Finally, the weight of resources provided by the Group was as always linked to the BPCE/Natixis Joint Refinancing Pool, cross-exchanges of liquidity for the purpose of managing and maximizing liquidity gaps and regulatory ratios, and the Group policy, making BPCE the sole public issuer in the long-term segment.
BREAKDOWN OF GROSS FUNDING STRUCTURE BY ■ CURRENCY, AT CURRENT USD EXCHANGE RATES – 12.31.2017
3 RISKS AND CAPITAL ADEQUACYOverall interest rate, liquidity and structural foreign exchange risks 154 Natixis Registration Document 2017
BREAKDOWN OF GROSS FUNDING STRUCTURE BY ■ CURRENCY, AT CURRENT USD EXCHANGE RATES – 12.31.2016
Under its annual medium-term funding program, in 2017 Natixis raised €12.2 billion net in resources with a term of more than one year (versus €17.3 billion in 2016). 32% of this program was achieved via structured private placements, with the remainder predominantly provided by BPCE as part of the Group’s medium-term funding policy approved by the Group ALM Committee.
The year 2017 was marked by strong global growth, with inflation remaining moderate in the developed economies.
One notable highlight was the relatively mild reaction by the financial markets to political shakeups like the French elections, geopolitical tension between the United States and North Korea and difficulties faced by the Trump administration.
In 2017, growth figures for the United States and Europe reaffirmed the strength of their respective economies, with the IMF estimating GDP growth of 2.2% in the United States and 2.1% in Europe in 2017. However, the accommodative monetary policies of the Federal Reserve and ECB have yet to achieve target inflation (PCE US price index 1.8%, Eurozone PCI 1.5%). The persistent weakness of inflation can be largely attributed to moderate rises in wages and oil prices.
In Europe, the ECB announced in October 2017 that it would extend its quantitative easing program an additional nine months
Level 2 liquid securities consisting mainly of covered bondsa and debt securities issued by sovereigns or public sector entities not eligible for Level 1, corporate debt securities and equities listed on active markets that satisfy certain conditions.
Outflows related to derivative exposures and other collateral requirements 5,512 5,010
Natixis’ LCR was 109% at December 31, 2017, with total liquid assets of €55.0 billion according to the eligibility rules of the Delegated Act, i.e. surplus liquidity of €4.7 billion. The liquid asset buffer consists predominantly of central bank deposits and sovereign securities.
In the denominator, cash outflows (€92.1 billion) are primarily generated by the run-off of deposits (€40.7 billion), repurchase agreements maturing within 30 days (€24.0 billion) and other cash outflows (€14.2 billion). Other cash outflows include outflows related to market-stressed collateral requirements and outflows that would be subsequent to an up to 3-notch downgrade in Natixis’ credit rating by the rating agencies. The cash inflows recorded (€41.8 billion) were due to loans (including BPCE or financial customers) reaching maturity (€24.9 billion) and to repurchase agreements maturing within 30 days (€8.6 billion).
The structural over-hedge of the Group's LCR above the 100% threshold for an 80% regulatory limit at end-2017, is borne by BPCE.
Under the French Ministerial Order of November 3, 2014, on internal control by companies in the banking, payment services and investment services sector subject to the supervision of the ACPR, the companies in question are required to set overall limits and establish policies and processes to detect, manage and monitor excessive leverage risk.
In accordance with the operational oversight established by the Financial Management Department in partnership with the business lines, Natixis successfully achieved its target leverage ratio. This target ratio is higher than the regulatory requirement, which will enter into force in Europe on a still-unknown date. As such, Natixis maintained a leverage ratio of above 4% in 2017. As in 2016, management and oversight of this ratio were achieved by setting constraints for activities (such as repos and securities lending transactions, derivative contracts, etc.) that are not RWA-intensive but are balance sheet-intensive.
Adjustment for securities financing transactions (repurchase transactions and other types of collateralized loans) (19,927) (20,183)
are predominantly housed in Treasury portfolios subject to ongoing management of interest rate risk. Accounting treatment of the hedging system is in accordance with international accounting standards.
Barring exceptions, fixed-rate financial assets and liabilities are returned against bank offered rates via interest rate swaps and
These stress tests aim to estimate potential economic losses in the event of extreme market configurations. They are performed daily in the management systems and were defined to account for differentiated or non-differentiated shocks on the IBOR, OIS, deposit and repo curves with steepening and/or translation scenarios.
The Risk division calculates indicators and monitors limits daily for Treasury and monthly for ALM operations and credit subsidiaries.
RISKS AND CAPITAL ADEQUACY Overall interest rate, liquidity and structural foreign exchange risks 159Natixis Registration Document 2017
of 1 bp in the yield curve) at December 31, 2017. This sensitivity is primarily due to the effect of the spread on USD accreting transactions.
MEASURE OF SENSITIVITY TO A +1 BP VARIATION IN INTEREST RATES, BY MATURITY AT DECEMBER 31, 2017R
(in millions of euros) < 1 year 1-5 years > 5 years Total sensitivity
The maturity schedule is determined statically. The interest rate gap indicator is calculated quarterly.
Given its nature, overall interest rate risk is a marginal risk for Natixis and calls for no special comments. The Basel 2 normative shock (immediate +/-200 bp shift in the yield curves) would lead to a variation of €467 million in the portfolio’s economic value at December 31, 2017. This sensitivity is very low given the size of the banking book and represents less than 2% of the bank's CET1 capital.
Fair value of collateral received and own debt securities issued and available for encumbrance
Total Demand Less than 1 month months months 6 months to 1 year years years
In the event the Bank’s external credit rating is downgraded, it in the event its credit rating were downgraded by as much as may be required to provide additional collateral to investors under three notches. agreements that include rating triggers. In particular, in calculating the liquidity coverage ratio (LCR), the amounts of these additional cash outflows and additional collateral requirements are measured. These amounts comprise the payment the bank would have to make within 30 calendar days
They are covered under the LCR management policy and were estimated at 2 billion in EUR equivalent at December 31, 2017, versus 3.1 billion at December 31, 2016.
The Compliance Department oversees the non-compliance risk prevention and mitigation system. It also oversees IT Systems Security and Business Continuity. Its scope of action encompasses Natixis, its subsidiaries and branches in France and abroad thanks to its functional structure. Natixis’ Compliance Department has several tools for executing its functions.
Accordingly, the Compliance Department participates in establishing standards, policies and procedures, and issues its opinion, particularly regarding supervision of new business, products and organizations.
The Compliance Department also performs a regulatory watch and works with the Human Resources Department on staff training. In 2017, it stepped up its training and awareness programs focused on new regulatory developments, including anti-money laundering, terrorist financing, the prevention of corruption, the MiFID II Directive (financial instrument markets), client protection and preventing conflicts of interest. Over 49,000 training and awareness initiatives took place in 2017, either as classroom training or e-learning.
The Compliance Department is responsible for coordinating first-level permanent risk controls, and sets up and implements second-level permanent risk controls to ensure that procedures are applied within the business lines and that non-compliance risks are mitigated, as part of a risk-based approach (see 3.2 Organization of Natixis’ internal control system). To this end, the Compliance Department maps non-compliance risk and ensures the resolution of anomalies detected by the relevant business lines.
The Compliance Department reports to the Corporate Secretary and functions independently of the operational departments. At Natixis S.A. level, the Compliance heads report hierarchically to Natixis’ Chief Compliance Officer. At subsidiary and branch level, there is a direct reporting line between the subsidiary and branch compliance heads and Natixis’ Chief Compliance Officer (prior approval for the assignment, appointment or removal of subsidiaries’ compliance heads, participation in annual performance and career advancement reviews, approval of annual work plans and fulfillment of reporting and alert requirements vis-à-vis Natixis’ Compliance Department).
Whenever the risk of compromising a customer’s interests becomes unavoidable in spite of the internal procedures in place, Natixis informs the customer of the nature of the conflict of interest before taking action on the customer’s behalf, allowing the customer to make an informed decision on whether to proceed with the transaction.
Information barriers are put in place and reviewed each time the organizational structure changes in order to prevent the unwarranted circulation of confidential information. These barriers function as partitions between business lines and departments, setting limits to the circulation of information on a need-to-know basis. As such, information is transmitted only in the customer’s interest and only to employees who absolutely require the information to carry out their duties. These barriers may be organizational, physical or electronic and may be permanent or temporary. Natixis has set up a permanent and complete information barrier separating its Asset Management business activities within Natixis Asset Management from its other activities.
Pursuant to regulations in force, the entry of sensitive transactions into a specific tool that allows Compliance to rapidly identify issuers to be placed on the watch list or on the prohibition list, as well as employees to be placed on the insider list.
There is a customer information procedure encompassing all the MiFID II obligations on customer onboarding, as well as pre- and post-trade information due to customers according to their MiFID category.
In 2017, Natixis continued to implement the Automatic Exchange of Tax Information regulation across all its French and international operations concerned and located in a country that has implemented the Common Reporting Standard (CRS). This regulation requires the identification of non-residents who own assets, more specifically financial accounts in the books of Natixis.
The system ensures that: customers receive transparent information on how theira complaints are being handled; complaints are handled effectively; anda corrective action is enforced to remedy any problemsa identified.
Natixis is equipped with a system to detect transactions that could constitute market abuse. Dedicated teams using a specialist surveillance tool process alerts and analyze potential market abuse. Transactions that could constitute market abuse are reported to the French Financial Markets Authority (AMF) and to local regulators, in accordance with the regulations in force. In 2017, the supervision processes and system underwent an in-depth review, and in 2018 the system will be updated to strengthen their analysis and detection capabilities.
The role of the Financial Security Department is to manage the system dedicated to anti-money laundering and counter-terrorist financing (AML/CTF), anti-corruption and anti-fraud, and ensure the compliance of Natixis and its subsidiaries with financial sanctions and embargoes.
As part of the fight against money laundering and terrorist financing, and in accordance with regulations, Natixis has set up a framework that builds in: KYC and due diligence obligations, in line with a risk-baseda approach, on customer onboarding, periodic reviews and throughout the business relationship; a transaction monitoring and control system based ona automated tools or requests that report alerts and suspicions to Natixis’ Financial Security Department; a procedure for reporting “suspicious” transactions to thea relevant financial intelligence unit in a timely manner; regular employee training and information to ensurea compliance with these obligations.
Natixis has implemented a framework to ensure compliance with regulations on applicable financial sanctions and embargoes.
The anti-fraud measures are steered by the Anti-Fraud Coordination Unit in collaboration with the concerned business lines. This unit is also in charge of drafting and implementing standards and principles for fraud risk management and of coordinating the anti-fraud officers’ network across the subsidiaries and branches of Natixis in France and abroad.
These rules and procedures aim to identify high-risk situations by drawing on prevention and management of situations of conflicts of interest, conducting anti-corruption due diligence when initiating business relationships with third parties (clients, suppliers, intermediaries), and prior to forming partnerships or
They also endeavor to evaluate the situation of third-parties in terms of corruption and influence-peddling issues (reputation and background analysis), identify the factors of exposure to corruption risk (such as the presence of public decision-makers among the direct or indirect beneficiaries of a transaction), ensure the economic justification of the role of various participants in a transaction, check that effective payments of funds are justified, etc.
They also set out to avoid the risk of impropriety through which certain practices could give rise to giving/accepting gifts or invitations, payments as part of patronage or sponsoring initiatives, donations or third-party compensation.
The rules and procedures of this prevention framework are set out in Natixis’ anti-corruption Policy that is applicable to all its entities and employees.
The objectives of IT Systems Security and Business Continuity Department, which is organized as a function, are to protect Natixis’ information assets, identify risks (relating to information availability, integrity, confidentiality and traceability), to request, where applicable, a remediation plan to be put in place, to provide expertise and advice to the business lines and to keep the overall crisis set-up in working order. To meet these objectives, the department draws on its own resources to provide cross-business functions. It also relies on representatives within the business lines (IT Systems Security managers and Business Continuity Plan managers) and the IT Department.
In light of these risks, the ITSS-BC Department runs an annual second-level permanent control plan covering all areas of IT System Security, with a tight focus on the control of access rights. The user access management overhaul program that began in 2012 was concluded in 2017. The tool manages approximately 1.2 million access rights for over 21,000 employees and contractors. The controls also check compliance with the security policy. Natixis was an active participant in the review of Groupe BPCE’s IT system security policy, which comprised some 400 rules at end-2017.
Natixis’ departments in charge of IT Systems Security (ITSS-BC and the Information Systems Security Department) defined a joined strategic plan for 2018-2020 which aims to improve measures to mitigate cyber attack risk. The plan sets out to transform our security model: from the current fortress (restricted access and protected by a single line of defense) to a system similar to that used in airports (more open, but with increased protection of sensitive assets).
As regards the Business Continuity Plan, the BCP and IT Contingency Plan (ICP) plans were merged to increase their effectiveness.
Natixis is steadily strengthening its business continuity system to contend with cyber threats. A crisis unit is in place, emergency
This is ensured at two levels of the organization: CNIL coordination (Compliance) and local CNIL representatives in every business line.
Outstanding Madoff assets, net of insurance, were estimated at €388.8 million at December 31, 2017, and were fully provisioned at this date. The effective impact of this exposure will depend on both the extent of recovery of assets invested in Natixis' name and the outcome of the measures taken by the bank, primarily legal. With this in mind, Natixis has appointed law firms to assist it in these recovery efforts. Furthermore, in 2011 a dispute emerged over the application of the insurance policy for professional liability in this case, which had been taken out with successive insurers for a total amount of €123 million. In November 2016, the Paris Court of Appeal confirmed (like the Commercial Court before it) the liability of the first-line insurers, in the amounts of the policies taken out, for the losses incurred by Natixis as a result of the Madoff fraud. The implementation of this ruling by all of the insurers is ongoing. In January and February 2017, both of the first-line insurers submitted an appeal to the Court of Cassation. The hearing was held on January 31, 2018. Deliberations are in progress and the case has been transferred to the Second Civil Chamber of the Commercial Division of the Court of Cassation. A new investigation will take place within the Commercial Division.
Irving H. Picard, the court-appointed trustee for Bernard L. Madoff Investment Securities LLC (BMIS), submitted a restitution claim concerning the liquidation of amounts received prior to the discovery of the fraud through a complaint filed with the United States Bankruptcy Court for the Southern District of New York against several banking institutions, including a $400 million claim against Natixis. Natixis denies the allegations made against it and has taken the necessary steps to defend its position and protect its rights. Natixis has launched appeals, including a motion to dismiss, requesting that the case be dismissed on a preliminary basis or prior to any ruling on merit, and a motion to withdraw the reference to transfer certain matters to the United States district court. These proceedings
In 2012, a complaint was filed against Natixis Asset Management before the Paris District Court (Tribunal de Grande Instance de Paris) by 187 former employees of CDC Gestion (current name Natixis Asset Management). The subject of the complaint is the legal recognition of their rights to common law profit-sharing schemes from 1989 to 2001.
Following the application for a priority preliminary ruling on the issue of administrative constitutionality raised by Natixis Asset Management on the interpretation of an article of the French Labor Code, on August 1, 2013, the Constitutional Council declared the first paragraph of Article L.442-9 of the French Labor Code in its version prior to Law No. 2004-1484 of December 30, 2005, to be unconstitutional and ruled that employees of companies whose share capital is predominantly held by public entities cannot call for a profit-sharing scheme to be applicable to them for the period during which the provisions declared unconstitutional were in force.
MMR Investment Ltd filed an appeal on March 27, 2017. The case is ongoing.
In June 2013, Union Mutualiste Retraite filed three complaints against AEW Europe in relation to the acquisition and management of two real estate portfolios in Germany between 2006 and 2008. The amounts claimed by Union Mutualiste Retraite total €139 million.
Two of these proceedings relate to accusations of fraud. One was dismissed in 2015 as time-barred. Some claims related to the second proceeding were also dismissed as time-barred. That case, for the remaining claims, is currently in the discovery phase, and Natixis believes that it has meritorious defenses.
On June 18, 2013, through two separate complaints, Selcodis and EDA brought proceedings before the Commercial Court of Paris against Compagnie Européenne de Garanties et Cautions for the sudden termination of commercial relations following the refusal by the latter to grant EDA a guarantee.
In June 2014, MPS Foundation (Fondazione Monte dei Paschi di Siena), an Italian foundation, filed a claim against 11 banks, including Natixis, which granted it financing in 2011 at the request of its previous executive officers, on the grounds that the financing thus granted was in violation of its bylaws, which state that MPS Foundation cannot hold debt exceeding 20% of its total balance sheet. The damages claimed by MPS Foundation against the banks and former directors amount to €285 million.
Following an inspection by the AMF (French Financial Markets Authority) in February 2015 on Natixis Asset Management’s compliance with its professional obligations, particularly the management of its formula funds, the AMF's Enforcement Committee delivered its decision on July 25, 2017, issuing a warning and a fine of €35 million. The Enforcement Committee found a number of failings concerning the redemption fees charged to funds and structuring margins.
Natixis Asset Management is mounting a rigorous defense against this decision and has filed an appeal with the French Council of State. The case is ongoing.
All of SWL's claims were dismissed in a ruling by the Charleroi Commercial Court on November 28, 2014. SWL appealed this ruling to the Mons Court of Appeal on March 2, 2015. On September 12, 2016, the Mons Court of Appeal annulled the
Market risk is in large part borne by the subsidiary BPCE Vie on the financial assets that underpin its commitments with guaranteed principal and returns (euro-denominated policies: €48.5 billion on the main fund balance sheet). The Company is exposed to asset depreciation risk (fall in the equity or real estate market, wider spreads, interest rate hikes) and to the risk of lower interest rates which would generate insufficient capital to meet its guaranteed rate of return. In response to this risk, in recent years BPCE Vie has only sold policies with a minimum guaranteed return: more than 90% of the policies have a zero minimum guaranteed return. The minimum guaranteed return averages 0.15%.
To manage market risk, the sources of return have been diversified, namely via investments in new asset classes (financing the economy, low-volatility equity, etc.). This diversification is managed by a strategic allocation, defined on a yearly basis, that takes into account regulatory constraints, commitments to policyholders and commercial requirements.
Credit risk is monitored and managed in compliance with Natixis Assurances’ standards and internal limits. As of December 31, 2017, 67% of the fixed-income portfolio is invested in securities rated higher than A-.
The main risk to which life insurance underwriting is exposed is linked to the Investment Solutions activity. In an especially low interest-rate environment, the biggest risk is that of fewer redemptions and/or excessive inflows in euro-denominated vehicles, as reinvestments in securities dilute the main fund’s return. To prioritize inflows in unit-linked policies, measures have been taken, such as the creation of unit-linked policy products and communication campaigns, and a communication campaign targeting customers and the network.
Through its activities, Coface is exposed to five main types of risk (strategic risk, credit risk, financial risk, operational and non-compliance risk, and reinsurance risk), of which the two principal risks are credit risk and financial risk.
RISKS AND CAPITAL ADEQUACY Other risks 171Natixis Registration Document 2017 frequency risk represents the risk of a sudden materiala increase in delinquency by a high number of debtors. This risk is measured for each region and country by monitoring the instantaneous loss ratio(1) and the monthly indicator that breaks down the changes in domestic/export credit by DRA(2) and business sector, by acceptance rate on the DRA scale, or by product line (deposit, single risks). As regards exposure and portfolio monitoring, the Group has set up a refined management of its risks based on a sector/country breakdown. Missed payments are thus analyzed weekly by the Group Management Board and monthly by Coface’s Underwriting Committee. This risk is mitigated by Coface Re reinsurance. Loss ratios for the different underwriting regions are also monitored at the consolidated Coface level; event risk represents the risk of abnormally high lossesa recorded for the same debtor or group of debtors, or of an accumulation of losses for the same country. Even risk is covered by Coface Re reinsurance.
