Competence and integrity of members of the Board of Directors and the Supervisory Board 62
Natixis was created on November 17, 2006, on the occasion of the combined general meeting that approved notably the capital increase through a capital contribution in kind to Natexis Banques Populaires of a set of assets transferred by Caisse Nationale des Caisses d’Epargne (primarily IxisCIB and Ixis-AM) and Banque Fédérale des Banques Populaires(1), as well as the new company name (changed from Natexis Banques Populaires to Natixis).
Natixis’ activities are organized into five core business lines: Corporate and Investment Banking
Retail banking also makes a direct contribution to Natixis’ performance via the Group’s 20% interest(2) in the share capital of the Banque Populaire banks and the Caisse d’Epargne banks, as well as an indirect contribution through the sale of Natixis’ products and services at the two networks’ branches, which together make up around 25% of the French retail banking market.
Thanks to its performance and solid fi nancial structure, since its creation, Natixis has benefi ted from a high rating from the three main credit rating agencies (AA/Aa2/AA).
(2) Natixis holds cooperative investment certifi cates (CCIs) representing 20% of the share capital of each of the Banque Populaire banks and each of the Caisse d’Epargne banks (with the exception of Caisse d’Epargne et de Prévoyance de Martinique and Caisse d’Epargne et de Prévoyance de Nouvelle Calédonie), enabling it to consolidate under the equity method 20% of the net income of the Banque Populaire banks and the Caisse d’Epargne banks.
The creation of Natixis marks a key stage in the development of the banking sector in France and Europe. This initiative is the result of a strategic vision shared by two cooperative banking groups - the Banque Populaire Group and the Caisse d’Epargne Group.
With a market capitalization of over €25 billion, Natixis is already one of the largest stocks listed in Paris. Its size enables it to participate - from its basis in France - in the consolidation currently playing out in the European banking sector.
With Natixis - a new pan-European banking group - the Banque Populaire Group and the Caisse d’Epargne Group have confi rmed their ability to anticipate major challenges and made concrete their shared aim to establish themselves as a key player in the banking sector both in France and abroad, while also protecting their own history and original values.
Natixis is a young company, as it was legally created in its current form on November 17, 2006. However, its various components have long-standing role in France’s economic fabric, giving it considerable strength and visibility from the outset.
Natixis was formed from the desires of two major banking groups - the Caisse d’Epargne Group and the Banque Populaire Group. Sharing the same strategic vision of the development of the fi nancial sector, the two groups decided to join forces in creating a listed company, combining their corporate and investment banking, asset management and services activities, in which size and an international presence are decisive success factors.
Natixis has an extensive customer base and extremely broad range of activities, with a strong position both in France and abroad. For example, we are one of the world’s top 15 asset management companies. We are also world No. 3 in credit insurance, No. 10 in institutional custodial services and No. 10 in structured aircraft fi nancing. We already generate a signifi cant proportion of revenues - 47% of net banking income - outside France.
Natixis’ business model is both original and powerful, based on a strong commercial position, in-depth business expertise, a solid fi nancial structure and a strong international presence. Thanks to our parent companies, we also have access to over 20% of the French retail banking market, which constitutes another major strategic advantage for Natixis.
“ Natixis is a new name in the banking and fi nancial world. What makes it unique?„
Our new commercial organization, centered around improved coverage, has been designed to capitalize even more on this strength. In a rapidly changing world, we offer our customers the ability to understand their needs, to come up with solutions rapidly by drawing on the necessary fi nancial and legal expertise, as well as, wherever necessary, our fi nancial strength and international network, ensuring quality of execution at the highest standards. Our commercial success stems from this ability to reconcile fi nancial power, fl exibility and speed.
For personal banking customers of the Caisse d’Epargne Group and the Banque Populaire Group - for which Natixis provides products and services - the quality of our asset management teams and the power and investment capacity of our industrial platforms are our main strengths.
Overall, Natixis aims to increase its net banking income by an average of 10% a year over the period from 2005-10 and to improve its return on equity by 4 percentage points.(3)
Natixis also supports the shared ambitions of its two major shareholders - the Caisse d’Epargne Group and the Banque Populaire Group - which intend to play a role, both independently and together, in the opportunities arising from the consolidation of the banking industry.
* Excluding restructuring costs and costs relating to the creation of Natixis.
Total assets €458.6bn €437.8bn * After deductions in accordance with CRD/Basel II rules.
Europe – Alicante – Barcelona – Berlin – Bielefeld – Biella – Birmingham – Bratislava – Breda – Brussels – Bucharest – Budapest – Bologne – Dublin – Düsseldorf – Eschborn – Frankfurt – Frederiksberg – Hamburg – Hanover – Istanbul – Karlsruhe – Kiev – La Coruna – Lausanne – Linz – Lisbon – Ljubljana – London – Louvain-La-Neuve – Luxembourg – Madrid – Mainz – Milan – Moscow – Munich – Nuremberg – Oslo - Paris – Porto – Prague – Riga – Rome – Saint-Sébastien – St Petersburg – Seville – Sofia – Stockholm – Stuttgart – Tallinn – Valencia – Vienna – Vilnius – Warsaw – Watford – Zagreb – Zurich – Asia – Africa – Asia-Pacific – Abidjan – Algiers – Almaty – Bamako – Bangalore – Bangkok – Bejaia – Beijing – Beirut – Bnei-Brak – Cairo – Casablanca – Cotonou – Dakar – Douala – Dubai – Hanoi – Ho Chi Minh City – Hong Kong – Jakarta – Johannesburg – Kuala Lumpur – Labuan – Lomé – Melbourne – Mumbai – New Delhi – Oran – Osaka – Ouagadougou – Rouiba – Sandton – Secunderabad – Seoul – Setif – Shanghai – Singapore – Sydney – Taipei – Teheran – Tlemcen – Tokyo – Tunis – Americas – Atlanta – Baltimore – Bloomfield Hills – Bogotá – Boston – Boulder – Buenos Aires – Burlington – Caracas – Chicago – Detroit – East Windsor – Fairfield – Fort Lauderdale – Glendale – Greenwich – Guayaquil – Houston – Jersey City – Lima – Los Angeles – Mexico – Miami – Milwaukee – Montreal – New Haven – New York – Oakland – Panama – Pasadena – Pierrefonds – Quito – San Francisco – San Jose – Santiago – Sao Paolo – Toronto – Washington DC
June 6, 2006: Following the exclusivity period announced on March 12, 2006, Philippe Dupont, Chairman of the Banque Populaire Group, and Charles Milhaud, Chairman of the Executive Board of Caisse Nationale des Caisses d’Epargne, signed the agreement that sets out the terms and conditions of the creation of their new joint subsidiary, Natixis.
As a result, CNCE and BFBP (directly and through SNC Champion) each held an equal stake of 45.52% (44.86% on a fully diluted basis) in Natexis Banques Populaires, now Natixis .
At the end of this market transaction, CNCE and BFBP each owned 34.44% of Natixis.
2006 was divided into two periods for the Natixis shares: until November 17, 2006, the shares were listed under the name “Natexis Banques Populaires” with a par value of €16; since November 20, 2006, the shares have been listed under the name “Natixis” with a par value of €1.6 (after the 10-for-one stock split).
On November 28, 2006, the CECEI (Comité des Etablissements de Crédit et des Entreprises d’Investissement) authorized the cancellation of 15,552,460 treasury shares, bringing the number of Natixis shares to 1,217,682,750.
1st quarter 2,234,399 2nd quarter 2,943,194 3nd quarter 1,994,506 4th quarter
(1) Based on average number of shares outstanding during the year.
The table below shows the growth in value of an investment in one Natixis share (Natexis Banques Populaires prior to November 17 , 2006) acquired at the December 31, 1999, closing price of €7.27 (adjusted for the 10-for-1 stock split).
Based on a share price of €21.28 on December 31, 2006, the initial investment had appreciated to €21.28 x 1.26 = €26.81 at that date, representing average annual growth of 19.5%. The initial 1999 investment increased 3.5 times.
Firstly, it was responsible for preparing Natexis Banques Populaires’ 2005 annual report and its updates, as well as ensuring that they were fi led with the AMF (Autorité des Marchés Financiers). Owing to the quality of the 2005 annual report, it was again one of the eight SBF 120 companies nominated for the annual report “Grand prix” awarded each year by the French fi nancial publication La Vie Financière , in partnership with Les Echos .
All of these documents have been made available online on the company’s website in French and/or English.
In addition to regular individual meetings with institutional investors in France and abroad organized in the fi rst half of 2006, a special meeting with sell-side analysts was held in Paris on October 17, 2006, to present Natixis. A number of road shows were organized to accompany the placement of the Natixis shares (open price offer for private investors in France and global placement for institutional investors in France and abroad) between November 18 and December 5, 2006. In France, road shows were held in Paris and fi ve major cities (Lille, Nantes, Nice, Marseille and Lyon ) to present Natixis and the characteristics of the open price offer to the personal customers of the major banking networks, in particular those of the Caisse d’Epargne and the Banque Populaire banks. A number of meetings also took place with institutional investors in Europe and the United States.
For individual investors, the primary means of communication in 2006 was again the 'Shareholders’ Newsletter'. Two newsletters, including a special edition dedicated to the general shareholders’ meeting in May 2006, were sent out to all identifi ed shareholders and put online on the Group’s website. The 'Banque Populaire Group employee-shareholders’ newsletter' was sent to all employees who had subscribed to the employee stock ownership plan launched in June 2001.
Individual shareholders in France were also able to obtain information throughout the year by dialing a toll-free number or by sending an e-mail to relinvest@natixis .fr. A particularly high number of calls were handled in the fourth quarter of 2006. The main questions from existing Natexis Banques Populaire shareholders concerned what would happen to their shares and the company’s new scope of consolidation. Many of these shareholders expressed their eagerness to buy new shares. “Potential” shareholders asked a variety of questions about Natixis’ business activities and the terms of the open price offer. In an effort to personalize shareholder relations and ensure that the information provided is of a consistently high quality, all calls and e-mails were handled directly by members of the Investor Relations team.
Two general meetings were held in 2006. On May 18, 2006, several hundred shareholders attended the Annual General Meeting of Natexis Banques Populaires held in the main auditorium of the Paris Bourse. As in prior years, the meeting was preceded by a broad-based consultation process to identify the topics of particular interest to shareholders, and the rate of response has increased every year. The 2006 themes included the company’s fi nancial performance, its business lines - with a presentation focusing on the Services division - as well as share price performance, dividend policy and an update of the strategy for 2006 with the creation of Natixis. On November 17, 2006, the Natexis Banques Populaires general meeting was held at the Palais des Congrès conference center in Paris. This meeting was of particular importance and highly legal in nature, as shareholders had to vote on 51 resolutions including approval of the transfer of assets, the change of company name and the 10-for-one stock split. After the meeting, Natexis Banques Populaires became Natixis.
Each of these meetings was shown the next day on the website, accompanied by the results of the votes on resolutions.
Meetings with individual shareholders at the Actionaria individual investors’ trade fair at the Palais des Congrès on November 17 and 18, 2006, were subject to particular circumstances, as the general meeting resulting in the creation of Natixis was held on the fi rst day of the trade show and trading of the Natixis shares began on the second day. Record attendance was reported at the stand. The qualitative survey of visitors to large cap stands conducted by TLB was extremely positive for Natixis, which achieved a score well above average.
The general shareholders’ meeting will be held on May 24, 2007, at the Carrousel du Louvre in Paris .
Website: www.emetline.com e-mail: emetline@natixis.fr 2007 Financial Calendar March 15, 2007 2006 earnings
The Notice of Meeting presents the agenda of the Meeting and the resolutions that will be put to vote. It is sent directly to holders of registered shares who purchased their shares at least one month before the Meeting date. Included with the Notice is a form to apply for an admittance card, for shareholders planning to attend the meeting in person, and a form of proxy and a postal voting form for shareholders who are unable to attend.
Holders of bearer shares are notifi ed of the Meeting through notices published in the Bulletin des Annonces Légales Obligatoires (BALO – ciel.gouv.fr) and the fi nancial press at least 35 days prior to the Meeting date, by calling the toll-free number reserved for shareholders (calls originating in France only) or by visiting the bank’s web site. Copies of the Notice of Meeting and the voting forms can be obtained from the bank or broker that manages their share account.
POLICIES AND RULES FOR DETERMINING COMPENSATION PAID TO THE CHAIRMAN, CHIEF EXECUTIVE OFFICER AND DIRECTORS 56
COMPETENCE AND INTEGRITY OF MEMBERS OF THE BOARD OF DIRECTORS AND THE SUPERVISORY BOARD 62
Natixis’ two shareholders, as set out in the shareholders’ pact of November 17, 2006.
MILHAUD Charles Chairman of the Supervisory Board of N atixis , Chaiman of the Management Board of Caisse Nationale des Caisses d’Epargne et de Prévoyance TOURRET Jean-Louis Vice-Chairman of the Supervisory Board of Natixis, Chaiman of Banque Populaire Provencale & C orse COMOLET Bernard Vice-Chairman of the Supervisory Board of Natixis, Chairman of the Management Board of Caisse d’Epargne Ile-de-France Paris Banque Fédérale des Banques Populaires Represented by: GOUDARD Michel, Deputy Chief Executive Offi cer of Banque Fédérale des Banques P opulaires Caisse Nationale des Caisses D’Epargne Represented by: MERINDOL Nicolas, Chief Executive Offi cer of Caisse Nationale des Caisses d ’ Epargne BOLLORÉ Vincent Chairman and Chief Executive Offi cer of Groupe B olloré COMAS Jean-François Chief Executive Offi cer of Banque Populaire Côte d’Azur CORDEL Claude Chairman of Banque Populaire du Sud CREQUIT Jean-Claude Chairman of the Management Board of Caisse d’Epargne Côte d’Azur GENTILI Stève Chairman of Bred Banque P opulaire HENRY Francis Chairman of the Orientation and Supervisory Board of Caisse d ’Epargne de Champagne A rdenne De LA PORTE du THEIL Yvan Chief Executive Offi cer of Banque Populaire Val -de-France METTLING Bruno Deputy Chief Executive Offi cer of Banque Fédérale des Banques P opulaires NAOURI Jean-Charles Chairman of E uris PATAULT Didier Chairman of the Management Board of Caisse d’Epargne des Pays de la L oire PROGLIO Henri Chairman and Chief Executive Offi cer of Veolia E nvironnement SUEUR Philippe Chairman of the Orientation and Supervisory Board of Caisse d ’Epargne Île-de-France N ord ZOLADE Robert Chairman of Elior
BRIXNER Ulrich Chairman of the Consultative Committee of DZ BANK AG IOZZO Alfonso Chairman of Cassa Depositi e P restiti Spa
They were replaced by three new members: Jean Clochet, Yves Gevin and Bernard Jeannin (each Chairman or Chief Executive Offi cer of a Banque Populaire regional bank), appointed by the Annual General Meeting of May 18, 2006.
All Board members, with the exception of Banque Fédérale des Banques Populaires, the principal shareholder, were individuals.
Since November 17, 2006, the bank has had a Management Board and Supervisory Board, as set out in Articles L. 225-57 et seq. of the French Commercial Code.
Chairman of the Management Board of CAISSE NATIONALE DES CAISSES D’EPARGNE ET DE PREVOYANCE 50 avenue Pierre Mendès France 75201 PARIS Cedex 13
Chairman of BANQUE POPULAIRE PROVENCALE & CORSE 245 boulevard Michelet BP 25 13274 MARSEILLE CEDEX 09
COMOLET Bernard AGM of November 17, 2006 2011 Vice-Chairman of the Supervisory Board
CAISSE NATIONALE DES CAISSES D’EPARGNE ET DE PREVOYANCE - represented by Nicolas MERINDOL
COMAS Jean-François AGM of November 17, 2006 2011 Member of the Supervisory Board
CREQUIT Jean-Claude AGM of November 17, 2006 2011 Member of the Supervisory Board
GENTILI Stè ve AGM of November 17, 2006 2011 Member of the Supervisory Board
Chairman of BRED BANQUE POPULAIRE 18 quai de la Rapée 75012 PARIS
Chief Executive Offi cer of BANQUE POPULAIRE VAL-DE-FRANCE 9 avenue Newton 78183 SAINT-QUENTIN- EN -YVELINES CEDEX
METTLING Bruno AGM of November 17, 2006 2011 Member of the Supervisory Board
Deputy Chief Executive Offi cer of BANQUE FEDERALE DES BANQUES POPULAIRES Le Ponant de Paris 5, rue Leblanc 5511 PARIS CEDEX 15
PATAULT Didier AGM of November 17, 2006 2011 Member of the Supervisory Board
Chairman of the Management Board of CAISSE D’EPARGNE DES PAYS DE LA LOIRE 8, Rue de Bréa B.P 835 44000 NANTES
Chairman of the Orientation and Supervisory Board of CAISSE D’EPARGNE D’ILE DE FRANCE NORD 57, rue du Général de Gaulle 95880 ENGHEIN LES BAINS
ZOLADE Robert AGM of November 17, 2006 2011 Member of the Supervisory Board
Chairman of ELIOR Groupe ELIOR 65 rue de Bercy 75589 PARIS CEDEX 12
Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne are each members of the Board as majority shareholders and legal persons. The other 12 members from the two groups are all individuals and directors of the Banque Populaire Group and the Caisse d’Epargne Group.
Two independent Board members who previously sat on the Board of Directors of Natexis Banques Populaires, Vincent Bolloré and Robert Zolade, are members of Natixis’ Supervisory Board. The characteristics that qualify these
Jean-Charles Naouri and Henri Proglio have also been appointed as independent members.
Mr Naouri is Chairman of Euris, the holding company of one of France’s largest retail groups, Mr Proglio is Chairman and Chief Executive Offi cer of Véolia Environnement.
The Management Board may be made up of two to seven members appointed for a period of six years by the Supervisory Board, in accordance with French law, article 9 of the bylaws and the shareholders’ pact, which states that members are chosen on the basis of their competence, irrespective of from which of the two groups they come.
A brief curriculum vitae of each of these individuals, as well as their list of executive positions and directorships in 2006 and the fi ve preceding years, are provided in the appendices.
Director of Société de Gestion pour le Caoutchouc et les Oléagineux – SOGESCOL (Brussels)
Vice-Chairman of the Board of Directors of Banco Cooperativo Espanol S.A.
Member of the Board of Directors of KfW Kreditanstalt für Wiederaufbau
Director and Chairman and Chief Executive Offi cer of Routin S.A.
