Natixis is required to make certain estimates and assumptions based on available information that is likely to require expert judgment. These estimates and assumptions constitute sources of uncertainty which may affect the calculation of income and expenses in the income statement, the value of assets and liabilities in the balance sheet, and/or certain disclosures in the notes to the fi nancial statements. The fi nancial crisis has led to greater use of accounting estimates. As a result, future results of certain operations may differ signifi cantly from the estimates used in the fi nancial statements at December 31, 2010.
The valuation models used to price fi nancial instruments for which liquidity has dried up as a result of the fi nancial crisis are described in Note 5.6.
At the reporting date, Natixis assesses whether or not there is any objective evidence of impairment for loans and receivables, either on an individual basis or collectively by risk category. To identify evidence of impairment, Natixis analyses trends in a number of objective criteria, but also relies on the judgment of its own expert teams. Similarly, Natixis may use its expert judgment to establish the likely timing of recoveries (where the aim is to calculate the amount of individual impairment losses), or to adjust the amount of expected losses under the Basel 2 framework, on which the amount of collective provision is based.
All goodwill is assigned to a CGU so that it may be tested for impairment. The tests conducted by Natixis consist of comparing the carrying amount of each CGU (including goodwill) with its value in use. Value in use is calculated by discounting annual free cash fl ows to infi nity (excluding the Private Equity CGU which is stated at fair value). Use of the discounted cash fl ow method involves: ● estimating future cash flows. Natixis has based these estimates on forecasts included in its business units’ medium-term plans spanning five years; ● projecting cash flows for the last year of the plan to infinity, at a rate reflecting the expected annual growth rate; ● discounting cash flows at a specific rate for each CGU.
Insurance technical reserves are calculated using estimates and assumptions that may lead to adjustments in amounts reported over the subsequent period: ● for personal risk insurance, claims reserves are calculated by modeling claims experience; ● for life insurance, technical reserves are computed based on economic and financial assumptions, mortality and morbidity tables, and behavioral statistics, for example concerning surrenders; ● for credit insurance, claims reserves include an estimate of claims reported but not settled at the reporting date. In addition to the amount of claims payable, a provision is set aside for unknown claims, calculated on a statistical basis by reference to the final amount of claims to be paid following settlement of risks and any debt recovery measures. Provisions for debt recovery procedures, representing estimates of expected recoveries, are calculated by applying a terminal recovery rate to all subscription periods not yet settled.
To this end, Natixis prepares tax business plans over rolling 5-year periods as from the last tax reporting period, and based on growth assumptions used in the medium term plans for the business lines (New Deal). These plans incorporate the following main assumptions: ● a like-for-like scope; ● the gradual disposal of GAPC assets by 2012; ● deconsolidation of private equity businesses.
Average number of ordinary shares issued and outstanding over the period 2,908,137,693 2,908,137,693
Average number of treasury shares issued and outstanding over the period 4,238,033 10,719,981
Securities designated at fair value through profi t and loss 6.1.1.3 26,185 26,334
Securities designated at fair value through profi t and loss 7,516 2,934 10,450 of which: Private Equity securities 48 1,435 1,483 6.1.1.2 Loans and receivables designated at fair value through profi t and loss and credit risk
The use of the fair value option is considered to provide more pertinent information in two situations: ● where there is an accounting mismatch between economically linked assets and liabilities. This arises for example in the case of an asset and a hedging derivative when the criteria for hedge accounting are not met; ● where a portfolio of financial assets and liabilities is managed and recognized at fair value as part of a documented policy of asset and liability management.
Loans and receivables to banks 9 9 - - 186 186 - -
At December 31, 2010, fi nancial liabilities at fair value through profi t and loss primarily comprised derivatives not used as hedging instruments.
Other payables 882 2,165 6.1.2.1 Financial liabilities designated at fair value through profi t and loss and credit risk
The use of the fair value option is considered to provide more pertinent information in two situations dans deux situations: ● where there is an accounting mismatch between economically linked assets and liabilities. The fair value option is typically used when the criteria for hedge accounting are not met: in such case, changes in the fair value of the hedged item automatically offset changes in the fair value of the hedging derivative; ● where a portfolio of financial assets and liabilities is managed and recognized at fair value as part of a documented policy of asset and liability management.
Managed on a fair value basis Embedded derivatives 6.1.3 DERIVATIVES NOT ELIGIBLE FOR HEDGE ACCOUNTING
Derivative fi nancial instruments not eligible for hedge accounting are classifi ed as held for trading, irrespective of the period over which they are expected to be held.
(a) Natixis has contracted Total Return Swaps (TRS) with BPCE. These instruments are used to hedge changes in the fair value of GAPC instruments carried at fair value through profi t and loss since July 1, 2009 and are included on this line for an amount of €148 million in assets (versus €343 million at December 31, 2009) and €313 million in liabilities (versus €591 million at December 31, 2009).
(b) Natixis has contracted a call option with BPCE for the purpose of recovering after a 10-year period, any net gains in fair value transferred to BPCE via TRS. The call option was recognized on this line in assets for €507 million (versus €535 million at December 31, 2009).
4FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 6.4.2 CUSTOMER LOANS AND RECEIVABLES
Customer lease fi nancing outstandings 6,239 3,979 10,217 3,782 3,784 7,566
Provisions for impairment of non-performing outstandings (103) (95) (198) (55) (70) (125)
No fi nancial assets were reclassifi ed in 2010 by Natixis pursuant to the IASB’s “Reclassifi cation of fi nancial assets” amendment to IAS 39 and IFRS 7 published on October 13, 2008.
Pursuant to the options provided for by the IASB’s amendment to IAS 39 and IFRS 7 published on October 13, 2008, Natixis reclassifi ed the following items within “Loans and receivables” as at October 1, 2008: ● €8.8 billion relating to the fair value of assets previously classified as “Financial assets at fair value through profit and loss – Trading”; ● €2.8 billion relating to the fair value of assets previously classified within “Available-for-sale financial assets”.
The fi nancial instruments reclassifi ed in accordance with the October 13, 2008 amendment were measured using the valuation models described in Note 5.6. Changes in the fair value of reclassifi ed assets that would have had an impact on income for 2010 if the October 1, 2008 reclassifi cation had not taken place, are summarized in the table below.
Changes in fair value that would have been recognized in income in respect of assets previously classifi ed as fair value through profi t and loss
Changes in fair value that would have been recognized in transferable equity in respect of assets previously classifi ed as available-for-sale
The table below shows the carrying amount of: ● repurchased securities and other items provided as security for liabilities; ● receivables for which ownership has been transferred to BPCE or SFEF as security in connection with the financing indirectly received from SFEF through BPCE.
Certain assets may be transferred without being fully or partly derecognized, on the grounds that they do not meet the criteria for derecognition set out in paragraphs 15 to 37 of IAS 39. Such transfers are generally performed as part of synthetic securitization transactions.
Assets (in millions of euros) Carrying amount Level 1 Level 2 Level 3
Derivative instruments not eligible for hedge accounting (positive fair value) 87,706 1,338 83,770 2,597
Other fi nancial assets designated at fair value through profi t and loss 13,598 12,836 762
The amounts in the notes to the fi nancial statements do not take into account the day-one deferred margin, although this is measured using level 3 of the fair value hierarchy (see Note 6.8.2.2.1).
4 FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 6.6.8.1 Financial assets at fair value measured using level 3 of the fair value hierarchy
Financial assets at fair value through profi t and loss – Trading 11,992 521 261
Financial assets designated at fair value through profi t and loss 1,751 (3) (13)
Securities designated at fair value through profi t and loss 993 (27) (2)
Sensitivity of the fair value of fi nancial instruments measured using non-observable inputs was estimated at December 31, 2010. With the aid of probable assumptions, this sensitivity is used to estimate the impacts of market fl uctuations in unstable economic environments. This estimate was performed using: ● a “standardized” (1) variation in non-observable inputs for interest rate and equity instruments. The resulting sensitivity was €2.5 million; ● a flat variation of: − +/-10% in the estimated loss rates on underlying assets to model the valuation of ABS CDO tranches,
Total deferred tax recognized 3,049 2,798 - o/w deferred tax assets 3,361 3,073 - o/w deferred tax liabilities (312) (275)
4FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 6.8 Accrual accounts, other assets and liabilities
The allocation over the period includes an impact of €33 million, representing the margin remaining to be spread out at the point certain products (mainly multi-equity underlyings) were switched to the observable inputs category.
Deferred participation – debit balances 32 4 6.8.3.2 Insurance accrual accounts – Liabilities
(a) Insurance company investments. Changes in fair value give rise to the symmetrical recognition of a deferred profi t-sharing reserve, equal to 92% of the related base amount on average (see Note 2.10).
In 2009, equity and debt instruments comprised securities received following the default over the period of counterparties for repos and securitization transactions at Natixis Financial Product totaling €124 million.
4FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 6.11 Goodwill
4 FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 6.12.2 CUSTOMER DEPOSITS
Debt securities (interest-bearing notes, inter-bank market securities, etc.) are broken down by type of security, excluding subordinated securities which are included within “Subordinated debt”.
Life insurance loss reserves cover the capital payable upon the occurrence of a loss. In credit insurance, they include an estimate of the total cost of losses reported but not yet settled at the end of the reporting period. Accrued losses are topped up by a reserve for unknown losses calculated on a statistical basis.
(a) A net deferred participation liability of €485 million was recorded at December 31, 2009 (see Note 2.10). In light of market developments, it stood at €105 million at December 31, 2010.
Provisions for impairment deducted from assets 5,096 1,016 (1,418) (61) 122 59 173 4,987
Impairment losses taken on availablefor -sale fi nancial assets 1,363 264 (342) 7 21 19 1,332
Impairment and amortization of property, plant and equipment and intangible assets (9) 4 (5)
4 FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 6.16 Subordinated debt
Subordinated debt differs from advances and bonds issued in that it will be repaid after all senior and unsecured creditors, but before the repayment of participating loans and redemption of securities and Deeply Subordinated Notes. Subordinated debt is valued at amortized cost.
(a) Subordinated debt contracts do not include a clause providing for early redemption for non-compliance with a fi nancial ratio.
This table does not include: ● preference shares; ● accrued interest.
(c) Other changes mainly pertained to variations in intra-group securities held by Natixis Funding for the purposes of market making with respect to Natixis’ debt on the secondary market (+€101 million). This concerned the June 2003, November 2004, October 2005, September/December 2006 and May/June 2007 issues of redeemable subordinated notes.
4FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 6.17 French State support
(in millions of euros) 12.31.2009 Issues (a) Redemptions Translation differences 12.31.2010
(a) Redemption of SPPE issues for €2,350 milion in 2010 and redemption of SFEF issues for €1,350 million in 2010.
6.18 Fair value of financial liabilities carried at fair value in the balance sheet
Liabilities (in millions of euros) Carrying amount Level 1 Level 2 Level 3
Other fi nancial liabilities issued for trading purposes 1,519 7 1,512
Financial liabilities designated at fair value through profi t and loss 45,046 2 45,044
Securities designated at fair value through profi t and loss 36,494 36,494
Interest accrued on impaired loans and receivables (including restructured items) 20 0 20 16 0 16 7.2 Net fee and commission income
Fees and commissions that form an integral part of the effective yield on an instrument such as commitment fees or loan setup fees are recognized and amortizd as an adjustment to the effective interest rate over the estimated term of the applicable loan. These fees and commissions are recognized as interest income rather than fee and commission income.
4 FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 7.3 Gains and losses on financial instruments at fair value through profit and loss
Net gains/(losses) on fi nancial assets and liabilities excluding hedging derivatives 1,102 (1,329)
Net gains/(losses) on fi nancial assets and liabilities held for trading (a) 1,164 (905)
At the same time, the portfolio-based provision was reversed in the amount of €280 million over the year, versus an expense of €203 million in 2009 (excluding the impact of the BPCE guarantee), bringing the cumulative balance to €150 million for an exposure of €458 million at December 31, 2010 versus €524 million at December 31, 2009.
In the fi rst half of 2010, Natixis hedged against the counterparty risk associated with certain CDPCs. This hedging transaction had an impact of -€79 million (excluding the reversal of the provision for CPDCs) attributable to the cost of the hedge.
(b) Net gains and losses include the valuation of the issuer spread on issues carried out by Natixis and designated at fair value through profi t and loss with a positive €21 million impact on income for the period versus an expense of €248 million last year.
4FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 7.4 Net gains or losses on available-forsale financial assets
Net gains or losses on available-for-sale fi nancial assets principally comprise gains or losses on sales of securities and impairment losses on variable-income securities refl ecting a prolonged decline in value.
Impairment of fi xed-income securities is charged to “Provision for credit losses”.
Loans outstanding with a theoretical syndication date expired as at December 31, 2010 were analyzed on a case-by-case basis in order to take into account the market discounts observed at the end of the reporting period within income.
(a) Syndicated loans: loans with a theoretical syndication date expired as at December 31, 2010 amounted to €192 million. These loans were analyzed on a case-by-case basis to take into account the market discounts observed at the reporting date within income. Cumulative discounts amounted to €44 million at December 31, 2010, representing a positive variation of €25 million over the period.
Pensions and other employee benefi ts 11.2.2 & 11.2.3 (154) (131)
“Impairment of individual loans and receivables” includes impairment recognized against securities classifi ed as “Loans and receivables” (including items reclassifi ed following the October 13, 2008 amendment) and fi xed-income securities classifi ed within available-for-sale fi nancial assets.
Total net reversals 557 717 7.8 Share in income from associates
(a) The main deductions in respect of permanent differences in 2010 related to tax-exempt earnings of foreign subsidiaries located in Luxembourg, Belgium and the United States, and tax amortization of goodwill in the United States. In 2009, this also included income from reclassifying subordinated debt within equity.
(b) In 2010 income included €257 million from the activation of previous tax losses abroad, whereas in 2009 this item included carry-back income of €188 million recorded by the parenty company of the tax group in France and carry-back income of €51 million recorded by the US subsidiaries.
