Strategic outlines and organization of the ESR 6.1 policy 392 Business line contributions to green 6.2 and sustainable growth 399 Management of ESG risks in our business 6.3 lines 406 Internal mobilization and management 6.4 of our direct impacts 412 Reporting frameworks and methodology6.5 433 Report by one of the Statutory Auditors, 6.6 a designated independent third-party body, on the consolidated social, environmental and societal information contained in the management report 436 77 LEGAL INFORMATION 439 Natixis bylaws7.1 440 General information on Natixis’ capital7.2 445 Distribution of share capital and voting rights7.3 450 Information from Article L.225-37-5 7.4 of the French Commercial Code 453 Draft resolutions of the Combined General 7.5 Shareholders’ Meeting of May 23, 2018 454 Statutory Auditors’ special report 7.6 on related-party agreements and commitments 468 88 ADDITIONAL INFORMATION 475 Statement by the Person responsible 8.1 for the registration document 476 Documents available to the public8.2 477 Cross-reference table of registration document8.3 478 Cross-reference table for the annual financial 8.4 report 480 Cross-reference table 8.5 for the management report 481 Cross-reference table between articles 8.6 of the CRR, Basel Committee/ EBA tables and statements, and the Pillar III report 482 Table Index8.7 485 EDTF recommendation cross-reference table8.8 487 Cross-reference table of Environmental and 8.9 Social Responsibility Information 488
This registration document was filed with the French Financial Markets Authority on March 23, 2018, in accordance with Article 212-13 of the general regulations of the French Financial Markets Authority. It may be used in connection with a financial transaction only if accompanied by a transaction note approved by the French Financial Markets Authority. The document has been prepared by the issuer and its signatories incur liability in this regard. This registration document includes all components of the annual financial report mentioned in Section I of Article L.451-1-2 of the French Monetary and Financial Code and Article 222-3 of the general regulations of the French Financial Markets Authority. A cross-reference table showing documents referred to in Article 222-3 of the general regulations of the French Financial Markets Authority and the corresponding sections of this registration document appear on page 478. The English language version of this report is a free translation from the original, which was prepared in French. All possible care has been taken to ensure that the translation is an accurate presentation of the original. However, the original language version of the document in French prevails over the translation.
We contined to develop our international presence: almost 50% of our business is now conducted abroad. We also pursued an active acquisition strategy in asset management, payments and insurance: we acquired Investors Mutual Limited, one of Australia’s most successful asset managers; we consolidated our payment activities by acquiring Dalenys, a fintech company specialized in e-retailer solutions; and we internalized the entire insurance value chain by acquiring MAIF and MACIF's equity interests in BPCE Assurances in the fourth quarter.
We successfully completed our New Frontier strategic plan. As a customers for the quality of its expertise, and take on our new result of the dedication and effort of Natixis’ 17,000 employees, strategic challenges for 2018-2020 with confidence. we are now a solid, profitable company, that is recognized by
What are your ambitions for 2018 and your medium-term vision for Natixis?
2018 marks the first year of our new strategic plan “New Dimension”, which is designed to deliver sustainable growth in every one of our businesses.
BPCE organization chart1.3.3 11 2017 KEY FIGURES1.4 12 Natixis income statement 12
NATIXIS AND ITS 1.6 SHAREHOLDERS 30 Key share data at December 31, 20171.6.1 30
The Code of Conduct applies to all individuals employed on a permanent or temporary basis at Natixis, or in an entity in which Natixis holds a stake of at least 50%, whether in France or abroad. Suppliers and contractors are also required to comply with the rules applicable to each Natixis entity, in accordance with the principles of the Code of Conduct.
The Code comprises two key sections. The first defines the commitments making up Natixis' “DNA”: to add value to its clients, staff, shareholders and society as a whole. The second section presents all the guidelines, detailed below, to help staff in their actions and decisions: C O
The Code of Conduct does not, however, have a rule for every situation: it is the responsibility of each individual to exercise his or her personal judgment with regard to their duties. To do so, the following conduct checklist is provided: While the Code of Conduct, as well as relevant internal policies and procedures, provide clear guidelines for behavior, not every situation that arises in day-to-day activities can be directly covered by a rule. Making the right decision will require personal judgment, taking account of Natixis DNA and the spirit of the Code of Conduct principles.
26 asset management companies (Natixis Asset Management, Loomis Sayles, Harris Associates, AEW…) applying multiple investment approaches: Specialized Fixed
NON-LIFE INSURANCES Car insurance, home insurance, home and leisure accidents insurance, health insurance, legal protection insurance and means of payment insurance
PAYMENTS NATIXIS PAYMENT SOLUTIONS Payment and prepaid activities and solutions, in proximity, by internet and by mobile
* EMEA: Europe, Middle East, Africa. Headcount - end of December 2017 (Excluding Coface, Private Equity, Natixis Algerie).
Natixis was formed by the execution of the following contributions: CNCE’s contribution to Natexis Banques Populaires of certaina subsidiaries and shareholdings in corporate, investment and service banking businesses, as well as a share of the cooperative investment certificates (CCI) issued since 2004 by each Caisse d’Epargne et de Prévoyance; and the contribution to Natexis Banques Populaires by SNCa Champion, a vehicle set up by the Banque Fédérale des Banques Populaires (BFBP) and the Banques Populaires, of the remaining Caisses d’Epargne CCIs not contributed by CNCE and which had previously been acquired by SNC Champion from CNCE. In addition, CNCE and SNC Champion contributed stakes in Ixis CIB and Ixis AM that they had previously acquired from Sanpaolo IMI.
As a result of these contributions, CNCE and BFBP (directly and indirectly through SNC Champion) each had a 45.52% stake in Natexis Banques Populaires, the name of which was then changed to Natixis.
In addition to these contributions, each Banque Populaire issued CCIs representing 20% of their capital in favor of Natexis Banques Populaires, which has since become Natixis.
On February 26, 2009, the BFBP Board of Directors and the CNCE Supervisory Board approved the terms and conditions of the merger of their two central institutions, leading to the creation of the number two banking group in France.
With the 14 Banque Populaire banks, 16 Caisses d’Epargne, Natixis, Crédit Foncier, Banque Palatine and BPCE International et Outre-mer, Groupe BPCE offers its customers a broad range of products and services, including solutions for savings, investment, cash management, financing and insurance.
Groupe BPCE provides a guarantee and solidarity system covering all banks affiliated with it.
At December 31, 2017, BPCE held 71% of the share capital of Natixis (71.02% of voting rights) (see Section 1.3.2 Financial solidarity mechanism). The structure of Groupe BPCE at December 31, 2017 was as follows: Banques Populaires Caisses d’Epargne
RÉSULTAT NET PART DU GROUPE 1 374 1 344 1 138
Fitch A (positive) F1 ** Proposal presented to the May 23, 2018 Shareholders’ Meeting.
Natixis is the international corporate and investment banking, asset management, insurance and financial services arm of Groupe BPCE, the second largest banking group in France.
Natixis has a number of areas of expertise that are organized into four main businesses — Asset & Wealth Management, Corporate & Investment Banking, Insurance and Specialized Financial Services — and include the activities of the Corporate Center.
The macroeconomic environment was very positive throughout the year with strong US growth, renewed optimism in Europe, strong corporate profitability, ample liquidity on the markets, and accommodative monetary policy in Europe. Investment performance was strong across the range of investment affiliates, helping to produce a 15% increase in revenues, 27% increase in operating profits, and €24 billion in net inflows.
Building on its current leading market position and its innovative and differentiating multi-affiliate business model, Natixis Investment Managers intends to further enhance the reach of its distribution network, continue to diversify its lineup of affiliate investment offerings, simplify its global operating model, and expand its global footprint and capabilities.
Natixis Investment Managers will continue to cement itself as a leading global player in the asset management industry, anchored by mature, market-leading businesses in the US and France, a growing presence across Europe, and continued strong growth in other critical regions, including the Asia-Pacific, the Middle East and Latin America.
Overall, it is targeting an annual revenue growth rate of 6% and net flows of €100 billion for the period 2018-2020. Its objective is to generate more than €1 billion in operating income in 2020 and reach €1 trillion of assets under management by the end of 2020.
Natixis Investment Managers: 26 specialized investment managers in the US, Europe and Asia (at end-2017 — assets under management in billions of euros)
Natixis Asset Management (€316.3 billion): fixed income, European equities, investment and client solutions, volatility anda structured products, global emerging; Loomis Sayles (€223.2 billion): equities (growth, core, value) and fixed income (core to high yield);a
AEW Europe (€27.7 billion): real estate asset management, real estate investment trusts (SCPI) and real estate mutuala funds (OPCI); AEW Capital Management (€20.8 billion): real estate asset management;a
H2O Asset Management (€15.8 billion): global macro multi-strategy and international fixed income;a
VEGA Investment Managers (€6.6 billion): funds of funds and fund selection;a
finance consulting and securities hedging. Natixis Wealth Management also relies on its asset management subsidiary, VEGA Investment Managers, and on all the affiliates of the group for their specific expertise.
In addition, Natixis Wealth Management has developed its own expertise in wealth engineering, credit facilities, corporate
The Wealth Management Division serves two types of clients: group sourcing (the wealth management customers of BPCE banking network and business from Natixis) and direct clients. The Sélection 1818 platform, which addresses Independent Wealth Management Advisors for a clientele mainly “mass affluent” is in the process of being sold.
In 2017, Natixis Wealth Management had net inflows of €1.4 billion and manages a total of €31.6 billion.
Corporate & Investment Banking serves corporate clients, financial institutions, institutional investors, investment funds, public sector entities and the Groupe BPCE networks. It advises them and develops innovative tailor-made solutions to support their strategy, drawing on the full range of its expertise in Investment Banking and Mergers & Acquisitions, on the capital markets, in financing and in transaction banking. Its objective is to develop a strategic dialog with each of its clients over the long term, by building a close working relationship with them through a strong regional and international presence.
Corporate & Investment Banking is structured as five areas of expertise: Capital Markets (Global Markets): a wide range ofa diversified, standard and bespoke products and solutions on the fixed income, credit, forex, commodities and equities markets; Financing (Global Finance): origination, arrangement anda syndication of structured financing, as well as portfolio management for all vanilla and structured financing under an originate-to-distribute (O2D) model; Global Transaction Banking: trade finance, liquiditya management, cash management solutions for corporates and financial institutions, and working with clients to develop their business in France and internationally; Investment Banking: strategic financing and acquisitions,a financing on the primary markets for bonds and equities, financial engineering applied to holdings, and financial structure and rating advisory services; Mergers & Acquisitions: preparation and execution ofa disposals and mergers, fundraising, restructuring and capital protection.
Corporate & Investment Banking has a cross-business Coverage team dedicated to Natixis’ client coverage. This team sees clients through every stage of their development, drawing on all areas of Natixis' expertise to anticipate clients' needs and offer them targeted advice on the challenges they face. Organized by client type (financial institutions and the public sector, investment funds and corporates), the Coverage function has a strong regional presence in France, and is supported internationally by all the Natixis teams working in 38 countries. This structure encourages responsiveness, close, personalized working relationships and in-depth strategic dialog over the long term with clients.
In 2017, Corporate & Investment Banking continued to expand internationally: in March 2017, the Asia-Pacific platform opened a branch in Taipei to support its business development in the Greater China region, and obtained a license to provide M&A advisory services in Hong Kong.
On November 20, 2017, Natixis unveiled its new 2018-2020 strategic plan called “New Dimension” under which Corporate & Investment Banking aims to: be recognized as a provider of innovative, tailor-madea solutions; become the go-to-bank in four selected key sectors: Energya and natural resources, Infrastructure, Aviation, Real Estate & Hospitality.
In addition, Corporate & Investment Banking intends to increase business with insurers and financial sponsors, become a leading player in green business and continue to expand internationally with a goal to generate over 40% of its revenues in the Americas and the Asia-Pacific region by the end of the plan.
The business will grow by maintaining very stringent risk and asset-liability management using the O2D model in particular. Starting from high revenues in 2017, Natixis aims to increase the net revenues of its Corporate & Investment Banking business by 3% per annum over the course of the plan, with a return on equity target of 14% in 2020.
As part of this process, in October 2017 Corporate & Investment Banking announced a project to enhance the organizational structure of Global Finance. It includes the creation of an Energy & Natural Resources business line and a Real Assets business line, including the Infrastructure, Aviation and Real Estate & Hospitality businesses. To consolidate the O2D model, the syndication activity in these sectors is being merged with the Global Portfolio Management business, which is also stepping up its role in the active management of the loan book. The aim of this project is to: capitalize more effectively on the sector expertise acquired ina energy and commodities, infrastructure, aircraft and real estate finance; develop commercial relations with customers in thesea sectors; promote the development of the Investment Banking anda M&A business lines.
Among the international initiatives, the Asia-Pacific platform strengthened its local offering and integrated China’s Green Finance Committee, an offshoot of the Chinese central bank to better meet the needs of local issuers and investors and support the development of the green banking industry.
This partnership will result in: the transfer of Natixis’ equity broking and equity researcha activities in France to ODDO BHF; the reunion of both players’ equity capital markets activities ina France under Natixis; the acquisition by Natixis of a 5% equity interest in ODDOa BHF.
Underpinned by extremely rigorous risk management, the capital markets business is based on a strategy focused on delivering solutions in which innovation and responsiveness to clients’ specific needs are strong differentiating factors. The financial engineering and sales teams therefore play a central role in this strategy, which focuses squarely on dialog with clients, thereby strengthening long-term relationships.
As a result of the strategy implemented over the past four years, Global Markets delivered an excellent performance in 2017, outperforming the market and with revenues up sharply despite a difficult environment, particularly in the third quarter, which was marked by low volatility.
In compliance with the French law on the separation and regulation of banking activities, the Treasury and Collateral Management team, which used to report to Global Markets, was placed under the oversight of the Finance Department from April 1, 2017. A functional reporting line is maintained with the Global Head of Global Markets and the functional link with the Chief Financial Officer continues.
In December 2017, Natixis and ODDO BHF announced plans for a long-term partnership on the equity markets, which would result in the transfer of Natixis’ equity brokerage activities in France to ODDO BHF in order to create a leading player in continental Europe.
On the equity derivatives market, Natixis offers integrated services that address the goals and constraints of clients and are based on seven pillars: equity investment solutions, equity finance, algorithmic indexes, legal arrangements and regulatory solutions, fund solutions, hybrid products and Alternative Risk Transfer activities. The bank caters to insurers, pension funds, asset managers, hedge funds, private banks, family offices, bank and insurance distribution networks and wealth management advisors.
The new team also helps the bank adapt to changes in the market and regulatory constraints (relating to balance sheet, LCR, RWA, etc.), and provides an overview of the bank’s assets, mainly equities and fixed income (collateral) in order to manage them more efficiently and comprehensively.
A recognized leader on the share lending/borrowing market, Natixis was named “2017 Best Equity Borrower Globally” (Group 2) and “Best Equity Borrower (Group 2): Relationship Management” for the fourth consecutive year by specialist magazine Global Investor/ISF (source: Equity Lending Survey 2017 — Global Investor/ISF — The survey distinguishes between Group 1 and Group 2 based on the volume of transactions processed).
Global Markets research has developed recognized expertise in the following areas: equity research, SRI (socially responsible investment), credit and macroeconomic research, investment strategies, and commodities, fixed income and forex research.
During 2017, the research teams came together to address the implications of MiFID II, which came into force on January 3, 2018. Aimed at increasing the transparency of the financial markets and stepping up investor protection, this directive requires EU companies providing portfolio management or other investment services to separate trading commissions from the cost of accessing research. As of early 2018, clients will be charged for access to research so that it cannot be considered an inducement.
Global Finance encompasses advisory, origination, arrangement and syndication activities of structured financing in four sectors (aviation, exports and infrastructure, real estate, energy and commodities), as well as active portfolio management for all the vanilla and structured financing that forms the basis of the O2D (Originate to Distribute) value chain.
Following on from 2016, the reinforcement of the O2D model in 2017 has helped accelerate balance-sheet rotation and improve capacity to serve clients, as reflected by the sharp increase in business levels despite increased regulatory constraints and steeper competition.
Natixis’ offering in aviation, export and infrastructure finance combines its advisory expertise in financial, arrangement, structuring, agent and distribution services. The team is developing optimized financing solutions in both banking and institutional markets.
Infrastructure financing saw sustained business activity in the three international platforms and across all asset types — particularly in renewable energy, where Natixis is continuing its mobilization efforts in support of energy transition. Natixis is ranked No. 1 in the Middle East (source: IJ Global) after financing of the largest PV power park in the world, Sweihan in Abu Dhabi, and the Mohammed Bin Rashid Al Maktoum solar park in Dubai. In the environmental sector, it is also financing the expansion of the Shuaibah seawater desalination plant in Saudi Arabia. Natixis remains highly active in renewable energy in Europe: for example, it has issued the first project bond in the wind power sector in Italy for Glennmont Partners, and in Asia (wind and solar financing). It also arranged financing in the form of a €400 million high-yield bond for Senvion, one of Europe’s leading wind turbine manufacturers. In Canada, it refinanced the Illumination, Glenarm and Goldlight solar power plants on behalf of DIF Infrastructure.
Natixis has become a major player on the PPP and privatization markets in Australia. For example, it financed several renewable energy projects, such as the Willogoleche wind farm in South Australia and the Daydream and Hayman solar farms in Queensland, as well as the construction of two data centers for Airtrunk. In Mozambique, Natixis is financing the construction of a liquefied natural gas production vessel. This €8 billion project is the year’s biggest infrastructure financing project globally. In the United States, it refinanced liquidity lines and acted as Issuing Bank for a portfolio of gas power plants in Georgia owned by the Carlyle Group and GE.
The bank also reaffirmed its leading role on the global market for aircraft finance by arranging the acquisition of a Boeing 787 by Air France in the form of a JOLCO, a first for the airline for this type of aircraft, the financing of a fleet of 18 aircraft for aircraft leasing company Vermillion held by Asian conglomerates and assisting in a US dollar-denominated private placement for Goshawk Aviation. Natixis also signed a partnership agreement with the aircraft leasing company Minsheng Financial Leasing, a subsidiary of a Chinese bank seeking to expand its fleet and acquire financing and investment solutions.
In energy and commodities, Natixis provides global sector-specific coverage for all parties, as well as the arrangement, structuring and distribution of loans specific to these markets: pre-export financing, transactional facilities, borrowing base financing, reserve-based lending, etc.
For example, Natixis assisted Trafigura in an innovative bespoke securitization program, backed by oil and gas inventories, coordinated a $1.7 billion pre-export finance deal for the Russian aluminum producer UC Rusal, renewed a $1.4 billion RCF in favor of the energy trader Gunvor, and financed the Ghana Cocoa Board’s cocoa campaign amounting to $1.3 billion. In the Americas, it contributed to the financing of The Washington Companies’ acquisition of Dominion Diamond, Canada’s No. 1 diamond producer and No. 3 worldwide, and the acquisition of ThyssenKrupp’s Brazilian operations by the Latin American steel group Ternium.
number of landmark transactions in France (acquisition finance of €900 million for the Cœur Défense office tower, co-underwriting of the €350 million refinancing of Hyatt hotels, setting up a €1.8 billion syndicated corporate loan for the property company Carmila) in Germany (€157 million in financing for the acquisition of the Eschborn Plaza office complex in Frankfurt, €165 million in financing for the acquisition of office buildings in Düsseldorf), in Italy (€100 million in financing for the development of 148,000 m² of warehouse space fully leased to Amazon, €185 million in financing for the acquisition of office properties in Milan, Rome and Bari) and in Spain (co-underwriting of the Colonial corporate loan (€350 million) and co-underwriting in a €582 million corporate loan on behalf of Realia Patrimonio). Natixis Pfandbriefbank AG continued its development in 2017 and, in particular, issued €250 million in additional “Pfandbrief” bonds, bringing total issuance since the institution was established to €1.3 billion.