Second-level controls are set up to ensure that the Group’s credit risk standards are observed.
The following chart analyzes the breakdown of debtors by total credit risk exposure incurred by Coface at December 31, 2017: ≥ €200m
172 Natixis Registration Document 2017 counterparty risk: the maximum exposure to any givena counterparty is set at 5% of assets under management, with exceptional exemptions for short-term exposures. More than 89% of the bonds are Investment Grade and therefore have a median rating equal to at least BBB-; liquidity risk; At December 31, 2017, 52% of the bond portfolioa had a maturity of less than three years. The vast majority of the portfolio is listed on OECD markets and carries a liquidity risk that is currently considered as low.
CEGC submitted the new annual quantitative statements required by the Solvency II regulations, accompanied by the qualitative and quantitative reports intended for the supervisor (RSR) and the public (SFCR).
Underwriting risk is the main risk incurred by CEGC. It is essentially a counterparty risk, as the commitments given by CEGC to beneficiaries of guarantees result in direct exposure to underwriters. These regulated commitments recorded on the liabilities side of the balance sheet amounted to €1.85 billion at December 31, 2017 (up 15.7% compared to the end of 2016). This increase was in line with fiscal year 2016, driven mainly by mortgage guarantees for individual customers.
The Company's risk limits are set out in the Asset Management agreement established with Natixis Asset Management. By collecting surety insurance premiums at the time of commitment, CEGC does not require funding. Neither does CEGC carry transformation risk: the investment portfolio is entirely backed by equity and technical reserves.
Net balance sheet value of the provision % breakdown Fair value
Any modification of the reinsurance program (reinsurers, pricing, structure) is subject to the validation of the Capital and Solvency Management Committee chaired by a corporate officer.
Reinsurer default risk is governed by counterparty concentration and rating limits. CEGC's reinsurance programs are underwritten by a broad panel of international reinsurers with a minimum rating of A on the S&P scale.
Strategy risks is defined as: the risk inherent to the strategy chosen;a or resulting from Natixis’ inability to implement its strategy.a guiding Natixis’ activities at least once a year. The Board of Directors also approves strategic investment projects and any transactions, particularly acquisitions and disposals, that are likely to significantly affect Natixis’ results, the structure of its balance sheet or its risk profile.
Natixis was exposed to the following risks at December 31, 2017.
At December 31, 2017, exposures to sovereign risk in countries receiving financial aid or facing uncertainties (political, currency, etc.) were as follows: (in millions of euros) 12.31.2017 (a) 12.31.2016 (a)
Gross exposure: gross carrying amount on the balance sheet at December 31, 2017.(a)
Exposure corresponds mainly to the “shipping finance” sector amounting to €134 million at December 31, 2016.(c)
Global Finance and Investment Banking are now two distinctj business lines, the creation of Global Securities & Financing (GSF), a jointj venture between FIC and Equity derivatives. The joint venture comprises Securities Financing Group (SFG, formerly part of FIC) and Equity Finance (formerly part of Equity). GSF’s revenues are divided equally between Equity and FIC.
OVERVIEW OF THE FISCAL YEAR Management report at December 31, 2017 179Natixis Registration Document 2017
In 2017, Natixis operated in an environment marked by the ongoing normalization of the global economy and a rebound in international trade demonstrating the improvement in economic conditions.
Share prices continued to soar to new highs, propelled by the improved global economic environment and continued support from flexible monetary conditions. US equity prices (S&P 500) rose to 24 times earnings at the end of 2017, their highest in 15 years. It is important to note, however, that this inflation of asset prices is partly sustained by money created by central banks. The global monetary base again increased by almost 9% a year, surpassing global GDP by value. While the Federal Reserve began to gradually shrink its balance sheet in October by no longer reinvesting all the assets purchased under quantitative easing as they mature, the ECB started tapering its net bond purchases (from €60 billion to €30 billion per month) as of January 2018. As for US interest rates, 10-year Treasury yields ended 2017 where they started, at 2.4%. As the Fed hiked its key interest rates three times over the year, this flattened the US curve considerably. The 10-year/2-year US Treasury spread was just 57 bp at end-2017 versus 133 bp year-on-year.
In Asset & Wealth Management, the Asset Management business underwent major changes.
In 2017, Natixis Global Asset Management (NGAM) changed its name to become Natixis Investment Managers. This reflects the multi-affiliate model of the Asset Management business line, which offers investment solutions from a diversified range of asset managers, combined with advisory and support services that are essential for building high-performance portfolios, irrespective of the market. In conjunction with its name change, Natixis Investment Managers launched a new brand platform centered on Active ThinkingSM.
Louis Bert and Stéphane Furet, Dorval Asset Management -j Best Fund Manager, French Equities category; Citywire Italia: Bruno Crastes, CEO of H2O, was named “Besta Asset Manager” in the Global Flexible Bonds category; Natixis Asset Management won the “Innovative Provider ofa the Year” award for its AEW Real Return Fund at the inaugural ceremony of the Insurance Asset Management Awards; Gestion de Fortune - The 2017 Globes de la Gestion awards:a
DNCA Miuri managed by DNCA took first prize in thej “Absolute Performance” category.
VEGA Investment Managers recorded €6.6 billion in assets under management, up 12% year-on-year. The flagship VEGA Euro Rendement fund (five-star Morningstar rating), which totaled €855 million at end-2017, generated strong inflows thanks to the commercial success of the Sélectiz range in the Caisse d’Epargne and Banque Populaire banks.
Its London and Dubai branches continued to develop business in the EMEA region. It strengthened its franchise in real estate finance in Germany and in advisory services in Italy and Spain.
and cement its expertise, particularly in structured finance and acquisitions, M&A advisory services and securitization, ranking No. 6 CLO arranger in the US (source: Thomson Reuters). It consolidated its positioning in Latin America, where it was classed No. 8 bookrunner for syndicated loans by volume (source: Dealogic).
The Americas platform delivered a superb performance in all its business sectors, and continued to enhance its product range
In Capital Markets, Natixis pursued its growth through innovative and bespoke client-focused solutions, as recognized by a number of awards: “Structured Product House of the Year 2017” in Asia (source: AsiaRisk – Structured Product House of the Year) and, for the second year running, “Most Innovative Investment Bank for Equity Derivatives” (source: The Banker, Investment Banking Awards 2017).
OVERVIEW OF THE FISCAL YEAR Management report at December 31, 2017 181Natixis Registration Document 2017
In Structured Finance, Natixis carried out large-scale, high value-added financing transactions in the aviation, infrastructure, real estate, energy and commodities sectors, for which it has gained recognition in the form of many “deal of the year” awards from top publications. The strength of the O2D model was proven by the strong performance of the business, despite regulatory constraints and increased competition. Consolidating its main franchises, Natixis was ranked No. 1 bookrunner in syndicated real estate finance in the EMEA region (source: Dealogic, December 31, 2017), No. 6 Mandated Lead Arranger (MLA) in infrastructure financing in Europe and No. 10 worldwide (source: IJ Global, December 31, 2017).
Global Transaction Banking, together with eight other banks, helped launch the we.trade shared platform aimed at streamlining international trade transactions. The initiative was named as one of Global Finance magazine's “The Innovators 2017 – Trade Finance.” Natixis also became a member of the SWIFT Global Payments Innovation (GPI) initiative aimed at improving the transparency and traceability of international payments. As regards Supply Chain Finance, a financing solution (Receivable) was set up in Dubai for two major clients in the telecommunications sector, and in New York for two US companies in the aerospace and aluminum sectors.
In Investment Banking, Strategic and Acquisition Finance continued to grow at a fast pace. Natixis was ranked No. 2 bookrunner for sponsored loans in France and No. 6 in the EMEA region by value (source: Thomson Reuters). It arranged large-scale cross-border transactions, particularly in Asia-Pacific.
Natixis’ Equity Capital Markets teams executed large-scale transactions, including capital increases, initial public offerings, convertible bond issues and tender offers. Natixis was ranked No. 3 lead bookrunner on equity capital markets in France by number of deals and No. 4 by volume in 2017 (source: Bloomberg) and tied for No. 2 lead bookrunner in the equity-linked market in France by number of deals in 2017 (source: Bloomberg).
Natixis is currently a leader in Mergers & Acquisitions in France and is ranked No. 4 in M&A advisory services by number of deals (source: Merger Market, December 31, 2017), and No. 3 in M&A advisory services for mid-caps by number of deals and by value (source: Agefi, December 31, 2017). While still working alongside major corporate clients, Natixis has expanded its business with mid-caps and investment funds via Natixis Partners. At the same time, Natixis continued to develop internationally, including in the US (via PJ Solomon), Asia and southern Europe (Spain and Italy). Corporate & Investment Banking also continued to grow its sector M&A teams focused on infrastructure, energy and natural resources.
As for Insurance, a 40% stake in BPCE Assurances was purchased from Macif and Maïf on November 16, 2017. This operation, which made Natixis Assurances the sole shareholder of BPCE Assurances, was in line with the New Frontier strategic plan, which seeks to create a single insurance division within Natixis to serve Groupe BPCE’s strategy of becoming a fully-fledged, leading bancassurance player. It also contributed to keeping the value created in non-life insurance within the Company.
The Move#2018 transformation program, the goal of which is to achieve convergence between distribution and management models on the Banque Populaire and Caisse d’Epargne networks, was also launched in early 2017.
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2017 182 Natixis Registration Document 2017
The innovative solutions launched across the business lines in 2017 include: Natixis Lease's launch of MyCarLease, a pricing anda subscription application for operating leases aimed at professional customers; Natixis Financement's development of an entirely digitala subscription process for personal loans in the Banque Populaire network; the roll-out of several products and services at Natixis Paymenta Solutions: the Paylib mobile payment solution, supplementing Applej Pay, enabling all users to make contactless payments with their smartphone,
This development of the businesses went hand-in-hand with strict financial management: liquidity needs remained under control in 2017 and posted ana 8% decrease year-on-year; the consumption of Basel 3 RWA was down 4% year-on-yeara to €110.7 billion.
In light of the earnings generated over the course of 2017, a dividend payment of €0.37 per share, i.e. 74% of distributable profits, will be proposed at the General Shareholders’ Meeting that will take place on May 23, 2018.
OVERVIEW OF THE FISCAL YEAR Management report at December 31, 2017 183Natixis Registration Document 2017
Natixis’ net revenues stood at €9,467 million at December 31, 2017, up 9.4% from 2016 at constant exchange rates.
The Corporate Center’s net revenues stood at €657 million in 2017, of which €624 million for Coface. They include -€104 million for the return of foreign-currency DSNs to the historic exchange rate, versus €9 million in 2016.
Headcount was up 1% year-on-year, as the headcount increase in the business lines (+4%) was partially offset by the drop in Coface’s headcount (-7%) and by the scope effect resulting from the disposal of Corporate Data Solutions, while the headcount in the support departments was up 6% (IT, control functions).
Gross operating income stood at €2,835 million in 2017, up 15.4% at constant exchange rates versus 2016.
Revenues from Associates climbed to €26 million in 2017 versus €13 million in 2016.
Gains or losses on other assets reached €48 million in 2017, including €21.5 million following the disposal of the Ellisphere subsidiary (Financial Investments) in the first half of the year and €18 million following the liquidation of a holding company in the second half of the year. This item totaled €175 million in 2016, mainly due to the capital gain on the sale of the Montmartre building (€97 million) within the Corporate Center.
Change in the value of goodwill was nil in 2017. In 2016, this line item consisted of a goodwill impairment loss of €75 million on Coface.
Pre-tax profit therefore amounted to €2,651 million in 2017 versus €2,287 million in 2016.
4 OVERVIEW OF THE FISCAL YEARManagement report at December 31, 2017 184 Natixis Registration Document 2017
The recurring tax expense came to €789 million in 2017. The effective tax rate was 30% in 2017.
After incorporating -€192 million in minority interests, recurring net income (Group share) amounted to €1,669 million in 2017, up 21.4% compared to 2016.
At 12.8%, the division's ROE improved by 1.3 points compared to 2016.
Expenses stood at €2,033.8 million, up 10% compared to December 31, 2016 (+12% at constant exchange rates). This increase was mainly attributable to the variable compensation expenses of asset management companies in Europe and the US for the most part and, to a lesser extent, to fixed payroll costs linked to the increase in average headcount and pay rises.
– Wealth ManagementB At December 31, 2017, Wealth Management posted net inflows of €1.4 billion, driven essentially by the strong performance of international wealth management and the private management services provided by the networks.
Assets under management stood at €31.6 billion, up 9.0% for the period.
In 2017, Wealth Management's net revenues rose €5.5 million to €141.5 million (+4%) compared to 2016, which is a €19.2 million increase (+15%) excluding scope effect(1) and non-recurring items(2).
The increase in net revenues was underpinned by a high level of incentive fees in 2017, after zero fees in 2016, successful structured products campaigns and other drivers, as well as the increase in commission fees on assets connected to the business.
Revenues from Fixed Income, Forex, Credit, Commodities and Treasury activities stood at €1,317 million in 2017, up 6.9% on 2016. The following changes were observed in each segment: revenues from Fixed Income and Forex were down 2.4%.a Fixed Income grew 7.1% thanks to very strong sales momentum, especially in Asia, while Forex was down 24.1%. Weaker currency volatility in 2017, compared to 2016 which was characterized by deep uncertainty surrounding Brexit and the US elections at the end of the year, reduced flow volumes; revenues from Credit activities were up 10.2% compared toa 2016. The business recorded ongoing growth in securitization activities, in both Europe and the US, while the roll-out of these activities in Asia continued; Revenues from repo activities were up 19.1% compared toa 2016, powered by strong business in both France and the US, and taking into account increased revenues from the solutions offering.
Strategic and Acquisition Finance revenues rose thanks to positive market conditions that helped generate high transaction volumes during the period.
Revenues from syndication on the bond market were down compared to 2016, including an increase in revenues generated on the primary bond market. The dynamism of the first half of 2017 was more than offset by a slowdown in market-making activity for sovereign debt on the secondary market, due to the uncertainty surrounding the French election results in the first half of the year.
At €1,328 million, Global Finance including GTB (Global Transaction Banking) increased its revenues by 4.9% compared to 2016 at constant exchange rates.
In origination, new business increased by 4.0% compared to 2016 with a particularly strong uptrend in structured finance and especially in real estate finance in the US. Origination revenues rose compared to 2016, as substantial fees and commissions were recorded for the period in the infrastructure, aviation and real estate finance segments. Commodity Trade Finance remained strong in 2017, boosted by an increase in drawn outstandings in response to better per barrel oil prices compared to the year before.
Revenues from Investment Banking including M&A activities were up 27.9% at constant exchange rates compared to 2016 for accumulated revenues of €362 million, including scope effect for the consolidation of US subsidiary Peter J. Solomon company (PJSC) revenues since the end of the second quarter of 2016. The Investment Banking business also benefited from strong growth in Strategic and Acquisition Finance, brisk trade on the equity capital markets when European banks carried out several capital increases in the first half of 2017, and robust M&A activity, driven by Natixis Partners France and Spain.
At €115 million, the provision for credit losses fell 40.9% compared to 2016 which saw higher levels of provisioning on oil sector exposures due to the sharp decline in the price per barrel that lasted until early 2016.
ROE after tax totaled 13.5% in 2017, up 3.5 points compared to 2016 (10.0%), thanks to a decrease in risk-weighted assets (RWA) together with higher earnings.
In terms of business levels, the sales momentum in all the Insurance segments was particularly robust in 2017.
With €9.5 billion in direct business premiums, life insurance (late-November data).
inflows were up by 59% compared to 2016 as a result of the market roll-out of savings policies (life insurance and accumulation policies) in the Caisse d’Epargne network, with 2017 being the first full year of distribution. In 2017 inflows were more directed at unit-linked assets, thanks to the launch of the
In a competitive market that is being transformed by digital innovation, non-life insurance continued to grow rapidly on the back of the favorable effects of the Hamon Act and the growth of real estate finance in the networks. Consequently, the Banque Populaire banks and the Caisse d’Epargne sold 1.3 million non-life insurance policies in 2017. This is an increase of 2.4% compared to 2016, buoyed by strong momentum in automotive (+3%) multi-risk home (+6%) and personal accident coverage policies (+15%). The number of policies under management grew by 5% to €5.6 million for the Banque Populaire and Caisse d’Epargne networks. Earned premiums increased by 8% to €1,386 million.
Net revenues for Insurance businesses totaled €733.9 million, up 12.0% compared to 2016, resulting from: strong net revenue growth in life insurance (up 20%), propelleda by considerable growth in assets under management (up 15%), supported in turn by the roll-out of the offer in the Caisse d’Epargne network. Despite the persistently low interest-rate environment in 2017, lower bond yields were offset by the diversification of sources of investment (in private placements or the direct financing of the economy); the stability of net revenues in Personal Protection insurancea and in Payment Protection insurance, as growth was offset by a deterioration in claims expense from 2016; the growth in Property & Casualty Insurance net revenuesa (+13%), attributable to lower costs for extreme weather events in 2017 compared to 2016, an improvement in the past claims expense and fewer large claims in 2017 compared to 2016. The combined ratio stood at 92.1%, a slight improvement on 2016.
Operating expenses were up 16.2% to €438.7 million, as the business developed and the strategic ambitions fell into place: the roll-out of the new life insurance range in the Caisses d'Epargne, the launch of strategic non-life insurance projects (overhaul of the claims information system) and the wind-down of the Assurément#2016, Impulse and Paris Digitaux (digital challenges) initiatives.
Consumer Finance achieved record sales, with an annual increase of 9% for total new loan production, 10% of which was for personal loans, while revolving loans remained virtually stable.
After two outstanding years, Sureties and Guarantees maintained strong business volumes, with a very active loan guarantee market for retail customers, especially during the first half of the year, in a low interest-rate environment.
Securities Services recorded a 2% increase in transaction volumes in 2017. The service offering to the networks continued to expand.
Revenues from Financial Services excluding Payments were up 1% with net revenues from Employee Savings Schemes up 3%.
At €73 million, the provision for credit losses increased mainly due to collective provisions.
Net revenues from the Corporate Center stood at €657 million versus €723 million in 2016.
OVERVIEW OF THE FISCAL YEAR Management report at December 31, 2017 189Natixis Registration Document 2017
Expenses from the Corporate Center excluding Coface were for: the contribution to the Single Resolution Fund totalinga €121 million in 2017 versus €114 million in 2016; the expenses of the Corporate Data Solutions, Natixis Privatea Equity (Finance division) and Natixis Algérie businesses; as well as the support function expenses not invoiced to thea Natixis business lines.
Funding/reversal of funding for general banking risks and regulated provisions 0 N/A 0 N/A 0 N/A 7 0 7
Gains on trading book transactions declined by €187 million. Restated for a specific transaction completed in 2016 with a corresponding entry booked to gains/losses on securities held for
Finally, other income and expenses rose by +€175 million, including +€69 million from provisions for litigation on financial instruments. These provisions had been recorded in 2016, but similar impacts were not recognized for 2017.
Operating expenses were up €103 million, including +€28 million in payroll costs due to a significant headcount increase and higher variable expenses, +€56 million in external services net of reinvoicing, and +€9 million in regulatory taxes and costs (including +€6 million for the Single Resolution Fund). Changes in external services were mainly concentrated in external assistance (+€29 million) and consulting fees (+€12 million) related primarily to the development of regulatory projects and real estate leasing expenses (+12 million).
