CORPORATE & INVESTMENT BANKING / INVESTMENT SOLUTIONS & INSURANCE / SPECIALIZED FINANCIAL SERVICES
CORPORATE GOVERNANCE 31 2.1 Corporate Gouvernance 32 2.2 Additional information on the corporate offi cers’ positions 34 2.3 Management and oversight of corporate governance 60 2.4 Natixis Compensation Policy 78 2.5 Report of the Chairman of the Board of Directors on internal control and risk management procedures 93 2.6 Statutory Auditors’ report on the report of the Chairman of the Board of Directors 105
OVERVIEW OF THE FISCAL YEAR 189 4.1 Management report at December 31, 2015 190 4.2 Refi nancing 201 4.3 Post-closing events 202 4.4 Information concerning Natixis S.A. 203
ADDITIONAL INFORMATION 453 8.1 Statement by the Person responsible for the registration document 454 8.2 Documents available to the public 455 8.3 Cross-reference table of registration document 456 8.4 Cross-reference table for the annual fi nancial report 458 8.5 Cross-reference table for the management report 459 8.6 Cross-reference table of CRR articles and Pillar III report tables 460 8.7 Index of Pillar III report tables 463 8.8 EDTF recommendation cross-reference table 464 8.9 Cross-reference table of Social and Environmental information 465
The document has been prepared by the issuer and its signatories incur liability in this regard. This registration document includes all components of the annual fi nancial report mentioned in section I of Article L.451-1-2 of the French Monetary and Financial Code and Article 222-3 of the general regulations of the French Financial Markets Authority. A cross-reference table showing documents referred to in Article 222-3 of the general regulations of the French Financial Markets Authority and the corresponding sections of this registration document appear on page 456 .
1.1 PRESENTATION OF NATIXIS 4 1.2 HISTORY AND LINKS WITH BPCE 6 1.2.2 Financial solidarity mechanism 6 1.2.3 BPCE organization chart 7 1.3.1 Income statement 8 1.3.2 Financial structure 8 1.3.3 Net revenues by business 8 1.3.4 Pre-tax profi t by business 9 1.3.5 Long and short-term ratings (as of end-February 2016) 9 1.3.6 2016 Investor relations calendar 9 1.4 NATIXIS’ BUSINESS LINES 10 1.4.1 Investment Solutions & Insurance 10 1.4.2 Corporate & investment banking 15 1.4.3 Specialized fi nancial services 21 1.4.4 Financial investments 24 1.5 NATIXIS AND ITS SHAREHOLDERS 26 1.5.1 Key share data at December 31, 2015 26 1.5.2 Breakdown of share capital at December 31, 2015 26 1.5.3 Shareholder scorecard 26 1.5.4 Share price information 27 1.5.5 Natixis and its individual shareholders 28 1.5.6 Investors relations 29
(1) Market shares : 22,4% in customer savings deposits, and 20,7% in customer loans (Source : Banque de France Q3 2015).
GLOBAL TRANSACTION BANKING Trade fi nance Liquidity management Cash Management Correspondent Banking
Non-life insurances Car insurance, home insurance, home and leisure accidents insurance, health insurance, legal protection insurance and means of payment insurance
With over 16,000 employees, Natixis boasts a number of areas of recognized expertise which are divided into in three main business lines: Investment Solutions & Insurance (Asset Management, Private Banking, Insurance), Corporate & Investment Banking and Specialized Financial Services.
As a result of these contributions, CNCE and BFBP (directly and indirectly through SNC Champion) each had a 45.52% shareholding in Natexis Banques Populaires, whose name was changed to Natixis.
V The underlying principles of BPCE, the central institution of Groupe BPCE created by Law No. 2009-715 of June 18, 2009, were approved on June 24, 2009 by the BFBP Board of Directors and the CNCE Supervisory Board. The last step in the formation of Groupe BPCE was completed on July 31, 2009 with the votes at the General Shareholders’ Meetings of BFBP, CNCE and BPCE.
Groupe BPCE is the No. 2 banking group in France through its two fl agship brands: Banque Populaire and Caisse d’Epargne. Groupe BPCE and its 108,000 employees serve 35 million customers, of whom 8.9 million are cooperative shareholders. Groupe BPCE develops a broad range of banking and fi nancial services for a wide variety of customers.
With the 18 Banque Populaire banks, 17 Caisses d’Epargne, Natixis, Crédit Foncier, Banque Palatine and BPCE International et Outre-mer, Groupe BPCE offers its customers a broad range of products and services, including solutions for savings, investment, cash management, fi nancing and insurance.
Pursuant to Article L.511-31 of the French Monetary and Financial Code (Code monétaire et fi nancier), BPCE shall, as the central institution, take any measures necessary to guarantee the liquidity and solvency of Groupe BPCE. Natixis, in its capacity as an institution affi liated with BPCE, is covered by the Groupe BPCE fi nancial solidarity mechanism. Thus, in the event Natixis encounters fi nancial diffi culty, (i) BPCE would fi rstly provide support using its own regulatory capital in accordance with its duty as a shareholder; (ii) should this prove insuffi cient, it would use the mutual guarantee fund created by BPCE, totaling €362.6 million in December 31, 2015 in assets provided jointly by both the Banques Populaires and Caisses d’Epargne networks, and which is increased through an annual contribution (subject to the amounts which would be used in the event of a call for funds); (iii) if BPCE’s regulatory capital and this mutual guarantee fund should prove insuffi cient, BPCE would call on (in equal proportions) both the Banques Populaires and Caisses d’Epargne networks’ own guarantee funds of €900 million in total and, fi nally (iv) if calls on BPCE’s regulatory capital and these three guarantee funds should prove insuffi cient, additional sums would be requested from all Banques Populaires and Caisses d’Epargne.
At December 31, 2015, BPCE held 71.20% of the share capital of Natixis (71.25% of voting rights) (see section 1.2.2 Financial solidarity mechanism). The structure of Groupe BPCE at December 31, 2014 was as follows: Groupe BPCE
Basel 3 risk-weighted assets * (in billions of euros) 113.3 115.2
BOOK VALUE PER SHARE (in euros) *** 5.31 5.27 * Based on CRR-CRD4 rules as reported on June 26, 2013, including treatment of insurance company securities under Danish compromise – without phase-in except for DTAs on tax-loss carryforwards.
Financial investments 828 841 * Excluding exceptional items, see section 4.1.1 “Methodology” and Appendix to 4.1.3 “Consolidated results”.
After market close (subject to modifi cation) 2016 Second Quarter Results
After market close (subject to modifi cation) 2016 Third Quarter Results 1.3.7 CONTACTS
The Natixis Investment Solutions & Insurance business line covers asset management, insurance and private banking. This business line comprises two divisions: Asset Management and Private Banking, and Insurance. In 2014, the purchase of BPCE Assurances by Natixis together with the new partnership initiated with Groupe BPCE and CNP Assurances led to the creation of a single insurance division that allows Groupe BPCE to operate as fully-fl edged bancassurance player. In 2015, Natixis carried out structural projects for the business line in accordance with the objectives of the New Frontier strategic plan.
The Asset Management and Private Banking division is centered on asset management, an area in which Groupe BPCE has global ambitions, boasting internationally acknowledged asset management expertise and distribution structures adapted to the specifi c features and regulations of the various markets in which it operates. It also aims to strengthen the positioning of the Banque Populaire and Caisse d’Epargne networks in the fi nancial savings and private banking segments in France, and seek new international growth drivers.
Natixis’ asset management subsidiary, Natixis Global Asset Management, aims to further its international development. Two-thirds of Natixis Global AM’s 3,500 employees already work outside France, mainly in the United States, the world’s biggest asset management market. In addition, Natixis Global AM has a global distribution platform of close to 700 people and has a leading position in the US mutual fund segment. Private Banking also has a platform in Luxembourg, where some 100 people are working to build up the European Private Banking business, while Private Equity offers a global range of funds through asset management fi rms in Europe, the US and Asia.
The Insurance division covers three major activities: personal insurance, non-life insurance and insurance solutions.
Operating within the Investment Solutions and Insurance business line, Natixis’ Asset Management business markets a wide range of investment solutions including funds, dedicated products and mandates in all asset classes (money market, bonds, equities, real estate, alternative, diversifi ed and capital investment) for all types of customers.
The Asset Management business is structured around the Natixis Global Asset Management holding company. Natixis Global Asset Management ensures the overall consistency of asset management operations and also has responsibility for developing a global distribution platform and overseeing the fi nancial and strategic management of around 20 specialized asset management and investment service companies in Europe, the United States and Asia. Combined, these entities have over 3,500 staff (the number rose slightly in 2015), 2,000 of whom are in the United States. They hold key positions in Europe – primarily in France – and are developing their presence in Asia Pacifi c, the Middle East and, more recently, Latin America and Canada.
Natixis Global Asset Management’s business model is based on a global distribution platform serviced by multi-specialist asset management companies to meet the needs of a large international client base. Drawing on its diverse range of portfolio management skills, strong distribution network and fl exible business model, Natixis Global AM has consolidated its position as a major international player in asset management. The Company was ranked 17th among global asset managers at end-2014 (Cerulli Quantitative Update: Global Markets 2015 ranked Natixis Global Asset Management, S.A. as the 17th largest asset manager in the world based on assets under management as of December 31, 2014).
This increase in assets under management was driven by very high global net infl ows of €33 billion, their highest level since 2006, up from €27.7 billion in 2014, with €20.3 billion from Europe, €11.9 billion from the United States and €0.3 billion from Asia.
The asset management companies’ sales performance, which refl ects years of investments made to improve their performance and enhance their expertise, was also driven by the effi ciency of the entire Natixis Global Asset Management distribution platform which is dedicated to collecting infl ows for asset management companies. This global platform covers asset management infl ows from the United States, mainly for the retail activity, as well as from Europe, the Middle East and Asia.
International distribution is structured on two major segments, namely institutional investors (public and private pension funds, insurers and banks, sovereign funds and central banks, etc.) and distribution/retail (fund of funds, private banking, platforms and IWMAs). The support functions based in Boston, London and Paris provide coverage services via a “global key accounts” strategy.
As such, Natixis Global Asset Management distribution now operates in over 20 countries as a provider of comprehensive investment solutions. For the last four years, the activity has been using the “durable portfolio construction” approach, which factors in the current market volatility as well as the new expectations of fi nancial investors who require appropriate advisory as part of a long-lasting customer relationship. The durable portfolio construction approach has a global reach with an array of solutions on an international scale. It also provides the opportunity to invest in the “Natixis Global Asset Management” brand via international marketing and public relations initiatives that have enhanced its visibility and recognition. The objective is to take forward a single strategy, platform and message worldwide.
In 2015, European asset management companies increased their positive momentum with net infl ows of €20.3 billion. Larger companies in terms of assets under management such as Natixis Asset Management and smaller fi rms alike all contributed, including AEW Europe, H
European asset management companies at end-2015 (assets under management in billions of euros): R Natixis Asset Management (€320.6 billion): fi xed income, European equities, investment and client solutions, volatility and structured products, global emerging and responsible investing; R DNCA Finance (€19.4 billion): fi xed income and equities; R AEW Europe (€18 billion): real estate asset management, real estate investment trusts (SCPI) and real estate mutual funds (OPCI); R H
O Asset Management (€10.3 billion): global macro multi-strategy and international fi xed income; R Mirova (€6.1 billion): SRI equity and fi xed income, infrastructure project fi nancing; R VEGA Investment Managers (€6.0 billion): funds of funds and fund selection; R Ossiam (€2.1 billion): strategic ETFs (Exchange Traded Funds); R Dorval Asset Management (€0.7 billion): fl exible management; R Emerise (“NAM Asia”) (€0.6 billion): Asian equities; R Darius Capital Partners (€0.3 billion): alternative investment advisory (hedge funds).
1 PRESENTATION OF NATIXISNatixis’ business lines Natixis Global Asset Management operates in Europe through Natixis Asset Management (NAM), one of the leading European asset management companies. Natixis Asset Management offers proven expertise in the main asset classes and portfolio management styles. It also provides privileged access to the complementary expertise of VEGA Investment Managers, specializing in fund selection and funds of funds management, Dorval Finance – 50.1%-owned since 2014 – in fl exible portfolio management and H
Natixis Asset Management’s assets under management totaled €320.6 billion at end-2015 versus €304.9 billion at end-2014. The Company experienced positive infl ows in 2015: apart from a signifi cant liquidity provision to Natixis, new infl ows went into money-market and diversifi ed products as well as insurance for CNP.
Strengthening sales for the European companies internationally, developing synergies with other Natixis activities and business lines, and helping to boost fi nancial savings within the Group remain major priorities. In the Caisse d’Epargne and Banque Populaire networks, gross infl ows are up, with protected management funds gradually taking over from packaged funds.
All of Natixis’ European asset management companies provide a full range of products and services covering all traditional asset classes, as well as expertise in high value-added areas. They have received numerous awards for investment performance, the specifi c features of their investment funds and for their commitment to sustainable development.
In the United States, the decline in assets under management is due to a strong negative market effect of $20.5 billion and a change in scope following the removal of Reich and Tang while net infl ows from US companies stood at $12.9 billion, in spite of a diffi cult environment for the Mutuals funds at the end of the year.
US and Asian asset management companies at end-2015 (assets under management in billions of dollars): R Loomis Sayles ($229.1 billion): equities (growth, core, value) and bonds (core to high yield); R Harris Associates ($122.7 billion): US and international value stocks; R AEW Capital Management ($23.1 billion): real estate asset management; R Vaughan Nelson Investment Management ($12.5 billion): value stocks and bonds; R Gateway Investment Advisers ($12.2 billion): hedged equity; R McDonnell Investment Management ($11.3 billion): municipal bonds; R Managed Portfolio Advisors ($8.3 billion): overlay strategies; R Alpha Simplex Group ($7.5 billion) quantitative investment management; R Aurora Investment Management ($5.7 billion): funds of hedge funds; R Capital Growth Management (50%-owned, $3.0 billion): equities; R Snyder Capital Management ($1.5 billion): US small- and mid-cap value stocks; R NGAM Canada L.P ($0.7 billion): delegated management; R Active Investment Advisors ($0.7 billion): discretionary index-based strategies; R IDFC (25%-owned, $7 billion): Indian stocks and bonds.
Since April 2014, the Group’s private equity business line now reports to Natixis Global Asset Management under the name Private Equity division to provide new alternative long-term investment solutions.
European asset management companies at end-2015 (assets under management in billions of euros) : R Euro Private Equity (€1.9 billion): investment advisory in the international private assets segment; R Caspian Private Equity ($1.8 billion): US private equity and mezzanine investment solutions; R Naxicap Partners (€1.8 billion): private equity in the SME segment primarily in France; R Seventure Partners (€0.6 billion): European venture capital; R Alliance Entreprendre (€0.2 billion): buyouts and capital restructuring operations in France.
The Natixis private banking activity is dedicated to the fi nancial planning of its private investors. It comprises Banque Privée 1818, geared towards the French market, and Natixis Private Banking whose teams are based in Luxembourg and Belgium. At end-December 2015, its assets under management totaled €28 billion. The private banking teams bring together the full range of skills needed to address all aspects of fi nancial planning, from wealth engineering to corporate advisory to credit facilities and club deals in which individual investors group together to purchase an asset of their choice. Private Banking relies on VEGA Investment Managers (€6 billion in assets under management) for its asset management offering. In 2015, VEGA Investment Managers was recognized in the Le Revenu awards organized in conjunction with Morningstar, with two funds in the Top 10 over one, three and fi ve years. Elite 1818 France Opportunité continued its ascent, placing fi fth among the best funds in the European Equities category.
Banque Privée 1818 serves the Banque Populaire, Caisse d’Epargne and BPCE International et Outre-mer networks. It offers them sophisticated products and services to satisfy the growing needs of their customers in the areas of private banking and wealth management. Its services are wide and varied: delegated management, UCITS selection, a real estate offering, corporate advisory, and life insurance policies via a platform. Banque Privée 1818 is Groupe BPCE’s open-architecture broker.
In 2015, the cooperation with the Banque Populaire banks and Caisses d’Epargne continued to strengthen, particularly through the roll-out of a national relationship charter, which refl ects shared development ambitions in private banking and wealth management. A new series of service agreements were signed in 2015, bringing the number of banks involved in this process to 24. These partnerships will allow the regional banks to benefi t from Banque Privée 1818’s value-added service offering and direct access to fi nancial and wealth engineering experts.
With €6 billion in assets under management and 713 active IWMAs, Séléction 1818 received further recognition last year. For the second year in a row, Sélection 1818 took fi rst place in the 22nd Supplier Awards (Palmarès des fournisseurs) organized by Gestion de Fortune magazine, as the leading bank platform dedicated to IWMAs. It was also recognized by Investissement Conseils magazine in the Pyramides de la Gestion de Patrimoine 2015 awards. Sélection 1818 received the “Prix des Conseillers” best advisory award in the banking platform category.
Natixis Assurances’ total revenue exceeded €6.1 billion in 2015, including premiums generated by associate company BPCE IARD.
Natixis Assurances assisted the networks in the roll-out of the Group health insurance offering to meet customer needs brought about by the implementation of the French cross-industry collective bargaining agreement (Accord national interprofessionnel – ANI). A revamped non-life insurance offering for the professionals market was rolled out in the Banques Populaire network.
At December 31, 2015, Natixis’ Corporate & Investment Banking division account 2,849 people (FTEs) (excluding abroad people of functional sectors - except computing, purchases and logistics) in 27 countries around the world: 47.9% in France and 52.1% abroad. It operates in the major global marketplaces via three platforms: North and South America, Asia-Pacifi c and EMEA (Europe (except France), Middle East and Africa). Corporate & Investment Banking advises corporate clients, institutional investors, fi nancial sponsors and public sector entities. It offers them a wide range of fi nancing, hedging and capital market investment solutions, structured fi nancing and transaction banking services. Natixis draws on the technical expertise of its teams and a renowned research department to develop solutions adapted to the specifi c needs of each and every customer.
In 2015 Natixis led development projects across the Corporate & Investment Banking business lines in line with the objectives of the New Frontier strategic plan. It completed large-scale structural fi nancing transactions with high added value. It continued to adapt its capital markets strategy to better align with the needs of its clients, and achieved some noteworthy commercial successes, particularly in equity derivatives. It bolstered the security of its transaction banking services while improving its offering in trade fi nance and liquidity management.
Natixis continued to expand internationally by strengthening the bank’s commitment to Chinese customers, intensifying its presence in Latin America and putting in place a development strategy for Africa.
V Structured Financing: the dedicated teams provide customers with comprehensive advisory, arrangement, underwriting and financial engineering expertise in various types of financing (aircraft, export and infrastructure finance, energy and commodities finance, acquisition and strategic finance, and real estate finance).
V Capital Markets: Natixis’ experts offer a wide range of diversified, standard and bespoke products on the fixed income, credit, forex, commodities and equities markets (cash and equity derivatives), as well as engineering solutions in Financial investments. In research, Natixis offers its customers cross-expertise research (equities, credit, economic, commodities, fixed income and forex) based on a cross-disciplinary approach, and develops recognized quantitative research.
V Global Transaction Banking: Natixis’ experts offer its customers a comprehensive range of trade finance, liquidity management and correspondent banking solutions, while helping them further their business development in France and abroad.
V The Mergers & Acquisitions (M&A) team helps customers (commercial and industrial corporations, institutional investors and investment funds) prepare and execute disposals or mergers, fundraising, restructuring or capital protection. In 2015 the bank expanded its M&A activity in France with mid-cap and investment fund customers by acquiring the French operations of Leonardo & Co, now called Natixis Partners. This acquisition has boosted Natixis’ position on the M&A market, as demonstrated by its rating as the No. 3 player in M&A advisory in France by number of operations carried out in 2015 (source: Thomson Reuters – Mergers & Acquisitions Review). Natixis already has an M&A advisory structure outside France in Milan, and is furthering its growth in Spain with the planned acquisition, announced at the end of 2015, of 360 Corporate Finance S.A., to be renamed Natixis Partners España.
1 PRESENTATION OF NATIXISNatixis’ business lines V The Equity Capital Markets business provides clients with tailored advisory services for all transactions that affect their capital structure: IPOs, capital increases, share buybacks, convertible or exchangeable bond issues and liquidity contracts. Natixis is also developing advisory services for carrying out public tenders or exchange offers and implementing defense strategies. Natixis is a leader on the equity capital markets in France. In 2015 it was ranked No. 1 bookrunner in France for capital increases with preferential subscription rights (PSR) (source: Bloomberg). Natixis also carried out several landmark transactions, including capital increases with shareholder PSR for Parrot for an amount of €300 million, and the convertible bond issue for Steinhoff international Holdings Limited for an amount of €1,116 million.