Deputy Vice-Chairman of the Board of Directors of Banque Populaire des Alpes
Permanent representative of Banque Populaire Côte d’Azur, Chairman of Foncière Victor Hugo
Permanent representative of Banque Populaire Côte d’Azur, Chairman of Société Méditerranéenne d’Investissement
Representative of Banque Populaire Côte d’Azur, Manager of SCI Domaine de l’Arénas
Permanent representative of Caisse d’Epargne et de Prévoyance Ile-de-France Paris on the Board of Directors of Sogeccef
Permanent representative of Caisse d’Epargne et de Prévoyance Ile-de-France Paris on the Board of Directors of Groupement d’Achat des Caisses d’Epargne Od@cia
Permanent representative of Caisse d’Epargne et de Prévoyance Ile-de-France Paris on the Supervisory Board of SA d’HLM Immobilière 3F
Permanent representative of Banque Populaire Val de France, Director of i-BP (Informatique Banques Populaires)
Other positions: Member of the Executive Committee of CIBP (Confédération Internationale des Banques Populaires)
Permanent representative of Banque Populaire Val de France, Director of Banque Populaire Développement
Permanent representative of Banque Populaire Val de France, Director of BICEC (Banque Internationale du Cameroun pour l’Epargne et le Crédit)
Permanent representative of Casden-Banque Populaire, Chairman of SAS Parnasse Espace 1
Permanent representative of Casden-Banque Populaire, Member of the Supervisory Board of SCPI Parnasse Immo
Permanent representative of Casden-Banque Populaire, member of the Supervisory Board of +X Altaïr
Chairman and Chief Executive Offi cer of Banque Fédérale des Banques Populaires
Member of the Supervisory Board of Volksbank International AG - VBI
Director of Banque Fédérale des Banques Populaires (until February 28, 2006)
Chairman of the Board of Directors of B red Banque Populaire
Permanent representative of Banque Fédérale des Banques Populaires, Member of the Supervisory Board of Natixis
Representative of Banque Fédérale des Banques Populaires, Chairman of SAS BP Création
Member of the Supervisory Board of M.A. Banque – Multi Acces Banque
Representative of Banque Fédérale des Banques Populaires on the Supervisory Board of BPL – Banque pour les Paiements on line
Permanent representative of Banque Populaire Provençale et Corse, Director of Fructi-Actions Rendement
Chairman of the Orientation and Supervisory Board of Caisse d’Epargne de Champagne-Ardenne
Permanent representative of Natixis, Director of Coface – Compagnie Française d’Assurance pour le Commerce Extérieur
Permanent representative of Natexis Banques Populaires, Member of the Supervisory Board of +X Altaïr
Permanent representative of SAS Ecureuil Participations, Partner of Alliance Entreprendre Développement
Permanent representative of CNCE, Member of the Supervisory Board of Girce Stratégie
Member of the Management Board of Caisse Nationale des Caisses d’Epargne
Chairman of the Management Board of Caisse Nationale des Caisses d’Epargne
Chairman of the Board of Directors of Fondation des Caisses d’Epargne
Permanent representative of Caisse Nationale des Caisses d’Epargne, Director of Banque des Iles St-Pierre et Miquelon
Permanent representative of Banque Populaire Occitane, Member of the Supervisory Board of Latecoere
Chairman of the Board of Directors of Sully (now Euris Group)
Permanent representative of CIFG Holding, Member of the Supervisory Board of CIFG Europe
Permanent representative of Caisse Nationale des Caisses d’Epargne, Chairman of the Supervisory Board of CIFG Holding
Member of the Supervisory Board of IXIS Corporate & Investment Bank
Permanent representative of Banque Populaire du SudOuest, Director of Informatique Banques Populaires
Permanent representative of Banque Populaire du SudOuest, Director of SOCAMA Sud-Ouest
Permanent representative of Banque Populaire du SudOuest, Director of SOPROLIB Sud-Ouest
Legal representative of H.B.I., the company that is Chairman of Bercy Participations (SAS)
Legal representative of Avenance SAS, the company that is Chairman of Bercy Services I (SAS)
Legal representative of Eliance, p artner-manager of Eliance Orly Ouest (SNC)
Charles Milhaud, age 64, has been Chairman of the Management Board of Caisse Nationale des Caisses d’Epargne since 1999. A science graduate, he has spent his whole career with Caisse d’Epargne Group. Mr Milhaud is also Chairman of the Supervisory Board of Natixis and of Financière OCEOR, Chairman of the Caisses d’Epargne Foundation for Social Solidarity and, since September 1, 2006, Chairman of the French Banking Federation for a term of one year.
Vincent Bolloré, age 55, manages and controls the Bolloré Group, which has over 30,000 employees and is a market
CORPORATE GOVERNANCE 2 Structure of executive bodies leader in the manufacturing, transportation and logistics sectors, as well as energy distribution and media.
Jean-François Comas, age 59, has been Chief Executive Offi cer of Banque Populaire Côte d’Azur since 1998, having previously held management positions at the Banque Populaire regional banks.
Jean-Claude Cre quit, age 54, is Chairman of the Management Board of Caisse d’Epargne Côte d’Azur. Having previously worked in the public sector and the banking sector, he has held executive positions within Caisses d’Epargne since 1984.
Francis Henry, age 61, honorary solicitor, has been Chairman of the Orientation and Supervisory Board of Caisse d’Epargne et de Prévoyance de Champagne-Ardennes since 1992.
Jean-Charles Naouri, age 58, is Chairman and Chief Executive Offi cer and founder of EURIS, the holding company of one of France’s leading retail groups. He began his career as an auditor with the French Treasury before becoming chief of staff at the Ministry of Social Affairs and National Solidarity in 1982 and at the Ministry of the Economy in 1984. He was also manager-partner at Rothschild & Cie Banque from 1987 to 2005.
Jean-Louis Tourret, age 64, Chairman of Banque Populaire Provençale et Corse, is manager of a number of industrial companies in the electronic sector and services companies. He is a member of professional and employer organizations and a local elected representative in Marseilles.
Robert Zolade, age 67, is Chairman of contract catering group Elior, of which he is one of the two co-founders. He previously held various management positions within French hotel and catering companies.
Ulrich Brixner, age 66, is of German nationality and has a doctorate in management. He has held various positions of responsibility at major German banks and was Chairman of the Board of DZ BANK AG from 2000 to 2006.
Alfonso Iozzo, age 65, is Chairman of Casa Depositi e Prestiti. He has held various positions of responsibility and subsequently executive management positions within the SanPaolo Group. He has been director of various European banks.
Dominique Ferrero, age 60, studied at the Ecole Normale Supérieure and held a variety of positions of responsibility at the Banque Française du Commerce Extérieur (French Foreign Trade Bank), of which he became Chief Executive Offi cer in 1994. He was Chief Executive Offi cer of Natexis Banques Populaires and then of Crédit Lyonnais from November 1999, then Senior Adviser at Merrill Lynch from 2004.
François Ladam, age 60, an HEC graduate, has spent his entire career with the Banque Populaire Group as Internal auditor and then Chief Executive Offi cer of two Banque Populaire regional banks. He was Chief Executive Offi cer of Natexis Banques Populaires from November 1, 2002.
The role of the Board of Directors of Natexis Banques Populaires was to determine the company’s business strategy and ensure that it was correctly implemented. It handled any issues affecting the running of the company and passed resolutions to govern any matters concerning it, subject to powers attributed by law to other executive bodies.
The Board carried out inspections and verifi cations it considered appropriate.
The Internal Rules described matters falling within the competence of the Board, its rules of procedure, its code of ethics and its methods for resolving confl icts of interest. They also specifi cally provided for the Board to be assisted by three Committees. Lastly, they described the rules of conduct to be followed by each individual director.
The Internal Rules also described the method used to determine director’s fees. These included a small fi xed annual fee (€1,525 as of 2001) and a variable fee of €1,220 per meeting attended by the director during the year (also since 2001). In addition, members of the Committees of the Board were paid a fee of €915 per Committee meeting attended.
The Director’s Charter set out the rights and obligations of Board members. It determined rules relating to the holding of shares in the company by directors and, in particular, abstention during any sensitive periods preceding reporting of the company’s results.
The Chief Executive Offi cer had the broadest powers to act under any circumstances on behalf of the company, subject to powers attributed by law to other executive bodies.
Executive Management’s powers were not restricted by the bylaws or decisions by the Chief Executive Offi cer concerning appointments, with the exception of the Board’s authorization of substantial investments as stated above.
At the end of each fi nancial year, in accordance with regulatory deadlines, the Management Board presents to the Supervisory Board the annual fi nancial statements, the consolidated fi nancial statements and its report, for the purposes of inspection and verifi cation. At the annual meeting, the Supervisory Board presents its observations on the Management Board’s report and the annual, company and consolidated fi nancial statements.
The Supervisory Board appoints and may dismiss members of the Management Board, the Executive Chairman and Chief Executive Offi cers in accordance with French law and Article 9 of the bylaws, as well as the conditions set out in the shareholders’ pact as described in paragraph 1.2.2.
CORPORATE GOVERNANCE 2 Role and rules of operation of the executive bodies of the statutory auditors, subject to the conditions required by law.
be an employee or corporate offi cer of the company or the group, an employee or director of a shareholder with control of the company alone or in concert, in accordance with Article L. 233-3 of the French Commercial Code, or a consolidated company, and has not served in such a capacity during the last fi ve years; be a corporate offi cer of a company in which the company directly or indirectly holds a directorship or in which an employee designated as such or a corporate offi cer of the company holds a directorship; be a major customer, supplier, corporate banker or investment banker of the company or the group, or for whom the company accounts for a signifi cant proportion of its business; have a close family connection with a director of the company or the group, have been an auditor of the company or one of the group’s companies in the last fi ve years, have been a director of the company or one of the group’s companies in the last fi ve years, be a member of the company’s supervisory board for more than 12 years, receive or have received additional material compensation from the company or the group other than directors’ fees.
Members of the Supervisory Board and Committees, as well as any person attending meetings of the Board and its Committees, must abide by a general confi dentiality agreement concerning matters discussed at such meetings, as well as any information that is confi dential or presented as such by the Chairman or Chairman of the Management Board.
In accordance with regulations, the Management Board may decide to subdelegate the power granted to it in application of this rule; evaluation of the Supervisory Board: At least once a year, one item on the agenda shall concern the evaluation of the operations of the Board, which is included in the company’s annual report; fi nally, certain aspects concerning the functioning of the Board as set out in the Internal Rules: In particular, the Internal Rules state that, apart from in the case of adopting decisions concerning the inspection and verifi cation of the company and consolidated fi nancial statements, members of the Supervisory Board participating in Board meetings via videoconferencing or any means of telecommunications transmitting at least the member’s voice, the technical characteristics of which allow for continuous and simultaneous streaming of all debates, shall be deemed present for quorum purposes.
The Management Board carries out its functions under the control of the Supervisory Board.
The Management Board convenes all general shareholders’ meetings, sets the agenda and executes decisions.
Vis-à-vis third parties, any actions concerning the company shall be carried out by the Executive Chairman or a Chief Executive Offi cer.
Whenever necessary, the Committees made enquiries of the heads of the departments in a position to provide the information required. The Statutory Auditors were invited to take part in the Audit Committee’s meetings. Neither the Chairman nor the Chief Executive Offi cer attended Committee meetings. Formal minutes were produced after each meeting and the Committee chairmen reported periodically to the Board on their activities and recommendations.
Natexis Banques Populaires’ Audit Committee had four members: Pierre Desvergnes, Jean de La Chauvinière (independent director), Richard Nalpas and Francis Thibaud until May, and Jean-François Comas, Pierre Desvergnes, Jean de La Chauvinière and Yvan de La Porte du Theil thereafter. Mr Nalpas was Chairman until May 2006, followed by Mr Comas. Its overall responsibilities, pursuant to its operating rules, were to assist the Board of Directors in controlling risk at Natexis Banques Populaires, to review draft fi nancial statements and related fi nancial disclosures. Where necessary, the Committee obtained explanations about material items before the fi nancial statements were presented to the Board. During its review, the Committee examined the accounting treatment of non-recurring transactions and obtained assurance concerning the appropriateness and consistent application of accounting principles and methods.
were replaced by Yves Gevin and Bernard Jeannin, with Mr Jeannin being made Chairman.
The Risk Management Committee met four times in 2006, with a 94% attendance rate, and examined, in accordance with CRBF rule n° 97-02, the Chairman’s report on corporate governance and internal control, as stipulated in the French Financial Security Act (“loi de sécurité fi nancière”). It was informed of the results of internal audit assignments carried out in 2005 and the auditing schedule for 2006.
It also examined the compliance charter. It looked at the tools used to measure and monitor interest rate risk, anti-money laundering procedures, risks relating to LBO fi nancing and commodities fi nancing, clients in the banking and fi nancial sectors, risk diversifi cation and, fi nally, IT risks.
The duties of Natixis’ Risk Management Committee are as follows: it assists the Supervisory Board in its inspection and auditing of the fi nancial statements and the Chairman’s report on the company’s business activities; within this framework, it monitors the quality of information provided to shareholders and, more generally, carries out the duties set out in CRBF rule n° 2001-01 of June 26, 2001, concerning the internal control of credit institutions and investment fi rms, amending CRBF rule n° 97-02 of February 21, 1997, as amended by rule n° 2004-02 of January 15, 2004; it examines the company and consolidated annual and interim fi nancial statements, as well as the company’s draft budgets at least one week before they are presented to the Supervisory Board, as well as company fi nancial documents handed out on approval of the fi nancial statements; it gives an opinion on the choice or renewal of the company’s statutory auditors and examines the scope of their work, the results of their investigations and their recommendations, as well as any actions taken on the basis of these recommendations; it gives an opinion on the procedures implemented by the company to ensure compliance with regulations, as well as the monitoring and control of risks; to this effect, it receives reports from the risk committees of the company and its main subsidiaries, as well as reporting on risks, notably operational, market or counterparty risks, carried out under the diligence of the company’s management board; it gives an opinion on the appointment and dismissal of the head of Internal Audit; it monitors the implementation of actions based on the conclusions of assignments by the Internal Audit department and the Banking Commission; for this purpose, it may receive reports from the Internal Audit department and the Banking Commission concerning the company and its subsidiaries; it looks at the company’s annual internal auditing schedule, including audits at subsidiaries, which should be presented to the Committee at least one week before approval; it gives an opinion on the report submitted to it each year concerning business relationships between the company or one of its subsidiaries and all or some of the entities making up the Caisse d’Epargne Group or the Banque Populaire Group.
The Risk Management Committee may submit to the Supervisory Board any proposals to carry out an audit, notably concerning the fi nancial statements of the company and its subsidiaries.
The Board of Directors of Natexis Banques Populaires met eight times during 2006. The attendance rate was 95% on average over the year for all members at all meetings.
Detailed minutes were prepared after each meeting, summarizing the information presented and remarks made by Board members and setting out any decisions made.
The work of the Board of Directors was evaluated in 2005, in accordance with corporate governance recommendations.
Throughout 2006, the directors endeavored to implement the comments and suggestions arising from this evaluation.
The Board’s major debates and discussions in 2006 inevitably concerned Natixis.
In December, the Supervisory Board gave the various authorizations required to close the offering of Natixis shares on the market.
Also in December, the Management Board explained Natixis’ business plan for the coming years and proposed link-ups of certain Natixis subsidiaries, which were approved by the Board.
CORPORATE GOVERNANCE2 Policies and rules for determining compensation paid to the chairman, chief executive offi cer and directors
(Pursuant to article L. 225-68 of the French Commercial Code as amended by the law of December 30, 2006).
Fringe benefi ts (a company-owned apartment and a company car for the Chief Executive Offi cer, no benefi ts for the Chairman) were unchanged in relation to the previous year and valued at around €22,500.
On December 13, 2006, the Supervisory Board made the following decisions concerning executive compensation: Compensation paid to members of the Supervisory Board
There is no variable compensation, no allocation of securities to the Chairman of the Supervisory Board and no additional payment of directors’ fees to any members of the Supervisory Board.
The decisions made are based on three main principles: clarity, transparency and exemplarity; equality between Management Board members (paying particular attention to ensuring that compensation is consistent with the rest of the market); new individual compensation levels in line with previous levels.
The Executive Chairman’ s salary has been set at €350,000. In addition, the Chairman may receive a bonus representing 120% of this salary if performance targets are reached, up to a maximum of €630,000 if the company achieves 150% or more of its targets.
The Chief Executive Offi cer’s salary of €600,000 a year is 80% of the market median. In addition, the Chief Executive Offi cer may receive a bonus representing 120% of this salary if performance targets are reached, up to a maximum of €1,080,000 if the company achieves 150% or more of its targets.
François Ladam Salary of €450,000; plus a bonus of 100% of salary if performance targets are reached, up to a maximum of €675,000 if the company achieves 150% or more of its targets.
maximum level (higher than expected income) corresponding to the maximum bonus.
Compensation paid to Management Board members in the form of stock options
The Remuneration Committee’s proposal, adopted by the Board, is based on current practices in force within the company, reassessed to take account of market developments and Natixis’ share price performance.
Dominique Ferrero, Anthony Orsatelli and François Ladam each have company cars valued at €2,071, €500 (pro rata temporis) and €4,081 respectively in 2006. The companyowned apartment made available to Mr Ladam is valued at €18,381.
Philippe Dupont receives fringe benefi ts - primarily a companyowned apartment and a company car - valued at a total of €62,856, provided by Banque Fédérale des Banques Populaires.
In relation to their previous duties at Natexis Banques Populaires, two members of Natixis’ Management Board, Philippe Dupont and François Ladam, belonged to the complementary group retirement plan applicable to all Chief Executive Offi cers of the Banque Populaire Group.
A similar scheme is available to Dominique Ferrero and Anthony Orsatelli.
In this regard, the total of all pension benefi ts payable to executives may not exceed 60% of the income they received in their last year of service, with the income fi gure capped at €335,000. For executives appointed after January 1, 2005, this maximum has been reduced to 50%.
CORPORATE GOVERNANCE2 Policies and rules for determining compensation paid to the chairman, chief executive offi cer and directors of services of Chief Executive Offi cer at the Banque Populaire Group. The amount of the indemnity is limited to a maximum of 42/12 of annual compensation.
When an executive takes retirement or early retirement, he receives a payment equal to 1/40 of annual compensation per year of service with the Natixis Group or one of the two shareholding groups, capped at 40/40 of that compensation.
Compensation for Natixis period only(1) Total Board Members Banque Fédérale des Banques Populaires
BOLLORE BD SB 9,760 26,000 35,760 BREVARD BD 11,285 11,285 BRIXNER SB 14,000 14,000 Caisse Nationale des Caisses d’Epargne
CHAVAILLARD BD 11,285 11,285 CLOCHET BD 6,405 6,405 COMAS BD SB 14,030 16,000 30,030 COMOLET SB 20,000 20,000 CORDEL BD SB 14,945 16,000 30,945 CREQUIT SB 21,000 21,000 de La CHAUVINIERE BD 14,030 14,030 de La PORTE du THEIL BD SB 13,115 21,000 34,115 DUPONT Ch. BD Exe. Ch. 11,285 463,000 474,285 DUQUESNE BD 7,015 7,015 GENTILI BD SB 12,200 16,000 28,200 GEVIN BD 7,320 7,320 GOUDARD BD SB 11,285 5,000 16,285 HENRY SB 20,000 20,000 IOZZO SB 10,000 10,000 JEANNIN BD 8,235 8,235 MERINDOL SB 12,500 12,500 METTLING SB 20,000 20,000 MILHAUD Ch. SB 16,000 16,000 NALPAS BD 7,320 7,320 NAOURI SB 28,500 28,500 PATAULT SB 16,000 16,000 PROGLIO SB 16,000 16,000 SUEUR SB 16,000 16,000 THIBAUD BD 7,320 7,320 TOURRET BD SB 14,945 20,000 34,945 ZOLADE BD SB 6,405 21,000 27,405
LADAM CEO MB 0 0 0 * Total compensation paid to Philippe Dupont in respect of Natixis and BFBP in 2006 was €950 ,283.
Individual compensation (employment contract or director compensation) paid by one or more subsidiaries of CNCE transferred to Natixis(1) Total
CREQUIT SB 33,778 NA NA 33,778 de La CHAUVINIERE BD 0 0 0 0 de La PORTE du THEIL BD SB 0 0 0 0
CORPORATE GOVERNANCE2 Competence and integrity of members of the Board of Directors and the Supervisory Board
In accordance with the enforcement rules of the EU directive 2003/71 (Article 14.1, paragraph 2), the bank reports that none of these Board members or members of Executive Management has been convicted of fraud over the past fi ve years (minimum), has been subject to bankruptcy, liquidation or receivership over the past fi ve years (minimum), has been offi cially incriminated or punished by corporate or regulatory authorities, has been enjoined from acting as a director or executive of an issuer or from managing or participating in the business of an issuer over the last fi ve years (minimum).
Agreements between the bank and members of the Board and Executive Bodies
The bank also reports, in accordance with EU regulations, that there are no agreements between members of the Board of Directors or Executive Management and the bank that could grant advantages to them at the termination of such an agreement and that might by their nature compromise their independence or interfere with their decisions.
The bank’s fi nancial statements are audited by three independent accounting fi rms. Their terms will expire with the Annual General Meeting called to approve the 2009 fi nancial statements.