(d) In 2009, based on a detailed review of the strategy and in light of the GAPC asset guarantee granted by BPCE, the Group as a whole is expected to return to taxable profi t. Accordingly, a deferred tax asset of €1,285 million was recognized at December 31, 2009.
TOTAL CHANGES IN UNREALISED OR DEFERRED GAINS OR LOSSES 607 (6) 601 413 (55) 358
In 2009, Natixis carried out an in-depth review of its business lines. After considering the growth potential of each business line and its strategic fi t with Natixis’ other operations and with BPCE, Executive Management identifi ed three core businesses: ● Corporate and Investment Banking, representing banking services for large companies and BPCE institutional investors. Since June 30, 2010, film and audivisual financing has been managed by the Specialized Financial Services division; ● Investment Solutions, which includes Asset Management, Life Insurance, Private Banking and, since Q3 2010, the Private Equity business resulting from the spin-off of Natixis Private Equity and slated to become a third-party management activity. Pro forma accounting took into account the impacts of this change on the presentation of the 2009 and 2010 financial statements; ● Specialized Financial Services, which includes Factoring, Lease Financing, Consumer Credit, Guarantees, Employee Benefits Planning, and Payment and Securities Services. These services are the key growth drivers for BPCE’s retail banking business going forward.
● Corporate and Institutional Relations ensures that Natixis maintains close ties with its customers both in France and abroad, partnering with them over time and leveraging its robust knowledge of numerous business sectors to optimize risk management.
● Debt and Financing provides a dedicated platform offering financing solutions and advisory services boosted by a range of additional expertise in specialized origination, structured finance and distribution; ● Capital Markets: Natixis boasts leading expertise on interest rate, currency, commodity, credit and equity markets, which is used to develop its broad line-up of standard and bespoke products.
● Leasing: this business line provides financing solutions for real estate and non real estate that is managed under finance leases or other long-term leasing arrangements; ● Employee Savings Scheme: (a comprehensive B2B employee benefits planning range of products), employee share ownership: keeping employee share accounts, fund administration and accounting, collective life insurance, special payment vouchers; ● Securities Services: custody (account administration, back office outsourcing, depositary control), office services;
Together, these specialized management companies enable the Group to provide a full range of expertise meeting demands from all customer segments. Coverage of the various customer segments is optimized by the organization of distribution around the Global Associates platform and the business franchises developed over the long term by the asset management companies, mainly with various client groups. The management companies continue to handle distribution via the shareholder retail banking networks in France.
● Insurance: Natixis Assurances is a holding company for various operating insurance subsidiaries. It offers a comprehensive range of individual and collective life insurance, personal risk insurance and property and casualty insurance solutions. These diversified, customized solutions are designed for retail and small business customers, farmers, companies and associations.
This business covers proprietary private equity transactions, some sponsored fund, and third party management of assets not held by Natixis. After the October 2010 sale to Axa Private Equity of the majority of the proprietary activity in France, the international segment remains and is divided into several small teams of investors. The teams have extensive expertise in equity fi nancing for generally unlisted small and medium-sized enterprises outside France via equity holdings.
More than two-thirds of Coface’s revenue is derived from its international operations. Coface has its own distribution network spanning 65 countries, plus another 45 countries through the CreditAlliance network.
Natixis consolidates these operations via its 20% ownership of Banques Populaires and Caisses d’Epargne retail banking networks and via the business lines distributed by the networks. Both shareholder groups’ networks have distinct yet complementary market positions. The Caisses d’Epargne banks have a strong presence in the personal and small-business customer segment, offering a full spectrum of products and services. They also boast robust local roots and are prime movers in regional development, offering local authorities, social housing organizations and businesses an extensive range of products and services. The Banques Populaires network focuses on professionals, SMEs and retail customers.
4FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 9.7 GAPC – Workout portfolio management
At the end of 2008, Natixis ring-fenced its most illiquid and/ or high-risk exposures within GAPC (Gestion Active des Portefeuilles Cantonnées, or Workout Portfolio Management) in its CIB division. Segregated assets include convertible arbitrage, complex equity and interest rate derivatives, trading correlation derivatives, structured fund-based derivatives, proprietary credit activities, residential ABS, etc.
The scope of activities covered by GAPC was fi nalized in 2010 and breaks down as: ● GAPC 0 – Management; ● GAPC 1 – Structured Credit Euro; ● GAPC 2 – Structured Credit US; ● GAPC 3 – Vanilla Credit; ● GAPC 4 – Correlation trading; ● GAPC 5 – Complex interest rate derivatives; ● GAPC 6 – Convertible arbitrage; ● GAPC 7 – Complex equity derivatives; ● GAPC 8 – Fund-based structured products (formerly Alternative Assets).
12.31.2010 – Income statement (pro forma expensing of interest on Deeply Subordinated Notes)
Subordinated Notes, like the data presented in 2009, as the reclassifi cation of subordinated notes within equity did not take place until December 31, 2009 (see Note 5.16).
12.31.2009 – pro forma accounting for 2010 scope of consolidation changes
4 FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 9.8.2 BALANCE SHEET SEGMENT ANALYSIS
Loans and receivables to fi nancial institutions 59,653 377 1,872 256 9 3,398 2,497 68,062
Loans and receivables to customers 70,388 1,310 14,310 3,415 91 11,109 5,280 105,903
Deposits from fi nancial institutions 45,515 546 9,172 2,513 309 31,352 6,103 95,510
4 FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 9.9 Other disclosures
The capital adequacy ratio encompasses credit risk, market risk and operational risk. This ratio measures the adequacy of regulatory capital in relation to risk. To obtain the capital adequacy ratio, the Bank’s consolidated regulatory capital, calculated in accordance with CRBF regulation 90-02, is divided by the entity’s weighted credit, market and operational risks. Natixis complied with the 8% minimum capital adequacy ratio at December 31, 2010.
The minimum liquidity ratio under prudential rules is 100%. At December 31, 2010, Natixis’ liquidity ratio was 107%.
Procedures for managing large exposures are designed to prevent excessive concentration of risks on a single benefi ciary. The requirement is based on an obligation to be respected at all times: all risks on a single benefi ciary cannot exceed 25% of the bank’s capital. Natixis complied with this requirement during 2010.
4FINANCIAL DATA Notes to the consolidated fi nancial statements and notes 10.2 Credit risk and counterparty risk
Africa and the Middle East 62 1,062 1,124 18 78 96 10.2.3 BREAKDOWN OF COLLECTIVE PROVISIONS BY BUSINESS SECTOR
87% of collective provisions on the Finance sector comprise provisions covering CDPCs (credit derivative product companies).
10.4 Sensitive exposures in accordance with the recommendations of the Financial Stability Forum
Sensitive information, as defi ned by the Financial Stability Board, are presented in pillar III of part 3.3 in Chapter 3 “Risk Management“.
Number of employees* 19,576 19,439 * Full-time equivalent current employees of Natixis at the reporting date.
This item includes wages and salaries paid within twelve months of the end of the reporting period in which the related services were rendered, employee incentives and profi tsharing, meeting the defi nition of short-term benefi ts under IAS 19 “Employee Benefi ts”. In accordance with this standard, short-term benefi ts are expensed in the period in which the employees render the services giving rise to such benefi ts.
Plans relating to services rendered in 2010: ● Two plans are settled in cash indexed to the value of the Natixis share: − a long-term plan, one-third of which will be paid in September 2012, one-third in September 2013 and the last third in September 2014. Settlement is subject to presence and performance conditions,
The plans were approved by the Board of Directors at its meeting of February 22, 2011.
The corresponding expense associated with the short-term plan, estimated based on the probability of the presence condition being met, is fully recognized in the 2010 fi nancial statements in the amount of €46.4 million.
Cash-settled deferred variable compensation is granted to certain employees for services provided in 2010. This compensation is subject to conditions of presence and performance. In terms of accounting treatment, it is recorded under “Other long-term employee benefi ts“. The estimated expense is based on an actuarial estimate of the probability of these conditions being met. It is recognized over the required period of presence. The amount recognized in respect of fi scal year 2010 was €19.8 million. The payment schedule is as follows: one-third will be paid in March 2012, one-third in March 2013 and the last third in March 2014.
The main defi ned contribution plans available to Natixis employees are operated in France. They include the mandatory old-age pension scheme and the national schemes AGIRC and ARRCO.
In accordance with the Pension Reform Law No. 2010-1330 of November 9, 2010: − the legal retirement age will gradually be raised from 60 in 2010 to 62 in 2018, and the retirement age to receive full benefi ts will be raised from 65 in 2010 to 67 in 2023,
The Social Security Financing Act for 2011 eliminated the exemption on the employer contribution base of 16% on benefi ts, which will now be taxed starting with the fi rst euro.
This measure increased the commitment in respect of top-up pension schemes and generated actuarial losses.
● on January 1, 2010, the employees of the former Natixis Epargne Financière were transferred to the benefit plan operated by Natixis Asset Management following the entity’s legal merger (see Note 3). With effect from this date, the employees concerned are eligible for end-of-career awards, supplementary healthcare benefits and long-service awards offered to Natixis Asset Management employees; ● on September 1, 2010, the employees of the former GCE Paiements were transferred to the benefit plan operated by Natixis Paiements following the entity’s legal merger (see Note 3). With effect from this date, the employees concerned are eligible for end-of-career awards, supplementary healthcare benefits and long-service awards offered to Natixis Paiements employees.
A provision is recognized to cover obligations for the benefi ts maintained for employees aged 55 and over.
Remaining average working lives of employees (in years) 12 9 12
Actuarial gains and losses on benefi t obligations (4) (7) (3) (14)
4 FINANCIAL DATA Notes to the consolidated fi nancial statements and notes f) Change in the fair value of assets held to fund post-employment benefi ts granted to employees
h) Experience adjustments relating to post-employment defi ned benefi t plans and other long-term employee benefi ts
Impact on present value of gross benefi t obligations at December 31 (13.05) (5,69) (3,13) (0,73)
Impact on present value of gross benefi t obligations at December 31 0.90%
Natixis grants stock options to some of its employees. The options are exercisable over a period of three years after a lockup period of four years. In accordance with the provisions of IFRS 2, the options attributed after November 7, 2002 and not yet vested at the reporting date are measured at their fair value at the date they were granted to the employees. This fair value is determined using the Black & Scholes valuation method and recognized in payroll costs over the vesting period, with a corresponding entry in equity. The expense is revised at each reporting date and adjusted whenever subsequent information regarding the number of benefi ciaries alters the initial estimates of rights vested. Any adjustment required also affects both current and subsequent accounting periods.
(b) Dividend payment rates generally correspond to the last dividend payment made and no estimated future increases are taken into account.
❚ PAYMENT PLANS SETTLED IN CASH INDEXED TO LONG-TERM SHARE PRICES
Fair value of the free share at the date of valuation
❚ PAYMENT PLANS SETTLED IN CASH INDEXED TO SHORT-TERM SHARE PRICES
Fair value of the indexed shares in cash at the valuation date (in euros)
Natixis’ main objectives in terms of capital management are to ensure that the Group meets the capital requirements imposed by its external environment and maintains an adequate rating to support its activity and maximize shareholder value.
Natixis adapts the management of its capital structure in line with changes in economic conditions and in the risk profi le of its operations. Its objectives, policies and procedures remained unchanged in 2010.
Since December 31, 2009, issues of undated Deeply Subordinated Notes and preference shares have been recognized as equity instruments issued in accordance with a clause concerning dividend payments which has since become discretionary, and have been booked to “Share capital and reserves“ in the consolidated balance sheet.
Changes in these items over the period are presented below: ❚ CHANGE IN OTHER EQUITY INSTRUMENTS IN THE FIRST-HALF YEAR 2010
(in millions of euros) 01.01.2010 Issues Redemptions Translation differences Others 12.31.2010
(1) On August 3, 2009, Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne merged, giving rise to BPCE, the new central body of the Banque Populaire and Caisse d’Epargne groups.
On November 12, 2009, BPCE provided Natixis with a guarantee covering 85% of the nominal value of the debt portfolio carried by GAPC and classifi ed in “Loans and receivables” and “Available-for-sale fi nancial assets” as at July 1, 2009. Under the guarantee, compensation is due in the event of any default (on principal, interest, fees, costs and any other amount due in accordance with the contractual documentation for the asset in question) relating to one of the assets in the guaranteed portfolio. Natixis is covered as from the fi rst euro in default and up to 85% of the default amount. This guarantee is shown on the line “Guarantee commitments received from banks” for 85% of the nominal amount of the assets guaranteed.
The following financing commitments fall within the scope of IAS 39: ● commitments classified as financial liabilities at fair value through profit and loss. If an entity has a practice of reselling or securitizing loans immediately after they are issued, these loans are accounted for in accordance with IAS 39 as from the date the loan commitment is undertaken; ● those which are settled net (i.e., sold); ● commitments which result in a loan granted at lower-thanmarket interest rates.
At December 31, 2010, none of these vehicles was consolidated as Natixis does not exercise control and is not exposed to the majority of the risks and rewards associated with the securitized assets.
Present value of minimum lease payments receivable 2,130 5,091 3,275 10,496
The main transactions between Natixis and related parties (BPCE and subsidiaries, Groupe Banque Populaire including Banque Populaire banks and their subsidiaries, Groupe Caisse d’Epargne including Caisses d’Epargne banks and their subsidiaries, investments consolidated proportionally with respect to the portion not eliminated on consolidation and all affi liates consolidated by the equity method) are described below: (in millions of euros)
Assets at fair value through profi t and loss 2,410 1,022 8,103 2,502 906 4,394
Net fee and commission income (165) (208) 40 (116) (199) (2)
Income and expenses from other activities 195 (16) (40) (5) 25 (20)
Financial assets at fair value through profi t and loss 6,495 5,851
Revaluation adjustments on portfolios hedged against interest rate risk 91 283
Financial liabilities at fair value through profi t and loss 2,989 1,204
Net gains or losses on available-for-sale fi nancial assets 139 222
Net income (group share) for 20% shareholdings in CCIs 197 245
It was decided at the Board Meeting of December 17, 2009, that no attendance fees would be paid to Directors in respect of 2009.