In terms of structured fi nancing, Natixis has comprehensive advisory, arrangement, underwriting and fi nancial engineering capacity in aircraft fi nancing, export and infrastructure fi nancing, energy and commodities fi nancing, acquisition and strategic fi nancing and real estate fi nancing.
The bank’s efforts in favor of the energy transition was particularly visible within its Structured Financing business line: in 2015 Natixis made a commitment to cease the fi nancing of coal-fi red power stations and thermal coal mines worldwide. On the occasion of the COP21, Natixis partnered with Swiss foundation Global Infrastructure Base to launch the fi rst standard for sustainable and resilient infrastructure. The SuRe® market standard will be awarded to sustainable infrastructure projects by an independent certifi cation body. As an active player in renewable energies fi nancing, Natixis has also fi nanced 14 projects in the EMEA region and the Americas for a grand total of €999.97 million.
Natixis enjoys strong positions, as refl ected by its 2015 ranking: No. 1 bookrunner in project fi nancing in the EMEA region in 2015 (source: Thomson Reuters, Global Project Finance Review, 2015), No. 2 bookrunner in leveraged fi nancing with private equity funds in France and No. 5 in the EMEA region (source: Dealogic, 2015), Trade Finance No. 3 MLA on the syndicated loan market in 2015 (source: Dealogic, Global Trade Finance Review), No. 5 bookrunner in real estate fi nancing in the EMEA region in 2015 (source: Dealogic, EMEA Syndicated Real Estate Finance Loan Review 2015, rating excluding REITS).
V Natixis is a world-class player in strategic financing and acquisitions with over 20 years of global experience in this sector. Following on from 2014, the year 2015 featured an impressive number of deals. This brisk activity was validated by Natixis’ leading rankings: No. 2 bookrunner in leveraged financing with private equity funds in France and No. 5 in the EMEA region (source: Dealogic, 2015). Among its landmark deals in 2015, Natixis mandated as Presenting Bank and Guarantor for the Chinese conglomerate Fosun’s public tender offer for Club Méditerranée, as well as MLA bookrunner and financing agent of the deal.
In fi xed income, credit, forex, commodities and equity markets, Natixis offers its corporate and institutional (both private and public sector) clients and Groupe BPCE networks clients a wide range of investment, fi nancing and hedging products that tie into its research expertise.
Present on French and international cash equity and equity derivative markets, Natixis offers its customers investment, fi nancing and hedging projects that range from the simplest to the most innovative solutions.
On the equity derivatives market, Natixis offers its clients investment and fi nancing solutions and hedging strategies. In 2015 this activity performed to record levels. It continued to broaden its range of investment products and structured solutions in response to its clients’ issues related to asset and liability management, balance sheets, fi nancing requirements, taxes, accounting and regulations. Under this endeavor fi nancial engineering focused on creating new indices, such as the NXS Climate Optimum Prospective “low carbon” index, and entered into exclusive agreements with EuroNext and Stoxx for the use of new indices. In addition, Natixis’ expertise for insurers was recognized by the magazine Structured Retail Products which named Natixis Best Insurance Solution in EMEA in 2015 (source: European Structured Products Awards 2015).
The Fixed Income, Credit, Commodities, Forex & Treasury Markets teams are located in Europe (Paris, London, Milan, Madrid and Frankfurt), the Middle East (Dubai), Asia (Singapore, Tokyo and Hong Kong) and the Americas (New York, Houston and Sao Paulo). They offer customers fi nancing, investment and hedging products on the fi xed income, credit, forex and commodities markets in OECD and emerging countries.
Since 2015 the Fixed Income activities have been merged under single management. These activities used to be divided into sales and trading, and are now structured into two business lines: Credit and Fixed Income & Forex. To ensure service continuity for our customers, all the sales teams have been merged. This new worldwide organization improves customer satisfaction by offering a wider range of both simple and structured solutions.
The debt platform, which for fi ve years has combined the primary bond market, loan syndication and the activities of Global Structured Credit & Solutions (GSCS), posted a solid performance across all borrower segments. In 2015 Natixis confi rmed its place as a key player on the primary market for euro-denominated bonds with all issuer types: No. 4 bookrunner on the primary bond market for fi nancial institutions (source: Dealogic), No. 4 with agencies (source: Dealogic, by number of transactions) and No. 1 with public and private companies in France (source: Dealogic). In the covered bonds segment, Natixis is the leader in the euro market: No. 1 bookrunner on the EUR primary covered bond market in 2015 (source: Dealogic). And additional two awards underscored the bank’s excellence 2015 performance in the segment: Best 2015 Lead Manager in EUR covered bonds (source: The Cover/GlobalCapital, Covered Bond Awards 2015) and Euro Lead Manager in covered bonds in 2015 (source: The Covered Bond Report – “Covered Bond report Awards for Excellence 2015). Natixis was also named the 2015 Best Debt House in France (source: Euromoney – 2015 Awards for Excellence). Furthermore, Natixis continued to grow on the high yield market with an increasingly broad range of products, and on the green bond market. For the last three years Natixis has been deeply involved in developing the Euro PP market in which in 2015 it is among the main players. It also continued to arranged currency issues, especially in dollar and in yen.
1 PRESENTATION OF NATIXISNatixis’ business lines Thanks to a cross-functional approach to securitization, asset and liability management, advisory and portfolio restructuring services (GSCS activity), Natixis offers its clients innovative, cutting-edge solutions to meet requirements related to changes in external environment, as well as issues concerning balance-sheet reduction, use of resources, alternative fi nancing research, etc. In 2015 Natixis set up a number of innovative deals, such as the fi rst Equity Bridge Financing transaction in France, in compliance with the AIFM Directive on indebtedness, for funds managed by Antin Infrastructure Partner, and the extreme mortality catastrophe bonds issued for the benefi t of Axa Global Life, voted the transaction of the year at the 2015 Insurance Risk Awards.
In treasury activities, the joint refi nancing pool between BPCE and Natixis pursued the implementation of the Group policy to diversify resources by collecting liquidity from international investors, particularly those located in Japan, China and the United States. The pool thus provided the business lines with the liquidity needed to implement their plans for growth.
Research is a key part of Natixis’ sales strategy. Every day the Research teams publish analyses to guide clients in their investment decisions, and continue to creating of fi nancial solutions tailored to customer needs.
V Trade finance: Natixis helps its customers grow their import/ export business and provides them with a banking offer that secures their international trade transactions.
V Correspondent banking: Natixis fosters close relationships with several banking partners to provide its customers’ business with worldwide coverage.
In 2015 GTB launched myContrôles, a digital service that secures international payments and transfers, thus helping corporate clients safeguard against the risk of social engineering fraud, such as “fake president fraud” or “supplier fraud”. Natixis is confi dent in its expertise on security matters and is an active partner in new technologies.
The Americas platform operates in seven countries (the United States, Canada, Mexico, Colombia, Brazil and Argentina). It draws on its regional and sectoral experience to meet its clients’ complex needs in terms of investment, fi nancing, risk management and advisory, while simplifying access to the United States market for international clients looking for fi nancing in US dollars.
Thanks to the collaborative efforts of the Natixis teams worldwide, the Americas platform has set up several major fi nancial transactions. For example, it set up unusual acquisition fi nancing for Springleaf Holdings by way of as ABS issue and acted as co-lead manager of the equity placement. In addition, Natixis was involved in the fi nancing of the Marcona/Tres Hermanas wind farm project in Peru. It also demonstrated its local positioning by acting as sole arranger of a CLO issue led by Fifth Street CLO Management LLC, backed by a diversifi ed portfolio of senior secured loans for SMEs. The notes were successfully placed with 11 accounts in the United States and Europe.
With operations in 11 countries (Australia, China, Hong Kong, Taiwan, India, Indonesia, Japan, Korea, Malaysia, Singapore and Thailand), the Asia Pacifi c platform goal is to be recognized by corporates as a key player in Natixis’ predominant areas of expertise, and by fi nancial institutions as a niche player and “solutions house”. In 2015 the platform made remarkable progress in this regard.
The platform continues to fi ll expand its teams and develop its skills in other countries in the region, such as Japan where it is strengthening its distribution structure, and Australia where it now offers a comprehensive range of structured fi nancing solutions. It also a foothold in Hong Kong with its new Corporate Advisory team in order to build a stronger strategic dialog with its customers.
The assistance of international customers wishing to develop their business in Asia was strengthened. In structured fi nancing for example, the Aircraft, Export & Infrastructure Finance teams helped European and North American companies like Bouygues and Bombardier in the sector of infrastructures in Australia. The platform draws on Natixis’ international operations, making it possible, for example, for Japanese and Korean clients to invest in asset-fi nancing projects in other geographical zones, including the Marcona/Tres Hermanas wind farm project in Peru and the Kelar gas-fi red power plant in Chile.
On the capital markets, the platform underwent a signifi cant development, particularly with the distribution of investment products for local investors. Natixis is now a major issuer in the region, having made placements in the main local currencies (including CNH [or RMB off-shore]), and on the main markets (Japan, Taiwan, Australia and Singapore) with the launch of structured issues in Uridashi public issue format. The Equity Markets business line had record results in Japan, Korea and South-East Asia following the expansion of its teams and hybrid product offering. In the corporate customer base, the platform carried out a bond issue for Beijing Automotive and came up with a hedging solutions offering for both local and European clients.
V In northern Europe, the bank is active in financing UK-based projects, real estate in Germany and strategic finance and acquisitions throughout the region. In 2015 Natixis strengthened its activity in acquisition finance, particularly in London, and the bank led eight transactions in the United Kingdom, Scandinavia, Germany and the Benelux countries, posting one of its strongest ever yearly performances. Natixis was mandated as lead manager on headline deals in the renewable energies sector, including the offshore Galloper wind farm in the UK.
Natixis was also very active on the capital markets and stood out in the 2015 for its involvement on the covered bonds and RMBS (residential mortgage-backed securities) market in the UK and Nordic countries. In London, Natixis confirmed its positioning in the loan structuring.
V In the Middle East the Dubai branch commenced its partnership with Watan Invest in Saudi Arabia and bolstered its activities in Islamic finance. In particular, it was involved in the issue of a fiveyear sukuk (Islamic bond) for a total of $1 billion for the Islamic Development Bank. It also played a role in the financing to extend a desalination plant in the Oman Sultanate. In Turkey Natixis was mandated by five of the country’s major banks to structure their inaugural covered bond programs, and maintained its position as bank of choice for Turkish Airlines.
The general mechanism behind the guarantee is based on the establishment of: i. two Total Return Swap agreements (TRS), one in dollars and the other in euros, covering 85% of the net value of the assets recognized in the trading portfolio and risks linked to counterparties not providing collateral. The purpose of these TRS is to transfer 85% of the gains or losses of the accounting units in which the assets are recognized at their fair value through profit or loss. On top of these two TRS, Natixis purchased an option from BPCE (the “Option”) allowing it, should it be exercised, to recover, in 10 years’ time, the capitalized net performance of the portfolios covered by the TRS and to terminate the TRS; ii. a financial guarantee covering 85% of the nominal value of the assets recognized under IFRS as “Loans and receivables” (L&R) and “available-for-sale assets” (AFS), as determined at the effective date of the guarantee (i.e. June 30, 2009), less any amortization expensed prior to June 30, 2009.
Pursuant to the terms of this fi nancial guarantee, in the event of non-payment confi rmed on the scheduled contractual payment date of sums due in respect of any of the assets in the guaranteed portfolio, Natixis will be paid by BPCE from the fi rst euro up to 85% of the amount due. The payment will be made in the currency in which the defaulting asset is denominated. The expiry date of the guarantee granted to Natixis is that of the asset in the guaranteed portfolio with the longest maturity – currently April 28, 2099 –
Natixis’ business lines plus nine months (bearing in mind that this date may be brought forward to the date of termination of the guarantee in the event of a change in control at Natixis within the meaning of Article L.233-3 of the French Commercial Code). The expiry date of the fi nancial guarantee is the date from which Natixis is no longer required to pay over to BPCE the sums recovered on assets in the guaranteed portfolio having defaulted. It post-dates the expiry date of the guarantee by 15 years.
The guarantee covers portfolio assets held both by Natixis and by its subsidiaries, and agreements between Natixis and its subsidiaries have been put in place with respect to this mechanism.
The terms and conditions of the agreements constituting the guarantee were deemed reasonable and balanced from a fi nancial perspective for Natixis by Mediobanca.
These businesses form a core part of the development of the BPCE networks: the Banque Populaire banks, Caisses d’Epargne, etc.
■ FACTORED TURNOVER OVER THE PAST 5 YEARS (IN BILLIONS OF EUROS)
The platform’s broad offering caters to individuals and banks, companies or professionals that use fi nancial guarantees to ensure the reliability of credit transactions or to secure contracts, projects and transactions.
Bank loan sureties secure fi nancing for the projects of individuals (mortgage guarantees), professionals (business start-ups/transfers, equipment, commercial property) and social economy and social housing operators (medium- and long-term loan sureties). The contractual, tax or regulated fi nancial guarantees support companies in their development. Financial guarantees to real estate businesses protect consumers or secure transactions in accordance with regulations that are specifi c to certain trades: guarantees to single-family home builders and real estate developers, guarantees to property managers and real-estate agents.
New real estate leases were up by 42% to €850 million.
Equipment leasing in mainland France, overseas territories, Spain and Italy recorded an increase in results, with €1.8 billion in new leases. Front Lease, a new equipment-leasing sales tool integrated into the Banque Populaire and, starting in 2015, Caisse d’Epargne advisor workstations, contributed to a signifi cant increase in the number of new leases.
With nearly €220 million in new leases, Natixis Lease held up well in terms of fi nancing renewable energy, including a good performance in the Banque Populaire network. Natixis Lease continued to roll out its offer in the Banque Populaire banks and Caisses d’Epargne, recording more than 6,200 new orders in long-term vehicle leasing and posting growth of 23% compared to 2014.
These solid performances allowed the Caisses d’Epargne and Banque Populaire banks to gain market share, highlighting the effectiveness of the model developed by Natixis Financement with the BPCE networks.
Operating through the Natixis Cofi ciné subsidiary and holding market-leading positions in France and Europe, Natixis fi nances the full range of audiovisual professions and entertainment venues.
In 2015, Natixis Interépargne consolidated its leading position in employee savings account administration in France, with 3 million employee accounts under management, i.e. a market share of 28.9% (source: AFG at June 30, 2015).
The employee savings offer tailored to SMEs and professionals, distributed by the Banque Populaire and Caisse d’Epargne networks, delivered another strong performance with close to 13,500 new contracts. In order to optimize the client experience, Natixis Interépargne placed listening to companies and Perco clients as well as the co-creation of new services at the heart of its innovation approach. Firmly committed to the digital transformation of its processes and offerings, Natixis Interépargne offers Perco clients a comprehensive range of digital services and online tools (virtual advisor, simulation tools, smartphone and tablet applications enabling mobile transactions, etc.).
Payment vouchers, such as Titres restaurant® (meal vouchers) and CESU Domalin® (employment services vouchers), issued by Banque Populaire banks, Caisses d’Epargne and Natixis posted stable growth and an increase of 5.8% to €976 million in the total equivalent amount, mainly to companies and local authorities.
Drawing on the expertise of Natixis Payment Solutions, the leading player in France and in Europe in payment transactions and of Groupe BPCE in payment solutions, continued the preliminary work for the roll-out of the second generation of Apetiz cards, following the launch of the fi rst Apetiz card (virtual meal voucher) in 2014.
In 2015, Titres Cadeaux, a joint venture with La Banque Postale, continued its development by expanding the scope of its CA DO Carte multi-brand prepaid gift vouchers. Sales of So Chic gift boxes increased. A new website was launched, enabling individual customers to manage their card account. In 2015, issues of CA DO Chèque and CA DO Carte came to an equivalent amount of €114.9 million.
With close to 20% market share – placing it third among payments operators in France (source: GIE CB March 30, 2015) – Natixis Payment Solutions processed over 6.6 billion mass transactions in 2015.
In electronic banking, Natixis Payment Solutions is also developing a full range of services for the bank distribution networks, ranging from product design to technical and marketing support solutions while incorporating the client’s goals and expectations. It supports the development of markets for companies, professionals and individuals and has an active policy of launching new products. Natixis Payment Solutions managed nearly 21 million cards and processed some 3.8 billion card transactions in 2015.
To support the development of its corporate clients, both in France and abroad, Coface offers credit insurance solutions aimed at protecting companies against the risk of fi nancial default by their purchasers. It also strives to help its clients assess and anticipate risks, allowing them to make informed decisions. Coface thus offers comprehensive, detailed risk analysis of countries, sectors and companies around the world. This analysis draws on its unrivaled global network through which it offers its services in 99 countries.
In 2015, Coface generated consolidated revenues of €1,489.5 million, an increase 3.4% at current scope and exchange rates (up 1.2% at constant scope and exchange rates). Impacted by the downturn in the macroeconomic environment, its combined ratio before reinsurance was 83.1%, up 3.4 points on 2014 (claim ratio: 52.5% and cost ratio: 30.5%).
Current operating income including fi nancing costs and excluding restated items (1) amounted to €194.2 million, down 6.1% compared to 2014 (2). Net income (group share) totaled €126.2 million compared with €125.1 million in 2014.
(1) Current operating income including fi nancing costs is restated for the interest expense on hybrid debt issued in March 2014.
The transfer is subject to changes in the legal and regulatory framework applicable to state guarantees management activities. The entry into force of these changes will be determined later by decree. The transfer will involve the sale to Bpifrance of the standalone state guarantees business, consisting of dedicated teams and resources (IT, contracts, etc.) as well as its corresponding assets and liabilities.
Coface has modernized its fl agship offer and on June 15, 2015 announced the launch of TradeLiner, designed to address the changing needs of mid-market companies. This decision is an integral part of Coface’s efforts to upgrade its range of credit insurance products and provide specialized offerings for each market segment.
Finalization of the financial autonomy project and changes in the refinancing program
As a result, Coface has increased the diversifi cation of its banking partners and achieved full fi nancial autonomy for the overall refi nancing of its factoring business, while extending the average maturity of its refi nancing.
1 PRESENTATION OF NATIXISNatixis and its shareholders 1.5 Natixis and its shareholders 1.5.1 KEY SHARE DATA AT DECEMBER 31, 2015
(b) Calculated using the number of shares at December 31 of the year in question and after paying out the proposed dividend for the fi scal years 2013, 2014 and 2015.
1 PRESENTATION OF NATIXISNatixis and its shareholders 1.5.5 NATIXIS AND ITS INDIVIDUAL
V A toll-free Shareholder number (from a landline in France: 0800 41 41 41) is available Monday to Friday from 9 a.m. to 6 p.m. (except on public holidays). This number gives access to an interactive voice response system providing round-the-clock information on the share price, the Company’s financial calendar, the highlights of the latest results, and the upcoming events of the Shareholders’ Club. Information officers are also on hand to provide a personalized response to shareholders.
R provides a comprehensive archive of the Company’s press releases, calendar and fi nancial news in the “Investor Relations” section,
R includes all editorial content and documents for shareholders in the “Individual Shareholders’ Corner”.
Membership of the Shareholders’ Club is open to any shareholder who holds at least one registered or bearer share.
In 2015, the program of activities included fi ve discussions about Natixis and seven thematic events.
The three information meetings about Natixis were held in Reims, Lille and Nantes and were organized in partnership with the investment journal Le Revenu and the Federation of Individual Investors and Investment Clubs (F2iC). In addition, there were two Q&A sessions via video and live webcast. These events gave individual investors a chance to ask Natixis’ representatives about Natixis, its businesses, fi nancial results and strategy.
V In 2015, the CCAN met Laurent Cauchy, secretary of the Board of Directors and of the Shareholders’ Meeting to share views on the corporate governance of Natixis. The Committee also worked to improve Natixis’ General Shareholders’ Meeting.
Call for applications Every year, a third of the Committee is renewed. Throughout the year, interested shareholders are invited to put forward their application.
On May 19, 2015, the General Shareholders’ Meeting called to approve the 2014 fi nancial statements was attended by some 400 individual shareholders.
After presenting the corporate governance of Natixis, François Pérol gave the fl oor to the Chairman of the Compensation Committee, Nicolas de Tavernost. The latter gave an account of the work of the Committee and detailed the compensation of the CEO and the regulated population. This presentation was illustrated by a fi lm on “The compensation policy at Natixis”.
The primary responsibility of the Investor Relations Department is to maintain clear and transparent dialog with the fi nancial community on Natixis’ fi nancial standing, strategy, economic environment and any other information that would assist in accurately assessing Natixis’ situation.