The net provision for credit losses was down €14 million to -€248 million (of which -€94 million for the branches). The 2016 expense had been affected by efforts to establish provisions for
CACEIS securities for €84 million before tax and to the downward adjustment of the provision recorded on Coface equity investments (reversal of provision of €111.9 million).
At December 31, 2017, net gains/(losses) on fixed assets amounted to +€317 million. The balance for fiscal year 2017 is mainly attributable to the capital gain earned on the disposal of
Natixis’ financial statements at December 31, 2017, showed positive net income of €1,678,182,285.17 and, taking into account retained earnings of €1,107,367,314.03, showed distributable profits of €2,785,549,599.20.
(for reference) 1 to 30 days 31 to 60 days 61 to 90 days 91 days and more
Total amount of invoices affected, including tax (in millions of euros) 28.5 5.2 0.5 0.3 2.8 8.7
For debt and receivables associated with Natixis SA clients, please refer to Note 37 of Chapter 5.3 on assets and liabilities by maturity, which provides information on their residual maturity.
Audit of information about the Group disclosed in the management report 342
PARENT COMPANY FINANCIAL 5.3 STATEMENTS AND NOTES 344 Natixis comparative separate balance sheets 344
STATUTORY AUDITORS’ REPORT 5.4 ON THE PARENT COMPANY FINANCIAL STATEMENTS 382 Opinion 382
Responsibilities of management and those charged with governance for the parent company financial statements 385
INTERNAL CONTROL 5.5 PROCEDURES RELATING TO ACCOUNTING AND FINANCIAL INFORMATION 387 Preparation and processing of accounting 5.5.1 and financial information 387
Permanent control system relating 5.5.2 to accounting and financial information 388
FINANCIAL DATA Consolidated financial statements and notes 195Natixis Registration Document 2017
Due to banks 6.13 104,318 101,374 o/w institutional operations 46 46 o/w institutional operations 851 844
Accrual accounts and other liabilities 6.9 37,936 44,464 o/w institutional operations 0 0
Net gains or losses on financial instruments at fair value through profit or loss 7.3 2,784 2,119
Net gains or losses on available-for-sale financial assets 7.4 426 216
Depreciation, amortization and impairment on property, plant and equipment and intangible assets (242) (241)
Net income/(loss) attributable to shareholders (see Note 5.24) – Group share – per share, calculated on the basis of the average number of shares over the period, excluding treasury shares. 0.50 0.41
FINANCIAL DATA Consolidated financial statements and notes 197Natixis Registration Document 2017
Share in gains/(losses) of associates recorded directly in equity and recyclable to profit or loss (3) 3
Total activity related to relations with shareholders 14 12 0 13 (1,084) Issuance and redemption of perpetual deeply subordinated notes and preference shares 398 0
Interest paid on perpetual deeply subordinated notes and preference shares (78)
Total activity related to relations with shareholders 0 (0) 0 (25) (1,087) Issuance and redemption of perpetual deeply subordinated notes and preference shares 621 0
The impact of the early application of provisions relating to financial liabilities under IFRS 9 “Financial instruments” recognized under “Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss” in opening shareholders’ equity corresponds to own credit spread at January 1, 2016, i.e. €49 million (gross amount) and an associated tax impact of -€17 million (see Note 1.1). "Changes in fair value attributable to own credit risk on financial liabilities designated at fair value through profit or loss” for the 2016 fiscal year recognized in shareholders’ equity, unrealized and realized, totaled -€156.5 million (gross amount, with an associated tax impact of +€53.9 million). Balances relating to the early repayment of Natixis issues recognized in shareholders’ equity in 2016 totaled +€12 million (gross amount, with an associated tax impact of -€4 million). "Changes in fair value attributable to own credit risk on financial liabilities designated at fair value through profit or loss” at December 31, 2017 recognized in shareholders’ equity, unrealized and realized, totaled -€185.3 million (gross amount, with an associated tax impact of +€48.5 million). Balances relating to the early repayment of Natixis issuances recognized in shareholders’ equity at December 31, 2017, totaled +€5.3 million (gross amount, with an associated tax impact of -€1.8 million). In 2016, shareholders’ equity (Group share) included the following:(d).
Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss (c)
At December 31, 2017, shareholders’ equity (Group share) included the following:(e) -€111 million for the revaluation and unwinding of the discount on call options granted to minority shareholders of DNCA France (-€63.1 million), Ciloger (-€16.1 million), Dorval (-€29 million), Darius (-€6.7 million) and Lakooz (+€3.8 million); -€38 million for the acquisition of the 100% stake held by BPCE in S-Money and its subsidiary Lakooz, which occurred in two stages (51% in the first half of 2017 and 49% in the second half of 2017); +€18 million for the acquisition of Bati Lease and InterCoop from Crédit Coopératif; -€94 million for the buyback of 40% of BPCE Assurances from minority interests (Macif and Maif); -€7 million for the buyout of Ossiam shares from one of its managers; +€8 million for the disposal of Ellisphere; -€62 million for the public tender offer for Dalenys issued to its minority shareholders in December; -€56 million in call options granted to minority shareholders in IML (Investors Mutual Limited); -€4 million in call options granted to minority shareholders in PayPlug.
At December 31, 2017, other reclassifications included -€87 million related to the elimination of capital gains on reclassification following the repayment (f) of a line of perpetual deeply subordinated notes.
The balance of cash and cash equivalents consists of the net balances on cash and amounts due from central banks, as well as demand deposits with and loans from credit institutions.
Changes in cash related to investment operations result from cash flows related to acquisitions and disposals of investments in consolidated and non-consolidated affiliates, tangible and intangible fixed assets, and acquisitions and disposals of investment property, property provided under operating leases and financial assets held to maturity.
= Total non-cash items included in pre-tax profit and other adjustments 5,556 3,398
+/- Decrease/(increase) in property, plant and equipment and intangible assets (324) (62)
Cash flow of assets and liabilities held for sale (1) (6)
cash flows related to held-to-maturity assets in the amount of +€224 million for 2017 (versus +€316 million for 2016);cash flows related to investments in consolidated affiliates in the amount of -€460 million from the purchase of 52% of Investors Mutual Limited (-€104 million), 54% of Danelys (-€91 million), S-Money and its subsidiary Lakooz (-€39 million), 97% of Bati Lease and its subsidiary InterCoop (-€38 million), 79% of PayPlug (-€21 million), 51% of Althelia Ecosphere (-€3 million), the acquisition of an additional 13.67% of Ossiam (-€5 million), the buyback of 40% of BPCE Assurances from minority interests (-€272 million), +€14 million in cash acquired (including +€10 million for the consolidation of securitization vehicle Purple Finance CLO 1 and +€4 million for the acquisition of IML), the disposal of Ellisphere (+€55 million), IJCOF Corporate (+€9 million) and IDFC (+€35 million), and the partial exercise of the put option on Euro Private Equity (-€1 million).
a positive change in perpetual deeply subordinated notes in the amount of +€621 million, partly from two new issuances subscribed to by BPCE for $500 million each, with the first occurring in the first quarter and the second in the last quarter of 2017 (equivalent to +€474 million and +€423 million, respectively), and partly from the repayment in the final quarter of an issuance measured at fair value in 2009 when initially recognized in equity in the amount of +€276 million; the expiry of an EMTN issued in 2006 on January 20, 2017, for -€500 million and the repayment of a loan from BPCE on December 7, 2017 for -€40 million;interest paid on subordinated notes for -€115 million;interest paid on deeply subordinated notes recorded in equity for -€94 million.-
Subsidiaries held for sale2.6 214 Standardization of individual data and 2.7 treatment of intra-group transactions 214 Consolidation of insurance 2.8 companies 215
Scope of structured entities 4.1 with which Natixis has dealings 222 Interests held in non-consolidated 4.2 structured entities 225 Non-consolidated structured entities 4.3 in which Natixis is involved only as a sponsor 226 Financial support to structured 4.4 entities 227
Leases5.2 229 Credit risk on assets classified 5.3 as loans and receivables 230 Derivative financial instruments 5.4 and hedge accounting 231
Tax expenses5.20 244 Financing and guarantee 5.21 commitments 244 Contributions to banking resolution 5.22 mechanisms 245 Use of estimates in preparing 5.23 the financial statements 245
Deferred tax assets and liabilities6.8 267 Accrual accounts, other assets and 6.9 liabilities 268
FINANCIAL DATA Consolidated financial statements and notes 203Natixis Registration Document 2017
Net fee and commission income7.2 286 Gains and losses on financial 7.3 instruments at fair value through profit or loss 287 Net gains or losses on 7.4 available-for-sale financial assets 288
STATEMENT OF NET INCOME/(LOSS) NOTE 8 AND OTHER COMPREHENSIVE INCOME 292
Credit risk and counterparty risk10.2 301 Market risk, overall interest rate risk, 10.3 liquidity risk and structural foreign exchange risk 303
Natixis’ consolidated financial statements include a balance sheet, income statement, statement of net income/(loss) and other comprehensive income (previously referred to as the statement of net income/[loss], gains and losses recorded directly in equity), statement of changes in shareholders’ equity, cash flow statement and notes to the financial statements.
The financial statements presented for comparative purposes were published by Natixis in the 2016 registration document filed with the Autorité des Marchés Financiers (AMF – French Financial Markets Authority) on March 21, 2017. In accordance with European regulation 809/2004 relating to information contained in prospectuses, the financial statements for the year ended December 31, 2015, that were published in the 2015 registration document filed with the AMF on March 10, 2016, are incorporated for reference into this registration document.
IFRS 9 defines the new rules for classifying and measuring financial assets, the new impairment methodology for credit risk on financial assets, and hedge accounting, except for macro-hedging, which the IASB is currently studying in a separate draft standard. The following treatments will apply to fiscal years beginning as of January 1, 2018, replacing the accounting standards currently used to recognize financial instruments. Pursuant to the transitional provisions of IFRS 9, Natixis does not intend to provide comparative information for its financial statements.
FINANCIAL DATA Consolidated financial statements and notes 205Natixis Registration Document 2017 other disposals may also be compatible with the “hold toj collect” model’s objectives if they are infrequent (even if their value is significant) or if their value is insignificant when considered both individually and overall (even if they are frequent); For Natixis, the “hold to collect” model would apply to financing activities (excluding the loan syndication activity) carried out by Corporate & Investment Banking and Specialized Financial Services; a mixed business model under which assets are managed witha the objective of both receiving contractual cash flows and disposing of financial assets (“hold to collect and sell” model). Natixis would apply the “hold to collect and sell” model primarily to portfolio management activities for securities in the liquidity reserve; and a model intended for other financial assets, especially thosea held for trading, for which the collection of contractual cash flows is incidental. This business model would apply to the loan syndication activity and the capital markets activities carried out by Corporate & Investment Banking.
For the borrower or lender, a contractual option permitting prepayment of financial instruments does not violate the SPPI test for contractual cash flows if the prepayment amount mainly represents the unpaid amounts of principal and interest and, if applicable, a reasonable additional compensation for the early termination of the contract.
Any contractual option that creates risk exposure or cash-flow volatility that is not consistent with a basic lending arrangement, such as exposure to fluctuations in the price of stocks or of a market index, or the introduction of leverage, would make it impossible to categorize contractual cash flows as “SPPI”.
A debt instrument is valued at amortized cost if it meets the following two conditions: the asset is held in a business model whose objective is toa collect contractual cash flows; and the contractual terms of the financial asset, on specific dates,a give rise to cash flows that are solely payments of principal and interest on the outstanding amount due. In this case, the asset is considered basic and its cash flows are categorized as SPPI.
A debt instrument is valued at fair value through other comprehensive income if it meets the following two conditions: the asset is held in a business model whose twofold objectivea is to collect contractual cash flows and sell financial assets; and the contractual terms of the financial asset, on specific dates,a give rise to cash flows that are solely payments of principal and interest on the outstanding amount due. In this case, the asset is considered basic and its cash flows are categorized as SPPI.
Debt instruments that are held under the “hold to collect” and “hold to collect and sell” models but do not meet SPPI criteria are measured at fair value through profit or loss.
Debt instruments held under a business model for other financial assets, especially those held for trading, are measured at fair value through profit or loss.
SPPI debt instruments held under the “hold to collect” and “hold to collect and sell” business models can only be designated at fair value through profit or loss if doing so reduces an inconsistency in profit or loss (known as an “accounting mismatch” under IAS 39).
Embedded derivatives will no longer be recognized separately from their host contract when these are financial assets
For financial liabilities, the classification and measurement rules set out in IAS 39 are carried forward to IFRS 9 unchanged, with the exception of those applicable to financial liabilities that the entity chooses to record at fair value through profit or loss (fair value option), for which revaluation adjustments related to changes in own credit risk are recorded under gains and losses recognized directly in other comprehensive income, without being subsequently reclassified to profit or loss.
Since 2016, Natixis has opted for early application of the provisions related to the recognition of gains and losses on financial liabilities designated under the fair value option, as provided for by IFRS 9 “Financial instruments”, adopted by the European Commission on November 22, 2016. According to these new provisions, the amount of changes in fair value of financial liabilities designated under the fair value option, attributable to changes in credit risk on these liabilities, is recognized as other comprehensive income, where such recognition does not create or increase an accounting mismatch in profit or loss.
Consequently, at January 1, 2016, Natixis recognized, under “Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss” in opening shareholders’ equity for fiscal year 2016, the fair value of the issuer spread, i.e. €49 million (gross amount).
The provisions of IAS 39 on the derecognition of financial assets and liabilities will be carried forward unchanged to IFRS 9.
The new impairment framework under IFRS 9 generally requires one-year expected losses to be recorded upon initial recognition (stage 1), and subsequently, if the credit risk has deteriorated significantly since initial recognition, expected losses at maturity should be recognized (stage 2). Thirdly, if credit quality deteriorates to the point that recoverability is threatened, a provision must be set aside for expected loss at maturity (stage 3), which is the same as the requirement under IAS 39 for individual impairment of loans in default (see Note 5.3); Impairment shall be recognized in accordance with the following three categories: Stage 1a there is no significant deterioration in credit risk since initialj recognition, impairment for credit risk is recorded in the amount ofj 12-month expected credit losses, interest income is recognized through profit or loss using thej effective interest rate method applied to the gross carrying amount of the asset before impairment; Stage 2a in the event of a significant increase in credit risk since initialj recognition, the financial asset is transferred from category 1 to this category, impairment for credit risk is determined on the basis of thej instrument’s expected credit losses at maturity, interest income is recognized through profit or loss using thej effective interest rate method applied to the gross carrying amount of the asset before impairment; Stage 3a if there is objective evidence of impairment arising from onej or more events occurring after initial recognition, impairment for credit risk continues to be calculated basedj on the instrument’s expected credit losses at maturity, interest income is recognized through profit or loss based onj the effective interest method applied to the net carrying amount of the asset after impairment.
Moreover, the standard makes the distinction between purchased or originated credit impaired (POCI) assets, which correspond to financial assets purchased or created and already impaired for credit risk at their initial recognition.
On initial recognition, an effective interest rate must be adjusted based on credit quality: estimated recoverable cash flows take expected credit losses into account. Subsequent impairment will be calculated by re-estimating recoverable cash flows based on the re-estimated effective interest rate. A gain may be recognized through profit or loss if the revised cash flow estimate exceeds recoverable cash flows.
Launched in H1 2015, IT analysis, design and development work continued during fiscal year 2016 and the first half of 2017. The second half of 2017 was primarily dedicated to revenue, finalizing work on model calibration, completing documentation and adapting processes resulting from the implementation of this new standard within the framework of change management.
Work carried out on Classification and Measurement shows that the majority of financial assets that were recognized at amortized cost under IAS 39 until December 31, 2017 will continue to meet the conditions to be recognized at amortized cost under IFRS 9, and similarly, that the majority of financial assets classified as available-for-sale assets or as assets at fair value through profit or loss under IAS 39 will continue to be measured at fair value through other comprehensive income or profit or loss under IFRS 9.
Reclassifications identified include: For financing portfolios: repurchase agreements designated under the fair value optiona through profit or loss under IAS 39 for the purpose of comprehensive management at fair value and subject to a trading business model will be recognized as “Financial assets at fair value through profit or loss”; repurchase agreements classified as loans and receivablesa under IAS 39 and subject to a trading business model under IFRS 9 will be recognized as “Financial assets at fair value through profit or loss”.
The vast majority of financing and receivables will continue to be classified and measured at amortized cost. Regarding these financing receivables, Natixis holds a portfolio of fixed income loans that bear a symmetrical repayment clause: Questions regarding the interpretation of these clauses and whether or not these instruments should be considered “basic” were referred to the IASB (International Accounting Standards Board) in December 2016. The amendment was published by the IASB on October 12, 2017, and will be mandatory as of January 1, 2019. Natixis will apply it early, as of January 1, 2018, as soon as the amendment text is adopted by the European Commission. This amendment opens up the possibility of categorizing these instruments as basic, thereby enabling them to be recognized at amortized cost or in accordance with the “hold to collect and sell” model provided that they are held in a “hold to collect” business model under IFRS 9.
For securities portfolios, reclassification should mainly relate to: debt securities held in the liquidity reserve, which under IAS 39a were recognized as available-for-sale assets and which, as they were held under a “hold to collect and sell” business model, will be reclassified as financial assets at fair value through OCI recyclable to profit or loss; mutual fund and private equity investment fund units, excepta for those in the insurance business, classified as equity instruments under IAS 39 and recognized as “Available-for-sale assets” or as “Financial assets under the fair value option”, that are considered under IFRS 9 as debt instruments with non-basic characteristics and as a result will be recognized as “Financial assets at fair value through profit or loss”; investments in associates recognized as available-for-sale assetsa under IAS 39 which, as allowed under a special option provided for by IFRS 9, will either be recognized as “Financial assets at fair value through profit or loss” or as “Financial assets at fair value through OCI” (non-recyclable even in the event of disposal). Dividends continue to be recognized in income only if opting for the latter category.
Specific adjustments will be made to factor in current conditions and forward-looking macroeconomic projections. Measurements may therefore, in some cases, differ significantly from those used to calculate regulatory capital requirements due to the associated safety buffers and their “through-the-cycle” applicability, as neither of these elements are factored in when evaluating the parameters used to determine provisions under IFRS 9 in accordance with the standard. Accordingly: IFRS 9 parameters will therefore aim to provide the mosta accurate estimate of losses possible for accounting provision purposes, whereas prudential parameters will be more cautious for regulatory framework purposes. Several of these safety buffers will be restated; IFRS 9 parameters must allow losses to be estimated until thea contract’s maturity, whereas prudential parameters will be defined to estimate 12-month losses. 12-month parameters will thus be projected over longer timescales.
Parameters will be adjusted to suit the economic context by defining reasonable and justifiable economic scenarios matched with their probability of occurrence. The projection mechanism will also draw on the budget process. Three economic scenarios (the base case budget scenario, along with optimistic and pessimistic views of this scenario), combined with their respective probabilities, will therefore be defined over a three-year time line. The scenarios and weightings will be defined using analysis produced by Natixis’ Economic Research department and management’s expert judgment.
The models which will be introduced to calculate impairment will be developed or harmonized centrally to ensure that methods are consistent throughout Natixis, Groupe BPCE and other entities, including Natixis Financement, depending on the type of exposures in question.