(b) Total gross compensation paid to members of Natixis’ Senior Management Committee during their term of offi ce during the period, including the Chief Executive Offi cer.
Following changes in the law and new recommendations by AFEP/MEDEF, Groupe BPCE has also been obliged to close its retirement benefi ts plans (BP and CE) for executive offi cers.
The main reclassifi cations concern general operating expenses, which are reported by function in the insurance format and by type in the banking format.
* Tranche A corresponds to the fraction of annual compensation between €0 and €35,352.
Capital gains and losses on disposal of investments (net of reversals, writedowns and amortization) 34 33 33 1 34
Investment income (net of expenses) 1,539 1,565 (11) 1,554 (15) 1,539
Income and expenses net of reinsurance transfers 421 421 421 421
Mazars was appointed by the shareholders at the Combined General Meeting of November 17, 2006, for a term of six years ending as of the General Shareholders’ Meeting called to approve the 2012 fi nancial statements. The term of Deloitte & Associés as well KPMG were renewed at the General Meeting of May 2010 for a term of six years ending as of the General Meeting called to approve the 2016 fi nancial statements.
The Statutory Auditors were paid the following amounts in return for their work: (in millions of euros)
Fully and proportionally consolidated subsidiaries and branches 6,881 6,699 71% 72% 2,840 2,617 55% 58% 1,660 1,854 45% 50%
Other services provided by the fi rms to fully and proportionally consolidated subsidiaries
Legal, tax and employee-related 155 123 2% 1% 726 23 14% 1% 2 0 0% 0%
NATIXIS TRUST (formerly- Natixis Luxembourg)* (21) Bank FC 100 100 100 100 Luxembourg
NATIXIS ALTERNATIVE ASSETS (formerly NATIXIS ALTERNATIVE INVESTMENTS INTERNATIONAL S.A)* Holding FC 100 100 100 100 Luxembourg
NATIXIS ALTERNATIVE INVESTMENTS LIMITED (2) Fund management 0 0 100 100
NATIXIS SECURITIES NORTH AMERICA INC. Brokerage FC 100 100 100 100
NATIXIS CAPITAL ARRANGER CORP Brokerage services FC 100 100 100 100
PLAZA SQUARE APARTMENTS OWNERS LLC (1) Real estate fi nance FC 100 100 100 100
LAVENDER TRUST (1) (7) Real estate fi nance FC 100 100 0 0 United States
NH PHILADELPHIA PROPERTY LP (1) Real estate fi nance FC 100 100 100 100
WTC OWNER LLC (1) Real estate fi nance FC 100 100 100 100 United States
ABSOLUTE ASIA DYNAMIC EQUITIES FUND- 40 Act Fund (1) (7) Asset Management FC 100 100 0 0
AEW CAPITAL MANAGEMENT, INC. Asset Management FC 100 100 100 100
AEW CAPITAL MANAGEMENT, LP Asset Management FC 100 100 100 100
AEW EUROPE INVESTMENT LTD (7) Asset Management FC 100 60 0 0
AEW GLOBAL REAL ESTATE SECURITIES FUND (1) (3) Asset Management 0 0 100 100
AEW SENIOR HOUSING INVESTORS INC Asset Management FC 100 100 100 100
AEW VIF II INVESTORS, INC. Asset Management FC 100 100 100 100
ALTERNATIVE STRATEGIES GROUP LLC Asset Management FC 100 100 100 100
CGW GESTION D’ACTIFS Asset Management EM 33 20 33 20 France
CREA WESTERN INVESTORS I, INC. Asset Management FC 100 100 100 100
NATIXIS EPARGNE FINANCIÈRESERVICES (formerly NATIXIS ÉPARGNE FINANCIÈRE GESTION FCP)* Asset Management FC 100 100 100 100 France
H2O ASSET MANAGEMENT (22) Asset Management FC 50 50 0 0
HARRIS ASSOCIATES INVESTMENT TRUST Asset Management FC 100 100 100 100
AEW EUROPE S.A. (11) Asset Management FC 60 60 60 60 France
NATIXIS ASSET MANAGEMENT ADVISERS, LP Retail FC 100 100 100 100
NATIXIS INVESTMENT SERVICES JAPAN, LTD Retail FC 100 100 100 100 Japan
LOOMIS SAYLES ALPHA, LLC (12) Asset Management 0 0 100 100
LOOMIS SAYLES & COMPANY, INC. Asset Management FC 100 100 100 100
LOOMIS SAYLES CONSUMER DISCRETIONARY, LLC (1) (3) Asset Management 0 0 100 100
LOOMIS SAYLES MULTISTRATEGY ALPHA MASTER FUND, Ltd (1) (12) Asset Management 0 0 100 100
LOOMIS SAYLES MULTI-ASSET REAL RETURN CAYMAN FUND (1) (7) Asset Management FC 100 100 0 0
LOOMIS SAYLES MULTI-ASSET REAL RETURN FUND (1) (7) Asset Management FC 89 89 0 0
LOOMIS SAYLES SOLUTIONS, INC. Asset Management FC 100 100 100 100
NAMI AEW EUROPE (10) Asset Management FC 100 60 0 0 France
NATIXIS FORMATION EPARGNE FINANCIERE (formerly NATIXIS ASSET MANAGEMENT PARTICIPATIONS 1)* Holding FC 100 100 100 100 France
NATIXIS ASSET MANAGEMENT FINANCE (formerly NATIXIS ASSET MANAGEMENT PARTICIPATIONS 2)*** Holding FC 100 100 100 100 France
NATIXIS GLOBAL ASSET MANAGEMENT HOLDINGS, LLC Holding FC 100 100 100 100
NATIXIS OAKMARK INTERNATIONAL FUND (1) (7) Asset Management FC 82 82 0 0
REICH & TANG SERVICES, INC. Asset Management FC 100 100 100 100
SNYDER CAPITAL MANAGEMENT, LP Asset Management FC 100 100 100 100
VAUGHAN NELSON INVESTMENT MANAGEMENT, INC. Asset Management FC 100 100 100 100
NATIXIS US HOLDINGS Inc (formerly NATIXIS GLOBAL ASSET MANAGEMENT CORPORATION) Holding FC 100 100 0 0 France
Mutual fund holding company FC 100 100 100 100 France 1818 IMMOBILIER (formerly LA COMPAGNIE 1818 IMMOBILIER)*
MANTRA GESTION Mutual fund holding company EM 34 34 34 34 France
NATIXIS ASSURANCES PARTENAIRES (formerly FONCIER ASSURANCE)* (4) Insurance FC 100 100 60 60 France
NATIXIS CONSUMER FINANCE IT (formerly NATIXIS CONSUMER FINANCE) Consumer loans FC 100 100 100 100 France
NATIXIS FACTOR ITALIE – SUCC (NATIXIS FACTOR) Factoring FC 100 100 100 100 Italy
COFACE NORTH AMERICA HOLDING COMPANY Holding FC 100 100 100 100
COFACE SERVICES NORTH AMERICA GROUP Holding FC 100 100 100 100
Credit insurance and related services FC 76 76 0 0 Brazil
COFACE IRELAND – SUCC (COFACE S.A.) Insurance FC 100 100 100 100 Ireland
COFACE BELGIUM – SUCC (COFACE S.A.) Insurance FC 100 100 100 100 Belgium
COFACE FACTORING PORTUGAL – SUCC (COFACE AUSTRIA BANK) (7) Factoring FC 100 100 0 0 Portugal
COFACE ARGENTINA – SUCC (COFACE S.A.) Insurance FC 100 100 100 100 Argentina
COFACE CHILE – SUCC (COFACE S.A.) Insurance FC 100 100 100 100 Chile
COFACE POLAND (formerly ÖKVC POLAND) – SUCC (COFACE AUSTRIA) Insurance FC 100 100 100 100 Poland
COFACE JAPAN – SUCC (COFACE S.A.) Insurance FC 100 100 100 100 Japan
NATEXIS INVERSIONES SL International investment fund FC 100 100 97 97 Spain
NATEXIS FUNDING USA LLC Refi nancing activity FC 100 100 100 100
BANQUE DE SAVOIE Lending institution/Bank EM 20 20 20 20 France
CLICK AND TRUST Non-fi nancial services provider EM 20 20 20 20 France
Lending institution/ Equipment lease fi nancing EM 20 20 20 20 Luxembourg
4 FINANCIAL DATA Notes to the consolidated fi nancial statements and notes
** French subsidiaries whose individual prudential oversight is performed based on Group consolidated ratios in conformity with the provisions of Article 4.1 of CRC Rule 2000.03.
(10) Creation of AEW Europe SGP and NAMI AEW EUROPE following a double partial transfer of assets by NAMI.
(24) Acquisition of Cicobail, Océor Lease Nouméa-Tahiti-Réunion by Natixis Lease as at 12.31.2010.
(27) Sale of 25% of shares to VR Leasing AG (non-group entity).
(33) Consolidation of Banques Populaires umbrella companies; These companies were recognised by mistake in 2009.
In accordance with the auditing standards applicable in France, we also verifi ed the information provided in the Group’s management report, as required by French law.
4 FINANCIAL DATA Parent company fi nancial statements and notes 4.4 Parent company financial statements and notes
See notes no. Off-balance sheet items – Commitments received 2010 2009 2008
14 Due to central banks 488 208 653 23 o/w institutional operations: 18 Provisions for risks and other expenses 3,596 3,208 3,427
See notes no. Off-balance sheet items – Commitments given 2010 2009 2008
Net gains/(losses) on transactions on securities held for sale 72 (6) (1,194)
Writedown, amortization and impairment of property, plant and equipment and intangible assets (78) (199) (947)
NOTE 2 CHANGES TO ACCOUNTING METHODS AND COMPARABILITY OF FINANCIAL STATEMENTS 341
NOTE 4 TRANSACTIONS WITH CUSTOMERS AND LEASING OPERATIONS AND SIMILAR 343
NOTE 5 BONDS, SHARES AND OTHER FIXED- AND VARIABLE-INCOME SECURITIES 344
NOTE 9 DISCLOSURES REGARDING SHAREHOLDINGS EXCEEDING THE INVESTMENT THRESHOLD IN FRENCH COMPANIES DURING THE YEAR 351
NOTE 37 OFF-BALANCE SHEET – FOREIGN CURRENCY COMMITMENTS AND TRANSACTIONS 374
NOTE 40 ESTABLISHMENTS AND OPERATIONS IN NON-COOPERATIVE STATES OR TERRITORIES WITHIN THE MEANING OF ARTICLE 238-0A OF THE FRENCH GENERAL TAX CODE 377
Beginning January 1, 2010, the date on which CRC Standard No. 2009-03 enters into effect, fees earned on the grant or obtainment of credit, as well as marginal transaction costs, are recognized using the effective interest rate actuarial method over the effective life of the credit.
The impact of this change in method is discussed in Note 2.
Where there is a risk of partial or total non-recovery of loans or borrowers’ breaching their covenants, impairment charges or provisions are recognized on the income statement under “Provision for credit losses”. Impairment is assessed quarterly on a case-by-case basis taking into account an analysis of the risk and available collateral.
Writedowns are calculated using the difference between the net carrying amount of the loan and the amounts thought to be recoverable discounted at the original effective interest rate for fi xed-rate loans or at the last effective interest rate determined by contractual terms for variable-rate loans.
In accordance with banking regulations: ● accrued interest due on loans to borrowers subject to legal proceedings is deducted from the interest account in which it was initially recorded. If the interest is subsequently recovered, it is credited to this line upon collection; ● interest on non-performing loans three, or where applicable, six or nine months overdue is also written down in full by deduction from the interest account in which it was initially recorded; ● all other loans made to these customers are automatically also classified as non-performing, even when the risk appraisal does not require an impairment charge against the outstanding principal.
Financial assets that do not have individually-allocated credit risk are included in groups of assets with similar risk characteristics. These portfolios of similar assets are constituted based on two criteria: geographic risk and sector risk.
Each group of assets is assessed for objective evidence of impairment based on observable data indicating a likely decrease in the estimated recoverable cash fl ows for that group of assets. A collective writedown in the balance sheet liabilities is taken against any asset group showing objective evidence of impairment. Assets belonging to that group which are
4 FINANCIAL DATA Parent company fi nancial statements and notes subsequently specifi cally identifi ed as impaired (specifi c risk) are removed from the collective writedown calculation basis.
Loans on the watch list, for which a Basel 2 default has been identifi ed, are written down collectively by sector unless they are already subject to specifi c writedowns.
Any difference between the acquisition cost (excluding accrued interest) and the redemption price is recognized in income over the remaining life of the securities. They are valued at year end at the lower of their carrying amount or market value. Unrealized losses give rise to the recognition of an impairment loss whose calculation factors in gains from any hedging transactions conducted. Unrealized gains are not recognized.
● Securities held for investment: Fixed-income dated securities acquired with the stated intention of holding them to maturity. These securities are recognized at acquisition cost. Any difference between the acquisition cost and the redemption price is recorded in income over the remaining life of the securities.
On the balance sheet closing date of December 31, 2010, Natixis proceeded to measure its interests in its consolidated subsidiaries. The measurement approaches used are the following, as the case may be: − the net present value of forecast cash fl ows; − comparison against the stock market; − the net asset value.
The net present value method for measuring forecast cash flow is based on the establishment of business plans prepared by the management of the subsidiaries in question and approved by Natixis Senior Management. The discount rate on forecast cash flows is the result of: − an average rate of return on an investment deemed to be free of risk; − an average credit spread on the market in which the subsidiary is listed; − an average beta as refl ected in a sampling of equivalent companies.
