Profile 1 Chairman’s and Chief Executive Officer’s messages 2 Natexis Banques Populaires share performance 4
International capital adequacy ratio 10.2% 11.4% 12.1% Tier one ratio 7.2% 8.1% 8.2% *on an extended Cooke basis
Corporate and Institutional Banking and Markets 1,092 1,157 Private Equity and Wealth Management 124 189
Receivables Management 617 634 Net banking income of core businesses 2,395 2,588 Other net banking income 91 120
AS OF DECEMBER 31, 2004 offices, including 116 outside France employees
Photo credits Digitalvision, Fabrice Vallon, Getty Images, Image Bank, Image 100, Image Source,
REPORTS ON INTERNAL CONTROL Chairman’s report on corporate governance and internal control 197
N A T E X I S B A N Q U E S P O P U L A I R E S78
1 – Changes in scope of consolidation The consolidated financial information presented in this report covers the entire scope of consolidation of the Natexis Banques Populaires group. The main changes in scope of consolidation compared with 2003 were the firsttime consolidation of the following subsidiaries: n January 2004: VR Factorem (German subsidiary of Natexis Factorem created jointly with DZ Bank) and Natexis Private Equity Opportunity (private equity subsidiary); n April 2004:Ort,consolidated within the Coface sub-group. To permit more meaningful comparisons, pro forma comparable figures have been presented for 2003 including Ort for the period from April to December 2003.
Gross operating income 851.1 721.3 716.3 +18 Provisions for loan losses (104.2) (211.4) (211.4) -51 Gains and losses on disposals of fixed assets 7.4 13.9 13.9 -47 Income from companies accounted for by the equity method 10.0 9.7 9.7 +3
The upswing in world growth since spring 2003 picked up considerable speed in 2004, led by the United States and China and supported by Japan and the United Kingdom. World GDP growth came close to 5% in 2004, the first time since 1976.
In the financial markets, fixed-income activities suffered from low volumes and lack of clear trends in an increasingly competitive market.The CAC 40, on the other hand, gained 7.4% over the year to close at 3821. Trading volumes rose sharply by 15%.
n Provisions for loan losses were slashed by more than a half, to €104 million. The charge for the year represented 0.20% of Natexis Banques Populaires’ risk-weighted assets.
n After exceptional items, amortization of goodwill (including impairment charges), a sharp rise in the tax charge and minority interests, net income came to €407 million versus €271 million in 2003.
Corporate and Institutional Banking and Markets accounted for 45% of total net banking income generated by the core businesses. Its net banking income was up 6% over 2003 (9.5% excluding the dollar effect), with contrasting performances according to business line. Equity Group was up €88 million compared with 2003, while Global Debt & Derivatives Markets held steady in a particularly tough climate for fixedincome activities.This was offset by an erosion in Corporate France (down €9 million) due to a squeeze on margins, and a drop in International (also down €9 million) due to the dollar’s depreciation against the euro.
n Corporate France produced net banking income of €402.3 million, down 2% on 2003: – Corporate lending activities contributed €233.7 million, up slightly on the previous year despite a fall in the average loan book and a deterioration in margins. Cash management and services contributed €67.9 million, affected by the combined impact of a fall in income from cash balances and a shift away from traditional payments to high-volume payments, which command lower fees. Origination was strong at €7.4 billion, coming mostly in the second half and driven chiefly by off-balance sheet exposure (new credit lines granted accounted for 82% of new business).As the second half accounted for most of the origination, it had little impact on average loans outstanding in the year, which amounted to €42 billion, a decrease of 3% compared with 2003.
n International was badly affected by the dollar’s depreciation against the euro.Net banking income was down 7% compared with 2003, to €123 million. Origination rose by 44% to €3.4 billion, the main contributor being lending to European corporates and multinationals, with origination of €2 billion. The branches performed particularly well, accounting for 83% of the department’s total medium and long-term origination. Average loans outstanding amounted to €12 billion, up 10% despite the impact of a weaker dollar. Risk-weighted assets followed the upward trend, rising by 5% to €4.3 billion at the year end.
n Global Debt & Derivatives Markets contributed €413 million to net banking income, virtually unchanged from 2003 (down 1%): n Structured financing delivered further strong growth of 9%, to €232 million. LBO and acquisition financing was the main contributor with €87.4 million, an increase of 8% on 2003. In Dealogic’s 2004 league tables, Natexis Banques Populaires ranked fourth in the French market both on volume and number of deals, with a 13.6% share of the LBO market.
– Treasury activities contributed €55.4 million to net banking income,a decrease of €18.3 million on the previous year amid a climate of flattening yield curves and flat loan origination within the group.
n Mergers & Acquisitions suffered a 9% fall in net banking income, to €5.8 million, despite a strong contribution from Natexis Bleichroeder (€1.5 million versus €0.7 million in 2003).
PRIVATE EQUITY AND WEALTH MANAGEMENT Private Banking and Wealth Management contributed 7% of total net banking income generated by the core businesses. It delivered an excellent performance in 2004, with 51% growth in net banking income.Private Equity was the main contributor with an increase of ¤61.4 million compar ed with 2003.
n Private equity produced net banking income of €145.4 million in 2004, a rise of €61.4 million or 73% over 2003. Natexis Investment Corp. in New York delivered strong growth with a contribution of €22.9 million compared with €6.1 million in 2003. Growth was driven mainly by profit-taking, with divestments generating €154 million in capital gains, an increase of €65.9 million on 2003, while the provision charge was up slightly on 2003, by €9.5 million.
Natexis Private Equity’s investments reached nearly €312 million during the year, an increase of €54 million compared with the previous year.The proprietary portfolio accounted for 53% of new investments in 2004. A breakdown of investments by activity reveals sharp growth in venture capital and expansion capital to the detriment of LBO activity: Expansion capital €127 million (up 57%)
Total capital managed, which includes funds raised but not yet invested and unrealized capital gains, amounted to €2.2 billion, an increase of €281 million or 14% compared with end2003. The proprietary portfolio accounted for 53% of total capital managed.The total portfolio breaks down as follows: Expansion capital €647 million (up 1%)
n Net banking from Wealth Management amounted to €43.2 million in 2004, an increase of 7% on the previous year.
Natexis Private Banking Luxembourg S.A.,which specializes in international estate planning, delivered 33% growth in assets managed to €1.9 billion, chiefly due to new inflows. However, net banking income grew by only 4% to €21.8 million.
SERVICES Total net banking income from Services rose by 8% to €608.7 million, accounting for 24% of total net banking generated by the core businesses. The two departments making up the core business – Banking, Financial and Technology Services on the one hand and Asset Management and Insurance on the other – experienced contrasting trends.
Financial Information Management report n Banking Services contributed €86.9 million in net banking income representing 16% growth compared with 2003. The number of cards in issue stood at 3.7 million at the year end, an increase of 4% on 2003. Growth in volumes was accompanied by a continued trend towards upselling, with an increase in the number of premium cards issued.The business card segment remained buoyant, with growth of about 20% in 2004.The number of card payments rose by almost 6% over the year.
Checks and payment systems experienced contrasting trends, with sharp growth in international payments (up 25%) and high-volume SIT payments (up 6%), and a continued decline in domestic check volumes (down 4%).
n Financial Services contributed €131.6 million in net banking income.This represents a decrease of 14% on 2003, chiefly due to the discontinuation of Xéod Services’ ‘order flow’ activities, but is in line with targets. Disappointing results from mutual fund administration activities (following the departure of external clients), and subsidiaries LineBourse (online broker), Samic (services company specializing in private banking software systems) and Slib (banking software developer), were offset by buoyant activity in Financial Production (9% growth in assets in custody despite a 3% decline in the number of portfolios in custody).
Assets managed stood at €49.1 billion at end 2004,an increase of 9% on the previous year (excluding insurance mandates). Equity mutual funds grew by about 30%, their first increase for three years.
At the year end, Natexis Asset Management ranked fourth in the market with 6.35% market share (source: Europerformance).
Total net banking income from the Natexis Assurances subsidiary therefore amounted to €157.3 million compared with €152 million in 2003, an increase of 3%.
RECEIVABLES MANAGEMENT Net banking income was up 3% compared with 2003, to €633.6 million,accounting for 24% of total net banking income generated by the core businesses.
Coface In April 2004, Coface acquired 100% of Ort SAS and its subsidiaries from the Reuters Group.Ort is a leading player in business and credit information in France and Belgium. This acquisition makes Coface, which already owned 100% of Coface SCRL, the French leader in business information through the combined expertise of Coface SCRL and Coface Ort. To permit more meaningful comparisons, pro forma comparable figures have been presented for 2003 including Ort for the period from April to December 2003.
– In services, revenues were flat mainly due to the signature of a new agreement for the management of public procedures. Since 1946, Coface has managed a broad range of export credit guarantee facilities on behalf of the French government. Until this year, it was paid on a fixed sum basis. From 2004, fees are adjusted according to actual business volumes and productivity gains contractually guaranteed by Coface to the government. Fees will also be related to the quality of service provided by Coface to French exporters and the government.
n Institutional activities,which comprise a series of operations conducted on behalf of the government, contributed €18.5 million compared with €13.6 million the previous year. The entire growth of €5.9 million was due to moratorium interest.
n The real estate subsidiaries contributed €9.6 million in net banking income compared with €14.1 million in 2003. The decline was due to a major capital gain generated in 2003.
OPERATING EXPENSES After two years of relative stability (growth of 2.7% in 2002 and 1.4% in 2003), consolidated operating expenses for the Natexis Banques Populaires group rose by 5% in 2004 to €1,857 million, driven by certain key structural projects and growth in business. Personnel costs rose by 6% to €1,060 million, representing 57% of the total,while other operating expenses rose by 4% to €797 million, representing 43% of the total.
The following table shows the contribution to this growth by core business.
Services -45 Banking, Financial & Technology Services -97 Asset Management & Insurance +52
relating to investment in key structural and control projects and in business development, coupled with control over operating costs in some recurring items: n Major cross-functional projects and further progress in information systems development projects required additional recourse to outside consultancy and support. These include regulatory projects such as IFRS and Basel II, and projects to rationalize and upgrade systems in some priority areas (management, cash management, markets, etc.).
Changes in group structure during 2004 (excluding Ort) had an impact of €5.5 million.
COST/INCOME RATIO The cost/income ratio stood at 68.6% for 2004, an improvement of 2.4 percentage points compared with the previous year (71%). Excluding Coface, the improvement was even greater, with a ratio of 64.8% against 67.5% in 2003.
PROVISIONS FOR LOAN LOSSES Provisions for loan losses were down by 51% to €104 million, compared with €211 million in 2003. This figure includes €115.6 million in charges to specific provisions and a net reversal of €11.4 million from general provisions.
n General provisions are taken against loans which are healthy but in industries, risk categories or countries that warrant special attention. General provisions carried in the balance sheet stood at €371 million at the year end versus €392 million one year earlier. The change was due to a net reversal of €11.4 million and a translation difference of €9.6 million.
GENERAL PROVISIONS Provisions for country risks amounted to €126 million after a net reversal of €3.4 million arising from a decrease in exposure in certain Latin American and Asian countries, offset by charges to provisions for Africa and the Middle-East.
SPECIFIC PROVISIONS The net charge to specific provisions amounted to €116 million versus €149 million in 2003, which was already significantly down on 2002.This sharp decrease reflects a lower number of client defaults.Almost all the specific provision charge was due to twenty-six borrowers.
Within Corporate and Institutional Banking and Markets, all business lines benefited from the lower number of client defaults except for Global Debt & Derivatives Markets, which was affected by a number of North American defaults.
n The following table shows a breakdown of specific provisions by geographic area: Breakdown of Corporate and Institutional Banking and Markets:
Capital Markets not only benefited from a decline in specific provisions but also a €12 million reversal of country provisions, chiefly due to a reduction in exposure in Latin America.
OTHER ITEMS n Gains on asset disposals amounted to €7 million versus €14 million in 2003, principally comprising: – €11 million in capital gains on disposal of investments in affiliates; – €4 million in impairment losses on intangible assets.
n Consequently, operating income before exceptional items and tax came to €764 million versus €533 million in 2003, an increase of 43%.
n Net exceptional charges came to €10 million compared with net exceptional gains of €17 million in 2003. Charges comprised principally the cost of the stock option plan for Coface employees (€7.7 million) and various costs corresponding to prior year results of subsidiaries consolidated for the first time in 2004 (€2 million). In 2003, the €17 million net gain came chiefly from rebates on VAT and payroll taxes relating to treasury transactions carried out as part of the consolidation agreements of the former BFCE (€24 million), offset by costs in respect of prior year results of subsidiaries consolidated for the first time in 2003 (€10 million).
n The tax charge rose to €220 million versus €157 million in 2003.This increase was due to the sharp rise in earnings before corporate income tax,goodwill amortization and income from companies accounted for by the equity method, which forms the taxable base at the standard rate.The taxable base grew by €198 million,which alone represented an additional charge of €70 million at the standard tax rate of 35.43% applicable in France.
n Goodwill amortization totaled €54 million, comprising the standard amortization charge of €46 million plus an additional impairment charge of €8 million following the annual review.
n By core business, trends in total provisions were as follows: Breakdown of Corporate and Institutional Banking and Markets:
Income before exceptional items and tax in Private Equity and Wealth Management rose by €60.9 million compared with 2003, reflecting very strong growth in net banking income (up €64.1 million). The increase in operating expenses was due partly to the first-time consolidation of Sopromec and partly to an increase in investment fees and exceptional departure compensation.
All core businesses generated significant growth in income before exceptional items and tax in 2004.