In terms of applying IFRS 9 to insurance activities: The amendment to IFRS 4 applying IFRS 9 “Financial Instruments” with IFRS 4 “Insurance Contracts” with specific provisions for financial conglomerates, was adopted on November 3, 2017 and is applicable as of January 1, 2018. This European regulation will allow European financial conglomerates to defer application of IFRS 9 to their insurance divisions until January 1, 2021 (effective date of the new IFRS 17 "Insurance Contracts" standard) as long as they: do not transfer financial instruments between the insurancea division and other divisions of the conglomerate (with the exception of instruments at fair value through profit or loss); indicate the insurance entities that apply IAS 39;a provide specific additional information in the Notes.a
The new IFRS 15 standard “Revenue from Contracts witha Customers” was adopted by the European Commission on September 22, 2016 and is applicable retrospectively from January 1, 2018. The amendment entitled “Clarifications to IFRS 15”, adopted by the European Commission on October 31, 2017, is also mandatory from January 1, 2018.
IFRS 15 applies to all contracts with customers except for leases (covered by IAS 17), insurance contracts (covered by IFRS 4) and financial instruments (covered by IFRS 9). If specific stipulations relating to revenue or contract costs are specified under a different standard, these will first be applied.
Natixis started to analyze the impact of the application of this new standard in the second half of 2016 and has now completed this work.
This analysis drew on assessments carried out within the entities affected and was used to identify the main items that could be involved, including: fee and commission income, notably those relating to bankinga services when this income is not included in the effective interest rate, or those relating to asset management or financial engineering services; income from other activities, in particular for services includeda in leases.
Based on the work performed, Natixis does not expect any material impact upon the first-time application of IFRS 15, on either opening equity at January 1, 2018 or on income and expense items in fiscal 2018.
Pursuant to the option available under IFRS 15, Natixis does not intend to provide comparative information in its financial statements.
IFRS 16 “Leases”, adopted by the European Commission ona October 31, 2017, will replace IAS 17 “Leases” and interpretations related to the accounting of these contracts. It will be applicable retrospectively as of January 1, 2019, according to specific phase-in conditions.
From the lessor’s perspective, the impact is expected to be limited, as the provisions will not change substantially in relation to the current IAS 17.
For lessees, the standard requires that all lease contracts be recorded in the balance sheet such that they convey the right to use the leased asset which must be recognized under fixed assets with a corresponding financial liability entry under liabilities to reflect the leases and the remaining payments over the duration of the lease contract. Natixis has decided to opt for the exception included in the standard of not modifying the accounting method for short-term leases (less than 12 months) or leases related to low value underlying assets (unit replacement cost of €5,000 at the most).
In addition, when drawing up the consolidated financial statements at December 31, 2017, Natixis also took the following into account: Board), the Commission Bancaire (French Banking Commission) and the Autorité de Contrôle des Assurances et des Mutuelles (ACAM – French insurance regulator), and the guide published by the IASB on October 31, 2008, entitled “Measuring and disclosing the fair value of financial instruments in markets that are no longer active”. These two texts underline the importance of using judgment to determine fair value in illiquid markets. As a result of this recommendation, at December 31, 2017, Natixis does not systematically apply models using observable data, as with previous reporting periods, in view of the lack of market liquidity affecting some asset classes; for the valuation of financial instruments: the recommendationa published on October 15, 2008 by the AMF, the Conseil National de la Comptabilité (CNC – French National Accounting for financial reporting on risk exposure: the recommendationsa issued by the Financial Stability Forum (FSF), as adapted for France. Details on risk exposure, presented in the format recommended by the Commission Bancaire in its May 29, 2008 statement “Presentation note regarding the French application of the FSF’s recommendations for financial transparency”, have been incorporated into Section 3.13 of the chapter on “Risks and Capital Adequacy” of the registration document.
The consolidated financial statements are based on the individual financial statements at December 31, 2017, of the entities included in Natixis’ consolidation scope.
Natixis’ consolidated financial statements include the financial statements of Natixis and its main subsidiaries.
The consolidation scope includes all material entities over which Natixis exercises exclusive control, joint control or significant influence. IFRS stipulates three types of control: exclusive control, joint control and significant influence. Determining the type of control that exists is not limited to identifying the voting rights held, but also involves an analysis of the economic and legal relations between the various entities being analyzed.
The percentage of ownership and voting rights held is indicated for each entity within the consolidation scope. The percentage of ownership represents the equity share held by Natixis, directly and indirectly, in the entities within the consolidation scope. The percentage of ownership is used to determine Natixis’ share in the net assets of the owned company.
If this is not the case, control is determined through the exercise of judgment and by taking into account all facts and circumstances, such as: the objectives, terms and circumstances surrounding thea creation of the entity; the nature of the entity’s relevant activities and thea decision-making processes concerning these activities; the scope of Natixis’ decision-making rights (from voting rightsa or contractual agreements) over the management of the entity’s relevant activities (i.e. activities having a significant impact on the entity’s returns); exposure to variability in the entity’s returns (the significance ofa the returns received by Natixis compared to the returns received by the other investors, etc.); rights held by other parties (withdrawal rights, earlya redemption rights, rights on termination of the entity, etc.).
FINANCIAL DATA Consolidated financial statements and notes 211Natixis Registration Document 2017
The share of non-controlling interests in shareholders’ equity and in income appear separately on the balance sheet, income statement and the statement of net income/(loss) and other comprehensive income.
These investments are subject to an impairment testa whenever there is objective evidence of impairment. If the recoverable value of the investment is lower than its book value, an impairment is recorded under “Share in income of associates” in the consolidated income statement.
When Natixis’ share in the losses of a company consolidated using the equity method is greater than or equal to its interest in the company, Natixis ceases to take its share into account in future losses. In such cases, the investment is presented as zero. The associates’ additional losses are only provisioned when Natixis has a legal or implied obligation to hedge them or when it has made payments on behalf of the company.
and the closing of NGAM Asia amounted to €0.6 million at December 31, 2017 (see Note 3.2).
At December 31, 2016, the impairment tests conducted resulted in a write-down of €12.6 million in the equity-accounted investment in the IDFC entities belonging to the Investment Solutions division. This impairment was included in the “Share in income of associates” in the income statement. Goodwill after impairment included in the book value of the equity investment totaled €4.3 million. IDFC entities were disposed of in 2017 and the gain on disposal arising from the sale of entities
The assumption of control through successive purchases of securities from an entity previously recognized in available-for-sale (AFS) financial assets is shown as two transactions taking place upon the assumption of control: the disposal of securities previously classified asa available-for-sale financial assets; and the acquisition of all the securities held after the assumption ofa control.
In the event of the loss of control of a consolidated subsidiary, any retained equity share is measured at fair value and the gains or losses on disposal are recognized among “Gains or losses on other assets” in the consolidated income statement.
The granting of put options to minority shareholders by Natixis has no impact on the determination of Natixis’ controlling interest in the subsidiary in question as long as the option is not exercised, unless Natixis also holds an immediately exercisable call option.
The granting of put options to minority shareholders has no impact on Natixis’ percentage of ownership in the subsidiary in question unless the put option is associated with Natixis holding a call option, and the call and put options give immediate entitlement to the economic benefits attached to the underlying shares.
Income generated from minority interests subject to put options are presented in “Net income/(loss for the period – share attributable to minority interests” on the consolidated income statement.
Application of IFRS 3 to business combinations carried outa before January 1, 2010: minority interests are determined based on their share in thej identifiable net assets of the acquired entity, measured at their fair value at the purchase date (partial goodwill method); goodwill is the difference between the cost of the businessj combination and the share of the purchasing entity’s interest in the net fair value of identifiable assets, liabilities and contingent liabilities.
FINANCIAL DATA Consolidated financial statements and notes 213Natixis Registration Document 2017
Barring clarification of IFRS 3R on the accounting treatment of business combinations under joint control, Natixis applies a method based on historic carrying amount to such transactions. According to this method, the difference between the price paid and Natixis’ share in the historic carrying amounts of the assets and liabilities of the acquired entity is recorded as a deduction from shareholders’ equity. In effect, in using this method, any goodwill and valuation differences resulting from the application of the purchase method are deducted from shareholders’ equity.
As the contributions were recognized at their net carrying amount under IFRS, no valuation adjustments have been recorded on the various assets and liabilities contributed. The difference between the acquisition cost and the Group’s interest in the net assets of the contributed entities does not constitute goodwill within the meaning of IFRS 3, since the acquisition cost takes into account the real value of the shares, while the contributions were recognized at their net carrying amount. Each of the differences observed was recognized in “Consolidated reserves”.
Since then, goodwill related to the former IXIS CIB has been totally written-down.
On December 31, 2017, under the new strategic plan, New Dimension (see Note 9), and in line with the creation of the new Insurance division, the Investment Solutions CGU was split into two separate CGUs: “Asset & Wealth Management” and “Insurance”. Goodwill related to the entities making up both of these new divisions was symmetrically reallocated to both new CGUs.
The following assumptions have been used: estimated future cash flows: forecast data drawn froma multi-year plans established by the business lines and updated as part of Natixis’ “New Dimension” strategic plan; perpetual growth rate: 2.5% for all valuations;a discount rate: use of a specific rate for each CGU: 9.7% fora Asset & Wealth Management and 11.5% for Insurance (9.8% for Investment Solutions in 2016), 12.2% for Specialized Financial Services (11.3% in 2016), 10.8% for Coface (10.5% in 2016) and 11.4% for Corporate & Investment Banking (11% in 2016).
The discount rates were determined by factoring in the following: for the Asset & Wealth Management, Insurance, Specializeda Financial Services and Corporate & Investment Banking CGUs, the risk-free interest rate of the Euro-Bund zone, averaged over a depth of 10 years, plus a risk premium calculated according to a sample of CGU-representative companies;
214 Natixis Registration Document 2017 for the Coface CGU, the interest-rate references used werea determined according to a similar method as applied to the other CGUs, using samples of equivalent companies for insurance and factoring activities.
These tests did not result in the recognition of impairment losses at December 31, 2017.
At December 31, 2016, tests carried out on the Coface CGU following an increase in the loss ratio level, as mentioned in the press release dated July 4, 2016 (an indication of a deterioration in the recoverable value), led to the impairment of goodwill on Coface in the amount of €75 million (€31 million group share). The net amount of goodwill after impairment was €281.9 million at December 31, 2016; A 20 bp increase in discount rates (assumption based on the historical annual variability observed over one year using 2012-2017 historical data) combined with a 50 bp reduction in perpetual growth rates would help to reduce the value in use of CGUs by: -7.1% for the Asset & Wealth Management CGU;a -3.3% for the Corporate & Investment Banking CGU;a -5.3% for the Insurance CGU;a -3.6% for the Specialized Financial Services CGU;a -2.6% for the Coface CGU;a and would not lead to the recognition of any impairment losses for these CGUs.
Natixis had started discussions regarding the disposal of part of its stake in Caspian, entities belonging to the Investment Solutions division. At December 31, 2016, Natixis maintained the full consolidation of its subsidiaries and, in accordance with the provisions of IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, combined the assets and liabilities of those entities under two separate balance sheet line items: “Non-current assets held for sale” and “Liabilities associated with non-current assets held for sale”. As the disposal was completed in fiscal year 2017, these entities are no longer included in Natixis’ consolidation scope as at December 31, 2017.
Natixis had also started discussions regarding the disposal of its subsidiaries Ellisphere and IJCOF, entities belonging to the Corporate Data Solutions division. At December 31, 2016, Natixis had maintained the full consolidation of Ellisphere and, in accordance with the provisions of IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, combined the assets and liabilities of that entity under two separate balance sheet line items: “Non-current assets held for sale” and “Liabilities associated with non-current assets held for sale”. IJCOF, consolidated using the equity method, was also treated in accordance with IFRS 5, and the stake was recorded under “Non-current assets held for sale”. As the disposal was completed in fiscal year 2017, these entities are no longer included in Natixis’ balance sheet as at December 31, 2017.
FINANCIAL DATA Consolidated financial statements and notes 215Natixis Registration Document 2017
Insurance company investments are classified in the balance sheet under the various categories of investments defined in IAS 39.
Policies managed by the insurance subsidiaries of the Coface, Compagnie Européenne de Garanties et Cautions (CEGC) and Natixis Assurances sub-groups meet the definitions of insurance policies and investment contracts with a discretionary participation feature set out in IFRS 4. Accordingly, they result in the recognition of technical reserves in liabilities. These reserves are measured in accordance with French GAAP pending publication of an IFRS standard dealing with technical liabilities of insurance companies.
Claims reserves include an estimate of claims reported but not settled at the reporting date. In addition to the amount of claims
At December 31, 2016, Coface ceded its activity managing state export guarantees on behalf of the French government to BpiFrance. The teams and information systems dedicated to this activity were transferred from January 2, 2017.
In the event of the total or partial disposal of an entity or the capital repayment of an entity, translation gains or losses are reclassified as income in proportion to the cumulative amount of exchange differences recognized in transferable equity under “Translation adjustments”.
In 2017, Natixis had finalized the acquisition of PayPlug, a fintech company specialized in online payments for very small businesses and SMEs.
In addition, in the fourth quarter of 2017, Natixis - via Natixis Belgique Investissements - finalized the acquisition of 54.3% of Dalenys (representing 61.3% of voting rights) from Dalenys’ main shareholders.
Following this acquisition, Natixis Belgique Investissements made a mandatory public bid offering €9 per share for all outstanding Dalenys shares, with the initial acceptance period running from December 11, 2017, to January 22, 2018. Consequently, at December 31, 2017, Natixis recognized a financial liability of €77.5 million.
This transaction generated goodwill of €72.3 million as at December 31, 2017, as determined using the partial goodwill method.
This transaction generated goodwill of €3.2 million as at December 31, 2017, as determined using the partial goodwill method.
Furthermore, Natixis, via Natixis Assurances, finalized the acquisition of 40% of BPCE Assurances from Macif (25%) and Maif (15%). Following this transaction, Natixis Assurances is the sole shareholder of BPCE Assurances.
At December 31, 2017, Natixis acquired majority interests in InterCoop and Bati Lease from Crédit Coopératif, a BPCE subsidiary. It holds a 100% and 96.77% interest in these entities, respectively.
The company’s management holds shares alongside Natixis and exit provisions are in place which, if exercised, would allow Natixis to acquire all the remaining capital. The promise to buy/sell shares led to the recognition of put options on minority shareholders, for €57.9 million.
The main changes in scope since January 1, 2017 are as follows: Corporate & Investment Banking3.2.1
Deconsolidation of Natixis Corporate Solutions Ltd as ofa January 1, 2017 as the percentage interest fell below eligible levels.
Liquidation of Nexgen Financial Holding Ltd. in the fourtha quarter of 2017.
The ownership interest in Natixis Partners decreased froma 92% to 84% following the award of free shares to executive officers in the fourth quarter of 2017.
Acquisition of 52% of Investors Mutual Limited, an equitiesa fund manager, on October 4, 2017.
Consolidation of the Purple Finance CLO 1 securitizationa vehicle in the fourth quarter of 2017.
Consolidation of the ASG Managed Futures and DNCA Archera Mid-Cap Europe funds in the fourth quarter of 2017 after the percentage interest rose above eligible levels.
Opening of an Australian office of AEW Asia Limited, aa subsidiary of AEW Capital Management in Hong Kong, in 2017. This entity was consolidated in the fourth quarter of 2017.
Disposal during the first quarter of 2017 of two Private Equitya entities: Natixis Private Equity Caspian IA, LP and Natixis Private Equity Caspian IB, LP.
On March 20, 2017, disposal by Natixis Investment Managersa of its holdings in IDFC Asset Management Company Limited and IDFC AMC Trustee Company Limited. These holdings were previously held directly by NGAM Asia. As NGAM Asia was a holding company whose sole purpose was to carry Natixis Investment Managers Group’s shares in IDFC, the decision was made to close this structure on March 27, 2017.
The ownership interest in Euro Private Equity SA and Euroa Private Equity France increased from 80% to 94% following the acquisition of an additional 14% of the share capital (10% in the second quarter of 2017 and 4% in the fourth quarter) in accordance with the initial protocol agreement signed on the entity’s acquisition.
The ownership interest in Ossiam rose from 64% to 83%a following the buyout of managers’ shares.
In the fourth quarter of 2017, NGAM (Natixis Global Asseta Management) changed its registered company name and the entity is now called Natixis Investment Managers. Consequently, all the entities bearing the acronym NGAM have changed name.
Consolidation of the Selection Protection 85 and Selectiz Plusa FCP 4Dec funds after the percentage interest rose above eligible levels.
The ownership interest in BPCE Assurances rose from 60% toa 100% following the buyback of shares held by minority interests (MACIF and MAIF) in the fourth quarter of 2017. This acquisition of additional shares also had the effect of increasing the ownership interest in BPCE APS, which rose from 30% to 50%.
The holding company Natixis Paiement Holding wasa consolidated in the first quarter of 2017. This company holds the entities in Natixis’ Payments business.
Acquisition of 51% of S-Money and 85% of its subsidiarya Lakooz, which specialize in new payment methods, on February 9, 2017. The remaining 49% of S-Money was acquired on October 30, 2017, taking the ownership interest to 100%. The remaining 15% minority stake in Lakooz was acquired on November 10, 2017, taking the ownership interest in the company to 100%.
Acquisition of 79% of PayPlug, which also specializes in newa payment methods, on April 3, 2017.
Natixis Consumer Finance IT was absorbed by Natixisa Financement through a total transfer of assets and liabilities (TUP) on April 30, 2017.
Impact of the loss of control during 3.3.3 the period of a subsidiary in which an interest is retained
The share of encumbered assets that cannot be freely used is presented in Section 3.9 of Chapter 3, “Risks and Capital Adequacy,” of the registration document.
Natixis Financement is a stakeholder in partnerships in the form of sociétés en participation (SEPs), with a lending institution (Banque Populaire bank or Caisse d’Epargne). The purpose of these SEPs is to ensure the origination, distribution, marketing, management and out-of-court collection of: personal repayment loans granted by the Banque Populaire ora Caisse d’Epargne network; revolving credit products granted by Natixis Financement toa the customers of the Banque Populaire or Caisse d’Epargne network.
Through these partnerships, the various associates contribute human and material resources and skills. The associates remain the owners of the property or rights available for use by the company (even in the event of the company’s liquidation). The company’s income is shared in accordance with allocation criteria set out in the bylaws. Decisions concerning the relevant activities of the SEPs are made unanimously. These partnerships are joint operations as defined in IFRS 11.
The main investment by Natixis consolidated using the equity method at December 31, 2017 is the EDF Investment Group (EIG) entity.
FINANCIAL DATA Consolidated financial statements and notes 221Natixis Registration Document 2017
Value of the investments in associates Net income Gains or losses recorded directly in equity
Risks associated with interests 3.4.4 in joint-ventures and associates held by entities
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to the administrative tasks only and the relevant activities are directed by means of contractual arrangements.
Structured entities generally have one or more of the following characteristics: restricted and narrowly-defined activities and objectives;a or non-existent equity, i.e. insufficient to allow it to finance itsa activities without subordinated financial support; financing in the form of multiple contractually linkeda instruments that create concentrations of credit or other risks (tranches); few or no employees.a
Consequently, the following are not included in the consolidation scope (IFRS 10) or in the scope applicable to the disclosure of additional information (IFRS 12): structured entities linked to Natixis solely through an ongoinga transaction. This corresponds to an unstructured financial instrument which does not generally have a material impact on the variability of the structured entity’s returns and which may be concluded by Natixis with structured entities or with traditionally-governed entities alike. Ongoing transactions are most commonly: vanilla fixed-income/currency derivatives, derivatives withj other underlying assets and the lending/borrowing of securities and repos, guarantees and plain vanilla financing granted to family SCIsj or certain holdings; external structured entities for which Natixis acts simply as ana investor. This mainly includes: investments in external mutual funds not managed byj Natixis, with the exception of those in which Natixis owns virtually all the shares, interests held in external securitization vehicles for whichj Natixis acts simply as a minority investor (exposure to these funds is included in the information disclosed with regard to exposures as recommended by the Financial Stability Forum (FSF)), a restricted scope of interests held in real estate funds andj external Private Equity funds for which Natixis acts simply as a minority investor.
