It meets on a bi-monthly basis and is chaired by a member of the Executive Board. Extraordinary Meetings can be held if necessary.
In 2008, Natixis’ risk policy was focused on reinforcing the Risk
Management Department’s market-risk-monitoring mechanism and ensuring greater involvement by the business lines.
The Market Risk Committee’s main tasks include: setting and reviewing VaR, operational and loss-alert limits. This ■
process is carried out on the basis of budgetary information provided by front-offi ce managers; establishing delegations for validation purposes; ■
Natixis’ Risk Management Department validates market models and regularly ensures that models used are consistent with market developments and best practices.
The Market Risk Department has two parts: an operational unit and a cross-function unit.
These teams are responsible for monitoring activity. They also represent the Department in its relations with the various front offi ces.
The cross-function team is responsible for all consolidated reports submitted to management (Executive Board and front offi ce management), implementing standards and procedures applicable to all entities (subsidiaries and branches) with respect to market risks, international coordination and technology forecasting, as well as relations with internal and external auditors and follow-up on their recommendations.
Board member in charge of the CIB division with a bi-monthly assessment of the market-risk situation and any changes thereto.
5.4.2 – Methodology for measuring market risk (data certified by the Statutory Auditors in accordance with IFRS 7)
and loss-alert limits. They are determined consistently with the latter. All operational limits are subject to day-to-day monitoring by the Market Risk Department.
Any breaches of the limits (both operational and loss-alert limits) are notifi ed. Breaches of loss-alert limits may lead to a management decision concerning the position in question
The main standard indicators used are: an indicator of sensitivity to a 1-basis-point variation in ■
Natixis uses two main categories of stress tests: broad stress tests and specifi c stress tests for each business line.
H ■ ypothetical stress tests are used to simulate variations in market parameters in all activities, on the basis of plausible hypotheses of one market’s reaction compared with another’s, depending on the nature of the initial shock. These shocks are defi ned jointly by front offi ce staff and economists.
A ■ dverse stress tests are designed to detect the most adverse situations for the bank, based on the characteristics of its portfolio. The calculations involve running stress scenarios through a matrix, adverse stress being the level giving rise to the maximum loss.
A joint project with the CIB division has been undertaken to look at specific stress tests: severity standards and shock matrices have been defi ned for each business line. This project is to be fi nalized in 2009. The goal is to allow this stress to be calculated using management tools and to be subject to limits.
The 99% 1-day VaR level for Natixis’ trading portfolios averaged €29.6 million, peaking at €66.4 million on December 22, 2008 and standing at €55.8 million on December 31, 2008.
These numbers should be seen in the light of the change in market conditions in September 2008, after the collapse of
This methodology is more conservative and more attuned to the sustainably high level of market volatility, and increased VaR
signifi cantly (multiplying it by 1.5 or 2 depending on the scope)
The following tables highlight the abrupt and sustained change in the markets.
The introduction of the new VaR methodology on the approved scope of businesses at the end of 2008 had the effect of reducing the number of back-testing exceptions to two over the entire year under review.
OVERALL VAR ON THE TRADING PORTFOLIO USING NEW AND FORMER METHODOLOGIES
99% 1-day Monte-Carlo VaR based on new methodology 99% 1-day Monte-Carlo VaR based on former methodology 31.12.2008 Limit Average 31.12.2008 Limit Average Deviation
BREAKDOWN OF OVERALL VAR FOR TRADING OPERATIONS BY TYPE OF RISK
Risk on property deeds Foreign exchange risk Internal model Total 5.5 – Overall interest-rate, liquidity and structural foreign-exchange risk
The ALM Committee sets out the governing principles in terms of structural balance-sheet risk. Its scope of responsibility covers the parent company banking portfolio, and those of subsidiaries showing a high level of structural risk on their balance sheets.
It meets quarterly, is chaired by the Chief Executive Offi cer and includes members of the CIB division, the Finance Department and the Risk Management Department. It is tasked with: monitoring change on the balance sheet and in off-balance- ■
sheet commitments; defi ning rules governing refi nancing rates applied internally; ■
operating foreign-exchange risk management and reinvestment of available capital; approving assumptions and conventions used to draw up ■
In accordance with the tripartite risk-monitoring convergence plan within the framework of Natixis’ dual affi liation, the supporting documents and minutes of all Committee Meetings are submitted to the central bodies. As of early 2009, Natixis’ ALM system will be interfaced with those of the central institutions. The aim is to enable the central bodies to monitor Natixis’ ALM risks at the consolidated level, in accordance with guidance set out in the convergence plan.
Natixis’ overall interest-rate risk stems from the mismatching of interest rates on assets and interest rates on liabilities. It is essentially linear and focused on the euro and the US dollar, resulting primarily from mismatching positions between transactions with contractual maturities. The biggest positions concern exposure to the short end of the yield curve and are linked in large part to gaps between dates on which the
are allowed to manage interest-rate risk on their own banking portfolio within the framework of their own ALM Committee or their own Treasury Committee. Directional positions held by these entities are nevertheless ranked below those of the
Lastly, measures of the sensitivity of the banking portfolio’s annual net interest margin are regularly carried out for indicative purposes by the Finance Department. On the basis of data at the end of 2008, an immediate and sustained 100 basis point increase in swap yield curves would reduce the annual net interest margin by roughly €80 million.
This centralization allows the cost of liquidity to be optimized on a permanent basis, to the benefi t of the Group as a whole. It also facilitates the issuance policy, which is based on a constant search for maximum diversifi cation in the placement of Natixis’
Natixis’ liquidity risk results primarily from mismatching positions between transactions with contractual maturities.
(7) The mismatching ratios are defi ned for each type of maturity as the ratio of residual liabilities to residual assets. According to these limits, 25% of banking portfolio assets with residual maturities of fi ve years or more must be refi nanced by liabilities with more than fi ve years remaining to maturity.
The ALM Committee has not formally approved any limits for subsidiaries responsible for their own liquidity mismatching involving strong currencies, bearing in mind that their positions rank below those of the Treasury Department and that these subsidiaries must comply with regulatory liquidity ratios for durations of less than one month.