Treasury shares held for the purpose of arbitrage on the CAC 40 Index are designated securities held for trading and are measured in accordance with applicable rules for this category.
Income, value adjustments and proceeds on disposal of securities portfolios are recognized as follows: ● income from variable-income securities is recognized as and when received; ● income from fixed-income securities is recognized following the accrual method; ● value adjustments and proceeds from the disposal of securities are recognized under different headings depending on which portfolio they belong to: − under “Net revenues” for securities held for trading and securities held for investment,
− as a provision for credit losses on fi xed-rate securities in the portfolio of securities held for sale or for investment when adjustments in value relate to risk exposure to a counterparty,
− under net gains/(losses) on fi xed assets: − for adjustments in the value of securities held for investment (excluding impairment for risk exposure to a counterparty) when there is a high probability of disposal of such securities held for investment due to unforeseen circumstances,
− and for all proceeds from the disposal of securities held for investment,
In line with applicable accounting principles, a specifi c amortization schedule is defi ned for each signifi cant component of an item of property, plant and equipment which has a different useful life or is expected to consume future economic benefi ts differently from the item as a whole. For buildings used in the
Where perpetual subordinated notes are treated as equivalent to depreciable securities, each periodic payment is broken down into the repayment of principal, which is deducted from the nominal amount, and interest, which is charged to the income statement under “Interest and similar expenses”.
Interest rate swaps are classifi ed in four categories according to purpose: ● micro-hedging (hedging of specific transactions or positions); ● macro-hedging (overall balance sheet management); ● speculative position-taking; ● specialized management of a trading portfolio.
Costs and income from forward fi nancial instruments used to hedge and manage Natixis’ overall interest rate risk are recognized over the period of the position. Unrealized gains and losses are not recognized.
Differences in interest rate or contango/backwardation associated with hedged foreign currency futures are recognized in stages as interest expense or income on the effective term of the transaction.
For non-hedging activities, positions in a class of option or forward contract are marked to market at the reporting dates. Changes in market value are recognized directly on the income statement. However, for instruments traded on over-thecounter markets, gains or losses are recognized on the income statement only upon settlement of these transactions without effect on the potential setting aside of provisions during the lifetime of the instrument up to the net risk implications.
Employee benefi ts fall into four categories: ● “short-term benefits”, including salaries, social security contributions, annual leave, employee profit-sharing, incentive plans, top-up contributions and bonuses payable in the twelve months following year-end; ● “termination benefits”, which should be recognized when the entity is demonstrably committed to terminating the employment of an employee before the normal retirement date, or provide termination benefits as a result of an offer made in order to encourage voluntary redundancy; ● “post-employment benefits”, such as pensions, other supplementary retirement benefits applicable to the banking industry, end-of-career awards and other contractual benefits payable to retirees; ● “other long-term employee benefits”, including longservice awards and deferred compensation payable in cash 12 months or more after the end of the period.
Variable compensation settled in cash less than twelve months after the end of the period in which there service were rendered is recognized as an accrued liability for the year in which the services were rendered.
The annual payroll costs recognized in respect of defi ned benefi ts plans consist of: ● rights vested by beneficiaries over the period; ● the interest cost reflecting the impact of unwinding the discount on the obligation;
● the expected return on plan assets; ● amortization of actuarial gains and losses and past service costs; ● the effects of plan curtailments and settlements.
● Plan settled in cash indexed to the price of Natixis shares: one third of the units will be paid in March 2011, another third in March 2012 and the final third in March 2013.
Payroll expenses related to the so-called “short-term” plan, measured by taking account of the likelihood that service requirements are satisfi ed are fully disclosed in the 2010 fi nancial statements.
If the granting is made by redemption of shares or the granting of existing shares, the possibility of an outfl ow in settlement is deemed likely and without a counterpart provision. A provision is then set aside taking account of the entry cost of the shares or the share price on the balance sheet date if the shares have not yet been purchased and the probable number of shares granted to employees. The expense is recognized in stages over the vesting period.
Off-balance sheet receivables, debts and commitments denominated in foreign currencies will be converted to euros at the going exchange rate on the balance sheet date through the revaluation of foreign exchange positions. The difference between amounts resulting from the valuation of eurodenominated foreign exchange positions and amounts reported in equivalent euro-denominated foreign exchange positions are reported on the income statement.
Non-recurring items are determined with regard to their amount, how unusual they are with respect to current operations or the likelihood of the events concerned repeating.
NET NON-PERFORMING AND UNRECOVERABLE LOANS 1,852 115 2,439 84 487 140
D) Investments with an inventory amount of less than or equal to €150,000 1,653,575.86
Article L.233-15 of the French Commercial Code (In thousands of units)
NATIXIS AUSTRALIA PTY Aurora Place Level 3088 Philip Street 2000 Sydney AUD63,000 AUD6,238 100.00%
NUSHI 399 BOYLSTON ST 13TH FLOOR MA 02116 BOSTON United States US$1,227,285 US$3,598,089 100.00%
(a) The net value of these lines is higher than their gross value due to a positive translation difference.
(in millions of euros) End 2009 Purchases Sales Other End 2010
Due to banks 107,499 100,574 105,553 o/w other amounts due 0 86 4
Special savings accounts 140 115 77 o/w other amounts due 13 5 54
benefi ts Off-balance sheet commitments Country risk Specifi c credit risk
Merger fl ows/ partial contribution of assets (4) (7) (5) (16)
Merger fl ows/ partial contribution of assets 2 8 (10) 0
Net gains (losses) on securities held for trading 3,429 1,891 (1,914)
The tax consolidation agreement at Natixis group is based on the principle of neutrality, whereby each subsidiary determines its tax and contributes to the group tax as if it were not consolidated. The tax charge payable by each subsidiary is not affected by consolidation.
EXCHANGE RATE INSTRUMENTS 198,984 154,445 177,204 On organized markets 645,233 1,075,676 684,882 Swaps
Shares and other variable-income securities 887 1,108 79 1,863 321 11,832 0 16,090
Other procedures and services directly related to the Statutory Auditor’s engagement 1.0 0.4 0.8
Monitoring of Natixis’ subsidiaries and branches in non-cooperative countries forms an integral part of Natixis’ risk monitoring process overseen by the Risk function. This process involves: ● local Risks officers/functions that have a functional link to the central Risk Control Department; ● specific reporting procedures that respect local constraints but also comply with overall risk requirements.
Natixis herey reports, in accordance with the above-mentioned article, that at December 31, 2010, its subsidiary Coface owned 100% of “Coface Servicios Costa Rica S.A.”, a services company in Costa Rica with 2010 revenues of €339,000.
4FINANCIAL DATA Statutory Auditor’s report on the parent company fi nancial statements 4.5 Statutory Auditor’s report on the parent company financial statements
In accordance with our appointment as Statutory Auditors at the General Shareholders’ Meeting, we hereby present our report for the year ended December 31, 2010, on: ● our audit of the accompanying financial statements of Natixis; ● the justification of our assessments; ● the specific verifications and disclosures required by law.
The parent company fi nancial statements have been approved by the Board of Directors. Our responsibility is to express an opinion on these fi nancial statements based on our audit.
Pursuant to Article L.823-9 of the French Commercial Code regarding the justifi cation of our assessments, we draw your attention to the issues set out below: Change in accounting method
As part of our assessment of your company’s accounting rules and principles, we ensured that the above-mentioned change in accounting method and the way in which it was presented were well-founded.
As described in Note 1.10 to the parent company fi nancial statements, a guarantee mechanism set up by BPCE has been in place since July 1, 2009 covering certain assets ring-fenced in the Workout Portfolio Management structure (GAPC). We analyzed the conditions in which this mechanism was set up and the accounting treatment adopted.
The Company uses internal models and methodologies to measure fi nancial instruments that are not traded on an active market, as well as to book certain impairment losses (Notes 1.6, 18, 28 and 36 to the parent company fi nancial statements). We examined the control procedures relating to the assessment of whether a given market was inactive, to the validation of models and to the defi nition of the parameters used.
The Company recognizes impairment losses to cover the credit and counterparty risks inherent in its business (Notes 1.1, 3, 4, 6, 18, and 32 to the parent company fi nancial statements). We examined the control procedures relating to credit and counterparty risk monitoring, the assessment of risks of noncollection, and the provisions set aside in this respect for individual and collective impairment.
Natixis revises its measurement of investments in subsidiaries (Notes 1.2, 7 and 33 to the parent company fi nancial statements). We examined how this work was carried out as well as the main assumptions and parameters used.
These assessments were made in the context of our audit of the parent company fi nancial statements taken as a whole, and therefore contributed to the forming of the opinion expressed in the fi rst part of this report.
As required by law, we verifi ed that you have been provided the appropriate disclosures concerning the acquisition of controlling interests and other shareholdings, and the identity of the Company’s shareholders (or holders of voting rights).
In our capacity as Statutory Auditors of Natixis, we hereby present our report on related party agreements and commitments.
It is also our responsibility, where applicable, to provide to you the disclosures under Article R.225-31 of the French Commercial Code pertaining to the performance during the past year of agreements and commitments already approved by the Annual General Meeting.
Corporate offi cers concerned: ● Mr. François Pérol: Chairman of the BPCE Executive Board, Chairman of the Natixis Board of Directors; ● Mr. Jean Criton: Member of the BPCE Supervisory Board, Natixis Director; ● Mr. Nicolas Duhamel: Chief Financial Officer and Member of the Executive Board of BPCE, Permanent Representative of BPCE on the Natixis Board of Directors; ● Mr. Stève Gentili: Member of the BPCE Supervisory Board, Natixis Director; ● Mr. Bernard Jeannin: Member of the BPCE Supervisory Board, Natixis Director; ● Mr. Olivier Klein: Member of the BPCE Executive Board – Banque Commerciale et Assurances, Natixis Director; ● Mr. Jean-Bernard Mateu: Natixis Director, Chairman of the Executive Board of Caisse d’Epargne et Prévoyance de Rhône Alpes (CERA); ● Mr. Didier Patault: Member of the BPCE Supervisory Board, Natixis Director; ● Mr. Philippe Queuille: Member of the BPCE Executive Board – Operations, Natixis Director; ● Mr. Philippe Sueur: Natixis Director, Vice-Chairman of the Orientation and Supervisory Committee of Caisse d’Epargne Île-de-France.
This agreement has no fi nancial impact in 2010. It is separate from the other agreements, whose details and fi nancial impacts are presented in section 2.1.4.
We were informed of the following agreement, authorized since the closing of the past year, which was subject to the prior approval of your Board of Directors: 1.2.1 AGREEMENT ON AN COMPENSATION IN THE EVENT OF EARLY TERMINATION OF THE CHIEF EXECUTIVE OFFICER
Pursuant to Article R.225-30 of the French Commercial Code, we have been informed that the performance of the following agreements and commitments, already approved by the Annual General Meeting during previous fi scal years, continued into the past year.
2.1.1 AGREEMENTS RELATING TO SHAREHOLDER ADVANCES BETWEEN NATIXIS AND CNCE AND BFBP, RESPECTIVELY
2.1.3 PRELIMINARY AGREEMENT BETWEEN NATIXIS AND BPCE REGARDING THE GUARANTEE MECHANISM COVERING CERTAIN GAPC ASSETS
This agreement resulted in the signing of several agreements between Natixis and BPCE related to the guarantee granted in respect of certain GAPC assets. Details of these agreements and their fi nancial impact are described in section 2.1.4.
On November 12, 2009, the Board of Directors approved a number of agreements regarding the guarantee covering certain GAPC assets: ● the Financial Guarantee agreement, under which BPCE agrees to grant Natixis a financial guarantee; ● the ISDA Master Agreement and appendix, between BPCE and Natixis; ● total return swap agreements between Natixis and BPCE, one of which relates to euro-denominated assets and the other relates to US dollar-denominated assets; ● the Call Option granted by BPCE to Natixis; ● the “Miroir NLI” Financial Guarantee between Natixis and Natixis Luxembourg Investissements; ● the “Miroir NFP” Financial Guarantee between Natixis and Natixis Financial Products Inc.; ● the “Miroir NFUSA” Financial Guarantee between Natixis and Natixis Funding USA, LLC; ● the “Miroir Ixis CMNA Australia” Financial Guarantee between Natixis and Ixis CMNA Australia No2 SCA; ● the “Miroir NFP” Total Return Swap agreement between Natixis and Natixis Financial Products Inc.; ● the “Miroir NREC” Total Return Swap agreement between Natixis and Natixis Real Estate Capital Inc.; ● governance arrangements set up in respect of the GAPC guarantee (notably including draft operating charters for the Guarantee Supervision Committee and Workout Portfolio Management Committee).
The premium relating to Natixis has been spreadout and reported in the income statement in the amount of €174,363,792.11 for the fi scal year ended December 31, 2010. The recognition of the premium in respect of the reciprocal guarantees with subsidiaries has no impact on Natixis’ income statement.
Income recognized by Natixis in respect of these agreements totaled €12,949,665.80 for the fi scal year ended December 31, 2010.
Under the agreements, Natixis can indirectly benefi t from the facilities granted by SFEF, according to the following principles: ● each central body borrows from SFEF against a pledge of collateral; ● all or part of the income arising on this arrangement is used to grant Natixis a loan, in return for a guarantee in the form of collateral, which will be pledged by the central body to SFEF to secure the loan.
The expense recognized by Natixis in respect of these agreements totaled €107,138,282.95 for the fi scal year ended December 31, 2010.