Audit, certifi cation, examination of individual and consolidated fi nancial statements B11 3,759 2,636 49% 83% 2,655 1,570 94% 93% 601 0 75% 0% 845 1,031 71% 68%
Fully consolidated subsidiaries and branches 1,212 84 16% 3% 58 60 2% 4% 10 0 1% 0% 106 0 9% 0%
Patrick de Cambourg, Immeuble Exaltis – 61, rue Henri Régnault – 92075 La Défense Cedex.
CORPORATE AND INVESTMENT BANKING 66 Value-creating solutions 66 Close relations with customers 66 Strong international presence 67 Solid position in structured fi nance 67 A broad range of capital markets products 68 Renowned for its equity research 68 Signifi cant origination capacity in the primary equity market 68 A key player in equity derivatives in Europe 69 A personalized service a high value-added products 69 A bespoke service in structured products 69 Renowned expertise in the organization of complicated and innovative transactions 69
PRIVATE EQUITY AND PRIVATE BANKING 74 Shared experience and expertise 74 Natixis Private Equity 74 Banque Privée Saint Dominique 75 Compagnie 1818 - Banquiers Privés 75 Natexis Private Banking Luxembourg S.A. 75
Natixis offers its customers - companies, institutional investors and banks - a broad range of products and solutions, comprising primarily business loans, structured fi nance, capital market products (fi xed income, credit, forex, equities, commodities, cash and derivatives), payment products, lease fi nancing and securitization, as well as advisory and fi nancial engineering services.
Financing and investment banking activities draw on the expertise of all of Natixis’s business lines to create and implement addedvalue solutions. With over 120 branches worldwide, Natixis is able to serve the needs of local clients.
The Corporate and Institutional Relations department supervises traditional fi nancial activities, lease fi nancing and payments processing, and facilitates the origination and prescription of all of Natixis’s products and services among its customers.
As the No. 4 lender to large and medium-sized businesses in France (source: 2006 annual reports of the leading French banks, corporate and investment banking section), Natixis has close relations with nearly all companies in the CAC 40 and the SBF 120.
With priority given to local presence, the department is made up of advisory bankers - corporate clients, institutional clients and the public sector - and sector-based groups, providing renowned expertise in a number of sectors such as luxury goods, media, healthcare, food and automotive equipment. In France, the department’s 16 regional divisions give it direct access to medium-sized corporate clients.
Through its subsidiary Energéco, Natixis Lease is a market leader in providing fi nancing for wind farms, fi nancing 25% of installed power in France in 2006. Natixis Lease is continuing to expand its international presence, particularly through its operations in Spain and Italy.
The payment fl ows business is subject to an increasingly competitive environment, exacerbated by the introduction of the Single Euro Payments Area (SEPA). The choice of an organizational structure intended to reinforce proximity to customers and improve the quality of the range of products and services offered has proven effective. ISO 9001 certifi cation - initially obtained for payments processing, documentary credits and guarantees issued - was extended in 2006 to the design of cash management products and services, an innovative move in this business line. In addition, according to the TNS-Sofres 2006 Quality survey, Natixis is still market leader in the processing of banking transactions. The payment fl ows business has been particularly robust, with a success rate of around 60% in invitations to tender.
The International department looks after a customer base of foreign corporate and institutional clients, with direct responsibility of conventional fi nancing and correspondent banking activities. It coordinates the international roll-out of other banking activities and is responsible for developing Global Trade Services (GTS), a specialized product line for international trade fi nancing, in which it has won a number of mandates including Aluar (Argentina), Avea Telecom (Turkey), China Oil (China), CFE (Mexico), AN Hoa (Vietnam) and Secama III (Vietnam). Among fi nancial institutions, Natixis was selected as arranger, mandated lead arranger (MLA) and credit agent for a €1 billion syndicated loan facility for ICICI Bank, the highest amount ever syndicated by an Indian bank. In Turkey, it has been involved in 21 syndications for banks and leasing companies, acting as bookrunner on three occasions and MLA 15 times. It has had a good year in Russia, with eight mandates as bookrunner. In the United States, business was developed in specifi c transactions: collateralized credit line conduits, backup and fronting liquidity and secure fi nance for investment funds. In addition to winning new customers, Natixis Pramex International - the Group’s consultancy subsidiary specializing in international business development - has also improved customer loyalty and enhanced its range of services (acquisitions, setting up factories, joint ventures etc.) Operations in China, the United States, Spain and Germany have progressed particularly well. With the opening of subsidiaries in Casablanca and Bangkok and representative offi ces in Dubai and Beijing, the subsidiary now has 19 offi ces worldwide.
Natixis has developed a broad range of fi xed income products in the leading fi nancial markets. Enhancing its range of structured products has resulted in strong revenue growth, mainly in fi xed income but also in credit, commodities and forex activities. Revenues have risen signifi cantly in fi xed income derivatives, particularly vanilla products - for which volumes doubled in 2006 - as well as infl ation-linked products. With a strong presence in government bonds in the eurozone, Natixis has strengthened its position in France and is ranked No. 3 primary dealer (“Spécialiste en Valeurs du Trésor” or SVT) and
No. 1 in the Agence France Trésor league table. The bank has enhanced its e-business offering and currently has broad coverage of fi xed income derivatives and government bonds. Natixis has performed well in the credit markets (asset backed securities or ABS) and maintained its leading position in covered bonds, ranked No. 7 in electronic trading on MTS (Mercato dei Titoli di Stato) (source: MTS).
In the primary bond market, Natixis has reported an increasing number of mandates for structured transactions (EMTNs) in France and abroad, both in the corporate segment (Pernod Ricard, Veolia Environnement) and among fi nancial institutions (La Poste, CNCE, CNP, Caixa Catalunya, Alpha Bank, Piraeus Bank), agencies (Cades, CRH) and covered bonds (CFF, Caja Madrid, BBVA). It is ranked No. 10 in the primary market for issues in euros (source: Bloomberg) and world No. 4 in covered bonds (source: Thomson Financial)
Natixis’s equity brokerage activities are centered around Natexis Bleichroeder SA, IXIS Securities and IXIS Midcaps in Paris, Natexis Bleichroeder Inc and IXIS Securities NA in New York and Natexis Bleichroeder Ltd in London. Specializing in all products on the French market, its renowned teams of senior analysts also cover European and US large caps. IXIS Securities is ranked No. 3 for equity research in France (source: Extel Focus France 2006 equity research “grand prix”).
Natixis achieved notable successes, in particular as lead manager and global coordinator of three high profi le IPOs in 2006: ICADE, Parrot and EDF Energies Nouvelles. With its experience in commodities fi nancing, Natixis has specialized in covering companies in the sector, notably as joint lead manager in the Rosneft IPO, the largest ever IPO for a Russian company.
Natixis offers a broad range of arbitrage activities in equities, indices, convertible bonds, listed options and bonds. It successfully launched its basket trading business in 2006. The bank has strengthened its position in equity derivatives thanks to its diversifi ed business portfolio and renowned risk management expertise. Its teams have also developed options combining underlying hybrid instruments, equity portfolio trading and equity fi nance. The equity derivatives business has also obtained accreditation from Aivelys Asset Management, which launched its fi rst fund at the end of the year. With operations in Paris, New York and Tokyo, the equity fi nance business (securities lending/borrowing) has seen strong growth, with a sharp increase in the volume of transactions.
In corporate fi nance, Natixis Corporate Solutions offers clients fi nancial packages to optimize asset and liability management and real estate solutions. The commercial cooperation agreement with Lazard concerning certain strategic derivatives has proven its effectiveness in Europe. Thanks to robust business, the range of underlying instruments has been extended, including in particular the organization of the fi rst carbon transactions.
Natixis has strengthened its presence in structured products based on alternative investment funds intended for an international client base. In Europe, it has developed its activities with banking networks. In Asia, it has capitalized on its partnership with SPARX Asset Management and consolidated its position in public offers of structured products indexed to hedge funds. By enlarging its range of funds eligible as underlying instruments for commodities funds, it is now involved in all alternative investment strategies.
Natixis is a key player in the securitization market in Europe and the United States, with underlying assets concerning receivables of corporate clients, as well as fi nancial assets on the books of fi nancial institutions.
It is present in all segments of the market, with considerable capacity for innovation in asset backed commercial papers (ABCP), commercial mortgage backed securities (CMBS), residential mortgage backed securities (RMBS) and collateralized debt obligations (CDO), covering all areas of securitization, including origination, warehousing, structuring, placement and investment.
Natixis had an excellent year in the securitization market in Europe, with a number of ABS, MBS and CLO mandates in Spain. It is ranked No. 7 in the league table for arbitrage CDOs (source: Thomson Financial). 2006 was characterized by a
In the institutional client segment, the department continued to develop its expertise in the structuring of new assets, with a LBO CLO with Vallauris II, CMBS with Nacréa I, a SpanishPortuguese auto loan with LTR6 in Madrid and RMBS with Voba in Milan.
In quantitative research, the expertise of the bank’s fi nancial engineering teams allows it to keep up with complex fi nancial innovations. Based in Paris and New York, these teams design mathematical and statistical models to calculate the value of fi nancial products, in particular derivatives and complex structured transactions. They also calculate risk coverage.
The Asset Management division has developed expertise across a broad range of products covering all asset classes, including money market, bonds, equities, diversifi ed, alternative and real estate assets. It also offers structured and multi-manager investment. Its business model is based on a structure grouping together multi-specialist managers with the support of a global distribution platform serving retail, institutional and corporate clients.
With assets under management of €583 billion at end-2006, the Asset Management division has a strong position in Europe, particularly in France, and in the United States. 2006 was an exceptional year, with growth in managed assets of €67 billion or 13% (6). Net new money totaled over €30 million, an increase of 16% at constant exchange rates compared with 2005.
The Asset Management division - one of Natixis’s most internationally established divisions - is No. 13 worldwide, No. 5 in Europe and No. 1 in France in asset management(7). Since November 17, 2006, it has combined the asset management activities of Ixis AM Group and Natexis Asset Management and its subsidiaries, with nearly 2,600 employees, including around 1,500 in the United States.
With its federal structure, the division is made up of approximately 15 specialist asset management companies, based primarily in France and the United States, as well as the rest of Europe and Asia. It benefi ts from a specialist distribution entity controlled by a holding company - Ixis AM Group which ensures the consistency of all activities by looking after steering and development functions.
The Ixis AM Global Associates distribution platform is one of the unique strengths of Natixis’s Asset Management division. It markets the products of all of the Group’s asset management companies in accordance with the terms of each country, as well as providing associated services. The Group’s asset management companies are therefore able to focus on their core business of performance creation, while benefi ting from the global commercial support and other support functions of Global Associates.
Products are distributed either directly or through the platform. Asset management companies offer their products directly to established customers, in particular institutional clients in the United States and France, and to retail clients in France through the Caisse d’Epargne and Banque Populaire networks.
Asset management operations in Europe represented assets under management of €393.9 billion at end-2006, with net new money of €11.7 billion.
The bank’s activities in Europe are based on a solid foundation in France, complemented by smaller units in the United Kingdom, Italy and Luxembourg, and are also expanding thanks to Global Associates in a number of European countries (United Kingdom, Germany, Austria, Sweden, Norway, the Netherlands, Belgium, Luxembourg, Portugal, Spain and Switzerland). In 2006, a representative offi ce was opened in Dubai to increase sales in the Middle East.
The combination of Ixis AM France (assets under management of €244 billion) and Natexis Asset Management (assets under management of €109.5 billion) is planned for 2007, covering the majority of asset classes: money market funds, bonds, equities, diversifi ed investments, alternative investments and CDOs.
“Strong growth potential in Europe„ 2006: a year of distinctions Ixis Asset Management’s “Ixis AM Emerging Europe” fund received the silver medal in the “investment fund over fi ve years” category from Investir Magazine, while the “Écureuil Harmonie” was awarded fi rst prize in the diversifi ed euro - three year category in the AGEFI asset management awards.
STRONG POSITION IN THE UNITED STATES AND EXPANSION IN THE ASIA-PACIFIC REGION
Assets under management for the Group’s dozen or so US subsidiaries totaled $247 billion (€187.7 billion) at end-2006. Net new money reached its highest ever level of $24 billion, two-thirds of which was generated through Global Associates. This relates primarily to Loomis Sayles, Harris Associates, Harris Alternative and AEW.
The Group’s specialist asset management companies, which cover a broad range of expertise, achieved further growth by launching new products, winning new customers and improving the performance of their funds.
They are directly responsible for distribution for institutional clients in North America and also benefi t, particularly for retail clients, from the support of Global Associates, which distributes investment products and offers advisory, structuring and associated services that can be tailored to the different markets and distribution channels. Global Associates works with leading distributors such as Merrill Lynch, Schwab and UBS.
Global Associates also helps to increase sales of US asset management companies’ products in the Asia-Pacifi c region, Singapore, Japan and Australia.
“The highest ever level of net new money in the United States„
Ixis AM Group is due to fi nalize the acquisition of Hansberger, in which it previously held just a minority stake, in the fi rst half of 2007.
This original business model, targeting solely SMEs, gives NPE a real competitive advantage and robust growth outlook.
Natixis Private Equity subsidiaries in France and worldwide Expansion capital EPF Partners N.I Partners Nempartners Naxicap Partners NPE Asia
These three business lines saw strong growth in 2006. Compagnie 1818 reported new deposits of €977 million via these various channels and assets under management of nearly €10 billion. The development of its range of multi-manager investment products with the launch of the Elite 1818 fund of funds was a resounding success. Compagnie 1818 - Gestion achieved a solid performance in mutual funds and management mandates.
No. 1 employee savings manager in France; No. 1 in guarantee insurance in France; No. 10 in institutional custody services worldwide (source: Global Custody.net); No. 2 in retail custody services in France; No. 3 electronic banking operator in France; No. 4 non-life bancassurer in France.
All of the Services division’s activities delivered satisfactory growth in 2006.
This new product offering has been a resounding success among the Banque Populaire Group’s customers, with 70,000 policies taken out to December 31, 2006, and premium income of over €800 million.
All of these services are designed to meet the specifi c expectations of each customer type (personal customers, institutional clients, corporate clients and small business clients). They are based on two core principles. Systems and processing are industrialized and pooled in order to provide performance and competitiveness for the distribution networks. Integrated and open systems are favored in order to meet the requirements of the European market.
Over the coming years, the Services division will endeavor to strengthen its position among the Caisse d’Epargne and Banque Populaire networks, while also seeking to enlarge its customer base beyond the two groups and continuing with the efforts already initiated to optimize its operating performance.
The solid performance of the equity markets also helped to boost infl ows into unit-linked products, which increased by 60% and represented 22% of total gross infl ows. Personal risk insurance - which is subject to a highly competitive environment - maintained a steady rate of development, with premium income up nearly 9%.
Natixis has implemented a sustained business development policy for this area, primarily through intensive promotion of personal life insurance products to Banque Populaire customers, particularly unit-linked products.
In May 2006, the bank signed an agreement with the Carige Group to set up a joint venture in Italy, resulting in the creation of Créditis, specializing in consumer fi nance. This demonstrates Natixis’s desire to develop partnerships and become a key player in consumer fi nance in France and Europe, specializing in distribution through banking networks.
Market No. 2 in surety for home loans for individuals in France, Natixis Garanties instructed 117,000 cases in 2006. Although affected by mortgage reforms in France in mid-2006, this business line achieved a 14% increase in premiums earned. In the real estate market, completion guarantees (“garantie d’achèvement”) for builders of single-family homes (under the 1990 Act) covered 23,000 homes. With market share of 26%, Natixis Garanties is joint market leader in this sector. It is also No. 2 in the market for professional guarantees for real estate agents and property managers (under the Hoguet Law), with 3,750 policies.
At the end of 2006, it managed 2.8 million employee savings accounts - an increase of 8% - representing market share of 28% (source: AFG June 30, 2006). In 2006, Natixis streamlined its range of corporate savings schemes in order to improve productivity and clarify its offering. With managed assets of €17 billion, Natixis controls around 22% of the employee savings management market (source: AFG June 30, 2006). The quality of its employee information services also constitutes one of Natixis Interépargne’s competitive advantages. A satisfaction survey conducted in 2006 confi rmed signifi cant improvement in satisfaction, confi dence and image indicators.
Against the backdrop of the ageing population, the stepping back of the French government and legislative incentives, distribution of pension products and supplementary provident funds offers considerable potential for growth. Natixis sells specifi c products for small businesses and SMEs.
Natixis Paiements, which acts primarily as technical operator for the Banque Populaire network, handles 14% of mass payment fl ows in the French Interbank Teleclearing System (SIT) and payments of large amounts via the Center for Interbank Fund Transfers (“Centrale des règlements interbancaires”) platform. In anticipation of the introduction of the Single Euro Payments Area (SEPA) and the launch of TARGET 2 in 2007, the Group has stepped up its preparatory measures. The different components of the payment processing IT system have been gradually replaced in order to handle new payment methods - pan-European direct debits and direct credits - and, more generally, automated payment transactions in Europe. Natixis Paiements is No. 3 in electronic banking in France and manages 5.9 million bank cards. It processed 1.4 billion card transactions in 2006. To accompany the development of the personal customer market, which is now nearing maturity, it launched France’s fi rst affi nity card, the Football Mastercard, which was distributed successfully by the Banque Populaire network.
Natixis is No. 2 in retail custody in France with around 25% market share and the leading service provider in the outsourcing market. The open price offering of the Natixis shares demonstrated the ability of Gestitres and Natixis’s fi nancial services activities to handle an exceptionally high volume of orders. Boosted by further buoyant stock market conditions in 2006, the number of stock market orders executed increased signifi cantly year-on-year. With a new integrated platform and unifi ed back offi ce functions, Natixis will have all of the key strengths to become a real player in the retail custody market, allowing for rapid expansion in France and Europe.
Natixis is market leader in France in institutional custody services - provided primarily by CACEIS, a joint venture created with Crédit Agricole in 2005 - with assets in custody up 16%. It is No. 10 in institutional custody services worldwide (source: Global Custody.net). Exclusive negotiations began in March 2007 with HypoVereinsbank concerning the transfer of its custody activities to CACEIS. At December 31, 2006, CACEIS had assets in custody of €1,787 billion. The bank also provides account holder custodian services for around 60 asset management companies.
The fund administration business provides services for around 6,500 fund management portfolios. It currently has operations in six countries. With CACEIS and Natixis Investor Servicing, Natixis is market leader in fund administration in France (source: CSC Peat Marwick). CACEIS is one of the leading fund administrators in Europe. As a result of the development of a fl exible range of fund administration services depending on the level of integration required by the various types of customer, the number of funds increased by 15% and the number of middle offi ce transactions increased by 10.5%.
Finally, Natixis is No. 3 in issuer services in France. In this business line, Natixis aims to continue to look after administration of the Group’s fi nancial assets while also developing its external customer base. It also intends to enhance its range of services to include more value-added services such as funds of funds, management of complex instruments and performance and risk reporting.
No. 1 in receivables management in France; No. 3 factor in France (source: ASF), No. 7 factor worldwide (source: FCI June 2006); World No. 3 in credit insurance (source: ICISA June 2006); World No. 6 in receivables management; World No. 7 in company information.
Receivables Management comprises four business lines, enabling companies that sell to other companies to manage, protect and fi nance their accounts receivable. Company information enables them to evaluate the fi nancial condition of their business partners and their ability to meet their commitments (solvency information) and to detect business opportunities with solvent customers (marketing information). Credit insurance protects companies against the risk of non-payment of their customer receivables. Receivables management helps companies recover the amounts that are due to them. Factoring enables companies to monetize their accounts receivable by transferring them to a third party, the factor, who takes responsibility for collection.
The Receivables Management division delivered further growth in 2006, with net banking income up 7% compared with 2005. The division has ambitious long-term development plans. Its strategic plan aims to make Natixis world market leader in receivables management in 2015. In addition to growth and profi t targets, it plans to enlarge the offering of each of the
“ Aiming to become worldmarket leader in receivables management in 2015 „
Present in 60 countries (compared with 57 last year) and able to offer locally-based services in 93 countries, Coface generated 64.5% of its consolidated premium income outside France in 2006 (compared with 62.1% in 2005). It provides services to companies across the globe, offering all of its receivables management solutions through its own networks and those of its partners in the CreditAlliance network. In addition to the four business lines that make up Receivables Management, Coface also offers guarantee insurance and, in France, export credit guarantees managed on behalf of the French government (prospecting insurance, export, currency risk and investment guarantees).