Lastly, in accordance with recommendations issued by regulatory authorities, this system was reinforced early in 2008 by means of liquidity stress tests aimed at determining whether Natixis is in a position to cope with crisis situations. These tests are based on adverse scenarios (systemic and specifi c crises) over a given timeframe, translating into shocks affecting the liquidity gap, then the implementation of measures designed to reduce liquidity outfl ows swiftly (using securities and debts eligible as collateral for central bank refi nancing or suspending trading activities that use up large amounts of short-term liquidity). A
business continuity plan in the event of a liquidity crisis has also
Department on capital markets activities in order to make some liquidity-intensive activities less attractive. The subsequent goal was to reduce the amounts of short-term liquidity drawn by the capital markets businesses from the Treasury Department. At the same time, assets that were eligible to be used as collateral for central bank refi nancing were handed over to the Treasury
It was not possible to continue pursuing this strategy, which involved an extension of refi nancing maturities, after the collapse of Lehman Brothers in September. This event sent the refi nancing markets into turmoil by making investors more averse to the risk represented by banking groups, by prompting withdrawals from mutual money-market funds, which generally help provide banking institutions with liquidity, and by making it virtually impossible for banks to access term fi nancing. These extreme conditions prompted the Treasury
The signifi cant asset reductions carried out by Natixis in the second half of the year, the implementation of government and central bank measures and the unfailing support of the central bodies in the fi nal quarter, in the form of the liquidity and solvency guarantee provided to Natixis, allowed Natixis to bring year-end borrowing positions well below forecast and to get through the year in excellent condition.
With respect to the liquidity risk caused by the fi nancial crisis, the
Operational risk is defi ned as the risk of losses deriving from shortcomings or fl aws attributable to procedures, staff and internal systems or exogenous events. The defi nition includes legal risk, but excludes strategic and reputational risk.
The Operational Risk Department is tasked with: operational risk measurement procedures: ■
The fi rst fi ve of these are part of the Operational Risk Department.
Natixis’ Operational Risks Committee is responsible for setting out operational risk policy. It is the operational extension of the
Executive Board, and as such has decision-making power with respect to operational risk. It meets quarterly and is chaired by a member of the Executive Board.
defi nition of limits and monitoring of Natixis’ key indicators. ■
The chairmen of the Business Line Operational Risk Committees have decision-making power on the management of operational risks linked to their business line (including the implementation of action plans). However, the Operational Risks Department, which is responsible for ensuring compliance to Natixis’ overall policies, can oppose a decision (or the absence of a decision)
and can take the matter to a higher committee for a decision on the issue raised.
Losses are listed from the very fi rst euro and as they are incurred.
A single defi nition of “serious incident” is adopted throughout the
Since April 2008, the Department has published monthly reports on Natixis’ operational risks. These reports set out the operational losses incurred by the Group (by number and amount), in
FINANCIAL DATA6 Management Report aggregate terms and by division, over the previous month and for the current year. They also provide a detailed analysis of serious incidents by division.
tool; a reduction in incidents linked to ongoing operations (fewer ■
Processes linked to the activation of our guaranties, sureties, recovery and break clauses, were in much greater demand than in previous years; an increase in fraud. ■
CIB - Corporate and Institutional Relations 436 1,709 598 1,571 (27)% 9%
CHANGES IN AMOUNT OF OPERATING RISKS LOSSES - 01/01/2007 TO 31/12/2008
relating to the hiring and departure of personnel (internal and external); work relating to back offi ce suspense items, the reduction in ■
their number, and the time taken to resolve them; unifi cation of Natixis’ counterparty repositories, particularly in ■
The Operational Risks Department mapped the most critical risk situations in order to rank them in terms of cost, to draw up preventative action plans to reduce exposure, and to prioritize them.
A total of 120 major risks were identifi ed in coordination with the relevant business line and on the basis of interviews and mapping.
Each of these risk situations was analyzed and modeled in the form of a fault tree: the risk situation is modeled on the basis of cause and effect; ■
Risk) for each risk situation, then the entity’s overall exposure, and to carry out studies pertaining to the sensitivity to and effectiveness of action plans.
The control mechanism is consistent with the standard method applied for all Natixis’ operational divisions, except for some business lines housed in the Receivables Management division
liability, as well as managers’ and corporate offi cers’ civil liability); damage to operational assets (buildings and contents, ■
“Overall Banking,” “Company Civil Liability” (operational and professional) and “Management Civil Liability” insurance is subscribed to by Natixis on behalf of the parent company and all subsidiaries. Its policies were all renewed on July 1, 2008.
Company Civil Liability (operational and professional) policies providing cover of €125 million per claim and/or per year of insurance; CONTENTS< >
FINANCIAL DATA6 Management Report civil liability insurance policies covering managers and corporate ■
offi cers, and providing cover of up to €100 million per claim and/or per year of insurance.
All insurance cover is purchased with deductible portions (the amounts retained by the Group itself) in accordance with Natixis’
Insurance premiums cost a total of €6.3 million in the 2008 fi scal year.
Equity and Income Fund and Oakmark Global Fund) fi led a complaint against Harris Associates L.P., a 100% subsidiary of Natixis Global Asset Management, before the United States
On February 27, 2007, the judge accepted all aspects of the
On March 20, 2007, the plaintiffs appealed that decision. Both parties fi led written arguments and appeared before the Court of
On May 19, 2008, a panel of judges from the Court of Appeals for the Seventh Circuit issued a decision affi rming the decision of the District Court in favor of Harris Associates L.P.
States Supreme Court, demanding that the denial of their appeal be overturned.
Since March 13, 2008, Natixis and Natixis Funding have been named among the defendants in multiple class-action lawsuits fi led by and on behalf of certain state, county and municipal bond issuers in the U.S. federal courts in New York, Washington,
The actions are brought under certain federal antitrust laws that allow for judgments awarding treble damages and attorneys’
fees under certain circumstances. The federal cases have been consolidated in the United States District Court for the Southern
In addition, two actions by the City of Los Angeles and the City of
Stockton were fi led in California state court. These claims have also been consolidated for hearing before the Southern District of New York.
Natixis Funding’s Muni GIC transactions since 1998. Additionally, the SEC is seeking to determine whether there has been any violation of disclosure obligations in this respect. Several other bank and underwriter defendants have received letters from the
DOJ naming those entities as targets of the investigation. Target letters are not formal accusations, but indicate that the DOJ
has singled out the recipient to be of particular interest in the ongoing investigation. Although one employee of Natixis Funding received a target letter, neither Natixis nor Natixis Funding has received any such letter.