Natixis organizes meetings with analysts and institutional investors throughout the year at roadshows or conferences organized by brokers in the main fi nancial marketplaces. In 2015, meetings were held in Paris, London, Copenhagen, Helsinki, Luxembourg, Frankfurt, Zürich, Geneva, Roma, Chicago, Boston, New York, San Francisco, Los Angeles, Montreal, Tokyo, Singapour, etc.
Institutional investors and analysts can contact the Investor Relations Department by e-mail at investorelations@natixis.com.
This section is an extract from the Chairman of the Board’s report on the Board’s composition, the preparation and organization of its work on the internal control and risk management procedures implemented by Natixis, including information regarding the mandates of corporate offi cers and their compensation.
Dean and Managing Director of Web School Factory – Chairman of the Strategic Committee
George Éric de la Brunière - Asset Management and Private Banking - Banque Privée 1818
Anne Sallé-Mongauze - SFS - Compagnie Européenne de Garanties et Cautions
2 CORPORATE GOVERNANCEAdditional information on the corporate offi cers’ positions 2.2 Additional information on the corporate officers’ positions
V Member of the Board of: Arkema (a), Lazard Ltd (a), AROP (Association pour le Rayonnement de l’Opéra) (since 12.10.2015)
V Member of the Board of Arkema (a) (b), Lazard Ltd (a) (b)
V Chairman of the Fédération Bancaire Française (French Banking Federation) (until 08.31.2015)
Management Board V Chairman of the Board of Directors of: Natixis (a), Crédit Foncier
V Member of the Board of: CNP Assurances (a) (b), Sopassure, Musée d’Orsay (b) (until 09.21.2013)
V Chairman of the Fédération Bancaire Française (French Banking Federation) (until 09.01.2011)
V Permanent Representative of BPCE, Manager of SNC Bankeo (until 2011)
Director First appointed: co-opted by the Board of Directors on 08.25.2009 and ratifi ed at the CSM of 05.27.2010 Term expires: 2019 AGM (e)
Attendance rate in 2015 Board of Directors: 100% Audit Committee: 80% Risk Committee: 67% Strategic Committee: 100%
After earning a degree from the Institut d’Études Politiques in Paris and the Centre de Perfectionnement à l’Analyse Financière, followed by a postgraduate degree in fi nancial and economic analysis, Daniel Karyotis began his career with Société Générale on the fi nancial markets. From there, he moved to Standard & Poor’s where he covered the banking sector, and then joined Caisse d’Epargne Champagne-Ardenne (CECA) where he held various management positions between 1992 and 1997. A member of the Management Board and Chief Executive Offi cer of Caisse d’Epargne du Pas-de-Calais from 1998 to 2001, he was appointed Chairman of the Management Board of CECA in January 2002. In February 2007 he became Chairman of the Management Board of Banque Palatine. Daniel Karyotis is also a member of the Société Française des Analystes Financiers (SFAF – French Society of Financial Analysts). Daniel Karyotis has been Chief Finance, Risk and Operations Offi cer and a member of the Management Board of BPCE since December 1, 2012. His term of offi ce was renewed on November 16, 2015.
V Member of the BPCE Management Board - Finance, Risk and Operations V Deputy Chief Executive Officer of CE Holding Promotion V Member of the Board of Directors of Nexity (a) (until 05.27.2015) V Permanent Representative of BPCE, Member of the Board and Chairman of the Audit Committee of Crédit Foncier V Permanent Representative of BPCE, member of the Board of CE Holding
V Member of the Board of Coface (until November 2012) V Permanent Representative of Banque
V Permanent Representative of BPCE, Member of the Board of Directors of Natixis (a) (since 01.28.2013)
Thierry Cahn Chairman of the Board of Directors of Banque Populaire Alsace Lorraine Champagne
Director First appointed: co-opted by the Board of Directors on 01.28.2013 and ratifi ed at the CSM of 05.21.2013 Term expires: 2019 AGM (e)
Thierry Cahn holds a Professional Lawyers’ Certifi cate (Certifi cat d’Aptitude a la Profession d’Avocat - CAPA) and joined the fi rm Cahn et Associés in 1981. In 1984 he joined the General Council of the Colmar Bar (Conseil de l’Ordre des Avocats de Colmar) of which he is still a member. In 1986 he was named Secretary General to the National Lawyers’ Association (Confédération Nationale des Avocats), which he chaired from 1995 to 1996, before becoming Chairman of the Colmar Bar Association from 1998 to 1999. In addition, since 1985 he has been Head Tutor at the Institut Universitaire de Technologie (IUT) de Haute Alsace and the CRFPA d’Alsace. Since September 30, 2003 Thierry Cahn has been Chairman of the Board of Directors of Banque Populaire Alsace Lorraine Champagne. Key advisory skills: expertise in legal matters, particularly in business law.
V Chairman of the Board of Directors of Banque Populaire Alsace Lorraine Champagne
2 CORPORATE GOVERNANCEAdditional information on the corporate offi cers’ positions Alain Condaminas Chief Executive Offi cer of Banque Populaire Occitane
Director First appointed: OGM of 05.29.2012 Term expires: 2016 AGM (c)
Attendance rate in 2015 Board of Directors: 100% Appointments Committee: Compensation
Committee: 100% Strategic Committee: Alain Condaminas has a degree in Economic Sciences and a DESS in Banking and Financial Techniques. He joined the Banque Populaire Group in 1984. In 1992 he began working at Banque Populaire ToulousePyrénées as Production Director supervising the Human Resources Department, and subsequently as Head of Operations. In 2001 he became Chief Executive Offi cer of Banque Populaire Quercy-Agenais. In 2003 he oversaw the merger with Banque Populaire du Tarn et de l’Aveyron, followed by another with Banque Populaire ToulousePyrénées, to form what is now Banque Populaire Occitane.
V Permanent Representative of BP Occitane, Member of the Board of IRDI V Permanent Representative of BP Occitane, member of the Supervisory Board of SOTEL V Permanent Representative of BP Occitane, Member of the Supervisory Board of
V Member of the Management Board - Chief Financial & Administrative Officer at JCDecaux (until 01.15.2015)
V Member of the Supervisory Board of Médiakiosk S.A.S. (until 01.15.2015)
V Member of the Executive Board – Chief Financial & Administrative Officer of JCDecaux
V Member of the Board of Média Aéroports de Paris S.A.S. (since 09.07.2011), JCDecaux Bolloré Holding S.A.S. (since May 2011)
(a) Listed company. (b) Company outside Groupe BPCE. (e) 2019 AGM convened to approve the fi nancial statements for the year ending 12.31.2018. (f) Since 02.10.2016, previously Chairman from 05.11.2011 to 02.10.2016. (h) Ms. Debroux informed Natixis at the start of the year of her time constraints since taking on new functions.
Director First appointed: AGM of 05.19.2015 Term expires: 2019 AGM (e)
With a degree in Agricultural Economics from IAE de Paris (Sorbonne Graduate Business School), and a degree in Accounting Studies, Alain Denizot began his career at Crédit du Nord before moving on to SG Warburg France, followed by Société Marseillaise de Crédit. In 1990 he joined Caisse d’Epargne Ile-de-France-Ouest as manager then Head of Financial Management. In 1995 he became a Member of the Management Board in charge of the Risk and Finance Division, then in 1999 a Member of the Management Board in charge of the network and banking development. In 2000 he joined Caisse d’Epargne de Flandre as Chief Executive Offi cer and Member of the Management Board in charge of the Network and Banking Development. In 2003 he was appointed Chief Executive Offi cer of Ecureuil Assurance IARD. He was later appointed Chairman of the Management Board of Caisse d’Epargne de Picardie in early 2008. In 2011 he joined Caisse d’Epargne Nord France Europe as Chairman of the Management Board. Key advisory skills: expertise in fi nancial management, risks, development and insurance.
V Member of the Supervisory Board and Audit and Risk Committee of BPCE (until 05.22.2015)
V Chairman of the Board of Directors of Batixia V Chairman of Lyderic Invest (a) (until 03.09.2015) V Chairman of the Supervisory Board of Immobilière Nord France Europe (until 02.12.2015) V Chairman of the Supervisory Board of SIA Habitat (since 06.03.2016) V Member of the Board of Natixis Factor, FNCE, CE Holding Promotion (until 09.01.2015), Habitat en Région V Member of the Board and Treasurer of Fondation Caisses d’Epargne pour la
Solidarité (FCEs) (since 12.16.2015) V Permanent Representative of CENFE, Chairman of Savoirs pour Réussir en
Member of the Board of Habitat en Région Services et Valoénergie
V Permanent Representative of CENFE, Chairman (Regional Board transition from 12.14.2015 to February 2016) of Finorpa Conseils, Finorpa Financement
V Permanent Representative of CENFE, Member of the Board and Member of the Finorpa SCR Engagement Committee
V Member of the Regional Steering Committee of Banque Publique d’Investissement
V Permanent Representative of CENFE, Member of the Supervisory Board of Finovam
V Member of the Board of: Natixis Factor, FNCE, CE Holding Promotion
V Chairman of the Management Board of Caisse d’Epargne Nord France Europe (CENFE)
V Permanent Representative of CENFE, Chairman of Savoirs pour Réussir en Nord Pas de Calais, Finorpa (b)
V Permanent Representative of CENFE, Member of the Supervisory Board of IT-CE
V Permanent Representative of CE Holding Promotion, Member of the Board of Habitat en Région Services
V Member of the Regional Steering Committee of Banque Publique d’Investissement (b)
A graduate of the Sup de Co Nice business school, Sylvie Garcelon joined the Banque Populaire Group in 1987 in the Internal Audit Department. In 1994 she became Corporate Secretary at SBE before joining the Finance Department of BRED in 2000. In 2003 she joined Natexis, fi rst in Third-Party Asset Management, and then in the Information Systems and logistics department. In 2006 she was appointed CEO of M.A. Banque, and then Chairman of the Management Board in 2010. Sylvie Garcelon joined CASDEN Banque Populaire in April 2013 as Deputy Chief Executive Offi cer in charge of Finance, Risks and Subsidiaries. Since May 2015 Sylvie Garcelon is Chief Executive Offi cer of CASDEN Banque Populaire. Key advisory skills: expertise in fi nancial management and corporate strategy.
V Chairman of the Management Board of M.A. BANQUE (since 2010)
V Member of the Board of ABP Vie S.A. (since 2006)
V Deputy Chief Executive Officer of CASDEN Banque Populaire (since April 2013)
Director First appointed: co-opted by the Board of Directors on 02.19.2014 and ratifi ed at the OGM of 05.20.2014 Term expires: 2019 AGM (e)
V Member of the Board of Banque Palatine, Natixis Global Asset Management V Secretary of the Conference of Banque Populaire Chairmen (until 02.04.2015)
V Deputy Mayor of the city of Sens V Vice-Chairman of the Senonais Communauté de Communes V Associate member of the Chamber of Commerce and Industry of Yonne V Member of the Board of Directors of HLM Brennus Habitat S.A.
V Member of the Board of HLM Brennus Habitat S.A. (since 06.16.2014)
(a) Listed company. (b) Company outside Groupe BPCE. (e) 2019 AGM convened to approve the fi nancial statements for the year ending 12.31.2018.
Director First appointed: OGM of 05.29.2012 Date term of offi ce expires: 11.16.2015
Attendance rate in 2015 Board of Directors: 100% Audit Committee: 100% Risk Committee: 100% Strategic Committee: 100%
With a post-graduate degree in fi nancial accounting (DECS) and another in business, administration and fi nance (DESCAF) earned at the École Supérieure de Commerce in Clermont-Ferrand, Catherine Halberstadt has been with Groupe BPCE since 1982. She began her career at Banque Populaire du Massif Central in Marketing Research (1982-1986) before becoming a Communications Offi cer (1986-1992). She was later appointed Human Resources and Organizational Director (1992-1998), Chief Financial Offi cer (1998-2000) and then Deputy Chief Executive Offi cer (2000-2008). In 2008 she joined Natixis Factor as Chief Executive Offi cer (2008-2010). Catherine Halberstadt was been Chief Executive Offi cer of Banque Populaire du Massif Central since from September 1, 2010 to December 31, 2015. Since January 1, 2016 Catherine Halberstadt occupies the roles of Member of the BPCE Management Board in charge of Human Resources and Internal Communication, and Corporate Secretary of BPCE. Key advisory skills: expertise in Human Resources issues; extensive knowledge of retail banking and business fi nancing.
V Member of the Board of Crédit Foncier V Permanent Representative of Banque Populaire du Massif Central,
Member of the Board of Association des BP pour la Création d’Entreprise, i-BP
V Permanent Representative of Banque Populaire Massif Central, Member of the Committee of Banques d’Auvergne
V Member of the Board of Bpifrance Financement V Chairman of the Appointments Committee and the Compensation
Committee, Member of the Audit Committee and the Risk Committee of Bpifrance Financement (since 09.24.2015)
V Chairman of the Audit Committee of Bpifrance Financement (until 09.24.2015)
(now Bpifrance Financement) + Chairman of the Audit Committee (since 2013)
V Permanent Representative of BPMC, Member of the Board of i-BP
V Permanent Representative of BPMC, Member of the Board of BICEC (until 2011)
Independent director First appointed: co-opted by the Board of Directors on 02.18.2015 and submitted for the approval of the AGM on 05.19.2015 Term expires: 2019 AGM (e)
V Member and Chairman of the Appointments and Compensation Committee of Korian Medica S.A. (a)
Franchises (b), Member of the Board of Directors of Guy Hoquet L’Immobilier (b) (until July 2011)
V Member of the Eurazeo (a) Board of Directors and Member of the Financial Committee
V Chief Executive Officer of Nexity Solutions (b) (since July 2011)
V Chief Executive Officer of the Web School Factory (b) (since April 2012)
2 CORPORATE GOVERNANCEAdditional information on the corporate offi cers’ positions Françoise Lemalle - start of offi ce 07.30.2015 Chairman of the Steering and Supervisory Board of Caisse d’Epargne Côte d’Azur (CECAZ)
Director First appointed: co-opted by the Board of Directors on 07.30.2015 Term expires: 2019 AGM (e)
Attendance rate in 2015 Board of Directors: 100% Strategic Committee: 100%
V Member of the Steering and Supervisory Board of Caisse d’Epargne Côte d’Azur (until 05.22.2015)
V Chairman of the Board of Directors of SLE CECAZ (SLE Ouest des Alpes-Maritimes)
V Chief Executive Officer of Lemalle Ares X-Pert V Member of the Board of IMF Créa-Sol (b)
V Member of the Steering and Supervisory Board of Caisse d’Epargne Côte d’Azur
V Chairman of the Board of Directors of SLE CECAZ (SLE Cannes)
Independent director First appointed: co-opted by the Board of Directors on 11.12.2009 and ratifi ed at the CSM of 05.27.2010 Term expires: 2019 AGM (e)
With a degree from the École Polytechnique, Bernard Oppetit forged his career with the Paribas group from 1979 to 2000, fi rst in Paris, then New York and, fi nally, London. As Deputy Director of the Financial Management division (1980-1987), Bernard Oppetit joined Paribas North America fi rst as a Risk Arbitrage Trader (1987-1990) and then as Global Head of Risk Arbitrage (19901995 ). In 1995 while still heading up Risk Arbitrage, he moved to London to become Global Head of Equity Derivatives (1995-2000).
Other offi ces held in 2015: Within the Centaurus Capital Group
V Chairman of Centaurus Capital Limited V Member of the Board of Centaurus Capital Holdings Limited, Centaurus
Global Holding Limited, Centaurus Management Company Limited, Centaurus Capital International Limited (until 03.30.2015), Centaurus Capital Group
Compliance with rules governing the number of offi ces held AFEP-Medef code: compliant French Monetary and Financial Code: compliant
V Member of the Board of Tigers Alliance Fund Management (Vietnam)
2 CORPORATE GOVERNANCEAdditional information on the corporate offi cers’ positions Stéphanie Paix Chairman of the Management Board of Caisse d’Epargne Rhône-Alpes
Address: 42 boulevard Eugène Deruelle BP 3276 69404 Lyon Cedex 03
A graduate of the Institut d’études politiques de Paris (IEP) with a DESS in corporate tax law from the Université Paris Dauphine, Stéphanie Paix has been with Groupe BPCE since 1988. She was Inspector and Head of Inspections at Banque Fédérale des Banques Populaires (1988-1994), and joined the Banque Populaire Rives de Paris as Regional Director and then Director of Production and Organization (1994-2002). In 2002 Stéphanie Paix joined Natexis Banques Populaires, where she was Director of Operations Management and then Director of Cash Management and Operations (2002-2005). In 2006 she became Chief Executive Offi cer of Natixis Factor, then Chief Executive Offi cer of Banque Populaire Atlantique (2008-2011). Stéphanie Paix has been Chairman of the Management Board of Caisse d’Epargne Rhône-Alpes since end-2011. She has also been a Member of the BPCE Supervisory Board since May 22, 2015. Key advisory skills: extensive knowledge of retail banking and business fi nancing; bank audits.
(since 05.22.2015) V Member of the BPCE Audit Committee (from 05.22.2015 to 11.16.2015) V Permanent Representative of CERA, Member of the Supervisory Board of IT-CE V Permanent Representative of CERA, Member of the Board of Fondation d’Entreprise CERA, Fédération Nationale des Caisses d’Epargne (FNCE), Habitat en Région, le Club du Musée Saint-Pierre, Fondation entrepreneurs de la Cité, BPCE IT (since 07.16.2015)
Garibaldi Office, SCI Lafayette Bureaux, SCI le Ciel, SCI le Relais
V Chairman of Agence Lucie (since 11.25.2015) V Chairman of the Supervisory Board of Rhône Alpes PME Gestion V Member of the Board of Siparex Associés V Permanent Representative of CERA, Member of the Board of Compagnie des
V Representative of BPA, Chairman of Ouest Croissance, Ludovic de Besse
V Representative of BPA, Member of the Board of Directors of C3B Immobilier, i-BP Portzamparc, Association des BP pour la Création d’Entreprise
V Representative of Ouest Croissance, Member of the Board of BP Développement
V Representative of BPCE, member of the Board of Directors of Compagnie des Alpes (b) (from 03.05.2012 to 10.18.2012)
2 CORPORATE GOVERNANCEAdditional information on the corporate offi cers’ positions Didier Patault - term of offi ce ended 05.19.2015 Chairman of the Management Board of Caisse d’Epargne Ile-de-France
Director First appointed: AGM of 04.30.2009 Date term of offi ce expired: 05.19.2015
First appointed: Board Meeting of 04.30.2009 Date term of offi ce expires: 05.19.2015
Didier Patault has been Chairman of the Management Board of Caisse d’Epargne Ile-de-France since May 2013. Key advisory skills: extensive knowledge of the regional public sector and regional economic development, expertise in management and fi nancial analysis.
V Member of the Board of Natixis Coficiné, CE Holding Promotion V Member of the Board (as a qualified person) of Paris Habitat – OPH V Permanent Representative of CEIDF, Member of the Board of Directors of Habitat en Région, Immobilière 3F, Fédération Nationale des Caisses d’Epargne (FNCE)
V Permanent Representative of CEIDF, Member of the Supervisory Board of IT-CE
V Permanent Representative of CEIDF, Bicentennial Chairman of Caisse d’Epargne (since 06.25.2015)
V Chairman of the Board of Directors of SODERO Participations, S.A. des Marchés de l’Ouest
V Member of the Supervisory Board of Banque BCP (since 06.17.2013)
V Member of the Board (as a qualified person) of Paris Habitat – OPH (since 10.17.2013)
V Permanent Representative of CEIDF, Member of the Board of Directors of Habitat en Région (since 04.25.2013), Immobilière 3F (since 05.14.2013), FNCE (since 04.25.2013)
2 CORPORATE GOVERNANCEAdditional information on the corporate offi cers’ positions Henri Proglio President of Henri Proglio Consulting S.A.S.