It monitors and measures trends in the bank’s major exposures, and takes preventive measures. It also assesses the quality of each core business’s security systems and risk management tools. In 2004, its work covered LBO financing, operational risk, securitization transactions, business recovery plans and the bank’s insurance policies.
The risk committees established by each of the core businesses include business line heads and representatives of the Risk Management and Internal Audit departments. These committees were restructured at the same time as the core businesses were reorganized during 2004. They take a more operational approach to risk and meet more frequently.They include: n Credit Committee of Corporate and Institutional Banking and Markets and the subsidiaries that report to it; n Country Risk Committee; n Risk Committee of the Capital Markets business and the subsidiaries that report to it; n Risk Committees of the Banking, Financial and Technology Services business; n Risk Committee of the Asset Management and Insurance business; Income before exceptional items and tax from Services rose by 20% to €185.5 million under the combined impact of growth in net banking income (up 8%) and good cost discipline (up 2%).
The Risk Management Department sets delegated limits for each business line. During the year, Natexis Banques Populaires reviewed its delegation system as part of its core business reorganization and has retained a highly centralized system.The Risk Management Department issues an opinion on all counterparty risks when new facilities are granted or existing facilities renewed.
It is due to enter its final stages in 2005, while considerable progress has been made following the upgrading of risk assessment methods, statistical and historical data monitoring and back testing models to meet regulatory requirements.
The new corporate ratings model was introduced in 2004.The underlying statistical models were developed jointly by Banque Fédérale des Banques Populaires and Natexis Banques Populaires. Considerable progress has been made on systems for valuing collateral, based on standardized profiles and methods that meet regulatory requirements.
AVERAGE CLIENT EXPOSURE (ON AND OFF BALANCE SHEET) IN 2004, MANAGEMENT DATA: n Corporate and Institutional Banking and Markets €68.4 billion
The following table shows a breakdown of corporate exposure based on the new ratings at December 31, 2004.
Total 100.0 n Corporate and Institutional Banking and Markets: corporate exposure by industry and geographic region (excluding lease financing)
BREAKDOWN OF LOAN LOSS PROVISIONS BY GEOGRAPHIC REGION AT DECEMBER 31, 2004 in millions of euros Specific Country Industry Total risks risks risks 2004/2003
The middle office makes proposals for delegated limits and methods of calculating risks and provisions, which are validated by Risk Management. Internal Control is responsible for ensuring that procedures are appropriate and properly followed.
Internal Control is responsible for: n ensuring that adequate procedures are in place and periodically assessing their appropriateness, particularly with regard to business activities and regulations; n ensuring that procedures are properly and correctly followed; n making recommendations on the risk management system.
MARKET RISK MEASUREMENT The market risk management system 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 an internal VaR-based model.
The program to strengthen the risk measurement system continued in 2004, with the implementation of: n New risk metrics for volatility curve distortions (equities and currency options).
Key limits Maximum sensitivity of interest rate maturity schedules to a +/-1% shift in the yield curve is €100 million.This limit also applies to a point-by-point distortion of the yield curve.
Maximum sensitivity to a change in issuer spreads in the secondary bond market trading book is €8 million, expressed in terms of a one-day potential loss and a 99% confidence level.
Volatility limits for interest-rate, currency and equity options are: n €2.5 million for a 1% change in interest-rate volatility; n €1.8 million for a 1% change in equity volatility; n €0.4875 million to €0.975 million per currency for a 1% change in foreign exchange volatility.
STRUCTURAL INTEREST-RATE RISK, CURRENCY AND LIQUIDITY RISK The Asset & Liability Committee (ALM Committee), which is chaired by the Chief Executive Officer and includes representatives of Corporate and Institutional Banking and Markets, the Finance Department and the Risk Management Department, is responsible for setting out the broad guidelines for ALM, liquidity management and investment of own funds. An ALM officer reporting to the Finance Department is responsible for operational coordination of asset and liability management.
Interest rate limits for capital markets activities Within the overall interest rate limits described above, the sub-limits for short-term and long-term treasury have been set at €30 million each.
Current sub-limits within the total €164 million are: in millions of euros Limits for Limits for 100bp 200bp
Liquidity risk Corporate and Institutional Banking and Markets refinances all the liquidity needs of the various Natexis Banques Populaires businesses and charges back the cost.This centralized system
(1)‘Shock’ proposed by the banking regulator in the second pillar of the Basel II
permits optimum management of liquidity risk through a detailed knowledge of the various gaps. Observation ratios have been approved by the ALM Committee. In conjunction with the Finance Department, Corporate and Institutional Banking and Markets is also responsible for monitoring prudential requirements (short-term liquidity ratio and longterm financing ratio) and internal prudential ratios validated by the ALM Committee.
Currency risk Currency risk is broken down into two components: n Operational currency risk, generated by the trading activities.The maximum potential loss is €3 million.This risk is monitored by the Markets Risk Committee and the ALM Committee.
Operational risk management is based primarily on an internal control system applicable to all activities and on the involvement and responsibility of business line management. The system was strengthened in 2004 with the reorganization of the operational risks committee, the initial introduction of operational risk officers in the various core businesses and continued staff training campaigns.
Work on identifying and systematically measuring operational risks, and identifying and analyzing losses continued during 2004. The capital required to cover operational risks was measured using the standardized model.
n IT equipment and consequential loss of banking business is now covered under a blanket group policy taken out by Banque Fédérale des Banques Populaires. Sums insured vary according to the site (maximum €175 million).
n Risk of theft and fraud are also covered by two blanket group policies taken out by Banque Fédérale des Banques Populaires for the entire Banque Populaire Group.
n Liability is covered by several policies for different amounts depending on their nature and, in some cases, legal requirements (operations, motor, professional liability, Directors’ liability, specific business line liability, etc.).
Investments in affiliates and other securities held for investment 0.4 1.6
At December 31, 2004, therefore, the capital stock amounted to €772,095,392, divided into 48,255,962 shares each with a par value of €16.
REGULATORY CAPITAL AND INTERNATIONAL CAPITAL ADEQUACY RATIO At December 31, 2004, the Natexis Banques Populaires group’s total regulatory capital for international capital adequacy purposes, enlarged to encompass market risks, amounted to €6.64 billion compared with €6.04 billion one year earlier.
Tier Two, Tier Three and other regulatory capital rose to €2.16 billion against €1.75 billion at December 31, 2003, due mostly to the issuance of €450 million of redeemable subordinated notes in November 2004.
Growth in risk-weighted assets was contained to €1.8 billion, rising to €54.8 billion. €1 billion of the growth was due to market risks, following growth in fixed-income trading activities, and €0.8 billion to credit risks, chiefly due to the impact of winding up proprietary securitization transactions, which was partially offset by the positive impact of a weaker dollar.
As a result of these trends, the international capital adequacy ratio stood at 12.1%, including a Tier One ratio of 8.2%, versus 11.4% and 8.1% respectively at December 31, 2003, reflecting a continued strengthening of Natexis Banques Populaires’ financial structure.
OTHER REGULATORY RATIOS 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.
Natexis Banques Populaires has once again significantly lowered its cost of refinancing thanks not only to its strong capital base and high quality ratings, but also to its policy of diversification by placing debt in the international markets.
As regards bond, money market and commercial paper issuance: senior debt (bonds, EMTN, ECP, USCP, TCN) and subordinated debt (subordinated redeemable notes), the main contractual clauses are as follows: n Senior debt
The USCP program (paper issued by NBP U.S. Finance Company LLC with a Natexis Banques Populaires guarantee), the Natexis Banques Populaires ECP program and the French commercial paper (TCN) program do not contain any covenants.
– Non-program issuance: bonds issued in the French domestic market contain a negative pledge similar to the EMTN program. International bond issues contain a negative pledge and a cross-default clause,which is the same as that contained in the EMTN program.
7 – International Financial Reporting Standards (IFRS) Like all European listed companies, Natexis Banques Populaires is required to adopt international financial reporting standards (IFRS) from January 1, 2005.
This represents a major departure for the Natexis Banques Populaires group and for everyone directly concerned by its financial reporting. Acutely aware of its importance, NBP launched its IFRS project in September 2002. During 2004, work included preparing information systems specifications and parameter setting, drawing up procedures and training all those involved in the financial reporting functions.
Following this work, the group is in a position to report the impact of first-time adoption of IFRS as of January 1, 2004. Work also continues on drawing up 2004 financial statements based on IFRS.
Based on work completed to date, the main identified impacts on opening shareholders’ equity are: n Fund for general banking risks: this type of general provision is not allowed under IFRS and the FGBR will therefore be reclassified in opening shareholders’ equity.
n Loss equalization reserve: this provision relates to Coface’s insurance credit business. It is not allowed under IFRS as it is designed to cover a general risk (catastrophe risk). It will therefore be reclassified in opening shareholders’ equity.
Cumulative issuance during the year 86,940 19,593 5,838 3,235 282 781
n Employee benefits: under IFRS, the Group is required to provide for all post-employment benefits in full. This involves measuring post-employment obligations at their fair value, by discounting future cash flows at the market rate, and supplementing the provisions made in this respect with a sum corresponding to the estimated liabilities arising in respect of taking over payment of future retirees’ mutual contributions. All resulting actuarial differences will be charged to opening shareholders’ equity.
n Impact of component accounting: this method applies mainly to buildings owned by the Group and the impact arises from identifying components with useful lives that are shorter than the depreciation periods currently used under French GAAP.As this method will be used in the French GAAP financial statements with effect from 2005, this difference in accounting treatment will become irrelevant.
The impact on deferred tax has also been calculated for each of the above items.
The plan is a middle-case scenario based on certain business assumptions, notably including loan loss provisions equal to 0.34% of risk-weighted assets in 2007 (against 0.21% in 2004). The key projections are: – core business net banking income: 9.4% compound annual growth over the plan period; – core business gross operating income: 16% compound annual growth over the plan period; – ROE: 14% by 2007.
Disclaimer These forward-looking statements are of necessity based on a number of general and specific assumptions, and are subject to risks and uncertainties that could cause the future results of Natexis Banques Populaires to differ materially from those expressed in such statements. Potential investors are advised to have due regard for these risks and uncertainties.
Provisions for loan losses fell significantly, to €82 million compared with €231 million in 2003. The improvement concerned both specific risks and industry and country risks: n The charge to specific provisions was down sharply, to €95 million compared with €144 million in 2003, confirming the slowdown in business failures first seen during 2003. In 2003,Natexis Banques Populaires was forced to write off a loan of €29 million made to its US subsidiary Natexis Investment Corp, to cover impairment of its CDO portfolio.
The €90 million provision taken at end-2003 to cover the potential risk relating to certain European borrowers was maintained in 2004.
Net income came to €214 million versus €201 million in 2003.
Shareholders will be asked to approve the following distribution of this sum: payment of a dividend in the sum of €159,244,674.60, transfer to the general reserve in the sum of €30,900.00 and transfer of the balance to retained earnings, in the sum of €9,121.97.
Investments in affiliates and other securities held for investment 7 449 1,585 1,686
Accrued income, prepaid expenses and other assets 10 6,316 9,790 11,458 of which institutional activities - - -
Total assets 139,319 135,909 133,400 of which institutional activities 1,466 1,520 1,475
Interbank and money market liabilities 11 41,425 36,100 46,184 of which institutional activities 408 515 1,453
Customer deposits 12 23,300 29,389 22,820 of which institutional activities 1,166 1,137 106
Debt securities 13 31,084 27,819 23,621 of which institutional activities - - -
Shareholders’ equity 4,170 3,913 3,760 Common stock 17 772 769 759 Additional paid-in capital 17 1,802 1,791 1,750 Consolidated reserves and retained earnings 17 1,189 1,088 1,143 Net income for the year 17 407 265 108
Total liabilities & shareholders’equity 139,319 135,909 133,400 of which institutional activities 1,674 1,750 1,667
Consolidated off-balance sheet items At December 31 in millions of euros 2004 2003 2002
Financing commitments given to: 23,337 21,892 21,386 financial institutions 2,448 2,317 3,614 customers 20,889 19,575 17,772 of which institutional activities - - -
Guarantees given on behalf of: 16,742 12,211 15,237 financial institutions 1,459 1,514 1,687 customers 15,283 10,697 13,550 of which institutional activities 2 5 9
Net gains on securities held for sale 26 185 126 4
Net gains/(losses) on disposals of fixed assets 31 7 13 53
Net charge to fund for general banking risks - - 21
Diluted earnings per share 8.44 5.53 2.28 Net income per share, based on the number of shares in issue at the year-end
The main changes during the fiscal year were as follows: n first-time consolidation of Coface Ort and its subsidiaries, consolidated within the Coface sub-group following Coface’s end-March 2004 acquisition of the Ort Group, a specialist in online business and credit information; n first-time consolidation of Coface Collection North America,Coface Holding America Latina,Coface Servicios do Brasil and Coface Servicios Argentina, business information subsidiaries consolidated within the Coface sub-group; n first-time consolidation of London Bridge Finance Limited, a factoring company consolidated within the Coface sub-group; n first-time consolidation of Unistrat Coface, an insurance broker consolidated within the Coface sub-group; n first-time consolidation of Coface Services Nederland and Coface Servicios Panama, credit information and management subsidiaries consolidated within the Coface sub-group; n first-time consolidation of Immobilière Natexis, a real estate investment subsidiary; n first-time consolidation of Crédit Maritime Vie, a life insurance subsidiary; n first-time consolidation of Natexis US Finance Corporation, refinancing subsidiary for the New York branch; n first-time consolidation of VR Factorem, a German factoring subsidiary created in partnership with German group GENO; n first-time consolidation of Paris Office Fund, a real estate trading company jointly and equally owned with the Axa Group; n first-time consolidation of Natexis Private Equity Opportunities, Natexis Private Equity International Singapour and Financière Natexis Singapour 2, private equity subsidiaries; n merger of E-Market into Slib; n increase in percentage holding in Unistrat Assurance (from 50% to 100%) and in Line Bourse (from 51% to 100%) following a buyout of the minority interests, and in Coface SA (from 98% to 100%) following the squeeze-out in May 2004.