All four business lines saw robust growth. The factoring business reported a 69% increase in factored receivables to €16.4 billion. In addition to France, Germany, the United Kingdom and Italy, factoring services were extended to Japan, Chile, Spain and the Netherlands. This growth is set to continue at a sustained rate in 2007, with the launch of services in a further 20 or so countries. This strategy should enable the Receivables Management division to control 10% of the global factoring market in 2015.
In Italy, Coface acquired a 15% stake in Cerved Business Information (CBI), a leading company information provider. It also continued its expansion, primarily in the United States, with the acquisition of Newton & Associates, one of the country’s leading debt collection companies. In Russia, Coface signed a partnership agreement with JSC Kapital Insurance, No. 5 in general insurance in the country, to extend its offering to include credit insurance. In Algeria, it rolled out its credit insurance offering through services company Coface Algérie Services (CALS) and local partner, Algerian public credit insurer Cagex.
Since the creation of Natixis, Coface’s ratings have been upgraded and are now among the highest in the sector.
Covering all four areas of Receivables Management (factoring, company information, receivables management and credit insurance), Natixis Factor is highly active among its target customer base of corporate clients of the Banque Populaire regional banks and Natixis.
On December 29, 2006, Natexis Factorem changed its company name to Natixis Factor, a wholly-owned subsidiary of Natixis.
“ Natixis Factor decidedto differentiate itself through the quality of its services „
GCE Affacturage, which joined the Receivables Management division in 2006, distributes factoring products through the Caisse d’Epargne Group’s networks. Its networks are led by a sales team covering six major regions of France from Lille, Nantes, Lyons, Toulouse, Paris and soon Strasbourg. The company had a very encouraging fi rst year, with strong business among SMEs, and looks set to achieve further growth in 2007. GCE Affacturage also aims to become a key partner of very small enterprises and small businesses, offering the entire range of receivables management products to all customers.
CIFG entered the fi nancial guarantee market in Europe and in United States in 2002. It operates in all segments of fi nancial guarantee insurance, including local authorities in the United States, as well as infrastructure transactions, publicprivate partnerships and credit enhancement for tranches of securitization vehicles. CIFG is the fi rst European company to have an integrated structure in both Europe and the United States.
Corporate and investment banks originate transactions in which CIFG improves the credit rating, whether bond issuances, structured fi nancing or securitization operations.
CIFG therefore holds a specialized position within Natixis, independent of the capital markets and fi nancing businesses, providing it with credibility in the eyes of potential customers.
CIFG complements Natixis’s corporate and investment banking activities by boosting the ratings in transactions arranged and structured by the corporate and investment banking segment through, for instance, securitization operations and CDOs, structured fi nance, particularly in project and infrastructure fi nancing and public private partnerships in France and in Europe.
CIFG also offers synergies with certain Natixis activities such as credit insurance and with the Banque Populaire and Caisse d’Epargne networks, given their involvement in local public sector fi nancing and infrastructure fi nance on a local level.
CIFG achieved further organic growth in 2006, with net banking income of €79 million, an increase of 54%. With 625 transactions in 2006 compared with 367 in 2006, CIFG’s net par insured exposure stands at €74.6 billion, an increase of 75%.
Natixis’s activities include retail banking both directly through the 20% share of income from retail banking activities through CCI certifi cates held, and indirectly through activities - in particular for the Services division - made available to the Caisse d’Epargne and Banque Populaire banks and their customers.
Retail banking accounted for 21% of Natixis’s net income in 2006 through CCIs.
Natixis benefi ts from its affi liation to two powerful mutual banking groups - the Banque Populaire Group and the Caisse d’Epargne Group - which give it access to a large retail banking customer base.
As a mutual banking organization, each group includes: a retail banking network that includes a group of mutual banks (20 Banque Populaire banks and 28 Caisse d’Epargne banks at December 31, 2006) that are owned directly or indirectly by cooperative shareholders (“sociétaires”) (each group has over 3 million cooperative shareholders), as well as by Natixis through CCIs, which represent 20% of their share capital(6); a central body that coordinates and supervises the activities of its group (BFBP and CNCE), the capital of which is held by the retail banks; a number of entities that provide specialized products either directly or through the retail banking networks, such as mutual funds, consumer fi nance and mortgage lending and insurance products, as well as fi nancial services for corporate and institutional customers, distributed either directly or through the retail banking networks; and a system of mutual fi nancial support.
The Caisse d’Epargne Group also includes a body known as the Fédération Nationale des Caisses d’Epargne, which is an institution for coordination and concertation among the Caisses d’Epargne, as well as relations with cooperative shareholders.
The strong strategic fi t between the two networks represents a major advantage for Natixis, which - as holder of CCIs- benefi ts from the individual strengths of each network and - as a provider of products and services - their combined strength.
The two groups have a highly complementary customer base: in the personal customer market, with a very large customer base for the Caisse d’Epargne network and robust growth for the Banque Populaire network; small businesses, in which the Banque Populaire Group is market No. 2; SMEs, in which the Banque Populaire Group is the leading principal bank; public housing, in which the Caisse d’Epargne Group is the leading bank and also No. 1 bank for real estate professionals.
This complementary positioning, coupled with the development of the two networks, provides natural growth drivers for Natixis in business lines such as employee benefi ts planning, lease fi nancing and factoring.
7 million customers including 6.2 million personal banking customers and 750,000 small businesses and corporate clients
The 20 Banque Populaire regional banks provide a local presence to customers and have strengthened their regional ties by opening new branches, bringing the total number of branches to 2,778.
Call centers at all of the Banque Populaire banks have also reported a sharp increase in both outgoing calls and e-mails handled.
In addition to ensuring the continuity of customer relations, remote banking improves the availability of customer advisors, enabling them to listen better to their customers. The number of advisors increases at the same rate as the expansion of the branch network.
The personal banking market, with over 7,000 advisors, constitutes a major area of growth, as confi rmed by steady increase in the number of personal banking customers and rising market share in both lending and savings activities.
In 2006, measures to win new customers were focused on three segments: young customers, with a broad range of products and services covering the different age groups. In 2006, a
The enlargement of the personal banking customer base has been accompanied by a review of the product offering, with new products such as multi-fund life insurance policies, personal risk insurance with a long-term care insurance product and electronic banking with an affi nity card.
As the historic banking partner for small businesses, the Banque Populaire Group also has a strong presence among self-employed professionals, farmers and entrepreneurs, with a leading position in all of these segments.
Its expertise stems from a local presence, with specialist advisors in each branch, including Crédit Maritime - market leader among professionals in the maritime industry - and Socama mutual guarantee companies.
The Group’s achievements in 2006 attest to its solid momentum in this sector, notably: confi rmation of its No. 1 position in franchise fi nance. This area has long been a favored axis for growth; the launch of a special range of products for young people on apprenticeships; the creation of packages in collaboration with three national federations representing key sectors of the economy; stepping up sales and marketing efforts targeting selfemployed professionals.
The Banque Populaire Group has established itself as a key player in the corporate clients market. Its diverse expertise and the professionalism of its teams enable it to support its clients - whether small, medium-sized or large companies - in all stages of their development.
Investments, insurance, provident insurance, wealth management, loans, real estate, payment methods: Caisse d’Epargne offers all of the services expected of a modern bank. As an innovator, Caisse d’Epargne was the fi rst French bank to pay interest on current accounts.
It has also continued the roll-out of mobile banking services via wap, Imode and SMS. Caisse d’Epargne has also demonstrated its capacity for innovation in this area, with the launch of movo, the fi rst service for person-to-person money transfers by mobile phone in France.
Caisse d’Epargne’s core business line of savings has seen robust growth. The life insurance business is continuing to deliver strong growth and Caisse d’Epargne has confi rmed its position as No. 2 bancassurer. Caisse d’Epargne is also continuing to gain momentum in the private banking market, with the complementary areas of expertise of its specialist account managers and estate planning and investment management teams.
As the leading bank for young people, Caisse d’Epargne is continuing to develop innovative new products and services specifi cally designed for this customer group. Young people account for 30% of new banking customers.
More than one in 10 people in France has selected Caisse d’Epargne to provide their home loan, making it the No. 2 bank in this market. It is now able to offer customers the new “hypothèque rechargeable” home equity loan.
The property and casualty insurance business, developed by Ecureuil Assurances IARD, achieved strong growth in 2006. Ecureuil Assurances IARD is the No. 2 personal accident guarantee insurer and No. 3 in motor insurance, buildings and contents insurance and legal protection.
Caisse d’Epargne is also a partner of choice for small retailers, craftsmen and self-employed professionals, both on a professional and a private basis. Interest-bearing current
The Caisse d’Epargne banks also provide local authorities and institutions with innovative services such as secure online payment system ServicePublicPlus, which enables users to pay for municipal services online. They also offer pre-fi nanced CESU service vouchers in collaboration with Accor Services. In 2006, the Group won the French government’s invitation to tender for childcare service voucher fi nancing.
As the historical partner of France’s HLM low-cost housing system, Caisse d’Epargne is the leading private bank in the sector, managing over one-third of cash assets and 50% of private debt of Social Housing Enterprises (ESH) and HLM agencies, whose construction programs are fi nanced primarily by funds from Livret A passbook accounts.
The Caisse d’Epargne banks are also shareholders and directors of over 100 Social Housing Enterprises, representing one in three.
Caisse d’Epargne is a leading partner of social economy and solidarity projects. More than one in four associations are customers of the bank. Over 17% of the sector’s bank fi nancing is provided by Caisse d’Epargne, the No. 1 social economy lender.
A communications campaign to accompany the merger 92 2007: major challenges 92
The bank also pursued its internal mobility policy by providing more information on available jobs through internal memos or the intranet. All in all, 124 employees from either subsidiaries or the Banque Populaire Group joined the parent company in 2006. In addition, the number of people changing department within the parent company rose signifi cantly from 183 to almost 250 in 2006. In mid-December 2006, the new “HR Contacts” intranet went online to support this policy of mobility and communication.
Natixis employees by business activity at December 31, 2006 (full-time equivalents)
A growing number of young people The Natixis Group hired almost 1,600 young people in 2006, giving them the opportunity to consolidate on their training with practical experience.
As part of its policy of building up relationships with students and young graduates, Natixis attended 14 career fairs (11 in 2005) and took on 544 student interns (428 in 2005), 23 people on international work experience programs (20 in 2005), 86 people on work-study programs (76 in 2005), and 573 summer interns (553 in 2005).
In 2006, Natixis pursued its policy of offering attractive compensation packages. The profi t-sharing agreement renewed for one year in 2006 covers more than 6,700 employees of the parent company and nine of its subsidiaries. The allocation principles introduced in 2004 were renewed in 2006. Up to €550, the entitlement is based solely on the number of hours or days worked in the company during the period. Above that, it is based entirely on salary.
In parallel, in December 2006, Natixis Management, the bank’s management institute, organized an integration seminar for recently-hired managers. Called “Objectif Découvertes”, this seminar enabled 80 managers from all Natixis horizons to discover the Group’s business lines and strategy and to meet with senior executive managers. Some 700 managers
RESOURCES4 Human resources hired in 2006 across the whole of Natixis (parent company and subsidiaries) will be invited to attend the 2007 integration seminar.
All these actions will be continued or strengthened during 2007. The Human Resources department is faced with three major strategic challenges. The fi rst is to combine the teams on an operational level as quickly as possible, which means simultaneously strengthening its ability to hire, retain people and encourage mobility. The second challenge is to implement a change support mechanism to encourage the teams to adopt the bank’s new organization methods and foster the emergence of a common culture. The third challenge is to create a common compensation policy while taking account of business line diversity. This will involve a review of incentive and profi t-sharing policies, as well as setting up a group pension plan.
Corporate functions and other 1,887 2,018 +141 * Full-time equivalents at period end.
Natexis Banques Populaires fi rst launched the plan in 2005. It defi nes a new architecture for the general and management accounting, regulatory returns, fi nancial control and risk management systems.
One of its key objectives is to satisfy legal and regulatory requirements through automated reconciliation of “risk” and “management” information with the accounting system. It will provide Natixis with an enterprise database containing accounting quality information, which will be used as a source for both regulatory returns and internal management reports. Apart from regulatory requirements, the plan will signifi cantly improve the management systems for the new Natixis entity (monitoring the Group’s activity and profi tability on various analysis criteria such as business lines, structures, clients, products, etc.).
During 2006, most of the specifi cation work was completed for projects due to be rolled out in 2007. The key building blocks of the plan were delivered in 2006: publication of fi nancial control standards; deployment of business line database; upgrade of third-party database to integrate the multibusiness line vision, then adding Ixis third parties on November 17; structure of the target account plan; deployment of the new general accounting program and central database (Matisse V1).
In January 2008, the new general and management accounting system (Matisse), new management and fi nancial control tools (Artemis), and target products and structures databases will become operational and form the basis of the bank’s systems.
Lastly, 2007 will be a year of radical change marked by migration to new enterprise systems applications and the gradual dismantling of the current project-mode structures.
The creation of Natixis led to the need to converge IT systems in order to capitalize on existing systems and to accompany the business lines and support functions.
The IT projects are structured around the four key stages in the creation of Natixis: launch: preparation of documents required to launch Natixis; creation: launch of activities under the new identity; transition: ensuring business continuity; target: operation of the target system.
This stage enabled the collection of risk management information to provide a consolidated picture and was refl ected in the fi rst operational impacts: introduction of the new identity on all media (signboards, paper, signage, intranet and Internet sites, e-mail and telephone); opening of infrastructures and extension of directories to cover the entity’s new scope; interconnexion of third-party databases with Ixis-CIB and preparation of risk consolidation work; launch of OPO for Natixis and upgrade of infrastructures to expected data volumes; implementation of a fi rst common intranet.
to initiate work to achieve the target structure; to monitor synergies.
In 2006, Natixis continued to meet new requirements and capitalize on new opportunities in sustainable development, principally in investment and fi nancing, which is a bank’s main area of leverage.
Natixis keeps a close eye on the emerging carbon market (negotiable emission rights, carbon credits, Kyoto projects, etc.). Since the Kyoto Protocol became effective in 2005, the bank has developed a range of products and services to support its clients who are subject to CO
quotas market as a broker. A dedicated team can now buy and sell negotiable emission rights on the Amsterdam stock exchange. The bank also offers “Kyoto” project fi nance solutions to encourage the use of greenhouse gas reducing technologies in developing and industrialized countries. These solutions enable corporate clients investing in these technologies to receive carbon credits that have a value in the market.
Ixis Environment and Infrastructure (Ixis E&I), a subsidiary of Natixis, is an AMF-authorized asset management company. As a provider of project fi nance in the areas of environment and infrastructure, particularly through equity, its activity is directly in line with the bank’s sustainable development policy.
Two funds under direct management, FIDEME and FIDEPPP, together with a fund managed under mandate, Europe Carbon Fund (ECF), have more than €390 million invested in sustainable development, managed by some twenty specialists in the energy, climate and infrastructure sectors.
Europe Carbon Fund At end-2006, Ixis E&I bought almost 17 Mt of CO2 on behalf of the ECF, through some ten transactions for a market value of about €300 million. Geographical diversifi cation has led to the signature of contracts with counterparties in China, Korea, India, Lithuania, Brazil and Argentina. Technologies supported include wind energy, biomass power stations, methane recovery in landfi ll sites and coal mines, and the reduction of industrial gases in the chemicals sector.
The deal concluded with the Rhodia Group in early 2006 aiming to reduce its N2o emissions in its Korean and Brazilian plants was the biggest in the market. In November 2006, Ixis E&I also concluded a deal with Chinese coal mining company Yang Quan for 18 Mt of CO2 and arranged the participation of fi rst-class banks in the deal.
In 2006, Natixis Lease, mainly through its Energeco subsidiary, took part in fi nancing 37 wind farms with a total capacity of 378 MW. This represented a total investment of €121 million, raising its portfolio to €250 million and 750 MW.
Natixis fi nances Europe’s largest solar farm Natixis was appointed Mandated Lead Arranger with Spanish bank Caja Madrid to arrange fi nancing for the construction and operation of PS10 and PS20 solar power towers, developed by Spanish group Abengoa near Seville in Spain.
In the medium-term, there are plans for six additional towers with a total capacity of 302 MW, which will create Europe’s biggest solar farm.
Lastly, FIDEME (environment and energy control investment fund), launched in 2003, provides quasi-equity fi nancing for renewable energy and waste recycling projects. This fund, which is managed by Ixis Environment et Infrastructure, involves the ADEME (French environment and energy management agency) and some fi fteen banks including the sponsors, Ixis CIB and Banca OPI. At end-2006, FIDEME had twenty-fi ve investments, mainly comprising convertible bonds, in wind farms, hydraulic power stations, one waste recycling unit and one biofuel unit. FIDEME contributed to the production of almost 300 megawatts (MW) of green energy in France.
During 2006, a system for monitoring the most sensitive projects in terms of environmental impact was put in place in association with the bank’s various business lines (project fi nance, commodities).
For guarantees managed on behalf of the French government, Coface has been evaluating the environmental impact of major projects since 2000. Two experts handle these aspects in association with the relationship managers.
Ixis Asset Management launched the Nord Sud Développement solidarity fund in 1985, which mainly contributes to the development of emerging countries and microfi nance; Natexis Asset Management, in partnership with Natixis Interépargne, launched Fructi Capital Éthique in 1999, the fi rst sustainable development based employee savings fund.
They have rounded out their approach by incorporating sustainable development issues in their internal operating processes. This active approach has already won Natexis Asset Management an A++ rating by BMJ-Ratings, an extrafi nancial ratings agency. It was the fi rst asset management company in France to seek an SRI rating for its entire business activity, in the same way as listed companies are rated for their socially responsible management processes.
In 2006, Ixis Asset Management launched Insertion Emplois Équilibre, a diversifi ed fund, to round out its SRI offering. This fund was the result of a review conducted by Ixis Asset Management and France Active on “Diversifi ed Solidarity Expertise”, which combines commitment to employment with performance and moderate risk (see inset).
In 2006, Natexis Asset Management and Natixis Interépargne launched an innovative new product, Natexis Solidaire, the fi rst ever solidarity-based venture capital fund (see inset)
The Finansol Label Committee, which comprises the main players in solidarity fi nancing, gave its seal of approval to Insertion Emplois Équilibre, Nord Sud Développement and Natexis Solidaire on December 20, 2006, singling out their rigorous investment processes and quality of solidarity-based investment management.
(7) Socially responsible investment (SRI): SRI includes all investment strategies that incorporate non-fi nancial sustainable development related criteria in the investment decision. Such investments include sustainable development funds, ethical funds, solidarity funds, etc.
(8) Novethic: Center for sustainable development and SRI resources and expertise.(8) Novethic: Center for sustainable development and SRI resources and expertise.
In line with its membership of the Ademe’s “Planète Gagnante” club, which aims to make the general public aware of the effects of greenhouse gas emissions on climate change, Natixis has been involving its employees in a “Gestes Verts” eco-behavior campaign.
The Logistics Department plays a role in managing the bank’s direct impacts on the environment by tracking energy consumption (electricity, heating and cooling) to minimize operating costs while optimizing user comfort. Lights are confi gured to go off outside of normal working hours. Heating and air-conditioning systems are regulated based on outside weather conditions and the thermal properties of each building. System performance is monitored and improved by comparing actual monthly consumption with budgeted energy requirements. Shared multi-function printers set by default to duplex, ink-saving mode contribute to reducing paper and ink cartridge consumption.
Lastly, collection points for used batteries were installed in some ten premises. The batteries are collected by an external service provider responsible for their treatment and recycling as required by law.
The report (see inset) revealed that the bank’s own operations have a signifi cant impact: 56,000 tonnes CO
equivalent, i.e. 40,000 car kilometers per employee. Areas for potential improvement include management of the computer base, travel between home and work and supplier awareness.