The Global Transaction Banking (GTB) teams sell Natixis’ corporate clients solutions for monitoring, optimizing and enhancing their cash flow and for financing and securing their international trade transactions. They support them over the long-term, at every step of their projects, helping them select and implement the solutions adapted to their needs, in France and across the platforms in Asia-Pacific (Singapore, Shanghai, Hong Kong, Beijing), the Americas (Mexico, New York, São Paulo) and the EMEA region (Madrid, Dubai, Moscow, Milan).
Trade Finance: Natixis contributes to the internationala development of its clients by offering solutions to finance and secure their import and export operations (out of Dubai, Hong Kong, Moscow, New York, Paris, São Paulo, Shanghai and Singapore), together with a set of integrated RMB (renminbi) services. It has strong banking risk coverage capabilities and offers a full range of market guarantees.
It also offers supply chain finance solutions to clients who wish to optimize their cash flow and offer financing to their suppliers.
Natixis received the “Quality Leader” award for 2017 in the Large Corporate Trade Finance category for France (source: Greenwich Associate).
It delivers products that put their cash surpluses to work through interest-bearing accounts, including deposit accounts, securities accounts and market deposits.
The GTB experts, together with eight other banks, played an active role in the launch of the we.trade shared platform. This new ecosystem is based on blockchain technology and designed to streamline international trade transactions by connecting companies, their banks, carriers and other players involved in the execution of transactions. This initiative was voted the Innovation 2017 for Trade Finance by Global Finance magazine.
Global Transaction Banking developed other digital projects in parallel to this, in connection with Groupe BPCE’s strategy. For example, Natixis is a member of the SWIFT global payments innovation (gpi) to improve the transparency and traceability of international payments. As a member of the R3 consortium, Natixis also helped to create new banking infrastructure based on blockchain technology.
The objective of Investment Banking business line is to enhance strategic dialog with clients by delivering the best possible combination of solutions to meet their financing needs. It encompasses the activities of strategic financing and acquisitions, financing on the primary markets for bonds and equities, and financial engineering applied to holdings (Strategic Equity Transactions — a team that reports both to the Head of Investment Banking and the Head of Global Markets). It also includes advisory services in financial structuring and rating matters.
Strategic and acquisition finance transactions and primary bond issues. It is also recognized for its structuring and placement capacity, thanks to its dedicated syndication and secondary market teams.
Natixis is a world-class player in strategic and acquisition finance, with over 25 years of experience in the sector and offices in Europe (Paris, London, Milan and Madrid), Asia (Hong Kong, Singapore and Sydney) and the Americas (New York). It offers corporate clients and investment funds a full range of financing to match their various strategic requirements, including acquisitions, shareholder restructuring and investments. Natixis arranges tailor-made solutions, drawing on the full range of its expertise in M&A advisory, equity market
Having adopted the Equator Principles in 2010 and signed up to the Paris Green Bonds Statement in 2015, Natixis has actively supported the development of green bonds by stepping up its presence in this market worldwide and across all issuer categories, in euros, dollars and yen.
In 2017, Natixis conducted a number of landmark transactions, confirming its commitment to its clients and its expertise in the following segments: Green bonds: for corporates: Natixis participated in the bond programs ofa Iberdrola (€750 million) in Spain, of Engie (€1.5 billion in two tranches) in France and of Enel (€1.25 billion) in Italy; for financial institutions: in Asia, Natixis led the first-evera euro-denominated green issues of Mizuho Financial group (€500 million) in Japan, of China Three Gorges in China (€650 million) and the first dollar-denominated green issue for DBS Bank, the biggest bank in South-East Asia ($500 million); for sovereigns/supranationals/agencies: Natixis acted as jointa bookrunner in the RATP and SNCF issues (€500 million and €1.75 billion respectively) in France and the Comunidad de Madrid issue (€700 million) in Spain.
It also acted as joint bookrunner in the first-ever green OAT French treasury bonds (€7 billion) issued by Agence France Trésor (French Republic).
In terms of US dollar-denominated issues (RegS/144A), Natixis led five headline issues in Africa and the Middle East for the Arab Bank of Egypt ($4 billion), the Republic of Senegal ($1.1 billion), the West African Development Bank ($850 million), the Republic of Côte d’Ivoire ($1.21 billion) and VakifBank ($500 million) in Turkey.
Natixis arranged the German law private placement (Schuldschein) of Vilmorin & Cie (€100 million). It was also active on the US PP market, including Bonduelle’s first private placement in two tranches ($150 million and $50 million) and that of Goshawk Aviation ($566.5 million).
Natixis acted as bookrunner in the new senior non-preferred segment in issues for BPCE (€1 billion and SEK 750 million), Banco Santander (€1.5 billion) and BBVA (€1.5 billion).
On the Equity Capital Markets (ECM), Natixis provides clients with tailored advisory services for all transactions that affect their capital structure: IPOs, capital increases and convertible or exchangeable bond issues. Natixis is also developing advisory services for carrying out public tenders or exchange offers.
During the year, Natixis conducted a number of landmark transactions including a capital increase for Tikehau Capital in the capacity of global coordinator (€702 million), and the initial public offering of Balyo with the associated liquidity contract. It also led the “Océanes” convertible bond issues for Carrefour, Artémis, Vallourec, Elis and Genfit, and “Ornanes” convertible bond programs for Pierre et Vacances in France. Natixis was No. 3 lead bookrunner on equity capital markets in France by number of deals. Natixis was ranked No. 2 lead bookrunner in the equity-linked market in France by number of deals (source: Bloomberg).
The teams specializing in mergers and acquisitions help clients (large and medium-sized commercial and industrial corporations, institutional investors and investment funds) prepare and execute disposals and mergers, fundraising, restructuring and capital protection.
It also pursued its international development. In the United States, it is supported by its subsidiary PJ SOLOMON, which specializes in advising listed and unlisted companies on mergers, acquisitions, capital structure and restructuring transactions. For example, it advised Macquarie in the increase of its ownership interest in APRR. In Europe, the Milan branch strengthened its M&A advisory offering through a number of high-level recruitments, while in Madrid, Natixis Partners Espana confirmed in 2017 its leading position in the Iberian market. Ranked No. 1 by volume and No. 3 by number of deals with Private Equity firms (source: Transactional Track Record), it notably advised CVC Capital Partners in the acquisition of a 25% equity interest in Compania Logistica de Hidrocarburos (CLH), the Spanish leader in the transport and storage of petroleum products. In the Asia-Pacific region, Natixis, acting as exclusive strategic and financial advisor, assisted the Chinese consortium formed of Fosun International and Beijing Sanyuan Foods Co., Ltd. in the acquisition of the dairy producer Saint Hubert.
By encouraging cooperation among the international teams, the bank is expanding support for French clients’ international operations and assisting international investors wishing to establish themselves on the markets covered by Natixis.
In 2008, Natixis established the GAPC division structure (Gestion Active des Portefeuilles Cantonnés — Workout Portfolio Management) in order to (i) isolate the assets that were most impacted by the crisis and that were no longer deemed to fit the new strategic direction of Natixis, and (ii) progressively offload these assets by means of active management, ensuring the proper balance between speeding up the return of capital and the resale price of the assets.
The general mechanism behind the guarantee is based on the establishment of: i. Two Total Return Swap (TRS) agreements, one in US dollars and the other in euros, covering 85% of the net value of the assets recognized in the trading portfolio and risks linked to counterparties not providing collateral. The purpose of these TRS is to transfer 85% of the gains or losses of the accounting units in which the assets are recognized at their fair value through profit or loss. On top of these two TRS, Natixis purchased an option from BPCE (the “Option”) allowing it, should it be exercised, to recover, in 10 years’ time, the capitalized net performance of the portfolios covered by the TRS and to terminate the TRS; ii. A financial guarantee covering 85% of the nominal value of the assets recognized under IFRS as “loans and receivables” (L&R) and “available-for-sale assets” (AFS), as determined at the effective date of the guarantee (i.e. June 30, 2009), less any amortization expensed prior to June 30, 2009.
Natixis’ Insurance division had 1,601 full-time equivalent (FTE) 2016. The Insurance business’s total revenue from direct sales employees at the end of 2017, compared to 1,567 at the end of exceeded €11.7 billion in 2017.
The Group’s five largest entities are: BPCE Vie, a mixed insurance company that offers aa comprehensive range of policies and agreements with commitments that are tied to the length of the policyholder’s life. BPCE Vie accounts for the majority of the Personal Insurance business’s workforce and provides the other entities of the Insurance division with various resources necessary for operating insurance activities; BPCE Prévoyance, a non-life insurance company whosea operations include insurance coverage for accidents, sickness and different forms of financial loss; BPCE Assurances, a non-life insurance company that offers aa full range of property and casualty insurance products (auto insurance, multi-risk home insurance, personal accident coverage, health insurance, legal protection and business and personal protection insurance for professionals); Natixis Life, a Luxembourg-based life insurance company thata offers life insurance and investment solutions to high net-worth customers; BPCE IARD, a non-life insurance company that offers a fulla range of property and casualty insurance products (auto insurance, multi-risk home insurance and legal and multi-risk coverage for professionals).
Natixis’ Insurance division, through its different operational entities, now offers a comprehensive range of life and non-life insurance policies, with the Banque Populaire banks and Caisses d’Epargne the main contributors to the business. On occasion, distribution partnerships have been entered into with third parties related to customer segments and coverage not considered to be a core part of the division’s development strategy. In 2013, echoing its strategy to prioritize the allocation of its resources toward harnessing the full potential of the Banque Populaire and Caisse d’Epargne networks, Natixis Assurances decided to discontinue its life insurance business developed via CGPI (independent wealth management advisors) and private banks in view of the major investments needed to develop a market segment characterized by low unit margins and considering the large positions acquired by the established players in this sector. An agreement has been reached to sell this portfolio, which represents €583 million in assets. The completion of this sale is subject to approval by the ACPR.
Since the launch of the 2014-2017 plan, the Insurance division’s business has evolved in an unprecedented and ever-changing environment.
Finally, the rapid development of digital technology and its application toward the development of new methods of distribution and customer interaction is a source of opportunities that the Insurance division is closely monitoring. Accordingly, it has pursued a policy aimed at: digitalize its management processes. Thus, the expansion ofa the life insurance business into the Caisse d’Epargne network has led to the opening of a new management site that employs entirely digital processes. The business line intends to continue pursuing the digitalization and automation of low-value-added processes in order to become one of the most efficient players in terms of management costs relative to assets under management; adapting subscription processes to incorporate new digital toolsa and align with customer behavior. Already, a significant share of non-life subscriptions is performed remotely and formalized using an electronic signature, and preparations have been made in anticipation of rapid development in these approaches; continuing to scale down administrative management activitiesa in favor of in-branch transactions using applications installed on work stations and customer-initiated transactions through the self-care options gradually being rolled out for the majority of products and management operations; continuing to adapt information systems with the aim ofa improving operational efficiency and service quality. For example, the changeover from BPCE Vie’s “Life Insurance Savings” management information system, finalized in 2012, was followed in 2016 by changes to BPCE Assurances’ management information system for property and casualty insurance. An overhaul of BPCE Assurances’ claims compensation information system was launched in 2016 and continued throughout 2017; outsourcing low-value-added operations to address changes ina activity or to process specific operations for which adequate in-house expertise is not immediately available.
In Personal Insurance, 2017 was the first full year of sales for the new life and personal protection line on the Caisse d’Epargne network, after being gradually introduced in 2016.
Total revenue from direct sales climbed to €10.3 billion, a substantial increase (+53% versus 2016) boosted by the Caisse d’Epargne network’s sales of the new range of products. Assets under management were up 14.5% to €54.7 billion. Revenue from the personal protection insurance and payment protection insurance activities grew to €820 million in 2017, up 8% compared to the previous year.
The year 2017, which was the first full year for the Personal Insurance business line in its newly restructured form, saw the successful implementation of numerous projects, including:
26 Natixis Registration Document 2017 the move#2018 transformation program, launched in earlya 2017. The goal of this program is to achieve convergence between distribution and management models on the Banque Populaire and Caisse d’Epargne networks; ANAbot, a chatbot that is operational since July 2017. The bota enhances the employee and customer experience by dealing with queries with greater responsiveness.
Non-life insurance continued to record strong business growth, in line with the ambitions of Groupe BPCE’s 2014-2017 strategic plan “Another way to grow”. Overall, property and casualty insurance premium income stood at €1,386 million, representing an 8% increase.
The business line’s digital transformation continued in 2017. Notable developments in this regard included the growth in distance sales among the Banque Populaire banks and Caisses d’Epargne as a result of an improved customer experience, and more extensive digitalization of claims management through a project to overhaul the claims management system.
Natixis’ Specialized Financial Services business line comprises three major business categories, Specialized Financing, Payments and Financial Services, with similar industry and distribution strategies.
These businesses are dedicated to the development of the BPCE networks (the Banque Populaire and Caisse d’Epargne banks, etc.) with which they create strong synergies.
Specialized Financing offers retail, professional and corporate customers a range of services designed to optimize their cash management or support their investment projects: factoring, sureties and guarantees, leasing, consumer finance, and film and audiovisual financing.
Since 2017, all the Groupe BPCE payment activities are organized around Natixis Payment Solutions (transfers, direct debits, electronic payment transactions, etc.): Natixis Intertitres (service vouchers), S-Money, Le Pot Commun (online money pot), E-Cotiz (online fee management solution for non-profits), Depopass (secure peer-to-peer payments).
Financial Services comprise employee savings (profit-sharing and incentive plans), pension schemes (individual and collective pension plans, etc.), collective personal protection insurance, securities account administration and financial market transactions (retail and Private Banking custody) and service vouchers.
In line with Groupe BPCE’s “Together” and “Growing Differently” projects, the 2018-2020 plan again included the aim of further increasing synergies with the Banque Populaire and Caisse d’Epargne networks. It is supplemented by two major ambitions: to pursue an innovation and digitalization strategy to make the businesses 100% digital by 2020, and to become a pure player in payments in Europe.
The Natixis Factor subsidiary creates and manages solutions designed to enable companies of all sizes to optimize and manage their accounts receivable: factoring and financing, credit insurance, information and receivables management.
With nearly 2,200 new contracts signed this year, Natixis Factor affirmed its leading position and consolidated its historical development strategy: supporting companies, from professionals to major corporate clients. Its client satisfaction rate was 90% at the end of 2017.
The Activ’Tréso digital service was launched in 2017 and offers SMEs a real-time, personalized diagnostic of their credit management solutions as well as recommendations to optimize their cash flow.
Bank loan sureties secure financing for the projects of individuals (mortgage guarantees), professionals (business start-ups or transfers, equipment, commercial property) and social economy and social housing operators (medium- and long-term loan sureties). The contractual, tax or regulated financial guarantees are used to help companies in their development. Financial guarantees to real estate businesses protect consumers or secure transactions in accordance with regulations that are specific to certain trades: guarantees to single-family home builders and real estate developers, guarantees to property managers and real-estate agents.
CEGC ranks second in the French market for mortgage guarantees for individuals and guaranteed over €39 billion in loans in 2017 on a market supported by persistently low interest rates.
It is a leading player in the property administration, third-party management of retail and office space, and residential sector market, issuing some 6,600 guarantees in 2017 with a volume of over €7 billion. In 2017, it guaranteed the completion of nearly 21,000 individual homes in France. CEGC is also present on the business market thanks to its digital offering in market sureties management solutions, with more than 92,000 guarantees issued in 2017, up 16%.
Natixis Lease is a subsidiary of Natixis and develops and distributes one of the widest ranges of integrated solutions on the market in terms of equipment and real estate leasing, long-term vehicle leasing, renewable energy financing and IT operational leasing. It also arranges and syndicates customer loans.
Natixis Lease is a key player in the French leasing market. It supports companies and other professionals in all of their equipment and real estate leasing investment projects, and includes social economy and institutional players among its customers.
With over €475 million in leases arranged, Energeco remained strong in renewable energy financing, performing well in the Caisse d’Epargne network in particular.
Natixis Lease continued to roll out its offer in the Banque Populaire and Caisse d’Epargne banks, recording more than 9,000 new orders in long-term vehicle leasing and posting growth of 17% compared to 2016.
It provides the full range of consumer finance expertise for Groupe BPCE banks: design and marketing, network coordination, credit scoring, management and carrying of loans (revolving credit), collections and litigation. Despite a very restricted consumer financing backdrop during the year, Natixis Financement maintained solid commercial momentum, particularly in repayment loans.
At December 31, 2017, outstanding loans stood at €22.7 billion, up 10% year-on-year, consolidating the Company’s No. 3 spot on the French market (source: internal Natixis Financement survey).
At the end of 2017, new financing totaled €580 million, up 3% compared to 2016. In descending order, the loans mainly went towards financing cinematographic works, television programs and movie theaters, with marked development in the audiovisual arena in 2017. Natixis Coficiné managed a total of nearly €685 million in new loans in 2017.
In 2017, Natixis Interépargne consolidated its leading position in employee savings account administration in France, with over 2.8 million employee accounts under management, i.e. a market share of 27.6% (source: AFG at June 30, 2017).
The collective pension plan (Perco) has consistently posted robust growth since inception, particularly in the corporate and institutional client segments. The number of Perco accounts increased by 10% year-on-year, with a 29.7% market share of accounts under management (source: AFG at June 30, 2017).
The employee savings offer tailored to SMEs and professionals, distributed by the Banque Populaire and Caisse d’Epargne networks, delivered another strong performance with over 15,000 new contracts. To further optimize the client experience, Natixis Interépargne has based its innovation approach on feedback from companies and Perco clients and on the co-creation of new services. As part of its firm commitment to the digital transformation of its processes and offerings, Natixis Interépargne offers Perco clients a comprehensive range of digital services and online tools (virtual advisor, simulation tools, smartphone and tablet applications enabling mobile transactions, etc.).
CHANGE IN THE NUMBER OF COLLECTIVE PENSION PLAN ■ (PERCO) ACCOUNTS
Since early 2017, Natixis Payment Solutions combines all payment solutions and activities — prepaid, local, online and mobile — executed on behalf of the Groupe BPCE banking networks, the direct customers of French banking institutions, new payment service providers and large European corporate clients.
In addition to card and SEPA payment solutions, the business now includes service vouchers (Chèque de Table/Apetiz, Cesu Domalin, Cado Chèque/ Cado Carte), Le Pot Commun (online money pot), E-Cotiz (online fee management platform for non-profits), Depopass (secure peer-to-peer payments). The S-money third-party money collection solutions and the acquisition of PayPlug and Dalenys completed the range of omnichannel retail solutions in France and Europe.
In 2018 Natixis Payment Solutions will pursue the digital transformation of all its businesses and grow its customer base with the aim to become a pure player in Europe by 2020.
Natixis manages close to 3.3 million securities accounts for a diversified client base comprising Groupe BPCE’s banking networks, other banking institutions with or without retail networks, financial companies and Private Banking asset management firms.
Coface, a global expert in trade risk prevention and guarantees for corporate clients
Thanks to a favorable economic environment, the initiatives undertaken under the Fit to Win plan led to a major improvement in Coface’s results in 2017.
At €1,354.9 million, consolidated revenue was up 0.3% compared to 2016 (at constant scope and exchange rates(1)). The net loss ratio improved by 14.1 points to 51.4% while the net cost ratio was stable at 35.2%. Coface ended the year with net income twice that of 2016 (€83.2 million vs. €41.5 million) and a solvency ratio up 16 points to approximately 166%(2).
This level slightly exceeds the Group’s target range. As such, it was possible to begin leveraging capital management, as foreseen in the Fit to Win plan, by launching share buybacks for a total target amount of €30 million. The Group intends to cancel the shares bought under this operation. Taking into account the dividend payment of €0.34 per share(3) proposed to the shareholders of Coface S.A., the capital return to shareholders would, assuming the full execution of the share buyback operation, reach 100% of 2017 earnings.