Own account transactions Since 2000, Natexis Banques Populaires has carried out five synthetic asset securitizations on its own behalf, the principle behind which is described in Note 2.3. The purpose of these transactions is to transfer a significant portion of the counterparty risk relating to certain loan portfolios (collateralized loan obligations) or bonds (collateralized bond obligations), using credit derivatives (credit default swaps) or market derivatives (credit linked notes).
Entity Currency Inception Maturity Gross Weighted Weighted Initial losses amount securitized retained retained by securitized risks risks the Group
Liquidity lines have been opened on the commercial paper issued by this conduit, as well as a letter of credit: in millions of euros 12/31/04 12/31/03
B – TAX STRUCTURES Asset financing (aircraft, ships, hotels, technocenters, etc.) is provided to certain clients via look-through entities (GIEs, SCIs, SAs organized as a tax group) set up by Natexis Banques Populaires either alone or in partnership with other banks. In these structures, Natexis Banques Populaires acts both as a lender and as a seller of tax positions. Natexis Banques Populaires has the power to make decisions concerning the activities of these look-through entities, in a fiduciary capacity on behalf of clients. As the activities represent in substance asset management activities and Natexis Banques Populaires does not control the look-through entities within the meaning of paragraph 10052 of standard CRC 99-07, these structures are not consolidated.
1.22 – INSTITUTIONAL ACTIVITIES Assets, liabilities and commitments arising from the institutional activities managed by Natexis Banques Populaires on behalf of the State are identified separately in the balance sheet and off-balance sheet under each line item concerned.
Insurance transactions managed by Coface on behalf of the State are not recorded in the balance sheet, off-balance sheet or income statement. However, management fees received are recorded in the income statement under “net fee and commission income”.
Companies over which Natexis Banques Populaires exercises significant influence (generally where it controls between 20% and 50%) are accounted for by the equity method.
1.5 – GOODWILL When a company is consolidated for the first time, the difference between the acquisition cost of the investment and the fair value of identified assets and liabilities as of the acquisition date is recorded as goodwill and amortized on a straight-line basis over a number of years, not exceeding ten, that takes account of the objectives and characteristics of the acquisition. Balances of less than €1 million are amortized over one year.
Goodwill is reviewed annually in order to revise the amortization schedule where necessary. Following the 2004 review, an exceptional amortization charge of €7.7 million was recorded.
In the case of disposal of part of the interest in the company concerned, a corresponding fraction of the unamortized goodwill or negative goodwill is written off or written back to the income statement.
The income statements of foreign subsidiaries and branches are translated at the average rate for the year.The difference between net income translated at the average rate and the year-end rate is also taken to shareholders’ equity under the heading “translation reserves”.
The exchange rates applied are the rates published by the European Central Bank.
Intercompany balances and gains and losses arising on intercompany transactions are eliminated in consolidation.
1.11 – FULL CONSOLIDATION OF INSURANCE COMPANIES Under standard CRC 2000-05 on the consolidation of insurance companies, which was first adopted on January 1, 2001, the following rules apply to fully consolidated insurance companies: n Items of income and expense are classified by nature in accordance with banking accounting policy and not by destination.
The capitalization reserves carried by life and personal risk insurance companies were restated in 2001 opening shareholders' equity, by way of deduction of an amount corresponding to a potential adverse movement in interest rates affecting the value of qualifying investments. This adjustment led to the recognition of a deferred policyholders’ surplus in the same amount.
Equalization reserves carried by the life and personal risk insurance companies have been eliminated and reclassified as consolidated reserves, except for the portion used as the basis for calculating underwriting profits contractually paid over to business providers.
Movements in the capitalization and equalization reserves during the period are taken to the consolidated income statement and charged or written back to the deferred profitsharing surplus and deferred taxes.
Until December 2000, capitalization and equalization reserves were included in full in technical reserves.
Following the change in French insurance regulations on liquidity risk reserves (decree no.2003-1236 of December 22, 2003 amending Article R331-5-1 of the Insurance Code), Natexis Banques Populaires reviewed these risks and decided that they were not covered by other provisions. A liquidity risk reserve was therefore booked in the consolidated balance sheet at December 31, 2003 covering the total risk, whereas in 2002 – with the approval of the insurance regulator (Commission de Contrôle des Assurances) – only part of the risk was provided for, reflecting the method applied in the accounts of the insurance subsidiaries. The switch from partial reserving to full reserving constituted a change of accounting method, the effects of which were charged against opening shareholders' equity at January 1, 2003 in the amount of €148.5 million before tax and €95.9 million net of deferred tax of €52.6 million.This accounting treatment was in accordance with opinion 2004-B issued by the CNC Urgent Issues Task Force on January 21, 2004. Following the improvement in stock market prices in 2003, no charge to the liquidity risk reserve was necessary at the year end and the additional amount of €95.9 million was written back to closing shareholders' equity.
Standard CRC 2004-10, which has amended the provisions of standard 2000-05 on the treatment of liquidity risk reserves, no longer allows such reserves to be carried in the consolidated balance sheet. This change of accounting treatment had no impact on the 2004 consolidated financial statements as the risk of depreciation in insurance company investments is covered by the long-term impairment provision and no charge was made to liquidity risk reserves carried in the insurance companies’ individual accounts at the year end.
Loan principal Where there is a risk of partial or total non-recovery of loans or non-compliance with loan terms or covenants, provisions are taken and charged to the income statement under “provisions for loan losses”. Provisions are determined on a case-by-case and country-by-country basis and adjusted at quarterly intervals, based on an analysis of the related risk and available collateral. In the case of lease financing transactions, capital gains and losses on disposal and charges to and reversals of provisions (leased assets and temporarily unleased assets) are recognized in net banking income. Termination compensation is booked as interest income.Only the principal amount of payments on non-performing leases is provided for under provisions for loan losses.
Loan interest In accordance with banking regulations: n Interest past due on loans to borrowers subject to bankruptcy proceedings is deducted from the interest account in which it was initially recorded. If the interest is subsequently recovered, it is credited back to the same account on receipt.
n Interest on non-performing loans three or, where applicable, six or nine months past due is also provided for in full by deduction from the interest account in which it was initially recorded.
n All other loans made to these customers are also classified as non-performing, even where the risk appraisal does not call for a provision against the principal amount outstanding.
n The same rules apply to lease financing transactions. A provision is taken for the amount outstanding when a lease payment or any incidental costs are more than three months past due in the case of equipment leases and six months past due for real estate leases.
Populaires and its coverage on the market.The remaining risk is assumed by the investors that acquire the securities issued by the special purpose entity.
2.4 – CONVERSION OF ASSETS AND LIABILITIES IN FOREIGN CURRENCIES Assets, liabilities and off-balance sheet commitments denominated in foreign currencies are converted into euros at the year-end exchange rate. Realized and unrealized exchange gains and losses are taken to the income statement.
n Securities held for sale: these are securities acquired with the intention of holding them for a period of more than six months. They are valued individually at the year-end at the lower of cost or estimated fair value. A provision is taken for unrealized losses but unrealized gains are not recognized. Premiums and discounts, corresponding to the difference between the cost of fixed-income securities (excluding accrued interest) and their redemption price, are written to the income statement over the remaining life of the securities.
n Debt securities held for investment: these are fixed-income securities acquired with the intention of being held to maturity. They are either match-funded or hedged against interest rate risk. They are recorded at cost (excluding accrued interest), and any premium or discount between cost and redemption price is deferred and written to the income statement over the remaining life of the securities. In accordance with French banking regulations, no provisions are taken for unrealized losses, unless there is an intention to dispose of the securities in the short term. In this case, provisions for market risk are charged to “net gains/(losses) on disposals of fixed assets” and provisions for counterparty risk to “provisions for loan losses”.
n Treasury stock: treasury shares are purchased for four purposes: i) to regulate the market price by trading against market trends, ii) to take advantage of market opportunities, iii) to pay for acquisitions and iv) to allot to Group employees under stock option plans or employee share issues. The number of treasury shares held as of December 31, 2004 totaled 1,548,178 with a value of €156 million, recorded in “trading account securities”.
Fixed assets of the former Caisse Centrale des Banques Populaires were transferred at their net book value.
2.11 – INTEREST RATE REVISION CHARGES AND PREPAYMENT PENALTIES Interest rate revision charges and prepayment penalties are treated as deferred interest income and recognized in income over the life of the loan in proportion to the interest income lost in each year based on the original loan repayment schedule.
2.12 – DEBT AND SHARE ISSUANCE EXPENSES n With effect from January 1, 1994, Natexis Banques Populaires elected to defer all debt issuance expenses over the life of the debt, as permitted by tax legislation (law of August 8, 1994) and in line with trends in the nature of such expenses, which are in substance an additional financing cost.
2.13 – FINANCIAL FUTURES AND OPTIONS HELD FOR OWN ACCOUNT The notional amount of these instruments is recorded offbalance sheet for internal monitoring and regulatory purposes, but they are not included in the published statement of offbalance sheet items. Further details are provided in the notes to the consolidated financial statements.
A – INTEREST RATE INSTRUMENTS: These instruments are classified according to the purpose for which they are acquired: – micro-hedging (hedging of specific transactions or positions); – macro-hedging (structural balance sheet management); – speculative position-taking; – specialized management of a trading portfolio.
B – CURRENCY INSTRUMENTS: n Spot currency transactions outstanding at the year end are valued at the year-end rate.
Income and expenses on hedging transactions are recognized on a symmetrical basis with the income and expenses on the hedged items.
In the case of trading activities, positions in a class of option or forward contract are marked to market at the period end. Changes in value during the period are taken immediately to the income statement. For over-the-counter instruments, a discount may be taken against the market value in respect of modeling risks or uncertainty over parameters, via a charge to provisions for financial instruments.
D – INSTITUTIONAL ACTIVITIES: Commitments given to banks that grant export credits financed in foreign currencies in order to fix the exchange rate of their foreign currency borrowings are not included in published off-balance sheet commitments. Income and expenses arising on institutional activities (swaps and exchange rate guarantees) are charged to or paid to the French Treasury in accordance with agreed terms and conditions.
2.15 – CORPORATE INCOME TAX The tax charge for the year includes: n current taxes payable by the French entities at the rate of 35.43%, and by foreign subsidiaries and branches at the local corporate tax rate; n deferred taxes arising from temporary differences in the individual financial statements and specific consolidation adjustments, calculated using the liability method.
The French Pensions Act of August 21, 2003 reformed the terms and conditions of retirement applicable to employees. In accordance with opinion 2004-A issued by the CNC Urgent Issues Task Force, this reform was treated as a change of applicable regime and its effect deferred over the employees’ remaining active lives. Accordingly, a charge of €1.2 million was taken in the 2004 income statement and the amount deferred over future years amounts to €8.2 million.
For the purpose of comparability between 2004 and previous years, Natexis Banques Populaires elected not to apply CNC recommendation 2003-R.01 of April 1, 2003 on accounting for employee benefits.The provisions of this recommendation will be applied in full when Natexis Banques Populaires adopts international financial reporting standards in 2005.After taking account of deferred taxes, application of IAS 19 would have
Financial Information Consolidated financial statements had the effect of decreasing opening shareholders’ equity by €52 million,with no material impact on the income statement due to use of the ‘corridor’ method.
2.17 – CHANGES OF ACCOUNTING METHOD As of January 1, 2003, Natexis Banques Populaires adopted standard CRC 2002-03 on the classification of nonperforming loans and the accounting treatment of loans restructured at below market rates. In 2003, following work on identifying loans affected by this standard, a discount of €11 million was recorded to take account of the difference between the new interest rate and the market rate at the time of restructuring.As the loans were restructured in prior years, the discount was set off against 2003 opening shareholders’ equity. The deferred discount amounted to €8 million at December 31, 2004, after a release to income of €1.6 million recorded under interest income.
Standard CRC 2002-10 on asset depreciation, amortization and impairment is applicable from January 1, 2005. Natexis Banques Populaires has not elected for early adoption of this standard. However, article 15 of the standard contains transitional provisions applicable from January 1, 2003 relating to expenses incurred under multi-year programs for major repairs or refits. Accordingly, at December 31, 2003 a provision of €1 million was taken for major repairs, including €0.7 million deducted from 2003 opening shareholders' equity.A further provision of €0.3 million was taken in 2004.
In accordance with standard CRC 2004-04 and CNC opinion 2004-05, long service awards are no longer treated as retirement benefits but accounted for in accordance with the provisions of standard CRC 2000-06 on liabilities.Accordingly, the undeferred impact of the French Pensions Act of August 21, 2003 was fully provided for in an amount of €1.2 million. As this represents a change of accounting method, the sum was deducted from opening shareholders’ equity.