A consortium of state attorneys general, led by the New York
Attorney General and the Connecticut Attorney General (“CTAG”), has also begun an investigation into defendants’ activities in the municipal derivatives market. On June 26, 2008, Natixis
Funding Corporation was issued a subpoena by the CTAG for documents related to its sales of GICs and other municipal derivatives. Other defendants names in the private actions were also issued subpoenas. Natixis Funding produced to the CTAG
a list of its GIC transactions and a list of its current active swaps on July 24 2008. To date, the CTAG has not taken any further action.
No other governmental, legal or arbitration procedures are pending that would be likely to have a signifi cant impact on
The effective impact of this exposure will depend both on the amount of the assets deposited with Bernard L. Madoff Securities on behalf of Natixis that are recovered and the outcome of any action the bank can take, including legal action. Natixis intends to defend its rights by taking any reasonable legal action open to it, in France or abroad. Natixis has retained the services of a law fi rm to assist it.
Paris (Tribunal de Commerce de Paris), seeking the cancellation of contracts under which they had made forward purchases of
Basing their argument on a report by the French market regulator
Natixis has not been accused of any wrongdoing in the CIC
Natixis is nevertheless following this procedure very closely and intends to defend its rights with a view to avoiding any potential prejudice. All the bonds have been redeemed.
Risk of contract repurchase in case of a rise in rates. ■
The sensitivity of shareholder equity to variations in interest rates is lessened by the classifi cation of approximately 6.4 billion euros of interest-bearing securities in the category of securities held until maturity.
Concerning securities in other categories, the sensitivity analysis carried out at the end of December 2008 shows that an increase by 1 point in bond rates would have a negative impact of €30 million on shareholders’ equity (taking into account the variation attributable to policyholders and taxation), i.e. 3.4% of owners’
Natixis Assurance is confronted with variations in the value of its fi nancial assets. The management of fi nancial risks consists of the defi nition of a strategic allocation taking into account liability commitments, regulatory constraints (particularly in terms of nonconcentration ) and commercial requirements. Thus, allocation ranges are defi ned for each type of asset. The sensitivity analysis carried out on December 31, 2008 shows that: a drop by 10 ■ % in the stock market would have a negative impact of €10.8 million on shareholders’ equity (after taking into account the variation attributable to policyholders and taxation), i.e. 1.2% of shareholders’ equity, and a drop by 10% in the property market would have a negative ■
impact of €4 million on shareholders’ equity (after taking into account the variation attributable to policyholders and taxation), i.e. 0.5% of shareholders’ equity.
The monitoring and management of counterparty risk is carried out in compliance with standards and Natixis’ internal limits, as determined by the Credit-Risk Committee, as well as the regulatory constraints imposed on insurance companies. Thus, 92% of the fi xed income portfolio is invested in securities with ratings higher than A-.
A reinsurance treaty in case of epidemic or pandemic has also been put in place in order to limit exposure to the increase in deaths which would result.
Traditionally, Coface distinguishes between frequency risk and event risk: frequency risk ■ represents the risk of a sudden and signifi cant increase in delinquency from a multitude of debtors. This risk is measured for each entity by monitoring the loss ratio (ratio between claims and premiums) by business sector (domestic credit), by country (export credit), or by product line (deposit, single risks). The loss ratios for the various underwriting centers are also monitored at the group level, as are the amounts and monthly numbers concerning delinquency; event risk ■ represents the risk of abnormally high losses recorded for the same debtor or group of debtors, or of an accumulation of losses for the same country.
Coface SA and Coface Kredit), with the intervention of a subsidiary specialized in recovery (Coface Recovery Business
risk accepted by Coface over the 400 greatest risks for the group (maximum loss in a stressed scenario of €15 million and severity greater than €35 million) and allocates ceilings by emerging country; a system for rating corporate and country risks; and ■
Coface maintains a diversifi ed portfolio of credit risk, in order to minimize the risk that default by a debtor, a slowdown in a particular sector of activity or an unfavorable event in a given country may have a disproportionate impact on the overall loss level for Coface. Furthermore, the great majority of risks to which
Coface is exposed are short-term, which allows it to reduce the risk covered for a debtor or a group of debtors relatively quickly after having noticed a deterioration in its solvency.
EXPOSURE TO RISK ON DEBTORS ON DECEMBER 31, 2008 (EXCLUDING TRANSACTIONS ON BEHALF OF THE STATE)
BREAKDOWN OF AMOUNTS BY EQUITY PORTFOLIO AND BY THE “TYPE” AND “NATURE” OF THE AMOUNT
(in millions of euros ) Amounts exposed to risk au 31.12.2008
Type and nature of exposure Listed equities Private equity capital held in suffi ciently diversifi ed portfolios Other equity exposure Total
Article 115 of the document relative to the methodology for calculating the capital-adequacy ratio defi nes diversifi ed private equity on the basis of a number of criteria considered to be indicative of diversifi cation (stage of the investment, years, economic sector, supports, region or country, risk division). Other equity exposure is broken down into listed and unlisted equity.
FRACTION OF AMOUNTS OF UNREALIZED CAPITAL GAINS OR LOSSES INCLUDED IN TIER-1 OR TIER-2 CAPITAL AS OF DECEMBER 31, 2008
(in millions of euros ) Fraction of amounts of unrealized capital gains or losses included in Tier-1 or Tier-2 capitalAssets
Regulatory restatement of unrealized capital gains or losses on available-for-sale capital instruments as a percentage of upper Tier-2 capital 20
Activities excluding securities delivered under repurchase agreements were mainly fi nanced by an increase in liabilities at fair value through profi t and loss (€106.1 billion), including an increase in the fair value of derivative instruments matching the increase on the asset side of the balance sheet, offsetting a fall in debt securities (€30.9 billion).
Outstanding shares increased by 1,643,729,997 shares in 2008 following the capital increase that closed on September 18, 2008, by 42,342,502 shares due to the payment of the 2007 dividend in shares and by 22,500 shares through the exercise of options.
October 19, 2007 and September 11, 2008, relative to regulatory capital requirements applicable to credit institutions operating under the Basel II framework. Regulatory capital and riskweighted -asset data for the year ended December 31, 2007, are provided on a pro-forma basis under the Basel II framework as well as under Basel I.
CACEIS, VR Factorem and EDF Investment Group are proportionally consolidated in accordance with the Group’s economic interest, i.e. 50%, 25% and 15% respectively.