Constant scope = excluding State Export Guarantees (revenue of €53.4 million in 2016; €0.6 million in residual revenue booked in Q4 2017).(1) Coface sold this activity on January 1, 2017. Figures impacted by this activity have been restated for the sake of comparison.
Calculated using the average number of shares (excluding treasury shares) during the period and after accounting for net interest payments on (a) the deeply subordinated notes after tax.
In 2017, Natixis’ share price increased by 23% (from €5.36 at December 31, 2016 to €6.60 at December 31, 2017). Over the same period, the euro zone banking stocks index (DJ Euro Stoxx Bank) also increased by 11%.
In partnership with the École de la Bourse, two training modules (on the taxation of dividends and the taxation of capital gains) were also made available to members of the Shareholders’ Club in 2017.
As part of the bank’s Sponsorship and Patronage Program, members of the Shareholders’ Club were also invited to attend sporting and cultural events throughout the year, with nearly 400 tickets awarded for rugby matches in 13 French cities.
The CCAN is an advisory body and sounding board composed ofa 12 members who represent Natixis’ individual shareholders. These members are themselves individual shareholders chosen through an application process that includes interviews. A third of its members are renewed each year, following a call for applications sent via the usual shareholder communication channels.
In 2017, the CCAN worked on the overhaul of Natixis’ website,a contributing in particular to the “Shareholder Corner” section. It also met with the Deputy Head of Investor Relations to discuss the New Dimension strategic plan. In addition, the Committee carried out work on the 2018 General Shareholders’ Meeting to improve the meeting’s proceedings.
PRESENTATION OF NATIXIS Natixis and its shareholders 33Natixis Registration Document 2017 2017 General Shareholders’ Meeting
Laurent Mignon then presented the financial statements and the highlights of 2016, followed by the results for the first quarter of 2017. He concluded his presentation with the accomplishments of the New Frontier strategic plan, concluded at the end of the year.
During the Q&A session, the discussions focused on, among other topics: Natixis and financing in the coal and fossil fuel sectors;a cybersecurity;a the financing of the North Dakota Pipeline;a the performance of the share price since its market launch;a digitalization;a
François Pérol not receiving compensation as Chairman of thea Natixis Board of Directors; the upcoming relocation.a
The final quorum was 83.44%. Of the 22 resolutions, all were adopted except one concerning a related-party agreement (amendment to the protocol for compensation between Natixis and Banque Palatine). The adopted resolutions included: the 2016 financial statements;a the payment of a dividend in cash of €0.35 per share, whicha corresponds to a payout ratio of 85%. The dividend was detached on May 26, 2017 and paid starting on May 30, 2017; favorable opinions on the components of compensation due ora granted in respect of fiscal year 2016 to the Chairman and Chief Executive Officer (“Say on pay”) and the budget for compensation paid in 2016 to the regulated population; approval of the principles and criteria for determining thea components of compensation for the Chairman and Chief Executive Officer in respect of fiscal year 2017; changes in the composition of the Board of Directors:a reappointment of Nicolas de Tavernost as Director andj approval of the co-opting of Catherine Pariset as Director; the introduction of a provision allowing Board of Directorsa Meetings to be convened by email.
The award is given in recognition of new, creative and proactive solutions in shareholder services, and recognizes Natixis’ Shareholder Relations team's efforts to serve its individual shareholders.
Natixis organizes meetings with analysts and institutional investors throughout the year at roadshows or conferences organized by brokers in the main financial marketplaces. In 2017, meetings were held in Paris, London, Dublin, Milan, Frankfurt, Geneva, Boston, New York, Los Angeles, Houston, Montreal, Toronto, Stockholm, Helsinki, Copenhagen, etc.
Compensation and benefits of any kind for 2.4.2 the Chairman of the Board of Directors and the Chief Executive Officer 84
Chairman of the Board of Directors President of the BPCE Management Board
(1) The term “Chief Executive Offi cer” is not used as it is defi ned in Article L.225-66 of the French Commercial Code.Directors Attendants to the BoardIndependent Director
Gender parity of the Board of Directors 2 CORPORATE GOVERNANCECorporate governance at March 1, 2018 36 Natixis Registration Document 2017
Georges-Eric De La Brunière – Asset and Wealth Management – Natixis Wealth Management
Dominique Sabassier – Asset and Wealth Management – Natixis Private Equity
A graduate of HEC and the Stanford Executive Program, Laurent Mignon worked for more than 10 years in various roles at Banque Indosuez, from the trading floor to corporate banking. In 1996, he joined Schroeders in London, then AGF in 1997 as Chief Financial Officer. He was appointed to the Executive Committee in 1998, then became Deputy CEO in charge of Banque AGF, AGF Asset Management and AGF Immobilier in 2002. He became CEO in charge of the Life and Financial Services and Credit Insurance divisions in 2003 and Chairman of the Executive Committee in 2006. From September 2007 to May 2009, he was associate manager at Oddo et Cie alongside Philippe Oddo.
Member of the Board of Peter J. Solomon Company LLC (sincea 06.08.2016)
Non-voting member of BPCE a (Permanent Representative of Natixis) (from 08.01.2009 to 07.11.2013) Member of the Board of Lazard a
Chairman of CE Holding Participations (formerly CE Holding Promotion)a (since 06.30.2010)
Member (since 2009) then a Vice-Chairman (since September 2013) of the Executive Committee of the Fédération Bancaire Française a then Chairman (since 09.01.2014) (until 08.31.2015) Member of the Board of Musée a
A graduate of the Paris Institute of Political Studies (Science Po) and Princeton University, and a former student of the prestigious ENA school for civil servants, Marguerite Bérard-Andrieu began her career in 2004 in the Inspection Générale des Finances (French General Inspectorate of Finance).
From July 2012 to May 2016, she served on the Executive Management Committee in charge of Strategy, Legal Affairs, the Corporate Secretary's Office and Compliance.
Key advisory skills: expertise in banking and M&A strategy, corporate governance, legal affairs, and economic and social policy.
Permanent representative of BPCE, Member of the Board of Crédita Foncier (from 05.01.2016 to 01.01.2018), Coface S.A. (1) (from 11.21.2012 to 02.08.2017)
Chairman of the Board of Directors of S-Money (from 07.10.2012 toa 02.09.2017)
Deputy CEO and Permanent Representative of BPCE, Member of thea Board of CE Holding Participations (formerly CE Holding Promotion) (from 05.03.2016 to 01.01.2018)
Permanent Representative of BPCE, a Member of the Board of Banque Palatine (since 08.30.2012) (until 05.24.2016) Member of the Board of Maison a
Catherine Halberstadt has a post-graduate degree in financial accounting (DECS) from the École Supérieure de Commerce in Clermont-Ferrand. In 1982, she joined Banque Populaire du Massif Central where she served as Head of Human Resources, then Chief Financial Officer, Chief Operations Officer and, as of 2000, Deputy Chief Executive Officer. In 2008, she became Chief Executive Officer of Natixis Factor.
Attendance rate in 2017 Board of Directors: Appointments Committee: Strategic Committee: Thierry Cahn holds a Professional Lawyers’ Certificate (Certificat d’Aptitude a la Profession d’Avocat – CAPA) and joined the firm Cahn et Associés in 1981. In 1984, he joined the General Council of the Colmar Bar (Conseil de l’Ordre des Avocats de Colmar) of which he is still a member. In 1986, he was named Secretary General to the National Lawyers’ Association (Confédération Nationale des Avocats), which he chaired from 1995 to 1996, before becoming Chairman of the Colmar Bar Association from 1998 to 1999. In addition, since 1985 he has been Head Tutor at the Institut Universitaire de Technologie (IUT) de Haute Alsace and the CRFPA d’Alsace.
CORPORATE GOVERNANCE Additional information on the directors’ positions 45Natixis Registration Document 2017
Member of the Board of: Natixis Asset Management (since 03.15.2007),a Caisse Autonome des Retraites des Banques Populaires (CAR-BP) (since 06.03.2016), Institution de Prévoyance des Banques Populaires (IPBP) (since 06.03.2016)
Permanent Representative of BP Occitane, manager of SNC Immocarsoa (since 2007)
Permanent Representative of BP Occitane, Member of the Supervisorya Board of: SOTEL (since 2001), IRDI Gestion (since 06.19.2015)
Permanent Representative of BP a Occitane, Vice-Chairman of the Board of Directors of CELAD S.A. (2) (since 2008) (until 06.01.2014) Member of the BPCE Supervisorya * Member of the Appointments Committee until February 9, 2017.
Alain Denizot Chairman of the Management Board of Caisse d’Epargne Hauts de France (formerly CENFE)
Member of the Board of Natixis Factor (since 10.13.2010), FNCE,a BPCE-IT (since 05.02.2017)
Permanent Representative of CEHDF, Member of the Board of Finorpaa SCR and Finorpa Financement (since 06.30.2016), SA Euratechnologies (since 06.29.2017)
CORPORATE GOVERNANCE Additional information on the directors’ positions 47Natixis Registration Document 2017
Non-voting member of the BPCE a Supervisory Board (since 05.19.2011), then Member of the Supervisory Board and the Audit and Risks Committee of BPCE (since 05.06.2013) (until 05.22.2015) Chairman of the Supervisory a Board of Immobilière Nord France Europe (since 11.29.2000) (until 12.30.2015) Chairman of Lyderic Invest (1) (2) a
a Permanent Representative of CENFE, Chairman of Immobilière Nord France Europe (since 02.12.2015) (until 09.19.2016)
a Permanent Representative of Immobilière Nord France Europe, Chairman of SAS Euroissy Parc (since 04.24.2015) (until 09.19.2016)
a Permanent Representative of CENFE, Chairman of: Finorpa Conseil, Finorpa Financement (Regional Board transition since 12.14.2015) (until 06.30.2016)
a Member of the Board and Treasurer of Fondation Caisses d’Epargne pour la Solidarité (since 12.16.2015) (until 10.18.2016)
Chairman of the Board of Directors of Banque Populaire Aquitaine Centre Atlantique (BPACA)
Attendance rate in 2017 Board of Directors: Strategic Committee: A graduate of the École Supérieure de Commerce, d’Administration et des Entreprises de Bordeaux, Bernard Dupouy joined the Board of Directors of Banque Populaire du Sud-Ouest (BPSO) in 1996 as a Director. He was appointed Secretary in 2006, then Vice-Chairman in 2009. In November 2011, BPSO became Banque Populaire Aquitaine Centre Atlantique (BPACA). Bernard Dupouy subsequently became Deputy Vice-Chairman, then Chairman of the Board of Directors in January 2015.
He was also Chairman of the Board of Directors of BPSO subsidiary Crédit Commercial du Sud-Ouest, from 2008 to 2011. From 2011 to 2015, he was a director and Chairman of the Audit and Risk Committee.
In addition, he was a director of Crédit Maritime Mutuel du Littoral Sud-Ouest from 2012 to 2015, and is now Permanent Representative of BPACA, and a director of Crédit Maritime. Since 2012, he has chaired the Audit, Risk and Accounts Committee of Crédit Maritime.
A well-known entrepreneur in the Aquitaine region, Bernard Dupouy is also Chairman of Villa Primrose, Vice-Chairman of Congrès et Exposition de Bordeaux and director of Union Maritime du Port de Bordeaux.
Chairman of the Board of Directors of Banque Populaire Aquitainea Centre Atlantique (BPACA) (since 01.27.2015)
Member of the Board of: Fédération Nationale des Banques Populairesa (since May 2015), Natixis Interépargne (since 11.30.2016) and BPCE Vie (since 03.28.2017)
Permanent Representative of BPACA, Director of Crédit Maritimea Mutuel du Littoral du Sud-Ouest (since 01.29.2015) and Chairman of the Audit, Risks and Accounts Committee of Crédit Maritime Mutuel (since
Chairman and Chief Executive Officer of ETS DUPOUY SBCC (sincea 02.01.2004)
Permanent Representative of BPACA, Director of Bordeaux Grandsa Événements (since 2013)
Member of the Board of Union Maritime du Port de Bordeaux (sincea
First appointed: co-opted by the Board of Directors on February 10, 2016
Chief Executive Officer of Bureau du Management Financier (absorbeda by CASDEN in 2017) (April 2013 to November 2017)
Member of the Board of Banque Palatine, Member of the Audita Committee and Risk Committee (since 10.05.2016)
Chairman of the Management a Board of M.A. Banque (from 2010 to April 2013) Member of the Board of ABP Vie a S.A. (from 2006 to end-2013)
First appointed: co-opted by the Board of Directors on February 19, 2014 and ratified at the AGM of May 20, 2014
Since May 19, 2017, Michel Grass is Chairman of the Supervisory Board of BPCE.
Chairman of the Board of Directors of Banque Populaire Bourgognea Franche-Comté (since 2010)
Secretary of the Conference a of Banque Populaire Chairmen (since 2011) (until 04.02.2015) Vice-Chairman of Fédération a Nationale des Banques Populaires (since 2012) (until 06.09.2015) Member of the Board of Natixis a Investment Managers (formerly Natixis Global Asset Management) (since 02.14.2012) (until 09.13.2016) Associate member of the Chamber a of Commerce and Industry of Yonne (since 2012) (until 11.15.2016)
Anne Lalou is a graduate of l’École Supérieure des Sciences Économiques et Commerciales (ESSEC). She began her career as a manager, and then as Assistant Director in the Mergers & Acquisitions Department at Lazard in London, before being appointed as Head of Customer Prospection and Development at Havas in Paris. She was the Chairman and Chief Executive Officer of Havas Édition Électronique before joining Rothschild & Cie as a manager.
Member of the Supervisory Board of: Eurazeo(1) (since 05.07.2010), a Foncia Groupe (since February 2012)
Dean and Managing Director of the Web School Factory (sincea April 2012)
Member of the Board (since 03.18.2014) and Chairman of the Koriana Medica S.A.(1) Appointments and Compensation Committee (from
Attendance rate in 2017 Board of Directors: Audit Committee: Strategic Committee: As the youngest Certified Public Accountant in the PACA region at the time, having received her CPA degree in 1991, Françoise Lemalle registered with the Compagnie des Commissaires aux Comptes (French National Statutory Auditors Association) in 1993. She headed up an accounting and audit firm of 20 people located in Mougins. She regularly gives training for retailers, craftsmen and independent professionals, notably through local administrative management centers.
In 1999, she became a founding director of local savings company SLE de Cannes, before being elected as its President in 2009. She first sat on the Steering and Supervisory Board as a Non-Voting Director and since 2009 has served as President of the LSC. She also became a member of the Audit Committee in 2009.
She has also been a member of the BPCE Supervisory Board since
Attendance rate in 2017 Board of Directors: Audit Committee: Risk Committee: Strategic Committee: With a degree from the École Polytechnique, Bernard Oppetit forged his career with the Paribas group from 1979 to 2000, first in Paris, then New York and, finally, London.
Trustee of The Academy of St Martin-in-the-Fields (from June 2016 toa 11.01.2017)
Member of the Board of: a Centaurus Capital International Limited(2) (until 03.30.2015) Member of the Board of Tigers a Alliance Fund Management(2) (Vietnam) (from January 2010 to June 2013) Member of the Advisory Board of a Ondra Partners(2)
Key advisory skills: extensive knowledge of retail banking and business financing; bank audits.
Chairman of the Board of Directors: of Banque du Léman (Switzerland) (sincea 2013), Rhône Alpes Cinéma (since 07.26.2016)
Chairman of the Comité Régional des Banques de Rhône Alpes (sincea 09.13.2017)
Permanent Representative of CERA, Member of the Board of: Fondationa d’entreprise CERA (since 2012), Fédération Nationale des Caisses d’Epargne (FNCE) (since 2012), Habitat en Région (since 2012), le Club du Musée Saint-Pierre (since 2012), Fondation entrepreneurs de la Cité (since 2014), GIE BPCE IT (since 07.16.2015), ERILIA (since 06.03.2016)
Representative of CERA, member a of the Board of Directors of: Compagnie des Alpes (2)
(b) 2020 AGM called to approve the financial statements for the year ended December 31, 2019.
CORPORATE GOVERNANCE Additional information on the directors’ positions 55Natixis Registration Document 2017
First appointed: co-opted by the Board of Directors on December 14, 2016
Attendance rate in 2017 Board of Directors: Audit Committee: Risk Committee: Strategic Committee: Holding a degree in Management Sciences from the Université IX Paris Dauphine, Catherine Pariset has 35 years’ experience in auditing and advisory, and was a partner at PricewaterhouseCoopers (PwC) from 1990 to 2015, and was the partner responsible for the worldwide auditing of AXA, Sanofi, Crédit Agricole, Caisse des Dépôts, Compagnie des Alpes and Generali France. She was also a member of the Board of PwC for seven years and was partner in charge of the insurance and banking sectors.
Key advisory skills: expertise in accountancy as was as in financial auditing and tax.
Member of the Supervisory Board of Eurodisney SCA(1) (from 02.17.2016a to 09.13.2017)
Other offices held in 2017: Chairman of Henri Proglio Consulting SAS (since 01.09.2015)a
Member of the Board of EDF a International SAS(2) (since 12.06.2010), EDF Energies Nouvelles(2)
Philippe Sueur Member of the Steering and Supervisory Board of Caisse d’Epargne Île-de-France
Member of the Steering and Supervisory Board of Caisse d’Epargnea Île-de-France (since April 2008)
Member of the Board of BPCE Assurances (from 05.23.2005 toa 03.17.2017)
Chairman of: the Comité d’Expansion Économique du Val d’Oise (CEEVO)a and the Val d’Oise Technopôle (since April 2015)
Vice-Chairman of the Steering and a Supervisory Board of Caisse d’Epargne Île-de-France (since 2008) (until 04.29.2014) Member of the Board of Syndicat a des Transports d’Île-de-France(2) (since 2007) (until April 2015) Member of the Board of Agencea Foncière et Technique de la Région Parisienne (AFTRP)(2)
CORPORATE GOVERNANCE Additional information on the directors’ positions 59Natixis Registration Document 2017
Member of the Board of Directors of RTL France Radio (since 10.02.2017)a
Permanent Representative of M6 Publicité, member of the Board ofa Directors of: Home Shopping Service S.A. (since 2013), M6 Diffusion S.A. (since 2013), M6 Editions S.A., M6 Événements S.A. (since 03.15.2012)
Permanent Representative of Métropole Télévision, member of the Boarda of: SASP Football Club des Girondins de Bordeaux, Société Nouvelle de Distribution S.A., Extension TV SAS, C. Productions S.A. (since 10.21.2012), IP France S.A. (since 10.02.2017), IP Régions S.A. (since 10.02.2017), Société d’Exploitation Radio Chic - SERC S.A. (since 10.02.2017), Société de Développement de Radio diffusion - SODERA S.A. (since 10.02.2017)
Permanent Representative of Métropole Télévision, Chairman of: M6a Publicité S.A. (since 2001), Immobilière M6 SAS (since 2001), M6 Bordeaux SAS (since 2001), M6 Interactions SAS (since 2001), M6 Web SAS (since 2001), M6 Foot SAS (since 2001), TCM DA SAS (since 06.27.2013), Mandarin Cinéma SAS (since 07.22.2016), Fidélité Films SAS (since 07.20.2017)
Permanent Representative of C. Productions S.A., Member of the Board ofa M6 Films S.A. (since 01.01.2015)
Compliance with rules governing the number of offices held Afep-Medef code: compliant
Member of the Board of a Nexans S.A. (2) (since May 2007) (until 03.31.2014) Member of the Board of TF6 a
Permanent Representative a of Home Shopping Service(2), member of the Board of MisterGooddeal S.A.(2)
Permanent Representative of a Métropole Télévision(2), Chairman of M6 Toulouse SAS(2) (since 2001) (until 01.01.2014) Permanent Representative a of Metropole Télévision(2), Member of the Shareholders’ Committee of Multi 4 SAS(2) (since 2006) (until 09.15.2014) Chairman of the Groupe M6 a Fondation d’Entreprise (2) (since 2009) (until 07.12.2016)
Permanent Representative a of M6 Publicité, Chairman of M6 Créations SAS(2)
CORPORATE GOVERNANCE Additional information on the directors’ positions 61Natixis Registration Document 2017
SUMMARY TABLE OF THE MAKEUP OF THE BOARD OF DIRECTORS AT MARCH 1, 2018R
French 04.30.2009 2019 AGM Expertise in strategic matters concerning banking and financial institutions, as well as the French and international economic and financial environment
Represented by Catherine Halberstadt 59 N/A French 01.01.2018 2019 AGM Expertise in Human Resources issues; extensive knowledge of retail banking and business financing
French 07.31.2013 2021 AGM Proficiency in strategic, management and business development issues
French 02.10.2016 2020 AGM Expertise in financial management and corporate strategy
French 05.29.2012 2020 AGM Proficiency in Human Resources issues and business transformation, extensive knowledge of banking businesses
French 08.01.2017 2019 AGM Expertise in business administration, with in-depth knowledge of retail banking, the regional economy and French overseas territories
French 07.30.2015 2019 AGM Entrepreneurial experience, extensive knowledge of the accounting, financial and audit fields
French 05.19.2015 2019 AGM Expertise in financial management, risks, development and insurance
CORPORATE GOVERNANCE Management and oversight of corporate governance 63Natixis Registration Document 2017
The information it contains takes into consideration, in particular, Annex I of European regulation (EC) 809/2004 of April 29, 2004 (amended) as well as recommendation No. 2012-02, consolidating the recommendations published since 2009, of the Autorité des Marchés Financiers (AMF – French Financial Markets Authority) report on corporate governance and director compensation, and specifically the AMF’s 2017 report, published on November 22, 2017, the activity report from the High Committee on Corporate Governance (HCGE) published on October 12, 2017, and the Guide for compiling registration documents, also published by the AMF on December 10, 2009, and amended on December 17, 2013, and on April 13, 2015, and lastly, the June 2013 Guide to applying the Afep-Medef corporate governance code for listed companies, supplemented by the HCGE in December 2014, November 2015 and November 2016.