The structured entities with which Natixis has dealings can be categorized into four groups: entities created within the context of structured financing, asset management funds, securitization vehicles and entities established for other types of transactions.
In accordance with IFRS 10, consolidation analyses for structured entities are performed taking into account all the criteria referred to in paragraph 2.2.1.
When auto-pilot mechanisms are not in place for these structures, it is generally the sponsor who oversees activities which are relevant and which generate returns. As previously, Natixis’ rights as lender are protective rights limited to the amount of its receivable. As such, Natixis does not have power over such entities’ relevant activities.
In general, seed money investments held for less than one year were not consolidated.
A fund is subject to consolidation: if Natixis acts as principal, i.e. if Natixis is a manager and isa non-revocable by a limited number of persons and if Natixis holds a large enough material interest to conclude that it controls the fund; or if Natixis is not a manager but owns virtually all the shares.a
2. Guaranteed mutual funds: funds. Once the structuring is established initially, it is fixed for the fund’s entire lifetime. Natixis has relatively limited exposure to negative variable returns thanks to the fund’s strict management by the NAM management company and a robust risk control system put in place upon structuring and monitored throughout the fund’s lifetime. These controls significantly limit the risk of guarantee activation.
Natixis guarantees the capital and/or performance of certain mutual funds. These packaged funds are passively-managed
The following types of securitization are encountered at Natixis and involve structured entities: transactions through which Natixis (or a subsidiary) transfersa credit risk related to one of its asset portfolios to a dedicated vehicle in cash or synthetic form; securitization transactions on behalf of third parties. Thesea transactions consist in placing the assets of a third-party company in a dedicated structure (generally a special purpose entity (SPE) or a conduit). The SPE issues shares that may in some cases be subscribed to directly by investors, or subscribed to by a multi-seller conduit which refinances the purchases of its shares by issuing short-maturity “notes” (treasury notes or commercial paper).
In 2017, Natixis disposed of a portfolio of loans granted to French and European businesses by purchasing protection in the form of a perfectly collateralized on-demand guarantee. Securitization vehicles subject to consolidation but not consolidated due to their materiality are listed in Note 17.1.
CEGC controls two SCIs holding the business line’s operatinga property and a third SCI holding real estate assets. These three SCIs were no longer consolidated at December 31, 2017 (see Note 3.2).
FINANCIAL DATA Consolidated financial statements and notes 225Natixis Registration Document 2017
As well as the breakdown of Natixis’ interests in these entities, the table below also provides information on the size of the entities. This information is reported on an aggregate basis, in which all entities that Natixis has an interest in, regardless of the level of the interest, are grouped together by business.
The maximum risk exposure corresponds to the cumulative amount of interests recorded under balance sheet assets and commitments given, minus contingency reserves recorded under liabilities and guarantees received: the “Notional amount of derivatives” item corresponds to thea notional amount of option and CDS sales agreed to by Natixis with structured entities; guarantees received are guarantees granted by third parties toa Natixis to cover its exposure related to structured entities. They are only included on the “Guarantees received” line and are not deducted from the asset items.
Financial assets at fair value through profit or loss 115 9,368 901 308 10,693
Financial liabilities at fair value through profit or loss (derivatives) 54 237 499 37 828
Financial instruments at fair value through profit or loss 90 4,871 269 - 5,231
With respect to information that must be disclosed under IFRS 12, Natixis sponsors a structured entity when the two following indicators are both met: Natixis is involved in the creation and structuring of thea structured entity; and
Book value of the assets transferred from the entity over the year (a) 2,365 - 2,365
The book value of assets transferred to these vehicles corresponds to assets sold by Natixis during 2017, where the information on the sold (a) amounts by all investors is not available.
for which there is evidence of a recent actual pattern of short-term profit taking.
Securities held for trading purposes are those acquired by Natixis principally to be sold in the near term and those forming part of a portfolio of financial instruments that are managed together and
As stated in Note 2.2.3, Natixis has elected to use the option provided by IAS 28 and IAS 31, i.e. not to account for interests held by Private Equity subsidiaries using the equity method if they are designated as “Financial assets measured at fair value through profit or loss”. In accordance with the fair value option amendment, Private Equity investments less than 20%-owned are also recognized as “Financial assets measured at fair value through profit or loss”, since managing and measuring these investments at fair value is a well-established practice within Private Equity companies.
The market value is reviewed at each subsequent reporting date in line with the principles outlined in Note 5.6 “Fair value of financial instruments”. Any changes including accrued interest are recorded in “Net gains or losses on financial instruments at fair value through profit or loss” in the consolidated income statement.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market, other than those designated as at fair value through profit or loss or available-for-sale. This excludes assets for which the holder cannot recover the majority of the initial investment other than because of a credit deterioration, which should be classified as available-for-sale. The vast majority of loans granted by the Group are classified in this category. Loans and receivables also include the fair value of the hedged component of assets classified in this category (fair value hedges).
On initial recognition, loans and receivables are measured at fair value (i.e. face value) plus transaction costs and less any discount and transaction revenues. In the case of loans, transaction costs include fees and any expenses directly attributable to setting up the loan.
The modified terms of restructured loans must put the borrower in a more favorable situation (e.g. suspension of interest or principal payment, extension of term, etc.) and are confirmed by the use of amendments that modify the terms of an existing contract or by the full or partial refinancing of an existing loan.
Available-for-sale financial assets include non-derivative financial assets that are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Assets in this category include Natixis’ investments in non-consolidated companies. Securities classified in this category are initially recognized at their market value. At the reporting date, they are remeasured at their market value determined based on the market price for listed instruments.
FINANCIAL DATA Consolidated financial statements and notes 229Natixis Registration Document 2017
IAS 17, which sets forth the accounting treatment of leases, gives five examples of situations where substantially all the risks and rewards incidental to ownership are transferred to the lessee: the lease transfers ownership of the asset to the lessee by thea end of the lease term; the lessee has the option to purchase the asset at a price thata is expected to be sufficiently below the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; the lease term is for the major part of the economic life of thea asset; at the inception of the lease, the present value of the minimuma lease payments amounts to at least substantially all the fair value of the leased asset; the leased assets are of such a specialized nature that only thea lessee can use them without major modifications.
At inception, assets held under a finance lease are recognized in the lessor’s balance sheet and presented as a receivable at an amount equal to the net investment in the lease, corresponding to the present value of minimum lease payments due from the lessee discounted at the rate of return implicit in the lease, plus any non-guaranteed residual value accruing to the lessor.
Revenues under the finance lease are recognized as income at the interest rate implicit in the lease so as to produce a constant periodic rate of return on the lessor’s net investment. The interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes: the aggregate present value of the minimum lease paymentsa receivable by the lessor and the non-guaranteed residual value, to be equal to the sum of; the fair value of the leased asset and any initial direct costs ofa the lessor, i.e., the costs incurred specifically by the lessor during the set-up of the leasing contract. These two items form the initial value of the asset.
Provisions for finance leases are determined using the same method as that described for loans and receivables.
For consolidation purposes, property, plant and equipment used in the business and held under finance leases is restated and reported under “Property, plant and equipment” where material. At the inception of the lease term, leased property, plant and equipment is recognized at the lower of fair value and the present value of minimum lease payments, with a corresponding entry under debt on the liabilities side of the balance sheet.
Article 178 of the EU regulation of June 26, 2013 on regulatory requirements for credit institutions. Objective evidence of impairment, notwithstanding the existence of security, includes any payments that are past due by at least three months, or regardless of whether any payment has been missed, the observation of difficulties experienced by the counterparty leading to the expectation that some or all of the amounts owed may not be recovered.
b) Assets collectively assessed for impairment Financial assets measured at amortized cost for which there is no objective evidence of impairment are included in a group of assets with similar risk characteristics. Where objective evidence of impairment is found to exist for a given group of assets, a collective impairment loss is recorded regardless of whether the risk has yet affected one or more individual loans.
For the other two risk classes (industry and geographic risk), objective evidence of impairment is based on in-depth analysis and monitoring of business sectors and countries. Such evidence typically arises from a combination of micro or macroeconomic factors specific to the industry or country concerned.
For industry risk, the Sector Risk section of the Risk Division prepares a segment analysis included in a rating scale equivalent to the one used for rating major corporations. The rating procedure is based on the determination of an inherent score that is adjusted according to the position in the cycle, inherent fragility, whether or not there is an outside threat, and the positioning of the Natixis portfolio. Sectors whose rating is BB- or lower are automatically reviewed for their potential provisioning.
Since risk measurement under the terms of Basel 2 is generally based on the probability of default within one year, the calculation of expected losses is adjusted to reflect the probability of default over the remaining term of the majority of the loans affected.
In line with IAS 39, derivative financial instruments are recognized at fair value on the balance sheet, regardless of whether they are held for trading or hedging purposes.
IAS 39 recognizes three types of relationship between derivatives and hedged items to qualify as hedge accounting: Derivatives may only be designated as hedges if they meet the criteria set out in IAS 39 at inception and throughout the term of the hedge. These criteria include formal documentation that the hedging relationship between the derivatives and the hedged items is both prospectively and retrospectively effective. Hedging relationships are presumed to be effective when, retrospectively, changes in the value of the hedging instrument offset changes in the value of the hedged item in a range of 80%-125%.
Hedging of variable-rate borrowings and issues Natixis uses interest rate swaps borrowing at fixed rates to fix future costs of interbank borrowings and public/private issues.
Fair value hedging is intended to hedge the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment.
When a hedging relationship is discontinued, the hedging instrument is reclassified in financial instruments at fair value through profit or loss, while the unrealized gain or loss on the hedged item is fixed at its amount on the date the hedge is discontinued and taken to income through to maturity.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the spot rate prevailing at the reporting date. All resulting foreign exchange gains and losses are recognized in income, except in two cases: only the portion of the foreign exchange gains and lossesa calculated based on the amortized cost of available-for-sale financial assets is recognized in income, with the remainder being recognized in “Gains and losses recognized directly in equity”; foreign exchange gains and losses arising on monetary itemsa designated as cash flow hedges or as part of a net investment in a foreign operation are recognized in “Gains and losses recognized directly in equity”.
FINANCIAL DATA Consolidated financial statements and notes 233Natixis Registration Document 2017
The mid-market price is obtained based on: the quoted price if the instrument is quoted on an activea market. A financial instrument is regarded as quoted on an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring transactions on an arm’s length basis on the main market or, failing that, the most advantageous market; if the market for a financial instrument is not active, fair value isa established using valuation techniques. The techniques used must maximize the use of relevant observable entry data and minimize the use of non-observable entry data. They may refer to observable data from recent transactions, the fair value of similar instruments, discounted cash flow analysis and option pricing models, proprietary models in the case of hybrid instruments or non-observable data when no pricing or market data are available.
Additional valuation adjustments incorporate factors related to valuation uncertainties, such as market, credit and liquidity risks in order to account, in particular, for the costs resulting from an exit transaction on the main market. Similarly, a Funding Value Adjustment (FVA) aiming to account for – through assumptions – costs associated with the funding of future cash flows of uncollateralized derivatives or imperfectly collateralized derivatives is also taken into account.
The main additional Funding Value Adjustments are as follows: Bid/ask adjustment – Liquidity risk
This adjustment takes into account the imperfections of the valuation techniques used – in particular, the risk factors that are
Observing certain prices or inputs used in valuation techniques may be difficult or the price or input may be too regularly unavailable to determine the selling price. Under these circumstances, an adjustment may be necessary to reflect the probability that market participants might adopt different values for the same inputs when evaluating the financial instrument’s fair value.
The DVA is symmetrical to the CVA and represents the expected loss, from the counterparty’s perspective, on liability valuations of derivative financial instruments. It reflects the impact of Natixis’ credit quality on the valuation of these instruments. The adjustment is made by observing credit spreads on a sample of comparable entities, taking into account the liquidity of Natixis’ CDS spread over the period. The funding valuation adjustment (FVA) is taken into account in the DVA calculation.
The calculation of fair value is subject to control procedures aimed at verifying that fair values are determined or validated by an independent function.
The factors taken into account include the following: the origin of the external source (stock market pages, contenta contribution services, etc.); the consistency of the various sources;a the frequency at which the data are updated;a the representative nature of inputs based on recent marketa transactions.
For financial reporting purposes, IFRS 13 requires fair value measurements applied to financial and non-financial instruments to be allocated to one of three fair value levels: Level 1: Fair value measurement using prices quoted on a) liquid markets
Level 2 fair value comprises instruments other than those mentioned in Level 1 fair value and instruments measured using a valuation technique incorporating inputs that are either directly observable (prices) or indirectly observable (price derivatives) through to maturity. This mainly includes: Simple instruments Most over-the-counter derivatives, swaps, credit derivatives, forward rate agreements, caps, floors and plain vanilla options are traded in active markets, i.e. liquid markets in which trades occur regularly.
Instruments measured using level 2 inputs also include: securities that are less liquid than those classified as Level 1,a whose fair value is determined based on external prices put forward by a reasonable number of active market makers and which are regularly observable without necessarily being directly executable (prices mainly taken from contribution and consensus databases); where these criteria are not met, the securities are classified as Level 3 fair value; securities not quoted on an active market whose fair value isa determined based on observable market date. E.g. use of market data published by listed peer companies or the multiple method from techniques commonly used by market participants; Greek sovereign securities, whose fair value was recordeda under Level 2 given the wide bid-ask price spread on market prices; shares of UCITS whose NAV is not determined and publisheda on a daily basis, but are subject to regular reporting or offer observable data from recent transactions; debt issues measured at fair value through profit and loss. Thea valuation of the “issuer credit risk” component is based on the discounted cash-flow method, using inputs such as yield curves, revaluation spreads, etc. For each issue, this valuation represents the product of its remaining notional amount and its sensitivity, taking into account the existence of calls, and based on the difference between the revaluation spread (based on BPCE’s cash reoffer curve at December 31, 2017, as on previous reporting dates) and the average issue spread. Changes in the issuer spread are generally not material for issues with an initial maturity of less than one year.
FINANCIAL DATA Consolidated financial statements and notes 235Natixis Registration Document 2017
The hybrid local volatility combined with H&W1F consists of combining the local volatility model described above with a one-factor Hull & White model, described below (see fixed-income products).
Currency products: currency products generally have specifica characteristics which justify the choice of model.
The main models used to value and manage currency products are local volatility and stochastic models, as well as the hybrid models combining an underlying currency model with two one-factor Hull & White models to understand fixed-income factors.
Inputs relating to all such Level 2 instruments were demonstrated to be observable and documented. From a methodology perspective, observability is based on four inseparable criteria: inputs are derived from external sources (primarily aa recognized contributor, for example); they are updated periodically;a they are representative of recent transactions;a their characteristics are identical to the characteristics of thea transaction. If necessary, a proxy may be used, provided that the relevance of such an arrangement is demonstrated and documented.
Helvetix derivatives Strip of long-term options, Strip of quanto options, Strip of digital options
Main types of products comprising Level 3 within the instrument class Valuation techniques used Main unobservable data
Hybrid model coupling an equity diffusion, an FX diffusion and a fixed income diffusion
As all transactions including this kind of data are back-to-back derivatives, this item, which justifies the level-3 classification, is (a) fully hedged.
Pursuant to this procedure, multi-underlying equity products with residual maturity of between four and five years were transferred to Level 3 of the fair value hierarchy during 2016 (see Note 6.7.5.2).
The method used for determining provisions for contracts with CDPCs (Credit Derivatives Product Companies) was refined by applying a transparency-based approach to the underlying assets, based on an estimate of exposure at the time of default, with the PD and LGD based on the tranche’s maturity. A stress factor of 1.2 was applied to the probabilities of default thus determined for the underlyings, based on a recovery rate of 27%. Counterparties are associated with a probability of default whenever the losses resulting from the calculation exceed the CDPC’s net available assets.
The section below describes the underlying principles used to value assets resulting from securitization transactions for which no market prices could be identified and which were therefore measured using valuation models: CLOs At December 31, 2017, Natixis no longer held any CLO positions valued using a scoring model. This scoring model defining the level of risk associated with certain structures was applied based on a series of criteria.
IFRS 13 requires disclosure in the notes to the financial statements of the fair value, as well as the associated fair value hierarchy, of all financial instruments carried at amortized cost, including loans. The valuation methods used to determine the fair value disclosed in the notes to the financial statements are described below.
The majority of Natixis’ loans are variable-rate loans, and their fair value is determined on the basis of discounted future cash flows. The discount rate applied for a given loan is the rate at which Natixis would grant a loan with similar characteristics to a similar counterparty at the reporting date. As these are primarily variable-rate loans, the contractual rate is adjusted according to the trend in market lending rates and in counterparty risk.
Instead, the premium is initially recognized on the accruals line and taken to income over the same period, in the same amount and on the same line as: reversals of provisions for impairment (in Provision for credita losses); the deferred recognition of the discount (under net revenues)a arising on October 1, 2008 on assets reclassified within “Loans and receivables” at that date pursuant to the amendment to IAS 39 and IFRS 7 published on October 13, 2008.
At December 31, 2017 (as was the case at December 31, 2016), the financial guarantee now has almost no impact in accounting and prudential terms, as the positions which it backed have almost all been sold or closed.
On the first-time adoption of IFRS, property, plant and equipment and investment property were maintained at historical cost as permitted by the options available under IFRS 1, except for property held by insurance companies which is carried at fair value through profit or loss.
Fair value is obtained using a multi-criteria approach based on the capitalization of rents at the market rate combined with a comparison with market transactions.
Assets are tested for impairment whenever there is objective evidence that they may be impaired and at least annually in the case of intangible assets with an indefinite useful life. Natixis considers whether there is any evidence of impairment at each reporting date. When any such evidence exists, the recoverable amount of the individual asset is estimated wherever possible; otherwise the recoverable amount of the CGU to which the asset belongs. The recoverable amount is the higher of fair value less selling costs and value in use, which is the present value of future cash flows expected to be derived from continuing use of the asset or cash-generating unit. If the recoverable amount of the asset or CGU is lower than its book value, an impairment loss is recognized in income under “Depreciation, amortization and impairment of property, plant and equipment and intangible assets”.
A sale is highly likely if: a plan to sell the asset (or group of assets) involving activea marketing is made by management; a non-binding offer has been submitted by at least onea potential buyer; it is unlikely that significant changes will be made to the plan ora that it will be withdrawn.
If the disposal has not taken place within twelve months of classification in “Non-current assets held for sale”, the asset ceases to be classified in this category, barring special circumstances independent of Natixis’ control.
A discontinued operation is a clearly identifiable component of an entity that either has been disposed of, or is classified as held for sale, and: represents a separate major line of business or geographica area of operations; is part of a single coordinated plan to dispose of a separatea major line of business or geographic area of operations; or is a subsidiary acquired exclusively with a view to resale.a
Transactions on derivatives and repurchase agreements carried out with clearing houses, whose operating principles meet the two criteria mentioned above, are offset in the balance sheet (see Note 6.3).
In 2016, Coface booked a provision for restructuring in respect of the workforce adaptation plan. This plan included 148 early retirements and voluntary redundancies and mainly affected entities located in France and Germany. The residual amount of the provision for this plan at December 31, 2017 is stated in Noted 6.16.2.