The following stakes are deducted from regulatory capital: (in billions of euros)
CACEIS is Natixis’ sole subsidiary to be subject to capitaladequacy requirements individually. The parent company and other French subsidiaries are credit institutions, that are exempt from compliance with these requirements on an individual basis, by authorization of the French Banking Commission.
At December 31, 2008, Natixis’ consolidated regulatory capital amounted to €16.9 billion, compared with €15.2 billion as of
The €1.3 billion reduction in accounting capital resulted from the offsetting impacts of the €3.7 billion capital increase carried out in September, the €2.8 billion loss in 2008, and revaluation losses totaling €1.6 billion on available-for-sale assets and €0.5 billion on hedging derivatives.
The increase in hybrid securities stemmed from the issuance of deeply subordinated notes for a total of €0.9 billion during the fi rst half and two issues of deeply subordinated notes, each totaling €0.95 billion, one subscribed to by Groupe Caisses d’Epargne and the other by Groupe Banque Populaire, mirroring their own issues with the Société de Prise de Participation de l’État, a state-owned vehicle set up to buy capital issued by the benefi ciary banks, less the redemption of U.S. $275 million in preferred stock issued by Natixis AMBS.
The Tier-1 ratio stood at 8.2% as of December 31, 2008, compared with 7.5% on a pro-forma basis as of December 31, 2007 and 8.3% under the capital-adequacy directive. The core Tier-1(13) ratio excluding hybrid securities stood at 5.9% as of December 31, 2008.
(13) Core Tier-1: the Core Tier-1 ratio numerator excludes hybrid regulatory capital in Tier-1 regulatory capital. CCIs are deducted (at 50%) from the Core Tier-1 ratio numerator pro rata to the proportion of Tier-1 capital represented by non-hybrid regulatory capital.
Of which the present value of residual exposure at default on fi nancial leases -
Natixis Group is conducted on a half-yearly basis. It covers four areas of risk: credit, market in the broad sense (trading, ALM, investment portfolios and private equity, etc.), operational and business-related.
Economic capital requirements can be compared not only with regulatory capital requirements, but also with capital that would be available to the Group to cover its funding needs in the event of a crisis (measured from an economic perspective, by analogy with the economic measurement of risks).
The system also includes a mechanism for allocation by business lines.
The liquidity ratio is designed to ensure that liquid assets with maturities of less than one month are equal to or exceed liabilities falling due within the same period.
In accordance with banking regulations, no single exposure may exceed 25% of regulatory capital, and the aggregate total of individual exposures in excess of 10% of regulatory capital may not exceed eight times regulatory capital.
2008 was marked by a succession of events in the capital markets building up to an unprecedented liquidity crisis. It is against this backdrop that the Natixis’ Treasury Department took on a unifi ed structure, with the task of fi nancing the bank under a single and new signature in the capital markets.
In early 2008, the Treasury Department focused its efforts on promoting the new signature on the capital markets while at the same time preserving its capacity and keeping a reign on the cost. As it would not have been possible to draw concurrently on lines of credit taken out with correspondent banks under the institutions’ former names, a minimum reduction was anticipated.
Combined efforts by the Group’s teams helped guarantee the optimization of liquidity despite the increase in the size of the funded balance sheet in the fi rst half.
Natixis began weighting its very-short-term refi nancing risk and limiting its medium-term exposure. The Treasury Department signifi cantly extended the length of its borrowings and secured sources of refi nancing.
Reserve as collateral was carried out swiftly by mobilizing assets already on the balance sheet; the use of CPFF refi nancing organized by the Federal Reserve offset the deterioration in liquidity conditions in the euro and U.S. dollar markets; implementation of more restrictive internal rules governing the ■
consumption and re-billing of liquidity; participation by the Treasury Department in market liquidity ■
The various mechanisms implemented in synergy with New York and Singapore enabled Natixis to deal with the dysfunctions in the liquidity markets.
Natixis launched three public issues: a senior 2-year issue initially aimed at raising €1.5 billion, which was subsequently increased to €2.175 billion; in the junior-debt market, two issues of deeply subordinated U.S. dollar-denominated notes raised €300 million in the form of perpetual notes redeemable after fi ve years and €750 million in perpetual notes redeemable after 10 years.
These extreme conditions prompted the French government to introduce support measures to help the banking sector.
The bulk of Natixis’ medium-and long-term refi nancing was nevertheless still obtained by means of privately placed debt in 2008, mainly EMTN programs and interbank deposits.
compartment in 2008 was nevertheless negative to the tune of roughly €1 billion due to the return to a greater degree of prudence on the part of investors with respect to the complex nature of these products and to counterparty risk.
There are no covenants attached to Natixis’ EMTN programs, either fi nancial or linked to the Group’s credit rating.
There is a cross-default clause restricted to the issuer, with a trigger threshold of €50 million.
March 31, 2018 and at every subsequent interest payment date; issued on April 16, 2008 (US ■ $ 300,000,000) fi xed coupon; the prospectus allows for early redemption as of April 16, 2013 and at every subsequent interest payment date; issued on April 3 ■ 0, 2008 (U.S. $ 750,000,000) fi xed then fl oating coupon; the prospectus allows for early redemption as of April 30, 2018 and at every subsequent interest payment date
circumstances; reduction in the amount of accrued interest and the nominal ■
value of the issue in the case of certain events affecting the issuer’s fi nancial situation or certain ratios.
The Notes are deeply subordinated notes of the Issuer issued pursuant to the provisions of Article L. 228-97 of the
Regulations (the “Hybrid Securities Limit”) as interpreted by the SGCB. Fonds propres de base (“Tier-1 Capital”)
Bank for International Settlements dated October 27, 1998 concerning instruments eligible for inclusion in Tier-1 Capital
The principal and interest on the Notes (which constitute obligations under French law) are direct, unconditional, unsecured, undated and deeply subordinated obligations of the Issuer and rank and will rank pari passu among themselves and with all other present and future Support
Agreement Claims and Deeply Subordinated Obligations, but shall be subordinated to the present and future prêts participatifs granted to the Issuer and present and future titres participatifs issued by the Issuer, Ordinarily Subordinated
There will be no limitations on issuing debt, at the level of the
On February 25, 2009, Natixis issued a press release in the ■
Crédit Agricole SA to enter into exclusive negotiations for the sale in cash to Crédit Agricole SA of a 35% stake in CACEIS in the amount of €595 million.
Subject to obtaining the advice of employee representative bodies and the required authorizations, the sale could be fi nalized in the second quarter of 2009.