V Member of the Board of Edison V Chairman of the Board of Directors (since 04.24.2012)
V Member of the Board of EDF International S.A. (until 05.01.2011)
Director First appointed: AGM of 04.30.2009 Term expires: 2019 AGM (e)
V Chairman of the Steering and Supervisory Board of Caisse d’Epargne Ilede -France
V Chairman of Société d’Économie Mixte d’Aménagement du Val d’Oise (SEMAVO), Institut de Formation des Animateurs de Collectivités (IFAC – Local Supervisors’ Training Institute) for France and Val d’Oise
V Member of the Board of Syndicat des Transports d’Ile-de-France (STIF), Agence Foncière et Technique de la Région Parisienne (AFTRP) (until April 2015), Institut des Relations Internationales et Stratégiques (IRIS)
Address: 89 avenue Charles de Gaulle 92575 Neuilly sur Seine Cedex
Independent Director First appointed: OGM of 07.31.2013 Term expires: 2017 AGM (d)
Bordeaux, TF6 Gestion S.A. (until 03.01.2015) V Member of the Supervisory Board of Ediradio S.A. (RTL/RTL2/FUN RADIO) V Permanent Representative of M6 Publicité, member of the Board of
Directors of Home Shopping Service S.A., M6 Diffusion S.A., M6 Editions S.A., M6 Évènements S.A.
V Permanent Representative of Métropole Télévision, member of the Board of SASP Football Club des Girondins de Bordeaux, Société Nouvelle de Distribution SA, Extension TV S.A.S., C. productions S.A.
V Permanent Representative of C.Productions S.A., Member of the Board of M6 Films S.A. (since 01.01.2015)
2 CORPORATE GOVERNANCEAdditional information on the corporate offi cers’ positions Offi ces held in previous fi scal years
V Volunteer Member of the Board of the RAISE endowment fund (since 11.22.2013)
V Permanent Representative of Métropole Télévision: R Member of the Board of SASP Football Club des Girondins de Bordeaux, Société Nouvelle de Distribution S.A.
V Permanent Representative of Métropole Télévision, Member of the Shareholders’ Committee of Multi 4 S.A.S. (until 06.19.2014)
V Permanent Representative of M6 Publicité, Chairman of: M6 Créations S.A.S. (since 09.15.2014)
(a) Listed company. (b) Company outside Groupe BPCE. (d) 2017 AGM called to approve the fi nancial statements for the year ended 12.31.2016.
Address: 254 rue Michel Teule - BP7330 34184 Nice Cedex 4
Member – Strategic Committee First appointed: Board Meeting of 01.28.2013 Date term of offi ce expires: 07.30.2015
Attendance rate in 2015 Board of Directors: 100% Strategic Committee: N/A
V Chairman of the Board of Directors of SLE Vallée des Gardons V Member of the Board of CE Holding Promotion, Fédération Nationale des
2 CORPORATE GOVERNANCEManagement and oversight of corporate governance 2.3 Management and oversight of corporate governance
At its meeting of April 30, 2009, Natixis’ Board of Directors opted to separate the positions of Chairman of the Board and Chief Executive Offi cer. This decision was a result of the Company’s desire to comply with best practices in corporate governance and make a clear distinction between the strategic direction, decision-making and control functions that come under the Board of Directors’ responsibilities, and the operational and executive functions that fall to the Chief Executive Offi cer.
In accordance with the “apply or explain” rule provided for in Article L.225-37 of the French Commercial Code and addressed in Article 25.1 of the AFEP-Medef code, Natixis believes that its practices comply with the recommendations of the AFEP-Medef code. However, certain recommendations could not be implemented for the reasons given in the table below: Audit Committee (Article 16.1 of the Code) “At least two-thirds of the Audit Committee members must be independent...”
As such, one-third of the members of the Board of Directors is independent.
Since March 24, 2015, Ms. Laurence Debroux has been a member of the Board of Directors and CFO of Heineken N.V. in Amsterdam. Ms Anne Lalou is the Dean of the Web School Factory, and CEO of the Innovation Factory. Mr. Bernard Oppetit is Chairman of Centaurus Capital, which he founded. Mr. Henri Proglio is Chairman of Henri Proglio Consulting. Mr. Nicolas de Tavernost is Chairman of the Management Board of Groupe M6.
2 CORPORATE GOVERNANCEManagement and oversight of corporate governance The Board of Directors paid special attention to the appraisal of whether or not the business relationship between the companies in which the independent directors perform corporate offi cer duties, and Natixis or its corporate group, is signifi cant.
Based on this review, it determined that Natixis is not the “reference banker” for the companies in which its independent directors exercise their executive duties or corporate offi ces, namely Heineken N.V., Henri Proglio Consulting, Centaurus Capital, M6, and the Web School Factory.
Is not a corporate offi cer in any company in which Natixis directly or indirectly holds a Board membership or in which an employee or corporate offi cer of Natixis holds or has held a Board membership in the last fi ve years OK OK OK OK OK
Does not receive and has not received any signifi cant additional compensation from the Company or Group other than director’s fees, including participation in any stock option plan or any other performance-related compensation plan OK OK OK OK OK
The term of offi ce for Natixis directors was reduced from six to four years at the Combined Shareholders’ Meeting of May 19, 2015. This change applies not only to terms of offi ce renewed at the General Shareholders’ Meeting but also to any new terms of offi ce and terms in progress.
V Changes made to the Board of Directors in 2015: R On February 18, 2015, the Board of Directors of Natixis co-opted Ms. Anne Lalou to replace Ms. Christel Bories for the remainder of her predecessor’s term of offi ce, namely until the end of the General Shareholders’ Meeting called to approve the fi nancial statements for the fi scal year ending on December 31, 2014.
The Combined Shareholders’ Meeting also appointed Mr. Alain Denizot as a new director for the same term, to replace Mr. Didier Patault.
Pursuant to the new Article L.511-99 of the French Monetary and Financial Code, the Board of Directors, in view of the report by the Appointments and Compensation Committee, at its meeting of December 16, 2015, set a target with regard to gender parity within the Board of Directors, of 40% women at the end of the General Shareholders’ Meeting of May 24, 2016.
In accordance with Article 9 of the Natixis bylaws, each director must own at least one hundred and forty (140) Company shares during their term of offi ce. Furthermore, in accordance with the recommendations of the AFEP-Medef code and the provisions of Article 3 of the Compliance Charter for members of the Board of Directors (see 2.3.1.2-C), the Directors are asked to hold at least one thousand (1,000) Company shares within 18 months of joining the Board.
In accordance with the law, the number of directors who are over the age of 70 is limited to one-third of the number of directors in offi ce. No Natixis Director had reached the age of 70 at December 31, 2015.
Pursuant to the law and the bylaws, the Natixis Board of Directors, assisted by the Board’s Special Committees: V defines the strategy governing the Company’s activities and oversees its implementation. Within the limits of the Company’s corporate purpose and the powers expressly granted by law or its bylaws to the General Shareholders’ Meetings, the Board concerns itself with all matters affecting the Company’s performance and governs by virtue of its deliberations. The Board of Directors shall perform the inspections and verifications it deems appropriate; V defines the Company’s senior management policy, with the caveat that the Board may only deliberate on this matter when it features on the agenda sent out at least 15 days prior to the Board Meeting and when at least two-thirds of the directors are present or represented; V may appoint a Chief Executive Officer from among the directors or otherwise, whom it may dismiss at any time; V may, at the proposal of the Chief Executive Officer, appoint one to five individuals as Deputy Chief Executive Officers whose role is to assist the Chief Executive Officer; V convenes all General Shareholders’ Meetings, sets the agenda and oversees the execution of all decisions taken; V may, at the proposal of the Chairman, decide to set up its own Committees to deliberate on those issues submitted for examination by the Board itself or its Chairman. It determines the structure and powers of these Committees, which conduct their activities under its responsibility; V regularly adopts and revises the general principles of the compensation policy and controls its implementation;
The Board of Directors appoints the Senior Managers (within the meaning of Article L.511-13 of the French Monetary and Financial Code) (see section [2.3.3] Senior Management for more information on Senior Managers ).
Among these Internal Rules, which were last amended on July 30, 2015, particular attention should be drawn to the following provisions: V circumstances requiring the Board of Directors’ prior authorization: R the extension of Natixis’ activities to a new core business not currently exercised by the Company; R the appointment or dismissal of the CEO or, where applicable, one or more Deputy CEOs; R any acquisition or increase in shareholdings, as well as any investments, divestments or the formation of joint ventures by Natixis or any of its main subsidiaries, involving an amount in excess of €100 million, in the event that the Group’s structure is modifi ed; R any asset transfers, mergers or demergers in which Natixis is involved.
V board operating procedures specified in the Internal Rules: In particular, the Internal Rules stipulate that, except for decisions related to the preparation of parent company and consolidated financial statements and management reports (Company and Group), directors participating in a Board Meeting by videoconference or through the use of telecommunication facilities transmitting at least the member’s voice and whose technical characteristics allow for continuous and simultaneous streaming of the proceedings, shall be deemed present for the purposes of quorum and majority.
In addition, with respect to the assessment of the Board of Directors’ work, the Internal Rules specify that, at least once a year, an agenda item will be devoted to evaluating the Board’s operation, an account of which will be included in Natixis’ annual report (for 2015, see point 2.3.1.4 – Assessment of the Board’s work in 2015).
Minutes of Board Meetings are prepared and sent to Natixis’ directors, and approved at every subsequent session by the latter.
Each director must declare any trading in Company shares to the AMF, in accordance with the provisions of Article L.621-18-2 of the French Monetary and Financial Code.
Management and oversight of corporate governance agreement (see Statutory Auditors’ special report in Chapter 7 “Legal Information”), specifi cally the amendment to the framework agreement governing the assignment of receivables.
Each director’s attendance at the Board of Directors’ meetings appears in section 2.2 of this chapter (see Directors’ individual factsheets).
The main topics addressed by the Board of Directors in 2015 were as follows: Natixis’ fi nancial, cash and commitment position
V Review of the quarterly and half-yearly fi nancial statements and approval of the annual (parent-company and consolidated) fi nancial statements
V Review and approval of 2016 budget V Economic and benchmark reviews / Business review / Life of the stock V Review and approval of press releases V Adoption of the Board’s management report V Adoption of the Board of Directors’ report on the use of capital increase authorizations
V Submission of the work by the Appointments Committee V Reappointment of the CEO V Reduction of the term of offi ce of directors V Reappointment of directors whose term of offi ce was due to expire V Reappointment of the Chairman of the Board of Directors V Co-opting of new directors V Chairmanship and composition of Special Committees V Update of the Internal Rules of the Board of Directors and the Special Committee V Review of the classifi cation of the status of directors as independent members V Review of the summary assessment of the Board of Directors’ work V Convocation to the General Shareholders’ Meeting and the annual meeting for holders of participating securities
V Board member training V Authorization of the signature of various related party agreements V Implementation of the process set out in Article L.2323-7-1 of the French Labor Code on strategic guidelines
2 CORPORATE GOVERNANCEManagement and oversight of corporate governance 2.3.1.4 Assessment of the Board’s work in 2015
For the 2015 fi scal year, Natixis carried out an internal assessment, based on individual interviews using a standardized questionnaire.
This internal assessment covered fi ve areas: V the organization, running and composition of the Board: the purpose of this first topic is to take stock of the frequency, notice period and length of meetings, the use of the Board of Directors’ secure website, access to information, the quality of documentation received, and directors’ involvement, qualifications and training, etc.; V the issues addressed by the Board: the purpose of this is to ensure that the topics discussed are properly prepared, that the Board’s level of involvement in substantive issues such as strategy, business conditions, the management of major balance sheet ratios, and so on, is sufficient, that the discussions are of a high standard, that directors are available to express themselves whether they agree or disagree with the issue discussed, that resolutions are properly followed up, etc.; V the relationship between members of the Board and Senior Management: this third topic is intended to ensure that all directors have a good understanding of the breakdown of roles between the Chairman of the Board and the Chief Executive Officer, and work sufficiently closely with Senior Management; V evaluation of the work of the Special Committees: this aims to review the frequency and length of meetings, access to information, members’ attendance, the quality of recommendations made to the Board of Directors and the submission of projects; V the general performance of the Board: this last topic is an opportunity for each director to comment on how the running of the Board has developed over the past year.
The results of this assessment will be described in detail in the update to this registration document to be released in August 2016.
Natixis’ Board of Directors now has fi ve Special Committees: an Audit Committee, a Risk Committee, a Compensation Committee, an Appointments Committee and a Strategic Committee, each chaired by an independent director.
V No change was made to the Audit Committee in 2015.
V Change made to the Audit Committee since January 1, 2016: R On February 10, 2016, Sylvie Garcelon was appointed a member of the Audit Committee, to replace Catherine Halberstadt.
Under the Natixis Board of Directors’ responsibility, the Audit Committee’s primary duties are: V checking the clarity of information published by Natixis and assessing the relevance of the accounting methods adopted for the creation of Natixis’ individual and consolidated financial statements; and
The Committee may also, if it deems it appropriate, call on the skills of outside experts or consultants for the purpose of explaining any topic that falls under its remit.
2 CORPORATE GOVERNANCEManagement and oversight of corporate governance C Work of the Audit Committee in 2015
Each director’s attendance at the Audit Committee’s meetings appears in section [2.2] of this chapter (see Directors’ individual factsheets).
For each matter submitted for review and analysis, the Audit Committee had the opportunity to hear from relevant Natixis personnel as well as to familiarize itself with reports on the said matters.
In order to enable it to audit the fi nancial statements, the Audit Committee is sent a copy of the reports of the Finance Department and the comments of the Statutory Auditors regarding annual fi nancial statements and the review of the half-year and quarterly fi nancial statements.
In 2015, the Audit Committee’s duties focused on the following items in particular: Financial position
V Reappointment/appointment of the Statutory Auditors V Update on equipment leasing V Review of the Kompass International sale process V Partnership system within Natixis Global Asset Management.
During 2015, the Risk Committee comprised fi ve members. As of March 1, 2016, these members were: Bernard Oppetit Chairman
V No change was made to the Risk Committee in 2015.
V Change made to the Risk Committee since January 1, 2016: R On February 10, 2016, Sylvie Garcelon was appointed a member of the Risk Committee, to replace Catherine Halberstadt.
Natixis’ Risk Committee has internal rules specifying its powers and its operating procedures, which was approved by the Board of Directors on December 17, 2014.
Now, under the Natixis Board of Directors’ responsibility, the Risk Committee’s primary duties are: V advising the Board of Directors on the bank’s overall strategy and risk appetite, both current and future; V assisting the Board of Directors when it checks the implementation of that strategy by the Senior Managers and by the Head of Risk Management.
V to review, pursuant to its remit, whether the prices of products and services proposed to clients are compatible with Natixis’ risk strategy. If these prices do not correctly reflect the risks, it presents the Board of Directors with an action plan to remedy it; V to review, without prejudice, the duties of the Compensation Committee, if the incentives set out by Natixis’ compensation policy and practices are compatible with this latter’s situation with regard to the risks to which it is exposed, its capital, its liquidity and the probability and time phasing of the expected benefits; V to assist the Board of Directors in reviewing the aforementioned governance mechanism, in assessing its effectiveness and ensuring that corrective measures have been taken to remedy any shortcomings; V to regularly examine the strategies and policies governing the taking, management, monitoring and reduction of the risks to which Natixis is or could be exposed, including risks created by the economic environment; V to examine compliance risk monitoring-related items at least once a year, pursuant to Article 253 of the Order of November 3, 2014 on internal control of banking sector businesses, payment services, and investment services; V to give opinions on the appointment or dismissal of the Head of Internal Audit at Natixis; V to see to it that the findings of assignments by the Internal Audit Department and by regulatory and supervisory authorities (specifically the Autorité de Contrôle Prudentiel et de Résolution (ACPR - French Prudential Supervisory Authority for the Banking and Insurance Sector) are followed up on; to that end, a summary of reports by the Internal Audit Department on Natixis and its subsidiaries is made to the Risk Committee which also receives all reports from the regulatory and supervisory authorities (specifically the ACPR) on Natixis and its subsidiaries; V to address Natixis’ annual internal audit program, including audits of subsidiaries, with this program being presented to the Committee at least one week prior to its approval.
V Review of the monthly consolidated risk monitoring scorecard (regular updates on credit, market liquidity and operational risks and insurance risk)
V Presentation and review of Natixis’ risk appetite V Review of the Chairman’s draft report on the work of the Board and on Internal Control in 2014 V Review of Natixis’ exposure to the Energy sector V Presentation of reports on internal control and risk measurement and monitoring V Presentation of the proposed audit program for 2016 V Review of Natixis and BPCE Internal Audit assignments conducted during the fi rst half of 2015 V Monitoring implementation of recommendations made by Natixis’ Internal Audit Department
V Check on outsourced essential services V Compliance risk monitoring V Review of the business continuity mechanism V Compliance risk monitoring V Review of results of check processing program delivery V Presentation of the 2014 customer report 2.3.2.3 Compensation Committee
As of March 1, 2016 those members were as follows: Nicolas de Tavernost Chairman
The role that falls to Natixis’ Compensation Committee is to prepare the decisions that Natixis’ Board of Directors issues with regard to compensation, including Natixis employees who have a signifi cant impact on the Company’s risk. The Compensation Committee’s
At least three days before meeting, each director received a fi le via a secure website containing the items on the agenda in order to be able to review and analyze the topics addressed.
V Incorporation of operational risk monitoring into the compensation system V Implementation of Solvency II, UCITS V and MiFID II in 2016 V Identifi cation of the “regulated population” as defi ned in CRD4 V Budget for changes in fi xed compensation for 2015 V Reviewing Natixis’ compensation policy, including a look at the structure and the amounts of variable compensation by business line
V Presenting the existing employee savings plans at Natixis V Analyzing the procedures for the capital increase reserved for employees (Mauve 2015/2016) V Paying out a profi t-sharing top-up to Natixis’ employees in France for 2014 V Impacts of the “special” dividend payment
First chaired by Mr. de Tavernost when it was created on December 17, 2014, the Appointments Committee has been chaired by Mr. Proglio since February 18, 2015.
Qualifi cation as an Independent Director is discussed by the Appointments Committee, which prepares a report for the Board. Each year, based on this report and before the publication of the annual report, the Board of Directors reviews the situation of each of its members based on independence criteria set out in Article 2.3.2 of the Board of Directors’ Internal Rules.
2 CORPORATE GOVERNANCEManagement and oversight of corporate governance In 2015 the Committee focused on the following areas: Selecting/appointing directors
V Reduction of the term of offi ce of directors V Identifying a person or a dominant group within the Board of Directors who might be detrimental to Natixis’ interests 2.3.2.5 Strategic Committee
In addition, the meetings of this Committee allow the Board of Directors to get to know the management team that works with the Chief Executive Offi cer better and improve the Board’s work methods.
In 2015 the Strategic Committee met to discuss four topics: the progress of the implementation of the “New Frontier” strategic plan, Insurance issues for Natixis and the Group, digital transformation and the international strategy.
The Chief Executive Offi cer is responsible for the Natixis’ senior management, in accordance with the Board of Directors’ decision of April 30, 2009 to separate the offi ces of Chairman of the Board and Chief Executive Offi cer.
Additionally, pursuant to Article L.511-13 of the French Monetary and Financial Code, Natixis’ Board of Directors appointed two Senior Managers (“Dirigeants effectifs”): Laurent Mignon, Chief Executive Offi cer and Jean Cheval, Chief Finance and Risk Offi cer.
In this capacity, Messrs. Mignon and Cheval stand surety for, and assume full liability toward the supervisory authorities, specifi cally the Autorité de Contrôle Prudentiel et de Résolution (ACPR - French Prudential Supervisory Authority for the Banking and Insurance Sector), for the following activities: V the senior management of the bank, within the meaning of Article L.511-13 of the French Monetary and Financial Code; V disclosure to the ACPR of any accounting or financial document that the ACPR may request, as well as a response to any request for information or any question, per Articles L.571-4 to L.571-9 of the same code; V periodically evaluating and checking the effectiveness of the mechanisms and procedures set up to comply with the Order of November 3, 2014 on internal control of banking sector businesses.
In this context, the Senior Managers are authorized to request and accept all useful information from any division, department, controlled entity or subsidiary of Natixis.
In accordance with Article 15 of the bylaws, the Chief Executive Offi cer is vested with the broadest powers to act on behalf of the Company under all circumstances. 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.
The Chief Executive Offi cer may delegate a portion of his powers to any corporate offi cer of his choosing, with or without the option of substituting one for another. In this regard, in 2010 and 2011 Natixis overhauled its entire system of delegating authority, including signing authority, which resulted in the delegation of Senior Management responsibilities to members of the Senior Management Committee.
The Senior Management Committee also sought to identify the opportunities offered by digital technology within the company, and defi ned the work to be carried out for that purpose during a strategic seminar. Next, it examined the fi ndings from these projects and approved the resulting action plans before their implementation.
In 2015, the Senior Management Committee continued to supervise the implementation and execution of both phases of Natixis’ workforce adjustment plan in France, as part of the framework agreement with employee representatives signed in 2013. It also signed the charter on the “15 work/life balance commitments” which is divided into four areas: example-setting by managers, respecting the balance between work and private life, increasing meeting effi ciency and the proper use of emails.