Short-term employee benefits are recognized as an expense in the period in which the employee provides the service in exchange for said benefits.
Deeply subordinated notes and preference shares area classified in equity in light of the 2009 renegotiation of a clause making the payment of interest non-optional in the event of positive consolidated income and which has since become discretionary; The change over the fiscal year is presented in Note 6.17 “Changes in subordinated debt over the period”, and in Note 12 “Capital management”.
Stock options offered to employees under the Employee Savings Plan, with a discount compared to the average market price for a given period (called the reference price), are encumbered with a lock-up period of five years. The advantage granted is measured as the difference between the fair value of the acquired share, taking into account the lock-up condition and the purchase price paid by the employee on the subscription date, multiplied by the number of shares subscribed.
In accordance with the principles set out in Directive 2013/36/EU, known as “CRD IV”, and the Decree of November 3, 2014 and according to the criteria determined by the European Banking Authority (EBA) in its regulatory technical standard published on December 16, 2013 and approved by the European Commission in Commission Delegated Regulation (EU) No. 604/2014 of March 4, 2014, Natixis has set up a deferred variable compensation plan applicable to the so-called “regulated” categories of staff and to a certain number of employees not covered by the provisions of the Decree of November 3, 2014. Some plans are settled in Natixis shares, while others are settled in cash indexed to the Natixis share price.
Cash-settled employee retention and performance plans indexed to the value of the Natixis share: The accounting treatment applicable to cash-settled share-based payments is governed by IFRS 2 “Share-based payment”.
period. The remeasurement of the liability at the reporting date takes into account any changes in the value of the underlying shares, as well as whether or not the presence conditions and performance criteria have been met.
Treasury share derivatives are recognized differently depending on how they are unwound: as equity instruments, if they are unwound by trading a fixeda number of treasury shares for a fixed amount of cash or another financial asset, and if this trade is the only possible unwinding method. In such case, the instruments are not subsequently revalued; as derivatives, if they are unwound via a net cash settlement ora a net treasury shares settlement. In such case, the fair value changes in the instruments are recorded in the income statement.
Deferred tax assets are only recognized at the reporting date if the tax entity concerned is likely to recover tax savings over a fixed time period (10 years maximum). These savings will be realized by the deduction of temporary differences or tax loss carryforwards from estimated future taxable income within that time period.
The tax rate applied to deferred tax assets in France takes into account the tax cuts set out under the 2017 and 2018 Finance Acts. These acts provide for a gradual reduction of corporate tax, which (excluding the impact of the 3.3% social security contribution) will fall to 28% in 2020, 26.5% in 2021 and 25% in 2022 and thereafter.
“Operating expenses,” since Natixis considers that its calculation is not based on net income.
Subsequently, financial guarantees are stated at the higher of: the amount initially recognized upon inception less, wherea appropriate, the amount of amortization recorded in line with the principles outlined in IAS 18 “Revenue”. This amortization represents the deferred recognition of the fees received over the period covered by the guarantee; and the value determined under IAS 37 “Provisions, Contingenta Liabilities and Contingent Assets”, which is the amount that the entity would normally pay to settle the obligation or to transfer it to a third party.
There are no IFRS standards prescribing the accounting treatment of financial guarantees received. In the absence of specific guidance, the accounting treatment applied must be determined by analogy with the accounting treatment prescribed by other standards in similar situations. Accordingly, guarantees received meeting the definition of a financial guarantee for an issuer are accounted for in accordance with: IAS 39, for guarantees received in respect of financiala instruments; IAS 37, for guarantees received in respect of liabilities fallinga within the scope of IAS 37.
The procedure for setting up the deposit and resolution guarantee fund was changed by a decree dated October 27, 2015. Contributions made to the deposit and resolution guarantee fund may be paid in the form of partner or association certificates and cash security deposits (guarantee of irrevocable commitment) recognized as assets on the balance sheet and contributions (which are non-refundable in the event of a voluntary withdrawal of approval to operate) recorded in income as “Taxes and regulatory contributions” among other operating expenses (see Note 7.6).
All goodwill is assigned to a CGU so that it may be tested for impairment. The tests conducted by Natixis consist in comparing the carrying amount of each CGU (including goodwill) with its recoverable amount. Where the recoverable amount equals the value in use, it is determined by discounting annual free cash flows to infinity (see Note 2.5). Use of the discounted cash flow method involves: estimating future cash flows. Natixis has based thesea estimates on forecasts included in its business units’ medium-term plans spanning five years; projecting cash flows for the last year of the plan to perpetuity,a at a rate reflecting the expected annual growth rate; discounting cash flows at a specific rate for each CGU.a
Natixis calls on independent actuaries to calculate its principal employee benefits. These commitments are determined using assumptions such as the salary growth rate, discount rates and rates of return on plan assets (see Note 11.2.3). These discount rates and rates of return are based on observed market rates at the end of each calculation period (e.g. the yield curve on AA Corporate bonds for discount rates). When applied to long-term benefit obligations, these rates introduce uncertainty into the valuations.
To this end, Natixis prepares tax business plans based on the medium-term plans for the business lines.
Average number of shares used to calculate earnings/(loss) per share 3,135,991,405 3,130,758,676
Average number of treasury shares issued and outstanding over the period 1,320,310 2,175,601
Number of potential dilutive shares resulting from stock option and free share plans (b) 6,080,983 3,539,546
Average number of shares used to calculate diluted earnings/(loss) per share 3,142,072,388 3,134,298,222
The difference between net earnings/(loss) attributable to the Group and net income/(loss) attributable to shareholders corresponds to the interest (a) generated on deeply subordinated notes and on preference shares, i.e. -€94 million at December 31, 2017 and -€78 million at December 31, 2016; This number of shares refers to the shares granted under the 2016 and 2017 performance-related free share plans (PAGA), the 2016 and 2017 (b) Long Term Incentive Plans (LTIP) and the 2013 conditional share award plan (PACA).
Financial assets and liabilities at fair 6.1 value through profit and loss
Derivative instruments not eligible for hedge accounting (b) 6.1.3 60,228 69,754
Securities at fair value through profit and loss 6.1.1.2 63,358 61,633
of which €22,733 million for insurance activities at December 31, 2017, and €17,325 million at December 31, 2016.(c)
Exposure to credit risk represents a significant share of the fair value of loans and receivables designated at fair value through profit or loss shown on the balance sheet.
Conditions for classification of financial assets under 6.1.1.2 the fair value option through profit or loss
Cumulative changes in the fair value of financial liabilities, designated at fair value through profit or loss, attributable to credit risk (b) Book value
Balances relating to the early repayment of Natixis issues recognized in shareholders’ equity over the 2017 fiscal year totaled €4.5 million, versus (a) €12.4 million over the 2016 fiscal year.
The fair value, determined using the method described in Note 5.6, recorded in respect of internal credit risk on Natixis issues totaled (b) €274.8 million at December 31, 2017 versus €95.1 million at December 31, 2016. Besides changes in the outstanding amount, this difference reflects changes in the Natixis spread since the close of the previous year’s accounts.
Other liabilities primarily comprise a portfolio of structured repos managed according to a dynamic approach, as well as vanilla repos with (a) short-term maturities.
The use of the fair value option is considered to provide more pertinent information in two situations: automatically offset changes in the fair value of the hedging derivative; where there is an accounting mismatch between economicallya linked assets and liabilities. In particular, the fair value option is used when hedge accounting conditions are not met: in such cases, changes in the fair value of the hedged item where a portfolio of financial assets and liabilities is manageda and recognized at fair value as part of a documented policy of asset and liability management.
FINANCIAL DATA Consolidated financial statements and notes 251Natixis Registration Document 2017
Cash flow hedging is mainly used by Natixis and the leasing business as a structural hedge against interest rate risk.
Credit derivatives 128 notional amounts of derivative financial instruments are merely an indication of the volume of the Group’s business on the financial instruments The market, and do not reflect the market risks associated with such instruments.
The gross offset amounts reflect derivatives and repurchase agreements with clearing houses for which the criteria set out in IAS 32 are met: for OTC derivatives, the information is presented ina consideration of the effects of the currency offset between asset valuations and liability valuations of the derivatives; for asset switches that have similar nominal amounts anda identical maturities and currencies, Natixis presents these transactions as a single financial asset or liability; for listed derivatives, the positions recorded under thea respective asset and liability items for: index options and futures options are offset by maturity andj by currency, equity options are offset by ISIN code and maturity date;j as regards repurchase agreements, Natixis records on itsa balance sheet the net value of repurchase and reverse repurchase agreements that: are entered into with the same clearing house,j have the same maturity date,j involve the same custodian,j are made in the same currency.j
Financial assets at fair value through profit or loss 103,213 23,536 79,677 116,535 24,130 92,405
Loans and receivables due from banks 3,214 700 2,514 4,236 4,236
Gross amount of financial assets offset or covered by a master netting or similar arrangement.*
The table below shows available-for-sale financial assets by type of instrument (loans outstanding, fixed-income securities, variable-income securities). It discloses the gross value before impairment, the amount of impairment and the net value after impairment.
Available-for-sale financial assets are tested for impairment at the end of each reporting period (i.e. every quarter). When there is objective evidence of impairment and a reduction in fair value has previously been recognized in equity, the aggregate impairment loss is removed from equity and taken to income.
The fair value of loans and receivables due from banks is provided in Note 6.7.6.
Of which €1,296 million for insurance activities at December 31, 2017, and €1,152 million at December 31, 2016.(a)
The table below shows, inter alia, the book value of: the underlying assets of the covered bond issues; financial instruments (securities and receivables) deposited with central banks and assignable as collateral to guarantee refinancing operations at any time.
FINANCIAL DATA Consolidated financial statements and notes 257Natixis Registration Document 2017
Financial assets at fair value through profit or loss 1,656 2,889
Fully derecognized transferred financial assets 6.7.2.2 for which continuing involvement is maintained
Financial assets received as security 6.7.3 and able to be sold or reused as security
This heading covers financial assets received as security under financial guarantee agreements with the right to reuse the assets in the absence of any default on the part of the owner of the guarantee.
The table below provides, by type of financial instrument, a breakdown of the age of financial assets which were past due but not impaired at the reporting date. It does not take into account any portfolio impairment losses which may be assessed.
The data reported in 2016 includes late payments identified by the factoring entities amounting to €1,514 million. These data refer to all outstandings rather than the unpaid amount alone.
Fair value of financial assets carried at fair value in the balance sheet6.7.5
Financial assets held for trading 113,615 46,332 62,485 4,798 118,741 40,575 73,616 4,549
Derivatives not eligible for hedge accounting (positive fair value) 60,228 677 56,566 2,985 69,754 922 65,883 2,949
Other financial assets held for trading 3,006 1,344 1,662 2,871 1,527 1,344
Available-for-sale financial assets 57,885 49,376 4,527 3,982 54,990 46,600 4,428 3,962
Other available-for-sale securities 57,222 49,285 4,527 3,410 54,010 46,500 4,428 3,081
Financial assets at fair value measured using level 3 of the fair value hierarchy6.7.5.1
Other financial assets held for trading 1,344 7 23 Financial assets designated under the fair value option through profit or loss 2,891 72 19 Fixed-income securities under the fair value option through profit or loss 1,524 7 10 Variable-income securities under the fair value option through profit or loss 756 46 (15) Other financial assets under the fair value option through profit or loss 611 19 24 Hedging derivatives (0) Available-for-sale financial assets 3,962 1 94 187 Available-for-sale securities - Equity investments 879 (4) 97 (20) Other available-for-sale securities 3,081 6 (3) 208
TOTAL FINANCIAL ASSETS RECORDED AT FAIR VALUE 11,401 219 13 187
FINANCIAL DATA Consolidated financial statements and notes 261Natixis Registration Document 2017
Transactions carried out in the period Reclassifications in the period Change in consolidation scope
Financial assets at fair value through profit and loss - Trading 3,933 875 (382) Fixed-income securities held for trading 343 1 5 Derivative instruments not eligible for hedge accounting (positive fair value) 2,856 869 (390)
FINANCIAL DATA Consolidated financial statements and notes 263Natixis Registration Document 2017
Change in consolidation scope Translation adjustments Level 3 closing balance 12.31.2016
Sensitivity analysis of the fair value of financial instruments measured according to Level 3 – Assets and Liabilities Sensitivity of the fair value of financial instruments measured using unobservable inputs was estimated at December 31, 2017. With the aid of probable assumptions, this sensitivity was used to estimate the impacts of market fluctuations in uncertain economic environments. This estimate was performed using: income, currency and equity instruments. The resulting sensitivity was €17.1 million; adjustments to a standardized(1) variation in unobservablea inputs related to assumptions of additional valuation for fixed a flat variation of:a
+/-50 basis points applied to the margin used for thej discounted cash flow expected on TruPS CDOs.
Securities under the fair value option through profit or loss 2 0 o/w fixed-income securities 2 0 o/w variable-income securities 0
Other financial assets under the fair value option through profit or loss
Other available-for-sale financial assets 6 i.e. the standard deviation of consensus prices used to measure the inputs.(1)
FINANCIAL DATA Consolidated financial statements and notes 265Natixis Registration Document 2017
Loans and receivables due from banks 45,289 45,851 0 44,532 1,319
Total deferred tax recognized 965 1,223 o/w: deferred tax assets 1,585 1,908 deferred tax liabilities (620) (685)
Breakdown of deferred tax assets on losses by geographic area: (in millions of euros) 12.31.2017 12.31.2016
The table below shows the deferred day-one margin on instruments priced using valuation techniques drawing on non-observable inputs or market models not commonly used classified as Level 3 in the fair value hierarchy: at the start of the period, at the end of the period, and changes during the period.
Changes in property, plant and equipment and intangible assets over the period6.10.1
The fair value of investment property, for which the valuation techniques are described in Notes 5.6 and 5.8, is classified in Level 3 of the fair value hierarchy of IFRS 13.
Including €3.4 million in goodwill recorded on the acquisition of Natixis Capital Partners Spain (previously named 360 Corporate), which provides (a) M&A advisory services, and €72.4 million in goodwill recorded on the acquisition of PJSC, specialized in M&A and restructuring advisory services; At December 31, 2016 an impairment charge was recorded on goodwill on Coface, in the amount of €75 million (see Note 2.5). The (b) €281.9 million in goodwill recorded at December 31, 2016 includes €116.5 million in group share, and €165.4 million for non-controlling interests.
Goodwill on entities consolidated using the equity method amounted to €7.8 million at December 31, 2016.
At December 31, 2016, goodwill of €23.2 million carried by Ellisphère was reclassified as Non-current assets held for sale.
The fair value of amounts due to banks is presented in Note 6.19.
Reversal (surplus provisions) (b) Translation adjustments Changes in scope Other (c) 12.31.2017
Provisions for impairment deducted from assets 3,285 678 (327) (488) (98) 27 56 3,132
Provisions for loans and receivables 2,185 462 (324) (316) (82) 27 91 2,044
Of which a €3.4 million change in actuarial assumptions for employee benefits recorded directly in other comprehensive income with no (c) recycling.
Impairment and amortization of property, plant and equipment and intangible assets (0) 1 1
Reversal (utilized provisions) (a) Reversal (surplus provisions) (b) Translation adjustments Changes in scope Other (c) 12.31.2016
Impairment losses taken on available-for-sale financial assets 538 63 (41) (1) 1 3 563
Of which €122 million in reversals used following disposals of receivables made during the year.(a)
Of which €30 million in reversals not used following disposals of receivables made during the year.(b)
of which €30.6 million of provisions for restructuring costs at December 31, 2017 in respect of the Coface plan.(c)
of which €5.5 million at December 31, 2016 in respect of the workforce adjustment plan completed in 2015.(b)
of which €42 million of provisions for restructuring costs at December 31, 2016 in respect of the Coface plan (see Note 5.14).(c)
Subordinated debt differs from advances and bonds issued in that it is repaid after all senior and unsecured creditors, but before the repayment of participating loans and securities and deeply subordinated notes. Subordinated debt is valued at amortized cost.
(in millions of euros) 12.31.2016 Issues Redemptions(a) Translation adjustments Changes in scope Other(b) 12.31.2017
(in millions of euros) 12.31.2015 Issues(a) Redemptions(b) Translation adjustments Changes in scope(c) Other 12.31.2016
Issues concerned a loan of €300 million from BPCE to Natixis;(a)
Other changes mainly pertained to the revaluation of debts subject to hedging and variations in intra-group securities held by Natixis Funding for (c) the purposes of market making with respect to Natixis’ debt on the secondary market. This involved the line of participating loans from November 1985 and the DSN issues from July 2003, December 2006 and May 2007
FINANCIAL DATA Consolidated financial statements and notes 279Natixis Registration Document 2017
The fair value of financial liabilities carried at fair value in the balance sheet is broken down according to the hierarchy of inputs used to value the assets, as described in Note 5.6.
Book value Level 1 Level 2 Level 3 Book value Level 1 Level 2 Level 3
Financial liabilities held for trading 85,937 26,340 57,652 1,945 88,787 22,868 65,089 830
Derivative instruments not eligible for hedge accounting (negative fair value) 59,783 590 57,249 1,945 65,285 756 63,700 830
Financial liabilities designated under the fair value option through profit or loss 58,948 2,908 54,571 1,469 57,439 1,170 55,498 771
Other financial liabilities under the fair value option through profit or loss 38,414 2,908 34,409 1,097 38,875 1,170 37,027 678
Financial liabilities at fair value measured using level 3 of the fair value hierarchy6.18.1
Financial liabilities under the fair value option through profit or loss 771 72 (79) Securities under the fair value option through profit or loss 93 (6) (0)
Other financial liabilities under the fair value option through profit or loss 678 78 (79)
Financial liabilities at fair value through profit and loss - Trading 1,560 (27) (409) Securities issued for trading purposes 24 (12)
Financial liabilities at fair value through profit or loss – fair value option 712 72 (48) Securities under the fair value option through profit or loss 36 (6) (1)
Other financial liabilities under the fair value option through profit or loss 676 79 (47)
FINANCIAL DATA Consolidated financial statements and notes 281Natixis Registration Document 2017
Derivative instruments not eligible for hedge accounting (negative fair value) 6 23 1,335 55 o/w interest rate derivatives 30 27 o/w currency derivatives 1,279 2 o/w credit derivatives 1
Other financial liabilities under the fair value option through profit or loss
FINANCIAL DATA Consolidated financial statements and notes 283Natixis Registration Document 2017
The table below presents the balances of financial assets and liabilities by contractual maturity in the balance sheet. Variable-income assets, derivative financial instruments for trading and hedging purposes as well as revaluations of components hedged or unhedged by financial assets and liabilities are considered as having a “perpetual” maturity. Likewise, delinquencies and non-performing loans are deemed to have a “perpetual” maturity.
Assets at fair value through profit and loss - excluding trading derivatives 17 12 10 5 8 72 124
Amounts due to credit institutions 35 18 20 25 7 0 104 o/w guaranteed debts
Interest accrued on impaired loans and receivables (incl. restructured items) 34 0 34 17 0 17
Fiduciary or similar fees and commissions are those that result in assets being held or invested on behalf of individual customers, pension schemes or other institutions. In particular, trust transactions cover asset management and custody activities performed on behalf of third parties.
Fees and commissions that form an integral part of the effective yield on an instrument, such as fees on financing commitments given or loan set-up fees, are recognized and amortized as an adjustment to the effective interest rate over the estimated term of the applicable loan. These fees and commissions are recognized as interest income rather than fee and commission income.