In accordance with the “apply or explain” rule provided for in Article L.225-37-4 of the French Commercial Code and addressed in Article 27.1 of the Afep-Medef code, Natixis believes that its practices comply with the recommendations of the Afep-Medef code. However, certain recommendations could not be implemented for the reasons given in the table below: SUMMARY TABLE ON COMPLIANCE WITH AFEP-MEDEF CODE RECOMMENDATIONS: IMPLEMENTATION OF THE R “APPLY OR EXPLAIN” RULE
“The Board of Directors must provide for a meeting once a year […] without the executive or “in-house” directors.”
It must be noted that Natixis does not have an executive director: Laurent Mignon is the Chief Executive Officer of Natixis but not an executive director.
This form of corporate governance stems from the desire to create a single custodian of Natixis' best interests and value creation. It permits unity of action, which is an essential requirement in terms of control, responsiveness and foresight in Company management.
Following the merger of Banque Fédérale des Banques Populaires (BFBP) and Caisse Nationale des Caisses d'Epargne (CNCE) that resulted in the creation of BPCE, Natixis has been majority owned by BPCE since August 1, 2009. As of December 31, 2017, BPCE held a 71% stake in Natixis.
Conversely, two representatives of the Central Works Council attend every Board of Directors’ Meetings in an advisory capacity.
Pursuant to Articles L.225-23 and L.225-27-1 I of the French Commercial Code, Natixis’ Board of Directors does not have any employee directors, or any employee shareholder directors.
Based on this review, it determined that Natixis is not the “reference banker” for the companies in which its independent directors - namely, Henri Proglio Consulting, Centaurus Capital, M6, and the Web School Factory - exercise their executive duties or corporate offices.
Natixis' Board of Directors therefore determined that the five above-mentioned independent Board members meet the necessary independence criteria.
CORPORATE GOVERNANCE Management and oversight of corporate governance 65Natixis Registration Document 2017
Is not a major customer, supplier, or corporate or investment banker (or linked directly or indirectly to these persons) to the Company or the Group; does not derive a significant portion of business from the Company or its Group
Does not receive and has not received any significant additional compensation from the Company or Group other than director’s fees, including participation in any stock option plan or any other performance-related compensation plan
Since April 30, 2009, the Board of Directors has been chaired by François Pérol, Chairman of the BPCE Management Board. At the end of the General Shareholders’ Meeting, the Board of Directors, at its meeting of May 19, 2015, unanimously reappointed François Pérol as Chairman of the Board of Directors.
Changes made to the Board of Directors in 2017 and since January 1, 2018: on May 23, 2017, the Combined General Shareholders’a Meeting of Natixis: ratified the co-opting of Catherine Pariset as a Director by thej Board of Directors on December 14, 2016, to replace Laurence Debroux, to serve out the remainder of her predecessor’s term of office, i.e. until the General Shareholders’ Meeting of 2019 held to approve the financial statements for the year ending on December 31, 2018, renewed the term of office of Nicolas de Tavernost for fourj years, i.e. until the General Shareholders’ Meeting of 2021 held to approve the financial statements for the year ending on December 31, 2020; on May 24, 2017, Michel Grass resigned from his position as aa Director of Natixis and from his roles as a member of the Compensation Committee and the Strategic Committee following his appointment as Chairman of the Supervisory Board of BPCE; on August 1, 2017, the Board of Directors co-opteda Bernard Dupouy to replace Michel Grass, to serve out the remainder of his predecessor’s term of office, i.e. until the General Shareholders’ Meeting of 2019 held to approve the financial statements for the year ending on December 31, 2018; on December 21, 2017, the Board of Directors enacted thea replacement of Marguerite Bérard-Andrieu with Catherine Halberstadt as Permanent Representative of BPCE on the Board of Directors of Natixis, effective January 1, 2018.
Following the report submitted by the Appointments Committee, Board of Directors of Natixis discussed, as it does each year, the desirable balance of its composition, with particular reference to the knowledge, expertise and experience of its members, both individually and collectively. The Board concluded that the range of knowledge, expertise and experience of its members is sufficiently broad, complementary, and balanced to state that: individually, each one of the directors can contribute usefully toa the work of the Board and the Special Committees; and collectively, the Board has the ability to make informeda decisions and the breadth of expertise necessary to ensure that the Company is properly run and its business strategy is effective.
With respect to the principle of gender parity on the Board of Directors, as set out in the Act of January 27, 2011, Natixis had six female directors out of a total of 15, i.e. 40%, since its General Shareholders’ Meeting of May 24, 2016. Natixis is therefore in compliance with the provisions of the Copé-Zimmermann Act, and with the relevant recommendations of the Afep-Medef corporate governance code.
The Board of Directors, assisted by the Board’s Special Committees: defines the strategy governing the Company’s activities anda) oversees its implementation. Within the limits of the Company’s corporate purpose and the powers expressly granted by law or its bylaws to the General Shareholders’ Meetings, the Board concerns itself with all matters affecting the Company’s performance and governs by virtue of its deliberations. The Board of Directors performs the controls and checks it deems appropriate; defines how the Management Board operates, and may onlyb) deliberate on this matter when it features on the agenda sent out at least 15 days pior to the Board Meeting and when at least two-thirds of the directors are present or represented. As a reminder, the Board of Directors of a credit institution may not be chaired by the Chief Executive Officer. Nevertheless, based on provided justification the Autorité de Contrôle Prudentiel et de Résolution (ACPR – French Prudential Supervisory Authority for the Banking and Insurance Sector) may authorize the accumulation of these functions.
The Chief Executive Officer may delegate his powers to any corporate officer of his choosing, with or without the option of substituting one for another.
It determines the level and terms of compensation of the Chairman of the Board of Directors, the Chief Executive Officer and of the Deputy Chief Executive Officer(s) after consultation of the Compensation Committee.
The Chief Risk Officer may not be relieved of his duties without the prior agreement of the Board of Directors. Where applicable, he may raise this point directly with the Board of Directors; is required to issue an opinion prior to starting any new termm) outside the Group by the Chief Executive Officer or the Deputy Chief Executive Officers.
In accordance with the law and the bylaws, the Chairman convenes and chairs the Board and organizes and manages its work. He chairs General Shareholders’ Meetings. The Chairman of the Board or the Chief Executive Officer are required to provide each director with all the documents and information needed to carry out their duties.
In addition to the duties attributed by law and the bylaws, the Chairman of the Board of Directors provides his support and expertise to the Chief Executive Officer, while respecting the CEO’s executive responsibilities. As such, he may attend any meeting that addresses subjects related to Natixis’ strategy and organization, and, at the CEO’s request, he may represent Natixis in its relationships with the Group’s major partners to promote business relationships.
Accordingly, an independent member of the Board of Directors may not: within the last five years, be or have been:j an employee or executive corporate officer of Natixis,j an employee, executive officer, executive corporate officerj or director of a company consolidated under the Company,
68 Natixis Registration Document 2017 an employee, executive corporate officer or director ofj BPCE or of a company consolidated by BPCE; be an executive corporate officer of a company in whichj Natixis holds a directorship either directly or indirectly, or in which a designated employee of Natixis or an executive corporate officer of Natixis (currently or within the last five years) holds a directorship; be a customer, supplier, investment or corporate banker:j that is material for Natixis or the Group, or for which Natixis or the Group represents a significant portion of such person’s business; have a close family relationship with a corporate officer ofj Natixis or the Group, have been a Statutory Auditor of Natixis within the last fivej years, have been a member of Natixis’ Board of Directors for morej than 12 years. Independent director status is lost when 12 years is reached, receive variable compensation in cash or in shares, or anyj performance-link compensation from Natixis or the Group; The independent status of each member of the Board of Directors is examined by the Appointments Committee (the composition and role of which are described below), which prepares a report for the Board (see summary table, above); Board operating procedures specified in the Internal Rules:a
Minutes of Board Meetings are prepared by the corporate secretary and sent to Natixis’ directors, and approved at every subsequent session by the latter.
– Compliance charter for members of the Board B of Directors
Before assuming office, every one of Natixis’ directors must ensure that he is familiar with the general or specific obligations incumbent upon him, such as those resulting from laws or regulations, bylaws, Internal Rules and this Charter, as well as any other binding texts.
It is recommended that each director hold at least 1,000 Natixis shares. He has six months to acquire the 140 shares stipulated by the bylaws and another 12 months to bring his holding to 1,000 shares.
He ensures that the positions taken by the Board are formally decided on, properly reasoned, and entered into the minutes of its meetings.
CORPORATE GOVERNANCE Management and oversight of corporate governance 69Natixis Registration Document 2017
If a person is not mentioned on this list, that does not mean he is exempted in any way from complying with the laws and regulations and it in no way prejudices his potential insider status.
Directors must also inform Natixis of the number of shares held on December 31 of each year and any financial transactions carried out, so that this information may be disclosed by the Company.
Natixis may also ask each director to provide any information in relation to the trading of listed companies’ securities necessary for it to fulfill its reporting obligations to all authorities such as stock market authorities, both in France and abroad.
Directors must refrain from acting in conflict of interest with Natixis or the companies it controls. Specifically, when there is a planned transaction or business relationship in which a director or non-voting director is directly or indirectly involved (e.g. when a director is affiliated: with the partner bank or the supplier’s financing bank, or the partner bank or financing bank of a Natixis competitor for the transaction in question; or when a director or an independent director is affiliated with an entity initiating a new business relationship), the director or non-voting director in question must inform the Chairman of the Board of Directors (or the Corporate Secretary of Natixis) as soon as he has knowledge of such a plan, and inform him that he is directly or indirectly interested and in what capacity.
The Head of Compliance for Natixis is available to each director for any questions about the Code of Conduct.
– Internal charter on related party agreementsC At its meeting of February 17, 2013, the Board of Directors of Natixis drew up an internal charter on “related party agreements” in accordance with AMF recommendation No. 2012-05, updated on December 17, 2014 to include the changes made by Order No. 2014-863 of July 31, 2014.
It also reviewed all related party agreements that have been authorized by the Board over previous fiscal years, which continued to have an impact during the period.
Each director’s attendance at the Board of Directors’ Meetings appears in Section 2.2 of this chapter (see directors’ individual fact sheets).
Within a reasonable amount of time before a Board Meeting, each director receives a file listing the items on the agenda via a secure website for review and analysis of the issues to be addressed.
Update of the Risk Appetite Statement and Risk Appetite Framework indicatorsa
Reappointment of one director whose term of office was due to expirea
Update of the Internal Rules of the Board of Directors, the Audit Committee, and the Risk Committeea
Review of the classification of the status of directors as independent membersa
Review of the Risk and Compliance targets for compensation among the regulated population (2016 a summary and 2017 targets)
Information on the capital increases following the allocation of free shares of February 2012 and a February 2013
At its meeting of December 21, 2017, the Board of Directors presented the Natixis Code of Conduct. The enactment of this Code of Conduct is meant to define and formalize clear, general principles of conduct to be followed by all Natixis employees, to prevent risks by putting the Code’s principles into practice (dispensing training to employees, standards for evaluating employee behavior, etc.) and to address the needs of our outside stakeholders (clients, shareholders, and investors).
This Code does not substitute for the existing rules; it is a single Code that applies to all Natixis entities, with general principles of conduct as well as guidelines, policies, and procedures adapted to the business lines. (refer to Chapter 1 of this registration document).
Assessment of the work 2.3.1.4 of the Board of Directors and Special Committees in 2017, and follow-up measures
As in previous years, in 2017 Natixis assessed the work of its Board of Directors and specialized Committees, in accordance with recommendations set out in the Afep-Medef code regarding the correct governance of listed companies.
Measuring the general performance of the Board and the6. Special Committees.
During an individual interview, each Board member completed a detailed questionnaire addressing these areas, and were invited to assess directors' individual contribution according to the following criteria: involvement, attendance, punctuality and adequacy of preparation for board meetings.
The representatives of the Works Council also took part in the assessment of the Board conducted in 2017.
This report shows that the directors have a very positive view of the Board of Directors.
The directors unanimously believe that the performance of the Board of Directors has been satisfactory or very satisfactory. Three-quarters of the directors believe that the Board of Directors and its Special Committees have improved their operations, and a very large majority of directors feel that the Natixis Board outperforms other Boards they have served on.
Suggestions were made by the directors on ways to further improve the running of the Board.
They expressed interest in being kept abreast of Natixis events (like the Investor Day) and have the opportunity to take part.
After the assessment work of the Board of Directors and Special Committees conducted in 2016, corrective measures were enacted, in 2017, including: broader access to training on the Group’s structure anda businesses. Additionally, Natixis Board members took part in training sessions held for members of the BPCE Supervisory Board.
an increase in regulatory matters being addressed (strategica plan, human resources, CSR); the streamlining of the Board of Directors file, and the inclusiona of the summary reports from the Special Committees; the operation of the Audit and Risk committees was modifieda to allow its members to receive documents even earlier and that the documents in question present the salient points more clearly.
CORPORATE GOVERNANCE Management and oversight of corporate governance 73Natixis Registration Document 2017
The program is divided into three areas: a training program on “fundamentals” for new Board membersa and others interested in participating. It comprises four modules to give Board members a useful understanding of the issues discussed at Board Meetings. Training is delivered by in-house and external instructors within six months of the new Board member taking office; an “expertise” training program on technical or complex issuesa designed to equip Board members with the necessary expertise to properly understand, monitor and validate technical or complex matters discussed at Board Meetings. It is organized into modules spread over the course of the year and covers various issues including accounting and financial matters, risk management, directors’ liability (civil, criminal and regulatory), compliance principles and internal control; a training program provided as and when needed, designed toa give Board members the necessary knowledge and skills to carry out their duties. This training takes the form of a deeper examination of issues related to the business lines or other current topics, memos related to economic, accounting, regulatory, compliance, legal and other issues.
For the 2017 fiscal year, seven sessions were held . The training sessions in fiscal year 2017 were opened to members of the BPCE Supervisory Board. Additionally, directors were also invited to attend the training sessions held by BPCE for Supervisory Board members.
Until February 9, 2017, the Committee was chaired by independent member Bernard Oppetit. Since then, Catherine Pariset chairs the Committee.
The Chairman and the members of the Audit Committee have extensive accounting and financial expertise gained over the course of their professional careers. Catherine Pariset has a career in auditing spanning 35 years. Catherine Halberstadt was Chief Executive Officer of Banque Populaire du Massif Central for several years and possesses in-depth knowledge of retail banking and of corporate financing. Sylvie Garcelon is Chief Executive Officer of CASDEN Banque Populaire, and as such has vast financial experience. Françoise Lemalle has extensive knowledge in accountancy and finance, as well as in auditing. Bernard Oppetit is a financial market specialist and has extensive experience in complex financial products and alternative management companies.
74 Natixis Registration Document 2017 monitoring the process of preparing financial informationa (preparing the financial statements, the management report, etc.) and making recommendations to guarantee the integrity of this information; monitoring the statutory audit of the quarterly, half-yearly anda annual consolidated financial statements and annual individual financial statements, as well as Natixis’ draft budgets and material off-balance sheet commitments, with sufficient time in advance to allow their presentation Natixis’ Board of Directors, as well as the half-yearly and annual management reports; monitoring the effectiveness of the internal control and riska management systems with regard to the procedures for preparing and processing accounting and financial information; ensuring the Statutory Auditors’ adherence to thea independence conditions by which they are bound; accordingly, the Committee must: ensure that the fee amount paid by Natixis and the Group, orj the share of those fees in the net sales of the firms and networks, does not, by its nature, undermine the independence of the Statutory Auditors, establish the rules governing the services that the Statutoryj Auditors may provide and governing the authorization of services other than the certification of the financial statements; monitoring the Statutory Auditors’ performance of their duties;a submitting a recommendation to Natixis’ Board of Directors fora the appointment of Statutory Auditors or auditing firms; the recommendation of the auditing firm is made following a selection procedure arranged by Natixis; reviewing the Statutory Auditors’ work schedule, the results ofa their audits and recommendations, and any follow-up action thereof; issuing its opinion on the report presented to it on an annuala basis with regard to commercial relations between Natixis or one or more of its subsidiaries, and all or some of the entities forming Groupe BPCE.
The Company’s CEO provides the Audit Committee with any documents and information it needs to perform its duties. The following list is not exhaustive: parent and consolidated financial, accounting, and regulatorya documents prepared periodically by the Company; summary reports by the Company’s Statutory Auditors;a any audit reports concerning the Company;a accounting policies and methods applied within the Company;a projected parent and consolidated results at the end of March,a June, September and December; consolidated budgets and financial statements of the maina subsidiaries, as well as any related documents provided to the Board of Directors or, if applicable, the Audit Committee of the principal subsidiaries.
– Work of the Audit Committee in 2017C The Audit Committee met five times in fiscal year 2017. Its members’ attendance rate was 92% for the year as a whole (vs.
The Audit Committee monitored the statutory audit of Natixis’ yearly, half-yearly and quarterly parent company and consolidated financial statements, as well as its draft budgets, sufficiently in advance of them being presented to Natixis’ Board of Directors.
CORPORATE GOVERNANCE Management and oversight of corporate governance 75Natixis Registration Document 2017
Follow-up on Statutory Auditors’ fees for 2017 (certification and other assignments)a
Changes made to the Risk Committee in 2017 and sincea January 1, 2018: Director Capacity Date of change Replaced by
At the proposal of the Chairman, the Risk Committee may, if deemed appropriate by the Committee and after consulting the Chairman of the Board of Directors, invite to its meetings any
The Chief Risk Officer, the Compliance Officer, and the Natixis Head of Internal Audit have permanent direct access to the Risk Committee.