The Senior Management Committee regularly examined the Company’s business development and results during its meetings throughout the year. It studied the half-yearly and quarterly fi nancial statements, before they were presented to the Board of Directors, and was involved in defi ning fi nancial communications for the Company.
The Senior Management Committee approved the main management decisions and reviewed and approved the budget after in-depth communication with the business lines. It also approved the terms and conditions governing mandatory annual negotiations and the compensation review policy, the appointment of senior executives and managers, as well as all signifi cant projects or investments. In addition, it examined and approved several restructuring projects, including the reorganization of the Information Systems department.
OGMs may also be used to appoint or re-appoint directors and non-voting members as well as to appoint or re-appoint Statutory Auditors and, if necessary, ratify the co-opting of a member of the Board.
Pursuant to Article R.225-85 of the French Commercial Code, those shareholders who can prove their shares are in a custody account (pursuant to paragraph seven of Article L.228-1 of the French Commercial Code) in their name or in the name of an intermediary acting on their behalf, either in the registered share accounts held by the Company or in the bearer share accounts held by their authorized intermediaries, no later than two working days before the date of the meeting (by midnight Paris local time hereinafter referred to as D-2), may attend the meetings.
In line with the provisions of Article 25 of the bylaws, and exceptionally in the case of granting double voting rights to any fully paid-up shares for which a registered entry for two years under the same shareholder name is demonstrated under Article L.225-123 Paragraph 3 of the French Commercial Code, each member of the meeting has a right to as many votes as they hold or are represented by shares.
Banking relationships between Natixis and the Groups chaired by the independent members of the Board are not of a nature liable to affect the impartiality of their judgment.
Natixis’ compensation policy is a key tool for the implementation of the Company’s strategy. The policy aims to offer competitive levels of compensation relative to the benchmark markets and is structured so as to encourage the long-term commitment of the Company’s employees while ensuring appropriate risk management. It refl ects the individual and collective performance of its business lines and employees.
Natixis regularly compares its practices to those of comparable French and international banking operators to ensure that its compensation policy is competitive and appropriate for each of its businesses.
The overall compensation of employees is structured around the following three components: V fixed compensation; V variable compensation; V collective compensation associated with employee savings plans, in particular in France.
Each employee benefi ts from some or all of these different components based on his or her responsibilities, skills and performance.
The compensation package is supplemented by additional employee benefi ts, in particular in countries where social protection is inadequate.
Nearly 6,700 employees in France and in nine other countries participated in Mauve 2015, i.e. an overall subscription rate of 48.5%.
Natixis’ policy in connection with gender equality in the workplace and the promotion of gender diversity includes signifi cant commitments in the area of compensation and, specifi cally: V fair pay at hiring; V an annual salary increase budget to correct unjustified disparities in fixed compensation for women; V annual compensation reviews guaranteeing equal treatment of men and women in respect of the award of individual raises and variable compensation; V a salary increase guarantee for employees returning from maternity or adoption leave.
Natixis’ compensation policy is compliant with the regulatory framework specifi c to its sectors of economic activity, whether in terms of regulations applicable to its asset management business activities (AIFMD), law no. 2013-672 on banking activity separation and regulation, and section 619 of the US law Dodd-Frank Wall Street Reform and Consumer Protection Act (the Volcker Rule), and the European regulation Capital Requirements Directive IV (CRD IV).
Scope of regulated categories of staff within the meaning of CRD IV
In accordance with those criteria, these individuals are identifi ed either by applying 15 qualitative criteria because of their functions, their level of responsibility and their authority to materially commit the bank to transactions in terms of credit or market risk, or by considering their total level of compensation during the preceding fi scal year.
Fixed compensation Fixed compensation Fixed compensation Fixed compensation Fixed compensation Fixed compensation
The rules for paying variable compensation to regulated categories of staff were submitted to the Compensation Committee on February 5, 2016, and subsequently validated by the Board of Directors on February 10, 2016.
V the non-deferred portion of the variable compensation awarded is paid 50% in cash in March 2016 and the balance in October 2016 in cash indexed to the performance of Natixis shares since their award; V the deferred portion of the variable compensation awarded represents at least 40% of the variable compensation and 70% for the highest earners of variable compensation.
Finally, Natixis applies to the front offi ce employees of its capital market activities mechanisms to control variable compensation similar to those applied to regulated categories of staff (i.e. variable compensation partly deferred over three years and partial payment in shares or the equivalent), with the exception of the performance condition applicable to the deferred portion of compensation and the capping of variable compensation in relation to fi xed compensation.
In accordance with regulations, 2015 compensation for regulated employees are detailled in a specifi c public report .
The system of corporate governance set up by Natixis provides for a complete review of its compensation policies and compliance with the implementation of guidelines.
There are several stages of approval in the decision-making process, starting with the subsidiaries, business lines and divisions, then Natixis’ Human Resources Department and senior management, and fi nally Natixis’ Board of Directors on the recommendation of the Compensation Committee (the details on the work of the Compensation Committee are provided in section 2.3.2.3.C of this chapter).
Note that the overall annual budget for directors’ fees to be allocated to members of the Board of Directors is €650,000 (see the 36th resolution of the Combined General Shareholders’ Meeting of May 19, 2015).
Directors’ fees are granted according to the following rules: V Members of the Board of Directors: R fi xed portion: €8,000 per year (prorated to the term of offi ce),
R variable portion: €2,000 per meeting, capped at seven meetings, i.e. €22,000 maximum in total; V Members of specialized Committees: R Audit Committee: Chairman: R fixed portion: €17,000 per year (prorated to the term of office),
R Risk Committee: Chairman: R fixed portion: €17,000 per year (prorated to the term of office),
Members of the Strategic Committee: R variable portion: €2,000 per meeting, capped at one meeting
2.4.2.3 Compensation and benefi ts of all kinds for Laurent Mignon, a corporate offi cer, in connection with his duties as Chief Executive Offi cer of Natixis
The fi xed gross annual compensation of Laurent Mignon in connection with his duties as CEO of Natixis was €800,000 for the 2015 fi scal year and will remain unchanged for the 2016 fi scal year.
This fi xed compensation has not been changed since he arrived in 2009.
For the 2015 fi scal year, the variable compensation target was set at €960,000, with a range of between 0 and 156.75% of the target and consists of: V quantitative targets (70%), 25% of which based on financial performance in relation to the Groupe BPCE budget (net revenues (4.2%), net income Group share (12.5%) and cost/ income ratio 8.3%) and 45% based on the performance of Natixis (net revenues (11.25%, net income Group share (11.25%), cost/income ratio (11.25%) and ROTE - Return on Tangible Equity (11.25%); V individual strategic targets (30%) linked to the continuation of the “asset light” strategy, synergies with the Banque Populaire and Caisse d’Epargne networks, the development of projects in the Insurance business and managerial performance. Each of these four criteria is assigned a weighting of 7.5%.
Based on actual results achieved for each of the three criteria, the amount of variable compensation for fi scal year 2015 was set by the Natixis Board of Directors, upon the recommendation of the Compensation Committee, at €1,096,279, i.e. 114.20% of the target variable compensation: - €379,476 will be paid in 2016, 50% of which will be indexed to the Natixis share price.
2 CORPORATE GOVERNANCENatixis Compensation Policy ■ BREAKDOWN OF ANNUAL VARIABLE COMPENSATION
As a reminder, it has been stipulated that the shares will only be permanently vested at the end of a four-year period and subject to performance and presence conditions. The performance conditions in question were defi ned relative to Natixis’ Return on Tangible Equity, as targeted in the New Frontier strategic plan. Furthermore, 30% of the shares to be issued at the end of the Vesting Period will be subject to a lock-in period ending with the termination of the offi ce as Chief Executive Offi cer of Natixis.
It is reiterated that the CEO is prohibited from using hedging or insurance strategies, both during the vesting period of components of deferred variable compensation and during the lock-up period.
The Monthly Reference Compensation is equal to one-twelfth of the sum of the fi xed compensation paid in respect of the last calendar year in activity and the average variable compensation paid over the last three calendar years of activity.
The amount of severance pay is equal to: monthly reference compensation x (12 months + 1 month per year of seniority).
The amount of the severance payment, together with the noncompete indemnity, if applicable, received by the Chief Executive Offi cer is capped at twenty-four (24) months of the monthly reference pay (both fi xed and variable).
All of these commitments and agreements were approved by shareholders at the General Shareholders’ Meeting on May 19, 2015 when renewing Laurent Mignon’s appointment as Chief Executive Offi cer.
(a) Of which €126 company car benefi t + €2,967 family supplement.
(a) At its July 31, 2014 meeting, the Board of Directors also awarded the CEO 31,955 performance shares valued at €160,000 and, at its meeting on February 18, 2015, 27,321 performance shares valued at €160,000.
Deferred cash portion of variable compensation for fi scal year 2012
Cash portion of variable compensation for fi scal year 2014 paid in March 2015
Securities or similar instruments portion of variable compensation for fi scal year 2014 paid in
R TABLE 3 Table showing directors’ fees and other compensation received by non-executive corporate officers of Natixis from January 1 to December 31, 2015
In respect of BPCE and its subsidiaries 7,016.67 7,016.67 19,000 28,000
In respect of BPCE and its subsidiaries 34,316.67 34,316.67 35,000 48,500
2 CORPORATE GOVERNANCENatixis Compensation Policy (in euros) Non-executive corporate offi cers
Benefi ts in kind in respect of BPCE (company car, housing, other) 5,244 5,244
Benefi ts in kind in respect of BPCE (company car, housing (12), other) 5,288 5,288 5,292 5,292
In respect of BPCE and its subsidiaries 279,374.97 278,774.97 29,900 43,400
(2) Housing allowance of €66,000 euros for 2014 and €66,000 for 2015 is included in the fi xed compensation in connection with his corporate offi ce.
(9) Amount paid in 2014 for the variable compensation for fi scal year 2013, or €356,398, for the deferred portion of the variable compensation for fi scal year 2012, or €102,950 for the deferred portion of the variable compensation for fi scal year 2011, or €84,861 and for the deferred portion of the variable compensation for fi scal year 2010, or €175,880.
R TABLE 5 Subscription or call options exercised during the period by each executive corporate officer
No subscription or call options were granted in fi scal year 2015.
(a) Performance shares awared to Laurent Mignon by Natixis and every Natixis group company for his duties as CEO of Natixis.
(b) 30% of the shares purchased are subject to a lock-in requirement for the full term of offi ce as CEO.
No performance shares became transferable for the executive corporate offi cers in fi scal year 2015.
No subscription or call options were agreed to or exercised by the Natixis employees in fi scal year 2015.
Record of the award of free shares for each executive corporate officer
(a) No performance conditions are attached to the 90 shares allocated in 2013. The performance conditions attached to the allocation of 31,955 shares in 2014 and 27,321 shares in 2015 are detailed in paragraph 2.4.2.3 above.
(b) All of the subscribed shares are subject to a lock-in requirement for the full term of offi ce.
(c) 30% of the subscribed shares are subject to a lock-in requirement for the full term of offi ce.
Payments or benefi ts due, or likely to be due, as a result of the termination or change of function (b)
Laurent Mignon, CEO Date term of offi ce commenced: May 14, 2009 (c)
Date term of offi ce expires: after the May 2019 General Shareholders’ Meeting X X (a) X X
(b) See paragraph 2.4.2.3 “Severance payments and consideration for non-compete agreement”.
(c) Renewal by the February 18, 2015 Board of Directors’ meeting.
2.4.2.5 Components of compensation due or granted in respect of the fi scal year ended December 31, 2015 to Laurent Mignon, Chief Executive Offi cer of Natixis
The amount of variable compensation for fi scal year 2016 was therefore set at €1,096,279 i.e. 114.20% of the target variable compensation: V €379,476 will be paid in 2016, 50% of which will be index-linked to the Natixis share price. V €716,803 will be deferred over three years, 50% of which will be index-linked to the Natixis share price, and will be paid by third in 2017, 2018 and 2019, provided that the presence and performance conditions are met.
Multi-annual variable compensation 0 In 2015 Laurent Mignon did not receive any multi-annual variable compensation.
Extraordinary compensation 0 In 2015 Laurent Mignon did not receive any extraordinary compensation.
Ban on hedging The CEO is prohibited from using hedging or insurance strategies, both during the vesting period of components of deferred variable compensation and during the lock-up period. .
At its February 19, 2014 meeting, the Board of Directors approved the amendment to the undertaking regarding severance payments, and the implementation of a non-compete clause. These undertakings and agreements were subject to a shareholder vote and approved at the Ordinary General Shareholders’ Meeting of May 20, 2014 (5th resolution). At its meeting on February 18, 2015 the Board of Directors authorized the renewal of severance pay as well as the non-compete agreement upon the Chief Executive Offi cer’s reappointment. Calculation of amount of severance pay: The Monthly Reference Compensation is equal to one-twelfth of the sum of the fi xed compensation paid in respect of the last calendar year in activity and the average variable compensation paid over the last three calendar years of activity. The amount of severance pay is equal to: Monthly Reference Compensation x (12 months + 1 month per year of seniority).
The Chief Executive Offi cer will not receive severance payments in the event of gross negligence or willful misconduct, if he leaves the Company at his initiative to take another position or changes his position within Groupe BPCE. Furthermore, in accordance with the provisions of the AFEP-Medef Corporate Governance Code, the right to severance pay is subject to a number of criteria and performance conditions, such as net income Group share, ROE and the cost/income ratio over the two years preceding the departure. Adherence to these criteria will be verifi ed by the Board of Directors as necessary. Non-compete indemnity in the event of termination of the Chief Executive Offi cer’s mandate. The non-compete clause is limited to a period of six months and is associated with an indemnity equal to six months of fi xed compensation, as in force at the date on which the CEO leaves offi ce. In accordance with the recommendations of the AFEP-Medef code, upon the departure of the Chief Executive Offi cer, the Board of Directors must make a decision regarding whether to enforce the non-compete clause provided for under this agreement. The amount of severance, together with the non-compete payment, if applicable, received by the Chief Executive Offi cer is capped at 24 months of the Monthly Reference Compensation (fi xed and variable compensation).
Supplementary pension plan - Laurent Mignon does not benefi t from a supplementary pension plan.
Directors’ fees In 2015 Laurent Mignon received no director’s fees in respect of the 2015 fi scal year as part of his responsibilities within Groupe BPCE.
Report of the Chairman of the Board of Directors on internal control and risk management procedures 2.5 Report of the Chairman of the Board of Directors on internal control and risk management procedures
The Board of Directors now regularly approves and revises the strategies and policies governing the taking, management, monitoring and reduction of the risks to which Natixis is or could be exposed, including risks created by the economic environment (see 2.3.1.3 Work of the Board of Directors in 2015).
The Board of Directors is kept regularly informed, by the Senior Managers , of all signifi cant risks, risk management policies and changes made thereto.
V Second-level permanent control, performed by four independent central departments that operate under the responsibility of the Corporate Secretary: R the Compliance and Permanent Control Department, which reports to the Corporate Secretary, is notably responsible for managing compliance risk, organizing the fi rst-level permanent control system, and for second-level control of operational risk (compliance and other operational risks); R the IT Systems Security and Business Continuity (ITSS-BC) function, which reports to the Compliance Department, establishes the information systems security and business continuity policies and verifi es that they are correctly applied;
2 CORPORATE GOVERNANCEReport of the Chairman of the Board of Directors on internal control and risk management procedures R the Risk Department, which reports to the Chief Financial and Risk Offi cer, is responsible for measuring, monitoring and managing the risks inherent to the business activities, in particular market risk, credit risk and operational risk; R the Regulatory and Accounting Review team within the Accounting and Ratios department, which reports functionally to the Compliance Department, verifi es the quality and accuracy of accounting and regulatory information.
V Periodic control, carried out by the Internal Audit Department. The Internal Audit Department reports to the Chief Executive Officer and performs audits that give rise to an assessment of existing points of control in the audited processes and an evaluation of the risks in respect of the audited activities.
Natixis organizes its control functions on a global basis so as to ensure consistency of the internal control mechanism throughout the whole company. The internal control system thus covers all risks and extends to all business lines and subsidiaries within Natixis. Local second-level permanent and periodic control functions within subsidiaries or business lines report to Natixis’ corresponding central control departments, either on a functional basis in the case of subsidiaries or on a hierarchical basis in the case of business lines.
The conclusions of controls carried out under this system, supplemented with the results of external audits (carried out by BPCE’s Internal Audit Department, the Statutory Auditors, the regulators/supervisors, etc.) are reported to the Board of Directors via its extensions, the Audit Committee and the Risk Committee.
Risks Committee * Accounting review held by the Finance Department. Applying of the accounting procedures controlled by the Compliance.
Report of the Chairman of the Board of Directors on internal control and risk management procedures 2.5.2 FIRST-LEVEL PERMANENT CONTROL
To complement the controls carried out by operational staff on their own transactions (level 1.1 controls), a separate level 1.2 control is performed by: V operational management, which takes a second look at transactions carried out; V a functional department that is independent of the operational department responsible for executing the transaction, which validates or records the transactions (middle office, accounting, legal department, etc.).
2 CORPORATE GOVERNANCEReport of the Chairman of the Board of Directors on internal control and risk management procedures In particular, during 2015, Compliance participated in the implementation at Natixis (and its subsidiaries at the global level) of an enhanced compliance system put in place by BPCE. This system meets the requirements of both the French Law on the Separation and Regulation of Banking Activities (Law No. 2013672 of July 26, 2013) and the Volcker Rule (Section 13 of the US “Bank Holding Company Act” (“BHCA”), as amended by Section 619 of the US law known as the Dodd-Frank Wall Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173), and the related enforcement regulations), including in particular new written policies and procedures for Natixis’ activities, a permanent control system, governance rules, independent controls and audits, training and a review of archiving processes.
The Compliance Department reports to the Corporate Secretary and functions independently of the operational departments. The Corporate Secretary is responsible for permanent control, as defi ned in the Ministerial Order of November 3, 2014.
As part of a broader Compliance function, Natixis’ Compliance Department provides direction and impetus to Compliance managers in subsidiaries and branches through a “direct” link. Compliance managers in subsidiaries and branches report to the executive body or, exceptionally, if the size of the entity warrants it, to a permanent control manager who, in turn, reports to the executive body, and to Natixis’ Chief Compliance Offi cer through a strong functional link of a hierarchical nature.
Natixis’ Compliance mechanism focuses on the following two key areas: Ethics/Compliance
In terms of anti-fraud measures, the SAFIR Compliance system, a fraud surveillance tool deployed across all capital markets activities, was further upgraded through additional indicators refi ning the detection of atypical behaviors. Vigilance was maintained and prevention measures continued regarding payment fraud based on social engineering since this type of fraud is constantly changing and remains particularly signifi cant. The system for information leaks was reinforced through the introduction of controls, employee awareness-raising and a dedicated response plan.
To achieve this, the department draws on the Head of ITSS and the Head of Business Continuity Planning for the business lines and cross-business functions for the mapping of ITSS-BC risks, the security analysis of projects, second-level permanent control and the identifi cation and management of security projects, thereby helping to raise the level of security and oversight of all the contributors to business continuity (business lines and IT department).
In addition to its role in enforcing standards and controls, the ITSSBC department provides awareness-raising and training programs on security and business continuity. It is important to regularly inform users, who are responsible for the Company’s security at their own level.
In 2015, the department focused on keeping the business continuity system in working order. In particular, it rolled out the new BCP management system Sanaga V2 on June 1 and developed the new CMMP solution (Crisis Mobile Memo Pocket) for members of the crisis units (crisis kit on smartphones and tablets).
In 2015, Natixis had over 1,300 backup positions for users, a backup data center and crisis meeting rooms.
In line with the organization of Groupe BPCE, the second-level permanent control mechanism is organized under the authority of the Compliance function and the Risk function, in accordance with their respective powers. These two functions oversee the proper functioning of the chain of fi rst- and second-level controls in accordance with the Ministerial Order of November 3, 2014.
V foster a risk culture at all levels and the sharing of best practices within its organization.
Credit decisions are made either under limit authorizations granted jointly to business lines and certain members of the Risk function (workfl ow process) or by the relevant Credit Committees, using counter-analysis. These mandates are set out formally and granted individually by the Chief Executive Offi cer or by any person whom he authorizes to that end. They are sized according to the counterparty’s category and internal credit rating, and the nature and duration of the commitment. Furthermore, these authorizations can be exercised only when the commitment of interest satisfi es the different criteria set out in the risk policy of each sector and activity.
The duties and organization of Natixis’ market risk control system are described in the Natixis Market Risk Management Charter, which is approved by Natixis’ Global Risk Committee.