Government securities and equivalent (1) 5,752 4,093 4,893 Trading account securities 3,447 1,799 1,113 Securities held for sale 1,832 1,772 2,769 Debt securities held for investment (2) 406 443 881
France Western Eastern North Latin Africa & Asia Not Total in millions of euros Europe Europe America America Middle East Pacific analyzed
Loans and advances to banks 28,952 8,209 267 229 373 622 2,418 59 41,129
Real estate lease financing 3,464 3,367 3,411 Outstandings 3,328 3,207 3,214 Temporarily unleased assets and non-performing loans 192 238 253 Accrued interest receivable 58 66 94 Provisions for asset impairment (11) (13) (16) Provisions for loan losses (103) (131) (134)
4.3 – NON-PERFORMING AND IRRECOVERABLE LOANS AND PROVISIONS FOR LOAN LOSSES
Coverage: Provisions for non-performing loans against gross non-performing loans 44% 46% 41% 40% Provisions for irrecoverable loans against gross irrecoverable loans 84% 77% 66% 67% Provisions for total non-performing and irrecoverable loans against total gross non-performing and irrecoverable loans 61% 60% 60% 58%
Breakdown of loans between non-performing and irrecoverable At December 31, 2003, in accordance with standard 2002-03, irrecoverable loans comprise loans where an event of default has occurred. At December 31, 2004, in accordance with the opinion issued by the CNC Urgent Issues Task Force on December 18, 2003, irrecoverable loans comprise loans where an event of default has occurred and loans classified as non-performing for more than one year when a write-off is envisaged. *The pro forma 2003 figures show a breakdown between non-performing and irrecoverable loans based on the provisions of the opinion issued by the CNC Urgent Issues Task Force on December 18, 2003.
Financial Information Consolidated financial statements 5 – BONDS, EQUITIES AND OTHER FIXED AND VARIABLE INCOME SECURITIES
Trading account securities (1) 7,838 3,672 3,009 Equities and other variable income securities 654 476 360 Bonds and other fixed-income securities 7,184 3,196 2,649
(1) Of which: Receivables representing securities loaned 420 89 281 Transferred to securities held for sale (58) - -
(2) Of which: Listed 2,025 1,230 5,320 Receivables representing securities loaned - - Transferred from trading account securities 56 - - Transferred to/from debt securities held for investment 85 - 18 Subordinated 41 48 51 Issued by public institutions 67 67 71 Treasury stock - - - Unrealized capital gains (excess of market value over cost) 34 29 38 Unrealized capital losses provided for in the balance sheet (74) (125) (103)
(5) Of which: Transferred from trading account securities 2 - (2)
Debt securities held for investment - net of provisions 40 63 63 43 Non-performing securities - gross 72 88 53 48 Provisions for non-performing securities (51) (36) (20) (32)
Coverage: Provisions for non-performing securities against gross non-performing securities 71% 49% 47% 76%
Provisions for total non-performing and irrecoverable securities against gross non-performing and irrecoverable securities 74% 58% 58% 71%
(1)The accounting treatment of these reserves is described in Note 1.11.
7 – INVESTMENTS IN AFFILIATES AND OTHER SECURITIES HELD FOR INVESTMENT
Venture capital activities 62 28 27 BP Développement 51 28 12 IDF Nord Croissance - - 6 Sofinnova - - 2 Sud-Est Croissance - - 7 Sopromec 11 - of which share in net income/(loss) 2 - -
(3)Including €1,165 million shareholder advance to Ecrinvest 4 as part of the temporary holding of Vivendi Universal Publishing securities in 2003.
Financial Information Consolidated financial statements 7.1 – INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIES AND AFFILIATES
Main investments: Soparind 43 43 43 Sicovam Holding 30 30 30 IKB Deutsche Industriebank 29 29 29 Athlon Groep 23 23 23 8 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Total property and equipment and intangible assets 1,644 (630) 1,014 1,551 (574) 977 1,507 (536) 971
in millions of euros 2003 Additions Disposals Changes in Other 2004 group structure
Property and equipment used in the business: 711 88 (30) 17 (59) 727 Land and buildings 390 59 (4) 4 (54) 395 Other 321 29 (26) 13 (5) 332
Property and equipment used in the business: (308) (45) 14 (10) 39 (310)
Financial Information Consolidated financial statements 9 – GOODWILL AND NEGATIVE GOODWILL
Additions Amortization Removals Net Net Net in millions of euros charges
A further valuation was undertaken at December 31, 2004 to test for any impairment during the year.
The discounted cash flow calculations were based on business plans drawn up by management of the core businesses and validated by Natexis Banques Populaires Executive Management.
Checks and notes presented for collection, securities settlement accounts 326 562 1,112
Natexis Private Banking Luxembourg S.A. 6 141 139 14 – DEFERRED INCOME, ACCRUED CHARGES AND OTHER LIABILITIES
2003 Charges Utilization Reversals Other 2004 in millions of euros (1)
Provisions for specific credit risks 72 15 (7) (22) 2 60
(3)Including subordinated debt raised by: - Natexis Private Banking Luxembourg S.A. 10 10 10 - Crédit Maritime Vie 4 - -
Issuance of shares 10 41 - 51 - 51 - Translation adjustments - - (83) (83) - (83) (86) Changes of method (2) - - (7) (7) - (7) - Changes in group structure (3) - - - - - - 190 Other movements (4) - - (4) (4) - (4) - Shareholders' equity at
(1)Reserves, retained earnings, consolidation differences, revaluation reserves, translation reserves and consolidated net income attributable to the Group.
(3)Including: Natexis Preferred Capital III 170 Sopromec 9 Line Bourse 8 Other changes 4 Total 191
(4)Including: Cancellation of treasury shares recorded under long-term investments (4) (5)Including: Minority interests – change of consolidation method for Bancassurance Popolari Group –
Breakdown of weighted risk equivalent by counterparty type (net of collateral)
NET POSITIONS ON- AND OFF-BALANCE SHEET (IN MILLIONS OF EUROS EQUIVALENT)
In 2002 and 2003, interest expense on macro-hedging transactions was booked under interest expense on interbank transactions. The 2002 and 2003 figures have therefore been restated accordingly.
Investments in affiliates 14 21 15 24 – NET FEE AND COMMISSION INCOME
Financial Information Consolidated financial statements 25 – NET GAINS/(LOSSES) ON TRADING ACCOUNT SECURITIES
Provisions for contingencies (51) (124) (130) Provisions for guarantees (1) (5) (4)
Losses Investments in affiliates and other securities held for investment (10) (9) (17) Debt securities held for investment (7) (16) (5)
Charges to provisions Investments in affiliates and other securities held for investment (7) (21) (10) Debt securities held for investment - - -
Reversals from provisions Investments in affiliates and other securities held for investment 19 16 24 Debt securities held for investment 3 7 -
Financial Information Consolidated financial statements 33.1 – RECONCILIATION OF ACTUAL AND THEORETICAL TAX CHARGE
in millions of euros 2004 2003 2002 plus: Net income 407 265 108
Corporate income tax charge 220 154 13 less: Income from companies accounted for by the equity method (10) (10) (3)
plus: Surtax and annual fixed-rate tax charge (8) (8) (3) Income taxed at reduced rates (9) (29) (16) Tax losses for the period limited for reasons of prudence (8) (13) (25) Impact of group tax relief 13 23 21 Impact of foreign subsidiaries taxed at different rates (1) (2) (4)
Total deferred taxes recognized 11 9 6 Including: - deferred tax assets 172 150 139 - deferred tax of equity affiliates (1) (0) (1)
(1)Sources of deferred tax assets take a positive sign and sources of deferred tax liabilities are in brackets.
Income/(loss) before exceptional items and tax 398 85 185 126 (30) 764
Gross margin on insurance operations 744 741 694 718 395 385
Net gains/(losses) on disposals of fixed assets - - - - 2 -
Income before exceptional items and tax 184 113 176 124 83 49
Number of Executive Management Committee members: 11 in 2004, 9 in 2003 and 11 in 2002.
35 A – EXECUTIVE DIRECTORS' COMPENSATION Total gross compensation paid to executive directors was as follows: The number of stock options allotted in respect of offices held with NBP and related companies was as follows: No options were exercised by the executive directors in 2003 or 2004.
Financial Information Consolidated financial statements 36 – BALANCE SHEETS - INSTITUTIONAL ACTIVITIES
Total commitments given 2 5 9 37 – DEBT MATURITY ANALYSIS
At December 31, 2004 Under 3 months 1 year Over Perpetual Total in millions of euros 3 months to 1 year to 5 years 5 years
Bonds and other fixed-income securities 10,519 1,323 3,958 2,497 - 18,297
ADG COFACE ALLGEMEINE DEBITOREN GESELLSCHAFT Credit information and management 75 75 75 74 75 74
ASSURANCES BANQUE POPULAIRE PREVOYANCE (formerly Fructiprévoyance) Personal risk insurance 100 100 100 100 100 100
ASSURANCES BANQUE POPULAIRE VIE (formerly Fructivie) Life insurance 100 100 100 100 100 100
AUXILIAIRE ANTIN Real estate used in business 100 100 100 98 100 98
AXA ASSURCREDIT * (formerly Assurcredit) Credit insurance and services 40 40 40 39 - -
CENTRE D’ETUDES FINANCIERES (CEF) Business and credit information 100 100 - - - -
COFACE COLLECTION NORTH AMERICA Credit information and management 100 100 - - - -
COFACE HOLDING NORTH AMERICA Holding company 100 100 100 98 100 98
COFACE INSURANCE NORTH AMERICA Credit insurance and services 100 100 100 98 - -
COFACE INTERCREDIT BULGARIA Credit information and management 100 75 100 73 65 48
COFACE INTERCREDIT CZECHIA (27) Credit information and management 100 75 97 71 97 71
COFACE INTERCREDIT HUNGARY Credit information and management 100 75 100 73 100 73
COFACE INTERCREDIT POLAND Credit information and management 97 73 97 71 97 71
COFACE INTERCREDIT ROMANIA Credit information and management 100 75 60 44 60 44
COFACE MOPE Credit information and management 100 100 100 98 100 98
COFACE ORT Business and credit information 100 100 - - - -
COFACE SERVICE ECUADOR (formerly VERITAS ANDINA) Credit information and management 100 100 100 98 100 98
COFACE SERVICES COLOMBIA (formerly VERITAS COLOMBIA) Credit information and management 100 100 100 98 100 98
COFACE SERVICES NETHERLAND Credit information and management 100 100 - - - -
COFACE SERVICES NORTH AMERICA GROUP (formerly VERITAS SOUTH AMERICAN CORPORATION) Holding company 100 100 100 98 100 98
COFACE SERVICES PERU (formerly VERITAS PERU) Credit information and management 100 100 100 98 100 98
COFACE SERVICES VENEZUELA (formerly VERITAS VENEZUELA) Credit information and management 100 100 100 98 100 98
COFACE SERVICIOS (formerly VERITAS CHILE) Credit information and management 100 100 100 98 100 98
COFACE SERVICIOS ARGENTINA Credit information and management 100 100 - - - -
COFACE SERVICIOS ESPANA S.L. (formerly COFACERATING.SP) Credit information and management 100 100 100 98 - -
COFACE SERVICIOS PANAMA Credit information and management 100 100 - - - -
COFACE UK SERVICES LTD (formerly Cofacerating.uk) Credit information and management 100 100 100 98 100 98
COFACERATING.IT Credit information and management 100 100 100 98 100 98
COFACERATING.US Credit information and management (12) (12) (12) (12) 100 98
COFINPAR Credit insurance and services 100 100 100 98 100 98
COGESTIMMO Real estate used in business (1) (1) (1) (1) 100 98
CREDIT MARITIME VIE Life insurance 100 100 - - - -
CREDITORS GROUP HOLDING LTD Credit information and management 100 100 100 98 100 98
CREDITORS GROUP LTD Credit information and management 100 100 100 98 100 98
FCPR NATEXIS INDUSTRIE ** MBOs/LBOs 90 86 100 100 - -
IMMOBILIERE NATEXIS (formerly Villcomm) Real estate investment 100 100 (1) (1) (1) (1)
INITIATIVE ET FINANCE INVESTISSEMENT ** MBOs/LBOs 92 73 92 77 92 77
INTERFINANCE NATEXIS N.V. International debt issuance 100 100 100 100 100 100
INVESTIMA 6 Real estate holding company 100 100 - - - -
JI INTERNATIONAL Credit information and management (12) (12) (12) (12) 100 98
KOMPASS BILGI Marketing and other services 70 70 70 69 - -
KOMPASS HOLDING (sub-group) Holding company 100 100 100 98 - -
KOMPASS INTERNATIONAL NEUENSCHWANDER Holding company 100 100 100 98 100 98
KOMPASS POLAND Marketing and other services 100 100 100 98 - -
KOMPASS SOUTH EAST ASIA Marketing and other services 100 100 100 98 - -
LIBRAIRIE ELECTRONIQUE Business and credit information 100 100 - - - -
Natexis ABM Corp. (formerly ASSET BACKED MANAGEMENT CORPORATION) Securitization arbitrage 100 100 100 100 100 100
NATEXIS ACTIONS AVENIR (4) Expansion capital (4) (4) 75 74 79 77
NATEXIS ARBITRAGE (formerly SPAFIN) Equity and derivatives arbitrage 100 100 100 100 100 100
NATEXIS ASSET MANAGEMENT(formerly BPAM) Mutual fund management 100 100 100 100 100 100
NATEXIS ASSET MANAGEMENT IMMOBILIER (formerly Natexis Immo Placement, formerly Fructiger) (3) Real estate management 100 100 100 100 100 100
NATEXIS ASSURANCES (formerly Assurances Banque Populaire) Insurance company holding company 100 100 100 100 100 100
CAPITAL III ** Preferred stock issuance 100 100 100 100 - -
NATEXIS FINANCE Mergers & acquisitions advisory services 100 100 100 100 100 100
NATEXIS IMMO DEVELOPPEMENT (formerly SOFEP) Real estate development and renovation 100 100 100 100 100 100
NATEXIS INTEREPARGNE (6) Employee savings plan administration 100 100 100 100 100 100
NATEXIS INVERSIONES International investment fund 100 100 100 100 - -
NATEXIS INVESTMENT ASIA International investment fund 100 100 100 100 - -
NATEXIS INVESTMENT CORP. Asset management 100 100 100 100 100 100
NATEXIS LIFE (formerly Fructilife) Life insurance 100 96 100 96 100 96
NATEXIS MOSCOW (formerly ZAO Natexis Banques Populaires) Foreign banking 100 100 100 100 100 100
NATEXIS PRAMEX DEUTSCHLAND International trade promotion and operations 100 99 100 99 100 99
NATEXIS PRIVATE EQUITY ASIA Asset management (private equity) (1) (1) (1) (1) 100 100
NATEXIS PRIVATE EQUITY OPPORTUNITIES Private equity 100 100 - - - -
NATEXIS US FINANCE CORPORATION Money market securities issuance 100 100 - - - -
OSTERREICHISCHE KREDITVERSICHERUNGS COFACE (OKV COFACE) Credit insurance and services 94 94 94 92 94 92
PROXIGMA (formerly SPATITRES) (18) IT services (18) (18) 100 100 100 100
S.A.S MONTMARTRE 1 Recovery of mutual fund assets (1) (1) (1) (1) 100 100
SPEF DEVELOPPEMENT (8) Venture capital fund management 100 100 100 100 100 100
SPEF LBO (9) Venture capital fund management 100 100 100 100 100 100
UNISTRAT COFACE Insurance business introducer 100 100 - - - -
VERITAS ARGENTINA Credit information and management 100 100 100 98 100 98
VERITAS BUSINESS INFORMATION Credit information and management (12) (12) (12) (12) 100 98
VERITAS DE CENTRO AMERICA Credit information and management 100 100 100 98 100 98
VERITAS PUERTO RICO CORP. Credit information and management 100 100 100 98 100 98
WORLEDGE A INVESTMENTS Ltd Country risk put option structure 100 100 100 100 100 100
ASSURANCES BANQUE POPULAIRE IARD (formerly Fructi-maaf) Property & casualty insurance 50 50 50 50 50 50
BP DEVELOPPEMENT (formerly +X DEVELOPPEMENT) Venture capital 37 37 28 28 33 33
CODINF SERVICES (26) Credit information and management (26) (26) 30 29 30 29
GRAYDON HOLDING Credit information and management 28 28 28 27 28 27
IDF NORD CROISSANCE Private equity (17) (17) (17) (17) 33 33
IFCIC Cinema and audiovisual sector guarantees 20 20 20 20 20 20
**In earnings: For those companies with share classes conferring different rights to earnings, the percentages indicated represent the Groupportion of their earnings; for those companies no longer within the scope of consolidation, the percentage indicated is that existing on the date of removal from scope. For companies with preferred shares, net income/(loss) comprises the company’s net income/(loss) after payment of the preferred dividend to holders of preferred shares.