Information technology produces 40% of emissions, stemming from manufacturing, utilization, consumables and associated services.
The requirement to include environmental and social criteria in bid invitations is set out in the Purchasers’ Charter, an offi cial procedure used by all employees in the Purchasing department.
For computer equipment, sustainable development criteria are also taken into account during the technical specifi cation stage. They are a pre-requisite for all equipment loaned for testing purposes.
For service providers, a “social responsibility” clause is included in all contracts and sets out requirements for working conditions at sub-contractors’ sites. Sustainable development criteria have also been tightened up for services that have a signifi cant social and environmental impact. For example, contracts with transportation companies contain specifi c clauses on the social issues inherent in the industry (overtime, undeclared work) and clauses on the level of polluting emissions generated by the vehicles used to provide the service.
Natixis has decided to involve employees as much as possible in sustainable development efforts so as to make them common practice throughout the company. Apart from regular communication in internal media (magazines, intranet) and enriching the “gestes verts” site content, employees also benefi ted from more specifi c awareness sessions. For example, a presentation of the bank’s sustainable development policy is included in the induction course for new employees, and several “general” training sessions on sustainable development took place in 2006. These one-day sessions are now listed in the catalog of training available to all employees.
More specifi c conferences were also organized for a targeted audience, including a presentation of the carbon market to the corporate and investment banking teams, awareness of global warming and increasing scarcity of fossil fuel for employees involved in work on the carbon report.
As part of its solidarity patronage, the bank renewed its commitment to the battle against malaria for the second year running in order to contribute to the economic and social development of affected countries. There are solutions to combat this forgotten disease, which kills over two million people a year.
Since 2003, Natixis has been involved with cultural institutions to reveal France’s hidden treasures to the general public using a strong theme linking Art with Science. Its “Patrimoines d’Hier, Trésors d’Avenir” patronage program refl ects its aim of uniting historical and scientifi c expertise to enrich the national heritage, explain how a work of art is born and foster the work and inspiration of tomorrow’s artists and scientists.
Implement an environmental risk monitoring system for the most sensitive projects.
Strong growth in solidarity assets: number 1 in the French solidarity-based employee savings market.
Continue to promote SRI/solidaritybased products and growth in volume of managed assets.
SUSTAINABLE DEVELOPMENT 5 Stronger commitment to sustainable development 2005 projects Signifi cant achievements in 2005/2006 2007 outlook
New team dedicated to managing diversity, and particularly hiring people with disabilities.
Make sustainable development a vector for education and improvement, involving all employees
Quantitative information - except for workforce totals covering France and other countries - relate to Natixis parent company and its French subsidiaries (excluding Caceis, Anteis Epargne and Foncier Assurances). The reporting system is currently undergoing improvement and moving towards a consolidated presentation of the parent company and all subsidiaries.
During 2006, 194 fi xed-term contracts were converted into permanent contracts.
The proportion of managers continued to grow. They represented 61.6% of the old scope and 65.5% of the new scope in 2006 (more than 63% within the parent company, see table below).
An active hiring policy accompanied the bank’s growth and development in 2006. The total number of new hires during the year in France was 1,977 (new scope) including 1,456 permanent and 521 fi xed-term contracts.
New hires in 2006 represented almost 14.1% of total employees in France.
The number of new hires on permanent contracts in the parent company has grown rapidly in the last fi ve years. The fi gures below include employees hired from subsidiaries (109 in 2006).
There were 155 lay-offs in France (old scope), including 98 at the parent company. Most of them were for personal reasons.
Overtime in France totaled 43,775 hours in 2006, representing 27.2 FTEs.
Overtime in the parent company totaled 12,900 hours, representing 8 FTEs.
■ Other: over one hundred civil servants seconded by the government work for the Group in France, mainly at Ixis CIB and Ixis AEW.
As defi ned by French labor law, not applicable to Natixis.
Seven collective bargaining agreements cover the various business lines exercised by Natixis and its subsidiaries in France. The banking and insurance agreements apply to three quarters of employees.
In the parent company, the statutory workweek is 35 hours averaged over one year. The actual workweek is 38 hours and employees are therefore granted additional days off in lieu. Management-level employees who work on a number-of-days basis rather than an hourly basis work 209 days, including the additional work day stipulated under the June 30, 2004 act for the protection of elderly and disabled people (loi sur la solidarité et l’autonomie des personnes âgées et handicapées).
In the parent company, an amendment to the work-time management plan (compte épargne-temps) was signed in 2006, allowing employees to save up all their extra days off plus six days of their paid leave in the year, while maintaining the option of being paid fi ve days a year.
The days saved may be used to fi nance all or part of a future unpaid leave (maternity leave, leave to create or acquire a business, sabbatical leave, parental education leave, training leave, etc.) or to switch to part-time work, to use as end-ofcareer leave or to fi nance training at the employee’s personal choice.
A new online leave and absence management tool is available to employees and managers of the parent company on the intranet. It is due to be extended to certain subsidiaries.
In addition, individual compensation and raises are assessed every year in March based on the employee’s performance targets.
As part of its corporate social responsibility program, Natixis and the labor unions signed an amendment to the Employee Savings Plan at the end of 2005, which led to the inclusion in 2006 of socially-responsible investment funds in the range of mutual funds available to employees.
At the end of 2006, a new employee representative body was created for the new entity comprising Natixis and its subsidiaries to provide a legal framework for collective bargaining on subjects common to all Natixis group companies, such as the creation of a Group Works Council and developments in employment and mobility.
In November 2006, an internal communication program was initiated to inform all employees of the new Group about current developments. The program uses a number of different media including e-mail letters, intranet and video screens.
At the end of 2006, following the HR intranet upgrade, a cross-functional information and services site was launched covering all human resources related matters. The site has different sections for various entities and can be consulted by all employees. In time, the HR intranet will cover all entities in the new Group.
Each labor union has space on the Natixis intranet to facilitate the expression and dissemination of its ideas within the company. In addition, employees can access the Central Works Council’s intranet site from outside the company.
SUSTAINABLE DEVELOPMENT 5 NRE Appendices - Social Data departments of the parent company and its main subsidiaries, and the occupational physicians.
As is the practice every year, an infl uenza vaccination campaign in the workplace took place in October 2006.
In the parent company, 4,755 employees including 2,925 managers and 1,830 technicians, received 112,000 hours of training, which is in proportion to the relative size of these two categories.
Proportion of women among promoted employees: Women received 56.7% of all promotions in France in 2006.
The age pyramid of all permanent French employees is relatively well balanced. 34.9% of employees are under 36 years old and almost 950 employees, or 6.9% of the total are aged over 56.
The bank and its French subsidiaries employ 144 people with disabilities (120 on old scope). The slight decrease in the number of disabled workers is mainly due to the new legal defi nition of disabled, which means that some employees included in this category last year were no longer included in 2006. In addition, some disabled workers in the parent company reached retirement age during the year. Of the 49 disabled workers in the parent company, 29% are management-level, 37% are women, 47% are aged 51 and over, and 29% are part-time.
A number of subsidiaries take a similar approach, particularly in terms of hiring disabled workers either permanently or on internships.
In addition, the human resources intranet was upgraded in line with international guidelines on web content accessibility for people with motor, visual or hearing disabilities.
The Natixis Mutuelle private health insurance fund and Management applied the new legislation on healthcare by offering employees responsible contracts in order to preserve the tax-deductibility of employee contributions.
The bank introduced a centralized, consistent policy for fi nancing employees traveling between the bank’s various premises and attending meetings. Among other things, this enables all Group employees to use the various company restaurants.
Natixis supports regional development by providing its clients with fi nancing for their activities and building up long-term partnerships with them (see chapter on “Businesses”).
SUSTAINABLE DEVELOPMENT 5 NRE Appendices - Social Data various capacities in the bank and its French subsidiaries (new scope) in 2006.
The company has forged close ties with certain training and apprenticeship centers, which enables young people with a baccalaureate plus 2-5 years of further education to join the company through apprenticeship contracts.
The parent company pays 30% of the “apprenticeship tax” (taxe d’apprentissage) directly to the training and apprenticeship centers, 22% to the national apprenticeship fund and 48% to secondary schools, universities and business schools. In this way, it consolidates its relationship with partner organizations, while fi nancing educational and social projects intended, among other things, to help youngsters with academic or social problems.
The company ensures that its sub-contractors observe the legal requirements regarding management of their personnel. The Purchasing department includes working conditions at sub-contractor locations as a criterion in all bid invitations for service contracts.
METHODS EMPLOYED BY FOREIGN SUBSIDIARIES TO ACCOUNT FOR THE IMPACT OF THEIR ACTIVITIES ON REGIONAL DEVELOPMENT AND LOCAL INHABITANTS
The indicators used are those defi ned in the NRE Act of February 20, 2002. The equivalent indicators defi ned in the Global Reporting Initiative (GRI 3) guidelines are shown in brackets.
Following the creation of Natixis, environmental data for 2006 covers the consolidated Natixis group and the two main subsidiaries that joined the new group, i.e. Ixis AM and Ixis CIB. To facilitate consumption comparisons from one year to the next, fi gures are also presented on a comparable basis between 2005 and 2006.
Consumption of materials mainly comprises paper consumption, which rose sharply in 2006 due to growth in the number of employees and the Group’s business activities. On a per workstation and 2005/2006 comparable basis, consumption remained high but is kept under control.
Proportion of eco-paper (recyclable envelopes with the «NF environnement» eco-label) 88 88
Energy consumption (electricity, heating and cooling) for all companies in the new scope, including Ixis AM and Ixis CIB, totaled over 130,000 MWh. On a comparable structure basis, it increased between 2005 and 2006. Consumption of gas and heating oil remained low.
Fuel consumption per sq. m. GLA (cu. m.) 0.004 0.004 0.036
System performance is monitored and improved through regular comparison of actual consumption with budgeted energy requirements. Energy budgets are based on annual targets and take account of seasonal fl uctuations observed for each building over several years.
The environmental quality of buildings is also taken into account right from the design stage. The Liberté 2 building, which opened in 2005, is a perfect example of this policy. From the outset, fi nancial, architectural and technical aspects were fully planned from a long-term perspective. Building materials and technical equipment were chosen not only on the basis of the initial investment cost, but through a comprehensive approach including future operating costs over the building’s estimated useful life. This approach made it possible to opt for modern, effi cient solutions that minimize energy consumption while offering high-quality interior space.
Lastly, the carbon report completed in 2006 provided an opportunity to remind employees about the importance of global warning, raise awareness of the fi ve key “green behaviors” that help reduce energy and paper consumption, and optimize waste management processes (see chapter on sustainable development).
Natixis attaches particular importance to the environmental quality of its buildings in order to limit the impact of its activities on the immediately surrounding areas.
For example, the company has reinforced measures to prevent the spread of the legionella bacteria into the air. Installations prone to risk – particularly water heaters and cooling towers – are monitored very closely. The practice of taking and analyzing samples twice-yearly has been extended to all the bank’s premises. Maintenance frequency has also been increased. The legionella prevention program introduced in 2005 continued during 2006, with the replacement of the cooling tower at the Toulouse premises.
A carbon report on the bank’s operations was carried out in 2006, covering the former Natexis Banques Populaires parent company in 2005 (Paris and regional buildings).
Of which: buildings (depreciation, information systems, vehicle fl eet) ■ 9,641 0.14 purchases of products and services■ 27,612 travel ■ 13,460 - home/work travel 3,839 0.74 other (waste, internal processes, etc.)■ 708 -
No new survey was carried out on travel between the home and the workplace and fi gures are therefore not available for 2006.
For business travel, data concerning air travel were collected in 2006 for the parent company and «B 2006» (former Natexis
Banques Populaires and subsidiaries excluding Ixis AM and CIB). Data for subsidiaries that joined the new Natixis will be collected as part of the harmonization of business travel processes.
In 2006, the bank took various measures to optimize waste management. Selective sorting of offi ce waste was introduced with specifi c procedures for recycling paper and collecting and processing used batteries and ink cartridges.
Cartridges* 6,873 Collection, transportation and treatment by an approved external service provider in line with legislation
Sold to an external service provider for re-use or treatment in line with legislation. A waste tracking form is supplied.
As a listed company, Natixis is regularly assessed and assigned “investor-solicited” ratings by extra-fi nancial rating agencies. These agencies place a strong emphasis on the company’s environmental strategy. In 2006, Natixis assessed its greenhouse gas emissions through its carbon report with assistance from an outside specialist.
MEASURES TAKEN, IF ANY, TO ENSURE THAT THE COMPANY’S ACTIVITIES COMPLY WITH ENVIRONMENTAL LEGISLATION AND REGULATION
Natixis observes all legal and regulatory environmental requirements. It has experts in buildings and buildings operation who are in close contact with the users and have full control over technical equipment. They are responsible for monitoring any changes or developments in regulatory standards. Moreover, technical installations and maintenance processes are subject to regular inspection by outside, specialized organizations.
INTERNAL DEPARTMENTS FOR ENVIRONMENTAL MANAGEMENT, TRAINING AND INFORMING EMPLOYEES, RESOURCES DEVOTED TO REDUCING ENVIRONMENTAL RISKS (F5)
For building works and buildings operation, environmental issues are centralized by a cross-functional unit reporting to the Logistics Department. It is responsible for tracking consumption, coordinating and harmonizing actions taken by the Logistics Department’s operating units.
In 2005, the bank embarked on campaigns to inform and train employees about everyday behaviors that help minimize the company’s impact on the environment (Ademe partnership, “gestes verts” campaign). The carbon report completed in 2006 provided an opportunity to remind employees about the importance of global warning, raise awareness of the fi ve key “green behaviors” that help reduce energy and paper consumption, and optimize waste management processes (see chapter on sustainable development).
Information on the parent company and proposed distribution of net income 181
Factors that may have an impact in the event of a public offer 182
SUPERVISORY BOARD’S COMMENTS ON THE MANAGEMENT BOARD’S REPORT AND THE 2006 FINANCIAL STATEMENTS 183
Natixis operates in an environment that presents inherent risks, some of which it cannot control. Readers are invited to take the following risks into consideration. However, these are not the only risks to which Natixis is exposed. The risks set out below, as well as other risks that have not yet been identifi ed or which are considered immaterial by Natixis, may have a material adverse impact on its operations, fi nancial position and/or results.
Natixis may not achieve the expected synergies from the combination transactions carried out in 2006
The integration process may be diffi cult and could disrupt operations or could prove to be more costly than anticipated
The integration of the activities of the new group could generate restructuring costs initially estimated at €300 million. The actual restructuring costs that Natixis incurs could exceed this estimate.
Natixis’ pro forma fi nancial statements have been prepared to illustrate the effect of the combination transactions on Natixis as if they had occurred on January 1, 2005. Natixis’ pro forma fi nancial statements were prepared on the basis of a number of assumptions, and do not refl ect the results which Natixis would have had if the combination transactions had actually taken place on January 1, 2005. In addition, there can be no assurance that the trends indicated by the pro forma fi nancial statements (or by the separate fi nancial statements of the entities that are being combined to form Natixis) are representative of the future results or performance of Natixis.
Natixis has two principal shareholders who will maintain a signifi cant degree of infl uence over certain corporate actions in the future
The shareholders’ agreement between BFBP and CNCE limits the fl exibility of Natixis to raise equity capital or to use its shares for acquisitions, and could have signifi cant anti-takeover effects
Natixis has a signifi cant infl uence with respect to the Banques Populaires and the Caisses d’Epargne as a result of certain rights granted to it under agreements relating to the combination transactions (in particular, rights with respect to representation in or the right to be consulted on certain decisions of the governance bodies or committees of BFBP and CNCE, audit and inspection rights and rights to receive information), but these rights do not include voting rights in shareholders’ general meetings and are not equivalent to the powers of a central body. As a result, the ability of Natixis to guide the future development of the two groups in which it will hold a substantial interest will be limited.
Natixis cannot freely sell its 20% equity interests in the Banques Populaires or the Caisses d’Epargne, and in some circumstances could be required to sell those interests back to the Banques Populaires or the Caisses d’Epargne
As part of the shareholders’ agreement signed on November 17, 2006, Natixis’ two principal shareholders, BFBP and CNCE, have generally agreed not to compete with the activities of Natixis in France or abroad. However, this agreement not to compete contains certain exceptions, in particular for activities currently conducted by either BFBP
FINANCIAL DATA 6 Risk factors or CNCE and their subsidiaries that were not contributed to Natixis as part of the combination transactions. In particular, these exceptions include life and property insurance, areas in which the Caisses d’Epargne offer their customers products of CNCE affi liates that have not been contributed to Natixis. As a result, Natixis may fi nd itself competing directly or indirectly with the services provided by one or both of its principal shareholders.
Natixis is subject to several categories of risks inherent in banking activities
There are four main categories of risks inherent in Natixis’ activities, which are summarized below and described in detail under “Risk Management” in the management report. The risk factors described below elaborate on or give specifi c examples of these different types of risks, and describe certain additional risks faced by Natixis.
Credit risk. Credit risk is the risk of fi nancial loss relating to the failure of a counterparty to honor its contractual obligations. The counterparty may be a bank, an industrial or commercial enterprise, a government and its various entities, an investment fund, or a natural person. Credit risk arises in lending activities and also in various other activities where the Group is exposed to the risk of counterparty default, such as its trading, capital markets and settlement activities. Credit risk also arises in connection with the credit insurance and factoring businesses of the Group, although the risk relates to the credit of the counterparty’s customers, rather than the counterparty itself.
Liquidity is also an important component of market risk. In instances of little or no liquidity, a market instrument or transferable asset may not be negotiable at its estimated value. A lack of liquidity can arise due to diminished access to capital markets, unforeseen cash or capital requirements or legal restrictions.
Insurance risk. Insurance risk is the risk to earnings due to mismatches between expected and actual claims. Depending on the insurance product, this risk is infl uenced by macroeconomic changes, changes in customer behavior, changes in public health, pandemics, accidents and catastrophic events (such as earthquakes, industrial disasters, or acts of terrorism or war). As mentioned above, the credit insurance business is also subject to credit risk.
Adverse market or economic conditions may cause a decrease in net banking income or profi tability
As a global fi nancial services provider, Natixis’ businesses are materially affected by conditions in the fi nancial markets and economic conditions generally in France, in Europe and elsewhere around the world. Adverse changes in market or economic conditions could create a challenging operating environment for fi nancial services companies. In particular, such adverse changes could result from increases in interest rates or commodities prices (including oil), or adverse geopolitical events (such as natural disasters, acts of terrorism and military confl icts).
There are numerous examples of the specifi c risks that Natixis faces with respect to potential adverse future market or economic conditions. Financial markets in France, in Europe and elsewhere may decline or experience increased volatility, which could lead to a decline in capital markets transactions, cash infl ows and commissions from asset management. Adverse economic conditions could reduce credit demand by corporate borrowers or increase the rate of defaults by borrowers. These developments would adversely affect Natixis’ net banking income, and, if it were unable to reduce expenses commensurately, its profi tability. Revenues and profi tability could also be depressed by market losses in Natixis’ securities portfolio or proprietary positions resulting from adverse market or economic developments.
The terms of distribution of a regulated savings account (the Livret A) by the Caisses d’Epargne and La Banque Postale are the subject of European and French legal proceedings. If the claims are successful, the Caisses d’Epargne’s revenues could be affected
FINANCIAL DATA6 Risk factors form of regulated savings account, known as the Livret A (the other group is La Banque Postale, owned by the French postal service). Developed by the French State to help fund public housing, the Livret A offers depositors a fi xed rate of interest that is tax-free. This public interest function of the Caisses d’Epargne is compensated through a mechanism equivalent to a distribution commission, set by the French State. In 2005, the Caisse d’Epargne Group recorded €715 million in net banking income for its distribution of the Livret A.
An extension of the right to distribute the Livret A to other banking groups could have an adverse effect on the net banking income of the Caisses d’Epargne, which would in turn affect the share in the income of the Caisses d’Epargne that Natixis records in respect of its 20% equity interest. Even if the Caisses d’Epargne were to change their commercial policies, such a measure could negatively affect their results, and consequently the 20% participation of Natixis through the non-voting cooperative investment certifi cates issued by the Caisses d’Epargne.