The charter defi nes: V the principles and system for managing Natixis’ market risks; V the conditions under which market risk limits are examined, allocated and monitored; V the respective roles of the business-line front offices, the Market Risk Department and the Natixis Market Risk Committee.
Natixis’ Market Risk Committee meets once a month and is chaired by the Chief Executive Offi cer or his duly appointed delegate, a member of the Senior Management Committee. The Committee Chairman is the only person authorized to rule on all the cases presented.
Procedures specify the operational breakdown of the mechanism described in the Natixis market risk regulation charter. They also describe in detail the limit authorization system as well as the two decision-making levels (front offi ce and the Market Risk Department).
In line with the recommendations of the Lagarde report, the Market Risk Department ensures that each trader is aware of his own limits. Each trader must send an e-mail confi rming his attachment to the desk concerned and acknowledging their limits. The limit notifi cation procedure has been changed accordingly.
In mid-2009, BPCE granted a guarantee on most of the workout portfolio management assets in Paris and New York. The Market Risk Department is nevertheless continuing to manage the risks for all transactions on a standardized and exhaustive basis, whether or not these transactions are guaranteed by BPCE. Overall VaR and stress tests taking into account the effects of this guarantee are produced on a daily basis.
Specifi c reports by activity are sent to the traders and managers concerned on a daily basis. A global market risk report is also distributed daily to senior management, BPCE and front offi ce managers. Finally, specifi c reports covering the scope of BPCE’s guarantee are sent to BPCE daily.
Natixis’ ALM is based on the following organization: V the Financial Management division proposes ALM standards to the ALM Committee and executes the Committee’s decisions; V Natixis’ contribution to the BPCE/Natixis joint refinancing pool since 2011 is aimed at refinancing all business lines in accordance with the established rules and limits, and executing the decisions of the ALM Committee delegated by the Financial Management division;
Under this organizational framework: V the BPCE/Natixis single joint refinancing pool, placed under the supervision of BPCE, coordinates the operational management of the Group’s refinancing needs in order to secure and optimize access to liquidity for the entire Group and its businesses; V circulation of cash between both balance sheets is governed by pricing rules and rules on managing conflicts of interest that have been documented and approved by the Group ALM Committee; V subsidiary and non-subsidiary activities without ALM risk management mandates from the ALM Committee transfer management of their risk to the Treasury through individual matching contracts: this primarily involves Corporate & Investment Banking’s financing activities; V subsidiary and non-subsidiary activities that possess ALM risk management mandates match their net needs with Treasury subject to rules and limits set by the ALM Committee. These comprise the market activities and the activities of the specialized credit subsidiaries, which do not have access to the refinancing market.
Operational risk knowledge relies on the application of procedures for detecting, analyzing and measuring such risks: V recording incidents via a network of Operational Risk Officers across all business lines and support functions; V investigating serious incidents including an escalation process; V qualitative and quantitative mapping of potential risks; V links with other control functions; V establishing key risk indicators and environmental variables of a predictive nature.
Business-line Operational Risk Committees and support functions are offshoots of Natixis’ Operational Risk Committee. They closely manage each business line’s operational risk exposure. These committees are organized according to the function’s governance matrix (location and business lines). They are chaired by the Head of the relevant business line with the participation of Compliance and are coordinated by the Operational Risk Department, which acts as Committee secretary.
Operational Risk function governance has served to accompany change and reorganization in the banking business lines, while also maintaining constant efforts to increase the security of procedures through action plans which are regularly followed up at all levels of the Company.
V documentation and oversight of the different stages in the preparation of these reports; V audit trails justifying all published accounting and management data, based on the individual contributions made by each entity and restatements made centrally; V formal, documented first- and second-level controls contributing to the management of risks relating to accounting and financial information (balance sheet, income statement, regulatory and financial information); V data archiving and security procedures; V provision of support and appropriate training to the accounting and regulatory reporting teams of those consolidated entities that use the consolidation and data collection tools, thus allowing for best practices to be spread within the Company.
As part of the regulatory process introduced by the Single Supervisory Mechanism regarding the internal control systems of credit institutions, Natixis’ Internal Audit Department uses the results of the periodic audits it performs to assess internal control procedures. There is a particular focus on accounting and fi nancial procedures of all consolidated entities, whether or not they have credit institution status.
The fact that most subsidiaries have their own management and control functions means that internal control procedures are decentralized and are tailored to the organization of each of the consolidated entities, relying on a multi-tier accounting control process: V a first-level control where permanent and local controls in operational business lines are integrated into the operating process and formalized in detailed control programs; V an intermediate level overseen by each entity’s financial or accounting departments where second-level controls, independent of operating processes, are performed to ensure the reliability of accounting and regulatory reporting processes and verify the exhaustive nature and quality of the first-level controls; V a final level of control carried out by the Internal Audit Department as part of its regular audits.
The 2016 fi scal year will be mainly dedicated to: V a tighter timetable for publishing the financial statements; V continued progress in the project to streamline the information systems used for market transactions (front and back office systems); V continued progress in the project to streamline and pool the entry of data used by the various overview systems; V targeted initiatives to enhance the automated production of certain data and reports;
In addition to the control procedures followed by the Finance Departments responsible for preparing individual or consolidated accounts, the quality of accounting controls is verifi ed by: V ad hoc audit assignments conducted by BPCE’s General Inspection and Natixis’ Internal Audit Department; V audits required by the Single Supervisory Mechanism in its role as banking regulator; V audits conducted by Statutory Auditors. This work is carried out by three firms working in a uniform manner each quarter on most of the entities falling within Natixis’ scope of consolidation and whose opinions rely, in particular, on compliance with policies determined and validated beforehand by Natixis and the effectiveness of local internal control procedures.
The Internal Audit Department reports to the Risk Committee on all its activities and inspections.
The Audit Plan may be revised during the year at the request of senior management or if required by circumstances.
Several specialist projects involved all Internal Audit staff in 2015. These included in particular: V strengthening the organization and resources of Natixis’ Internal Audit function by increasing the Insurance division’s Internal Audit team (eight auditors) creating three new auditor posts to improve coverage of SFS subsidiaries under audit agreements; V deepening the current relationship between the Internal Audit Department and the nine international and subsidiary audit teams through the function’s coordination committees, including the development of specialized resource pooling (IT, quants, etc.); V upgrading the skills of the Internal Audit teams with the addition of an expert on regulatory issues and by stepping up the technical training of auditors, more organized knowledge sharing and the external recruitment of specialized auditors; V improving the quality of audits, through work on methodology and the effective communication of results (content of recommendations, description of expected deliverables, feedback on the results of assignments, risk assessment of audited units, faster publication of reports) and a focus on
2 CORPORATE GOVERNANCEReport of the Chairman of the Board of Directors on internal control and risk management procedures certain issues that are automatically covered in all assignments (customer protection, anti-money laundering, etc.); V the continuation of workshops focusing on the consolidation of the Audit Department’s internal standards and procedures, in particular for human resources management, the operating framework of local audits, agreements with SFS subsidiaries and risk assessments conducted jointly with BPCE’s General Inspection; V the enhancement of the recommendations monitoring system, with the effective deployment of the dedicated software Reco! proposed by BPCE across the entire Natixis scope, and the tightening of the alert system to flag recommendations where the implementation is too far behind schedule (currently being validated by Groupe BPCE); V advances in the use of computer applications, including the gradual mainstreaming of data management techniques in audits (supported by a specialist) and the upgrading of tools used by specialist auditors (intruder software for IT specialists and Reuters and Matlab for quants) and with an improvement in the pathway for managing authorization requests for business lines’ information systems during audits.
All of this work was carried out in coordination with BPCE’s General Inspection. To this end, BPCE’s General Inspection and Natixis’ Internal Audit Department held seven meetings during the year. These meetings provided a forum for addressing issues related to auditing programs and practices (Internal Audit Coordination Committee), as well as topics associated with risk assessment and assignment evaluation (the Risk Assessment Committee).
Statutory Auditors’ report on the report of the Chairman of the Board of Directors 2.6 Statutory Auditors’ report on the report of the Chairman of the Board of Directors
In our capacity as the Statutory Auditors of Natixis, and in accordance with Article L.225-235 of the French Commercial Code, we hereby report on the report prepared by the Chairman of your Company in accordance with Article L.225-37 of the French Commercial Code for the year ended December 31, 2015.
Professional standards require that we implement procedures aimed at assessing the fairness of the information provided in the Chairman’s report regarding internal control and risk management procedures in respect of the preparation and processing of the accounting and fi nancial information.
On the basis of our work, we have no matters to report on the information provided regarding the company’s internal control and risk management procedures relating to the preparation and processing of the accounting and fi nancial information contained in the report prepared by the Chairman of the Board of Directors in accordance with Article L.225-37 of the French Commercial Code.
3.1.1 Summary of annual risks 108 3.1.2 Risk factors 108 3.2 GOVERNANCE AND RISK MANAGEMENT SYSTEM 114 3.2.2 Risk appetite 115 3.2.3 Risk culture 115 3.2.4 Risk typology 115 3.3 CAPITAL MANAGEMENT AND CAPITAL ADEQUACY 117 3.3.1 Regulatory framework 117 3.3.2 Prudential consolidation scope 117 3.3.3 Composition of capital 119 3.3.4 Changes in regulatory capital, regulatory own funds requirements and ratios in 2015 128 3.3.5 Capital planning 132 3.3.6 Other regulatory ratios 132 3.4 CREDIT AND COUNTERPARTY RISKS (INCLUDING COUNTRY RISK) 133 3.4.1 Targets and policies 133 3.4.2 General principles governing approval and management of credit risk 133 3.4.3 M onitoring counterparty risk 133 3.4.4 Risk measurement and internal ratings 134 3.4.5 Rating tool performance monitoring and backtesting 135 3.4.6 Credit risk mitigation techniques 136 3.4.7 Commitment monitoring procedures 136 3.4.8 Credit risk exposure 138 3.4.9 Exposure to counterparty risk 152 3.4.10 Equity exposures in the banking book 153 3.5.1 Management of risks related to securitization transactions 155 3.5.2 Outstandings and positions 155 3.6 MARKET RISKS 159 3.6.1 Targets and policy 159 3.6.2 Organization of market risk management 159 3.6.3 Methodology for measuring market risk 159 3.6.4 Measurement methodology of market risk management 161 3.7 OPERATIONAL RISKS 165 3.7.1 Targets and policy 165 3.7.2 Operational risk monitoring 166 3.7.3 Risk profi le 169 3.7.4 Operational risk insurance 169 3.8 OVERALL INTEREST RATE, LIQUIDITY, STRUCTURAL FOREIGN EXCHANGE RISKS 170 3.8.2 Overall interest rate risk 170 3.8.3 Structural foreign exchange risk 171 3.8.4 Liquidity risk and refi nancing strategy 171 3.8.5 Leverage ratio oversight 174 3.8.6 Other information 176 3.9 COMPLIANCE AND REPUTATIONAL RISK, LEGAL RISKS 178 3.9.1 Compliance and reputational risk 178 3.9.2 Legal risks 180 3.10 OTHER RISKS 183 3.10.1 Risks related to insurance activities 183 3.10.2 Strategy risks 186 3.10.3 Environmental and social risks 186 3.11 SENSITIVE EXPOSURES 187
Adverse market or economic conditions and increased regulatory requirements may negatively affect the net revenues, profitability and financial position of Natixis
Natixis was impacted by several events in 2015: the plummeting oil price, triggering deep recession in commodity-exporting emerging countries (with Brazil and Russia on the front line); the sudden slowdown of the Chinese economy; the appreciation of the US dollar following the Fed funds’ fi rst interest-rate hike since 2006 while the ECB commenced its sovereign bond purchase program and the rebound in the global economy. Despite the few benefi ts that lower oil prices bring to importing countries and regions like France, the euro zone and emerging Asia (excl. China), signifi cant risks still prey on global growth. These include high public debt, fi nancial volatility compounded by the tide of liquidity on the market, geopolitical tensions and attacks, the deteriorating solvency of some of the larger emerging countries, the inability of the European Central Bank and the Bank of Japan to end their extremely accommodating monetary policies, high unemployment in France in the run-up to major elections and the political fragility of many of France’s neighbors. Such risks could heavily impact lending conditions and market trends.
The global economic outlook appears equally modest for 2016 and 2017. Economic decline in Europe, and especially in France (poor economic performance, social discontent and political instability), could also have negative repercussions on Natixis’ solvency and cost of risk. Brussels still deems the reforms in France as insuffi cient, while the recent regional elections confi rmed the rise of the extreme right party.
The implementation and observation of these measures could result in: V an increase in capital and liquidity requirements; V a structural increase in funding costs; V an increase in some of Natixis’ costs (compliance costs, restructuring, etc.); V a change in tax laws in Natixis’ countries of operation.
It is too early to accurately determine the scale and the impact these measures (in particular those still being examined or not yet fi nalized) could have on fi nancial markets in general and on Natixis in particular.
At December 31, 2015, Natixis’ main shareholder, BPCE, held 71.20% of its share capital (and 71.25% of its voting rights). BPCE is therefore in a position to exercise signifi cant infl uence over the appointment of Natixis’ corporate offi cers and executive managers, and on any other corporate decisions requiring shareholder approval. BPCE’s interests in relation to these decisions may differ from those of other Natixis shareholders.
As the central body, BPCE is required to ensure that the whole Groupe BPCE – to which Natixis belongs – complies with regulations in force governing the banking sector in France in areas such as regulatory capital adequacy, risk appetite and risk management requirements. As a result, BPCE has been vested with signifi cant rights of approval over important aspects of Natixis’ risk management policies. In particular, BPCE has the power to approve the appointment or removal of Natixis’ Chief Risk Offi cer, as well as certain aspects of risk management such as the approval of credit limits and the classifi cation of loans granted to joint Natixis-Groupe BCPE customers as doubtful loans. For further information on the risk appetite and risk management policies and procedures at Natixis, please refer to Sections 2.5, “Chairman’s report on internal control procedures”, and 3.2, “Governance and risk management system”. BPCE’s interests (on behalf of Groupe BPCE) concerning risk management may differ from those of Natixis.
2015 was characterized by an increase in all types of risks, particularly those affecting the fi nancial markets, with the abandonment of the Swiss franc ceiling, the slump in oil and commodity prices, the devaluation of the Chinese currency, and turmoil on the equity markets.
As such, the fi nancial markets re-experienced sharp volatility, combined with abundant global liquidity.
The New Frontier 2014-2017 strategic plan, the guidelines of which are in line with Groupe BPCE’s plan, aims to create a value-added customer solutions bank dedicated entirely to customers. The strategy focuses on four areas of strength: to become an “assetlight ” bank; to pursue and step up the internationalization of the business lines; to create a single Insurance division at the service of Groupe BPCE; and further the development of synergies with the Caisse d’Epargne and Banque Populaire networks.
A market downturn is likely to lower the volume of transactions that Natixis executes for its customers and as a market maker, thus reducing net revenues from these transactions. In addition, as management fees charged by Natixis to its customers are often based on the value or performance of the portfolios, any market downturn that reduces the value of these portfolios or increases the amount of redemptions would reduce Natixis’ revenues from its Asset Management and Private Banking businesses.
Natixis’ risk management policies and procedures may not be effective in limiting its exposure to all types of market environments or all types of risk, including risks that Natixis has not been able to identify or anticipate. Furthermore, the risk management procedures and policies used by Natixis do not guarantee effective risk reduction in all market confi gurations. These procedures may not be effective against certain risks, particularly those that Natixis has not previously identifi ed or anticipated. Some of Natixis’ qualitative tools and metrics used to manage risk are based on its use of observed historical market behavior. Natixis then carries out a mostly statistical analysis to quantify its risk exposure. The tools and metrics used may provide inaccurate conclusions on future risk exposures, mainly because of factors that Natixis has not anticipated or correctly assessed in its statistical models, or because of unexpected and unprecedented market trends. This inaccuracy would limit Natixis’ ability to manage its risks. Consequently, the losses borne by Natixis could prove far greater than those forecast based on historical averages. Moreover, Natixis’ quantitative models do not incorporate all risks. Certain risks are subject to a more qualitative analysis that could prove insuffi cient and thus expose Natixis to signifi cant and unanticipated losses. In addition, while no material issue has been identifi ed to date, the risk management systems are subject to the risk of operational failure, including fraud. (Please refer to section 3.7 for a more detailed presentation of the policies, procedures and methods used by Natixis to identify, monitor and manage its risks.).
Natixis could suffer losses if any of the instruments and hedging strategies it uses to hedge the various types of risk to which it is exposed prove ineffective. Many of these strategies are based on observation of historical market behavior and historical correlation analysis. For example, if Natixis holds a long position in an asset, it could hedge the risk by taking a short position in another asset whose past performance has allowed it to offset the performance of the long position. However, in some cases, Natixis may only be partially hedged, or its strategies may not fully hedge future risks or effectively reduce risk in all market confi gurations, or may even cause an increase in risks. Any unexpected change in the market can also reduce the effectiveness of these hedging strategies. In addition, the manner in which gains and losses resulting from certain ineffective hedges are recorded may increase the volatility of Natixis’ reported earnings.
Natixis may consider external growth or partnership opportunities from time to time. While Natixis closely reviews the companies it plans to acquire and the joint ventures it plans to engage in, it is generally not feasible for these reviews to be exhaustive. As a result, Natixis may have to assume unforeseen liabilities. Similarly, an acquisition or joint venture may not live up to expectations, expected synergies may only be partly achieved (or not achieved at all), or the transaction may give rise to higher-than-expected costs. Natixis may also encounter diffi culties in consolidating a new entity. The failure of an announced external growth operation or the failure to consolidate the new entity or joint venture is likely to materially affect Natixis’ profi tability. This situation could also lead to the departure of key employees. Insofar as Natixis may feel compelled to offer its employees fi nancial incentives in order to retain them, this situation could also result in increased costs and an erosion of profi tability. In the case of joint ventures, Natixis is subject to additional risks and uncertainties in that it may be dependent on systems, controls and personnel not under its control and which could subject Natixis to liability, losses or reputational damage. In addition, confl icts or disagreements between Natixis and its joint venture partners may undermine the benefi ts sought by the joint venture.
Natixis’ primary business areas contend with fi erce competition in France and in other areas of the world where it is fi rmly established. Heightening this competition is consolidation, whether in the form of mergers and acquisitions or through alliances and cooperation. Consolidation has created a number of fi rms that, like Natixis, have the ability to offer a wide range of products and services. Natixis competes with other entities on many accounts, including transaction execution, products and services offered, innovation, reputation and price. If Natixis is unable to maintain its competitiveness in France or in its other major markets with attractive and profi table product and service offerings, it may lose market share in important areas of its business or incur losses on some or on all of its operations. In addition, downturns in the global economy or in the economies of Natixis’ major markets are likely to increase competitive pressure, as increased price pressure lowers business volumes for Natixis and its competitors. New and more competitive competitors could also enter the market. Subject to separate or more fl exible regulation, or to other requirements relating to prudential ratios, these new market participants would be able to offer more competitive products and services. Technological advances and the growth of e-commerce have made it possible for non-deposit taking institutions to offer products and services that traditionally were banking products, and for fi nancial institutions and other companies to provide electronic and Internetbased fi nancial solutions, including electronic securities trading. These new players may exert downward price pressure on Natixis’ products and services and affect Natixis’ market share.
In addition, fraud or misappropriation committed by fi nancial sector participants may a highly detrimental impact on fi nancial institutions due to interconnected nature of institutions operating in the fi nancial markets.
3 RISKS AND CAPITAL ADEQUACYIntroduction Any interruption or failure of Natixis’ information systems, or those of third parties, may result in lost business and other losses
Natixis is also exposed to the risk of an operational failure or interruption by one of the clearing agents, foreign exchange markets, clearing houses, custodians or other fi nancial intermediaries or external service providers it uses to execute or facilitate its securities transactions. With growing interconnectivity with customers, Natixis may also be increasingly exposed to the risk of operational failure of its customers’ information systems. Natixis cannot guarantee that such breakdowns or interruptions in its systems or in those of other parties will not occur or, if they do occur, that they will be adequately resolved.
Several supervisory and regulatory regimes apply to Natixis in all the countries where it conducts its business. In addition to reputational risk, failure to comply with these regulations could expose Natixis to signifi cant intervention by regulatory authorities and to fi nes, public warnings by the authorities, suspensions of operations or, in extreme cases, withdrawal of Natixis’ operating authority. The Financial Services industry has been under increased scrutiny from several regulatory authorities in recent years, and the penalties and fi nes imposed by these regulatory authorities have increased – a trend that may be accelerated in the current fi nancial context. Natixis’ operations and income may be affected by various measures and actions taken by French and European regulatory authorities, by the European Union, by foreign governments, or by other international organizations. Such constraints could limit Natixis’ ability to develop its businesses or to pursue certain operations. The nature and impact of these potential changes in regulatory policies and actions are unpredictable and Natixis has no way of controlling them.