In 2017, the Risk Committee’s duties focused on the following items in particular: Risk management
Review of the monthly consolidated risk monitoring scorecard (regular updates on credit, market liquidity and a operational risks and insurance risk)
Liquidity follow-up: Annual analysis of contingency plans, particularly in light of the results of the alternative a scenarios regarding liquidity positions and risk mitigation factors
Internal control Review of Natixis and BPCE Internal Audit assignments conducted during the fiscal yeara
Review of the Chairman’s draft report on the work of the Board and on Internal Control in 2016a
Over the 2017 fiscal year, the US Risk Committee worked on the following: review of priorities, 2017 budget, and plan for the assignmenta of personnel by the US Chief Risk Officer; significant update to the regulatory observations, anda corresponding action plans; revision of limits and alert thresholds for US RAF indicatorsa with respect to asset quality and operational risks; review of regulatory projects and the regulatory analysisa schedule; update to the Enterprise Risk Management Policy (ERMP);a approval of the ERMP and alert threshold limits of the US Riska Appetite Framework; changes in risks over the period;a
– OrganizationA During 2017, the Compensation Committee comprised six members until May 24, 2017, then five members.
No change has been made to the Compensation Committee ina 2018.
– Role and powersB The role of Natixis’ Compensation Committee is to prepare the decisions that Natixis’ Board of Directors issues with regard to compensation, including Natixis employees who have a significant impact on the Company’s risk. The Compensation Committee’s powers and operating procedures are detailed in the Internal Rules, the latest version of which was approved on February 9, 2017 by the Board of Directors.
The Compensation Committee is responsible for submitting proposals to Natixis’ Board of Directors concerning: the level and terms of compensation paid to the Chairman ofa the Board of Directors of Natixis, including benefits in kind, pension plans and collective personal protection insurance, as well as the allocation of stock options or share purchases; the level and terms of compensation paid to the CEO and,a where applicable, one or more Deputy CEOs, including benefits in kind, pension plans and collective personal protection insurance, as well as the allocation of stock options or share purchases; rules for allocating directors’ fees to Natixis’ directors and thea total amount submitted to a decision by Natixis’ General Shareholders’ Meeting; the compliance of Natixis’ compensation policy witha regulations, including for the category of staff addressed in the French Ministerial Order of November 3, 2014, as well as for employees addressed in French Law No. 2013-672 on the Separation and Regulation of Banking Activities (“SRAB”) and Section 619 of the US Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”), or regulated categories of staff within asset management activities (AIFMD) or insurance activities (Solvency II); the annual review of Natixis’ compensation policy, specificallya those employee categories whose professional activities are likely to have a significant impact on the risk profile of Natixis or the Group; The Compensation Committee may have cause to review and issue an opinion on the insurance taken out by Natixis to cover its executive officers’ liability.
Each director’s attendance record for Compensation Committee Meetings appears in Section 2.2 of this chapter.
In 2017, the Committee focused on the following areas: Executive corporate officers
Approval of the 2017 conditions of the long-term compensation plan for members of the Senior a Management Committee
Analyzing the recommendations of the Afep-Medef in terms of compensating directorsa
Directors’ fees Reviewing the provisions on disbursing the directors’ fees allocated to members of the Boarda
Reviewing the implementation of various regulations governing compensation, including for the a “regulated population” addressed in the European CRD IV Directive of June 26, 2013, its enactment into French law in the French Monetary and Financial Code by the Ordinance of February 20, 2014 and by the Ministerial Decree and Order of November 3, 2014, and the Commission Delegated Regulation (EU) of March 4, 2014, as well as for employees addressed in French Law No. 2013-672 on the Separation and Regulation of Banking Activities (“SRAB”), and Section 619 of the US Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”), the MiFID or identified categories of staff within asset management activities (European AIFM/UCITS Directive) and insurance activities (European Solvency II Directive)
Summary of the Internal Audit Department’s report on the implementation of the process for a compensating the regulated population under CRD IV
Reviewing and monitoring the achievement of performance conditions applicable to deferred variable a compensation and long-term profit-sharing plans
Analyzing the principles for identifying the employee population whose activities have a significant impact a on the Company’s risk profile as well as the variable compensation budget and structure for that population for fiscal year 2016
Policy on salary and professional equality between men and women - comparative report with 2016a
– OrganizationA The Appointments Committee is made up of six members. As of March 1, 2018, these members were: Henri Proglio Chairman
Thierry Cahn (position previously held by Alain Condaminas until February 9, 2017)
Three of the six members are independent (Anne Lalou, Henri Proglio and Nicolas de Tavernost). The number of independent directors on the Appointments Committee is not greater than half the total number of members as recommended by the Afep-Medef corporate governance code. It has a balanced composition (50% independent, 50% non-independent and is chaired by an independent director) (see summary table on compliance with Afep-Medef in Section 2.3 of this chapter).
The Committee’s primary remits are: issuing an opinion and, upon request from Natixis’ Board,a making proposals and recommendations to the Board on the appointment of a CEO and, when appropriate, one or more Deputy CEOs of Natixis; issuing an opinion and making recommendations to the Boarda of Directors on the selection/appointment of directors; evaluating the balance and diversity of knowledge, skills anda experience that the Board members have, both individually and collectively; detailing the duties and the qualifications required for servinga on Natixis’ Board of Directors, and assessing the time to be spent on that service; deciding on a policy and a set of targets for the balanceda representation of men and women on the Board of Directors. It prepares a policy with the purpose of achieving those targets. Natixis’ target and policy as well as the implementation procedures are made public; periodically, at least once a year, assessing the structure, size,a composition and effectiveness of the Board of Directors with regard to the remits that are assigned to it, and submitting all useful recommendations to the Board; periodically, at least once a year, assessing the knowledge,a skills and experience of the Board of Directors, both individually and collectively, and reporting this to it; periodically scrutinizing the policies of the Board of Directorsa on selecting and appointing Natixis’ executive managers, Deputy CEOs and the Chief Risk Officer and making recommendations thereon.
Each director’s attendance at the Appointments & Compensation Committee’s Meetings appears in Section 2.2 of this chapter (see directors’ individual fact sheets).
In 2017, the Committee focused on the following areas: Independence of directors Verifying independence criteria for each directora
Analyzing the qualifications needed for the duties carried out on the Board of Directorsa
Evaluating the balance and diversity of knowledge, skills and experience that the Board members a have, both individually and collectively
On March 14, 2018, and in the interest of spreading out terms of office more evenly, as recommended by the Afep-Medef code, the Appointments Committee took note of the resignation of four directors whose term of office expires at the adjournment of the May 2019 General Shareholders' Meeting convened to approve the financial statements for the year ending December 31, 2018. The four directors resigned with effect upon the adjournment of the meeting of the Board on May 23, 2018 taking place before the Annual General Shareholders' Meeting held on the same day, and have agreed to reapply as directors at the same meeting. The Appointments Committee also approved the policy for selecting independent directors.
- Work of the Strategic Committee in 2017C The Strategic Committee meets once a year.
Its members’ attendance rate was 100% (identical to that of 2016).
In 2017, the Natixis Strategic Committee met to analyze the new 2018-2020 strategic plan, “New Dimension”. The presentation covered four key areas: the Equity Story, or the results of New Frontier and the movea to New Dimension; the ambitions of the core business;a the digital transformation;a the cross-business drivers.a
The directors and the members of the Board used the opportunity to discuss Natixis' strategic priorities going forward, as well as the focus areas of the New Dimension Plan.
Lastly, Natixis has an Executive Committee comprising the members of the Senior Management Committee and the heads of certain business lines and support functions essential to the Company’s success (see members of the Executive Committee, Section 2.1 of this chapter). The Committee’s role mainly focuses on information and monitoring.
In this context, the executive managers are authorized to request and accept all useful information from any division, department, controlled entity or subsidiary of Natixis.
Barring exceptions, it meets weekly, chaired by the CEO. Except where circumstances prevented them from doing so, the members of the Senior Management Committee were present at all meetings in 2017. Representatives from the business lines or different support functions were invited to present projects or policies falling within their departmental remits.
In 2017, the Senior Management Committee successfully completed the implementation of the “New Frontier” strategic plan across all Natixis business lines.
The Senior Management Committee also sought to consolidate the opportunities offered by digital technology within the Company.
program. As part of this program, Natixis intends to invest heavily in technology and generate costs savings from end-2019. It also sought to simplify the corporate structure, particularly through the plan to reduce the number of managerial levels.
The Senior Management Committee continued to work on implementing the Transformation and Operational Excellence
The Senior Management Committee regularly examined the Company’s business development and results during its meetings throughout the year. It studied the half-yearly and quarterly financial statements, before they were presented to the Board of Directors, and was involved in defining financial communications for the Company.
After in-depth discussions with the businesses, the Senior Management Committee approved the main management decisions, and reviewed and approved the budget, the capital trajectory, the risk appetite framework, the internal stress tests and the ICAAP report. In addition, it approved the terms and conditions governing mandatory annual negotiations and the compensation review policy, the appointment of senior executives and managers, as well as all significant projects or investments. The Committee also analyzed and approved restructuring propositions, namely the new Corporate & Investment Banking structure, the separation of the Finance and Risk Departments, and the pooling of the Procurement function with BPCE.
Furthermore, the Senior Management Committee monitored the management, risk management and compliance measures within Natixis, and regularly reviewed changes in the Company’s risks, as well as the consequences of audits.
Finally, in parallel with the enactment of the Natixis Code of Conduct, a Conduct Committee, which will meet quarterly, was instituted. It is made up of members of the SMC (Corporate Secretary, HR, Risk, and SMC members depending on the agenda) and permanent or ad hoc members of Compliance, ESR, Communication, and business line managers depending on the agenda.
In line with the provisions of Article 27 of the bylaws, each shareholder may, subject to the terms and conditions and at the times fixed by law, request a copy of the documents needed to allow him to reach an informed opinion on the management and control of the Company. The nature of the documents and the terms and conditions for their dispatch or availability are determined by law and regulations.
In line with the provisions of Article 5 of the bylaws, the Company may, subject to the conditions provided for by the laws and regulations in force, request from any authorized organization or intermediary, all information relating to the holders of shares conferring immediately, or in the future, the right to vote at Shareholders’ Meetings, notably their identity, nationality, address, the number of shares that they own and the restrictions that may be placed on these shares.
Any shareholders holding more than 1% of the voting rights, and having already declared their statutory threshold crossing, may obtain/consult the list of shareholders having crossed the statutory threshold from Natixis’ registered office or by contacting Natixis’ Investor Relations (30 avenue Pierre Mendès-France 75013 Paris).
CORPORATE GOVERNANCE Management and oversight of corporate governance 83Natixis Registration Document 2017
Members of the Natixis Board of Directors include BPCE (Natixis’ leading shareholder) as well as employees or individuals holding other jobs within Groupe BPCE, particularly in the Caisse d’Epargne and the Banque Populaire banks. Natixis and its subsidiaries maintain business relations with BPCE and the entities of Groupe BPCE. Furthermore, members of the Natixis Board of Directors include independent directors belonging to third-party groups that can maintain banking or business relations with Natixis or its subsidiaries.
To the best of Natixis’ knowledge, these situations do not affect those directors’ independence of judgment, decision, and action, and there is no potential conflict of interest between the duties that the Board members owe to Natixis and other duties or private interests. When needed, the Internal Rules of the Board of Directors as well as the Compliance Charter provides for a conflict of interest resolution system for all members of the Board of Directors, and requires those members to notify the Chairman of the Board [or the Corporate Secretary of Natixis] of any conflict of interest, and to abstain from voting on the corresponding resolution.
To the best of Natixis’ knowledge, it is hereby stipulated that there are no service agreements binding members of the Board of Directors or Senior Management to the Company that could confer benefits according to the terms of such an agreement and that might by their nature compromise the independence of members or interfere with their decision-making.
Notification of transactions 2.3.5.3 performed by persons discharging managerial responsibilities and by persons closely associated with them
The members of the Board of Directors of Natixis received directors’ fees for the 2017 fiscal year subject to the terms and conditions set out below.
In accordance with the principles approved by the General Shareholders’ Meeting on May 23, 2017, François Pérol received no compensation in 2017 for his duties as Chairman of the Natixis Board of Directors.
The annual variable compensation in respect of fiscal year 2017 was calculated on the basis of quantitative and strategic criteria first reviewed by the Compensation Committee then validated by the Board of Directors, and submitted to a vote at the General Shareholders’ Meeting on May 23, 2017.
CORPORATE GOVERNANCE Policies and rules established for determining compensation and benefits of any kind for corporate officers 85Natixis Registration Document 2017
The variable compensation target for the 2017 fiscal year was set at €1,152,000, i.e. 120% of Laurent Mignon’s fixed compensation, with a range of between 0% and 156.75% of the target, i.e. a maximum of 188.1% of fixed compensation. The following targets were set for 2017: Quantitative criteria
Strategic criteria quantitative targets (70%), of which 25% is based on thea financial performance of Groupe BPCE (net revenues [4.2%], net income group share [12.5%] and cost/income ratio [8.3%]) and 45% based on the financial performance of Natixis (net revenues [11.25%], net income group share [11.25%], cost/income ratio [11.25%] and ROTE – Return on Tangible Equity [11.25%]); individual strategic targets (30%), of which 10% is for each ofa the following two targets: the development and launch of the 2018-2020 Strategic Plan and continuation of the digital transformation of Natixis and its businesses. Both of these strategic targets have been assigned a weight of 10%, tied to the development of Natixis’ collaboration with Groupe BPCE networks (5%) and to managerial performance assessed based on the ability to anticipate developments, make decisions, lead the Group, and manage executive officers (5%). As recommended by the Compensation Committee, the Natixis Board of Directors set the amount of variable compensation for 2017 at €1,660,863. This amount shall be submitted to a shareholder vote in May 2018 and is equivalent to 144.17% of the target variable compensation: €520,789 will be paid in 2018, 50% of which will be indexedj to the Natixis share price, €1,140,074 will be deferred over three years, 50% of whichj will be indexed to the Natixis share price, and will be paid in thirds in 2019 (100% in cash), 2020 (50% in cash and 50% indexed to the Natixis share price) and 2021 (100% indexed to the Natixis share price or in securities), provided that the presence and performance conditions are met; With respect to strategic criteria in particular, the Board recognized the progress made in the area of digital transformation (acquisition of fintechs Dalenys, Payplug and S-Money, and the digitalization of the customer experience in partnership with Groupe BPCE, among other digital projects). As for increasing collaboration with Groupe BPCE, synergies in this area for the 2014-2017 period totaled €466 million, exceeding the initial target. Furthermore, Natixis Assurances’ acquisition of a 40% equity interest in BPCE Assurances from Macif (25%) and Maïf (15 %) strengthened the collaboration between Natixis and the Groupe BPCE networks, and makes Natixis’ insurance arm the sole shareholder of BPCE Assurances, at the service of the networks’ customers.
The Board also took into consideration the steps taken in 2017 towards Natixis’ transformation, like the launch of the new strategic plan, marking a fresh adaptation of the organization’s business model and methods of operation.
in 2018 in 2019 in 2021 in 2020 69% deferred over 2019, 2020 and 2021, of which 50% is indexed to the Natixis share price.
Vesting of these shares is contingent upon the meeting the continued service requirement. This aligns the Chief Executive Officer of Natixis, and the other members of its Senior Management Committee, with the relative performance of Natixis shares and the consistency of this performance. The performance conditions applicable to shares allocated in 2017 differ from the previous plan: the relative performance of Natixis shares is assessed against the average Total Shareholder Return (TSR) of the Euro Stoxx Banks index, and no longer against the median TSR of the institutions making up the index. The purpose of this change is to limit the impact of market volatility on the classification of smaller capitalizations. The annual performance of Natixis shares versus the Euro Stoxx Banks index will be compared every year over the four years covered by the plan, i.e. fiscal years 2017, 2018, 2019 and 2020, for each of the annual tranches, each representing 25% of the shares allocated. Based on the relative performance of Natixis’ TSR against the average TSR of the Euro Stoxx Banks index, a ratio will be applied for each annual tranche, as follows: performance below 90%: no vesting of shares allocated out ofa the annual tranche; performance equal to 90%: 80% of the shares of the annuala tranche shall vest; performance equal to 100%: 100% of the shares of the annuala tranche shall vest; performance equal to 120%: 110% of the shares of the annuala tranche shall vest.
Laurent Mignon receives a family allowance (€2,379 in 2017), in accordance with the same rules as those applied to Natixis employees in France.
CORPORATE GOVERNANCE Policies and rules established for determining compensation and benefits of any kind for corporate officers 87Natixis Registration Document 2017
The amount of the severance payment, together with the non-compete indemnity, if applicable, received by the Chief Executive Officer is capped at twenty-four (24) months of the monthly reference compensation (both fixed and variable).
PRINCIPLES AND CRITERIA 2.4.3 FOR DETERMINING, DISTRIBUTING AND AWARDING FIXED, VARIABLE AND NON-RECURRING ITEMS MAKING UP THE TOTAL COMPENSATION AND BENEFITS OF ANY KIND ATTRIBUTABLE TO THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE CHIEF EXECUTIVE OFFICER
The fixed compensation of Chief Executive Officer Laurent Mignon is established based on the skills and expertise required to perform his duties and is in line with market practices for similar roles.
Corresponding to the value of the shares on the allocation date, for a fair value of €99,305 for 2017 and €76,890 for 2016.(b)
In the tables below: the expression “amounts due or granted” refers toa compensation and benefits allocated to directors in connection with their duties over the year, irrespective of the payment date; the expression “amounts paid” refers to compensation anda benefits actually paid to directors in connection with their duties over the year, irrespective of the date.
At its July 28, 2016 meeting, the Board of Directors also allocated the CEO 47,463 performance shares valued at €160,000 on the allocation date(a) and, at its May 23, 2017 meeting, it allocated 29,911 performance shares valued at €192,000 on the allocation date.
In addition, under social protection, €17,157 in benefits in kind were declared in 2017.
Deferred securities or similar instruments portion of variable compensation for fiscal year 2013
Securities or similar instruments portion of variable compensation for fiscal year 2016 paid in October 2017 Total
AMF TABLE NO. 3R Directors’ fees and other compensation received by non-executive directors from January 1 to December 31, 2017.
Benefits in kind in respect of BPCE (company car, housing, other) 0 0 0 0
In respect of BPCE and its subsidiaries 9,768 0 24,125 24,125
In respect of BPCE and its subsidiaries 600 600 9,900 10,500
Variable compensation for fiscal year 2017, of which €251,808 (40%). Marguerite Bérard-Andrieu relinquished her right to the deferred (2) components of variable compensation in respect of 2017.
Amount paid in 2017 for the variable compensation for fiscal year 2016, or €112,667.(3)
Variable compensation for fiscal year 2016, of which €112,667 (50%) paid in 2017 and the balance (50%) deferred over three years in equal (4) shares of €37,556. Marguerite Bérard-Andrieu, who resigned from her position, will not receive the deferred components of variable compensation in respect of 2016 which were allocated to her by the Supervisory Board at its meeting of February 9, 2017.
Variable compensation for fiscal year 2017, of which €224,800 (50%) paid in 2018 and the balance (50%) deferred over three years in equal (5) shares of €74,933.
Amount paid in 2017 for the variable compensation for fiscal year 2016, or €169,000.(6)
Variable compensation for fiscal year 2017, of which €370,920 (40%) paid in 2018 and the balance (60%) deferred over three years in equal (9) shares of €185,460.
AMF TABLE NO. 4R Subscription or call options granted during the period to each executive corporate officer by the issuer and by any Group companies
AMF TABLE NO. 6R Free shares allocated to each executive corporate officer in 2017
Free shares granted by the General Shareholders’ Meeting during the period to each director by the issuer and by all Group companies Plan date
Value of options according to the method adopted for the consolidated financial statements Date vested Date of transferability (d) Performance conditions
30% of the vested shares must be held for the full term of office as Chief Executive Officer of Natixis or any other executive office at Natixis, (b) including as a Member of the Natixis Senior Management Committee.
Shares allocated as part of the deferred component of annual variable compensation in respect of 2016.(c)
AMF TABLE NO. 9R Stock options or call options granted to the top ten non-director employees and options exercised by them
All shares allocated in fiscal years 2014 through 2017 are subject to performance conditions. This does not apply to the 90 shares allocated in(a) 2013. The 31,955 shares allocated in 2014, 27,321 shares allocated in 2015 and 47,463 shares allocated in 2016 are subject to performance conditions.