2.1.7 AGREEMENT PROVIDING FOR THE DISTRIBUTION OF NATIXIS PRODUCTS AND SERVICES TO THE REGIONAL BANKS ACQUIRED BY GROUPE BANQUE POPULAIRE FROM HSBC
2.1.8 INVOICING AGREEMENT REGARDING THE AFFILIATION OF NATIXIS TO BFBP AND CNCE
As part of the agreements approved by the Supervisory Board of Ixis CIB prior to the merger within Natixis, between 1996 and 2004, Ixis CIB (formerly CDC Marchés and then CDC Ixis Capital Markets) signed a number of letters of joint and several guarantees and commitments with its successive shareholders, namely Caisse des Dépôts (CDC), CDC Finance – CDC Ixis (replaced in its rights and obligations by CNCE further to the merger on December 31, 2004), and CNCE. Similarly, Ixis CIB signed a number of letters of joint and several guarantees and commitments with its US subsidiaries, namely Natixis Municipal Products Inc. (formerly CDC Municipal Products Inc.), Natixis Derivatives Inc. (formerly CDC Derivatives Inc.), Natixis Financial Products Inc. (formerly CDC Financial Products Inc.), Natixis Funding Corp. (formerly CDC Ixis Funding Corp.) and Natixis Commercial Paper Corp. (formerly CDC Ixis Commercial Paper Corp.). All of these letters of joint and several guarantees and commitments had terminated or expired at the date of this report, but continue to retrospectively apply to all guaranteed transactions entered into prior to the date on which the underlying joint and several guarantees terminated or expired, until these transactions have been fully unwound. For joint and several guarantees entered into with CDC Finance – CDC Ixis, the creditors of Ixis CIB for transactions secured under these guarantees that were entered into before the expiry of the respective guarantees, may, in accordance with the letter from the Chief Executive Offi cer of CDC dated October 12, 2004, exercise their rights directly against CDC through to the maturity of the transactions guaranteed, as if this commitment had been taken out directly by CDC on behalf of Ixis CIB’s creditors. The conditions governing the payment and calculation of the fees payable by Ixis CIB in respect of the guarantees were defi ned in an agreement with CDC Finance – CDC Ixis and CNCE.
The expense recognized by Natixis in respect of this agreement totaled €6,147,006.86 for the fi scal year ended December 31, 2010.
4FINANCIAL DATA Statutory Auditor’s Special Report on Related Party Agreements and Commitments 2.2 Agreements and commitments approved during previous fi scal years not executed during the fi scal year
We were also informed that following agreements and commitments, already approved by the Annual General Meeting during previous fi scal years and that continued into the past year, were not executed during the past year.
On July 10, 2009, the Board of Directors approved the tripartite agreements between Natixis, SFEF and each of the central institutions (BFBP and CNCE), designed to set up trust accounts (Comptes d’Affectation Spéciaux (CAS)) to allow Natixis collateral to be pledged directly to SFEF. The agreements also establish SFEF’s direct right of recourse against Natixis. These agreements cover: ● “délégation imparfaite” agreements (agreements in which the original debtor remains liable as well as the person instructed to pay on its behalf), establishing SFEF’s right of recourse against Natixis, between (i) Natixis, BFBP and SFEF, and (ii) Natixis, CNCE and SFEF; ● subsidiary financial guarantee master agreements, allowing Natixis collateral to be pledged directly to SFEF, between (i) Natixis, BFBP and SFEF, and (ii) Natixis, CNCE and SFEF; ● trust agreements, setting up trust accounts (Comptes d’Affectation Spéciaux (CAS)) between (i) Natixis, BFBP and SFEF, and (ii) Natixis, CNCE and SFEF; ● representation agreements, allowing Natixis’ central institutions to represent it in its dealings with SFEF, between (i) Natixis and BFBP, and (ii) Natixis and CNCE; ● side agreements aimed at limiting the credit risk incurred by Natixis in respect of its central institutions by allowing early repayments to be made at Natixis’ initiative, between (i) Natixis and CNCE, and (ii) Natixis and BFBP; ● addendums to the revised intra-group financial guarantee master agreements signed in 2008 with BFBP and CNCE (see section 2.1.6), between (i) Natixis and CNCE, and (ii) Natixis and BFBP.
2.2.2 AGREEMENTS BETWEEN NATIXIS, NATIXIS TRANSPORT FINANCE (NTF), SFEF AND BPCE
On August 25, 2009, the Board of Directors approved a number of agreements between Natixis, NTF, SFEF and BPCE, extending the scope of SFEF receivables that may be used to Natixis Transport Finance. This makes use of a similar legal provision to the one approved by the Board of Directors in section 2.2.1 above. The agreements cover: ● the trust agreement between NTF, Natixis, BPCE and SFEF setting up a trust account (Compte d’Affectation Spécial (CAS)) in the name of NTF, with Natixis acting as account administrator; ● the representation agreement between Natixis and BPCE allowing BPCE to represent Natixis in its capacity as account administrator in its dealings with SFEF; ● the intra-group credit master agreements between Natixis and NTF setting up the loans that can be granted by Natixis to NTF.
On November 12, 2009, the Board of Directors approved a postMiFID update to the agreement between Natixis (formerly Ixis CIB), BPCE (formerly CNCE) and CFF concerning the transfer and organization of regional public sector operations.
2.2.4 NATIXIS’ PARTICIPATION AS ARRANGER IN THE €25 BILLION SECURED BOND ISSUE PROGRAM LAUNCHED BY BFBP AND UPDATED IN 2009
To enable Natixis to act as the arranger for the €25 billion secured bond issue program launched by BFBP, on November 23, 2007 the Supervisory Board approved: ● credit and financial guarantee master agreements between BPCB, BFBP, Natixis, and initially, seven Banques Populaires banks; ● a letter setting out hedging transactions between BPCB, BFBP and Natixis.
2.2.5 NATIXIS’ PARTICIPATION AS ARRANGER IN THE €25 BILLION SECURED BOND ISSUE PROGRAM LAUNCHED BY THE CAISSES D’EPARGNE GROUP
To enable Natixis to act as Surety Agent for the €25 billion secured bond issue program launched by Groupe Caisse d’Epargne, on March 5, 2008 the Supervisory Board approved the Receivables Pledge Agreement, the Issuer Accounts Pledge Agreement, the Asset Monitor Agreement, and the Master Defi nitions and Constructions Agreement.
On June 15, 2006, the Supervisory Board of Ixis CIB, prior to the merger within Natixis, approved letters of joint and several guarantees and commitments between Ixis CIB and: a) Natixis Financial Products Inc. (formerly Ixis Financial Products Inc.) for the USMTN program. The guarantee given by Ixis CIB in connection with this agreement may be invoiced at 0.02%; b) Natixis Financial Products Inc. (formerly Ixis Financial Products Inc.) for the warrants issue program. The guarantee given by Ixis CIB in connection with this agreement may be invoiced at 0.02%; c) Natixis Securities North America Inc. (formerly Ixis Securities NA) for securities lending/borrowing transactions. The guarantee given by Ixis CIB in connection with this agreement may be invoiced at 0.02% per year, applicable to the overall exposure with average risk over the period.
On December 19, 2001, the Supervisory Board of Ixis CIB, prior to the merger within Natixis, approved a de facto association agreement between CDC, CNCE (replacing CDC Ixis in its rights and obligations) and Ixis CIB (formerly CDC Ixis Capital Markets). This agreement, automatically renewed every three years, replaces the agreement entered into on August 30, 1996 between CDC and CDC Ixis Capital Markets (formerly CDC Marchés).
On November 17, 2005, the Supervisory Board of Ixis CIB, prior to the merger within Natixis, approved a service and partnership agreement between Ixis CIB and CNCE under which Ixis CIB agreed to develop and host a website for CNCE for placing orders on forward and spot foreign exchange transactions.
2.2.11 AGREEMENTS TO TRANSFER SOFTWARE USER RIGHTS AND SERVICES BETWEEN IXIS CIB AND CFF
Under the New Deal, Human Resources has been organized into a distinct function since April 2010. All the members of the HR function act as “business partners”, working with all Natixis teams so as to support all employees as they develop their careers within the Company.
Mobility is at the heart of Natixis’ career development policy and is driven by a raft of tools and initiatives, including a job mart on the Natixis intranet, a mobility webpage and career development meetings held with individual employees.
Moreover, the Company is continuing to develop sponsorship initiatives through a variety of programs such as the network of Groupe BPCE ambassadors to France’s grandes écoles.
The system’s goals are threefold: ● anticipate and organize staff skills in a manner that meets the needs of Natixis’ growth strategy; ● guarantee a high skill level in the Company and nurture talent; ● sustain motivation and retain employees through personalized, structured career management.
This system is underpinned by three principles: The annual evaluation involves close discussions between the employee and his/her manager on the performance, the objectives of the year to come and skills development.
Career development meetings represent a forum for discussion during which employees have the opportunity to receive advice from an HR professional with a view to designing a tailored action plan (specifi c training programs, coaching, personalized development plan, etc.), in collaboration with the Mobility unit, which helps employees execute their mobility plans within Natixis and Groupe BPCE.
The Career Committee: Natixis aims to progressively deploy the Committee throughout the Company. This collegiate approach to analyzing the career progression or mobility of current and future executives helps establish succession plans within the framework of a sustainable talent-management policy.
As a partner in tune with the needs of the business lines, the Training Department’s initiatives will be structured around four major goals in 2011, namely to reinforce the professionalism of teams, support the major business line/Company projects and systems, facilitate the career paths of each employee and support managers.
Since 2010, targeted development courses have been offered to managers via four programs targeting line managers and managers of managers.
Finally, to strengthen managerial expertise, individual or collective support programs on various topics (coaching, team cohesion, etc.) have been set up.
A more proactive approach to managing senior executives was initiated in 2010, with the direct involvement of the Management Board, which met as the Career Committee for executive managers.
The objective is threefold, namely to get to know executive managers better, to promote career development and to establish succession plans.
This Committee will meet regularly and will have covered all senior executives (the Top 100 (1)) by the end of 2011.
5.1.5.1 Implementation of new Personnel Representative Bodies for Consolidated* Natixis employees
Given the specifi c role of Natixis and its business lines within Groupe BPCE, Executive Management and most of the labor unions pledged to continue employer/employee dialogue within the scope of Natixis. To this end, an agreement regarding “the right to form unions and collective bargaining
* The consolidated scope covers Natixis S.A. and the companies of the Corporate & Investment Banking as well as Investment Solutions and Specialized Financial Services divisions that employee staff and in which Natixis S.A. holds, indirectly or directly, more than half the capital and the registered offi ce of which is located in France.
Beyond Natixis S.A., measures were deployed throughout Natixis’ consolidated scope with the aim of achieving the following objectives: ● evaluating stress through an observatory since 2009; ● implementing a mechanism for providing psychological support in emergencies; ● raising awareness among managers regarding psychosocial risks.
Compensation policy is a key element in implementing Natixis’ strategy. The policy has for objective to: ● provide incentive and be competitive in order to attract, retain and motivate employees; ● be equitable whatever the position in order to ensure individual performance is equitably compensated across the Company; ● be compliant with current financial sector regulations.
Natixis’ compensation policy principles are proposed by the Human Resources Department, in collaboration with the relevant business lines. Policy complies with the principles laid out by the regulator, the professional standards of the French banking sector, local labor laws, and local tax regimes.
The decision-making process includes different approval stages: fi rst by the subsidiaries/business lines and business divisions, then by Natixis’ Human Resources Department and Executive Management, and fi nally by the Natixis Compensation Committee. In addition, Natixis’ Finance Department ensures that the total amount of compensation is in line with the Company’s ability to reinforce is capital.
The profit-sharing agreement signed on June 30, 2010 covers employees of Natixis S.A., AEW Europe, AEW Europe SGP, Natixis Asset Management Immobilier (NAMI) and NAMI AEW Europe, Natixis Securities, Natixis Coficiné, Natixis Interepargne, Natixis Intertitres, Natixis Lease, Natixis Paiements, Natixis Transport Finance (NTF), Banque Privée 1818, Natixis Financement, 1818-Partenaires, 1818-Immobilier, 118-Gestion and Media Consulting Investissement,
− a component that differs for each company of Natixis Consolidated: − a specific employee-incentive agreement serving the strategy of each company.
Compensation inquiries are carried out each year by specialized fi rms in order to measure the relevance of the overall compensation policy.
5.1.6.1 Variable compensation of professionals whose professional activities have a signifi cant impact on Natixis’ risk profi le
DECISION-MAKING PROCESS USED TO DEFINE THE COMPANY’S COMPENSATION POLICY, INCLUDING THE COMPOSITION AND MANDATE OF THE BOARD OF DIRECTORS’ SPECIALIZED COMPENSATION COMMITEE
Natixis’ compensation policies and principles are proposed by the Human Resources Department, in conjunction with the business lines concerned, as part of an overall annual process managed by Executive Management.
Executive Management transmits its proposals to the Compensation Committee, which checks that the opinions of the Risk and Compliance Departments have been taken into account.
During 2010, the Compensation Committee comprised six members, including three independent members. The Committee was chaired throughout the year by Vincent Bolloré, an independent Board member.
The Compensation Committee reviews compensation policy and notably checks on the basis of the report submitted to it by Executive Management that compensation policy complies with the provisions of Chapter VI Book IV of CRBF rule 97-02 and is in line with the principles and provisions of professional standards concerning governance and variable compensation for professionals whose business activities have a signifi cant impact on the Company’s risk profi le. The rule cited above transposes the principles and provisions of the European CRD 3 Directive.
CHARACTERISTICS OF COMPENSATION POLICY FOR PROFESSIONALS WHOSE BUSINESS ACTIVITIES HAVE A SIGNIFICANT IMPACT ON NATIXIS’ RISK PROFILE
Compensation policy for professionals whose professional activities have a signifi cant impact on the Company’s risk profi le is part of Natixis’ compensation policy.
The variable portion of compensation is calculated based on whether fi nancial targets (e.g. percentage attainment of budget) and strategic objectives (e.g. development of cross-selling) were met. It also factors in the practices of the competition.
Individual compensation awards take into account the following factors: ● percentage attainment of targets (quantitative and qualitative); ● compliance with the rules set by the Compliance Department; ● compliance with the rules set by the Risk Department; ● managerial behavior; ● etc.