Such changes could include, but are not limited to, the following: V monetary, interest rate and other policies of central banks and regulatory authorities; V general changes in government or regulatory policies liable to significantly influence investor decisions, in particular in markets where Natixis operates; V general changes in regulatory requirements, notably prudential rules relating to the regulatory capital adequacy framework; V changes in rules and procedures relating to internal controls; V changes in the competitive environment and prices; V changes in financial reporting rules; V expropriation, nationalization, price controls, foreign exchange controls, confiscation of assets and changes in legislation relating to foreign ownership rights; and
V any adverse change in the political, military or diplomatic environments creating social instability or an uncertain legal situation capable of affecting the demand for the products and services offered by Natixis.
Natixis’ reputation is essential in attracting and retaining its customers. The use of inappropriate means to promote and market its products and services and the inadequate management of potential confl icts of interest, legal and regulatory requirements, compliance issues, money laundering laws, information security policies and sales and trading practices may damage Natixis’ reputation. Its reputation could also be harmed by any inappropriate employee behavior, fraud or misappropriation of funds committed by participants in the fi nancial sector to which Natixis is exposed, any decrease, restatement or correction of its fi nancial results and any legal or regulatory action that has a potentially unfavorable outcome. Any damage caused to Natixis’ reputation could be accompanied by a loss of business likely to threaten its results and its fi nancial position.
Inadequate management of these issues could also give rise to additional legal risk for Natixis and cause an increase in the number of legal proceedings and the amount of damages claimed against Natixis, or expose Natixis to sanctions from the regulatory authorities (for further details, please refer to section 3.9.2).
Natixis’ general risk management system is managed in accordance with banking regulations (French Ministerial Order of November 3, 2014 on internal control) and governance guidelines laid down by its central shareholder, BPCE.
The system described below relies on three levels of coordinated cross-controls, the details of which are described in Chapter 2 paragraph 2.5.1 “Chairman’s report on internal control procedures”.
The organization of governance relies on specifi c committees chaired by at least one of the Senior M anagers.
The Risk Division recommends risk policies consistent with those of Groupe BPCE to Senior Management for approval, and makes proposals to the executive body concerning principles and rules in the following areas: V risk acceptance procedures; V limit authorizations; V risk assessment; V risk supervision.
Natixis’ structural balance sheet risks are managed and monitored under the authority of the Asset/Liability Management Committee (the “ALM Committee”) whose membership and duties are described in detail in Chapter 2, paragraph 2.5, “Chairman’s report on internal control procedures” (and in paragraph 3.8, “Overall interest rate risk, liquidity risk and structural foreign exchange risk”).
It is consistent with the bank’s various activities and its New Frontier strategic plan, and falls within the general framework of Groupe BPCE’s risk appetite.
Activities with high risk/profi tability ratios are subject to strict selection and oversight. Market risk management in particular has a highly selective investment approach, coupled with limited tolerance for extreme risk, and very close monitoring.
Natixis is committed to strictly observe the laws, regulations and norms governing its activities, in France and internationally, in the realm of fi nancial security (anti-money laundering, terrorism, corruption and fraud), compliance and client protection.
This operational framework is applied by type of risk (credit and concentration risk, market risk, liquidity and leverage risk, operational risk, solvency risk, etc.) and relies on Natixis’ preexisting measuring and reporting systems.
In accordance with regulations concerning systemic fi nancial institutions, Groupe BPCE has drawn up a recovery and resolution plan (PRR).
Securitization: Securitization transactions involve transferring fi nancial assets, such as receivables or loans, to investors by transforming these receivables, via an ad hoc company, into fi nancial securities issued on the capital market.
A synthetic transaction is a transaction in which ownership of the asset is not transferred, but the risk is transferred through a fi nancial instrument known as a credit derivative.
Counterparty risk on market transactions is a component of credit risk and represents a potential loss in the event of counterparty default. Counterparty risk evolves as market parameters fl uctuate.
Asset liquidity is also an important component of market risk. In the event of insuffi cient or non-existent liquidity (for example, because of a reduced number of transactions, or a major imbalance in the supply and demand of certain assets), a fi nancial instrument or any other tradable asset may be unable to be traded at its estimated value. The lack of liquidity may lead to reduced access to capital markets, unforeseen cash or capital requirements, or legal restrictions.
Operational risk is the risk of loss due to inadequate or failed internal processes, or due to external events, whether deliberate, accidental or natural occurrences. Internal procedures include, but are not limited to, human resources and information systems.
The principal legal proceedings in progress involving Natixis and its subsidiaries are described in section 3.9.2.
The Insurance Department, which reports to Natixis’ Insurance division, is tasked with analyzing insurable operational risks and taking out appropriate insurance coverage against them (for further details, please refer to section 3.7.4). Insurance policies bought from leading insurers provide coverage against potentially signifi cant consequences resulting from fraud, embezzlement and theft, operating losses or the incurring of Natixis’ civil liability or that of its subsidiaries or the employees for which it is responsible.
The procedures for monitoring and managing these risks are described in section 3.7.
As is the case for most corporate and investment banks, Natixis has very few assets and liabilities generating structural interest rate positions. Natixis’ overall interest rate risk is essentially linear, exposed to the euro and US dollar, and concerns contractual transactions. The most signifi cant positions concern exposures to the short end of yield curves and are predominantly linked to the lag between IBOR reset dates. This is therefore classed as a secondary risk at the bank level.
Liquidity risk is the risk that Natixis will be unable to honor its commitments to its creditors due to the mismatching of maturities between assets and liabilities. This risk could arise, for example, in the event of massive withdrawals of customer deposits, a crisis of confi dence, or an overall market liquidity crisis. As a corporate and investment bank, this risk for Natixis results primarily from mismatched positions between transactions with contractual maturities, as Natixis has fewer stable and permanent customer resources than retail banks and partly funds its operations on the markets (for further details, please refer to Chapter 4, ”Comments on the 2015 fiscal year“, section 4.2, Refinancing).
Structural foreign exchange risk is defi ned as the risk of transferable equity loss generated by an unfavorable fl uctuation in exchange rates against the currency used in the consolidated accounts due to the mismatch between the currency of net investments refi nanced by purchases of currency and the currency of equity.
Insurance risk is the risk to profi ts due to any difference between expected and incurred claims. Depending on the insurance product, the risk varies according to macroeconomic changes, changes in customer behavior, changes in public healthcare policy, pandemics, accidents and natural disasters (such as earthquakes, industrial accidents or acts of terrorism or war).
The regulatory framework aims to reinforce the fi nancial strength of banking institutions, and involves: V a stricter definition of the capital items eligible to meet capital requirements; V reinforced own funds requirements, in particular for counterparty risk on derivatives; V higher ratios to comply with, specifically regarding CET1 capital, and capital buffers (capital conservation buffer, contra-cyclical buffer, systemic risk buffer).
In application of Article 19 of the CRR, the prudential consolidation scope is established based on the following principles: Entities, excluding insurance companies, that are fully consolidated or accounted for by the equity method under the statutory scope (see Chapter 5.1 Note 17) are included in the prudential scope; the Group’s insurance companies are accounted for by the equity method under the prudential scope.
3 RISKS AND CAPITAL ADEQUACYCapital management and capital adequacy R TRANSITION FROM THE ACCOUNTING BALANCE SHEET TO THE PRUDENTIAL BALANCE SHEET AT DECEMBER 31, 2015
Financial liabilities at fair value through profi t and loss 158,990 (550) 158,440
Until 2021, prudential capital is subject to transitional arrangements known as phase-in and grandfathering provisions to support the roll-out of the CRR.
R excess of threshold 2 on deferred tax assets that rely on future earnings and result from temporary differences,
AT1 capital comprises: V subordinated debt instruments recognized as Additional Tier 1 after applying transitional arrangements; V deductions made to this category via the phase-in provisions applied to CET1; V any surplus deduction of Tier 2 capital (see below).
Provided below are details of debt instruments recognized in Tier 2 capital and their characteristics, at December 31, 2015, as required by regulation No. 1423/2013 (Appendix II).
16 Subsequent call dates, if applicable At each coupon payment date (on 01.25 of each year)
At each coupon payment date (on 03.31, 06.30, 09.30 and 12.31 of each year)
Coupons/dividends 17 Fixed or fl oating dividend/coupon Floating Floating 18 Coupon rate and any related index CMS 10Y+1% but with a minimum of 3.75% and maximum of six times the difference between CMS 10Y and CMS 2Y
19 Existence of a dividend stopper no no 20a Fully discretionary, partially discretionary or mandatory (in terms of timing) Partially discretionary, existence of dividend pushers
32 If write-down, full or partial Partially Partially 33 If write-down, permanent or temporary Temporary Temporary 34 If temporary write-down, description of write mechanism Mandatory after two profi t-making fi scal years following the end of the "Supervisory Event" (subject to compliance with regulatory ratios), or in the case of dividend distribution, the redemption of the issue or the liquidation of the issuer
Mandatory after two profi t-making fi scal years following the end of the "Supervisory Event" (subject to compliance with regulatory ratios), or in the case of dividend distribution, the liquidation of the issuer 35 Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument)
French French State of New York (except regulatory status governed under French law)
Conditional redemption option at any time, at par and for the full issue if changes occur in tax legislation (“tax event”, loss of deductibility of interest expenses, imposition of withholding tax) or regulatory legislation (“capital event”, loss of Tier 1 issue status)
"Supervisory Event" (non-compliance with regulatory ratios and/or at the discretion of the regulator)
Participating or subordinated loans and securities Participating or subordinated loans and securities Participating or subordinated loans and securities
Natixis 2 Unique identifi er (e.g. CUSIP, ISIN or Bloomberg identifi er for private placement)
CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 8 Amount recognized in regulatory capital (currency in million, as of most recent reporting date)
EUR 36m EUR 50m EUR 73m EUR 105m EUR 15m EUR 4m EUR 900m 9 Nominal amount of instrument EUR 36m EUR 480m EUR 476m EUR 500m EUR 40m EUR 10m EUR 900m 10 Accounting classifi cation Liability - amortized cost
Liability - amortized cost 12 Perpetual or dated Perpetual Dated Dated Dated Dated Dated Dated 14 Issuer call subject to prior supervisory approval yes N/A N/A N/A N/A N/A yes 15 Optional call date, contingent call dates and redemption amount
N/A N/A The exercise date of the early redemption option for the full issue at par at 06.27.2021 16 Subsequent call dates, if applicable N/A N/A N/A N/A N/A N/A N/A
25 If convertible, fully or partially N/A N/A N/A N/A N/A N/A N/A
27 If convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/A N/A
31 If write-down, write-down trigger(s) N/A N/A N/A N/A N/A N/A N/A
Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2 Tier 2
CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63 CRR Article 63
Liability - amortized cost Liability - amortized cost Liability - amortized cost Liability - amortized cost Liability - amortized cost Liability - amortized cost
Conditional redemption option at any time, at par and for the full issue if changes occur in tax/ regulatory legislation
N/A N/A At any time, at par The exercise date of the early redemption for the full issue at par at 07.29.2022 (or at any time if changes occur in the regulatory classifi cation or in the tax treatment applicable to the loan)
CMS10Y CMS10Y E6M+0.37% E3M+1.94% 5.375% 5.40% E1M capitalized + 0.20% E3M capitalized + 2.30%
Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory no no no no no no no no
Unsecured creditors Unsecured creditors Unsecured creditors Unsecured creditors Unsecured creditors Unsecured creditors Unsecured creditors
3 RISKS AND CAPITAL ADEQUACYCapital management and capital adequacy At December 31, 2015, the transition from shareholder’s equity to prudential CET1 capital, Tier 1 capital and total capital is summarized in the table below.
Shortfall of provisions to expected losses 0 Investments in the share capital of fi nancial sector entities 0 Other prudential adjustments including transitional arrangements (69) Total deductions (4,784) Total Common Equity Tier 1 (CET1) 12,432 Hybrid capital instruments
Deductions (40) Other prudential adjustments including transitional arrangements (229) Total Additional Tier 1 (AT1) 1,302 Total Tier 1 capital 13,733 Subordinated debt instruments
Surplus of provisions to expected losses 58 Deductions (789) Other prudential adjustments including transitional arrangements 222 Total Tier 2 capital 2,512
4 Amount of qualifying items referred to in Article 484 (3) and the related share premium accounts subject to phase out from CET1
5 Minority interests (amount allowed in consolidated CET1) 16 84, 479, 480 5a Independently reviewed interim profi ts net of any foreseeable charge or dividend 217 26 (2)
10 Deferred tax assets that rely on future profi tability excluding those arising from temporary differences (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount)
19 Direct, indirect and synthetic holdings by the institution of the CET1 instruments of fi nancial sector entities where the institution has a signifi cant investment in those entities (amount above 10% threshold and net of eligible short positions) (negative amount)
20a Exposure amount of the following items which qualify for a RW of 1250%, where the institution opts for the deduction alternative 20b o/w qualifying holdings outside the fi nancial sector (negative amount) 0 36 (1) (k) (i), 89 to 91 0 20c o/w securitization positions (negative amount) 0 36 (1) (k) (ii) 243 (1) (b) 244 (1) (b) 258 20d o/w free deliveries (negative amount) 0 36 (1) (k) (iii), 379 (3) 0 21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability where the conditions in 38 (3) are met) (negative amount)
26 Regulatory adjustments applied to Common Equity Tier 1 in respect of amounts subject to pre-CRR treatment 26a Regulatory adjustments relating to unrealized gains and losses pursuant to Articles 467 and 468 (294)
o/w fi lter for unrealized loss 0 467 o/w fi lter for unrealized gain (294) 468 26b Amount to be deducted from or added to Common Equity Tier 1 capital with regard to additional fi lters and deductions required pre-CRR
Additional Tier 1 (AT1) capital: regulatory adjustments 37 Direct and indirect holdings by an institution of own ATI Instruments (negative amount) 0 52 (1) (b), 56 (a), 57, 475 (2)
o/w non-signifi cant investments in the capital of other fi nancial sector entities 0 o/w signifi cant investments in the capital of other fi nancial sector entities 0 41b Residual amounts deducted from Additional Tier 1 capital with regard to deduction from Tier 2 capital during the transitional period pursuant to Article 475 of Regulation (EU) No. 575/2013 o/w own capital instruments 0 o/w non-signifi cant investments in the capital of other fi nancial sector entities 0 o/w signifi cant investments in the capital of other fi nancial sector entities (234)
41c Amount to be deducted from or added to Additional Tier 1 capital with regard to additional fi lters and deductions required pre-CRR
Tier 2 (T2) capital: instruments and provisions 46 Capital instruments and the related share premium accounts 2,851 62, 63 47 Amount of qualifying items referred to in Article 484 (5) and the related share premium accounts subject to phase out from T2
56a Residual amounts deducted from Tier 2 capital with regard to deduction from Common Equity Tier 1 capital during the transitional period pursuant to Article 472 of Regulation (EU) No. 575/2013 o/w own capital instruments o/w non-signifi cant investments in the capital of other fi nancial sector entities 0 o/w signifi cant investments in the capital of other fi nancial sector entities 0
56c Amount to be deducted from or added to Tier 2 capital with regard to additional fi lters and deductions required pre-CRR 467, 468, 481 57 Total regulatory adjustments to Tier 2 (T2) capital (567)
o/w adjustment of the 15% threshold, part of the signifi cant investments of the CET1, items not deducted from CET1 (Regulation (EU) No. 575/2013 residual amounts)
o/w adjustment of the 15% threshold, deferred tax assets part, items not deducted from CET1 (Regulation (EU) No. 575/2013 residual amounts)
o/w items not deducted from AT1 items (Regulation (EU) No. 575/2013 residual amounts) 475, 475 (2) (b), 475 (2) (c), 475 (4) (b)
67a o/w global Systemically Important Institution (G(511) or Other Systemically Important Institution (0-SII) buffer 0,000% BP 131 68 Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount) 2.1% BP 128 69 [not relevant in EU regulation]
84 Current cap on T2 instruments subject to phase-out arrangements 1,531 484 (5), 486 (4) & (5)
Regulatory capital and capital adequacy ratio: The CET1, Tier 1 and total ratios are presented below by major components. The same ratios for 2014 are shown by way of comparison.
Furthermore, as of January 1, 2016 the minimum capital requirement is a ratio of at least 8.75% (Pillar II).
Dividends proposed to the General Shareholders’ Meeting and expenses (1,127) (1,091)
Other, including prudential adjustments and transitional arrangements 63 o/w impact of changes in phase-in rate (114)
CET1 capital includes a provision for 2015 dividends payable in cash in the amount of €1.1 billion (i.e. €0.35 per share). It also includes the impact of the DNCA acquisition on goodwill (-€0.6 billion) as well as the declining impact of effects related to transitional arrangements (-€0.3 billion).
Tier 2 capital increased by €0.4 billion over the year, which was a positive effect of a €1 billion T2 eligible instruments issue (via BPCE) in July 2015 that was partially offset by an increase in the capital allocated to (i) our insurance subsidiaries in the same compartment, (ii) the progressive run-off of non-eligible instruments in respect of the grandfather clause, (iii) the reduction of excess expected loss provisions, and (iv) a return within the exemption limits during the year.
Risk-weighted assets amounted to €113.3 billion after the guarantee granted by BPCE (€1.7 billion, down €0.4 billion compared to December 31, 2014), and fell by €1.9 billion over the year.
Market risk was down by -€3.2 billion mainly in respect of risk parameters.
R TABLE 1: EAD, RWA AND OWN FUNDS REQUIREMENTS BY BASEL APPROACH AND CATEGORY OF EXPOSURE
Exposures secured by mortgages on immovable property 199 92 7 2,543 1,267 101
Central governments and central banks 1,518 86 7 964 173 14
Exposures to institutions and corporates with a short-term credit assessment 1,225 23 2 328 259 21
3 RISKS AND CAPITAL ADEQUACYCapital management and capital adequacy R TABLE 2: BASEL 3 RWA BY KEY NATIXIS BUSINESS LINE
Regulations on the monitoring of large exposures were revised in 2014 and are now part of the CRR. They aim to prevent an excessive concentration of risks for sets of counterparties that are related in such a way that if one encountered fi nancial problems, the others would also be likely to experience funding or repayment problems. The standard is based on a permanent obligation: all risks associated with a single counterparty cannot exceed 25% of the bank’s capital. Natixis complied with this requirement in 2015.
Under Pillar II, the leverage ratio must be calculated and reported to the regulator as of January 1, 2014. Its publication is mandatory as of January 1, 2015. After an observation period, it could become more restrictive under Pillar I as of 2018.
The qualitative framework is for its part structured around the following criteria: V business sectors: preferred sectors, banned sectors; V targets: customers to be targeted or excluded based on various criteria (size, rating, country of operation, etc.); V structuring: maximum durations, financial ratios, contractual clauses, collateral arrangement, etc.; V products.
Checks are carried out as required during the individual processing of loan applications to ensure that the risk policy is being correctly applied. Overall monitoring also takes place on a quarterly basis (checking of compliance with ceilings and number of deviations) and is presented to the Global Risk Committees.
Natixis’ credit risk measurement and management procedures are based on: V a standardized risk-taking process, structured via a system of limit authorizations and decision-making Committees; V independent analyses carried out by the Risk Division during the loan approval review process; V rating tools and methodologies providing standardized and tailored assessments of counterparty risk, thereby making it possible to evaluate the probability of default within one year and the loss given default; V information systems that give an overview of outstanding loans and credit limits.
Counterparty risk on market operations is a component of credit risk and could lead to a potential loss should the counterparty default. Natixis is exposed to this risk because of the transactions it executes with its customers (for example, over-the-counter derivatives [swaps, options, etc.], securities lending and borrowing, and repurchase agreements).
Since September 30, 2010, Natixis has used internal rating methods specifi c to the different asset classes approved by the Autorité de Contrôle Prudentiel et de Résolution (ACPR – French Prudential Supervisory Authority), and that use the advanced internal ratingsbased method (IRBA) to rate corporate, sovereign, bank, specialized fi nancing and some categories of consumer fi nance exposures.
The rating systems are periodically checked and undergo external benchmarking to verify the consistency of the ratings produced using the expert appraisal and quantitative methods. The monitoring methods are defi ned through a backtesting procedure tailored to each type of model.