This sale is in line with the strategic refocusing announced in mid-2008 and implemented since then.
Caisses d’Epargne issued a press release in the following terms: Banque Fédérale des Banques Populaires (BFBP) Board of
Group will have Tier-1 capital of €38 billion and 22% of French bank total deposits standing fi rmly as a fi rst-rate entity funding the economy: i.e. private individuals, small businesses, s mall and medium-sized businesses and large corporate entities.
The merger plan is based on the creation of a new central body, common to the Banque Populaire bank and Caisses d’Epargne et de Prévoyance networks. The central body will be held equally between the two Groups and include their main retail banking subsidiaries and production entities (Natixis, Société
GCE Assurances, BCP France, BCP Luxembourg, DV Holding and the indirect 17.7% stake in CNP). The technical and human capabilities of BFBP and CNCE required to perform the duties of a central body will also be included in this new entity.
The subsidiaries of the real estate division of the two Groups
The new central body will be a French joint stock company governed by a Management and Supervisory Board. In addition to two employee representatives, the Supervisory Board will include eighteen members: seven members will represent
The fi rst chairmanship of the Supervisory Board will be occupied by a member from Groupe Banque Populaire until the start of the calendar year following the second year after they have commenced their duties. To this end, the BFBP Board of
Dupont, the position of Chairman of the Supervisory Board of the new central body will be subject to alternation between the two Groups every two years. The appointment of Mr. Yves
Hubert, currently Chairman of CNCE’s Supervisory Board will be proposed for the position of fi rst Vice-Chairman of the new central body.
Mr. François Pérol has been nominated as the Chairman of the
Chairman of the Management Board, will be responsible for the general management of Natixis.
After deliberating, the Supervisory Board unanimously approved: the cooptation of Mr. François Pérol as a member of the −
Supervisory Board; the appointment of Mr. Dominique Ferrero as Chairman of −
The Executive Board is now composed as follows: Chairman of the Executive Board: Dominique Ferrero;−
Supervisory Board has approved the plan to modify the administration and management of Natixis so that it has a Board of Directors with separation of the roles of Chairman and CEO.
Document, no signifi cant change to the fi nancial or commercial situation of the Group have occurred between February 20, 2009, the date when the accounts were approved by the
Executive Board, and the date when this registration document was fi led.
a €67 million (15%) reduction in fee and commission income; ■
Operating expenses increased by 50% year-on-year due to impairment of goodwill (€861 million) recorded at the time of the
Natexis/Ixis CIB merger and provisions totaling €144 million to cover the Job adaptation plan.
Shareholders’ Meeting proposes that the €5,053,779,558.57 loss for the year ended December 31, 2008 be charged against retained earnings in the amount of €3,646,316.70 and against share premium in the amount of €5,050,133,241.87.
The Supervisory Board’s comments on the Executive Board’s management report and the 2008 financial statements
The Board has also been informed of the fi ndings of the Audit Committee, and of the reports concerning the conditions under which internal control is exercised and risk is measured and monitored (Articles 42 and 43 of regulation CRBF 97-02).
Lastly, the Supervisory Board approved its Chairman’s report, which details its composition and the conditions for organizing and preparing its work, and the procedures for internal audit and risk management implemented by the Company.
Cash and balances with central banks and post offi ces 1,759 961
Financial assets at fair value through profi t and loss 8.1 285,493 202,928
Loans and advances to banks 8.4 65,573 112,394 o/w institutional activities 83
Customer loans and advances 8.4 115,604 112,505 o/w institutional activities 407 354
Deposits from banks 8.12 96,600 138,234 o/w institutional activities 72 155 o/w institutional activities 665 605
Revaluation adjustments on portfolios hedged against interest rate risk 407 125
Deferred income, accrued charges and other liabilities 8.8 23,143 22,618 o/w institutional activities 2 26
Net gains or losses on fi nancial instruments at fair value through profi t and loss 9.3 (3,024) 1,148
Net gains or losses on available-for-sale fi nancial assets 9.4 (419) 334
Depreciation, amortization and impairment of property, plant and equipment and intangible assets (208) (164)
Change in fair value of fi nancial instruments through equity 2007 net income
Change in fair value of fi nancial instruments through equity 2008 net income/(loss)
+/- Net charge to other provisions (including insurance companies’ technical reserves) 2,574 3,500
+/- Decrease/(increase) in other fi nancial assets or liabilities (2,277) 9,349
Effect of exchange rate changes on cash and cash equivalents (D) (71) (84)
NOTE 13 PAYROLL COSTS, NUMBER OF EMPLOYEES, COMPENSATION AND EMPLOYEE BENEFITS 278
In response to the deepening fi nancial crisis which hit new asset classes during the year, and the sharp downturn in the economic climate triggered by banking failures in the third quarter, Natixis: redefi ned its business plan, concentrating on more traditional ■
investing activities and the more complex capital market activities. A specifi c structure has been created within Natixis
A series of downsizing measures were launched in the second quarter of 2008 as part of the 2008-2009 cost-cutting
for legal purposes; CEGI, SACCEF and SOCAMAB merged to form Compagnie ■
development of management software were incorporated within Natixis Consumer IT (a wholly-owned subsidiary of
1.3 - Proposed merger between Banque Fédérale des Banques Populaires and Caisse Nationale Caisses d’Epargne
Groups. This merger will create a single central institution with two separate networks.
signed a negotiation agreement setting out the scope of their * As part of the merger with Groupe Caisse d’Epargne on November 17, 2006, the following legal transactions took place: - Caisse Nationale des Caisses d’Epargne (CNCE) contributed to Natixis some of its subsidiaries and equity interests in corporate and investment banking and services activities. It also contributed a portion of cooperative investment certifi cates (“CCI Caisses d’Epargne”) issued after 2004 by each Caisse d’Epargne et de Prévoyance (except Caisse d’Epargne de Martinique and Caisse d’Epargne de Nouvelle Calédonie), representing 20% of their share capital; - SNC Champion, an entity set up by the Banque Fédérale des Banques Populaires (BFBP) and Banques Populaires, contributed to Natixis the remaining Caisses d’Epargne cooperative investment certifi cates not contributed by the CNCE that SNC Champion had previously acquired from the CNCE. It also contributed 1.23% of the share capital of IXIS CIB, and 4.63% of the share capital of IXIS AMG which it had previously acquired from San Paolo IMI (SPIMI); - subscribed to 20% of the share capital of each Banque Populaire bank in the form of a reserved issue of cooperative investment certifi cates (“CCI Banques Populaires”) fi nanced by debt; - acquired the 66% held by the Banques Populaires banks in consumer credit fi rm Novacrédit.