Components of compensation due 2.4.3.4 or granted in respect of the fiscal year ended December 31, 2017 to Laurent Mignon, Chief Executive Officer of Natixis
The components of compensation concerned are: fixed compensation;a annual variable compensation;a deferred annual variable compensation;a multi-year variable compensation;a extraordinary compensation;a allocation of stock options/performance shares and any other a long-term compensation; signing bonuses;a contract termination payment: severance a payment/non-compete payment; supplementary pension plan;a directors’ fees;a benefits of any kind.a
Annual variable compensation can represent a maximum of 156.75% of the target variable compensation, i.e. 188.1% of the fixed compensation. In 2017, it amounted to €1,152,000.
Given the achievements observed by the Board of Directors after receiving the opinion of the Compensation Committee, the amount of annual variable compensation for 2017 was set as follows: in respect of BPCE quantitative criteria: €357,149, or 124.01% of the target;a in respect of Natixis quantitative criteria: €888,994, or 171.49% of the target;a in respect of strategic criteria: €414,720, or 120% of the target.a
Multi-year variable compensation 0 In 2017 Laurent Mignon did not receive any multi-year variable compensation.
Extraordinary compensation 0 In 2017 Laurent Mignon did not receive any extraordinary compensation.
Allocation of stock options/performance shares and any other long-term compensation shares
On May 23, 2017, based on the positive opinion of the Compensation Committee,a Natixis’ Board of Directors granted 29,911 performance shares to Laurent Mignon under the 2017 Plan for the Natixis Senior Management Committee.
– performance equal to 100%: 100% of the shares of the annual tranche shall vest,
– performance equal to 120%: 110% of the shares of the annual tranche shall vest.
Ban on hedging The CEO is prohibited from using hedging or insurance strategies, both during the vesting period of components of deferred variable compensation and during the lock-up period.
Contract termination payment: severance payment/non-compete payment - It should be noted that, at its February 19, 2014 meeting, the Board of Directors approved a change to its agreement relating to a severance payment and the establishment of a non-compete agreement. These undertakings and agreements were subject to a shareholder vote and approved at the Ordinary General Shareholders’ Meeting of May 20, 2014 (5th resolution). At its February 18, 2015 meeting, the Board of Directors approved the renewal of severance payment and the non-compete agreement upon the Chief Executive Officer’s reappointment.
Laurent Mignon, like all staff, is covered by the mandatory pension plan. He does not have the kind of supplementary pension plan described in Article 39 (defined benefit plan) or Article 83 (defined contribution plan) of the French General Tax Code. In accordance with the undertakings given by Laurent Mignon during the past fiscal year, in 2017 the Chief Executive Officer paid €140,800 net (corresponding to €160,000 gross of his annual compensation) into an “Article 82” type life insurance policy (in reference to the French General Tax Code), put in place by Groupe BPCE. The premiums on this policy will be paid by Laurent Mignon and not by Natixis.
Directors’ fees - In 2017, Laurent Mignon received no director’s fees in respect of the 2017 fiscal year as part of his responsibilities within Groupe BPCE.
At its February 10, 2016 meeting, the Board of Directors approved a change to the personal protection insurance and supplemental health insurance of CEO Laurent Mignon, so that he would benefit from similar social protection as the other members of BPCE’s Management Board, with the implementation of a scheme to maintain compensation for a period of 12 months in the event of temporary incapacity to work, which represented €17,157 in benefits in kind in 2017.
ORGANIZATION OF NATIXIS’ 3.2 INTERNAL CONTROL SYSTEM 109 Overview of the internal control system3.2.1 109 Control Functions Coordination Committee3.2.2 110 First-level permanent controls3.2.3 110 Second-level permanent controls3.2.4 111 Periodic controls3.2.5 111
SECURITIZATION TRANSACTIONS3.6 139 General policy3.6.1 139 External rating system3.6.2 139 Securitization vehicles3.6.3 139
OPERATIONAL RISKS3.8 147 Targets and policy3.8.1 147 Organization3.8.2 147 Operational risk monitoring3.8.3 148 Risk profile3.8.4 150 Operational risk insurance3.8.5 150
Structural foreign exchange risk3.9.3 158 Overall interest rate risk3.9.4 158 Other information3.9.5 160
NON-COMPLIANCE RISK3.10 163 Organization of compliance3.10.1 163 Employees and professional ethics3.10.2 163 Customer protection3.10.3 164 Financial security3.10.4 164 IT Systems Security and Business Continuity3.10.5 165 Personal data protection3.10.6 166
recommendations with the information published in the registration document is provided in Chapter 8.
Some information in this chapter is an integral part of the notes to Natixis' consolidated financial statements and consequently falls under the Statutory Auditors' certification of the consolidated financial statements. This information is identified by the phrase “Data certified by the Statutory Auditors in accordance with IFRS 7”.
Under Pillar III of the Basel Accords, detailed, standardized information on items related to the Basel 3 report and to prudential publications is published in the “Risk and Pillar III report” (the report and the cross-reference table are available on the Natixis website – www.natixis.com, under Investors & shareholders, Regulated Information in France).
Regulatory ratio * ECB Minimum prudential requirements based on the supervisory review and evaluation process (SREP). Excluding P2G.
RISKS AND CAPITAL ADEQUACY Summary of annual risks 101Natixis Registration Document 2017
Each of these risks is discussed in further detail in this Chapter. Quantitative information relating to these risks and their potential impact on Natixis' business, results and financial condition are set out in Chapter 3 of the registration document. That section also discusses Natixis' risk mitigation measures. Any inadequacy of Natixis' risk management strategy to address any of the foregoing risks could affect its business, results and financial position.
Natixis obtains a portion of the funding for its activities from Groupe BPCE through the public and private issuance of medium- and long-term vanilla debt (senior and subordinate) by BPCE, which is the main issuer of medium- and long-term debt in Groupe BPCE. If the credit ratings of BPCE were downgraded by major rating agencies, or if BPCE were to experience difficulties in obtaining financing in the markets (including as a result of financial or operational problems with entities other than Natixis that are part of Groupe BPCE), the cost of funding and liquidity of Natixis could be adversely affected.
Adverse market or economic conditions may negatively affect the net revenues, profitability and financial condition of Natixis
The businesses of Natixis are sensitive to changes in the financial markets and more generally to economic conditions in France, Europe and the rest of the world. Economic conditions in the markets where Natixis operates could in particular have some or all of the following impacts:
102 Natixis Registration Document 2017 adverse economic conditions could affect the business anda operations of Natixis’ customers, resulting in an increased rate of default on loans and receivables; a decline in market prices of bonds, shares and commoditiesa could impact many of the businesses of Natixis, including in particular trading, investment banking and Asset Management revenues; macro-economic policies adopted in response to actual ora anticipated economic conditions could have unintended effects, and are likely to impact market parameters such as interest rates and foreign exchange rates, which in turn could affect the businesses of Natixis that are most exposed to market risk; perceived favorable economic conditions generally or ina specific business sectors could result in asset price bubbles, which could in turn exacerbate the impact of corrections when conditions become less favorable; a significant economic disruption (such as the global financiala crisis of 2008 or the European sovereign debt crisis of 2011) could have a severe impact on all the activities of Natixis, particularly if the disruption is characterized by an absence of market liquidity that makes it difficult to sell certain categories of assets at their estimated market value or at all.
RISKS AND CAPITAL ADEQUACY Summary of annual risks 103Natixis Registration Document 2017
The New Dimension strategic plan contains forward-looking information and guidelines, and while Natixis believes the plan provides a number of opportunities, it will face uncertainties given the potentially volatile state of financial markets and the global economy, and there is no guarantee that Natixis will achieve the goals of this new strategic plan or any other strategy it announces or undertakes in future periods. In particular, in connection with the New Dimension strategic plan, Natixis announced certain financial targets, including profitability and risk-weighted asset growth rates, capital generation targets and shareholder dividend objectives, as well as targets for regulatory capital ratios and strategic initiatives and priorities. The financial objectives were established primarily for purposes of planning and allocation of resources, are based on a number of assumptions, and do not constitute projections or forecasts of anticipated results. The actual results of Natixis are likely to vary (and could vary significantly) from these targets. If Natixis does not realize these objectives, its financial condition and the market value of its securities could be adversely affected.
In connection with its lending activities, Natixis periodically establishes asset impairment charges, whenever necessary, to reflect actual or potential losses in respect of its loan and receivables portfolio, which are recorded in its profit and loss account under “cost of risk.” Natixis’ overall level of such asset impairment charges is based upon its assessment of prior loss experience, the volume and type of lending being conducted, industry standards, past due loans, economic conditions and other factors related to the recoverability of various loans. Although Natixis uses its best efforts to establish an appropriate level of asset impairment charges, its lending activities may require it to increase its charges for loan losses in the future as a result of increases in non-performing assets or for other reasons, such as deteriorating market conditions or factors affecting particular countries. Any significant increase in charges for loan losses or a significant change in the estimate of the risk of loss inherent in Natixis’ portfolio of non-impaired loans, as well as the occurrence of loan losses in excess of the charges recorded with respect thereto, could have an adverse effect on the results of operations and financial condition of Natixis.
Applicable accounting principles evolve and change over time, and Natixis’ financial statements and capital ratios are exposed to the risk of changes to such principles. For example, in July 2014, the International Accounting Standards Board published IFRS 9 “Financial Instruments,” which replaced IAS 39 as from January 1, 2018, after its adoption by the European Union. The standard amends and complements the rules on the classification and measurement of financial instruments. It includes a new impairment model based on expected credit losses (“ECL”), while the current model is based on provisions for incurred losses, and new rules on general hedge accounting. The new approach based on ECL could result in substantial additional impairment charges for Natixis and add volatility to its regulatory capital ratios, and the costs incurred by Natixis relating to the implementation of such norms may have a negative impact on its results of operations.
Independent of market changes, any under-performance of Natixis’ Asset Management business may result in a decrease in assets under management (in particular, as a result of mutual fund redemptions) and in lower fees, premiums and other portfolio management income earned by Natixis.
Demand for Asset Management products could vary on the basis of a variety of factors, some of which are outside the control of Natixis
Moreover, if Natixis is unable to maintain a satisfactory level of performance with respect to its Asset Management products, clients may withdraw funds or may decline to renew investment mandates.
Claims experienced by Natixis Insurance affiliates could be inconsistent with the assumptions they use to price their products and establish their reserves
RISKS AND CAPITAL ADEQUACY Summary of annual risks 105Natixis Registration Document 2017 greater than those forecast based on historical averages. Moreover, Natixis’ quantitative models do not incorporate all risks. Certain risks are subject to a more qualitative analysis that could prove insufficient and thus expose Natixis to significant and unanticipated losses. In addition, while no material issue has been identified to date, the risk management systems are subject to the risk of operational failure, including fraud.
Increased competition, both in Natixis’ home market of France, its largest market, and internationally, could adversely affect Natixis’ net revenues and profitability
Natixis’ ability to carry out its operations could be affected by the financial soundness of other financial institutions and market participants. Financial institutions are closely interconnected mainly as a result of their trading, clearing, counterparty and financing operations. The default of a sector participant, or mere rumors or questions surrounding one or more financial institutions or the finance industry as a whole, have, in the past, led to a widespread contraction in liquidity in the market and, in the future, could lead to additional losses or defaults.
In addition, Natixis originates or acquires certain assets with a view to their subsequent resale or distribution through channels such as syndication or securitization. A reduction in the liquidity of the markets for such assets or the syndication or securitization markets more generally, or the inability of Natixis to sell or reduce its positions in such assets for any other reason, may compel Natixis to bear more credit risk and market risk associated with such assets for a longer period than it initially anticipated. The absence of liquidity in the secondary markets for such assets may require Natixis to reduce its origination activities, which would impact revenues and could affect its relations with customers, which in turn could adversely affect its results of operations and financial condition.
Natixis is confronted with new types of risk that have emerged in recent years, in particular cyber risk, and may become exposed to other emergent risks in the future. Cyber risk is caused by a malicious and/or fraudulent act, perpetrated digitally in an effort to manipulate data (personal, banking/insurance, technical or strategic data), processes and users, with the aim of causing material losses to companies, their employees, partners and clients. Cyber risk has become a top priority in the field of operational risks. A company’s data assets are exposed to new, complex and evolving threats liable to have material financial and reputational impacts on all companies, and specifically those in the banking sector. Given the increasing sophistication of criminal enterprises behind cyber attacks, regulatory and supervisory authorities have begun highlighting the importance of ICT (Information and Communication Technology) risk management.
Natixis has made the resilience of its technical infrastructures, business continuity, and data transmission security a top priority, both in terms of preempting and being capable of responding to threats. However, as cyber attacks are constantly evolving to become increasingly complex, these efforts may not be sufficient to fully protect Natixis, its employees, its partners and client. Despite the precautions taken by Natixis, such attacks could potentially disrupt client services or result in the alternation or disclosure of confidential data, or even disrupt business. The consequences in terms of data recovery and verification costs or reputational harm could have a negative impact on Natixis’ business, operating results and financial situation.
Unforeseen events, such as a severe natural disaster, pandemic, terrorist attacks, or any other state of emergency, could lead to a sudden interruption of Natixis’ operations and cause substantial losses insofar as they are not covered or are insufficiently covered by an insurance policy. These losses could relate to property, financial assets, market positions and key employees. Such unforeseen events may, additionally, disrupt Natixis’ infrastructure, or that of third parties with which it conducts business, and could also lead to additional costs (such as relocation costs of employees affected) and increase Natixis’ costs (in particular insurance premiums). Subsequent to such events, Natixis may be unable to insure certain risks, resulting in an increase in Natixis’ overall risk. Other adverse unforeseen changes may occur in political, military or diplomatic environments and may create social instability or an uncertain legal environment that may negatively impact the demand for the products and services offered by Natixis.
Tax laws applicable in the countries where Natixis operates could have a material impact on Natixis’ results
These new reporting requirements, and more generally, any mechanisms adopted to enhance cooperation between tax administrations in the fight against tax evasion, will subject Natixis to additional administrative burdens and to costly reporting obligations.
The occurrence of any of the preceding factors may result in an increase in the tax burden of Natixis and have a material adverse effect on its business, results of operations and financial condition.
Natixis’ profitability and business outlook could be adversely affected by reputational, legal and compliance risk
Inadequate management of these issues could also give rise to additional legal risk for Natixis and lead to civil or criminal legal proceedings with potentially significant damages claimed against Natixis, or expose Natixis to sanctions from the regulatory authorities. Natixis currently is and will likely in the future be the subject of legal actions. Actions instituted against Natixis (including ongoing proceedings) could result in judgments, settlements, fines, or penalties, which could increase Natixis’ operational and litigation costs and result in material losses.
The Directive 2014/59/EU dated May 15, 2014, on Bank Recovery and Resolution Directive (the “BRRD”) and the Single Resolution Mechanism introduced by EU Regulation No. 806/2014 of July 15, 2014, as enacted into French law by decree-Law No. 2015-1024 dated August 20, 2015, provide resolution authorities with the power to “bail in” capital instruments and eligible liabilities of an issuing institution such as Natixis, meaning writing them down or (except in the case of shares) converting them to equity or other instruments, if resolution proceedings are initiated in respect of the issuing institution. A resolution proceeding may be initiated in respect of an institution if it or the group to which it belongs is failing or likely to fail, there is no reasonable prospect that another measure would avoid such failure within a reasonable time period, and a resolution measure is required to ensure the continuity of critical functions, to avoid a significant adverse effect on the financial system, to protect public funds by minimizing reliance on extraordinary public financial support, and to protect client funds and assets, in particular those of depositors. Resolution authorities must write down capital instruments such as shares before initiating resolution proceedings, if the issuing institution is failing or likely to fail (and there is no reasonable prospect that another measure would avoid such failure within a reasonable time period) or requires extraordinary public support. Thereafter, the bail-in power may be exercised by a resolution authority in respect of any remaining capital instruments, subordinated debt instruments, senior non-preferred debt instruments and finally senior preferred debt instruments, in reverse order of seniority, excluding certain limited categories of liabilities.
As a member of Groupe BPCE, a resolution proceeding with respect to Natixis would in all likelihood be linked to a resolution proceeding in respect of Groupe BPCE. The relevant resolution authority would manage the resolution proceeding at the level of BPCE, which would be the “single point of entry” of Groupe BPCE. Even if the resolution proceeding results from a difficulty encountered in a Groupe BPCE entity other than Natixis, it is possible that bail-in or other powers could be exercised in respect of Natixis, or that a controlling stake in Natixis could be sold to a third party or a bridge institution, in connection with a resolution proceeding initiated in respect of Groupe BPCE.
If the financial condition of Natixis or of Groupe BPCE deteriorates, or is perceived to deteriorate, the existence of the bail-in powers and other resolution powers could cause the market value of the shares and other securities of Natixis to decline more rapidly than would be the case in the absence of such powers. Public financial support would not be available except as a last resort, after resolution tools, including the bail-in power, have been fully exhausted.
Natixis' internal control system covers all the steps taken by the institution to measure, monitor and manage the risks that are inherent to its various activities in accordance with legal and regulatory requirements. The system complies with the provisions set forth in the French Order of November 3, 2014, on internal control by companies in the banking, payment services and investment services sector.
It is structured in a manner consistent with the principles set out by BPCE, with the objective of ensuring a consolidated approach
The objective is to ensure the effectiveness and quality of the Company's internal operations, the reliability of accounting and financial information distributed both internally and externally, the security of operations, and compliance with laws, regulations and internal policies.
Natixis’ internal control system comprises: first-level permanent controls, performed by operational staffa on the processing in their charge, following internal procedures and legal and regulatory requirements; second-level permanent controls, performed by foura departments that are independent of operational staff: the Compliance Department, which reports to thej Corporate Secretary, is notably responsible for managing compliance risk, organizing the first-level permanent control system, and oversees second-level controls of operational risk (compliance and other operational risks), the IT Systems Security and Business Continuityj (ITSS-BC) function, which reports to the Compliance Department, assesses the risks, establishes the information systems security and business continuity policies and ensures their correct application, the Risk Division, which is headed by the Risk Officer,j reports directly to the Chief Executive Officer since October 1, 2017, and is responsible for measuring, monitoring and managing the risks inherent to the business activities, in particular market risk, credit risk and operational risk, the Regulatory and Accounting Review team within thej Accounting and Ratios Division, which reports functionally to the Compliance Department, verifies the quality and accuracy of accounting and regulatory information; periodic controls, performed by the Internal Audita Department. The Internal Audit Department reports to the Chief Executive Officer and performs periodic audits to assess the risks to which the businesses are exposed and ensure the effectiveness of the entire internal control system.
The Corporate Secretary is responsible for permanent controls and ensures their consistency and effectiveness.
The purpose of this organization is to ensure adherence to the following principles: a strict segregation of duties between units responsible fora performing transactions and those that approve them, in particular accounting teams; full independence between the operational and functional unitsa responsible for undertaking and validating transactions, and the units that control them.
The Executive Managers, under the supervision of the Board of Directors, are responsible for implementing Natixis’ internal control system in its entirety. As such, they designate the persons in charge of the Risk Management, Permanent Control and Compliance Control functions, who report to them on their assignments.
The Board of Directors is regularly kept informed, by the executive managers, of all significant risks, risk management policies and changes made thereto.
Board of Directors: (Audit Committee - Risk Committee * Accounting, fiscal and regulatory controls performed by the Finance Review department, reporting hierarchically to the Accounting and Ratios department within Finance and Strategy, and functionally to the Compliance Department.
The first-level controls are centralized in a dedicated tool that is used to consolidate results, identify areas at risk and produce reports. The Compliance Department helps the operational or functional departments define and update these controls.