(2) Coface SA was accounted for by the equity method in December 2001 and for the first half of 2002, and then fully consolidated in the second half of 2002.
(3) Buy-out of minority interests (10%) bringing NBP's interest to 100%.
(4) Liquidated and transferred to Natexis Actions Capital Structurant on September 1, 2003.
(6) Buy-out of minority interests in 2002, bringing NBP's interest to 100%.
(13) Merger with OKV Kreditinformations during the first half of 2003.
(15) Dilution following exercise of redeemable bonds by Banque Populaire banks in 2003.
(16) Buy-out of minority interests (20%), bringing NBP's interest to 100% in 2003.
(21) Squeeze-out of remaining minority interests by NBP in May 2004.
(25) Buyout of minority interests, bringing NBP's interest to 100% on June 2, 2004.
Auditors’ report on the consolidated financial statements Year ended December 31, 2004
This is a free translation into English of the Statutory Auditors’ report issued in the French language and is provided solely for the convenience of English speaking readers.The Statutory Auditors’ report includes information specifically required by French law in all audit reports, whether qualified or not, and this is presented below in the opinion on the consolidated financial statements.This information includes an explanatory paragraph discussing the Auditors’ assessments of certain significant accounting and auditing matters.These assessments were considered for the purpose of issuing an audit opinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the consolidated financial statements.
We also verified the information provided in the management report, in accordance with professional standards applicable in France.We have no comment to make as to its fairness and consistency with the consolidated financial statements.
Cash, central banks and post office banks 1 15 15 77
Loans and advances to banks 1 47,782 48,331 41,718 of which institutional activities 16 333 421 1,379 of which institutional activities 16 1,133 1,099 96
Commitments received from financial institutions 3,744 1,643 897 Commitments received from customers 869 542 150
Liabilities & shareholders’ equity in millions of euros note 2004 2003 2002
Commitments given to financial institutions 2,451 2,330 3,619 Commitments given to customers 20,074 18,814 16,999
Depreciation, amortization and provisions for impairment of property and equipment and intangible assets 24 (27) (26) (29)
1.1 – CUSTOMER LOANS Loans are recorded in the balance sheet at face value. Undrawn amounts on loans already committed and agreed are included in off-balance sheet items under the heading “financing commitments given”.
1.2 – PROVISIONS Since 2000, Natexis Banques Populaires provides for loan losses at three levels: 1.21 – SPECIFIC PROVISIONS
1.3 – SECURITIZATION TRANSACTIONS Securitizations are transactions that transfer credit risk without disposing of the underlying portfolios.They consist of synthetic securitizations based on credit derivatives carried out jointly with third party banks and special purpose entities. In substance, the credit derivatives are equivalent to credit insurance protecting Natexis Banques Populaires against the risk of borrower default or debt rescheduling.
1.4 – CONVERSION OF ASSETS AND LIABILITIES IN FOREIGN CURRENCIES Assets, liabilities and off-balance sheet commitments denominated in foreign currencies are converted into euros at the year-end exchange rate. Realized and unrealized exchange gains and losses are taken to the income statement.
1.52 – INVESTMENTS IN SUBSIDIARIES AND AFFILIATES AND EQUITY SECURITIES HELD FOR INVESTMENT n Consolidated investments: Natexis Banques Populaires valued its investments in consolidated subsidiaries at the year end.The most material investments were also valued by an independent expert.
Consolidated investments were valued using the discounted cash flow method based on business plans drawn up by management of the main subsidiaries and validated by Natexis Banques Populaires Executive Management.
The results of this method were corroborated by other methods such as standard market comparisons and restated net asset value.
1.6 – INCOME, VALUE ADJUSTMENTS AND GAINS OR LOSSES ON SECURITIES n Income from variable income securities is recorded on a cash basis.
n Income from fixed-income securities is recorded on an accruals basis.
1.71 – ASSETS USED IN THE BUSINESS n Fixed assets of the former Crédit National purchased prior to December 31, 1976 are stated at fair value as determined at the time of the 1976 legal revaluation. Assets purchased since 1976 are stated at cost.
In accordance with the terms of the letter dated October 21, 1997 from the Secretary General of the French Banking Commission (Commission Bancaire Française), provisions for impairment in value have been recorded for individual investment properties and other properties not used in the business, whose market value is less than their net book value.
1.8 – PERPETUAL AND DATED SUBORDINATED NOTES Natexis Banques Populaires has issued perpetual and dated subordinated notes, which in the event of the issuer’s liquidation, rank behind all other creditors.
Where perpetual subordinated loan notes are treated as equivalent to debt repayable in installments, each periodic payment is broken down between the repayment of principal, which is deducted from the outstanding debt, and interest, which is recorded in the income statement under interest expense.
1.9 – PARTICIPATING NOTES Remuneration paid in respect of participating notes is treated as interest payable and expensed in the income statement on an accruals basis.
1.10 – INTEREST, PREMIUMS, FEES AND COMMISSION Interest, together with premiums, fees and commissions treated as interest income are recorded in the income statement on an accruals basis. Other fees and commissions are accounted for on a cash basis.
1.11 – INTEREST RATE REVISION CHARGES AND PREPAYMENT PENALTIES Interest rate revision charges and prepayment penalties are treated as deferred interest income and recognized in income over the life of the loan in proportion to the interest income lost in each year based on the original loan repayment schedule.
The cost of share issuance by Natexis Banques Populaires is offset, net of tax, against the issue premium.
n The first two categories are treated for income statement purposes as equivalent to lending/borrowing transactions and the amounts received or paid are taken to the income statement on an accruals basis.
1.132 – CURRENCY INSTRUMENTS: n Spot currency transactions outstanding at the year end are valued at the year-end rate.
1.133 – INTEREST RATE, CURRENCY AND EQUITY OPTIONS AND FORWARD CONTRACTS: The notional value of the instrument underlying the option or forward contract is recorded off-balance sheet, with hedging and trading transactions identified separately.
1.14 – EXCEPTIONAL ITEMS Exceptional income and expenses are items of income and expense that are unusual in terms of their nature, amount or frequency.
1.15 – CORPORATE INCOME TAX The tax charge for the year comprises current taxes payable in France at the rate of 35.43%, and at the local corporate tax rate for foreign branches.
1.16 – EMPLOYEE-RELATED LIABILITIES AND RETIREMENT BENEFIT COMMITMENTS n The main provisions for employee-related liabilities concern: – end-of-career awards and allowances; – early-retirement and supplementary pension benefits; – “CATS” early retirement plan benefits; – employer’s contributions to private health insurance companies for retirees and early retirees.
Commitments are calculated based on the following criteria: – vested rights on the reporting date; – discount rates ranging from 3.5% to 5.5%; – mortality tables:TV 88/90; – most recent salaries, including employer’s social security contributions; – historical staff turnover rates.
The French Pensions Act of August 21, 2003 reformed the terms and conditions of retirement applicable to employees. In accordance with opinion 2004-A issued by the CNC Urgent Issues Task Force, this reform was treated as a change of applicable regime and its effect deferred over the employees’ remaining active lives.
1.17 – CHANGES IN ACCOUNTING METHOD As of January 1, 2003, Natexis Banques Populaires adopted standard CRC 2002-03 on the classification of non-performing loans and the accounting treatment of loans restructured at below market rates. In 2003, following work on identifying loans affected by this standard, a discount of €11 million was recorded to take account of the difference between the new interest rate and the market rate at the time of restructuring. As the loans were restructured in prior years, the discount was set off against 2003 opening shareholders’ equity. The discount was written back to the income statement under interest income in the sum of €1.8 million in 2003 and €1.6 million in 2004.
Standard CRC 2002-10 on asset depreciation,amortization and impairment is applicable from January 1, 2005.Natexis Banques Populaires has not elected for early adoption of this standard. However, article 15 of the standard contains transitional provisions applicable from January 1, 2003 relating to expenses incurred under multi-year programs for major repairs or refits. Accordingly, at December 31, 2003 a provision of €1 million was taken for major repairs, including €0.7 million deducted from 2003 opening shareholders' equity.
In accordance with standard CRC 2004-04, long service awards are no longer treated as employee benefits but as a ordinary liability governed by standard CRC 2000-06. Accordingly, a provision for the full liability of €11.7 million was taken by way of deduction from 2004 opening shareholders’ equity.
Debt securities held for investment 414 457 894 Accrued interest receivable 8 13 13
Current accounts in debit 4,238 4,235 3,505 Accrued interest receivable 13 13 14 Non-performing loans 78 124 89 Provisions for loan losses (47) (78) (40)
Accrued interest receivable - - Non -performing loans 19 16 14 Provisions for loan losses (5) (9) (10)
Accrued interest receivable 3 7 2 Non-performing loans - - 1 Provisions for loan losses - - (1)
NOTE 3 – BONDS, EQUITIES AND OTHER FIXED AND VARIABLE INCOME SECURITIES
Bonds and other fixed-income securities 11,228 9,505 10,543 Trading account securities 4,119 2,373 946 Securities held for sale 2,902 1,299 2,101 Debt securities held for investment 4,176 5,777 7,459 Non-performing securities 31 56 37
Breakdown of loans between non-performing and irrecoverable At December 31, 2003, in accordance with standard 2002-03, irrecoverable loans comprise loans where an event of default has occurred and loans classified as non-performing for more than one year.
Investments in affiliates and other securities held for investment 165 174 179
Treasury stock 160 130 73 Trading account securities 156 126 73
A) Banking and credit institutions NATEXIS LEASE 16,670,495 399,595,080.57 NATEXIS FACTOREM 1,494,855 127,459,135.75 NATEXIS PRIVATE BANKING LUXEMBOURG S.A. 10,097 27,366,418.97 NATEXIS LUXEMBOURG S.A. 399,999 40,636,720.29 NATEXIS COFICINE 109,099 30,317,040.34 BANQUE PRIVEE SAINT DOMINIQUE 1,637,100 21,813,341.85 NATEXIS PAIEMENTS 2,399,983 21,886,690.50 NATEXIS ALGERIE 1,360,056 10,932,911.14 SBFI - Société de Banque Française et Internationale 53,556 6,410,425.26 CFDI - Caisse Française de Développement Industriel 29,994 4,572,555.82 SOFINGEST 170,129 3,881,008.09 INTERFINANCE NATEXIS NV 29,997 23,261.61
D) Investments with a carrying value equal to or less than €15,000 - 32,997.06
E) Shareholders' advances NATEXIS INVESTMENT ASIA (Singapore) - 13,456,427.57 SPAFIC - 2,141,592.06 FINANCIERE CLADEL - NATEXIS MERCOSUL FUND - 8,027,645.77 SCI ALTAIR 1 - 6,276,887.28
A) Banking and financial institutions I.K.B 2,200,000 29 430 369.72 BANCO FINANTIA 7,582,190 10,051,810.14 W.G.Z. BANK 290 650,545.87 B.P. DI NOVARA 14,400 231,696.78 PARNASSIENNE DE CREDIT 100 76,224.51 BANQUE GABONAISE DE DEVELOPPEMENT 16,200 67,077.57
SOFREAVIA 3,750 17,150.51 TRANSVALOR 1,069 16,754.15 CAISSE DE GARANTIE IMMOBILIERE " C.G.I.F.N.B." 2,000 15,244.90 CLEMET 1,000 15,244.90 SADEPAR 100 15,244.90
D) Investments with a carrying value equal to or less than €15,000 - 157,998.35
NOTE 4.2 – DISCLOSURE OF SIGNIFICANT SHAREHOLDINGS IN FRENCH COMPANIES The following information is provided pursuant to Article L247-1 of the French Commercial Code.