The new entity created by this agreement will take the form of a société anonyme with a Management Board and Supervisory
Natixis has prepared its consolidated fi nancial statements for the year ended December 31, 2008 in accordance with International
The fi nancial statements presented for comparative purposes were published by Natixis in the 2007 Registration Document fi led with the French securities regulator (Autorité des marchés fi nanciers – AMF) on April 18, 2008. In accordance with
European regulation 809/2004 relative to information contained in prospectuses, the fi nancial statements for the year ended
Document fi led with the AMF on April 17, 2007 are incorporated by reference into this Registration Document.
The impacts of the fi rst-time application of IFRS on shareholders’
The amendment allows entities, in particular circumstances, to: reclassify non-derivative fi nancial assets out of the “Fair value ■
through profi t and loss - Trading” category; reclassify fi nancial assets from the “Available-for-sale” category ■
As permitted by this amendment, Natixis reclassifi ed the following items to “Loans and advances” on October 1, 2008: €8.8 billion relating to the fair value of assets previously classifi ed ■
Had these assets not been reclassifi ed, they would have been remeasured to fair value at December 31, 2008, resulting in an unrealized capital loss of €380 million (see Note 8.6.3).
This capital loss would have had an impact of €215 million on income and €165 million on equity to be recycled to the income
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements statement. Following their reclassifi cation, the instruments were written down by €70 million to refl ect counterparty risk arising in the fourth quarter (see Note 8.6.4).
(Autorité de Contrôle des Assurances et des Mutuelles – ACAM), and the guidance published by the IASB on October 31, 2008 entitled “Measuring and disclosing the fair value of fi nancial instruments in markets that are no longer active”. These two texts underline the importance of using judgment to determine fair value in illiquid markets; with regard to fi nancial reporting on risk exposure, the ■
Financial Stability Forum. Details of risk exposure, presented as recommended by the French Banking Commission in its
May 29, 2008 statement on the application in France of the
FSF’s fi nancial transparency recommendations, are included in Note 4 discussing the impacts of the fi nancial crisis, and
Note 6 on special-purpose entities; with regard to accounting for insurance and investment ■
contracts with a discretionary participation feature, the CNC’s recommendation dated December 19, 2008 (see Note 3).
published by the IASB on September 6, 2007 and adopted by the European Commission on December 17, 2008.
published by the IASB on January 17, 2008 and adopted by the European Commission on December 16, 2008. This amendment clarifi es vesting conditions and specifi es that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The amendment is retrospectively applicable for accounting periods beginning on or after January 1, 2009. It should not have any impact on the way in which share-based payments made by Natixis are accounted for; the revised IAS 23 “Borrowing costs”, published by the ■
instruments from another party to settle its share-based payment obligation, a subsidiary entity’s employees are granted rights to equity ■
instruments of the parent entity (or another entity in the same group). In this case, the interpretation clarifi es how the transaction should be accounted for in the entities’ individual fi nancial statements; IFRIC 13 “Customer loyalty programmes” which was adopted ■
Natixis’ consolidated fi nancial statements include the fi nancial statements of Natixis S.A. and its main subsidiaries.
Materiality is determined based on specifi c thresholds for each of the Group’s businesses and on a qualitative assessment of the relevance of each entity’s contribution to the consolidated fi nancial statements.
Natixis considers all current voting rights and any potential voting rights to the extent that they are currently exercisable or convertible. Potential voting rights arise from stock options on ordinary shares or from the conversion of bonds into new ordinary shares. However, potential voting rights are not taken into account to calculate the percentage of ownership.
If the written put is associated with a currently exercisable call option, in principle the potential voting rights are included in the calculation of the percentage of ownership and voting rights held, because the options held by each party make the sale of the shares certain.
A review of potential voting rights held by Natixis had no impact on the basis for consolidation in 2008.
than half of the voting power of an entity; power to govern the fi nancial and operating policies of the ■
entity under a statute or agreement; power to appoint or remove the majority of the members of the ■
Board of Directors or equivalent governing body; power to cast the majority of votes at Meetings of the Board of ■
Companies jointly controlled by Natixis are proportionally consolidated. Joint control is the contractually agreed sharing of control over an economic activity between a limited number of shareholders or investors, and exists only when the strategic fi nancial and operating decisions relating to the activity require the unanimous consent of the parties sharing control.
CCIs do not carry any voting rights, Natixis’ signifi cant infl uence over the issuers is characterized by (i) legally enforceable infl uence resulting from its involvement in the operational and fi nancial management of the Banques Populaires and Caisses d’Epargne networks, and (ii) de facto infl uence deriving from operational and technical cooperation by the Banques Populaires and Caisses d’Epargne banks with Natixis.
Banques Populaires and Caisses d’Epargne banks derives from the following rights conferred on Natixis by the preliminary agreements concerning its involvement in the operational and fi nancial management of the Banques Populaires and Caisses d’Epargne networks: representation on the Banques Populaires and Caisses ■
d’Epargne Board of Directors (BP: federal delegate/CEP: non-voting Director); participation in intra-group Committees of Groupe Banque ■
Populaire and Groupe Caisse d’Epargne; right regarding certain decisions made within the BFBP and ■
the CNCE (Natixis’ opinion to be sought and Natixis to be consulted in its capacity as a non-voting member; rights to a second deliberation of certain matters); right to receive information (information related to the CCIs, ■
function (defi nition of risk standards and risk assessment methodologies); exchange of management personnel. ■
Natixis and the Banques Populaires banks have agreed to maintain any existing industrial and commercial relationships for a minimum period of 10 years as from the subscription date for the Banques Populaires CCIs: provision of IT infrastructure; ■
management, revolving credit facilities, guarantee insurance for borrowers, factoring and equipment lease fi nancing, fi nancial engineering and capital market products, local authority fi nancing and debt management); securities and derivatives brokerage. ■
In accordance with Article 116 of the amended fi nance law for 2005 (2005-1720 of December 30, 2005) and the agreement signed with the French State on December 28, 2006, Natixis manages certain public procedures on behalf of the French State.
The bank’s assets, liabilities and commitments relative to these activities are identifi ed on a separate line of the balance sheet under each of the headings concerned.