The criteria adopted by the Compliance and Risk Departments are transmitted to the Compensation Committee beforehand. Non-adherence to applicable rules and procedures, or non-compliant or unethical behaviour results in variable compensation being reduced or not paid at all.
Payment of such compensation, regardless of the form it takes, is staggered over at least three fi scal years following the award of the variable compensation, and is made at a rate not exceeding the time-apportioned rate.
Deferred variable compensation accounts for at least 40% of the variable compensation of professionals within the regulated population and 75% for the highest variable compensation amounts.
Variable compensation awarded in the form of shares or equivalent instruments accounts for 50% of the variable compensation awarded to professionals belonging to the regulated population. This rule applies to both the deferred, conditional component of variable compensation, as well the immediately earned portion.
Equity-linked instruments (“cash indexed on the Natixis share”) shall be held for a period of six months. The deferred portion in the form of Natixis securities respects the conditions set out in Articles L.225-197-1 and following of the French Commercial Code, which provides for a minimum period of ownership of two years.
The shares or equivalent instruments awarded as part of the immediately earned portion of variable compensation immediately are not subject to the clawback mechanism described above.
Earning or payment of the deferred portion of variable compensation, regardless of its form, is subject to conditions relating to the Company’s results, the business line’s activity and, where applicable, individual criteria and the employee’s presence. These conditions are precisely defi ned and explained when this form of compensation is awarded.
Aware of the impact of its own operations, the bank implements a series of measures designed to reduce its direct impact on the environment. In 2010, it reassessed the carbon footprint of its consolidated operations in France and updated its responsible purchasing policy.
Through its different business lines, Natixis is one of the leading investors in renewable energy and the struggle against global warming.
Luxembourg, Beijing). The EUROFIDEME 2, FIDEME, EKF and ECF funds invest in renewable energies and Carbon Credits, while FIDEPPP and Cube Infrastructures invest in regulated assets such as Concessions and Public Private Partnerships. In late 2010, NEI structured the European Corporate Carbon Fund (ECCF) for European manufacturers needing to comply with European regulations concerning reduced CO
Solid expertise and a leading position as a manager of SRI and solidarity fi nancing
− Leading player in SRI management, (open-end mutual funds) in France and Europe (Source France: Novethic’s half-yearly indicator dated November 2010; Europe: Feri database).
In 2010, six SRI funds managed by Natixis AM received the SRI label attributed by Novethic* whose objective is to encourage the development of the highest possible level of transparency concerning SRI funds.
* Novethic is a research centre specializing in Corporate Social Responsibility (CSR) and Socially Responsible Investment (SRI), as well as a media expert on sustainable development (www.novethic.fr).
Rendement Solidaire, Natixis Avenir Mixte Solidaire and Natixis Élan Mixte Solidaire. The venture capital mutual fund (FCPR) Natixis Solidaire has also received the Finansol label.
Our Real Estate and Logistics Department applies a centralized management policy governing energy consumption in our buildings. At the same time, our employees are made aware of the implementation of “green” practices that enable a reduction of their consumption of resources. The indicators show a reduction in our consumption of energy, water and paper (see NRE Appendix 5.4 Environmental Information).
In 2010, Natixis received confirmation of its ISO 9001 (1) and 14001 (2) certification for the operation of its buildings. These certifi cations reward the quality and environmental managemen t systems implemented at all of our central corporate offi ce sites managed by our Logistics Department.
The construction of its two new Data Centers in the Paris region offered Natixis the opportunity to help develop a new set of HQE® (high environmental quality) standards. The Natixis centers served as pilot sites to encourage the incorporation of data center specifi cations into HQE® standards.
A “Green Works Charter”, prepared with Bureau Veritas, was established and used in early 2010 for the Bordeaux and Toulouse sites. This charter will be used for all works carried out from this point on.
An “Accessibility Charter” was also approved. This Charter commits Natixis to meeting regulatory requirements and observing best practices with the aim of promoting the integration of disabled persons, in any construction, extension or conversion works carried out.
At 32,837 tons of carbon equivalent, i.e. 2.4 tons per employee, Natixis is in line with the average for companies in its sector.
The special initiative aimed at bridging the gap between men’s and women’s salaries, launched in 2009, was continued in 2010.
Natixis has made a tangible commitment to its employees with disabilities by hiring ergonomics experts specializing in adapting the workplace to disabilities.
In addition, the 2010 review identifi ed the potential for new initiatives for hiring and retaining staff with disabilities, raising employee awareness and offering training, creating partnerships with organizations that incorporate disabilities in their policies, using service providers specialized in working with disabilities, etc.
Alongside these three priorities of the Diversity policy, Natixis also promotes non-discrimination in its hiring process by ensuring that the appropriate rules and best practices are applied.
Finally, as part of its responsibility to society, Natixis is active in the community through a skills sponsorship project that benefi ts young people in disadvantaged neighborhoods who are looking for their fi rst job. This program will be launched in 2011.
The Bank has been committed to combating malaria since 2005, with the goal of eradicating the disease. This is one of the Millennium Development Goals which can be achieved by 2015. There are already solutions out there to fi ght this forgotten disease, which is responsible for nearly one million deaths each year (mainly pregnant women and young children).
In the fi eld, Natixis fi nances prevention training initiatives and programs to distribute mosquito nets treated with insecticide to the most vulnerable populations.
● more than 80% of the children under five and pregnant women now sleep under mosquito nets.
In 2010, the Bank supported an anti-malaria program initiated in Togo, which led to the distribution of 3,000 mosquito nets, provided training to community healthcare workers and launched awareness-raising ads on the radio.
Natixis also continued to support research projects. In 2010, the Bank funded a project led by Dr. Odile Pujalon of the Institut Pasteur, aimed at studying the resistance of the Plasmodium falciparum parasite to the latest generation of artemisininebased treatment.
Biodiversity protection is a fundamental issue from a sustainable development perspective, but is still poorly understood by the general public. This is why Natixis decided to support the Noé Conservation association, which in 2008 launched the “Biodiversités, nos vies sont liées” (Biodiversity: our lives are interconnected) campaign.
5SOCIAL AND ENVIRONMENTAL INFORMATION NRE Appendices – Labor information 5.3 NRE Appendices – Labor information
* Support function staff working outside France are accounted for under operational divisions, thus meaning that only the group consolidation is presented (without any France/International distinction).
2. For Natixis S.A., external hires almost doubled to 445 from 231 in 2009. The percentage of managers remained high, rising to 83.6% from 79% in 2009.
After restating for these transfers, there were 172 internal job transfers within Natixis in 2010 (190 in 2009).
5 SOCIAL AND ENVIRONMENTAL INFORMATION NRE Appendices – Labor information 5.3.4 EMPLOYEE TURNOVER
Excluding internal job moves, a total of 1,130 employees left Natixis in 2010 (for all reasons and types of contracts).
The average resignation rate among permanent employees was 1.7% (1.6% in 2009), based on 238 resignations.
5SOCIAL AND ENVIRONMENTAL INFORMATION NRE Appendices – Labor information 5.3.7 NATIXIS S.A.’S WORKFORCE REDUCTION AND EMPLOYMENT PRESERVATION PLANS (FRANCE)
❚ JUNE 2009 PLAN FOR ADAPTING TO THE ECONOMIC AND COMPETITIVE CONTEXT (PACEC)
Natixis’ various business lines in France are covered by more than 10 collective labor agreements. Three quarters of employees are covered by collective labor agreements applicable to the banking and insurance sectors.
Some sectors are subject to specifi c provisions, in particular with regard to working hours.
Employees have the option of choosing part-time work arrangements on the basis of 50%, 60%, 70%, 80% or 90% of a full-time equivalent. Similarly, managers employed on the basis of a fi xed number of days may opt for part-time work arrangements on the basis of 105, 126, 147, 167 or 188 days per year.
The annual absentee rate in France was approximately 5.8%. Sick leave accounted for 3.0% of the total absentee rate and maternity leave for 1.9%. For Natixis S.A., these fi gures totaled 5.4%, 1.8% and 2.2%, respectively.
In 2010, pay negotiations were concluded with the signature of a disagreement statement.
More than 7,700 employees of Natixis S.A. and of six other legal entities each received an individual “social audit”, a document detailing their fi xed remuneration, statutory benefi ts, variable remuneration, savings accumulated in employees savings plans, as well as the social protection benefi ts provided by the Company (health and benefi t protection insurance including complementary health insurance, retirement benefi ts), plus a summary of other benefi ts (training, works council, family allowances, etc.).
The “Professional Behavior, Prevention of Harassment and Distress at Work” Commission, which was set up in 2008 in order to centralize information relating to working situations classifi ed as “distressful” and to identify organizational and psychosocial risk factors, continued to play its role.
The detailed results of these questionnaires were presented to the Commission in early January 2011 for the second consecutive year. The results for 2010 were improved relative to 2009, and were better than those of our service provider, Capital Santé.
The CHSCT’s “Offi ce Moves” Commission was also busy as a result of the vast offi ce redeployments initiated during the period, especially during the fi rst half of the year. The Commission pre-examines site plans and may issue remarks or ask for changes in the plans, with the aim of improving employees’ physical working conditions.
Generally speaking, the independent Workplace Medicine Department regularly monitors employees’ health in Paris and the Paris region. Employees requiring special medical supervision will continue to be monitored on an annual basis, while employees with an average profi le will be seen every 18 months on average.
Lastly, as is the practice every year, a campaign of free infl uenza vaccination in the workplace took place in autumn. As observed elsewhere, it was less successful at Natixis than in previous years.
A medical adviser remains available twice a week for employee consultations in the Paris metropolitan area.
Across the entire “France” workforce and for Natixis S.A., the proportion of women promoted was higher than the proportion of women in these workforces.
Percentage of women promoted 2010* 2009* 2008 * On the integrated Natixis France scope.
The proportion of women given individual raises was higher than the percentage of women out of all staff at Natixis S.A., but not for the France scope as a whole.
Share of total training hours received by women 56.3% 56.6% 52.2%
These measures enable the Group’s central works council and locally-based works councils to offer all staff a range of social, cultural and recreational activities.
Besides these initiatives, in order to facilitate staff mobility between sites and the organization of meetings, our staff restaurants have been equipped with a centralized and standardized payment system. This applies to all the Company and inter-company restaurants in the Paris region. The Arc de Seine restaurant, which had been on a separate system due to technical reasons, was fi nally incorporated into the integrated system in 2010. The integrated system enables group employees to access the different restaurants and be billed a single price for the same service. Natixis covers a percentage of the cost of employees’ lunches in inverse proportion to their pay scale.
5.3.17 FRANCE: METHODS USED BY THE COMPANY TO ASSESS THE IMPACT OF ITS OPERATIONS ON EMPLOYMENT AND REGIONAL DEVELOPMENT IN FRANCE
Natixis assists regional development by funding its clients’ businesses with a view to constructing long-term partnerships together (See Chapter [1] Natixis’ business lines).
5.3.18 NATIXIS’ RELATIONSHIPS WITH ASSOCIATIONS PROMOTING SOCIAL INCLUSION AND EDUCATIONAL INSTITUTIONS
Any contract entered into also features clauses affi rming compliance with the terms of the Universal Declaration of Human Rights and the UN Convention on the Rights of the Child together with the conventions of the International Labor Organization to which France is a signatory. These conventions are also included in the Social Accountability 8000 standard.
5.3.20 METHODS USED BY INTERNATIONAL SUBSIDIARIES TO ASSESS THE IMPACT OF THEIR OPERATIONS ON REGIONAL DEVELOPMENT AND LOCAL POPULATIONS
The 2010 reporting scope includes Natixis and its subsidiaries in continental France (representing 376,252 m² of offi ce space and 17,776 workstations).
Total consumption of drinking water (in m3) 108,970 103,587 143,147 144,623
Consumption (in m3 per m2 of usable offi ce space) 0.29 0.23 0.32 0.33 5.4.3 ENERGY CONSUMPTION (EN 3, EN 4)
In 2010 Natixis consumed over 145,541 megawatt-hours of energy (electricity, heating and air conditioning), which represents a sharp overall increase.
This fi gure incorporated a signifi cant increase in the energy consumption of data centers (31,000 MWh in 2008, 32,533 MWh in 2009, 48,010 MWh in 2010), stemming from the opening of two new data centers (Vega and Sirius), for which energy consumption amounted to 16,651 MWh in 2010.
Total energy consumption per workstation (in MWh) 8.19 6.42 6.80 6.91
Natixis’ energy and fl uid consumption is managed by the Real Estate and Logistics Department. Its policy is to minimize the direct environmental impacts of the Company’s operations, while maintaining a high standard of working conditions for employees.
Facilities managers are responsible for optimizing energy consumption by using powerful and centralized technical management tools allowing the confi guration of a building’s comfort and optimization of the energies used. Technical installations are managed by automated systems which take account of external temperature and the thermal properties of buildings in addition to other factors.
The Arc de Seine building in the 13th arrondissement of Paris, Natixis’ registered offi ce since 2007, has been HQE® certifi ed.
Regarding the risk of proliferation and dissemination into the atmosphere of legionella bacteria, the program geared to replacing our potentially-sensitive technical facilities was completed.
Emissions of gases that damage the ozone layer and of significant atmospheric pollutants: NOx, SOx (EN 19, EN 20)
Selective bins for offi ce waste with recovery of paper for recycling Recovery of all out-of-date printed material for recycling. 858 t 1,084 t 1,603 t
Collection points in the lobbies of buildings. Collection, transportation and treatment by an external service provider approved in accordance with legislation. 943 kg 1,200 kg 1,040 kg
Equipment handled by a specialized company. The products are either processed as waste or the materials are extracted for recycling in accordance with existing environmental regulations. 80 t 52 t 48 t
Periodic controls of air and water quality are conducted. All buildings to which asbestos legislation applies have a technical fi le on asbestos.
ISO 9001 (Quality management) and 14001 (Environmental management) certifi cations, obtained in 2009 for the operation of its facilities and confi rmed by an interim audit in June 2010, validate the quality and environmental management systems implemented in all of the central facilities managed by the Real Estate and Logistics Department.