The premium, which amounted to €6.4 million at December 31, 2017 versus €7.4 million at December 31, 2016, paid to BPCE in respect of the (a) guarantee given against the former GAPC hive-off assets classified as “Loans and receivables” and “Available-for-sale financial assets” is recognized in expenses pro rata to the write-back of the provisions and the discounts recognized in respect of reclassifications during the period.
The €0.4 million charge for pro rating the premium at December 31, 2017 (€75 million in 2016) is recognized under “Guarantee commissions” in 2017 and under “Provision for credit losses” in 2016.
Of which -€765 million in net fees in December 2017 versus -€604 million in December 2016 for insurance activities.(b)
Net gains/(losses) on financial assets and liabilities excluding hedging derivatives 2,783 2,115
Insofar as the expenses and income presented in the income statement are classified by type and not by function, the net income of activities on (c) financial instruments at fair value through profit and loss should be considered as a whole. The results presented above do not include the refinancing cost of these financial instruments, which is recorded in interest income or expenses.
In addition, at December 31, 2017, Natixis disposed of its 15% stake in CACEIS. Gains or losses on disposals recognized under “Net gains or (a) losses on available-for-sale financial assets” stood at €74 million. The value entered directly as equity at the beginning of the period and transferred to the income statement under “Net gains or losses on available-for-sale financial assets” was €31 million.
This item also includes income and expenses relating to insurance and reinsurance activities, in particular life insurance premium income, paid benefits and claims, and changes in insurance liabilities.
Net charge to/reversal of insurance companies’ technical reserves (5,175) (5,175) (14,547) (14,547)
Other related income and expenses(b) 7.5.3 456 (302) 154 521 (355) 166
The share in insurance income and expenses relating to the partnership with CNP Assurances regarding receivables arising on reinsurance (a) activities linked to reinsured policies amounted to €11.9 billion at December 31, 2016.
Including an expense of €25 million recorded in respect of a legal dispute concerning formula-based investment funds, taking the total amount (b) recognized for this dispute to €35 million at December 31, 2017.
Gains or losses on disposals 34 (61) (26) 15 (43) (28)
Other related income and expenses 166 (145) 20 170 (159) 11
FINANCIAL DATA Consolidated financial statements and notes 289Natixis Registration Document 2017
At December 31, 2016, -€69 million was recognized in relation to the provision for a legal dispute with SWL (Société Wallone du Logement).(b)
Operating expenses mainly comprise payroll costs, including wages and salaries net of rebilled expenses, social security expenses and employee benefits such as pensions (defined benefit plans), and expenses relating to share-based payment recognized in accordance with IFRS 2. The details of these expenses are provided in Note 11.
Of which €8.9 million in respect of the Competitiveness and Employment Tax Credit at December 31, 2017 versus €7.6 million at December 31, 2016.(a)
“Impairment of individual loans” includes impairment recognized against securities classified as “Loans and receivables” and fixed-income securities classified within available-for-sale financial assets.
At December 31, 2016, disposals mainly related to, in the Investment Solutions Division, Capital Growth Management for +€17.5 million, Reich (c) and Tang for €4.8 million, Snyder for +€8.3 million, as well as Kobrick for -€0.6 million and in terms of Corporate Data Solutions, the disposals of HCP NA LLC and Altus for +€10.9 million and Graydon for +€6.9 million.
FINANCIAL DATA Consolidated financial statements and notes 291Natixis Registration Document 2017
+ Impairment of goodwill 0 75 - Share in income of associates (26) (13)
= Consolidated net income/(loss) before tax, goodwill amortization and share in income of associates 2,624 2,348
+ Losses for the period not recognized for deferred tax purposes (16) (22)
The main permanent differences consist of capital gains taxed under the long-term scheme and tax-exempt earnings of foreign subsidiaries. (a) Permanent differences also included the impacts of the SBT and SRF, both of which are non-deductible expenses.
Of which: -€237.6 million for the derecognition of the previous tax loss on the tax consolidation group in France mainly related to the decrease in (b) the corporate tax rate as of 2020 (derecognition of -€158 million at December 31, 2016), and +€104.7 million in income on deferred tax assets on US platforms in light of the change in the tax rates applied to deferred tax assets due to the tax cuts adopted.
In 2016, including income relating to Natixis’ claim on the taxation in previous fiscal years of dividends and capital gains on the disposal of CCIs as (c) well as the impact of tax audits.
Of which +€105.6 million in income from the refund of the 3% tax on dividends paid, further to the decision of the Constitutional Council of (e) October 6, 2017 versus an expense of -€21 million at December 31, 2016.
Natixis’ German subsidiary is currently subject to an audit covering the 2009 to 2014 fiscal years. A reassessment notice regarding the refund of withholding tax in respect of dividends and covering the 2009 fiscal year was received in December 2016. Natixis Germany intends to contest the proposed adjustment.
Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss (185) (156)
Items recorded definitively in other items of comprehensive income 4 (16) (12) (53) 17 (36)
Revaluation of own credit risk on financial liabilities designated at fair value through profit or loss (185) 49 (137) (156) 54 (103)
Shares in unrealized or deferred gains/(losses) of associates (6) 3 (3) 4 (1) 3
TOTAL CHANGES IN UNREALIZED OR DEFERRED GAINS OR LOSSES (742) 14 (728) 247 (37) 210
Based on this new organization, Management monitors divisional performance, draws up business plans and manages the business from an operational perspective. In accordance with IFRS 8 “Operating Segments”, this is the segmentation used by Natixis to define its operating segments.
Asset & Wealth Management9.1 of these asset managers have forged a strong reputation, such as Loomis Sayles, Harris Associates, AEW, DNCA and Natixis Asset Management.
Asset Management: asset management activities area combined within Natixis Investment Managers. They cover all asset categories and are carried out mainly in the US and France. These activities are performed by autonomous entities (specialized asset management companies and specialized distribution units) coordinated by a holding company that ensures the organization’s consistency by overseeing its strategic direction. These companies are thus able to focus on their core business and on achieving robust performance, while retaining the option of developing their own institutional clientele and drawing on the business line’s other support functions, based on appropriate economic models. A number
Corporate & Investment Banking advises businesses, institutional investors, insurance companies, banks and public sector entities and offers them a diversified line of customized financing solutions as well as access to the capital markets.
Leasing: this business line provides financing solutions for reala estate and non-real estate assets under finance leases or other long-term leasing arrangements; Employee Savings Schemes this business line offers aa comprehensive range of B2B employee benefits planning products based on employee savings (administration of employee accounts, fund administration and accounting) and employment services vouchers; Securities Services: this business line offers back and middlea office services for retail securities custody (account administration, back office outsourcing, office services, depositary control) for the BPCE networks and external clients; Film Industry Financing: this business line is operated viaa Coficiné, a subsidiary specializing in structured loans for film and audiovisual activities in France and Europe.
It also records income on the bank’s portfolio of equity investments not belonging to a division. As such, Coface’s non-core activities (service activities mainly) were grouped under Corporate Data Solutions at the beginning of 2013. As of December 31, 2017, following the disposal of Ellisphère and IJCOF Corporate in 2017, Corporate Data Solutions no longer held any entities.
This information is determined based on the accounting principles applied in accordance with IFRS as adopted by the European Union at December 31, 2017.
- Net revenues: €2,972 million; - Expenses: -€2,034 million; - Gross operating income: €938 million; - Provision for credit losses: €0 million; - Pre-tax profit: €949 million.
Variation between December 31, 2016 and December 31, 2016 (pro forma figures).(c)
- Net revenues: €90 million ; - Expenses: -€61 million; - Gross operating income: €29 million; - Provision for credit losses: -€0.2 million; - Pre-tax profit: 28.8 million.
Including €1,731 million excluding net revenues of the XVA desks, which break down into €1,238 million in net revenues for FICT and (a) €493 million for Equities.
- Net revenues: €2,547 million; - Expenses: -€1,830 million; - Gross operating income: €717 million; - Provision for credit losses: €0 million; - Pre-tax profit: €725 million.
Assets at fair value through profit or loss 1,599 158,973 22,628 146 1,152 184,497
Assets at fair value through profit or loss 1,753 167,368 17,253 0 73 1,182 187,628
Financial liabilities at fair value through profit or loss 85 144,495 1,462 0 8 177 146,226
Loans and receivables due from banks 36,010 1,575 401 423 534 19,840 58,783
Financial liabilities at fair value through profit or loss 144,495 1,547 0 8 3 174 146,226
Assets at fair value through profit or loss 170,947 7,779 2,127 3,567 77 184,497
Net income for the period (group share) 639 153 483 6 93 1,374
FINANCIAL DATA Consolidated financial statements and notes 301Natixis Registration Document 2017
The following table sets out the exposure of all of Natixis’ financial assets to credit risk. This exposure does not take into account guarantees, sureties, credit default swaps, collateral on OTC forward financial instruments, the impact of netting agreements and other credit enhancements. It corresponds to the net value of the financial assets on the balance sheet, after taking all impairments into account (individually or collectively assessed).
Financial assets at fair value through profit or loss (excluding variable-income securities) 131,619 0 0 131,619 142,499
Available-for-sale financial assets (excluding variable-income securities) 49,692 83 (57) 49,718 48,140
Loans and receivables due from banks 45,295 63 (69)* 45,289 58,783
The reclassification of consolidated accounting volumes as gross exposure and exposure at default with respect to prudential credit risk is presented in Section [3.4] of Chapter [3], “Risk and Capital Adequacy”.
TOTAL EXPSOURE AND IMPACT OF GUARANTEES 207,953 4,872 (2,064) 210,761 1,330 48,868 214,269 5,110 (2,272) 217,106 1,667 51,513
TOTAL EXPSOURE AND IMPACT OF GUARANTEES 16,380 33,818 50,198 13,284 39,896 53,180
Africa and the Middle East 469 2,984 3,454 180 39 220 518 4,412 4,930 187 64 251
FINANCIAL DATA Consolidated financial statements and notes 303Natixis Registration Document 2017
Market risk, overall interest rate risk, liquidity risk and structural foreign exchange 10.3 risk
Payroll costs totaled €3,946 million at December 31, 2017 versus €3,726 million at December 31, 2016.
This item includes wages and salaries paid within twelve months of the end of the reporting period in which the related services were rendered, employee incentives and profit-sharing, meeting the definition of short-term benefits under IAS 19R “Employee Benefits”. In accordance with this standard, short-term benefits
Regarding the plan approved by the Board of Directors on February 13, 2018, as these allocations had not yet formally been carried out at the reporting date, these expenses have been estimated using best available estimates of inputs at the reporting date.
Year of plan Grant date Initial number of units granted* Acquisition dates Number of units acquired by beneficiaries Fair value of the indexed cash unit at the valuation date (in euros)
The expected number of units at the vesting date is funded by equity swaps.*
The expense associated with the short-term plan is fully recognized in the 2017 financial statements in the amount of €42 million versus €38 million at December 31, 2016.
Expense for 2016 (in millions of euros)Expenses (in millions of euros) Plans settled in shares
Deferred retention and performance bonuses paid in cash are probability of these conditions being met. The expense is awarded to some staff. These bonuses are subject to presence recognized over the vesting period. The amount recognized in and performance criteria. In terms of accounting treatment, they respect of fiscal year 2017 was: are recorded under “Other long-term employee benefits”. The estimated expense is based on an actuarial estimate of the
Pension plans for which employees can voluntarily opt are operated by certain Natixis entities and are also classified as defined-contribution plans. These entities have a single contribution obligation (“PERCO” contribution).
FINANCIAL DATA Consolidated financial statements and notes 307Natixis Registration Document 2017
Supplementary pension benefits and other End-of-career awards Long-service awards Other Total
Effect of ceiling on assets 8 0 0 0 8 6 0 0 0 6
Separate asset components are for the most part segregated in the balance sheets of Natixis insurance subsidiaries (ABP Life Insurance),(a) hedging the benefit liabilities of other entities within the Natixis group of consolidated companies which were transferred to hedge the post-employment benefits of a few categories of employees.
Actuarial liabilities at start of period 636 238 60 125 1,059 596 218 55 116 985 o/w amounts paid out in respect of plan liquidation (12) (5) 0 0 (17) (13) 0 0 (21) (34)
Revaluation adjustments – past-experience effect (2) 2 0 0 (0) 1 (3) 0 0 (2)
Changes recognized directly in other comprehensive income with no recycling 7 1 8 9 (0) 8
Revaluation adjustments - Return on assets 7 1 8 9 (0) 8
Fair value of assets at end of period 171 43 214 167 38 205
FINANCIAL DATA Consolidated financial statements and notes 309Natixis Registration Document 2017 d) Composition of plan assets
Total revaluation adjustments at start of period 42 0 42 63 0 63 o/w effect of ceiling on assets (6) 0 (6) (13) 0 (13)
o/w effect of ceiling on plan assets (1) 0 (1) 7 0 7
Revaluation adjustments over the period o/w effect of ceiling on plan assets 7 1 8 42 1 43
Total revaluation adjustments at end of period o/w effect of ceiling on assets 51 2 54 44 1 45 f) Analysis of expenses for the period The annual payroll costs recognized in respect of defined-benefit plans consist of: the costs of services rendered, representing rights vested bya beneficiaries over the period; past service costs, arising from possible plan changes ora curtailments as well as the effects of possible plan settlements; the net interest cost reflecting the impact of unwinding thea discount on the net obligation.
Obligations in respect of other long-term employee benefits are accounted for using the same actuarial valuation method as that used for post-employment defined-benefit obligations, except for revaluation adjustments, which are taken directly to profit or loss.
Of which €41 million in income recognized as income at December 31, 2017 for plan cuts in response to the new collective agreement on (a) complementary health insurance for employees, as well as a -€7 million expense in additional commitment for end-of-career awards.
-1% change in rate of increase in healthcare costs (1.24)% (4.44)%
+1% change in rate of increase in salaries and income (incl. inflation) 12.19% 12.29% 8.23% 14.00% 12.63% 9.30%
As a reminder, at December 31, 2016, Natixis recorded an immaterial expense for the discount given upon subscription to employee stock options under the Company employee savings plan, measured taking into account the five-year lock-up period applicable to the issued securities.
There was no Company employee savings plan for employees during the 2017 fiscal year.
FINANCIAL DATA Consolidated financial statements and notes 313Natixis Registration Document 2017
Deeply subordinated notes amounted to €2,232 million, compared with €1,611 million at December 31, 2016, an increase of €621 million corresponding to issues and redemptions made during 2017.
Pursuant to this contract, Natixis holds 1,219,389 shares representing €8 million as at December 31, 2017.
A financial guarantee is a contract that requires the issuer to uncertain future event. compensate the holder of the contract for any loss that the
FINANCIAL DATA Consolidated financial statements and notes 315Natixis Registration Document 2017
Real estate assets Non-real estate assets Total Real estate assets Non-real estate assets Total
The main transactions between Natixis and related parties (BPCE and subsidiaries, Banque Populaire group including Banque Populaire banks and their subsidiaries, Caisse d’Epargne group including the Caisses d’Epargne and their subsidiaries and all affiliates consolidated by the equity method) are described below: (in millions of euros)
Financial liabilities at fair value through profit or loss 5,225 731 698 8,534 984 842
Net gains or losses on financial instruments at fair value through profit or loss (215) (28) (29) (587) 314 833
Net gains or losses on available-for-sale financial assets 0 0 2 (0) 0 1
Income and expenses from other activities (34) 13 14 (20) 9 (11)
FINANCIAL DATA Consolidated financial statements and notes 317Natixis Registration Document 2017
Compensation for directors is granted as detailed in the standardized tables compliant with AMF recommendations in Section [2.4] of the registration document.
Laurent Mignon, the Chief Executive Officer, is covered by the mandatory pension plans. He is not covered by the kind of supplementary pension plans described in Article 39 (defined benefit plan) or Article 83 (voluntary defined contribution plan) of the French General Tax Code. In accordance with the commitments made 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.
It should be noted that, at its February 19, 2014 meeting, the Board of Directors approved a change to its agreement on severance payment, and the establishment of a non-compete agreement. These obligations and agreements were submitted to a vote by the shareholders and approved during the Ordinary General Shareholders’ Meeting of May 20, 2014 (fifth resolution). At its February 18, 2015 meeting, the Board of Directors approved the renewal of the severance payment and the non-compete agreement upon the Chief Executive Officer’s reappointment.
Furthermore, in line with the provisions of the Afep-Medef corporate governance code, the right to a benefit is contingent on meeting performance criteria and requirements, such as net income, Group share, ROE and the cost/income ratio reported for the two years prior to leaving the Company. The fulfillment of these criteria will be verified by the Board of Directors.
In accordance with the recommendations of the Afep-Medef code, upon the departure of the Chief Executive Officer, the Board of Directors must make a decision regarding whether to enforce the non-compete clause provided for under this agreement.
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 pay (both fixed and variable).
The following table shows a reconciliation between insurance companies’ financial statements as presented and how they would translate into the banking format. It also shows the consolidated contribution by insurance companies in banking format.
The main reclassifications concern general operating expenses, which are reported by function in the insurance format and by type in the banking format.
As regards net revenues, in the interest of consistency, insurance income and expenses that are similar to banking income and expenses (principally interest and fees and commissions) are reclassified under the corresponding line items in the banking format. Technical reserves and claims expenses are charged to net revenues rather than recognized as provisions for credit losses.
Balance sheet reclassifications are not material. Most of the balance sheet line items specific to insurance companies are shown under “insurance company investments” on the asset side and under “insurance companies’ technical reserves” on the liabilities side. Receivables and related payables, shown under accrued income, prepaid expenses and other assets or deferred income, accrued charges and other liabilities in the insurance format are reclassified in the same lines as the principal in the banking format.
FINANCIAL DATA Consolidated financial statements and notes 319Natixis Registration Document 2017
Capital gains and losses on disposal of investments (net of reversals, write-downs and amortization) 254 277 277 (24) 254
Change in fair value of investments carried at fair value through profit or loss 813 813 813 813
Income and expenses net of reinsurance transfers (22) (22) (22) (22)
Change in fair value of investments carried at fair value through profit or loss 235 235 235 235
Net gains or losses on financial instruments at fair value through profit or loss 896 250
After-tax income from discontinued activities or activities currently being disposed of 0 0
The mandate of Deloitte & Associés was renewed by the shareholders at the General Shareholders’ Meeting of May 2016, for a term of six years ending as of the General Shareholders’ Meeting called to approve the 2021 financial statements.
The mandate of Mazars was renewed by the shareholders at the General Shareholders’ Meeting of May 2012, for a term of six years ending as of the General Shareholders’ Meeting called to approve the 2018 financial statements.
Deloitte & Associés, Mazars and PricewaterhouseCoopers Audit are registered as Statutory Auditors with the “Compagnie Régionale des Commissaires aux Comptes of Versailles” and under the supervision of the “Haut Conseil du Commissariat aux Comptes”.
(in thousands of euros) Amount % Amount % Amount % Amount % Amount % Amount % Amount % Amount %
Independent audit, certification and examination of the separate and consolidated accounts 8,842 69% 7,565 59% 17% 6,823 73% 5,692 63% 20% 3,780 78% 3,067 62% 23% 19,445 61% 16,324 61% 19%
Pursuant the 2016 Barnier reform, “Other procedures and services directly related to the Statutory Auditors’ assignment” as well as “Other services” are included together under “Services other than the certification of accounts” since 12.31.2016.
Tax Services assignments for NIM for €595,000 mainly performed by PwC (€527,000).