A - Investments with a carrying value in excess In thousands In thousands In thousands In thousands In thousands In thousands In thousands In thousands In thousands of 1% of the common stock of the reporting company of units of units of euros of euros of euros of euros of units of units of euros
NATEXIS ALTAIR 4, rue Charles Gounod - 77185 LOGNES 10,040 EUR 7,092 EUR 100.00% 14,445 14,445 - - 77,570 EUR 5,871 EUR 4,267 * NATEXIS ASSURANCES 27, boulevard Bourbon - 75004 PARIS 40,034 EUR 235,904 EUR 100.00% 496,843 496,843 32,000 - 101,275 EUR 96,088 EUR 56,038 *
AUXILIAIRE ANTIN 18, rue de la Chaussée d’Antin - 75009 PARIS 127,578 EUR (5,976) EUR 100.00% 127,602 121,602 - - 2,593 EUR 2,550 EUR - * NATEXIS LEASE 115, rue Montmartre - 75002 PARIS 266,728 EUR 134,646 EUR 100.00% 399,595 399,595 1,602,072 85,663 37,254 EUR 19,897 EUR - * NATEXIS ASSET MANAGEMENT 68-76, quai de la Rapée - 75012 PARIS 29,143 EUR 3,172 EUR 86.88% 155,255 155,255 - - 110,822 EUR 39,312 EUR 20,337 * NATEXIS PRIVATE BANKING LUXEMBOURG S.A. 47, boulevard Royal - L 2449 LUXEMBOURG 28,750 EUR 2,646 EUR 87.80% 47,471 27,366 72,685 79,602 21,859 EUR (227) EUR - * NATEXIS PAIEMENTS 115, rue Montmartre - 75002 PARIS 22,800 EUR 1,075 EUR 100.00% 21,887 21,887 29,623 - 65,265 EUR 1,036 EUR - * BANQUE PRIVEE SAINT DOMINIQUE 12-14, rond point des Champs Elysées - 75008 PARIS 20,464 EUR 1,349 EUR 100.00% 26,821 21,813 - - 14,720 EUR (2,599) EUR - * COFACE 12, cours Michelet - La Défense 10 - 92800 PUTEAUX 49,796 EUR 430,283 EUR 100.00% 646,384 646,384 148,000 2,000 497,620 EUR 23,756 EUR - * NATEXIS COFICINE 26, rue de Montévidéo - 75016 PARIS 5,897 EUR 5,473 EUR 92.50% 30,317 30,317 150,000 4,533 13,657 EUR 4,881 EUR 2,455 * NATEXIS FACTOREM 4, place de la Coupole - 94600 CHARENTON LE PONT 12,000 EUR 124,899 EUR 99.66% 127,459 127,459 260,000 122,599 99 ,224 EUR 28,792 EUR 24,665 * FINANCIERE CLADEL 115, rue Montmartre - 75002 PARIS 9,727 EUR 1,146 EUR 100.00% 10,099 10,099 3,369 - 1,012 EUR 799 EUR 5,185 * NATEXIS IMMO EXPLOITATION 45, rue Saint-Dominique - 75007 PARIS 117,036 EUR 7,541 EUR 100.00% 124,002 124,002 - - 47,596 EUR 1,546 EUR 691 * LINEBOURSE 45, rue Saint-Dominique - 75007 PARIS 11,662 EUR 2,459 EUR 50.60% 27,196 12,046 - - 3,839 EUR (2,177) EUR - * NATEXIS AMBS 645 Fifth Avenue - NY 10022 - NEW YORK 560,350 USD (619) USD 100.00% 209,493 209,493 - - 18,053 USD 18,062 USD - *
NATEXIS ALGERIE 62, chemin Mohamed Drareni - Hydra - ALGIERS 1,000,000 DZD 152,343 DZD 87.18% 1
NATEXIS LUXEMBOURG SA 28, avenue Marie-Thérèse - L2131 LUXEMBOURG 40,000 EUR 14,770 EUR 100.00% 40,637 40,637 259,057 258,110 7,387 EUR 2,639 EUR - *
NATEXIS PRIVATE EQUITY 5-7, rue de Monttessuy - 75007 PARIS 438,456 EUR 142,461 EUR 91.64% 465,121 465,121 140,000 - 59,764 EUR 47,628 EUR 36,513 *
OFIVM 1, rue Vernier - 75017 PARIS 20,000 EUR (385) EUR 34.00% 11,333 9,371 - - - - - *
SAMIC 24, avenue Fontvieille - 98000 MONACO 160 EUR 2,540 EUR 75.60% 17,288 1,700 - - 9,748 EUR (651) EUR - *
SPAFICA 115, rue Montmartre - 75002 PARIS 685 EUR 62,864 EUR 99.99% 6
*Figures taken from accounting documents at December 31, 2004. (1)The net book value of these securities is higher than their gross value due to foreign exchange gains.
Book value of Outstanding loans Guarantees Total revenues Net income/(loss) Dividends Comment investment and advances at given in previous year in previous year received
in millions of euros Gross Deprec. Net Gross Deprec. Net Gross Deprec. Net book amort. book book amort. book book amort. book value provs. value value provs. value value provs. value
Property and equipment and intangible assets used in the business 272 (161) 111 269 (145) 124 268 (136) 132
Property and equipment used in business 190 11 (8) (4) 189 Land and buildings 53 - - - 53
Interbank liabilities 39,847 35,930 45,640 Demand deposits 8,564 9,626 13,133 Accrued interest payable 2 3 5 Other amounts due 27 340 106 Time deposits (*) 31,283 26,304 32,507 Accrued interest payable 207 131 355
(*)Including securities delivered under repurchase agreements: 23,747 18,411 20,013 Accrued interest payable 162 81 247
Accrued interest payable 2 2 3 Other amounts due 69 25 100
Retail certificates of deposit and savings bonds 1 1 Accrued interest payable - - -
At January 1, 2003 45 16 276 65 13 136 211 62 15 839 Charges 17 6 85 37 2 70 54 31 11 313 Reversals (11) (4) (90) (54) (3) - (61) (58) (10) (291) Translation differences - - (23) (1) - (6) (1) - - (31) Other changes - - - - - - - 1 1
Dated subordinated debt 2,662 2,343 1,957 Subordinated notes 1,950 1,691 1,249 Subordinated loans 712 652 708
At January 1, 2003 0 10 0 10 Charges - 1 - 1 Reversals - (1) - (1) Translation differences - - - 0 Other changes - - - 0
At January 1, 2004 - 10 - 10 Charges - 2 - 2 Reversals - (1) - (1) Translation differences - - - 0 Other changes - - - 0
NOTE 14 – COMMON STOCK, ADDITIONAL PAID-IN CAPITAL, RESERVES AND RETAINED EARNINGS
At January 1, 2003 759 1,746 43 141 140 11 1 2,841 Appropriation of 2002 income - - 10 125 - - 71 206 Dividends paid in 2003 - - - - - - (71) (71) Transfer of Crédifrance Factor shares 4 15 - - - - 19 Transfer of Sopromec shares 6 25 - - - - 31 Changes in accounting methods - - - - - - (10) (10)
At January 1, 2004 769 1,786 53 266 140 11 (9) 3,016 Appropriation of 2003 income - - 11 9 52 - 129 201 Dividends paid in 2004 - - - - - - (116) (116) Exercise of stock options 3 10 - - - - - 13 Changes in accounting methods - - - - - - (12) (12) Exit tax - - - - - - (5) (5)
Financing commitments given to: financial institutions 890 687 904 customers 2 20 924
Interbank and money market liabilities 408 515 1,453 in millions of euros 2004 2003 2002
Non-performing loans: (84) (145) (125) Charges to provisions (151) (149) (265) Reversals from provisions 163 129 243 Losses covered by provisions (104) (129) (102) Losses not covered by provisions (6) (8) (5) Recovery of bad debts written off 14 12 4
Charges to provisions (24) (112) (110) Reversals from provisions 53 57 94 Losses covered by provisions - - Losses not covered by provisions - - Recovery of bad debts written off - - -
Gains Investments in affiliates and other securities held for investment 8 16 62 Debt securities held for investment 4 1 -
Reversals from provisions Investments in affiliates and other securities held for investment 45 13 14 Debt securities held for investment 4 6 -
Other exceptional income (1) - 31 - Recovery of VAT from Banque Populaire regional banks - 30 2003: (1)Subsidy paid by BFBP: €30 million
Financing commitments given to 22,525 21,144 20,618 Financial institutions 2,451 2,330 3,619 Customers 20,074 18,814 16,999
Financing commitments received from 4,613 2,185 1,047 Financial institutions 3,744 1,643 897 Customers 869 542 150
Guarantees received from 7,783 3,783 4,863 Financial institutions 5,143 1,692 1,771
Income before tax, depreciation, amortization and provisions (91,999,342.33) 233,781,303.11 269,073,078.06 213,068,968.00 280,959,662.75
This is a free translation into English of the statutory auditors’ reports issued in the French language and is provided solely for the convenience of English speaking readers.The Statutory Auditors’ report includes information specifically required by French law in all audit reports, whether qualified or not, and this is presented below in the opinion on the parent company financial statements.These assessments were considered for the purpose of issuing an audit opinion on the financial statements taken as a whole and not to provide separate assurance on individual account caption or on information taken outside of the financial statements.
In accordance with our appointment as Statutory Auditors at the annual general meeting, we hereby present our report for the year ended December 31, 2004 on: n our audit of the accompanying financial statements of Natexis Banques Populaires; n justification of our assessments; n the specific verifications and disclosures required by law.
Without qualifying our opinion, we draw your attention to paragraph 17 of the section on accounting policies and valuation methods in the notes to the financial statements concerning the change in method of accounting for provisions for long service awards.
Auditors’ report on the parent company financial statements Year ended December 31, 2004
We also conducted the specific verifications required by law, in accordance with professional standards applicable in France.
We have no comment to make as to the fairness and consistency with the financial statements of the information provided in the management report and in the documents addressed to the shareholders with respect to the company’s financial position and financial statements.
As required by law, we verified that the management report contains the appropriate disclosures concerning the acquisition of participating and controlling interests and the identity of the company’s shareholders.
As required by article L225-40 of the French Commercial Code (Code de commerce), we have been advised of those agreements which were subject to prior authorization by the Board of Directors.
It was submitted to the Board of Directors of Natexis Banques Populaires on February 24, 2005 and to the Board’s Risk Management Committee.
1 – Corporate governance This first part of the report can be found in the section entitled “Corporate Governance” on pages 10 to 18.
2 – Internal control The internal control system of Natexis Banques Populaires is organized on a consolidated basis, including the parent company and all companies or entities over which it exercises management control (subsidiaries and branches in France and abroad).
These principles were defined by the Board of Directors of Banque Fédérale des Banques Populaires, the Group’s central body, and are set out in a corporate governance charter and an internal control charter for the Banque Populaire Group.
Internal control procedures were upgraded in 2004 following work on the new Basel II prudential requirements and further progress on the project to improve the internal control organization and methods, first launched in 2003.
Like all other Group banks, Natexis Banques Populaires is regularly audited by the Banque Fédérale des Banques Populaires and notably by its Internal Audit Department.
n First-tier control Employees and their supervisors are responsible for preliminary or simultaneous checks of each operation they carry out as part of their normal duties. These first-tier controls provide the foundations of the internal control system and are documented in formal written procedures, covering areas such as the segregation of duties, appointing authorized signatories, delegating credit limits, and managing and monitoring market risks. During 2004, the Corporate and Institutional Banking and Markets core business established a middle office team to make its first-tier control more independent.The team reports directly to the core business head and is responsible for both financing and markets activities.
n Second-tier control Continuous checks are undertaken to ensure compliance with internal and external rules and regulations as well as to verify the existence, implementation and effectiveness of firsttier controls. Second-tier controls cover functional areas such as accounting, commitments and risks, as well as regulatory controls. The main departments involved in second-tier control are Risk Management (counterparty, market, country risk, etc.), Compliance (compliance with AMF regulations, etc.), Fraud Prevention (money laundering), and Information Systems Security (IT clearances, information systems fraud, etc.).
The Internal Control department’s mission is set out in a detailed instruction issued by the Chief Executive Officer on November 18, 2003. Its key responsibility is to ensure that the business lines comply with internal regulations. It is also involved in monitoring operational risks and provides secondtier accounting controls.
Financial Information Reports on internal control rights and duties of each internal control unit, as well as the framework governing the decentralized relationship throughout Natexis Banques Populaires. These agreements give the Internal Control department strong functional authority over all internal control matters in subsidiaries and branches. For example, hiring internal control officers, planning, and internal control budgets in subsidiaries and branches require joint agreement by their business head and by the head of Internal Control.
The Finance department is responsible for the quality of financial reporting. In 2004, the entire financial reporting control system was radically restructured. A three-tier control system has been established.The first level comprises accounting controllers based in and reporting to each business line.Their reports are then centralized and analyzed at the second level by internal control officers working in the Internal Control department. Third-tier control is the responsibility of the Finance department’s accounting control teams. All monthly reports are produced using leading-edge shared information systems tools.