Although Natixis endeavors to establish an appropriate level of provisions, its lending businesses may have to increase their provisions for loan losses in the future as a result of increases in non-performing assets or for other reasons. Any signifi cant increase in provisions for loan losses or a signifi cant change in Natixis’ estimate of the risk of loss inherent in its portfolio of non-impaired loans, as well as the occurrence of loan losses in excess of the provisions allocated with respect thereto, could have an adverse effect on Natixis’ results of operations and fi nancial condition.
As part of its trading and investment activities, Natixis maintains positions in the fi xed income, currency, commodity and equity markets, as well as in unlisted securities, real estate and other asset classes. These positions could be adversely affected by volatility in fi nancial and other markets, that is, the degree to which prices fl uctuate over a particular period in a particular
FINANCIAL DATA 6 Risk factors market, regardless of market levels. Volatility can also lead to losses relating to a broad range of other trading and hedging products Natixis uses, including swaps, futures, options and structured products.
In some of Natixis’ businesses, protracted market movements, particularly declines in asset prices, can reduce the level of activity in the market or reduce market liquidity. These developments can lead to material losses if Natixis cannot close out deteriorating positions in a timely way. This may especially be the case for assets Natixis holds for which there are not very liquid markets to begin with. Assets that are not traded on stock exchanges or other public trading markets, such as derivative products traded between banks, may have values that Natixis calculates using models other than publicly quoted prices. Monitoring the deterioration of the prices of such assets is diffi cult and could lead to losses that Natixis did not anticipate.
Signifi cant interest rate changes could adversely affect Natixis’ net banking income or profi tability
Natixis may be vulnerable to political, macroeconomic and fi nancial environments or circumstances specifi c to the countries where it does business
A variety of supervisory and regulatory regimes apply to Natixis in each of the jurisdictions in which it operates. Non-compliance could lead to signifi cant intervention by regulatory authorities and fi nes, public reprimand, damage to reputation, enforced suspension of operations or, in extreme cases, withdrawal of authorization to operate. The fi nancial services industry has experienced increased scrutiny from a variety of regulators in recent years, as well as an increase in the penalties and fi nes sought by regulatory authorities.
Natixis’ businesses and earnings can be affected by the policies and actions of various regulatory authorities of France, other European Union or foreign governments and international agencies. Such constraints could limit Natixis’ ability to expand its business or to pursue certain activities. The nature and impact of future changes in such policies and regulatory action are unpredictable and are beyond Natixis’ control.
As a multinational banking group involved in complex and large-scale cross-border transactions, Natixis is subject to tax legislation in a number of countries. Natixis structures its business globally in order to optimize its effective tax rate. Modifi cations to the tax regime by the competent authorities in those countries may have a signifi cant effect on Natixis’ results. Natixis manages its business so as to create value from the synergies and commercial capacities of its different entities. Natixis also endeavors to structure the fi nancial products sold to its clients in a tax-effi cient manner.
Natixis’ risk management techniques and strategies may not effectively limit its risk exposure in all economic market environments or against all types of risk, including risks that Natixis fails to identify or anticipate.
Even though external growth is not expected to constitute the major part of its strategy in the future, Natixis may nevertheless consider external growth opportunities from time to time. Even though Natixis expects to review the companies it will acquire or joint ventures into which it will enter, it is generally not feasible for these reviews to be comprehensive in all respects. As a result, Natixis may have to assume unanticipated liabilities, or an acquisition or joint venture may not perform as well as expected. In addition, it might have diffi culty integrating any entity with which it combines its operations. Failure to complete announced business combinations or failure to integrate acquired businesses or joint ventures successfully into Natixis’ businesses could materially adversely affect the group’s profi tability. It could also lead to departures of key employees, or lead to increased costs and reduced profi tability if Natixis felt compelled to offer them fi nancial incentives to remain. In the case of joint ventures, Natixis is subject to additional risks and uncertainties in that it may be dependent on, and subject to liability, losses or reputational damage relating to, systems, controls and personnel that are not under its control. In addition, confl icts or disagreements between Natixis and its joint venture partners may negatively impact the benefi ts intended to be achieved by the joint venture.
Natixis conducts a signifi cant portion of its business overseas, in particular in the United States, and its net banking income and results of operations could be affected by exchange rate fl uctuations. While Natixis incurs expenses in currencies other than the euro, the impact of these expenses only partially compensates for the impact of exchange rate fl uctuations on net banking income. Natixis is particularly vulnerable to fl uctuations in the exchange rate between the United States dollar and the euro, as a signifi cant portion of its net banking income and results of operations is earned in the United States (approximately 25% of adjusted net banking income in 2005).
The consolidated fi nancial information in this report is presented on a pro forma basis, i.e. as if Natixis had been created on January 1, 2005.
The majority of these adjustments were identifi ed as “adjusted economic income” for 2005, as reported in Document E. This concerns adjustments relating to: (i) the consolidation over 12 months in 2005 of the entities making up CACEIS (included in the pro forma consolidated fi nancial statements as of July 2005) and Nexgen (accounted for under the equity method until December 31, 2005, in the pro forma consolidated fi nancial statements); (ii) the neutralization of Ixis CIB’s non-recurring day-one profi t (loss); (iii) the reclassifi cation as net banking
income (rather than a reduction in tax charges) of certain tax savings at Ixis CIB in accordance with the principles adopted by the bank as of January 1, 2006; (iv) the reclassifi cation of certain expenses as deducted from net banking income.
The slowdown in infl ation from 4% in January to 1.3% in November in the United States and from 2.4% to 1.6% in the eurozone was largely due to the development of energy prices: Brent rose from $61.6 per barrel at the start of the year to a peak of $78.7 in August, ending the year at $63. The risk of infl ation was nevertheless highlighted by the Federal Reserve (with unemployment at 4.5%, tensions in the job market remain signifi cant), as well as by the European Central Bank, which is wary of the infl exibility of credit growth in relation to higher interest rates.
Differing trends in monetary policy were seen in 2006: the Federal Reserve’s normalization phase was cut off by the sudden fall in construction. Meanwhile, the Bank of Japan was hesitant about raising interest rates against the backdrop of infl ation - while positive - still very close to zero. Despite fairly brisk growth and a strong rebound in property prices, the Bank of England did not raise its base rate over 5%. Only the European Central Bank made regular adjustments to its monetary policy, carrying out what it describes as “gradual normalization”. The year ended with experts expecting a rate cut in the United States in spring 2007, hardening in Japan and the eurozone and a long-standing status quo in the United Kingdom.
This backdrop of differences in monetary policy and cyclical normalization was fi tting for signifi cant movements in exchange rates. In China, where extensive intervention avoids any sharp falls in the dollar, the renminbi rose by 3%. This movement was accompanied by a widespread increase emerging Asian currencies against the dollar. However, this movement was modest compared with the rise in the euro (from 1.19 to 1.32) and sterling (from 1.73 to 1.95) against the dollar. The most erratic development was that of the dollar against the yen. The sharp rise in the yen following the abandonment of the Bank of Japan’s zero interest rate policy in April (from 118 to 110) was followed by a continuing fall in the Japanese currency, which ended the year at 117. Having initially expected an aggressive stance from Bank of Japan, experts have cut their rate increase expectations and maintained their carry trade strategies of borrowing in yen and investing in higher-yield currencies. Against this backdrop, the euro reached its highest ever level against the yen of 154.5.
In the bond markets, yield curves continued to fl atten out signifi cantly. The most notable movement was seen in the European yield curve, with the spread between 10-year and two-year yields falling from 45 basis points to 0 at the end of the year. In the United States, the curve fell from 10 basis points, ending the year inverted by 12 basis points. Overall, the spread between US and German 10-year yields narrowed from 105 to 80 basis points.
Against this backdrop, the stock markets saw another year of double-digit growth. However, the end of the spring was marked by a signifi cant fall in most of the global indices relating to the possibility of a sharper increase in short-term rates in the United States and growth in energy prices peaking ($78 per barrel). The fall was spectacular - with the CAC 40 losing 13.2% and the Dow Jones 8% - but short lived. French and US indices ended the year up 16.6% and 14.8% respectively. Unlike in previous years, there was no notable outperformance by the European indices. Their comparative advantage in terms of valuations (European P/E ratios suggest that equities are less “expensive”) was counterbalanced partly by a higher risk of rate increases and the rise in the euro at the end of the period.
Natixis’ pro forma net banking income totaled €7,322 million in 2006, an increase of 22% compared with 2005. There was no currency impact as the average dollar exchange rate remained more or less unchanged year-on-year.
Net banking income generated by the core businesses came to €7,510 million, up €1,381 million or 23% compared with 2005. In a favorable economic and fi nancial climate, all of Natixis’ business lines achieved strong growth in 2006, with a particularly notable performance for Corporate and Investment Banking (net banking income up €746 million or 27%), Asset Management (net banking income up
■ €275 million or 23%) and Private Equity and Private Banking (up €173 million or 63%).
Other net banking income was negative at -€188 million, down €65 million compared with 2005, mainly due to the increased cost of fi nancing for cooperative investment certifi cates (€50 million) relating to the impact of higher interest rates and the introduction of fi xed-rate refi nancing at the end of 2006.
In a continuing favorable climate, impairment charges and other credit provisions came to €49.8 million in 2006, including reversals of collective provisions of €0.9 million and charges to provisions for specifi c risks of €50.7 million.
Equity investments (€679 million), which comprise primarily the contribution from cooperative investment certifi cates, increased by 14% or €83 million compared with 2005.
Deducting a tax charge of €733 million and minority interests of €104 million, net income (Group share) totaled €2,158 million in 2006, up 25% compared with 2005. After restructuring costs and other merger-related expenses net of tax of €58 million, net income (Group share) was €2,100 million, an increase of 22% compared with 2005.
ROE was 13.9% in 2006 compared with 12% pro forma in 2005.
Cost/income ratio 60% 74% 67% 72% 33% 53% NA NA 68%
Several analytical adjustments have been made to the results of entities comprising the various core business lines: - business lines benefi t from return on average allocated capital; - return on company shareholders’ capital of entities making up the business lines is neutralized; - all goodwill carrying costs are borne by the corporate center; - the business lines are charged an amount representing the majority of the group’s overhead costs; the proportion not charged to the business lines represents 2% of the group’s total expenses.
With net banking income up 31%, investment banking activities benefi ted from favorable global market conditions. Capital market activities saw exceptional growth in 2006, with efforts still focused on two priority areas: adapting the range of new and structured products (structured products based on alternative investment funds such as CPPI, structured fi xed income and equity derivatives) and strengthening the bank’s position among all institutional and corporate clients. The takeover of Nexgen Financial Solutions generated additional revenue fl ows in the buoyant corporate fi nance segment, while teams at Lazard-Ixis and Natexis Bleichroeder were involved in a number of high profi le equity capital market transactions (Natixis, Icade, EDF Energie, BNP Paribas, Vinci, ADP, Korian etc.).
Expenses up 32% The increase in expenses related to several factors: higher performance-related variable remuneration;■
FINANCIAL DATA6 Management report a 12% increase in the average number of full-time equivalent employees, including over 50% outside France, which - in addition to the impact in terms of the wage bill - automatically generated an equivalent increase in ordinary operating expenses; the signifi cant increase in IT expenditure with the implementation of a number of new business applications in 2006.
As a result of the bank’s international expansion aims and heavy investment, the proportion of net banking income
generated outside France totaled 43% compared with just 35% the previous year, with a signifi cant increase in Europe, representing 18% of Corporate and Investment Banking net banking income in 2006 compared with just 9% in 2005. The performance of the bank’s international activities was driven by operations in London (arbitrage and new real estate fi nancing and securitization activities).
Payment fl ows In a market dominated by the falling prices for payment methods, continuing severe competitive pressure and rationalization of bank pools through invitations to tender, the payment fl ows business grew further in 2006 in terms of both commercial fi nancing volumes (up 10%) and the number of transactions processed (up 11%).
The range of products and services available on the portal was enhanced, in particular with the launch of Actifl ow, the Group’s cash management product (Natixis/Banque Populaire banks).
Leasing New production increased by 12% against the backdrop of signifi cant deterioration in margins.
In property leasing and Sofergie fi nancing, new production totaled €670 million, in line with 2005, with a further strong performance in Sofergie fi nancing relating to the fi nancing of wind energy projects. The property leasing activities of the Banque Populaire banks remained robust, representing €358 million (up 13%). Margins on property leasing and Sofergie fi nancing activities remained stable compared with the previous year.
■ New business outside France (€138 million) increased by nearly 50% year-on-year.
As a result of this high level of production, average outstandings increased by 30% year-on-year to €17.4 billion at end-2006.
Due to the deterioration in margins on outstandings, net banking income increased by just €171 million or 28% in 2006.
Against the backdrop of deterioration in margins, the Structured Finance and Natural Resources division achieved a 40% increase in net banking income to €631 million, refl ecting robust business in its areas of activity over the year. This strong performance resulted in an increase in average risk-weighted assets of nearly 50% to €26.8 billion.
Natural Resources & Related Industries New production totaled €1,903 million in 2006, an increase of 27% or €419 million compared with 2005. Activities in the energy sector (€1,210 million) accounted for 64% of new production.
Despite deterioration in margins in the market as a whole, margins on outstandings increased in 2006 thanks to the ramp-up of arrangement mandates.
Real estate Real estate activities saw signifi cant improvement in net banking income compared with 2005.
Business volumes were brisk in 2006, despite a highly competitive climate, as a result of a number of factors: Natixis’ reputation as a key player in the sector (numerous mandates with big-name clients: Colony, Nexity, Foncière des régions, AxaReim, Kaufman & Broad, Pirelli RE, Deutsche Bank etc.); origination in the early stages of transactions; expansion of its activities to other European markets (Italy, Germany, Spain); winning new investor clients (Bear Sterns, W.P. Carey, Foncière Euris etc.); establishing a visible position in mixed real estate/LBO transactions (winning the exclusive mandate for Deutsche Bank RE as part of the acquisition of France Printemps, representing €1 billion); confi rmation of its penetration of the property investment segment (joint exclusive mandate with RBS for the Gecina/ Générale de Santé deal, representing €460 million).
Aircraft fi nance Natixis Transport Finance generated new production of €1.23 billion in 2006, compared with €468 million in 2005. With the return of a large number of investors and lenders that had left the market in the wake of September 11, 2001, projects on offer are subject to fi erce competition and much lower margins. However, the impact of lower margins has been curbed by the launch of new predominantly taxrelated products.
Ship and land transportation fi nance New business production totaled €1,047 million, representing 40 deals, double the level of 2005. This includes €280 million relating to Korean and French export credits, with a Cooke weighting of 5%. 2006 saw strong growth in arrangement of bilateral or club deals. Of the 40 mandates signed, 21 concerned the bank acting as lead arranger in ship fi nance projects all over the world.
The Capital Markets division generated net banking income of €1,389 million, up 36% in relation to 2005, with signifi cant year-on-year improvement in all areas.
Fixed income Fixed income activities were extremely robust in 2006. The fl attening of the rate curve generated business for the structured derivatives desks. Meanwhile, following the introduction of IFRS accounting standards, customer turned more to vanilla products, which are insensitive to changes in underlying assets (fair value treatment for derivatives). Volumes doubled in vanilla interest rate derivatives.
The credit business was subject to fairly signifi cant tightening of spreads in 2006. This trend was uneven, particularly in May, which was subject to severe market correction in reaction
FINANCIAL DATA 6 Management report to the equity market decline. The Corporate and Investment Banking division strengthened its presence in these markets, with a solid performance in ABS. The government bonds team was ranked No. 3 French government bond primary dealer (“Spécialiste en Valeurs du Trésor” or SVT) and No. 1 in the qualitative rankings. In the primary bond market, the Corporate and Investment Banking division climbed the ranks to No. 10 in the global euro league table with 235 public issues and confi rmed its position as world No. 4 in the covered bond market carrying out issues worth over €15 billion. It also acted as manager of the fi rst 50-year covered bond issue on behalf of Compagnie du Financement Foncier. This market currently constitutes the bank’s second-largest asset class after sovereign bonds.
The Equity Finance business achieved remarkable growth in the volume of transactions. Its activities were driven by both economic conditions and structural factors (improved coverage of all European markets, enlargement of the structured product range, new active counterparties, building of teams etc.).
Corporate Finance 2006 was an excellent year for the Corporate Finance unit, with a four-fold increase in net banking income compared with 2005.
Ixis Corporate Solutions delivered a strong performance, benefi ting fully from the 100% consolidation of Nexgen Financial Solutions from the end of March 2006. This entity comprises nearly 90 people, with a strong international presence and specializing in bespoke fi nancial transactions. The bank was involved in nearly 20 new transactions or the restructuring of existing transactions, including transactions in Korea, Spain, Australia, Dubai and France, as well as three transactions concerning reinsurance. In Alternative Risk Transfer (ART), the bank won a new mandate for AXA for motor insurance risk securitization in Germany, Spain, Italy and Belgium, following the success of the 2005 operation.
Financial Engineering In an increasingly competitive market, 2006 was an excellent year for the Financial Engineering business.
2006 also saw the launch of the fi rst collateralized fund obligations (CFOs) for structured credit activities placed by the fi xed income and equities teams, representing an issue volume of over €550 million.
Ixis Alternative Investment (IAI), based in London, provided new impetus for the development of alternative investment products. It launched a managed funds platform, characterized by enhanced risk control and transparency for investors. IAI also developed a seeding and incubation program for new hedge fund managers, due to be launched in early 2007. This seeding program will be syndicated to third-party investors and benefi t from the Corporate and Investment Banking division’s control and marketing infrastructure.
Net banking income totaled €553.2 million in 2006, up 43% compared with 2005.
In Europe and Asia, teams won recognition throughout the year in conventional CDO/CLO products (e.g. for AXA and Commerzbank) and hybrid products (credit/interest rate hybrid CDO for CNP, ABS CDO, CDO squared structure for New Bond Street AM). The group was ranked No. 5 in the European CDO league table. The “Classico” deal was one of the highlights of the fourth quarter. Acting as arranger and sole lead manager, Ixis CIB launched its fi rst CMBS deal in Europe, resulting from the combined efforts of the real estate loan origination and securitization teams (CMBS desk in London).
Treasury Short-term rates increased signifi cantly in 2006. The ECB’s key rate rose from 2% at the start of the year to 3.50% at the end of the year in six successive increases of 25 basis points. In the United States, following 17 rate increases in two years, the Federal Reserve decided in July to neutralize its monetary policy, leaving the federal funds rate unchanged at 5.25%. However, this increase in short-term rates had only limited repercussions on the price of money in the long term. The short-term treasury business benefi ted from successive rate increases thanks to active management of risk limits. In long-term treasury activities, the fl attening of the rate curve was offset by particularly dynamic management.
Net income for the Services division increased by 15% or €31 million to €238.2 million, €12 million ahead of target.
The life insurance business performed particularly well thanks to a number of factors: the launch of Fructi-Pulse as part of the Banque Populaire Group’s savings campaign, accompanied by a promotional offer of no take-up costs in the fi rst quarter; ■
Against this backdrop, net banking income totaled €244.9 million in 2006, an increase of 16% or €34.7 million compared with 2005.
Despite mortgage reforms in France, which forced Saccef to cut its tariffs by 30% as of July 1, 2006, in loans for individuals, as well as intense competition in the corporate market, premium income increased by 5% in 2006, with growth of 3% in the individual loans market.
This new business unit was formed from the merging of NovaCredit and CEFI. It covers two main areas: revolving credit, distributed by both NovaCredit and CEFI through two products - the fi rst characterized by the availability of reserve funds and the “Aurore” card, and the second with a Visa card, personal loans managed exclusively by CEFI.