On its fi rst-time application of IFRS, Natixis chose the option available under IFRS 1 for fi rst-time adopters not to retrospectively restate business combinations carried out prior to January 1, 2004 in accordance with the provisions of IFRS 3 “Business combinations”.
Impairment testing consists of comparing the carrying amount of the CGU or group of CGUs including goodwill with its recoverable amount.
When the recoverable amount is lower than the carrying amount, an impairment loss is recognized in the consolidated income statement for the period and charged fi rstly against the goodwill allocated to the CGU or group or CGUs, and then against other identifi able assets belonging to the CGU or group of CGUs, pro rata to their carrying amount. The impairment loss charged against the assets in the CGU or group of CGUs must not reduce the carrying amount of the related assets to below the higher of their fair value less costs to sell, value in use, and zero.
Negative goodwill is recognized immediately in the income statement under “Changes in value of goodwill”, following the remeasurement of identifi able assets, liabilities and contingent liabilities.
Principles adopted for measuring contributions by Groupe Caisse d’Epargne to Natixis
The assets contributed by the CNCE to Natixis fall into two different categories: shares in the corporate and investment banking and services ■
Goodwill arising in connection with the business combination on December 31, 2006
Goodwill generated as a result of the business combination totaled €484 million, breaking down as €229 million on IAMG, €21 million on IXIS CIB and €8 million on Novacrédit, plus the goodwill recorded in “Investments in associates” relating to the Caisses d’Epargne CCIs (€190 million) and the Banques
At December 31, 2007, goodwill arising on the CCIs had been defi nitively allocated to the following accounts: valuation adjustments on Banques Populaires land and ■
€21.6 million in goodwill; Coface: acquisition of Coface A/S Danmark, generating ■
generating €18.1 million in goodwill; acquisition of a minority 19.55% stake in Business Data ■
CACEIS: sale of Fastnet House, leading to a €1.4 million ■
goodwill; sale of 25.9% of VR Factorem, leading to a €1.3 million ■
The creation of a special hive-off vehicle to run down certain activities (see Note 1) prompted a reorganization of Natixis’
Value in use is determined principally(1) by discounting the expected future cash fl ows from the CGU on the basis of the medium-term business plans drawn up by the Group for strategic planning purposes.
The assumptions underpinning these forecasts were as follows: expected future cash fl ows: forecast data covering the next ■
No impairment was recognized as a result of these tests, nor would have been recognized if the discount rate had been 1%
higher or the perpetual growth rate 1% lower. However, in light of the extremely uncertain environment affecting both the Group’s continuing and hived-off corporate and investment banking operations, the goodwill allocated to the CIB business has been written down in full out of prudence. These write-downs are shown on the income statement line “Change in value of goodwill”.
and CCIs (entitlement to dividends at least equal to dividends payable on ownership shares and entitlement to reserves made up of retained earnings).
The difference in dividend entitlements is recognized in the fi nancial year in which it arises.
The assets and liabilities of subsidiaries which Natixis intends to sell within a maximum period of 12 months and for which it is actively seeking a buyer, are identifi ed separately in the consolidated balance sheet as non-current assets held for sale and liabilities associated with non-current assets held for sale.
Further to the capital increase subscribed for on December 20, 2007 by the Banque Fédérale des Banques Populaires and the Caisse Nationale des Caisses d’Epargne, Natixis’ stake in the CIFG sub-group was reduced to 0.47% at December 31, 2007. As a result, CIFG was withdrawn from the scope of consolidation at that date and the remaining shares held written down in full given the Company’s fi nancial position. The earnings of this sub-group for 2007 as well as the impacts of its sale are shown in the income statement under “Net income/(loss) after tax from discontinued operations or operations in the process of disposal”.
Contracts managed by the insurance subsidiaries of Coface and Natixis Assurances sub-groups meet the defi nition of insurance contracts or 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.
Mathematical reserves for savings contracts correspond to the surrender value of the contracts.
(1) The forecasting period used for the life insurance and asset management businesses is three years and four years, respectively.
IFRS 4 to ensure that the insurance liabilities as presented in the consolidated fi nancial statements are suffi cient to cover the future cash fl ows estimated at that date. The test is based on a stochastic model valuation of discounted future cash fl ows.
Deferred participation assets and liabilities arise mainly on: the remeasurement of available-for-sale fi nancial assets and ■
fi nancial assets at fair value through profi t and loss; the remeasurement of real estate assets held to cover insurance ■
The change in the deferred participation asset and liability is recognized in equity when it relates to changes in the value of assets classifi ed as “available for sale”, and in income when it relates to changes in the value of assets “at fair value through profi t and loss” or investment property held to cover insurance contracts.
Two-thirds of the change in the deferred participation amount between 2007 and 2008 is due to the steep decline in the equity markets, while one-third refl ects the change in credit spreads on debt instruments.
contracts and the propensity of policyholders to surrender their contracts; the entity’s ability to hold the loss-making assets over a similar ■
The test compares total cash fl ows expected to arise on the contracts (forecast over a period of 15 years) with the carrying amounts of liabilities recognized in the fi nancial statements, including deferred participation. Any resulting inadequacies are taken to income.
The process involves modeling future cash fl ows obtained from stochastic analyses, prepared in compliance with the regulatory and contractual conditions applicable to the contracts (guaranteed minimum yields, age and rules applying to the participation
Five such tests were carried out each using a different series of assumptions: infl ows over four consecutive years; ■
the amount of net infl ows and cash to be invested or withdrawn from investments; market assumptions (long-term interest rates, change in equity ■
SPE. Such decision-making powers may have been delegated by establishing an “autopilot” mechanism; B ■ enefits: rights to obtain a majority of the benefi ts of the
SIC 12 does not apply to SPEs whose purpose is to manage post-employment and other long-term employee benefi ts, which are covered by IAS 19, “Employee Benefi ts”. Employee pension and mutual entities are therefore not consolidated.
In the framework of its operations, Natixis has relationships with numerous SPEs for which it may act as lender, investor, guarantor, manager, sponsor or arranger.