RISKS AND CAPITAL ADEQUACY Organization of Natixis’ internal control system 111Natixis Registration Document 2017
Second-level permanent controls are performed by four departments that are independent of operational staff.
The Compliance Department performs permanent second-level controls on operational risks mainly in the following areas of non-compliance: Customer protection, professional ethics, market abuse and financial security. At December 31, 2017, 4,162 second-level controls were assessed. (For more information on Compliance and on ITSS-BC, refer to section 3.10)
Third-level controls, or periodic controls, within the meaning of the French Order of November 3, 2014, are performed by the Internal Audit Department.
In this respect, the Internal Audit Department is independent of all operational entities and support functions. With no operational role, it can never find itself in a position of conflict of interest. It reports to Natixis' Chief Executive Officer. The Internal Audit Department has a strong functional link with its BPCE counterpart, in accordance with the Natixis audit charter, revised in 2017. In accordance with these principles, the Internal Audit Department coordinates a global audit function at Natixis and is part of the Groupe BPCE Internal Audit Function.
It conducts audits across the whole of Natixis (parent company, subsidiaries and branches) and covers all classes of risk arising from the various business activities carried out. It has full and unrestricted access to all information, confidential or otherwise. Its field of investigation encompasses all of Natixis’ operational activities, its functional departments – notably including entities in charge of permanent control assignments – and its outsourced activities. For all the business lines, these audits result in an assessment of the suitability of existing control points in the processes audited as well as an appraisal of the risks arising from the relevant activities. It makes use of recurrent work in the area carried out by operational departments and permanent control teams. The audits lead to recommendations by order of priority to strengthen the comprehensiveness and robustness of the mechanisms for controlling or managing the risks audited.
Natixis' annual and multi-year audit plans are approved by its Chief Executive Officer. The Annual Audit Plan is examined by the Risk Committees of Natixis and BPCE.
Several specialist projects involved all Internal Audit staff in 2017. These included in particular: performing a self-assessment on the quality of audits, usinga the BCBS regulatory framework and the IIA’s Best Practices as reference; strengthening the organization and resources of Natixis'a Internal Audit function by improving the efficiency of the recruitment process, further promoting diversity and stepping up internationalization; deepening the current relationship between the Internal Audita Department, BPCE’s Internal Audit Department and the nine international and subsidiary audit teams by enhancing resource sharing;
The Board of Directors (and its extension, the Risk Committee) gives the final approval of Natixis’ risk appetite and supervises its application.
The key duties of Natixis’ Audit Committee are: to check the clarity of information published by Natixis anda assess the relevance of the accounting methods adopted for the creation of Natixis’ individual and consolidated financial statements; and to assess the quality of internal control, specifically thea consistency of the systems for measuring, monitor and control risk, and, as and when needed, propose implementation of supplementary actions in this sense.
The Executive Managers, under the supervision of the Board of Directors, are responsible for implementing Natixis’ internal control system in its entirety.
Reporting to the Chief Financial and Strategy Officer, the Accounting and Ratios division is responsible fora accounting and regulatory information; the Financial Management division oversees ALM and itsa framework (standards, limits, etc.); the Financial and Taxation Oversight division is in charge ofa the budget process and ensures adherence to tax laws.
The Legal Department, also reporting to the Corporate Secretary, ensures the security and legal regulatory compliance of the businesses.
The central departments provide senior management with necessary information on the risk developments and the management of the bank.
Level-one permanent controls are performed by operational staff on the transactions carried out in accordance with internal procedures and legislative and regulatory requirements. The controls can be performed by a functional department tasked with approving the relevant transactions.
The risk culture is central to the Risk Division’s guiding principles, as set out in the Risk Charter. It has four areas of focus: harmonizing good practices within the bank through the roll-outa of a body of risk policies, standards and procedures that cover all the bank's major risks (credit, market and operational) and outline the bank's strategic vision and risk appetite; running global communication campaigns (posters, goldena rules, information on the Intranet and radio), and implementing a new e-learning module — now mandatory for all staff — on operational risks; setting up mandatory training on matters relating to model riska management (model life cycles); promoting all-staff training on key subjects relating toa regulatory developments.
It is consistent with Natixis’ strategic plan, budget process and business activities, and falls within Groupe BPCE’s general framework on risk appetite, comprising two components: the Risk Appetite Statement (RAS), which sets out, in1. qualitative and quantitative terms, the risks that the bank is prepared to take; the Risk Appetite Framework (RAF), which describes the2. interface between the organization’s key processes and the implementation of the governance that puts the RAS into action.
The business model developed by Natixis is based on its recognized areas of expertise (corporate financing, market activities, Asset & Wealth Management, Insurance, Services and Specialized Financing), responding to the needs of its clients and those of Groupe BPCE.
This operational framework is applied by type of risk (credit and concentration risk, market risk, liquidity and leverage risk, operational risk, solvency risk, etc.) and draws on Natixis’ preexisting measuring and reporting systems.
Credit risk affects lending operations as well as other operations exposing Natixis to the risk of counterparty default, notably its trading operations in financial instruments on Capital markets and its settlement-delivery operations.
Natixis is exposed to this risk because of the transactions it executes with its customers (for example, over-the-counter derivatives [swaps, options, etc.], securities lending and borrowing, and repurchase agreements).
Rating agencies assess the creditworthiness of the units available-for-sale for investors.
In general, securitizations have the following characteristics: they result in a material transfer of risk where the transaction isa originated by Natixis; payments made in the course of the transaction depend on thea performances of the underlying exposures; the subordination of tranches, defined by the transaction,a determines the distribution of losses over the term of the risk transfer.
As is the case for most corporate and investment banks, Natixis has very few assets and liabilities generating structural interest rate positions. Natixis’ overall interest rate risk concerns contractual transactions. The most significant positions concern exposures to the short end of yield curves and are predominantly linked to the lag between IBOR reset dates. This is therefore classed as a secondary risk at the bank level.
Liquidity risk is the risk that Natixis will be unable to honor its commitments to its creditors due to the mismatching of maturities between assets and liabilities. This risk could arise, for example, in the event of massive withdrawals of customer deposits, a crisis of confidence, or an overall market liquidity crisis. As a corporate and investment bank, this risk for Natixis results primarily from mismatched positions between transactions with contractual maturities, as Natixis has fewer stable and permanent customer resources than retail banks and partly funds its operations on the markets.
Natixis’ ability to conduct its business is determined by the availability of its information system, the guaranteed integrity and confidentiality of data and the traceability of every transaction.
The transformation of banking information systems, the new technologies it heralds and the increased outsourcing of the related services offer cybercriminals new opportunities to carry out increasingly sophisticated and industrialized attacks. To address this issue, Natixis has restructured its departments in charge of IT security and set up a cyber Security Operating Center (SOC) that works directly with Groupe BPCE’s Computer Emergency Response Team (CERT).
The purpose of global internal stress tests is to assess the impact of a central scenario and of stressed scenarios on Natixis' income statement, risk-weighted assets and equity.
The scenarios proposed by Economic Research team are approved by Natixis' Senior Management and are translated as levels or shocks to economic and financial variables, such as GDP, inflation, employment and unemployment, interest and exchange rates, and commodity prices, over a three-year period. These variables are factored into projection models used by Natixis to apply stress to the various aggregates of the income statement, risk-weighted assets and equity.
One scenario for 2017 suggested an economically fragile Europe and the breakup of the United Kingdom: European bank recapitalization, drop in the petrol price, the breakup of the United Kingdom with the independence of Scotland and a balance of payments in crisis.
Another scenario drew on the main risks revealed by the 2016-2018 EBA scenario: an upturn in risk premiums amplified by lower liquidity on the secondary market, weak profitability of financial industry players, risk linked to the sustainability of public and private debt according to countries and risks linked to parallel financing.
The results of the stress tests are submitted for approval by the Senior Management Committee and presented to the Risk Committee of the Board of Directors. They have been analyzed as part of building Natixis’ solvency trajectory. The impact was measured in terms of provisions for credit losses, net income (Group share), net revenues and Common Equity Tier 1.
Regulatory stress tests comply with the ad hoc requirements of the ECB, the EBA and any other supervisor: the last regulatory exercise was performed in 2016 using the methodology published by EBA for the ECB.
The specific stress test exercises performed by the Natixis Risk division are detailed in the dedicated sections of this document (namely with regard to the credit stress tests detailed in Section 3.5, Subsection 3.5.7 “Commitment monitoring framework", as well as the market stress tests detailed in Section 3.7, subsection 3.7.3 “Methodology for measuring market risk").
This regulatory framework, aimed at reinforcing the financial strength of banking institutions, has resulted in: a stricter definition of the capital items eligible to meeta regulatory capital requirements; reinforced regulatory capital requirements, in particular fora counterparty risk on derivatives; higher ratios to observe, specifically regarding CET1 capital anda capital buffers: a capital conservation buffer, which will have to representj 2.5% of total risk exposures by 2019, a contracyclical capital buffer, i.e. the average of thej contracyclical capital buffer of each country in which Natixis holds risk exposures, weighted by the amount of said exposures. The rate applied in France is 0%, a systemic risk buffer, i.e. an additional requirement forj global systemically important banks (G-SIBs), such as BPCE. Natixis is not subject to this buffer, in addition, other mechanisms have been introduced, includinga mechanisms to limit dividend payouts, interest on Additional Tier One (AT1) subordinated debt and variable compensation (Maximum Distributable Amount, or MDA).
Pillar III: requires institutions to disclose several itemsa highlighting the level of risks incurred, capital adequacy and the adequacy of their management. This mechanism was considerably enhanced in 2016 with the publication of new guidelines by the EBA.
In accordance with Article 19 of the CRR, the regulatory consolidation scope is established based on the following principles: Entities, excluding insurance companies, that are fully consolidated or consolidated under the equity method in the statutory consolidation scope (see 2017 Natixis registration document, Note 17 of Chapter 5) are included in the regulatory consolidation scope; the Group’s insurance companies are accounted for under the equity method in the regulatory consolidation scope.
RISKS AND CAPITAL ADEQUACY Capital management and capital adequacy 119Natixis Registration Document 2017
Loans and receivables due from banks 45,289 44,006 36,493 7,480 6,110
Note: Carrying values under the scope of regulatory consolidation are not equal to the sum of risk type breakdown. This is because exposure can be subject to several types of risks.
Revaluation adjustments on portfolios hedged against interest rate risk 138 138 138
Note: Carrying values under scope of regulatory consolidation do not equal the sum of risk type breakdown.
RISKS AND CAPITAL ADEQUACY Capital management and capital adequacy 121Natixis Registration Document 2017
In accordance with the provisions introduced by the CRR and with the national provisions defined by the ACPR, regulatory capital (calculated based on shareholders’ equity in accordance with the accounting balance sheet), comprises three categories, as described below.
CET1 is calculated using shareholders’ equity (excluding reclassified hybrid securities), with the following restatements: deductions not subject to phase-in arrangements:a estimated dividend,j goodwill and intangible assets,j recyclable unrealized gains and losses on hedgingj derivatives, own credit risk on debts issued and financial instrumentsj (Debit Value Adjustment), prudent valuation adjustments,j expected loss on equity positions and shortfall of provisionsj on expected losses on credit positions, revaluation adjustments on defined-benefit pension planj commitments; deductions subject to phase-in arrangements:a non-bank non-controlling interests,j bank non-controlling interests exceeding the limits set byj regulations, deferred tax assets dependent on future earnings, but notj related to temporary differences, recyclable gains or losses on available-for-sale assets,j company-controlled stock and cross-shareholdings,j amount exceeding threshold 1 on non-material holdings ofj capital instruments issued by financial entities, amount exceeding threshold 2 on material holdings of capitalj instruments issued by financial entities, amount exceeding threshold 2 on deferred tax assetsj dependent on future earnings and resulting from temporary differences, amount exceeding threshold 3 common to amounts notj deducted in respect of threshold 2, any surplus deduction of Additional Tier One capital (seej below).
AT1 capital comprises: subordinated debt instruments recognized as AT1 after applyinga phase-in arrangements; deductions made from this category via the phase-in provisionsa applied to CET1; any surplus deduction of Tier 2 capital (see below).a
The Risk and Pillar III report contains detailed information on debt instruments recognized in Additional Tier 1 capital and their characteristics at December 31, 2017, as required by Commission Implementing Regulation No. 1423/2013 (Annex II).
The Risk and Pillar III report contains detailed information on debt instruments recognized in Tier 2 capital and their characteristics at December 31, 2017, as required by Commission Implementing Regulation No. 1423/2013 (Annex II) - Pillar III available on the Natixis website (www.natixis.com).
and 8%, respectively, in addition to the cumulative safety buffers of 5.75%, 7.25% and 9.25%, respectively for 2017, and 6.375%, 7.875% and 9.875%, respectively for 2018.
In accordance with the Basel 3/CRR regulatory framework, under Pillar I these ratios must exceed the minimum limits of 4.5%, 6%
Dividends proposed to the General Shareholders’ Meeting and expenses (1,160) (1,130)
o/w impact of change in basis subject to phase-in arrangements (147)
RISKS AND CAPITAL ADEQUACY Capital management and capital adequacy 125Natixis Registration Document 2017
Common Equity Tier 1 (CET1) capital totaled €12 billion at December 31, 2017, down €0.5 billion over the year.
Shareholders' equity (Group share) remained stable for the year at €19.8 billion, as the incorporation of net income for the year in the amount of €1.67 billion and the issuance of new deeply subordinated instruments in the amount of €0.5 billion (net the value of exercised calls) were primarily offset by the negative impact of translation adjustments in the amount of -€0.67 billion, dividend payments for 2016 in the amount of -€1.1 billion and the impact of acquisitions (including puts on minority interests) in the amount of -€0.34 billion.
substantial reduction of the tax base for deferred tax assets to be deducted (-€0.325 billion) more than offset this impact.
Tier 2 capital was down by -€0.3 billion for the year due to the impact of the prudential haircut on instruments eligible as Tier 2 capital, a reduction in excess provisions over expected losses and changes in the impact of phase-in arrangements over the period.
The -€2.6 billion decrease in counterparty risk can primarily be attributed to changes in volumes and the establishment of hedges.
The new plan, entitled “New Dimension”, has set the target CET1 ratio after dividends at 11%.
The capital planning system adapts all processes with the aim of ultimately meeting the requirements of the supervisory authorities, shareholders and investors: continuously maintaining the targets set in terms of capitala adequacy; developing an internal approach for measuring capitala requirements and overseeing Natixis’ resilience under stress scenarios (ICAAP);
126 Natixis Registration Document 2017 projecting capital requirements specific to business linea activity, within the framework of Natixis’ overall capital adequacy policy; anticipating regulatory changes and their impact on Natixis’a various business lines.
Under Pillar II, the leverage ratio must be calculated and reported to the regulator as of January 1, 2014. Its publication is mandatory as of January 1, 2015.
Natixis is already prepared to calculate and publish its leverage ratio (according to the rules set out in the Delegated Act) and to implement the balance sheet oversight needed to converge towards the target ratio under consideration.
The risk control framework is overseen by the Risk division with the strong involvement of all the bank’s businesses and support functions. All the internal standards, policies and procedures are consistent with BPCE’s framework and are reviewed periodically to take into account the results of internal controls, regulatory changes and the bank’s risk appetite.
Credit risk management and control are performed in accordance with the segregation of duties. Accordingly, together with the other divisions, the Risk division is in charge of monitoring credit risk through various sections that: define the credit risk policies and internal credit risk managementa procedures; set credit risk limits and exposure thresholds;a issue transaction authorizations after a counter-analysis of thea credit risk and the counterparty risk in line with the processes for credit approval and limit authorization; define methodologies and internal rating models;a implement second-level permanent controls;a monitor exposures and report to Natixis' Senior Management.a
Natixis’ risk policies have been defined as a component of the bank’s overall risk appetite and credit risk control and management framework. The policies are the product of consultation between the Risk division and the bank’s various business lines, and are intended to establish a framework for risk-taking while outlining risk appetite and Natixis’ strategic vision for each business line or sector.
finance, project finance, commodities finance, banks, Insurance, etc.) and the subsidiaries’ various activities (e.g. leasing for Natixis Lease and factoring for Natixis Factor, etc.).
Natixis now has some 20 risk policies, which are regularly revised and cover the various Corporate & Investment Banking business lines (corporate, LBO, aircraft finance, real estate
The framework these risk policies set out makes a distinction between recommendations based on good practices, and strict (qualitative or quantitative) supervisory criteria, any deviation from which affects the decision-making process and the usual system of limit authorizations.
The quantitative framework is generally based on: commitment ceilings by business line or sector;a commitment sub-limits by type of counterparty, type ofa product, or sometimes by geographic region.
These adjustments correspond to the expected loss related to a counterparty's default risk and aims to account for the fact that Natixis cannot recover all the transactions' market value.
Natixis reduces its exposure to counterparty risk using three measures: the use of bilateral netting agreements under which, if aa counterparty goes into default, only the balance of the positive and negative valuations of the transactions carried out with the counterparty in question is considered as risk; appendices to these agreements that govern the use ofa collateral swaps that fluctuate according to the daily valuation of the portfolios of transactions carried out with the counterparties in question; the use of clearing houses, which stand in for their membersa by bearing most of the counterparty risk. To do this, they use initial margins and a variation margin call system.
This risk is represented in regulations by two concepts: specific wrong-way risk: referring to the risk generated when,a due to the nature of the transactions entered into with a counterparty, there is a direct link between its credit quality and the amount of the exposure; general wrong-way risk: referring to the risk generated whena there is a correlation between the counterparty’s credit quality and general market factors.
The internal rating system is an integral part of Natixis’ credit risk assessment, monitoring and control mechanism. It covers all the methods, processes, tools and controls used to evaluate credit risk. It takes into account fundamental parameters, including probability of default (PD), corresponding to a rating, and loss given default (LGD), which is expressed as a percentage.
RISKS AND CAPITAL ADEQUACY Credit and counterparty risks 129Natixis Registration Document 2017
counterparties. These ratings are reviewed annually or more often if necessary.
The reconciliation of the external rating agencies' alphanumeric credit rating scales and the risk weighting coefficients is performed in accordance with the note published by the ACPR
When a bank portfolio exposure does not have directly applicable external credit rating, the Bank's customer standards allow - on a case-by-case basis and after analysis - the application of a rating based partially on an internal exposure rating of the issuer (or of the guarantor, if applicable).
The design, modification and ongoing management of the model (including backtesting) are performed by the model designers on behalf of the model owner. Model Risk Management, an independent unit, is consulted on any new model or any adjustment or update to an existing model. Each year, this team conducts a periodic review of ratings, covering, among other things, analysis of backtesting and use tests.
The third line of defense, represented by the Internal Audit Division, performs annual reviews of the internal rating models as well as compliance with the model risk management framework and the correct application by Model Risk Management of its own policies and procedures.
Backtesting and benchmarking are an integral part of the model approval process. Backtesting and performance-monitoring programs are used at least once a year to ensure the quality and reliability of rating models, LGD estimates and probability of default scales. They include a detailed analysis based on a range of indicators, e.g. differences in terms of severity and migration compared with agency ratings, observed defaults and losses and changes in ratings prior to default, and the performance measurements of LGD models, based on the quantitative analysis of historical data and supplemented by qualitative analysis.
For Natixis, the Corporate (including structured finance), Interbank and Sovereign portfolios, which are handled using dedicated rating tools, have the lowest default rates (Low Default Portfolios). These portfolios are backtested in accordance with their specific nature, namely the low number of defaults and the difficulty in creating and maintaining a PD scale based on internal data.
The change in the portfolio’s credit quality over one year is also analyzed by looking at internal rating migrations. Additional indicators are also calculated to verify the internal risk ranking (Gini Index, average rating, previous year’s ratings, ratings of counterparties that have defaulted, etc.) and provide statistics as a supplement to the qualitative analyses.
CANO meetings are chaired by the Heads of the Individual Risk and Consolidated Credit Risk departments within the Risk division, or by their representatives. The follow-up on the decisions made during committee meetings are presented at subsequent meetings, particularly if thresholds have been breached and this situation has not been rectified.