The Internal Audit department conducts audit assignments through the entire Natexis Banques Populaires group (parent company, subsidiaries and branches) covering all categories of risk involved in the bank’s various business activities. It has full and unrestricted access to all information, confidential or otherwise.
In 2004, in line with the guidance set out by Executive Management, the Internal Audit department strengthened its team, focusing on hiring auditors with expertise in information systems and market techniques. It also broadened the type of assignment undertaken to encompass ad hoc audits designed to meet needs arising during the year which were not originally covered by the annual audit plan. Its scope of intervention was also broadened to include a focus on prudential work carried out both as dedicated assignments and as part of its ongoing audit work.
Lastly, for more effective reporting, Internal Audit now makes detailed presentations of its conclusions to Executive Management.Two presentations took place in 2004.
n Internal control coordination Executive Management is responsible for defining and implementing the internal control system. An overarching committee, comprising the Board Secretary and the heads of Internal Control, Risk Management, Internal Audit, Finance, Compliance, Fraud Prevention and Information Systems Security, meets monthly to deal with all issues concerning the internal control structure and the results of internal or external audit assignments.
2.2 – RISK MANAGEMENT Natexis Banques Populaires is exposed to four main categories of risk: n credit risk; n market risk; n interest rate, currency and liquidity risk; n operational risk.
Credit decisions are made either under authorized limits (which are low) or by credit committees. Authorized limits are set out formally and depend on the seniority of the person concerned, and the type, term and quality of commitment. In 2004, the credit committee organization for financing activities was restructured with the creation of separate committees for small and large exposures.The large exposures committee is chaired by the Chief Executive Officer.
Credit risk is measured and monitored using a program that covers almost all Natexis Banques Populaires exposure and most of its subsidiaries’ exposure. Quantitative monitoring is assured through procedures to measure limit violations via ad hoc committee meetings. Qualitative monitoring is assured through rating systems and specific tools.
Bad and doubtful debts are monitored by the Special Affairs department and – in the case of legal proceedings – by the Litigation service of the Legal and Fiscal Affairs Department.
Each core business has a provisioning committee that meets quarterly to review any loans that might require provisions and to determine the appropriate level.The committees are organized by the Finance department and comprise the Chief Executive Officer, representatives from Risk Management, Internal Audit, Legal & Fiscal Affairs and Special Affairs, and the heads of the business lines concerned.
n Risk diversification Risk diversification represents a fundamental risk management rule and is governed by internal and external guidelines. Natexis Banques Populaires complied with these guidelines at end December 2004.
n Market risk policy Natexis Banques Populaires trades in the capital markets through its Global Debt & Derivatives Markets and Equity Group core businesses.They trade both on behalf of clients of Natexis Banques Populaires (intermediation, brokerage, asset management) and on their own behalf.
The market risk management system 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, although Natexis Banques Populaires is also developing an internal VaR-based model.
The key standard metrics used are sensitivities to specific risks inherent in the various business activities (interest rate, exchange rate,equities, commodities, volatilities, counterparty, etc.). In addition to these standard metrics, Natexis Banques Populaires also uses the historical Value at Risk (VaR) to quantify the risk of losses from capital markets activities, using conservative assumptions.
2.23 – INTEREST RATE, CURRENCY AND LIQUIDITY RISK MANAGEMENT The Asset & Liability committee (ALM Committee), which is chaired by the Chief Executive Officer and comprises representatives of Global Debt & Derivatives Markets, the Finance department and the Risk Management department, is responsible for setting out the broad guidelines for ALM, liquidity and investment of own funds.
Interest rate, currency and liquidity risks have been centralized at Natexis Banques Populaires since 2002.These risks are monitored and managed by the Global Debt & Derivatives Markets business line.
n Structural currency risk, which is monitored by the ALM committee.
n Operational risk management Management of operational risks is based primarily on an internal control system applicable to all activities and on the involvement and responsibility of business line management. The system was strengthened in 2004 with the reorganization of the operational risks committee, the initial introduction of operational risk officers in the various core businesses and continued staff training campaigns.
Natexis Banques Populaires has also broadened and upgraded the scope of its general procedures for new businesses and products.
n Purpose The Compliance department is responsible for ensuring that all entities comprising the Natexis Banques Populaires group and their employees are aware of and comply with all applicable rules of conduct, as defined by the supervisory authorities (Autorité des Marchés Financiers, etc.), European directives and regulations, laws, business practices and financial market regulations. It reports to the General Secretariat and is independent from the business lines.
The central Compliance team is responsible for coordinating all compliance matters for Natexis Banques Populaires and its subsidiaries, drawing up lists of and monitoring employees in sensitive positions, monitoring and managing various crossfunctional projects and overseeing the compliance officers based in the business lines,who work closely with the business line heads.
Coordination with other control functions has been strengthened and an information systems tool has been developed to provide optimum supervision of sensitive employees and transactions.
n Areas of responsibility The Compliance department’s key areas of responsibility are: n drawing up or updating codes of practice and handbooks for various subsidiaries; n updating or implementing new business conduct procedures for the Capital Markets and Asset Management and Insurance business lines (dealing with confidential information, prevention of conflicts of interest, financial analysis, etc.); n providing the business lines with advice on compliance issues: sensitive transactions, commercial or technical documents, new products, etc.
Various types of control are conducted: n continuous: for example, monitoring primary bond and equity transactions, equity and credit research in the Capital Markets business lines, control over preallocation of orders and portfolio turnover in the asset management business line, control over client agreements, short-selling in the custody business line, etc; n ad hoc: for example, staff share dealings, respect for Chinese walls, gifts received, etc.
Lastly, in June 2004, Natexis Banques Populaires established a fraud prevention committee which meets periodically and comprises representatives of the internal control function and the various business lines of Natexis Banques Populaires and its subsidiaries.The committee reviews cases where problems or risks for the bank have arisen in terms of money laundering and corruption, monitors developments in the legal and regulatory framework, regularly assesses the fraud prevention system in place at Natexis Banques Populaires and makes recommendations.
In preparation for transition to international accounting standards, a new consolidation package has been designed and distributed, allowing the identification and checking of all information additional to that required under French accounting standards to enable transition to IFRS. This solution, which includes over 2,500 tests, provides a full audit trail between French GAAP and IFRS consolidated financial statements. Deployment of this solution, which has been operational since June 2004, was supported by a massive training program for accounting and financial staff in each of the consolidated entities.
These continuous and periodic controls include reviews of account analyses produced by various departments, checks to ensure that suspense items are cleared and errors corrected on a timely basis and monitoring of indicators for ‘sensitive’ accounts. They are conducted using the various accounting information systems throughout the group.
For all systems, Natexis Banques Populaires and its subsidiaries are upgrading their audit trail tools. During 2004, as mentioned earlier, the Finance department embarked on a project to restructure the accounting control system covering both organization of control in the various business lines, defining and formally documenting procedures and control reports, and implementing information systems tools.
Natexis Banques Populaires is currently developing an enterprise systems development plan designed to strengthen consistency between systems and to meet new needs arising from developments in the bank’s business activities and in regulatory requirements.Work carried out in 2004 led to the definition of a target system structure both in terms of the overall architecture and the functional objectives of the various components (data feed, accounting, management control, risks,databases).This target structure provided a basis for drawing up the development plan itself in late 2004 and for starting on upgrading the information systems as of 2005.
2.33 – EXTERNAL CONTROL In addition to the self-checking procedures performed by the local finance departments responsible for preparing individual or consolidated accounts, the quality of accounting controls is verified by: n Ad hoc audit assignments carried out by the Internal Audit Department of Banque Fédérale des Banques Populaires.The Finance department of Natexis Banques Populaires was audited in 2003, notably covering the consolidation process.Work and progress on recommendations made have been reported periodically to Banque Fédérale des Banques Populaires.
n Audits carried out by the group’s external auditors, who work in collegiate fashion consistently throughout all group entities, and whose opinions are based in part on compliance with the standards of the Banque Populaire Group, as laid down by Banque Fédérale des Banques Populaires, which are also applicable to Natexis Banques Populaires subsidiaries, and on the effectiveness of local internal control procedures.
2.4 – CONCLUSION During 2004, Natexis Banques Populaires pursued its strategy of optimizing risk control and management systems to ensure that they meet the highest technical standards and all regulatory requirements related to its business activities.
Under the guidance of Executive Management, substantial effort was invested in strengthening the human and technical resources dedicated to risk management and control, standardizing working methods, rationalizing the internal control structure and ensuring more effective coordination between the entities concerned to consolidate their authority over the entire Natexis Banques Populaires group.
As statutory auditors to Natexis Banques Populaires, and in accordance with the final paragraph of article L225-235 of the French Commercial Code, we hereby present our report on the Chairman’s report on internal control over financial reporting for the year ended December 31, 2004, drawn up in accordance with the provisions of article L225-37 of the French Commercial Code.
Report of the Statutory Auditors on the Chairman’s report on internal control over financial reporting
Report of the Board of Directors on the resolutions to be put to the vote at the annual general meeting 206
Double voting rights do not cease if the company merges with another company, and may be exercised within that company where permitted by its bylaws
Failure to comply with these requirements will result in the shares that should have been disclosed being disqualified for voting purposes at general meetings if requested by a shareholder owning at least 1% of the voting rights and duly recorded in the minutes of the meeting. Disqualification will apply to all general meetings held during a period of two years commencing on the date on which the omission is remedied.
APPROVAL OF FINANCIAL STATEMENTS – DIVIDENDS (FIRST TO FIFTH RESOLUTIONS) The first resolution seeks approval of the Natexis Banques Populaires parent company financial statements for the year ended December 31, 2004, reporting net income for the year of €213,582,296.25.
In the fourth resolution, shareholders are then asked to approve the proposed appropriation of earnings and the payment of a dividend. The Board is proposing to pay a dividend of €3.30 per share for each of the 48,255,962 shares comprising the capital stock.The dividend will be payable as of
These resolutions will cancel and supersede previous authorities granted in this respect.
RENEWAL OF AUTHORITY TO GRANT STOCK OPTIONS (THIRTEENTH RESOLUTION) Under the new law, the authorities referred to above do not extend to capital increases made with a view to granting stock options. The Board is therefore seeking specific authority in this respect, bearing in mind that its existing authority is due to expire in any event on July 31, 2005.
AUTHORITY TO REDUCE THE CAPITAL STOCK (FIFTEENTH RESOLUTION) The purpose of this authority is to permit the reduction of the company’s capital stock by canceling treasury shares as provided for under the terms of the sixth resolution.
3 – Resolutions to be put to the vote at the Annual General Meeting of May 19, 2005
Summary: the purpose of this resolution is to seek approval of the financial statements for the year ended December 31, 2004.
Financial Information Legal information the transfer of a sum from the long-term capital gains reserve existing at December 31, 2004 to another reserve account before December
Summary: the purpose of this resolution is to approve the consolidated financial statements for 2004.
Having received and considered the management report on the operations of Natexis Banques Populaires and its consolidated subsidiaries for the year ended December 31, 2004, the consolidated financial statements for that year and the report of the Statutory Auditors on the consolidated financial statements, the shareholders hereby approve the consolidated financial statements as presented.
The shares may be bought,sold,exchanged or transferred by any and all means, through on or off-market transactions, including the use of derivative instruments.The entire authority may be used to purchase or sell the shares by means of block trading.
Trading may take place at any time within the limits authorized by law.
The number of shares that may be purchased pursuant to this resolution may not exceed the equivalent of 5% of the company’s capital stock, making a total of 2,412,798 shares as
For the purpose of regulating the share price, the purchase price may not exceed €140 per share subject to any adjustments required for capital transactions made by the company.
The shareholders hereby confer full powers, which may be delegated, on the Board of Directors to: – place all and any orders in the market and enter into all and any agreements, notably with respect to holding registers of share purchases and sales; – complete all and any declarations and other formalities and, more generally, do all things necessary to execute the terms of this authority.
With effect from the date of this meeting, this authority cancels and supersedes any similar authority previously granted, including that granted under the sixth resolution passed at the annual general meeting held on May 27, 2004.
Summary: the purpose of this resolution is to re-elect Michel Goudard, who is due to retire by rotation, as non-voting Director.
Eighth resolution: Authority to the Board of Directors to increase the capital stock by issuing new common shares or other securities conferring rights in the capital stock, with pre-emptive rights in favor of existing shareholders
The total amount of capital increases made immediately or in the future pursuant to this authority may not exceed a maximum par value of €150 million (one hundred and fifty million euros), excluding any additional shares to be issued as required by law to preserve the rights of existing holders of securities conferring rights in the capital stock.
If applications received from existing shareholders either under their pre-emptive rights or otherwise do not take up the entire issue, the Board of Directors may offer all or part of the remaining securities to the general public.
Having received and considered the Board of Directors’ report and the special report of the Statutory Auditors, and in accordance with the provisions of articles L225-129-2, L228-92 and L228-93 of the French Commercial Code, the shareholders, voting under the quorum and majority conditions required to transact extraordinary business, hereby authorize the Board of Directors to increase the capital stock on one or more occasions by issuing new shares denominated in euros in France or abroad, or by issuing any and all securities denominated in euros, foreign currencies or composite monetary units comprising a basket of currencies conferring immediate or future rights to subscribe to common shares in the company or a company in which it directly or indirectly owns more than half the capital stock.
The total amount of capital increases made immediately or in the future pursuant to this authority may not exceed a maximum par value of €150 million (one hundred and fifty million euros), such amount to form an integral part of the maximum limit fixed in the preceding resolution.