Services other than the certification of financial statements mainly included assignments for the move#2018 project relating to BPCE Vie for €669,000 performed by Deloitte, assignments relating to the FRTB project for Natixis Paris for €449,000 performed by Mazars, the BCBS standard 239 project for Natixis Paris for €674,000 by Deloitte, assistance with the ECB bad loans assignment with Natixis Paris for €265,000 by Deloitte, the EMIR project at Natixis Paris for €237,000 by PwC and recurrent
In addition, the fees paid to KPMG totaled €1.7 million for audit and account certification services and €3.3 million for other services.
The Deputy Auditors are: Mireille Berthelot, from BEAS, avenue Charles de Gaullea (92200) Neuilly-sur-Seine for Deloitte; Franck Boyer, Immeuble Exaltis – 61, rue Henri-Régnault –a 92075 La Défense Cedex for Mazars; Jean-Baptiste Deschryver – 63 rue de Villiers 92208a Neuilly-Sur-Seine Cedex, for PricewaterhouseCoopers Audit.
Pursuant to the article referred to above, the table below specifically provides information linked to net revenues, pre-tax profit, income tax and headcount as at December 31, 2017.
FINANCIAL DATA Consolidated financial statements and notes 325Natixis Registration Document 2017
FINANCIAL DATA Consolidated financial statements and notes 329Natixis Registration Document 2017
Net revenues, pre-tax profit, taxes and headcount by country at December 31, 201716.2
(in millions of euros) Profit or loss before taxes, including operating taxes
Peter J. Solomon Securities Company LLC Brokerage FC 51 51 51 51
NATIXIS US MTN PROGRAM LLC Issuing vehicle FC 100 100 100 100
NEXGEN REINSURANCE DESIGNATED ACTIVITY COMPANY* Reinsurance FC 100 100 100 100 Ireland
NATIXIS INVESTMENT MANAGERS AUSTRALIA PTY LIMITED*(y) Retail FC 100 100 100 100 Australia
NATIXIS INVESTMENT MANAGERS INTERNATIONAL, LLC*(y) Retail FC 100 100 100 100
NATIXIS INVESTMENT MANAGERS UK Ltd * (y) Retail FC 100 100 100 100
NATIXIS Investment Managers, Nederlands*(y) Retail FC 100 100 100 100 Netherlands
NATIXIS Investment Managers S.A, Zweignierderlaasung Deutschland*(y) Retail FC 100 100 100 100 Germany
NATIXIS Investment Managers, Sucursal en Espana*(y) Retail FC 100 100 100 100 Spain
COMPAGNIE EUROPEENNE DE GARANTIES ET CAUTIONS Insurance FC 100 100 100 100 France
Credit insurance and related services FC 41 41 41 41 Brazil
Credit insurance and related services FC 41 31 41 31 Brazil
Credit insurance and related services FC 41 41 41 41 Ireland
Credit insurance and related services FC 41 41 41 41 Belgium
Credit insurance and related services FC 41 41 41 41 Luxembourg
COFACE DANMARK - BRANCH (COFACE KREDIT) Insurance FC 41 41 41 41 Denmark
Credit insurance and related services FC 41 41 41 41 Argentina
Credit insurance and related services FC 41 41 41 41 Chile
COFACE POLAND - BRANCH (COFACE AUSTRIA) Insurance FC 41 41 41 41 Poland
COFACE ROMANIA INSURANCE -BRANCH (COFACE AUSTRIA) Insurance FC 41 41 41 41 Romania
COFACE CZECH INSURANCE - BRANCH (COFACE AUSTRIA) Insurance FC 41 41 41 41
COFACE SLOVAKIA INSURANCE - BRANCH (COFACE AUSTRIA) Insurance FC 41 41 41 41 Slovakia
Credit insurance and related services FC 41 41 41 41 Australia
NATIXIS ALTAIR IT SHARED SERVICES Data services FC 100 100 100 100 France
French subsidiaries whose individual prudential oversight is performed based on Group consolidated ratios in accordance with the provisions of ** Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 relative to regulatory requirements applicable to credit institutions and investment firms.
Consolidation and 51%-acquisition of the entity on February 9, 2017. The remaining 49% of the S-Money entity was acquired on October 30, (e) 2017, taking the ownership interest to 100%. The 15% minority interest in Lakooz were bought in the fourth quarter of 2017.
Increase in ownership interest following the buyout of shares from managers who left the structure in the second and third quarter of 2017.(m)
Entity consolidated in the third quarter of 2017 after the percentage interest rose above eligible levels.(n)
Entity consolidated in the third quarter of 2017 as part of implementing Group AEW Europe’s seed money financing mechanism.(q) Entity (p) liquidated in the third quarter of 2017.
Consolidation in the fourth quarter of 2017 after the percentage interest rose above eligible levels.(v)
NGAM (Natixis Global Asset Management) changed its registered company name and the entity is now called NIM (Natixis Investment (y) Managers). Consequently, all the entities bearing the acronym NGAM have changed name.
Entity acquired on October 9, 2017. After the transaction, Althelia Ecosphère was renamed Mirova-Althelia and opened a branch in France.(aa)
Entities deconsolidated in the fourth quarter of 2017 as the percentage interest fell below eligible levels.(bb)
Information on entities that are exclusively controlled, jointly controlled or significantly influenced, and controlled structured entities that are not included in the consolidation scope, are available on the Natixis website at: Non-consolidated investments at December 31, 201717.2
Information on equity and income is that of the last fiscal year as adopted by the General Shareholders’ Meeting (12.31.2016).(b)
In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at December 31, 2017 and of the results of its operations for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union.
Our responsibilities under these standards are further described in the “Statutory Auditors' responsibilities for the audit of the consolidated financial statements” section of our report.
Mazars: in addition to the FRTB project referred to in Note 15.4a to the consolidated financial statements, the main engagements carried out in fiscal year 2017 related to the issuance of certificates and comfort letters, and reviews of compliance procedures.
FINANCIAL DATA Statutory Auditors’ report on the consolidated financial statements 339Natixis Registration Document 2017
The Natixis group recognizes provisions on an individual basis to cover incurred credit losses on loans and receivables originated as part of its financing activities.
We evaluated the design and tested the effectiveness of the key controls put in place by the Natixis group in particular those related to: the identification of indicators of impairment (such as past-duea payments) and the counterparty rating process, the classification of exposures as non-performing,a the monitoring and valuation of guarantees,a the determination of individual impairment losses ona non-performing loans and the associated governance and validation system.
In addition, we carried out a credit review, based on a sample of files selected on the basis of materiality and risk criteria, in which we: took note of the latest available information on the situation ofa sensitive and non-performing counterparties, performed independent analyses of the assumptions used anda the estimates of provisions drawn up by management based on information provided by the institution and external data, verified that estimated impairment allowances were correctlya recognized.
The Natixis group is involved in litigation before the courts and is the subject of investigations and requests for information from regulatory and tax authorities in different jurisdictions.
The recognition of a provision and determination of its amount as well as the financial information disclosed require, by their very nature, the exercise of judgement, not least because of the difficulty of estimating the outcome and financial consequences of ongoing proceedings.
Provisions for litigation totaled €646 million at December 31, 2017 (provisions for litigation Note 6.16.2).
For further details, please refer to Notes 5.14, 5.23, 6.16, 7.7 and 7.9 to the consolidated
We also carried out confirmation procedures with the Group’s legal advisors regarding ongoing proceedings.
Finally, we checked that the provisions thus measured were correctly recognized and verified the related disclosures in the notes to the consolidated financial statements.
Valuation of financial instruments classified in Level 3 of the fair value hierarchy
As part of its Corporate and Investment Banking activity, the Natixis Group holds on its balance sheet a significant portion of financial instruments classified in Level 3 of the fair value hierarchy.
The determination of the fair value of Level 3 financial instruments is based on valuation techniques that include a significant amount of judgement in the choice of methodologies and data used: determination of valuation inputs that are not observable on the market; use of internal valuation models; estimation of additional valuation adjustments, to reflect certain market, counterparty or liquidity risks.
We familiarized ourselves with the internal control procedures governing the identification, valuation and recognition of financial instruments classified in Level 3; for example, we spoke with the departments in charge of first- and second-level controls and acquired information about the work carried out during the closing of the accounts.
Insurance company technical reserves totaled €76,602 million at December 31, 2017, including €51,493 million in reserves for the life insurance business.
Please refer to Notes 2.8, 5.23, 6.9.3, 6.15, 7.5 and 15.3 to the consolidated financial statements for more details.
The main audit procedures applied included, depending on the type of risks covered by the reserves: Reviewing the general terms and conditions of insurancea policies sold by the Group,
Assessing the methods and assumptions used to calculatea those reserves, including their consistency with applicable regulations, market practices and economic and financial conditions,
With the help of our specialists we verified the appropriateness of the model adopted by management to identify existing tax loss carryforwards to be used, whether through deferred tax liabilities or future taxable profits.
AUDIT OF INFORMATION ABOUT THE GROUP DISCLOSED IN THE MANAGEMENT REPORT
We were appointed Statutory Auditors of Natixis by the General Shareholders' Meetings held on May 24, 2016 in the case of PricewaterhouseCoopers Audit, on November 17, 2006 in the case of Mazars and on June 16, 1998 in the case of Deloitte & Associés (taking into account the mergers of firms that have occurred since that date). The appointment was previously held by other entities of the Deloitte network for which the full history of appointments cannot be established.
The consolidated financial statements have been approved by Natixis S.A.’s Board of Directors.
Our role is to issue a report on the consolidated financial statements. Our objective is to obtain reasonable assurance on whether the consolidated financial statements as a whole are free of material misstatements. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with professional standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company financial statements.
As part of an audit conducted in accordance with professional standards applicable in France, the Statutory Auditor exercises professional judgement throughout the audit and furthermore: identifies and assesses the risks of material misstatement ofa the consolidated financial statements, whether due to fraud or error, designs and performs audit procedures responsive to those risks, and obtains audit evidence that he considers to be sufficient and appropriate to provide a basis for his opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; obtains an understanding of internal control relevant to thea audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control; evaluates the appropriateness of accounting policies used anda the reasonableness of accounting estimates and related disclosures made by management in the consolidated financial statements; assesses the appropriateness of management’s use of thea going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. This assessment is based on the audit evidence obtained up to the date of his audit report. However, subsequent circumstances or events may cause the Company to cease to continue as a going concern. If the Statutory Auditor concludes that a material uncertainty exists, there is a requirement to draw attention in the audit report to the related disclosures in the consolidated financial statements or, if such disclosures are not provided or are inadequate, to issue a qualified opinion or a disclaimer of opinion.
obtains audit evidence regarding the financial information ofa persons or entities included in the scope of consolidation that he considers sufficient appropriate to express an opinion on the consolidated financial statements. The Statutory Auditor is responsible for the direction, supervision and completion of the audit of the consolidated financial statements as well as for the opinion expressed about those statements.
We provide the Audit Committee with a report that presents inter alia the extent of the audit and the programme of work carried out, as well as the conclusions arising from our work. We also make it aware, when appropriate, of any significant weaknesses we have identified in the internal control system in
We also provide the Audit Committee with the declaration provided for in Article 6 of Regulation (EU) No. 537/2014, confirming our independence within the meaning of the rules applicable in France as laid down in particular in Articles L. 822-10 to L. 822-14 of the French Commercial Code (code de commerce) and in the French Code of Ethics (code de déontologie) for statutory auditors. any risks to our independence and the related safeguard measures with the Audit Committee.
Commitments received from banks 7,056 7,268 35 Commitments on securities 10,231 12,822 35 Other commitments received 9,809 7,048
Equity excluding fund for general banking risks 16,939 16,356 19 Regulated provisions and investment subsidies 2 22 o/w institutional operations: 2
Commitments given to customers 28,613 24,999 35 Commitments on securities 10,332 12,250 35 Other commitments given 17,209 19,426
26 Net gains/(losses) on trading portfolio transactions 1,581 1,767 27 Net gains/(losses) on transactions on securities held for sale 16 (123)
Operating income 1,106 1,343 31 Net gains/(losses) on fixed assets 317 (93)
FINANCIAL DATA Parent company financial statements and notes 347Natixis Registration Document 2017
INFORMATION ON SHAREHOLDINGS NOTE 7 EXCEEDING THE DISCLOSURE THRESHOLD FOLLOWING INVESTMENTS IN FRENCH COMPANIES DURING THE YEAR 359
GAINS/(LOSSES) ON SECURITIES HELD NOTE 27 FOR SALE AND SIMILAR 374
FOREIGN EXCHANGE TRANSACTIONS, NOTE 36 FOREIGN CURRENCY LENDING AND BORROWING 380
The financial statements for the fiscal year are presented in identical format to those for the previous fiscal year. Generally accepted accounting principles have been applied in compliance with the principle of prudence based on the following principles: Going concern;a
When the initial payments of a loan turned non-performing become regular again, the loan in question can be reclassified as a performing loan.
Financial difficulties are determined by observing a number of criteria such as amounts past due for over 30 days or an at risk rating. The restructuring of a loan does not necessarily result in the counterparty being classified in the Basel default category, as the financial difficulty is addressed before the counterparty is downgraded into the Basel default category.
FINANCIAL DATA Parent company financial statements and notes 349Natixis Registration Document 2017
Financial assets that do not have individually allocated credit risk are included in groups of assets with similar risk characteristics. The composition of these portfolios of similar assets is based on two criteria: geographical risk and sector risk.
The buying and selling of securities are recorded in the balance sheet at the settlement-delivery date.
They are reported on the balance sheet at their purchase price,a excluding acquisition costs. Any difference between the purchase price (excluding accrued interest) and the redemption price is recognized in income over the remaining life of the securities.
securities held for investment: securities held for investmenta are dated fixed-income securities acquired with the stated intention of holding them to maturity and for which Natixis has the ability to hold them through to maturity.
They are included in the balance sheet at the lower of historical cost or value in use. Unrealized losses are subject to a provision for impairment.
investments in subsidiaries and affiliates: shares andj other variable-income securities in related corporate entities over which Natixis exercises exclusive control, i.e. corporate entities likely to be fully consolidated in Natixis’ consolidation scope.
The measurement approaches used to determine value in use are the following, as appropriate: the net asset method (restated or not);a the peer comparison method;a the discounted future cash flows (DCF) method;a the stock market price method;a or a combination of these methods.a
Income, value adjustments and proceeds on disposal of securities portfolios are recognized as follows: income from variable-income securities is recognized as anda when received or when the payment has been subject to a resolution at a Shareholders’ Meeting; income from fixed-income securities is recognized based ona the accrual method; value adjustments and proceeds from the disposal of securitiesa are recognized under different headings depending on which portfolio they belong to: under “Net revenues” for securities held for trading andj securities held for sale, as a provision for credit losses on fixed-rate securities in thej portfolio of securities held for sale or for investment when adjustments in value relate to counterparty risk exposure, under net gains/(losses) on fixed assets:j for adjustments in the value of securities held forj investment (excluding impairment for risk exposure to a counterparty) when there is a high probability of disposal of such securities held for investment due to unforeseen circumstances and for all proceeds from the disposal of securities held for investment; for investments in associates, investments in subsidiariesj and affiliates and other long-term securities.
The regulation allows banks to sell all or part of the securities reclassified as “held for investment” if the following two conditions are met: the transfer was motivated by exceptional circumstances,a the market for these securities has become active again.a
FINANCIAL DATA Parent company financial statements and notes 351Natixis Registration Document 2017
In line with applicable accounting principles, a specific differently from the item as a whole. For buildings comprising amortization schedule is defined for each significant component business and investment property, the following components of an item of property, plant and equipment which has a different and depreciation periods are applied: useful life or is expected to consume future economic benefits
Where perpetual subordinated notes are treated as equivalent to amortizing securities, each periodic payment is broken down into the repayment of principal, which is deducted from the nominal amount, and interest, which is charged to the income statement under “interest and similar expenses”.
Expenses and income arising from forward financial instruments used to hedge and manage Natixis’ overall interest rate risk are recognized over the period of the position. Unrealized gains and losses are not recognized.
Each instrument in the final category is marked to market on an individual basis. Changes in value during the period are recognized immediately on the income statement. Valuations are adjusted for counterparty risk, the position funding cost and the discounted present value of future contractual management costs.
The notional amount of the underlying instrument of each option or futures contract is recognized with a distinction being made between hedging and trading contracts.
(market risk, model, liquidity and counterparty). The variations of market value are directly registered in income statement. However, for instruments handled on mutual agreements, the earnings and the losses are registered in income statement only in the outcome of the transactions without prejudice to the possible constitution of reserves, over the life of the instrument, at the level of the incurred net risk.
The related transactions, some of which may be guaranteed by the State, are recognized separately in the financial statements. The State and other related creditors have a specific right over the assets and liabilities allocated to these institutional operations. The bank’s assets and liabilities relative to these operations are identified on the balance sheet under each of the headings concerned with these operations.
A provision is set aside for defined-benefit plans based on an actuarial assessment of the benefit obligation using the projected unit credit method. This method draws on demographic and financial assumptions. The value of any plan assets is deducted from the obligation to determine the provision to be recognized on the balance sheet. This valuation is carried out on a regular basis by independent actuaries.
In accordance with recommendation No. 2013-02 of the Autorité des Normes Comptables (ANC – French accounting standards setter) on rules for measuring and recognizing retirement and similar commitments, dated November 7, 2013 (which allowed the partial adoption of revised IAS 19 as adopted by the European Union in June 2012), Natixis chose to maintain the corridor method approach in the parent company financial statements.
The amount recognized as a provision in the balance sheet represents the present value of the obligation under defined-benefit plans: minus any past service cost not yet recognized in income,j plus or minus any unrecognized actuarial gains or losses inj accordance with the corridor principle arising from: experience adjustments linked to demographic variables,j changes in actuarial assumptions,j differences between the actual return and expected returnj on plan assets; minus the market value of plan assets.j
The corresponding expense recognized in the 2017 income statement was €42.1 million versus €33.8 million at December 31, 2016.
derecognition of the debt recorded for the initial plan indexed to the value of the Natixis share is taken to profit and loss.
Changes to the terms and conditions of a cash-settled employee retention and performance plan indexed to the value of the Natixis share which would lead to the latter being reclassified as an employee retention and performance plan settled in shares would trigger, when the plan provides for the allocation of existing shares, the derecognition of the debt recorded for the initial plan indexed to the value of the Natixis share and the recognition of a liability as a provision for the new employee retention and performance plan settled in shares. The difference between the recognition of the new plan and the derecognition of the preexisting debt is taken directly to profit and loss. When the plan provides for the allocation of new shares, only the
Plans settled in shares are recognized in accordance with CRC Regulation No. 2008-15, which provides for the recognition of a liability where there is the likelihood or the certainty that the obligation to grant shares generates an outflow in settlement without an offsetting provision: if the granting involves the issue of new shares, Natixis incursa no outflow and, as a result, no expense is recognized; if the granting involves the repurchase of shares or thea granting of existing shares, an outflow will be recognized when the shares are issued to employees, without an offsetting provision. A provision is then set aside taking account of the entry cost of the shares or the share price on the balance sheet date if the shares have not yet been purchased and the probable number of shares granted to employees. The expense is recognized in stages over the vesting period.
A provision for risks is a liability of uncertain timing or amount. A liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits that can be reliably measured.
Off-balance sheet receivables, debts and commitments denominated in foreign currencies are converted to euros at the going exchange rate at the balance sheet date through the revaluation of foreign exchange positions. The difference between amounts resulting from the valuation of euro-denominated foreign exchange positions and amounts reported in equivalent eurodenominated foreign exchange positions is recorded in the income statement.
The same is true of the guarantee comprising TRS and an option, with the option in the money.
Due to additional contributions, the corporate tax rate used to calculate the expense payable for the year was 44.43% for France. Applicable local corporate tax rates were used for foreign subsidiaries.