The LGD, ELBE (see glossary) and CCF (see glossary) levels for the different lending scopes are backtested at least once a year (based on internal data), as are the rating models and the associated PD for the purpose of verifying the reliability of the estimates over time.
The losses and estimates produced by the models are compared based on historical data covering a period as long as possible.
The losses given default models (internal LGD) are assessed: on a statistical basis for the Corporate asset class;a based on internal and external histories and an externala benchmark for banks and sovereigns; using stochastic models if there is a claim against the financeda asset.
The report is then submitted for review to the internal validation team (Model Risk Management) then presented to the various Committees for escalation to the bank’s management.
Financial institutions 3 Expert analysis-based rating models using quantitative criteria (accounting balance sheet) and qualitative criteria (questionnaire). Model per type of counterparty and per geographic area
LGD Sovereigns 1 Qualitative model based on internal and external defaults. The assessment of LGD during periods of decline is included insofar as all defaults are included for the LGD model.
Financial institutions 1 Qualitative model based on internal and external defaults by type of counterparty. LGD assessed in this model include defaults occurring in periods of decline.
Corporates (incl. SMES) 4 Statistical models (decision trees or assessment of recoverable assets) by type of financed asset. The safety buffers included in the LGD models serve to cover periods of decline (primarily via bootstrap techniques).
CCF Corporate Financing (including SMEs), Financial institutions and Sovereigns 1 Model calibrated on internal defaults and segmentation by type of product and type of counterparty
With this type of collateral, one or more guarantors commit to pay the creditor in the event of borrower default. It includes personal guarantees, on-demand guarantees and credit derivatives.
The collateral is adjusted for its volatility and type. Collections on collateral are estimated quarterly or annually on the basis of conservative valuations and haircuts, and take into account the actual enforcement of such collateral in times of economic slowdown.
Depending on their nature, collateral guarantees must meet specific eligibility criteria: non-financial guarantee: the eligibility of personal guaranteesa depends on the quality of the guarantor and must fulfill several conditions: represent a direct claim opposite to the guarantor and referj to specific exposures, be irrevocable and unconditional,j if the counterparty defaults, the bank can take legal actionj against the guarantor within the permitted time frame so as to settle payment arrears under the legal document governing the transaction, the guarantee is an obligation secured by a legal documentj that established the guarantor’s liability, the guarantor covers all types of payment to be made by thej borrower in question; collateral, real collateral or netting agreement) and borrower, as well as liquidity. It must be valued at least once a year and meet all of these conditions: financial guarantee: eligibility is determined by the relevanta legal framework, the nature of the guarantee (financial all the legal documents are binding to all parties and arej legally valid in all relevant jurisdictions, the bank has the right to realize or take ownership of thej collateral in case of default, insolvency or bankruptcy, there is no material positive link between the quality of thej counterparty credit and the value of the collateral, the asset must be liquid and its value sufficiently stable overj time for its realization to be certain.
Natixis’ commitments are measured and monitored on a daily basis using dedicated consolidation systems. An IT system enables comprehensive consolidation of limits and credit exposures across a scope covering all of Natixis' exposure to credit risk and most of that of its subsidiaries.
The Risk division provides Senior Management and the bank’s business line heads with reports analyzing Natixis’ risks: trend analyses, dashboards, stress test results, etc.
Any deterioration in the level of risk is identified as it arises and is immediately reported to the Risk division and the relevant business, in accordance with both the counterparty watch list, specific provisioning and alert procedures.
The Natixis Watch List and Provisions Committee meets once a quarter and covers all the Bank’s business lines. It reviews all non-performing loans under watch that may give rise to provisions or adjustments to existing provisions, and decides on the amount of provisioning necessary.
It draws on a structure of preparatory committees that are jointly steered by the Risk division and each of the bank’s business lines.
In addition to individual provisions, Natixis also sets aside provisions to cover country risk and sector risk. These collective provisions are based on groups of homogeneous assets and formed according to three criteria: ratings for loans to private individuals and professionals;a sector risk;a geographic risk for other counterparties (corporate,a sovereign, etc.).
combination of micro or macroeconomic factors specific to the industry or country concerned. When necessary, an expert opinion is sought to refine the results of this review.
For the latter, the search for objective evidence of impairment is undertaken through analysis and close monitoring of business sectors and countries. Such evidence typically arises from a
The credit stress test system covers Natixis scopes subject to the A-IRB, F-IRB and standardized approaches. In keeping with market practices, it selects scenarios that replicate plausible crisis situations and high degrees of severity, while taking past events, market trends and the environment into account so that purely historical or theoretical scenarios are eliminated.
This stress testing is regularly calculated for the Natixis consolidation scope to evaluate the risk generated in the event of an adverse trend in the economic and financial data. The results are regularly presented to the Global Risk Committee, which also validates the selected scenarios. The stress-testing approach factors in counterparty ratings and default rates (stressed PD scales, migration matrices, specific downgrades per sovereign counterparty, and so on) and includes stresses on the unsecured LGD (Corporates, Banks and Sovereigns, etc.) and the secured LGD (asset or collateral values by business line).
Central governments or central banks 6,012 1,549 124 8,503 2,027 162
Exposures to institutions and corporates with a short-term credit assessment 382 200 16 2,315 124 10
Central governments or central banks 6,424 105 8 4,069 195 16
Central governments or central banks 955 128 11 2,150 134 11
Exposure secured by mortgages on immovable property 1,087 124 1,025 62 481
RISKS AND CAPITAL ADEQUACY Credit and counterparty risks 137Natixis Registration Document 2017
Exposures to institutions and corporates with a short-term credit assessment 3 19 7 623 652
The following table shows the breakdown of exposures at risk by internal rating (S&P equivalent) for asset classes measured using the IRB approach, excluding: exposures to Equities (calculated using a simple weighting);a pool-based exposures (acquired portfolios) and third partiesa grouped into homogeneous risk classes; securitization positions.a
Reclassification of central bank exposures from AA- to AA+ for the US central bank and from AA- to AA for the French central bank in the interest (*) of better alignment with their external ratings (modification of the theoretical allocation principle: level 1 internal rating, or equivalent to an S&P rating of between AAA and AA-, with allocation to an AA- rating).
This activity is carried out in line with Natixis’ general “originate-to-distribute” strategy.
Natixis mainly invests in assets with high levels of collateral, spreads and seniority. Natixis also applies a sector-specific and geographic diversification strategy to underlying assets.
Natixis’ credit decision-making process is followed for all securitization transactions. Three criteria are considered for securitization transactions, namely the amount, maturity and (external) rating.
For every structured arrangement subject to approval, a substantiated request and a description of the arrangement, collateral, seller/originator and the planned tranching must be submitted, along with an analysis of the associated guarantees.
Natixis manages the risks associated with securitization positions through two mechanisms: the first involves the daily identification of all ratinga downgrades affecting Groupe BPCE’s securitization positions as well as the associated potential risks and, if necessary, deciding on an appropriate course of action; the second is underpinned by a quantitative (ratings,a valuations) and qualitative analysis of securitization positions for the purpose of segmenting the portfolio on the basis of risk levels.
The results of these analyses are written up and discussed in a quarterly presentation at the meeting of the Watch List and Provisions Committee.
Natixis relies on four external rating agencies for securitization transactions: Moody’s, DBRS, Fitch IBCA and Standard & Poor’s. These agencies cover all types of exposures.
The Risk Management function places great importance on the formal definition of all risk policies governing market transactions based on both a qualitative and forward-looking analysis. This approach includes the strategic review of global risk envelopes, business line targets and market trends and relies on a proactive early warning system for the most sensitive areas at risk.
These market risk policies focus on a set of methodological principles in terms of risk monitoring and supervision and provide a matrix approach to businesses by asset class and management strategy.
The Risk division: defines risk measurement and fair value adjustment methods;a examines annual limit reviews (including risk appetite) anda ad hoc requests for modifications (VaR, stress tests, operational indicators, loss alerts); provides alerts for areas at risk relating to the business lines ora to Natixis' Senior Management; is responsible for the daily analysis and measurement of risks,a daily reporting, and notifying front office and management of any breaches; approves and monitors the pricing models (pricers) anda associated reserves used in front office management tools; defines and validates the models and methodologies for thea institution’s internal model, used in particular to calculate regulatory capital charges; defines standards and procedures common to all entitiesa (subsidiaries and branches) carrying market risks and ensures that those standards and procedures continue to evolve.
Market data used in the valuation of portfolios (share prices, indices, interest rates, exchange rates, commodity prices and the related volatility) are updated on a daily basis, when available, and the statistical data used (standard deviation and correlations) is updated weekly.
Both general and specific risk are calculated from a single model that incorporates the correlation between risk factors.
As part of changing regulatory standards (Basel 2.5), Natixis implemented a daily stressed VaR model (SVaR), which is calculated based on a fixed econometric model over a continuous 12-month period that defines the charge that the bank’s current VaR model would generate under a representative crisis scenario relevant to its portfolio. The calculation method is based on an historical simulation for a one-day horizon and a confidence level of 99%. However, unlike VaR, which uses 260 daily fluctuation scenarios on a rolling one-year period, stressed VaR uses a one-year historical window corresponding to a period of significant financial tension.
The stressed period currently used by Natixis covers the period between September 1, 2008, and August 30, 2009, as it is the most conservative for calculating stressed VaR.
The IRC (Incremental Risk Charge) is the capital charge required to cover rating migration risk and the default within one year of issuers for approved products in terms of specific interest rate risk. This calculation mainly concerns bond products and CDS (credit default swaps). Calculated using a Monte Carlo internal simulation model, the IRC is a 99.9% value at risk which corresponds to the largest risk after eliminating the 0.1% of the worst outcomes over a period of one year.
Rating and default migrations are simulated using an issuer correlation model and migration matrices over a capital horizon of one year. Positions are revalued based on various scenarios. Thus, for each scenario, positions may be downgraded, upgraded or go into default.
The internal IRC calculation model used by Natixis was approved by the Autorité de Contrôle Prudentiel et de Résolution in 2012. In accordance with regulatory requirements, Natixis has an internal model validation policy and procedures. This model validation phase is an essential prerequisite for their use.
Overall stress tests are regularly submitted to the Market Risk Committee. They are performed daily and can be grouped into two categories: historic stress tests consist of reproducing sets of changesj in market parameters observed during past crises in order to create an ex-post simulation of the P&L changes recorded. While the stress tests do not have any predictive value, they do make it possible to gauge the exposure of the portfolio to known scenarios. There are 12 historic stress tests covering the most significant events since 1987, the year of the stock market crash, including the Lehman collapse in the 2008 period and the terrorist attack of September 11, 2001, through to the sovereign debt crisis in 2011.
loss alerts by portfolio and aggregated by business line,2) which alert management and the Risk division if losses reach a certain threshold over a given month or on a cumulative basis since the beginning of the year. These thresholds are set by the Market Risk Committee according to the characteristics of each portfolio, past performance and budgetary targets.
finally, the supervisory framework includes operational3) indicators on an overall and/or by business basis, which focus on more directly observable criteria (sensitivity to changes in the underlying and to volatility, correlation, nominals, etc.). The limits of these qualitative and quantitative indicators are set in line with the VaR and stress test limits.
In accordance with the provisions of IAS 39, financial instruments are recognized at their fair value. (See Chapter 5 of the Natixis 2017 registration document for further information regarding fair value accounting methodologies.)
Valuation models used by the front office are subject to independent validation by Model Risk Management, a dedicated team within the Model Risk & Risk Governance department of the Risk division.
This independent validation verifies the evaluation of financial instruments traded and the suitability of the model. In keeping with the validation procedure, these reviews cover the following areas: theoretical and mathematical validation of the model, anda analysis of assumptions and their justification in the model documentation; algorithm validation and comparison to alternative modelsa (benchmarking); analysis of the stability and consistency of the numericala method used, and the model’s stability in a stress scenario; assessment of implied risk factors and calibration, analysis ofa input data and identification of upstream models; measurement of modeling risk and validation of the associateda reserve methodology.
The aim of this policy is twofold: ensuring the reliability of the result announced by applying thea principle of prudence; protecting Natixis from adverse events that cannot be easilya hedged or that are non-hedgeable.
The following chart shows the VaR trading history between December 30, 2016, and December 31, 2017, for the entire scope.
The breakdown of the VaR by risk factor provides a picture of the monthly contribution of the main risks and the compensation effects in terms of VaR. Throughout the year, interest rate risk continued to predominate over equity, foreign exchange and credit risks.
The following chart shows results of backtesting (ex-post comparison of potential losses, as calculated ex-ante by VaR, with actual P&L impacts) on the regulatory scope, and can be used to verify the reliability of the VaR indicator: No backtesting exceptions were observed for the scope.
This indicator covers the regulatory scope. Natixis’ IRC level averaged €35.5 million. It peaked at €71.2 million on September 7, 2017, and bottomed out at €22.2 million on March 31, 2017, and stood at €33.4 million at December 29, 2017.
Overall stress test levels reached a positive average level of €55 million at December 29, 2017, versus -€41 million at December 30, 2016.
The operational risk management framework identifies, measures, monitors and controls the level of operational risks for all of the Company’s business lines and support functions in France and abroad.
The standing members of the Operational Risk function, apart from the Head of the department, are the departments’ Heads of Operational Risk and the data & methods officer.
Business-line Operational Risk Committees and support functions are offshoots of Natixis’ Operational Risk Committee. They closely manage each business line’s operational risk exposure. These Committees are organized according to the function’s governance matrix (location and business lines). They are chaired by the Head of the relevant business line with the participation of Compliance and are coordinated by the Operational Risk Department, which acts as Committee secretary.
Risk mapping is central to operational risk monitoring: Business line and support function environment
The risk mapping process serves to identify Natixis' exposed business lines and its biggest risks in order to be able to manage them through corrective action and indicators.
The mapping of “global and systemic risks” (extreme risk situations occurring infrequently, such as major natural disasters, pandemics, and attacks) draws on external data on incidents in the financial industry, especially for establishing
Incidents are listed as they occur. In 2017, an optional reporting threshold of, respectively, €5,000 for the Corporate & Investment Banking and Asset Management business lines and €1,500 for Specialized Financial Services, Insurance and Private Banking was introduced in line with BPCE standards. A single definition of “serious incident” is used, in compliance with Groupe BPCE standards (€300,000 gross). All serious incidents (above the defined threshold or deemed serious by the business line and the Operational Risk Department) are reported immediately to the business line’s management and to Natixis’ Chief Risk Officer.
In 2017, a risk analysis was performed on all of Natixis’ business lines and on its support and control functions. Consistency reviews with internal audit findings and permanent control results helped highlight the biggest risks in each scope and set priorities for corrective actions to improve the risk management system. The Corporate & Investment Banking business lines represent the majority of risks under review owing to the extensive nature of the division’s activities and operations in both France and internationally.
The Company’s risk profile features two main categories of risk with a strong potential impact: business line risk, concentrated under Corporate & Investment Banking, and overall risk that the Bank is exposed to as a whole (cyber risk, regulatory risk, loss of access to premises or information systems, or of availability of employees). Appropriate risk management systems are put in place to cover them, including safeguarding of processes and controls, raising employee awareness, business continuity plans, information system security and insurance policies.
Natixis and its subsidiaries benefit from the guarantees provided by the following main policies: covering its insurable operational risks;a and which are pooled with Groupe BPCE (with the solea exception of the policy described in point a) below.
The maximum amount that can be paid out for any one claim under this arrangement is €109.5 million under “Professional Civil Liability” coverage and €109 million under “Fraud” coverage in excess of the applicable deductibles.
“Regulated Intermediation Liability” (in three areas:j Financial Intermediation, Insurance Intermediation, Real Estate Transactions/Management) with a total maximum payout of €10 million per claim and per year.
All the insurance policies mentioned above are purchased with deductibles (accepted retention level) in accordance with Natixis' retention capacity.
RISKS AND CAPITAL ADEQUACY Overall interest rate, liquidity and structural foreign exchange risks 151Natixis Registration Document 2017
The ALM Committee’s monitoring scope includes: the banking book of Natixis and its main credit subsidiaries fora overall interest rate risk; Natixis’ entire scope of consolidation for liquidity risk (excludinga insurance subsidiaries, which do not present intrinsic liquidity risks and which are monitored and managed separately in respect of ALM risks); Natixis’ entire consolidation scope for structural foreigna exchange risk.
This supervision is implemented through governance and an overall liquidity risk management and monitoring system that is adapted, shared and harmonized by all affiliates, and whose main guidelines have been set forth by Groupe BPCE’s ALM Committee.
3 RISKS AND CAPITAL ADEQUACYOverall interest rate, liquidity and structural foreign exchange risks 152 Natixis Registration Document 2017
Liquidity risk is controlled, managed and monitored as follows: management of each business line’s funding needs: toa manage the bank’s funding needs, liquidity budgets are allocated for each business line as part of the budgetary procedure and approved by the ALM Committee. Consumption is monitored weekly for Corporate and Investment Banking business lines and monthly for other business lines; management of the bank’s contribution to Groupe BPCE’s neta market footprint: the objective is to match the liquidity allocation system with the Group’s strategic ambitions and operational oversight; supervision of short-term maturity transformation, which isa measured using liquidity gaps. This indicator is produced daily for a 365-day period in one-day intervals for all parent company transactions, including some subsidiaries. It is subject to four permanent limits approved by the ALM Committee and monitored daily, on overnight market exposure at opening, on the 60-day, 150-day and 330-day static liquidity gaps; calculated for long-term cash assets, credit subsidiaries housing medium-term activities, and for Natixis on a consolidated basis, and are restricted by the minimum coverage ratios approved by the ALM Committee and monitored monthly. Furthermore, in compliance with regulations and within the framework of the bank’s risk appetite, since 2015 Natixis has set up governance as well as a global limit and an alert threshold applied specifically to a coverage ratio, proposed by the ALM Committee and validated by the Board of Directors; supervision of medium-term maturity transformation, which isa performed using coverage ratios that are defined by maturity tranche, such as the ratio of assets that have not yet matured to liabilities that have not yet matured. These ratios are supervision of the bank's contribution to the short-, medium-a and long-term transformation of Groupe BPCE. This is measured on the basis of Natixis’ consolidated liquidity gaps subject to limits at 60 days, 5 months, 11 months and 5 years. These indicators are produced on a monthly basis; simulations of liquidity stress scenarios: the purpose of thesea scenarios is to measure the Group’s ability to continue meeting its commitments and operating in the event of a liquidity crisis. Natixis periodically simulates its contribution to the Group’s stress results based on different crisis scenarios (systemic, specific, combined, etc.) and different levels of intensity (moderate, strong, extreme, etc.) over one-, two- and three-month periods for which assumptions are set by BPCE; funding structure: the funding structure is monitored to ensurea that resources are well diversified, by type of counterparty, by market segment and by geographic area, in order to mitigate all concentration risk (see section 3.9.2.4); market depth tests conducted by the Joint Refinancing Pool:a these liquidity tests aim to explore the limits established by our counterparties on our issues.
The aim of this Business Continuity Plan (“BCP under Liquidity Stress”) is to ensure that, in the event of a liquidity crisis altering the Group's ability to obtain funding, all resources are used in a coordinated and optimized manner to allow the Group to meet its current and future financial obligations and thus maintain business continuity.
RISKS AND CAPITAL ADEQUACY Overall interest rate, liquidity and structural foreign exchange risks 153Natixis Registration Document 2017
As indicated in section 3.9.2.1, since mid-2011 Natixis’ funding structure has been rooted in the organization of a joint refinancing pool shared by Natixis and BPCE, placed under the authority of the Group ALM Committee. This platform was implemented in order to secure the Group’s financing and optimize the management and allocation of liquidity within the Group in accordance with predefined rules, to reduce market financing and funding costs.
Thanks to these actions, Natixis maintained a stable refinancing structure on both a yearly and quarterly basis.