This business line generated net banking income of €72 million, an increase of €16.6m or 30%. This growth was fueled primarily by “Teoz” loans, as a result of: a favorable business trend in 2006, despite a downturn in the second half of the year as a result of the mobilization of the network’s sales teams for the launch of Natixis: Teoz loan outstandings totaled €733 million, an increase of 17%; the anticipated increase in refi nancing; and growth in insurance products due to favorable profi tsharing.
Overall, the Employee Benefi ts Planning business performed well in 2006 in both employee savings plans and service vouchers. Net banking income increased by €10.5 million or 14% year-on-year to €84.6 million.
“Fructilibre” personal loans attached to employee savings plans also saw further growth, with 4,137 new loans granted over the year, generating growth in outstandings of €24 million to €30.1 million at end-2006.
The service vouchers business also performed well, with a 12% increase in the number of vouchers issued to 53 million.
The Payments business had a good year in 2006, with net banking income climbing 15% to €161.5 million: the Electronic Banking business saw robust growth over the year among the Banque Populaire regional banks and direct customers: the number of cards in circulation increased by 4% to 3.9 million; the number of cards produced increased by 3% to 2.2 million; the number of clearing transactions increased by 5%; server authorizations increased by 86% due to the transfer of Banque Populaire authorizations to the national platform.
The Checks and Payment Systems business delivered a contrasting performance, as a result of: weaker business momentum, with a further downturn in check activities: national check collection down 1% and services down 17%; meanwhile, the Payment Systems business also saw growth of 6% in high-volume transactions using the French Interbank Teleclearing System and a 10% increase in international payments: tariff revisions for the Banque Populaire banks, which sustained a €3.6 million fall in income; gradual use of the new international payments system (STEP 2/TIPA), which generates lower margins.
CACEIS, market leader in institutional custody services, achieved signifi cant growth in assets in custody, which totaled €1,787 billion at end-December 2006, an increase
FINANCIAL DATA 6 Management report of €240 million or 15.5% compared with end-December 2005, including €1,626 billion (up 18%) in France. Assets under administration increased by 15% year-onyear or €112.5 billion.
An increase of 13.5% or €79 billion was seen in France, while the strongest growth outside France related to Fastnet Luxembourg (24%) and Fastnet Netherlands (20%).
Other indicators for the subsidiary also showed signifi cant improvement, with: a slight increase in the number of securities accounts; a 26% increase in the number of stock market orders in France (3.6 million); a 2% increase in the number of mutual fund orders (13.3 million).
Natixis’ Asset Management division underwent major expansion in 2005 in all business lines in both Europe and the United States, with total growth in assets under management of €67.3 billion or 13% at constant exchange rates. Assets under management stood at €583 billion at the end of the year.
(in € billions) Europe % US % Asia % Total %
Net infl ows 11.7 na 18.1 88% 0.1 ns 29.9 19%
This remarkable performance enabled Natixis’ Asset Management division to generate net banking income of €1.5 billion, an increase of €274 million or 23%.
Natixis’ Asset Management division achieved further organic growth in 2006, with over 120 new hires including 80 in the United States. The number of employees increased by 5% to 2,595, including over 1,400 in the United States. Payroll costs excluding variable compensation and long-term employee incentive plans rose by 3%; In order to keep up with its expansion, the Group has built up its IT, back offi ce and compliance functions and developed new activities. Operating expenses excluding payroll costs rose by 15%; Variable compensation increased signifi cantly in 2006 as a result of the Group’s strong performance and the sharp rise in performance-related commission.
Assets under management in Europe totaled €393.9 billion at end-2006, an increase of 9% or €33.3 billion compared with end-2005.
Life insurance premium income was again the main growth driver in France, rising by €14.2 billion, of which €6.3 billion related to new money and €7.9 billion to the market effect.
United States 2006 was a remarkable year in the United States. Assets under management totaled $247.1 billion, an increase of $44.4 billion or 22%; net new money came to $23.8 billion, up from $12.6 billion in 2005, an increase of 88%. As in 2005, Loomis Sayles’ range of bond products was the main driver, representing net new money of nearly $19 billion.
The Group continued its ramp-up in alternative products in the United States, with new money of $2.9 billion compared with $1.8 billion in 2005 (up 61%) via Harris Alternatives and Caspian funds; the market effect represented a record $20.6 billion, driven by strong growth in the equity indices (S&P up 13.6%; Russell 2000 up 23.5%).
The Private Equity and Private Banking division achieved an excellent performance in 2006, with net banking income rising €173.3 million or 63% to €449.1 million, relating mainly to the Private Equity business. Fueled by a highly favorable economic climate in France and international expansion, Natixis Private Equity (NPE) reported an exceptional level of capital gains (gross capital gains of over €400 million in 2006).
Net income (Group share) came to €229 million, an improvement of over 100% in relation to 2005.
Private Equity produced net banking income of €354.2 million, a rise of €151 million or 74% compared with 2005.
Natixis Private Equity’s investments totaled €603.3 million, an increase of 63% compared with 2005. Disposals came to €855.7 million, more than double the level of 2005 (€373.6 million) due to extremely favorable economic conditions. The most signifi cant disposals concerned securities listed in Asia and Brazil, as well as LBO and Expansion capital activities. This allowed for gross capital gains of over €400 million. Despite the signifi cant disposals made over the year, unrealized capital gains (valued at the year-end euro/dollar exchange rate) fell by just €46 million from €226 million to €180 million due to the revaluation of items still in the portfolio as at December 31(1).
At the end of 2006, assets under management for the entire Private Banking business stood at €15.5 billion.
Net banking income (€51.2 million) rose by €18.7 million or 57% compared with 2005. This was the fi rst full year of operation for the structure created in June 2005. Net banking income refl ects a sharp increase in income net of interest, solid commission income and a high level of trading commissions.
Assets under management decreased over the year to €2.3 billion due to a signifi cant technical outfl ow relating mainly to Group and non-Group capital not generating margins (€300 million) and efforts to reduce the number of small accounts (€10 million).
Net banking income came to €19.4 million in 2006, €1.7 million below the level achieved in 2005.
Expenses rose by 7% to €604.4 million, part of which related to the acquisitions by Coface of BDI and Newton, with 92 and 250 full-time equivalent employees respectively, and the remainder to the business’s growth.
In addition to the creation of Coface Services, 2006 was marked by the further development of Coface’s offering with the acquisitions of Israeli business information company BDI and US debt collecting fi rm Newton, as well as the acquisition of a stake in Italian business information company Cerved
Net banking income rose by 6% to €718 million thanks to an increase in overall revenues both on the basis of current activities (up 10.2%) and like-for-like (up 9.8%).
Factored revenues rose by 16% to a total of €13.6 billion in 2006 thanks to the development of the Banque Populaire regional bank network in the corporate market and sales and marketing efforts in the large companies segment, with 17 syndications and four transfers of balances.
Potential revenues from new factoring contracts came to €4 billion, up 12% compared with 2005.
VRF generated net banking income of €5.2 million, an increase of 40% over the year.
The CIFG Group achieved further organic growth in 2006, with net guaranteed outstandings of $74.6 billion, an increase of 75%.
The number of transactions underwritten nearly doubled to 625 in 2006 compared with 367 in 2005, with production of $36.1 billion, an increase of 70%.
Total net banking income was €78.7 million, an increase of 54%.
Gross operating expenses increased by 21% in 2006 to €50.6 million. In keeping with the deferral of premiums written, 38% of costs incurred in 2006 were deferred. Expenses net of deferred acquisition costs, which impacted the 2006 income statement, came to €41.6 million, an increase of 52%.
Gross operating income rose by 55% or €13.2 million to €37.1 million with improvement in the cost/income ratio of 2 percentage points to 53%.
The Banque Populaire and Caisse d’Epargne networks made a contribution of €487 million to Natixis’ net income in 2006, an increase of 18% compared with €413 million in 2005.
ROE after tax from retail banking activities was 19.1%, an increase of more than 1 percentage point compared with 2005.
(in € millions) Actual 2006 pro forma Actual 2005 pro forma %
The aggregate fi nancial statements of the Banque Populaire regional banks comprise the fi nancial statements of the Banque Populaire regional banks, their direct subsidiaries and mutual guarantee companies, after adjustments for consolidation purposes under IFRS and without eliminating transactions with Banque Fédérale des Banques Populaires.
■ The results of the Banque Populaire regional banks are presented in accordance with IFRS including IAS 32 and 39 and IFRS 4 (EU IFRS). They are pro forma fi nancial statements intended to enable comparison between 2005 and 2006, taking account of structural effects relating to the creation of Natixis. Compared with the real aggregate fi nancial statements, the only pro forma restatements concern the recognition of cash generated from the placement of cooperative investment certifi cates issued, representing €66 million in 2005 and €70 million in 2006.
Provisions for home purchase savings risks were subject to a reversal of €36 million due to the favorable development of interest rates, bringing the provision to €270 million. Coverage of home purchase savings deposits declined slightly from 1.90% at end-December 2005 to 1.76%.
In 2006, customer loans increased by over 12% to €108.7 billion. The sharpest rise was in home loans, with growth of more than 16% over the period.
Loans to companies and small businesses increased by 10% and loans to individuals by nearly 14%, representing 54% of total customer loans.
Deposits in special savings schemes increased by 2.2% (average deposits up 2.6%), despite an outfl ow of €757 million or 4.7% in home purchase savings deposits, representing 43% of total customer deposits.
Customer savings saw robust growth of over 9%, driven by the life insurance business, with assets under management up 13.7% and premium income up 28%, outperforming the bancassurance market (20%).
This increase refl ects continuing heavy investment in the network (77 net branch openings in 2006) and in IT equipment intended to improve the quality of customer relations (in particular CRM tools). However, the ratio of operational IT expenditure to net banking income decreased in 2006 thanks to the performance of the i-BP platform.
The cost/income ratio was 63.1% (63.7% excluding home purchase savings), one of the highest levels for French retail banks. Gross operating income was over €2 billion, an increase of nearly 6% (3.5% excluding home purchase savings).
Consolidated impairment charges and other credit provisions came to €280 million, representing 25 basis points of riskweighted assets, refl ecting the low cost of risk over the period. Including collective provisions of €362 million, the coverage ratio of non-performing loans was close to 75%, thereby confi rming the Banque Populaire banks’ policy of caution.
The tax charge rose by 10% to €573 million, relating to mainly to earnings growth.
After net profi t sharing with minority interests of €8 million, net income (Group share) came to €1,199 million, up 10%.
After consolidation under the equity method at 20% and accretion profi t of €55 million, the aggregate contribution from the Banque Populaire regional banks was €295 million, an increase of 9.4%.
Commission income came to €2,760 million, representing 44% of net banking income. This constitutes an increase of just 3% due to the full-year impact of the reduction in commission for “livret A” special savings accounts to 1% at the end of 2005. Excluding this effect, commission income rose by 6%, fueled mainly by commission received on life insurance products, provision of banking services and loanrelated commission income.
Operating expenses totaled €4,180 million, up 1.5%, impacted by a provision for the IT convergence program.
In 2005, expenses were impacted by a provision for the closed group pension fund (provisioning of additional contributions to the fund, which has to be converted into a prudential insurance institution).
Excluding these two exceptional events of 2005 and 2006, operating expenses increased by just 1.4%, refl ecting the cost-controlling efforts of the Caisses d’Epargne, which also continued to invest in the Fréquence Client program.
Gross operating income rose by nearly 20% to over €2 billion.
Natixis’ risk management system was implemented in accordance with French banking regulations and with the corporate governance principles of the Banque Populaire Group. There were three levels of control, which were coordinated by Executive Management. First-tier control comprised continuous self checks by employees as part of their normal daily duties. Second-tier control was provided by the Risk Management, Compliance and Internal Control departments, which reported to the General Secretariat, and the Information Systems Security department, which reported to Information Systems and Logistics. These departments were completely independent from the business lines. Thirdtier control was provided by the Internal Audit department. Under regulations, the General Secretary, a member of the Executive Management Committee, was responsible for permanent controls.
The overarching committee created in 2003 coordinated the various departments involved. It was chaired by the Chief Executive Offi cer.
The credit risk management system was also structured around the Large Exposures Committee and the various risk committees. The Large Exposures Committee included the Chairman, the business line heads and representatives of the Risk Management, Internal Control and Internal Audit departments. It monitored and measured trends in the bank’s major exposures and took preventive measures. It also assessed the quality of each core business’s security systems and risk management tools. In 2006, its work covered the integration of the Basel II ratio into risk management procedures, validation of market risk models, operational risks and LBOs.
The risk committees established by each of the core businesses included business line heads and representatives of the Risk Management and Internal Audit departments. They included: Committees of Corporate and Institutional Banking and Markets and the subsidiaries that reported to it; two Country Risk Committees; Risk Committees of the Services business; Risk Committees and Investment Committees of the Private Equity and Wealth Management core business; Risk Committees of the Receivables Management core business (Coface and Natixis Factor); various limit violation committees; operational risks committees.
The overall risk management system is governed by Natixis’ Management Board and Supervisory Board, with the latter supported by the Risk Management Committee in carrying out its duties.
Permanent control is ensured by committees, including primarily: a general committee: Group Risk Management Committee, which sets out the main tenets of the Group’s risk policy; Natixis credit committee; market risk committee; operational risks committee; new products or new activities committees; sensitive cases and provisions committee; assets and liabilities management committee.
Natixis’ risk management system will continue to evolve and adapt in 2007 in terms of its organizational structure, tools and risk measurement, in accordance with the commitments made in the document fi led with the AMF (Document E, Appendix B).
The Risk Management department is based on a unifi ed organizational structure in terms of resources, methodologies and tools, capitalizing on pre-existing best practices at Ixis Corporate & Investment Bank and Natexis Banques Populaires. Since November 17, 2006, a Risk Management Director has been appointed for both Natixis and Ixis Corporate & Investment Bank, who reports directly to the Chief Executive Offi cer.
The Risk Management department covers all of the bank’s activities and is organized by type of risk: counterparty/country risk; market risk; operational risk.
It also has a risk analytics division in charge of devising risk methods and tools and the implementation thereof. It has cross-functional structures that ensure the coordination of its efforts. The Risk Management department has been set up in accordance with the global business unit principle. In 2007, it will focus on creating strong hierarchical functional ties between Natixis and its subsidiaries and branches. These functional ties will ensure the consistency of the risk management policy implemented throughout the Natixis Group.
Within Natixis, the project has been headed up by a crossfunctional team involving the Risk Management, Finance and IT departments, organized into sub-projects (ratings, defaults, management of guarantees received, information, deployment, ratio calculation). At Ixis Corporate & Investment Bank, the Risk Management and Finance departments play a driving role in these efforts. The day after November 17, 2006, the project was reconfi gured to address the challenges relating to the merger, approval of Natixis and the initiation of works to allow for the transition to the advanced internal ratings-based approach.
The credit risk measurement and management system in place prior to November 17, 2006, at the former Natexis Banques Populaires and within Ixis Corporate & Investment Bank and then at Natixis is based on: centralized delegation systems, managed by decisionmaking committees; the independent analysis of the Risk Management department in reviewing applications; ratings systems to assess the probability of default in one year; information systems providing a general overview of outstandings and limits.
* All credit exposure, excluding minor subsidiaries and equity.* All credit exposure, excluding minor subsidiaries and equity.
With just 7% of exposure outside Europe and North America, Natixis presents a satisfactory geographical risk profi le.
(in € millions) Industry risks Country risks Specifi c risks Total
The Market Risk department defi nes the risk assessment methods to be used, advises on limits and ensures the monitoring of all market risks within Natixis. Market risk management is based on a system of delegation overseen by the Group’s Risk Management committee, within which the market risk committee plays a key role.
The purpose of the market risk committee is to determine the bank’s market risk policy and ensure that it is applied correctly. The committee is an operational extension of the executive body and as such has full decision-making powers for relevant matters. It meets once a month. However, exceptional meetings may be organized as needed. It is chaired by a member of the Management Board. All decisions are made by the Chairman after being debated by the parties involved. The Chairman may be represented if he is not available.
Within the former Natexis Banques Populaires, the market risk department, which is fully independent of the business lines, is in charge of second-tier controls. Its key duties are: validating the proposals made by the middle offi ce, ensuring their consistency throughout the Group and making recommendations where necessary; monitoring market risks at the various consolidation levels and particularly at Group level; ensuring internal and external reporting on market risks; validating internally-developed models and software models used to value products; validating the various delegated authorities and limits requested by the Capital Markets arm of the Corporate and Investment Banking division and proposed by the middle offi ce; making recommendations on the risk management system.
This structure is divided into the following committees: a market risks committee, which meets monthly and comprises the heads of the various control levels together with front offi ce managers. It is chaired by the head of capital markets activities. The committee validates new limits, proposes changes to limits and reviews any identifi ed limit violations; ■
regular monitoring of positions and results; second-tier validation of results produced by the results unit; validating pricing models; determining provisioning policies and deductions for liquidity risks, statistical risks, model risks, parameters that cannot be covered by the system and other items; monitoring of new products committees.
They are also responsible for determining suitable risk measurement policies. Controls are evidenced in daily and weekly management reports examined by the Management Board and the Executive Committee. In addition, reports are submitted to the Chairman of the Management Board on a weekly basis and to the Market Risk Committee on a monthly basis analyzing actual market risks and changes since the last report. Since 1997, Ixis Corporate & Investment Bank has been authorized to use the Scénarisk internal risk monitoring model to track general interest rate, equity and currency risks and specifi c equity risks. In February 2006, authorization was extended by the French Banking Commission to include specifi c interest rate risks and convexity risk.
On the creation of Natixis, market risk measurement and monitoring procedures were harmonized with the use of a single calculation tool - Scénarisk - already in place at Ixis Corporate & Investment Bank. In order to monitor compliance with the VaR limit set by the regulator, Natixis’ Risk Management department produces Natixis’ VaR by consolidating portfolios included in the former Natexis Banques Populaires (trading and investment) with those of Ixis Corporate & Investment Bank and Ixis Capital Markets NA. Capital market transactions concerning the former Natexis Banques Populaires are consolidated on the basis of sensitivity analysis provided by front offi ce management systems. After choosing target front offi ce management systems, the VaR calculation is refi ned to take account of the convexity of positions taken on the former Natexis Banques Populaires.
A review of all of Natixis’ stress tests has been carried out. At the date of the creation of Natixis, stress tests were calculated using the VaR calculation tool selected, Scénarisk: adverse stress tests consist of “shocking” the different market parameters presenting major sensitivities. Tests are carried out one by one - or by group of parameters - in order to assess potential P&L changes, activity by activity. The risk scenarios defi ned by Ixis Corporate & Investment Bank (over 250 in total) will be extended to all of Natixis’ operations; historic stress tests consist of reproducing sets of changes in market parameters observed during past crises over a short-term horizon in order to create an ex-post simulation of the extent of P&L changes recorded. Although these stress tests cannot predict the future, they can be used to assess the exposure of the Group’s activities to known scenario. There were no historic stress scenarios in production at Ixis Corporate & Investment Bank as at November 17, 2006. The stress scenarios already in place at the former Natexis Banques Populaires will be applied to all of the Group’s operations, including additional tests for credit activities; theoretical stress tests, still known as “global stress tests”, consist of simulating changes in market parameters in all activities on the basis of plausible assumptions concerning the reaction of one market in relation to another, depending on the type of initial shock. Four global stress tests currently in place at Ixis Corporate & Investment Bank will be extended to all of Natixis’ operations, once enhanced to include tests relating to forex activities.
Methods The market risk management system for the former Natexis Banques Populaires is based on a risk metrics model that measures the risk run by each Natexis Banques Populaires entity. The current model consists of a number of standard metrics and VaR. As part of the creation of Natixis, Ixis Corporate & Investment Bank’s internal model, based on a VaR measurement, will be applied to the portfolios of the former Natexis Banque Populaires (see above).
The key standard metrics used are: sensitivity to a +/- 1% change in interest rates (overall and by maturity); yield curve exposure expressed as the potential loss; currency exposure; equity exposure; sensitivity to a +/- 1% change in implied volatilities in the equity, foreign exchange and fi xed income markets (overall, by maturity and by strike); sensitivity to a change in delta of an underlying (equities, fi xed income and currency); sensitivity to dividend levels; sensitivity to change in swap spreads; ■
sensitivity to change in issuer spreads; sensitivity to change in correlations; monthly and annual loss alerts.