Natixis complies with all legal and regulatory obligations with regard to the environment. To this end, the Company employs qualifi ed facilities managers and civil engineers. These specialists, who are in close contact with the building’s users and are profi cient in the use of technical equipment and installations, also monitor changes in regulatory standards. In addition, technical installations and maintenance procedures are subject to regular inspections by certifi ed independent consultants.
Our contracts with suppliers contain a set of clauses relating to environmental and corporate responsibility.
5.4.12 MONETARY VALUE OF SIGNIFICANT FINES AND TOTAL NUMBER OF NON-MONETARY SANCTIONS FOR NON-COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS IN 2010 (EN 28)
5.4.13 EXISTENCE OF INTERNAL DEPARTMENTS FOR ENVIRONMENTAL MANAGEMENT, TRAINING AND INFORMING EMPLOYEES – RESOURCES DEVOTED TO MITIGATING ENVIRONMENTAL RISK
The environmental aspects of construction work and property facilities management are supervised by a cross-business unit reporting to the Real Estate and Logistics Department. This unit is responsible for monitoring the resources consumed at each site and for coordinating all actions undertaken by the Logistics Department’s operational services.
In addition, regular efforts continue in order to raise employees’ awareness of daily activities capable of reducing their environmental impact, notably through the sustainable development section of the intranet site.
5 SOCIAL AND ENVIRONMENTAL INFORMATION NRE Appendices – Environmental information 5.4.14 ARRANGEMENTS FOR DEALING WITH ACCIDENTAL POLLUTION WITH POTENTIAL REPERCUSSIONS EXTENDING BEYOND THE COMPANY’S OPERATIONS
The actions described above apply to Natixis and its subsidiaries in mainland France.
Natixis also occasionally conducts HQE®-compliant initiatives regarding resource consumption, waste management or construction work at some of its international offi ces.
Legal information 6.1 NATIXIS BYLAWS 416 6.2 GENERAL INFORMATION ON NATIXIS’ CAPITAL 422 6.2.1 Form and transfer of shares (Chapter II, Article 4 of the bylaws) 422 6.2.2 Share capital 422 6.2.3 Authorized but unissued capital – Capital increase authorizations 422 6.2.4 Securities not conferring rights over the share capital 425 6.2.5 Other securities giving access to capital 425 6.2.6 Changes in the capital over the last fi ve fi scal years 427 6.2.7 Other information on the capital 428 6.3 DISTRIBUTION OF SHARE CAPITAL AND VOTING RIGHTS 429 6.3.1 Distribution of share capital at December 31, 2010 429 6.3.2 Ownership of shares by members of management and supervisory bodies 429 6.3.3 Treasury shares 429 6.3.4 Employee shareholding 430 6.3.5 Changes in the shareholder base over the past three years 430 6.3.6 Natural or legal persons exercising or potentially exercising control over Natixis 430 6.4 INFORMATION FROM ARTICLE L.225-100-3 OF THE FRENCH COMMERCIAL CODE 431 6.5 PURPOSE AND DRAFT RESOLUTIONS SUBMITTED TO THE GENERAL SHAREHOLDERS’ MEETING OF MAY 26, 2011 432 6.5.1 Report of the Board of Directors on the resolutions submitted to the General Shareholders’ Meeting 432 6.5.2 Draft resolutions for the Combined General Shareholders’ Meeting of May 26, 2011 442
The corporate purpose, in France and elsewhere comprises: ● the conduct of all banking business and related businesses as per the banking law; ● the provision of all investment services as defined in the French Monetary and Financial Code; ● the performance of the specific assignments entrusted by the French State in the economic and financial area, in the framework of special agreements; ● the performance of all brokerage business; ● the acquisition of interests in companies, groups or associations with a direct or indirect connection with the activities referred to above; ● as well as the completion of all private and commercial transactions.
The number of directors who are over the age of 70 shall not exceed one-third of the number of directors in offi ce.
The Board of Directors may, on the proposal of the Chairman, elect one or more Vice-Chairman (Vice-Chairmen) from among its members.
In the event of an Emergency, the notice and convening periods of the Board of Directors are not subject to Article 11.1 above, provided that the Chairman of the Company’s Board of Directors has: ● given prior notice to the directors providing the reason for the Emergency as per the foregoing definition; and
The choice between these two executive management procedures is made by the Board of Directors which may take valid decisions only if: ● the agenda containing this item has been sent out at least 15 days in advance of the Board Meeting; ● at least two-thirds of the directors are present or represented at the meeting.
By way of exception, the fi rst Board Meeting will be held immediately after the Combined General Shareholders’ Meeting of April 30, 2009, and the choice of the executive management procedure will be made with an ordinary quorum (at least onehalf of the directors present or represented).
When the Company’s executive management is handled by the Chairman of the Board of Directors, the following provisions concerning the Chief Executive Offi cer will apply to the Chairman of the Board of Directors who will assume the title of Chairman and Chief Executive Offi cer.
The Chief Executive Offi cer is vested with the broadest powers to act in all circumstances on the Company’s behalf. He exercises those powers within the limits of the corporate purpose and subject to the powers expressly reserved for shareholders’ meetings and the Board of Directors by law and to the provisions and restrictions stipulated by the Internal Rules. He represents the Company in its relations with third parties.
They remain in offi ce for six (6) years. A non-voting member’s duties end at the end of the Ordinary General Shareholders’ Meeting convened to approve the fi nancial statements of the past fi scal year, held in the year during which his term expires. Non-voting members may be re-elected and may be dismissed by the General Shareholders’ Meeting.
6 LEGAL INFORMATION Natixis Bylaws admission card by the 3rd business day preceding the General Shareholders’ Meeting at twelve midnight Paris time.
Shareholders may, under the terms and conditions set forth by law and regulations, send their proxy and absentee voting ballots, either in paper format or, on the decision of the Board of Directors published in the notices of meeting, through remote transmission. The Board of Directors may also decide that shareholders may participate and vote at any General Shareholders’ Meeting by videoconference or remote transmission under the terms and conditions set by the regulations.
Shareholders’ meetings are chaired by the Chairman of the Board of Directors, or in the event of his absence, by one of the Deputy Chief Executive Offi cers, or by a Director appointed by the General Shareholders’ Meeting.
The nature of the documents and the terms and conditions for their dispatch or availability are determined by law and regulations.
Chapter V: Fiscal year – Parent company fi nancial statements – Appropriation of earnings
If, due to losses recognized in the accounting documents, the Company’s equity falls below one-half of the share capital, the Board of Directors is required, within 4 months following the approval of the fi nancial statements having revealed these losses, to convene the Extraordinary General Shareholders’ Meeting in order to decide whether it is fi tting to dissolve the Company early.
The share capital amounted to €4,653,020,308.80 at December 31, 2010, divided into 2,908,137,693 fully paid-up shares of €1.60 each.
The Combined General Shareholders’ Meeting resolved that these capital increases, the overall ceiling for which may not exceed a par value of fi ve (5) billion euros, may be carried out either by issuing shares or by issuing securities giving access to share capital, particularly in the form of debt securities (the total nominal amount of these debt securities giving access to capital not exceeding €1.5 billion).
This same meeting resolved in particular that the Board of Directors may: ● increase capital without preferential subscription rights with a view to remunerating contributions in kind granted to the Company, within the limit of 10% of the share capital at the time of the issue; ● increase capital via the incorporation of premiums, reserves, retained earnings or other items; ● increase the number of securities to be issued, within the legal limits, in the event of capital increases with or without preferential subscription rights.
The Combined General Shareholders’ Meeting of May 27, 2010 added to the fi nancial authorizations granted to the Board of Directors by the Combined General Shareholders’ Meeting of April 30, 2009, i.e. by granting it the following additional authorizations: ● in the event of a capital increase with cancellation of shareholders’ preferential subscription rights, the possibility of setting the issue price under the conditions set by the General Shareholders’ Meeting, subject to a limit of 10% of the capital; ● the possibility of undertaking a capital increase without preferential subscription rights by means of a private placement; In addition, this same meeting authorized the Board of Directors to allocate free new shares to employees and corporate offi cers of Natixis and related companies, for a period of 38 months and on one or more occasions, for a total nominal amount of €233 million, to be deducted from the overall €5 billion ceiling mentioned above.
None of the capital increase authorizations granted to the Board of Directors by the Combined General Shareholders’ Meeting of April 30, 2009 had been used as of December 31, 2010.
In all, Natixis allocated 6,595,308 shares that will automatically increase the capital by a maximum amount of €10,552,493 (number of shares multiplied by nominal value of shares) at the end of the vesting period for issue of allocated shares.
For the purpose of increasing the capital via the issue of ordinary shares or any securities giving access to capital, with cancellation of shareholders’
For the purpose of increasing the capital via the issue of ordinary shares or of any securities giving access to capital, with retention of shareholders’ preferential subscription rights €5bn 26 months none none
Article L.225-129-6 of the French Commercial Code €16 million 26 months none Resolution rejected none Resolution rejected 05.27.2010 18 In order to allocate free shares €233 million (c) 38 months 08.05.2010 €10,552,493
preferential subscription rights, subject to a limit of 10% of the capital 10% of the share capital (c)
In order to carry out, in accordance with Article L.225-136 of the French Commercial Code, one or more issues of shares without preferential subscription rights by means of an offering, by private placement, referred to in Article L.411-2 (II) of the French
6LEGAL INFORMATION General information on Natixis’ capital 6.2.4 SECURITIES NOT CONFERRING RIGHTS OVER THE SHARE CAPITAL
On November 25, 1985, Banque Française du Commerce Extérieur issued 140,000 non-voting shares with a par value of FRF5,000 (€762.25). The coupon is payable annually on November 25. Redemptions are on the initiative of the borrower. At December 31, 2010, 85,000 non-voting shares were outstanding.
At December 31, 2010, 30,272,408 stock options were exercisable or yet to be exercised.
On November 17, 2006, the Combined General Shareholders’ Meeting authorized the Natixis Executive Board to grant, on one or more occasions, stock options to some, or all, employees or corporate offi cers of the Company or of related companies, within the meaning of Article L.225-180 of the French Commercial Code. This authorization involved a maximum of 10,000,000 shares (i.e. 15,400,000 shares following the adjustment resulting from the September 2008 capital increase).
No stock options were granted in fi scal years 2009 or 2010.
❚ SUMMARY OF STOCK OPTION PLANS GRANTED TO NATIXIS CORPORATE OFFICERS AT DECEMBER 31, 2010
From 2001 to 2005, the benefi ciary offi cers were the Chairman and Chief Executive Offi cer of Natexis Banques Populaires.
In 2007, the corporate offi cers were the members of the Natixis Executive Board.
In 2008, no Natixis corporate offi cer received stock options in respect of his corporate offi ce within Natixis.
Options held in respect of the issuer and the companies referred to above, exercised during the period, by the 10 salaried employees of the issuer and of these companies who hold the most options thereby awarded 0 n/a n/a 0 n/a n/a
6LEGAL INFORMATION General information on Natixis’ capital 6.2.6 CHANGES IN THE CAPITAL OVER THE LAST FIVE FISCAL YEARS
Number of shares at the start of the fi scal year Number of shares created during the fi scal year Number of shares at the end of the fi scal year Share capital
payment of the dividend in shares 1,103,281 17,652,496 185,075,387.75 shares in respect of ESOPs (Employee Share Ownership Plans) 10,010 160,160 1,529,227.70 shares in respect of the exercise of stock options 83,274 1,332,384 5,773,940.85 shares in respect of the CNCE and SNC CHAMPION contributions 73,131,476 1,170,103,616 13,128,041,797.00
As far as Natixis is aware, there are no shareholders, other than those listed in the above table, who own more than 5% of the capital or voting rights.
Board members, including natural and legal persons, owned 71.54% of Natixis’ capital at December 31, 2010 (almost all of this being owned by BPCE).
Under the share buyback program authorized by the General Shareholders’ Meeting of April 30, 2009, Natixis owned 4,611,597 treasury shares at December 31, 2010.
The table below shows the number and percentage of shares held as treasury shares at December 31, 2009 and December 31, 2010.
By the resolution of November 12, 2007 and on the basis of the authorization of the Combined General Shareholders’ Meeting of May 24, 2007, the Executive Board had granted a maximum of 6,600,000 bonus shares, split equally between employees of Natixis and of companies that are directly or indirectly related to it as per Article L.225-197-1 and following of the French Commercial Code.
These bonus shares were vested to benefi ciaries on November 12, 2009, subject to satisfaction of certain conditions, notably presence conditions.
Furthermore, in accordance with Articles L.225-197-1 and following of the French Commercial Code and resolution 18 adopted by the shareholders during the General Meeting of May 27, 2010, the Natixis Board of Directors, at its meeting on August 5, 2010, decided to grant 6,595,308 free shares to certain employees of Natixis and its subsidiaries by virtue of their employment contracts.
(b) Resulting from the merger of Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne.
6LEGAL INFORMATION Information from Article L.225-100-3 of the French Commercial Code 6.4 Information from Article L.225-100-3 of the French Commercial Code
Nevertheless, in the event that BPCE should no longer control Natixis following a public offer, Banques Populaires, Caisses d’Epargne or BPCE, depending on the case, would have the right to buy back Natixis’ 20% stake in Banques Populaires and Caisses d’Epargne (for further information on these buyback rights, see section [1.4.5] “Major contracts”). If these buyback rights were to be implemented, Natixis would no longer have an economic interest in the results of the Banques Populaires or Caisses d’Epargne concerned and its ability to sell products or services via the Banques Populaires or Caisses d’Epargne concerned could also be affected.
In resolutions One and Two, the General Shareholders’ Meeting is asked to approve the Natixis 2010 parent company and consolidated fi nancial statements, respectively.