The issue price of the shares shall be at least equal to the weighted average opening price quoted on the Paris stock
Eleventh resolution: Authority to issue shares without pre-emptive rights in order to pay for share exchange offers or contributions in kind
Having received and considered the report of the Board of Directors and the special report of the Statutory Auditors, in accordance with the provisions of articles L225-129-2 and L228-92 of the French Commercial Code, the shareholders hereby authorize the Board of Directors for a period of twenty-six months to increase the capital stock on one or more occasions by capitalizing additional paid-in capital, reserves, retained earnings or other items that may be capitalized under the provisions of law and the company’s bylaws, either by means of issuing bonus shares or by increasing the par value of existing shares.
The total amount of capital increases that may be made pursuant to this resolution, plus the amount required by law to preserve the rights of holders of securities conferring rights in the capital stock may not exceed €150 million (one hundred and fifty million euros), nor in any event the total amount of additional paid-in capital, reserves, retained earnings or other items referred to above existing at the time of the capital increase.
Should the Board of Directors use this authority, the shareholders resolve in accordance with the provisions of article L225-130 of the French Commercial Code that any fractional rights shall not be negotiable and the corresponding shares shall be sold and the proceeds allocated to the holders of the fractional rights within the time period provided for by law.
Having received and considered the report of the Board of Directors and the special report of the Statutory Auditors, the shareholders hereby authorize the Board of Directors to grant on one or more occasions options to subscribe for new or purchase existing shares to those beneficiaries designated by it, which may include: n employees and executive directors of Natexis Banques Populaires and other companies in which Natexis Banques Populaires directly or indirectly holds the majority of the capital stock; n employees and executive directors of Banque Fédérale des Banques Populaires which controls Natexis Banques Populaires, the Banque Populaire banks and entities that are more than 50 %-owned either directly or indirectly, exclusively or jointly, by Banque Fédérale des Banques Populaires or affiliated institutions.
In accordance with the law, this authority constitutes ipso jure waiver by the shareholders of any pre-emptive rights over the shares to be issued upon exercise of the options.
average share price quoted on the Paris stock exchange during the twenty trading sessions preceding the date of grant, nor less than 97% of that averaged rounded up to the nearest one tenth of a euro.
Fourteenth resolution: Authority to increase the share capital by issuing shares to employees
The shareholders also empower the Board of Directors to complete and place the capital increases on record, and to alter the bylaws accordingly.
This authority is valid for a period of eighteen months with effect from the date of this meeting.
The shareholders confer full powers on the Board of Directors to complete the transactions required to cancel the shares and reduce the capital stock, to alter the bylaws accordingly and fulfill any other formalities required.
LEGAL FORM Natexis Banques Populaires is a société anonyme governed by French company law, the provisions of the French Monetary and Financial Code (Code Monétaire et Financier) and its bylaws.
DATE OF INCORPORATION AND TERM The Company was incorporated on November 20, 1919 under the name Crédit National. Its term was increased to 99 years on November 9, 1994, unless extended or wound up early.The name “Natexis Banques Populaires” was adopted by the shareholders at their meeting of July 27, 1999.
ACCESS TO LEGAL DOCUMENTS All documents concerning the company, including its bylaws, financial statements and reports presented to general meetings of shareholders by the Board of Directors or the Statutory Auditors, are available at the company’s head office.
The balance, plus any retained earnings, comprises the sum available for distribution, which may by resolution of the shareholders at the annual general meeting be used as they deem appropriate within the limits permitted by law, either by way of transfer to retained earnings or other reserves, or at the recommendation of the Chairman of the Board duly approved by the Board of Directors, distributed in full or in part as a dividend.
The shareholders may also resolve to distribute sums from retained earnings or reserves to which they are entitled. In this case, their resolution must expressly indicate which reserve accounts are to be used.
The shareholders’ resolution may offer the option of receiving all or part of the dividend in either cash or shares. In the latter case, payment will be made by means of allotting shares in the company in accordance with any applicable provisions of the law.
FORM AND REGISTRATION OF SHARES (TITLE II, ARTICLE 4 OF THE BYLAWS) Shares may either be registered shares or identifiable bearer shares, at the option of the holder. They are registered in an account and transferred according to the provisions of the law.
CAPITAL STOCK The capital stock was €772,095,392 at December 31, 2004, divided into 48,255,962 fully paid shares each with a par value of €16.
OTHER SECURITIES CONFERRING RIGHTS IN THE CAPITAL STOCK At their annual general meeting of May 27, 2004, the shareholders renewed the authority given to the Board of Directors in 2001, which expired in 2004, to grant employees of Natexis Banques Populaires and its subsidiaries and other employees of the Banque Populaire Group options to subscribe to new or purchase existing shares, for a further period of three years.The maximum number of new shares that may be issued pursuant to this authority is 1,884,473, including those issued upon exercise of options granted after May 27, 2004 (427,750 options) and those issued upon exercise of options granted prior to that date liable to be exercised within the period fixed at the time of grant (i.e. a maximum balance of 1,456,723 options).
At its meeting of November 17, 2004, after consultation with the Remuneration Committee, the Board of Directors decided to grant a maximum of 450,000 stock options in respect of 2004. A total of 427,750 options were ultimately granted, as follows: n 254,300 to employees and executive directors of Natexis Banques Populaires and its direct or indirect subsidiaries; n 173,450 to employees and executive directors of Banque Fédérale des Banques Populaires, the Banque Populaire regional banks or other entities that are more than 50%owned either directly or indirectly, exclusively or jointly, by Banque Fédérale des Banques Populaires or affiliated institutions.
**The amounts shown in this table are included in the table above.
OPTIONS EXERCISED BY THE TEN EMPLOYEES WHO EXERCISED THE MOST OPTIONS
Opening number Number of shares Closing number Capital stock of shares issued during the year of shares (€)
New shares issued in exchange for the transfer of Assurances Banque Populaire and Factorem and the transfer-merger of SAS Fructivie and Factorem 3,386,962 54,191,392 144,992,018.29
Rights issues made in November and December 2000 4,400,392 70,406,272 325,629,008.00
Closing number of shares 48,045,139 768,722,224 2004 Opening number of shares 48,045,139 768,722,224
OWNERSHIP OF CAPITAL STOCK AT DECEMBER 31, 2004 At December 31, 2004, the main shareholders of Natexis Banques Populaires were: % capital % voting rights
To the best of the Company's knowledge, no other shareholder owns over 5% of the share capital or voting rights.
In June 2001, a first Group employee stock ownership plan was established, resulting in the issuance of 1,273,854 new shares to Banque Populaire Group employees. 17,275 employees representing 50% of the total, subscribed to the offering. The shares are held in two new corporate mutual funds, which owned 2.54% of the capital stock of Natexis Banques Populaires at December 31, 2004. Including the corporate mutual funds previously established, Banque Populaire Group employees now hold 3.37% of the capital stock.
The number of shares owned by the executive directors is not material. Please see page 216 for stock options granted to certain employees and executive directors.
TREASURY STOCK Under the share buyback program authorized by the shareholders at the annual general meeting of May 27, 2004, at December 31, 2004 Natexis Banques Populaires owned 1,594,438 treasury shares (stripped of voting rights) representing 3.30% of the capital stock.
Quantity Purchase price Average Quantity Selling Average Final % of purchased (€) purchase price sold price selling price stock capital per share (€) (€) per share (€) stock
NATURAL OR LEGAL PERSONS THAT EXERCISE OR HAVE THE POWER TO EXERCISE CONTROL OVER NATEXIS BANQUES POPULAIRES As the majority shareholder of Natexis Banques Populaires, the Banque Populaire Group exercises the responsibilities provided for under banking law.
MARKET LISTINGS Until February 21, 2005, Natexis Banques Populaires shares were traded on the main market (Premier Marché) of Euronext Paris. Since that date, when the single Euronext market came into being, the shares have been traded on the Euronext Paris Eurolist. They are still eligible for deferred settlement (ISIN code: FR0000120685). Natexis Banques Populaires shares form part of the SBF 120 index.
Year Month Average price High Low Number Capital (€) (€) (€) of shares traded traded (€ 000s)
Financial Information Additional information 5 – Dividends Dividends not claimed within five years of the date of payment lapse and become the property of the French State in accordance with the law.
Up until payment of the dividend in respect of 1999, Natexis Banques Populaires offered shareholders the option of receiving the dividend payment in shares.This option will not be offered in 2005 in respect of the 2004 dividend.
HISTORY OF CCBP CCBP was founded in 1921 to support the expansion of the Banque Populaire regional banks, and to conduct both institutional activities on behalf of the Banque Populaire regional banks (managing and monitoring their cash surpluses, special assignments on behalf of the Chambre Syndicale des Banques Populaires, bond and similar issuance) and banking activities in the competitive market sector.
In October 1997, CCBP acquired a 23.35% holding in Natexis S.A.This was followed by a friendly takeover bid as a result of which the Banque Populaire Group held 71.4% of Natexis S.A. on June 2, 1998. This percentage was raised to 74.36% at end 1998.
At the end of 1999, the Banque Populaire Group held 88.06% of the newly formed Natexis Banques Populaires.At the end of 2000, its holding was reduced to 79.23% following a new share issue placed primarily with retail investors.
In June 1997, Crédit National, now renamed Natexis S.A., transferred its entire commercial banking arm to BFCE,which was renamed Natexis Banque. Natexis S.A. became a holding company and was responsible for the consistency and strategic management of all Natexis Group activities.
A series of other measures were taken during 1999 and 2000 to simplify the legal structure: n December 1999: merger of Banques Populaires Ingénierie (B.P.I.) into Natexis Banques Populaires; n December 1999: restructuring of the private equity arm; n June 2000: transfer to Natexis Banques Populaires of Bail Banque Populaire shares held by the Banque Populaire regional banks in exchange for 606,225 Natexis Banques Populaires shares; n transfer of Natexis Gestion’s fund management activities to Banque Populaire Asset Management.
DEPENDENCY Natexis Banques Populaires is not dependent on any patents, licenses or industrial, commercial or financial sourcing agreements.
STATEMENT BY THE PERSON RESPONSIBLE FOR THE SHELF-REGISTRATION DOCUMENT “To the best of our knowledge, the information provided in this document is true and accurate, contains all the facts required for investors to make an informed assessment of the company's assets, operations, financial condition, earnings and outlook, and contains no omissions liable to impair its significance”.
ACTING AUDITORS – Deloitte & Associés 185 avenue Charles de Gaulle - 92200 Neuilly-sur-Seine – Salustro Reydel 8, avenue Delcassé - 75378 Paris Cedex 08 – Barbier Frinault et Autres 41, rue Ybry - 92576 Neuilly-sur-Seine
We conducted the procedures we considered necessary, in accordance with the professional standards applied in France, to assess the fairness of the information concerning the financial position and historical financial statements included in the shelf-registration document and to verify its consistency with the financial statements audited by us.We also verified all other information contained in the shelf-registration document in order to identify any material inconsistencies with the information concerning the financial position and historical financial statements and to report any apparent material misstatement of information that we may have uncovered based on the knowledge we have gained of the company during the course of our engagement.
The parent company and consolidated financial statements for the year ended December 31, 2002, as approved by the Board of Directors, were audited by Barbier Frinault & Autres, Salustro Reydel and Deloitte Touche Tohmatsu in accordance with the professional standards applied in France.They expressed an unqualified opinion on those financial statements and their report contained no emphasis of matter paragraphs.
The consolidated financial statements for the year ended December 31,2003, as approved by the Board of Directors,were audited by Barbier Frinault & Autres, Salustro Reydel and Deloitte Touche Tohmatsu in accordance with the professional standards applied in France. They expressed an unqualified opinion on those financial statements. Their report contained an emphasis of matter paragraph concerning changes in accounting methods as described in note 2.17 to the financial statements pursuant to the firsttime adoption of standard CRC 2002-03 on the treatment of credit risk by companies governed by the Comité de la Réglementation Bancaire et Financière and of standard CRC 2002-10 on asset depreciation and impairment.
Opinion of the statutory auditors on the shelf-registration document Year ended December 31, 2004
The consolidated company financial statements for the year ended December 31, 2004, as approved by the Board of Directors, were audited by us in accordance with the professional standards applied in France.We expressed an unqualified opinion on those financial statements and our report contained no emphasis of matter paragraphs.
n The Statutory Auditors’ report (page 204) on the Chairman’s report on internal control procedures relating to financial reporting, drawn up pursuant to the final paragraph of article L225-235 of the French Commercial Code.
PERSON RESPONSIBLE FOR INFORMATION Pierre Jacob Head of Group Investor Relations e-mail: relinvest@nxbp.fr
STATEMENTS OF PERSONS RESPONSIBLE Statement of person responsible for the shelf-registration document p. 221 Statement of Statutory Auditors p. 222 Information policy p. 223
CAPITAL STOCK AND VOTING RIGHTS Current ownership of capital stock and voting rights p. 217 Trends in ownership structure p. 217, 218 Shareholders’ agreements None
Market risks p. 95 Business-specific risks p. 91 to 98 Legal risks p. 98, 221 Industrial and environmental risks None
ASSETS, FINANCIAL POSITION AND EARNINGS Consolidated financial statements and notes p. 104 Off-balance sheet commitments p. 106 Fees paid to Statutory Auditors and members of their groups p. 21 Pro forma financial information p. 79 Regulatory prudential ratios p. 99 Parent company financial statements and notes p. 154
This document is an English-language translation of the French shelf-registration document filed with the Autorité des Marchés Financiers (AMF) on March 25, 2005, in compliance with article 211-6 of the AMF’s standard regulations.
This document was produced with vegetable-based ink by a printer carrying the "Imprim'vert" logo, using 100% recycled, 80% chlorine-free paper.
A Strengthened Identity 22 International network 28 Simplified financial organization chart 30
Natexis Banques Populaires Businesses 32 Corporate and Institutional Banking and Markets 34