The scope of VaR calculations was as follows: trading and investment portfolios of the former Corporate and Institutional Banking and Markets core business, excluding the “structured equities” and treasury portfolios; trading portfolios of Natexis Bleichroeder SA (until the end of June 2006); trading portfolios of Natexis Commodity Markets; the investment portfolio of the Finance department.
FINANCIAL DATA6 Management report €0.731 million to €0.975 million per currency for a 1% change in foreign exchange volatility.
These overall metrics are supported by more precise measurements by underlying, maturity and strike price.
Several changes occurred in 2006 in continuation of works initiated previously. New models were developed and studies carried out to quantify the model risk and improve the different valuation models taking market changes into account.
■ Interest rate VaR ■ Forex VaR ■ Equities VaR ■ VaR Commodities
The increase in interest rate VaR between the end of November and end of December 2006 related to more limited offsetting of positions between the simple derivatives desk and the structured derivatives desk.
US subsidiary ABM LLC, which operates in the securitized mortgage loans market, is subject to specifi c monitoring with one-day VaR with 99% confi dence of $3.5 million at December 29, 2006.
For calculation purposes, the joint behavior of market parameters that determine portfolio values is modeled using statistical data covering 365 calendar days. Over 3,500 risk factors are currently modeled and used by the Scénarisk software.
account possible non-linear portfolio returns based on the different risk factors; stress testing, which consists of measuring potential losses on portfolios based on extreme market confi gurations. These confi gurations are developed from scenarios based on historical data (economic scenarios) and hypothetical scenarios which are specifi c to each portfolio; operational indicators that set limits for all capital markets activities and/or for groups of comparable activities, based on directly observable fi gures such as nominal amounts, sensitivities, stop-loss limits, diversifi cation indicators and market share indicators. The exposure limits determined from these operational indicators are applied alongside the VaR and stress test limits. All three limits are determined on a consistent basis, particularly when they correspond to front offi ce exposures. This is the case in particular for stop-loss limits, which trigger warnings about loss-making strategies and are set for each individual trader. Stop-loss limits are constantly monitored and if any overrun is detected, management is required to make a decision as to whether to close, hedge or maintain the position.
The reliability of the VaR indicator is measured regularly by comparing it with daily trading results in order to match the potential loss predicted by the VaR indicator with the profi t or loss effectively realized.
(25% decline in indices, homothety of +20% short term and 10% long term)
Specifi c deductions are made from credit derivative positions to adjust the effects of uncertainties concerning the level of certain parameters which are not liquid or cannot easily be covered, particularly recovery rates.
These instruments generate a market risk - corresponding to the spread risk on the underlying assets - which is taken into account in routine VaR calculations. Issuer credit risk (default risk) is measured using AMeRisC, an internally developed credit risk measurement system which nets positions on credit derivatives and on securities with similar characteristics in terms of the intended and actual holding period, maturity and other parameters, where appropriate. It also measures credit derivative counterparty risk (off-balance sheet risk).
Organization of structural interest rate risk, currency and liquidity risk management
In keeping with the systems in place at the former Natexis Banques Populaires and Ixis Corporate & Investment Banking, the Asset & Liability Committee (ALM Committee) is responsible for setting out the broad guidelines in terms of managing structural balance sheet risk. Chaired by a member of the Management Board and comprising representatives of Corporate and Investment Banking, the Finance department and the Risk Management department, the Committee meets quarterly. Its main duties are: monitoring of balance sheet and off-balance sheet commitments; analysis of non-operational liquidity, structural interest rate and currency risk; validation of internal refi nancing rules (TCI); validation of the Group’s market refi nancing policy; validation of limits associated to balance sheet risk calculations for presentation and approval by the Group’s risk management committees.
Structural interest rate risk, currency and liquidity risk at the former Natexis Banques Populaires
Change in economic value for a shock of ± 200 bp 100 80 16 8 204
For Treasury department operations, sensitivity measurements are produced on a daily basis. Measurements are made monthly for the subsidiaries concerned.
In 2006, a curve risk indicator calculated daily was deployed in the bank’s Treasury portfolios(13) and is subject to the following limits: short-term treasury (Paris): €1.5 million; short-term treasury (Singapore): €0.5 million; long-term treasury: €3.6 million.
all transformation into liquidity risk concerns operations with a contractual maturity.
Global short, medium and long-term refi nancing requirements in a wide variety of currencies are centralized within the Treasury department, allowing for continuing optimization of liquidity cost for the benefi t of the entire Group. This also facilities an issuing policy based on the continuing aim of maximum diversifi cation of the investment of Natixis’ debt in terms of both types of investment and regions.
For the fi rst component, the ALM committee has favored the purchasing of the currency and refi nancing in euros for long-term investments (acquisition of equity investments, charges etc.). This policy helps to immunize the bank’s capital adequacy ratio, of which a proportion of risks are denominated in currencies other than the euro. This policy could change if immunization of the capital adequacy ratio exceeds 100%.
dollars against euros, gradually bought back with the formation of margin in dollars.
In addition, the ALM committee uses monthly indicators concerning the structural interest rate position on banking book activities, in particular the static gap by maturity category, as well as sensitivity analysis of the net asset value on the basis of several yield curve scenarios (increases of decreases, steepening, fl attening, development of factors in a multi-factor model).
Medium to long-term liquidity requirements are monitored on a monthly basis by the ALM committee.
Cash fl ow hedges Cash fl ow hedging is used by Natixis primarily for the interest rate risk of the parent company.
The prospective test is used to verify that the scope of derivatives is admissible in a macro-hedging relationship. Hedging is established if for each maturity group, the nominal amount of items to be hedged is larger than the notional amount of hedging derivatives. By default, derivative instruments may not justifi ed in a hedging relationship of this kind.
Impacts on equity and consolidated income: Changes in the marked-to-market of derivative fi nancial instruments are taken to equity and only the ineffective portion of the hedge impacts the income statement at each accounting date.
Impact on consolidated income: Changes in the marked-to-market value of derivative instruments are recorded in the income statement (effective and ineffective portion). At the same time, changes in the marked-to-market value of “hypothetical” assets and liabilities are also recorded in the income statement.
The division has set three targets for 2007 relating to organization, method and quantifi cation: organization: this concerns developing the organization in place in order to comply with that announced to the CECEI: second-tier controls have to report to Natixis’ Risk Management department or have a strong functional and hierarchical tie; method: Natixis is looking to implement a system to measure operational risk using a standardized method, allowing for consolidation of all activities through mapping, indicators and plans of action; quantifi cation of economic capital, giving all levels of management a decision-making tool in order to help in choices relating to the many actions on the agenda in terms of covering operational risk (organizational procedures, logistics resources, IT developments, insurance, business recovery plans) and to calculate a capital requirement that better refl ects actual risk.
As a result of the transformation of Natexis Banques Populaires into Natixis and the sharing of ownership of its share capital between the Banque Populaire Group and the Caisse d’Epargne Group, insurance programs were amended as of January 1, 2007 (removal of the Banque Populaire Group’s main insurance programs and primarily increasing certain levels of coverage).
In parallel, the Fédération Nationale du Crédit Agricole, BNP Paribas, BFBP, Société Générale and ING Direct France are contesting under French law the special right of La Banque Postale to distribute Livret A passbook accounts, as well as La Banque Postale’s commission payment rate, before the Administrative Tribunal of Paris. These banks fi led complaints between February 17 and June 29, 2006 to have the administrative decisions of the Minister of the Economy, Finance and Industry that rejected their respective requests to be authorized to distribute or to assure the distribution of Livret A passbook accounts overturned. These complaints were based on allegations of violation of the right to free exercise of a trade, of absence of notifi cation of state aid, and automatic abuse of dominant position, and seek to have open the distribution of the Livret A to other banks.
AMF notifications relating to the issuance and marketing of redeemable subordinated notes by the Caisse
FINANCIAL DATA 6 Management report d’Epargne Group. On September 10, 2004, the Autorité des Marchés Financiers (the «AMF») opened an inquiry concerning the issuance by CNCE and the marketing by the Caisses d’Epargne of redeemable subordinated notes («TSRs») since June 2002. The AMF sent complaint letters to CNCE and to ten Caisses d’Epargne on September 11, 2006. These letters are based on a report of the French Market Supervision and Inquiry Service (Service d’Enquêtes et de la Surveillance des Marchés), which was issued based on a unilateral inquiry and not in an adversarial process. In its letters to the ten Caisses d’Epargne, the AMF criticized the Caisses d’Epargne for: (i) having customers subscribe TSRs issued by CNCE on the primary market when customers could have purchased them or purchased other, essentially identical TSRs on the secondary market under more favorable conditions, and (ii) not respecting a number of regulatory prohibitions in marketing TSRs, especially with respect to the subscribers’ right to information and to specifi c advice. In its letter to CNCE, the AMF indicated that CNCE may be liable for two categories of infractions: (i) in structuring the offering, listing and placement of TSRs, furnishing partially inaccurate information concerning subscription dates and the underwriting of the TSRs by the Caisses d’Epargne; and (ii) neglecting its responsibilities in the compliance monitoring of the Caisses d’Epargne and its responsibilities to protect public savings (relating to the allegations against the Caisses d’Epargne). CNCE and the Caisses d’Epargne fi led a response to these allegations on December 1, 2006. The designated reporter of the Sanctions Commission of the AMF has taken notice of these responses in defense and is preparing a report which itself may be subject to further comments by the parties. The Sanctions Commission will then conduct an adversarial proceeding to decide if the allegations amount to infractions, and, if applicable, to decide on a monetary sanction.
There are no other administrative, legal or arbitration proceedings pending likely to have a material impact on the fi nancial statements of Natixis.
Financial assets at fair value through profi t or loss and hedging instruments 177.5 26.0
Total consolidated assets amounted to €458.6 billion at December 31, 2006, compared with €168.1 billion the previous year, an increase of €290.5 billion or 173%. This increase relates to transferred subsidiaries, representing €267.2 billion, and growth of €23.3 billion for the former Natexis Banques Populaires.
Financial assets at fair value through profi t or loss and hedging instruments came to €177.5 billion compared with €26.0 billion at December 31, 2005, an increase of €151.5 billion, relating primarily to transferred subsidiaries representing €138.2 billion. These fi nancial assets at fair value through profi t or loss comprise trading instruments (€97.7 billion, including €76.0 billion from transferred subsidiaries) and instruments designated as at fair value (€79.2 billion).
The increase of €8.9 billion in available-for-sale fi nancial assets relates primarily to transferred subsidiaries, representing €7.7 billion.
Securities held under resale agreements totaled €103.9 billion at December 31, 2006, with transferred subsidiaries representing €79.1 billion or 76%. These assets are fi nanced by securities delivered under repurchase agreements, recorded under liabilities.
Refi nancing of activities excluding securities delivered under repurchase agreements was mainly via debt securities in issue, which - including issues of CDs designated as at fair value - totaled €100.6 billion at December 31, 2006, as well as bank debt, representing €75.8 billion.
Tier One capital amounted to €13.1 billion at December 31, 2006, compared with €5.7 billion at December 31, 2005, an increase of €7.4 billion. This was mainly due to the increase in capital stock and other paid-in capital as payment for shares transferred (€11.1 billion), other Tier One capital in the form of hybrid securities transferred, minority interests (€1 billion) and the issue of super-subordinated notes in dollars (€0.2 billion).
Risk-weighted assets totaled €125.1 billion at December 31, 2006, compared with €69.3 billion at December 31, 2005. Transferred entities represented risk-weighted assets of €46.7 billion at end-2006.
After early application of new rules for deductions as set out in the adaptation of the Capital Requirements Directive (CRD) to French law, the Tier One ratio was 8.9% compared with 8.5% pro forma at December 31, 2005, representing improvement in Natixis’ fi nancial structure despite the robust growth in its business.
The liquidity ratio is designed to ensure that liquid assets with a maturity of less than one month are at least equal to liabilities falling due within the same period.
Traditional banking activities (interbank deposits, issues of certifi cates of deposit and euro commercial papers) developed thanks to increased diversifi cation of refi nancing sources, particularly in terms of counterparties.
CUMULATIVE ISSUES IN 2006 FOR NATIXIS (FORMER NATEXIS BANQUES POPULAIRES AND IXIS CORPORATE & INVESTMENT BANK) (EXPRESSED IN € MILLIONS EQUIVALENT EXCEPT FOR EXTENDIBLE NOTES, EXPRESSED IN $ MILLIONS)
■ program, the French commercial paper (TCN) program and the extendible notes program do not contain any covenants.
(ii) Super-subordinated notes (issued on June 30, 2006 – $250 million – three-month Libor) contain certain covenants, notably: non-payment of interest at the due date under certain circumstances; reduction in the amount of accrued interest and the nominal amount of the issue in the case of certain events affecting the issuer’s fi nancial situation or certain ratios.
Ensuring, from the creation of Natixis, the conditions for continuity of operations and management
In addition to information about counterparties and customers, as well as the commercial coordination of all of Natixis’ business relations, this fi rst objective has concerned primarily Natixis’ central functions. They fi rst of all oversaw the implementation of management and control functions in order to obtain a centralized overview of Natixis’ commitments and performance. At the end of 2006, Natixis had the necessary tools to manage its operational risk. The main measures in this area related to: Natixis’ general organizational structure, with: activating the executive bodies, centered around the management board and the executive committee, bringing together heads of Natixis’ business divisions and representatives of support functions (Finance, Human Resources, Risk Management); these bodies have met once a week since mid-November. Meanwhile, the supervisory board held its fi rst meetings in December and determined its schedule for 2007, the effective appointment of business line heads from the end of December 2006, in particular for the Corporate and Investment Banking and Asset Management divisions; the implementation of priority measures in terms of IT systems: interconnection and infrastructures; implementation of and inputting of data into consolidation and risk monitoring systems, as well as accounting systems; synchronization and enhancement of third-party reference systems; the roll-out of the Risk Management function, with: the implementation of a unifi ed procedure for the granting of loans for the Corporate and Investment Banking division, with the setting up of risk management committees at Group level and specialist committees; this system is enhanced by rules for delegation, the choice of targeted tools depending on best practices within the new Group, in particular consolidation of all credit risks using the Fermat system, developing calculations for major regulatory risks; the implementation of accounts consolidation procedures with a view to the preparation of the 2006 accounts and regulatory statements; coverage of priority requirements at the level of human resources, with: the launch of information and consultation procedures for emergency measures, in particular for control and coverage functions, as well as transitional measures (corporate and investment banking, asset management); coordinated management of recruitment and mobility throughout Natixis.
Anticipating and facilitating the merging of activities and implementation of operations at Natixis
This second objective is closely tied to the Group’s desire to carry out integration in accordance with a tight schedule. Legal formalities will be carried as rapidly as possible subject to any constraints, relating in particular to regulatory, legal, tax and operational matters.
For the Asset Management division, only operations in France are concerned; the target date for the merging of the Group’s asset management entities in France is the end of the fi rst half of 2007. The merging of equity brokerage companies should follow the same schedule. The merger of Ixis CIB and Natixis will take place in the second half of 2007. Finally, in Securities activities, preparatory studies with a view to defi ning the fi nal organization of the Group have already begun and working parties have been set up to look at each specifi c area. As regards activities subject to signifi cant operational constraints, merger procedures will not begin until early 2008. Finally, other operations - factoring, lease fi nancing etc. - will be merged as the merging of teams progresses.
At the same time, management and monitoring of the realization of the synergies identifi ed as part of the Natixis project have been factored into a dedicated system to confi rm the target synergies to be achieved by 2010. All plans of action and synergies identifi ed shall be the responsibility of management and staff designated by the management board to ensure that the Group’s objectives are met. The progress of each of these efforts is monitored through a reporting system, under the leadership of the Finance department.
Progress made in the integration process can be analyzed by business line and for the main cross-functional departments.
FINANCIAL DATA6 Management report anticipation of the legal formalities relating to the merger, a single management committee was created for the entire Corporate and Investment Banking division at the end of 2006; mapping out target systems for the processing and steering of the Corporate and Investment Banking division, with the implementation of front-to-back units. Depending on how they are adapted to Natixis’ new organizational structure, the units selected come from both Ixis CIB (e.g. equities and derivatives or securitization activities) and Natexis Banques Populaires (in particular payment fl ows, forex and trade fi nance activities).
Since the creation of Natixis, the Services division has overseen the implementation of an organizational structure ensuring the smooth operating of central functions and the business lines, as well as initiating advance measures, particularly for Securities activities. At the same time, studies have been carried out to allow for the roll-out of complementary services in the networks. As a result, employee benefi ts planning services will be offered by the Caisse d’Epargne Group before the end of 2007 and the fi rst Banque Populaire regional banks will sell revolving consumer loans from autumn 2007.
and Shared Systems division is responsible for coordinating efforts and ensures that choices made are consistent.
Three priorities have been determined to initiate convergence of the Group’s IT systems: the choice of long-term target solutions; harmonizing standards; defi ning a pragmatic integration schedule.
These phases are based on projects to align the IT systems of the business lines and cross-functional projects.
The implementation of the Group Risk Management department has been fi nalized. The new Risk Management department covers the entire Natixis Group and forms part of the shared control systems of the two central bodies: Banque Fédérale de Banques Populaires and Caisse Nationale des Caisses d’Epargne. Procedures have been implemented for the monitoring of all risks, ensuring close ties with the Group’s foreign subsidiaries and units. Systems have also been improved for the management of market risks and the duties of the various operational risk offi cers have been defi ned. Finally, the department is responsible for Group committees.
The organizational structure of Risk Management is based on the creation of global units in order to ensure overall consistency, as well as the roll-out of risk management within the various business lines, with close hierarchical or functional ties with the central functions. Management of standards and overseeing risk management in general are still the responsibility of the central Risk Management department.
Measures have been undertaken to harmonize methods and risk measurement instruments in order to ensure a consolidated overview of Natixis’ risks, notably its credit risks. This has comprised in particular: the implementation of new procedures for the granting of loans, introducing business line delegations and specialized work fl ow; defi ning a single rating method for each asset class; choosing a single VaR calculation tool for Market risks (Scénarisk); the gradual mapping of operational risks and ensuring the reporting and centralization of incidents.
In the context of the new Group, the Finance department has implemented procedures to allow Natixis to respect its regulatory requirements and have the appropriate tools for its business activities. It has been responsible for: the preparation of accounting documents, fi nancial statements and the budget procedure; fi rst-time application concerned the 2006 fi nancial statements and the 2007 budget; consolidating fi nancial information; preparing regulatory statements.
On January 9, 2007, Natixis issued a press release stating the following: “Asset Management: Peter Voss to retire, Pierre Servant to take over in the fi rst quarter of 2007.
In accordance with Article 9.3 of Commission Regulation (EC) 2273/2003 of December 22, 2003, on January 12, 2007, Merrill Lynch International, acting as stabilization manager for the disposal by Caisse Nationale des Caisses d’Epargne and SNC Champion (a 99.99%-owned subsidiary of Banque Fédérale des Banques Populaires) of Natixis shares on Eurolist by Euronext Paris, reported that no stabilization operations were carried out during the stabilization period lasting from December 7, 2006, to January 5, 2007, inclusive.
In accordance with the European Commission’s regulation n° 809/2004 implementing the Prospectus Directive, no material changes in Natixis’ fi nancial or commercial situation have been seen since the end of the last fi nancial year for which audited fi nancial statements have been published.
Net banking income rose by 29% or €422 million in 2006, including a €177 million or 23% increase in net interest income, an €106 million or 27% increase in net commission income and a €139 million or 47% increase in income from variable income securities.
Gross operating income amounted to €638 million, an increase of 22% over 2005. The cost/income ratio stood at 65.8%.
Provisions for loan losses increased by 85% to €141 million compared with €76 million in 2005.
Net income came to €744 million compared with €459 million in 2005 as a result of the reversal of general banking reserves representing €234 million.