The severity of the internal ratings compared with the agency ratings is examined. Natixis therefore analyzes all of the internal ratings of counterparties that are also rated by the rating agencies (Standard and Poor’s, Moody’s and Fitch). The extent to which the risk assessments are aligned can be determined through these analyses.
3.4.5.2 Monitoring and backtesting of internal LGD, CCF and ELBE under the advanced method
The LGD, ELBE (see glossary) and CCF (see glossary) levels for the different lending scopes are backtested at least once a year (based on the updated internal data), as are the rating models and the associated PD, to verify the reliability of the estimates over time. The parameters of the models for the Specialized Financing and Financial Collateral scope are regularly updated, so that they refl ect the business lines’ actual conditions as accurately as possible. Both the market parameters and the recovery parameters are updated.
As part of its oversight function, the Risk Division makes sure the rules and commitments underpinning the Bank’s IRBA approval process are respected, and also ensures that the tools and processes used are working properly and that data quality and consistency are good. It also coordinates training and provides support to Bank employees.
The principles used for identifying, measuring and managing credit risk hedging instruments are determined by the recommendations of the Basel Accord. The decision on whether a guarantee’s risk-reducing effects are eligible for inclusion in risk-exposure calculations is made on a case-by-case basis. Checkpoints are provided for throughout the process. They cover the approval of the transaction, the monitoring of credit risk exposure and the calculation of the resulting capital requirements (predominantly calculated according to IRBA since September 30, 2010).
Natixis may buy credit-default swaps and enter into synthetic securitization transactions in order to reduce all or part of the credit risk exposure attached to some assets by transferring the risk to the market. CDS-protected loans remain on Natixis’ balance sheet, but bear the counterparty risk attached to the credit-default swap sellers, which are generally OECD banks. Transactions with nonbank third parties are fully collateralized in cash.
The business lines carry out day-to-day counterparty risk monitoring and the Risk Division conducts second-level controls. Each month, the Risk Department submits an overview of its monitoring activities to Senior Management and the Risk Committee.
In particular, it is used to review the change in Natixis’ exposures by business sector and the distribution of these exposures by geographic region and by rating. Aside from this regular and systematic monitoring, this sector monitoring may also give rise to occasional reports describing emerging sector risks or issuing warnings about changes in specifi c sector risks.
The limits governing country exposure (country caps) are examined at least once a year and approved by the Global Risk Committee in light of the countries’ ratings and situations. Where there has been a signifi cant change in a country, an analysis is presented to the Credit Risk Committee in order to adapt the monitoring and procedures relative to the country in question.
Loans with deteriorating risk levels are identifi ed as they arise and are reported immediately to the Risk Division and the business line concerned, in accordance with the counterparty watch list, individual provision and alert procedures.
They are then considered for the watch list, a decision which falls upon the Risk Division or the competent Credit Committee depending on the amount of exposure.
The credit stress test system covers Natixis scopes subject to the IRBA, IRBF and standardized approaches. It is based on choosing scenarios that replicate plausible crisis situations and high degrees of severity, in keeping with market practices, while taking past events, market trends and the environment into account so that purely historical or theoretical scenarios are eliminated.
The system is a true risk management tool, with scenarios that are regularly introduced and revised. New subsidiary scopes and models have therefore been added to the stress scenarios since the stress test program was fi rst introduced. The Risk Division regularly works on improving the methods used and adding to the scopes defi ned for the stress scenarios, with particular attention paid to the market stress requirements.
New scenarios were presented to the Global Risk Committee in 2015. These internal credit stress test scenarios are defi ned based on: V macroeconomic assumptions in the form of three stress scenarios applicable to the entire stress scope reviewed in 2014. These consist of one benchmark scenario (which is more or less close to the budgetary scenario) and two crisis scenarios (a European political crisis linked to fears in the euro zone or a US and Chinese crisis linked to sharp and premature Fed rate hikes). They are prepared by the Economic Research team in collaboration with the Risk Division ; V specific business line scenarios to take into account risks that would not have been covered by the macroeconomic scenarios. Standard scenarios are therefore defined (an average of three per business line) based on business line types (Banks, Corporates, Insurance, Aerospace, etc.).
This Committee is organized by the Risk Division and chaired by the Chief Executive Offi cer and assembles members of the Senior Management Committee in charge of the business lines, Finance and Risk, the Chief Risk Offi cer and the heads of the relevant support functions.
3 RISKS AND CAPITAL ADEQUACYCredit and counterparty risks (including country risk) Collective impairments
Natixis also sets aside provisions to cover country risk and sector risk (see Note 5.3 to the consolidated fi nancial statements presented in section 5.1, Consolidated fi nancial statements). These provisions are created on the basis of: V ratings for loans to private individuals and professionals; V sector risk; V geographic risk for other counterparties (corporate entities, sovereigns, etc.).
For the latter, the search for objective evidence of impairment is undertaken through analysis and close monitoring of business sectors and countries. Such evidence typically arises from a combination of micro- or macroeconomic factors specifi c to the industry or country concerned. When necessary, an expert opinion is sought to refi ne the results of this review.
As a reminder, EADs are gross EADs before taking any guarantees or risk mitigation into account. EADs are given at current exchange rates.
In te rn at io na l t ra de , co m m od iti es
R TABLE 5: EAD BY GEOGRAPHIC AREA AND BY ASSET CLASS (Data certifi ed by the Statutory Auditors in accordance with IFRS 7)
Note: the change in exposures to France and North America is due to reduced investments with their central banks.
3 RISKS AND CAPITAL ADEQUACYCredit and counterparty risks (including country risk) R TABLE 6: EAD BY GEOGRAPHIC AREA
R TABLE 7: EAD BY ASSET CLASS AND BY APPROACH The standardized approach is used for Groupe BPCE affi liates (from 06.30.2015), European banking subsidiaries, exposures to listed derivatives, deferred tax assets and retail customers.
Exposures to institutions and corporates with a short-term credit assessment 40,207 39,066 39,066
Regional governments or local authorities 40 59 114 77 692 982
Exposures to institutions and corporates with a short-term credit assessment 31,391 7,675 39,066
R TABLE 9: SHARE OF GROSS EXPOSURES, PROVISIONED EXPOSURES AND PROVISIONS BY NATIXIS DIVISION Breakdown by key Natixis division of (i) total exposures, (ii) exposures subject to adjustments, and (iii) amount of provisions.
R TABLE 10: SHARE OF GROSS EXPOSURES, PROVISIONED EXPOSURES AND PROVISIONS BY GEOGRAPHIC AREA Breakdown by geographic area of (i) total exposures, (ii) exposures subject to adjustments, and (iii) amount of provisions.
3 RISKS AND CAPITAL ADEQUACYCredit and counterparty risks (including country risk) R TABLE 11: EAD BY CATEGORY OF EXPOSURE AND BY STANDARDIZED RATING
(b) Of which €12.7 billion in exposure to central counterparties (weighted at 2%).
The following table shows the breakdown of exposures at risk by internal rating (S&P equivalent) for asset classes measured using the IRB approach, excluding: V exposures to equities (calculated using a simple weighting); V pool-based exposures (acquired portfolios) and third parties grouped into homogeneous risk classes; V securitization positions.
R TABLE 11B: EAD BY CATEGORY AND BY AGENCY – STANDARDIZED APPROACH
Governments and central banks Central governments and central banks 75 280 355
Only on exposures under the IRB-A approach, excluding securitizations and other items.
R TABLE 16: PD AND LGD BY GEOGRAPHIC AREA For exposures measured under the internal ratings-based approach. Average Probability of Default (PD) and Loss Given Default (LGD) rates are averages weighted by Exposures At Default (EAD).
(EAD in millions of euros and PD/LGD in %) Geographic area
(in millions of euros) 12.31.2015 12.31.2014 o/w balance sheet 106,621 192,259 o/w off-balance sheet 95,858 98,856
R TABLE 16C: DETAILS OF BASEL FACTORS ON IRB-A CATEGORIES (EAD, RWA and EL in millions of euros, PD, LGD and risk weighting in %)
Category EAD PD LGD RWA EL w eighting EAD PD LGD RWA EL w eighting
AA+, AA, AA- * Not rated: excluding exposures guaranteed by Groupe BPCE affi liates.
BBB+, BBB, BBB- * Not rated: excluding exposures guaranteed by Groupe BPCE affi liates.
R TABLE 17C: CONCENTRATION OF PROTECTION BY GUARANTOR Excluding exposures guaranted by Groupe BPCE affi liates.
3 RISKS AND CAPITAL ADEQUACYCredit and counterparty risks (including country risk) 3.4.9 EXPOSURE TO COUNTERPARTY RISK
R TABLE 20: IMPACT OF RISK-REDUCTION TECHNIQUES ON DERIVATIVES OTHER THAN CREDIT DERIVATIVES
Listed OTC with CCP OTC excl. CCP Total Listed OTC with CCP OTC excl. CCP Total
Exposures to institutions and corporates with a short-term credit assessment 92 242
Exposures to institutions and corporates with a short-term credit assessment 1,133 86
Investments in insurance companies are included in EAD as they are weighted as RWA.
Private Equity held in suffi ciently diversifi ed portfolios 1,114 1 1,115 1,298
Fair value or adjusted value or presumed cost Net unrealized gains or losses
Natixis has securitized assets on its acquired balance sheet: V as an investor through transactions for its clients, through derivative transactions and, to a marginal degree, through its market-making activity on certain ABS (Asset-Backed Commercial Paper); V as a sponsor, i.e. on transactions for its clients to create and manage ABS programs; V as an originator, i.e. as part of its refinancing activities when Natixis securitizes certain portfolios of loans granted to customers.
Natixis mainly invests in assets with high levels of collateral, spreads and seniority. Natixis also applies a sector-specifi c and geographic diversifi cation strategy to underlying assets.
The second is underpinned by a quantitative (ratings, valuations) and qualitative analysis of securitization positions for the purpose of segmenting the portfolio on the basis of risk levels.
3 RISKS AND CAPITAL ADEQUACYSecuritization R TABLE 31: EAD ACCORDING TO THE ROLE PLAYED BY NATIXIS
Note: Natixis acts as sponsor in ABCP-type securitization transactions through three vehicles, namely Versailles, Bleachers and Magenta.
The weighted exposures of securitization positions in the banking book measured under the internal approach may be subject to different calculation methods in accordance with regulations (CRR). Natixis mainly uses the ratings-based method (Art. 261) and the regulatory formula method (Art. 262).
R TABLE 33: EAD BY S&P EQUIVALENT RATING On securitization positions in the banking book (including counterparty risk) and the trading book.
R TABLE 33B: BANKING BOOK EAD BY AGENCY On securitization positions in the banking book (including counterparty risk).
R TABLE 35: EAD ACCORDING TO THE MAIN CATEGORIES OF UNDERLYING On securitization positions in the banking book (including counterparty risk) and the trading book.
The purpose of the market risk policies therefore is to equip Natixis with a risk management tool that adapts to any changes in the activities, using the categories defi ned in the French Law on the Separation and Regulation of Banking and the Volcker Rule, and in line with the bank’s targets. It also aims to consolidate Natixis’ risk governance.
The Risk Division ’s main responsibilities are: V the definition of all applicable risk measurement methods and risk indicators; V the analysis and daily control of market risks and the corresponding reporting for each business; V the validation of valuation models (pricers); V the definition of provisioning and fair value adjustment policies (for liquidity risks, risks related to non-hedgeable parameters, model risks, etc.); V the drawing up and communication of all consolidated reports presented to management and to control and supervisory bodies; V the introduction of standards and procedures common to all entities (subsidiaries and branches) carrying market risks; V the production of the VaR, the stressed VaR, the IRC (the Incremental Risk Charge, see Glossary), the stress tests and the backtesting; V the production of monitoring indicators in accordance with the French Law on the Separation and Regulation of Banking and the Volcker Rule; V the continued use of activities mapping in accordance with regulatory requirements.
Different techniques are used to measure market risk: 1. synthetic measures of VaR to identify potential losses in each business, based on a pre-determined confidence level (99%) and time period (1 day).
VaR is calculated and monitored daily for all the Natixis trading portfolios. All of the trading portfolios are subject to adequate risk monitoring and supervision systems, in accordance with the market risk policies in force.
3 RISKS AND CAPITAL ADEQUACYMarket risks A VaR limit is set at an overall level and for each business.
The regulator has authorized Natixis to use these new indicators in order to determine its capital requirement since December 31, 2011: 2. loss alerts by portfolio and aggregated by business line, which alert the management and Risk Division if losses reach a certain threshold over a given month or on a cumulative basis since the beginning of the year. These thresholds are set by the Market Risk Committee according to the characteristics of each portfolio, past performance and budgetary targets; 3. stress tests to measure potential losses on portfolios in extreme market conditions. Natixis’ mechanism is based on two categories of stress tests: overall stress tests and dedicated stress tests for each business.
R Overall stress tests are reviewed on a continuous basis. They are performed daily and can be grouped into two categories: R historic stress tests consist of reproducing sets of changes in market parameters observed during past crises in order to create an ex-post simulation of the P&L changes recorded. While stress tests do not have any predictive value, they do make it possible to gage the exposure of the portfolio to known scenarios; R hypothetical stress tests are used to simulate changes in market parameters for all of the activities, based on plausible assumptions regarding one market’s predicted response compared with another’s, depending on the nature of the initial stress. Stresses are determined through a joint effort involving the Risk Division , the front offi ce and Natixis economists.
In addition, reverse stress tests are used to highlight the most highrisk scopes and market environments as well as concentration and contagion links.
This mechanism is based on plausible scenarios drawn from extremely adverse assumptions on the fulfi llment of risk factors leading to the breach of a loss threshold, and allows Natixis to implement a new risk monitoring and steering tool, identify circumstances that may trigger this loss and adapt the appropriate action plans where necessary.
The model validation charter defi nes all procedures, scopes (valuation model, market data used, etc.), as well as the various analyses to be carried out, particularly in terms of use (restrictions to certain markets, underlyings, currencies, etc.), recommendations (ranked by importance) and adjustments (to models, exotic parameters, unhedged risk, etc.).These models may be subject to backtesting and monitoring in terms of quality and solidity to ensure that the applied risk parameters correspond to the value ranges projected upon their validation. These models also undergo a periodic review by the Model Validation Committee, which meets once per quarter. This Committee is tasked with verifying that the bank’s model risks have been properly identifi ed, quantifi ed and supervised and with documenting the follow-up on the recommendations issued in model validation notes.
The VaR level for Natixis’ trading portfolios averaged €8.6 million. It peaked at €12.3 million on September 10, 2015 and bottomed out at €6.2 million on October 23, 2015, standing at €7.6 million at December 31, 2015.
3 RISKS AND CAPITAL ADEQUACYMarket risks Stress test results for the Natixis scope
■ OVERALL STRESS TESTS AS AT DECEMBER 31, 2015 (INCLUDING THE BPCE GUARANTEE)
R TABLE 36: CAPITAL REQUIREMENTS FOR MARKET RISKS Regulatory capital requirements at December 31, 2015, were as follows: (in millions of euros) Nature of risk
As part of the defi nition of its risk appetite, and in accordance with the Decree of November 3, 2014, Natixis defi ned its operational risk tolerance political with a view to limit losses related to operational risks and regularly review actions to reduce risks. The policy sets out the governance put in place, the quantitative and qualitative management framework, and the monitoring performed thus far.
The main tasks and governance of the Operational Risk Department are described in Chapter 2, paragraph 2.5, “Chairman’s report on internal control procedures”.
They report hierarchically to the local Chief Risk Offi cer , and functionally to the Head of Operational Risk; V the support and control functions under the responsibility of an operational risk manager covering – in addition to the activities within his or her remit – overall risks (loss of access to premises or information systems, or loss of employee availability) to which Natixis is exposed.
The function has some 50 staff members (operational risk managers) dedicated to operational risk management. Within their designated scopes (subsidiary, business line or support function), they are responsible for instilling the operational risk culture, reporting and analyzing incidents, mapping risks, proposing and following up actions plans, compiling reports and escalating information to management. Analyses are carried out across the Company, often involving several operational risk managers where the support or control functions are involved, or where the processes have an impact on teams, whether in the front, middle or back offi ce.
In addition to risk mapping, there are over 700 key risk indicators (KRIs) in place with corresponding limits, and are monitored regularly. The KRIs dynamically detect any changes in the operational risk profi le, and cover the seven Basel categories of loss-generating events. They are applicable either to Natixis (overall indicators), to the business lines, or to the support functions that defi ned the indicators with the operational risk manager as relevant early warning indicators for the mapping process. These risk indicators are submitted to the Operational Risk Committee for approval, and the breach of their thresholds, which triggers a systematic alert in the tool, may result in the implementation of an action plan immediately or at the Committee’s initiative.
Losses are listed from the very fi rst euro and as they are incurred. A single defi nition of “serious incident” is used, in compliance with Groupe BPCE standards (€300,000 gross). All serious incidents (above the defi ned threshold or deemed serious by the business line and the Operational Risk Department) are reported immediately to the business line’s management and to Natixis’ Chief Risk Offi cer .
Once an investigation has been carried out on all relevant parties, the Operational Risk manager compiles a standardized full report with a factual description of the event, the analysis of the initial cause, the description of the impact and the proposed action plans. At all levels of the Company, the business line Operational Risk Committees review their serious incidents, decide on the action
Operational risks plans to be implemented, propose the relevant targets, and monitor their progress. The entities and business lines can decide to apply these measures to their own threshold, which is lower than that of the Natixis and consistent with its activity and level of risk.
In 2015 over 10,000 reported incidents (a single incident potentially comprising several individual incidents) were entered into the collection tool by the business lines. The losses were recurring or had a low-to-nil impact, and concerned primarily the back offi ce and IT support functions.
The cross-business functions make up close to half of the reported incidents in terms of number, but account for only 30% of impacts. However, the Corporate & Investment Banking activities in France and abroad make up close to half of the losses and provisions reported in 2015 in terms of amount, with these activities only representing 5% of the collection in terms of number.
In 2015 the number of serious incidents was down by 23% compared to 2014.
3 RISKS AND CAPITAL ADEQUACYOperational risks ■ BREAKDOWN OF REPORTED SERIOUS INCIDENTS BY NUMBER
Natixis has implemented measures in every business line and support function to monitor the action plans to reduce the Company’s exposure to operational risks. These action plans, numbering 300, are monitored by the business line and central Operational Risk Committees. A central alert system has been set up to detect actions plans that are taking too long to implement.
In 2015 a risk analysis was performed on all of Natixis’ business lines and support functions. It included a plan to strengthen the independent control functions’ mapping and was launched at the end of the year for implementation in 2016. The Corporate & Investment Banking business lines represent the majority of risks under review on account of the extensive nature of the division’s activities and operations in France and internationally.
V The insurance plans were renewed on January 1, 2015, and have been pooled in whole or in part with Groupe BPCE.
3 RISKS AND CAPITAL ADEQUACYOverall interest rate, liquidity, structural foreign exchange risks 3.8 Overall interest rate, liquidity, structural foreign exchange risks 3.8.1 GOVERNANCE
Natixis’ Asset and Liability Management (ALM) risks are managed and monitored under the authority of the Asset/Liability Management Committee (ALM Committee ) chaired by the Chief Executive Offi cer, and comprised of the members of the Senior Management Committee (in charge of Finance and Risks, Corporate & Investment Banking - Financial & Global Markets), the Chief Risk Offi cer, the Head of the Joint Refi nancing Pool, the Head of Financial Management and BPCE’s Head of Asset/Liability Management. The Committee meets every two months and is mainly responsible for: V defining and monitoring Natixis’ ALM; V approving the major principles in terms of structural balance sheet risks (structure, delegation of authority, fund transfer pricing, etc.) in compliance with the standard ALM framework set up by BPCE; V validating the ALM assumptions and conventions underlying calculations for metrics used to manage and monitor ALM risks; V validating limits related to liquidity, IRBB (1) and structural FX indicators; V validating the overall refinancing policy in conjunction with BPCE ALM; V supervising structural balance-sheet risks and compliance with limits, including managing excessive leverage risk since 2015; V supervising the main balance sheet aggregates and their development.
The ALM Committee’s monitoring scope includes: V the banking portfolios of Natixis S.A. and its credit subsidiaries for IRBB; V Natixis’ entire scope of consolidation for liquidity risk (excluding insurance subsidiaries, which do not present intrinsic liquidity risks and which are monitored and managed separately in respect of ALM risks); V Natixis’ entire consolidation scope for structural foreign exchange risk.
Overall interest rate, liquidity, structural foreign exchange risks 3.8.3 STRUCTURAL FOREIGN EXCHANGE RISK