Resolution Three covers the appropriation of the corporate earnings of Natixis, which break down as follows: ● the net income for fiscal year 2010 amounted to €284,641,699.57; ● the dividend per share is set at €0.23.
Resolution Four offers shareholders who so choose the option to receive payment of dividends in new ordinary shares.
The issue price of these new shares will be equal to 90% of the average opening price of the 20 stock market trading sessions prior to the day of the distribution decision (day of the General Shareholders’ Meeting) less the amount of the dividend.
Resolution Six requests approval, in accordance with Article L.225-42-1 of the French Commercial Code, of the commitment establishing the terms and conditions for compensation due or liable to be due to Laurent Mignon in the event he no longer performs the duties of Chief Executive Offi cer, as authorized by the Natixis Board of Directors in its meeting on February 22, 2011.
At the end of this commitment, the Chief Executive Offi cer does not receive severance payments if he leaves the Company at his initiative to perform new duties or changes his position within Groupe BPCE. Furthermore, in accordance with the provisions of the AFEP/MEDEF code of corporate governance, the right to compensation is subject to a certain number of criteria and performance conditions.
Resolutions Seven through Nine ask the General Shareholders’ Meeting to ratify the following: ● the co-opting as Director of Philippe Queuille, upon the decision of the Board of Directors of May 27, 2010, replacing Yvan de la Porte du Theil, who resigned, for the remainder of his directorship, i.e. until the end of the General Shareholders’ Meeting called to approve the financial statements for the fiscal year ending December 31, 2014.
These shares may be bought, sold or transferred at any time (except in the event of a public offer of the Company’s shares) by any means (including block trades or the use of derivatives) in accordance with the regulations in effect (see the table below summarizing the financial resolutions presented to the shareholders).
REDUCTION OF SHARE CAPITAL BY MEANS OF TREASURY SHARE CANCELLATION (RESOLUTION 11)
Resolution Eleven asks the General Shareholders’ Meeting to renew the authorization given to the Board of Directors for a period of 26 months to cancel, by means of share capital reduction, all or some of the treasury shares held by Natixis or bought back under the authorization given by the Ordinary General Shareholders’ Meeting, up to 10% of the capital per 24-month period. This authorization would void any unused amounts of any prior authorization of the same type (see the table below summarizing the financial resolutions presented to the shareholders).
Resolution Twelve seeks to authorize the Board of Directors to implement a reverse split of the Company’s shares.
The Board of Directors could thus implement this reverse split according to the most optimal schedule.
The reverse split transactions would begin on a date indicated in a reverse split notice that would be published in the Bulletin des Annonces Légales Obligatoires (France’s bulletin of mandatory legal notices).
At the end of this two-year period, old shares not presented for consolidation through the reverse split will be struck from the listing, will lose their voting rights and will have their rights to dividends suspended in accordance with the law.
Lastly, at the end of a two-year period starting from a notice published in two nationally distributed newspapers, the new shares not claimed by entitled shareholders will be sold on the stock market.
RENEWAL OF FINANCIAL AUTHORIZATIONS AND DELEGATED POWERS (RESOLUTIONS 13 TO 20)
The Board of Directors was given fi nancial authorizations and delegated powers in 2009 that were supplemented in 2010 and that expire in 2011.
A “preferential subscription right” is the right that each shareholder has to subscribe for a number of new shares that is proportional to his stake in the share capital during a period of no less than fi ve trading days starting from the opening of the subscription period. This right is detachable and may be traded throughout the subscription period.
These capital increases will be applied against the amount of the overall ceiling described above.
If the Board of Directors were to use a delegated power granted by the shareholders, it would prepare, if applicable and in accordance with the law and regulations, when the decision is made, an additional report describing the fi nal terms and conditions of the transaction and that would explain the transaction’s impact on holders of shares and securities giving access to the capital, in particular with regard to their share of the equity. This report, along with the Statutory Auditors’ report, if applicable, would be made available to holders of shares and securities giving access to capital and then announced to them at the next General Shareholders’ Meeting.
These delegated powers void those having the same purpose that may have been granted previously.
AMENDMENTS TO THE BYLAWS: PARTICIPATION VIA INTERNET IN GENERAL SHAREHOLDERS’ MEETINGS (RESOLUTION 21)
Finally, resolution Twenty-Three relates to granting the powers required to complete legal formalities and publications relating to ordinary and extraordinary business.
A glossary is provided at the end of this table: abbreviations appearing in the glossary are indicated by an asterisk.
− Implementing option plans to buy shares of the Company or similar plans
− Generally, honoring obligations related to stock option programs or other share allocations to employees or corporate offi cers of the issuer or a related company
− Tendering shares upon exercising rights attached to securities giving access to the capital*
− Canceling all or a portion of the securities bought back (subject to the adoption of resolution Eleven)
May be used to issue shares or securities giving access to capital* as remuneration for securities of a company meeting the criteria set out in Article L.225-148 of the French Commercial Code in connection with a tender offer initiated by your Company in France or abroad according to local rules, in which case your Board would be free to set the exchange parity, with the pricing rules described below not applicable
− Your Company may at no time hold a number of shares representing more than 10% of its share capital adjusted by transactions affecting it subsequent to this Shareholders’ Meeting
− The number of shares acquired in view of holding them or subsequently tendering them to a merger, spin-off or contribution may not exceed 5% of the share capital
No cancellation of more than 10% of the share capital per 24-month period
− Ceilings exclude additional amounts that may be issued to protect the rights of holders of securities giving access to capital*
Price set by your Board, at least equal to the Legal Minimum Price*
− Possibility of authorizing the issue of shares or securities giving access to capital* to be issued following the issue of securities giving access to the capital of your Company by Subsidiaries* of your Company
17 Issue of shares or securities giving access to capital* as remuneration for contributions in kind involving securities of unlisted companies 26 months May be used to conduct potential acquisitions 18 Incorporation of premiums, reserves, earnings or other items 26 months May be used to incorporate reserves, earnings or other items in the capital to increase the share capital without the contribution of any “new money”
− May under no circumstances exceed the legally established ceiling for this type of offer (to date, 20% of the capital per year)
− Included in the ceiling of resolution Fourteen and in the Overall Ceiling*
Your Board will deliberate on the Capital Contribution Auditors’ report on the value of the contributions
− As provided for by law, this delegated power may not be used with a view to remunerating a contribution in connection with a tender offer for shares initiated by your Company (see resolution Thirteen)
− Ceiling included in the Overall Ceiling* Determination by your Board of the amount to be incorporated and the number of new shares and/ or the new par value of the existing shares
− Included in the ceiling of the initial issue and in the Overall Ceiling*
Amount of dividends per share available for distribution for the past three fi scal years: fi scal year 2009: €0; fi scal year 2008: €0; fi scal year 2007: €0.45 The total of these amounts was eligible for a 40% allowance.
In consideration for eliminating the preferential subscription right, your Board may establish a priority right, where applicable in excess of shareholder entitlements*. When provided, this right entitles shareholders, like preferential subscription rights*, to subscribe for the proposed issue in proportion to the number of old shares that they hold. However, in contrast to preferential subscription rights*, this priority right may be exercised during a priority period, currently set at at least three trading days shorter than the period provided for preferential subscription rights, and may not be traded. This priority period cannot be offered for all issues: as with preferential subscription rights*, it may be preferable, or even necessary, to refrain from offering this priority period in order to carry out a placement of securities under the best possible conditions, particularly when the speed of the transactions is an essential component of their success, or when the securities are issued on foreign fi nancial markets.
● For securities giving access to capital*: the price is set in such a way that, for any share issued by virtue of securities giving access to capital*, the total received by the Company for these securities giving access to capital* is at least equal to the minimum price per share as prescribed by regulations such as determined in the preceding point (such as it was on the day of the issue of the securities giving access to capital*).
Characteristics of securities giving access to capital: Resolutions Thirteen to Twenty submitted to this General Shareholders’ Meeting would enable your Board to decide to issue securities giving access to the capital of the Company, by issuing new shares such as bonds convertible or redeemable in shares, or bonds with equity warrants, or by tendering existing shares such as “OCEANEs” (bonds convertible into shares to be issued or exchangeable for existing shares); these securities may take the form of either debt securities, as in the aforementioned examples, or capital shares such as shares with equity warrants. However, in accordance with the law, the Company may not issue shares that can be converted or transformed into debt securities.
In accordance with the law, the delegated powers given by the shareholders at this meeting for the purpose of issuing securities giving access to capital imply a waiver by the shareholders of their preferential subscription rights to the shares to which these securities entitle them. For example, if this Shareholders’ Meeting were to adopt resolution Thirteen, according to the law, you would waive your preferential subscription rights for the shares that your Company would issue, if applicable, to redeem a potential bond redeemable in shares.
Characteristics of securities giving entitlement to the allotment of debt securities, terms and conditions for allotting the securities to which holders are entitled and dates on which this right may be exercised: Resolutions Thirteen, Fourteen and Sixteen presented to this meeting would enable your Board to decide to issue securities entitling the allotment of debt securities, such as bonds with bond warrants or bonds convertible or redeemable in another security like a bond, or shares with bond warrants. If applicable, these securities could have warrants entitling the allotment, acquisition or subscription for bonds or other debt securities.
− that the Company will have the option to issue debt securities as interest payments for which the payment will have been suspended by the Company; or
− that the securities will be subject to early redemption, including by tendering assets of the Company or amortization; or
6.5.2 DRAFT RESOLUTIONS FOR THE COMBINED GENERAL SHAREHOLDERS’ MEETING OF MAY 26, 2011
The General Shareholders’ Meeting, deliberating in accordance with the quorum and majority requirements for ordinary business, having reviewed the report of the Chairman of the Board of Directors on the structure of the Board, preparation and organization of the Board’s work and the internal control and risk-management procedures established by the Company, the report of the Board of Directors on the consolidated fi nancial statements and the management report relating thereto, the reports of the Statutory Auditors on the consolidated fi nancial statements for fi scal year 2010, hereby approves the 2010 consolidated fi nancial statements as presented, including the balance sheet, income statement and notes to the fi nancial statements, as well as the transactions refl ected in these fi nancial statements or summarized in these reports.
In accordance with legal provisions, the shareholders hereby note that for the three fi scal years prior to fi scal year 2010, the following dividends were distributed: Fiscal year Number of shares remunerated Dividend per share
* The dividend was eligible for a 40% allowance and a fl at-rate deduction.
All the amounts mentioned in the table above in the “dividend per share” column are eligible for the 40% allowance or, if chosen, the aforementioned optional fl at-rate deduction.
The dividend will be detached from the share on June 2, 2011 and paid starting on July 4, 2011. In the event the Company should hold some of its own shares upon payment of these dividends, the amounts corresponding to the unpaid dividends for these shares will be appropriated to retained earnings.
The General Shareholders’ Meeting, deliberating in accordance with the quorum and majority requirements for ordinary business, having reviewed the report of the Board of Directors and noting that the share capital is fully paid up, hereby resolves to offer each shareholder the option to receive payment in new shares of the Company for up to 100% of the dividend covered by resolution 3 relating to the securities the shareholder owns. Each shareholder may opt for full payment in cash or for payment of the dividend in shares in accordance with this resolution, but this option will apply to the total amount of the dividend associated with the shares owned.
The General Shareholders’ Meeting, deliberating in accordance with the quorum and majority requirements for ordinary business, having reviewed the report of the Board of Directors and the special report prepared by the Statutory Auditors on the commitments covered by Article L.225-42-1 of the French Commercial Code, hereby approves the terms and conditions of the compensation due or liable to be due to Laurent Mignon in the event he no longer carries out his duties as Chief Executive Offi cer, as authorized by the Board of Directors at its meeting on February 22, 2011.
RESOLUTION SEVEN (RATIFICATION OF THE CO-OPTING OF PHILIPPE QUEUILLE AS DIRECTOR)
The General Shareholders’ Meeting, deliberating in accordance with the quorum and majority requirements for ordinary business, hereby ratifi es the co-opting by the Board of Directors on May 27, 2010 of Philippe Queuille as Director, replacing Yvan de la Porte du Theil, who resigned, for the remainder of his directorship, i.e. until the end of the General Shareholders’ Meeting called to approve the fi nancial statements for the fi scal year ending December 31, 2014.
RESOLUTION EIGHT (RATIFICATION OF THE CO-OPTING OF JEAN-BERNARD MATEU AS DIRECTOR)
Jean-Charles Naouri, who resigned, for the remainder of his directorship, i.e. until the end of the General Shareholders’ Meeting called to approve the fi nancial statements for the fi scal year ending December 31, 2014.
− award or transfer shares to employees in connection with their share of Company profi ts or implement any Company or group employee savings plan (or similar plan) under the conditions provided for by law, in particular Articles L.3332-1 and following of the French Labor Code,
− allocate free shares in accordance with the provisions of Articles L.225-197-1 and following of the French Commercial Code,
− generally, honor obligations related to stock option programs or other share allocations to employees or corporate offi cers of the issuer or a related company,
− promote Natixis shares in the secondary market or the liquidity of the Natixis share through an investment services provider in connection with a liquidity contract that observes the compliance charter recognized by the French Financial Markets Authority (AMF, Autorité des Marchés Financiers).
6LEGAL INFORMATION Purpose and draft resolutions submitted to the General Shareholders’ Meeting of May 26, 2011 2) resolves that Company share purchases may relate to a number of shares such that: − the number of shares that the Company buys during the buyback program may not, at any time, exceed 10% of the shares comprising the Company’s share capital, this percentage being applied to a capital amount adjusted in accordance with transactions impacting it subsequent to this General Shareholders’ Meeting. It is specifi ed that (i) the number of shares acquired with a view to being held and subsequently tendered to a merger, spin-off or asset transfer may not exceed 5% of its share capital; and (ii) when the shares are bought back to promote liquidity under the conditions set out by the General Regulations of the AMF, the number of shares taken into account to calculate the 10% limit provided for by the fi rst paragraph corresponds to the number of shares purchased, net of the number of shares re-sold during the authorization period,