An analysis of the characteristics of these entities and of their eligibility for consolidation is provided hereafter for each operation and major category of SPEs: 4.2.1 SPEs involved in Asset Management (OPCVM investment funds, CDO investment funds, real estate funds)
The analysis differs depending on whether or not Natixis is a guarantor of the fund: Non-guaranteed OPCVM funds
SIC 12’s criteria of “risks” and “benefi ts” must therefore be assessed in terms of any fund shareholdings by the holding company or any other Natixis entity. As neither NGAM nor any other Group entity have any material shareholdings in these funds, the Natixis Group does not retain a majority of the benefi ts nor incur a majority of the risks associated with such non-guaranteed
The NGAM sub-group intervenes in such funds in its capacity as manager of the underlying portfolio. Its function is strictly defi ned by the management agreement which never provides it with effective control of the structure. Neither NGAM nor any other
On this basis, one real estate fund managed by NGAM is consolidated as of December 31, 2008: the EPI SLP fund. ■
Several funds managed by NGAM Corp. sub-group management companies are consolidated given the sub-group’s majority shareholdings in these funds: LS Consumer Discretionary LLC; ■
December 31, 2008 the Natixis Assurances sub-group held a majority shareholding in four funds which are material to the
The Coface sub-group’s credit enhancement operations consist in insuring third parties’ securitized receivables held by investors via an SPE for losses in excess of a predefi ned amount. In this type of operation, the Coface sub-group has no role whatsoever in determining the SPE’s activity or in its operating management.
The insurance premium received represents a minor cash fl ow for the SPE the majority of whose cash fl ows accrue to the investors.
Coface Kredit and those entered into by Coface in France: under the German contracts, the credit insurer is only liable ■
“Natural Catastrophe” type of guarantee since analysis shows that the amount of the “fi rst loss” is systematically higher than the “expected loss”, i.e. than the average losses expected in any given year. The “majority of risks” criterion is thus not held to apply and the SPEs involved in such arrangements are therefore not consolidated; the French contracts entered into by Coface rarely include non- ■
guaranteed “fi rst losses”. But the contracts only cover a small portion of the receivables held by the SPE. In addition, the risk associated with the portfolio guaranteed by Coface, compared with the risk borne by the other participants in the SPE (other insurers, sponsors, transferors) is not such as to confer the majority of the risks associated with the SPE on Coface. Such entities are thus not consolidated.
Based on these elements, four subsidiaries have been consolidated as of December 31, 2008: the “Dahlia A SICAR SCA” SICAR investment fund; ■
For the purposes of project fi nance (for industrial or infrastructure projects), of fi nancing real estate or other assets (in the area of air, maritime or land transport), or of acquiring companies (with LBO
fi nancing) or raw materials, Natixis may be required to create
The SPEs for which Natixis is the sole lender or the majority shareholder are rare and do not have a material impact on
Capital Luxembourg” which were previously consolidated given Natixis’ majority shareholdings. As of December 31, 2008 these entities are in liquidation and thus have not been consolidated.
Natixis is not the majority shareholder of the other SPEs, nor are the risk and benefi t criteria met because the risk is borne either by the capital provider, or by a third party providing Natixis with a guarantee as to the value of the SPE’s assets.
SPEs may be used to transform a particular type of debt ■
e.g. by the issue of preferential shares. Four such material entities for Natixis’ consolidated fi nancial statements, which are controlled by Natixis, have been consolidated as of
December 31, 2008. They are: Natexis Banque Populaire Preferred Capital 1; ■
in partnership with other investors and using two types of structuring: SEP type partnerships which are not consolidated inasmuch ■
as each partner recognizes its share of the SEP’s assets, liabilities and results; other arrangements under which a distinct legal entity ■
Développement does not have any shareholding in such entities that would be liable to have a material impact on
Natixis controls a certain number of SPEs whose purpose is ■
The Natixis Lease sub-group holds a certain number of SPEs ■
which own real estate assets. Four of them are controlled by the Group (interests in excess of 50%) and are material to its consolidated fi nancial statements as of December 31, 2008.
They have therefore been consolidated as of that date: SCI Valmy Coupole; ■
own the business’s premises. All three of these companies have been consolidated by Natixis as of December 31, 2008: SCI Champs-Elysées; ■
SPEs used to segregate the assets or derivatives representative of credit risks. The purpose of such SPEs is to diversify and slice the underlying credit risks with a view to their acquisition by investors seeking a certain level of remuneration based on the level of risk assumed.
Investors may wish to invest for relatively short periods, in which case the asset-backed commercial paper (ABCP) held by the conduits may be transformed into treasury notes issued with shorter maturities.
balance sheet and awaiting securitization; credit risk intermediary between the market and the ■
Natixis has no powers of decision or management within such third party entities; CONTENTS< >
derives the majority of the benefi ts associated with the entities; Natixis only holds the most senior shares and is thus not ■
Defaults occurring in 2008 have affected all or part of the subordinated tranches of these entities held by third party investors. As a result, these entities are implicitly consolidated de facto, Natixis remains the principal investor and the risks associated with the underlying assets are apprehended via the valuation of Natixis’ shareholdings classifi ed as “Instruments at fair value through profi t and loss – Trading”.
exclusively subscribed by EDF. The Group’s interest has fallen from 33.33% to 15% but the entity continues to be subject to proportional consolidation on the basis of joint control which has not been affected by the new split of the share capital.
Deconsolidation of SAS Opéra Sentier with effect from July 1, ■
Absorption of Gestitres by Natixis with effect from July 1, ■
Transfer of the shares in Natixis Investor Servicing (NIS) held by ■
Deconsolidation of SCI ABP Pompe with effect from April 1, ■
Liquidation of FCP GCEC Diversifi é in March 2008 (Natixis ■
Natixis is directly or indirectly exposed to the following risks: Direct exposure
The portfolio of loans awaiting securitization represents Natixis’ only direct exposure to subprime loans. The portfolio is classifi ed within fi nancial assets at fair value through profi t and loss.
The portfolio presented the following exposure as of December 31, 2008: Nominal amount 197 284
Fair value is determined based on transactions observed in the market and on the opinion of the experts responsible for performing the portfolio’s valuation.
The models used for valuing this exposure as of December 31, 2008 have all been reviewed and approved by the Risk
These exposed “cash” or “synthetic” subprime portfolios are chiefl y held by Natixis Capital Markets North America and
Gross exposure (gross balance sheet amount before impairment) 208 194 275 379 567 415 157 113
Minimum: of which: arising in 2005 and before 19.6% 35.4% 43.4% 16.0% 7.0% 5.7% 60.0% 15.7%
Net exposure (after cumulative impairment losses) as of 31.12.2007 49 36 180 420 546 397 241 398
All transactions are evaluated at fair value through profi t and loss.
The nominal amount of the ABS CDO subprime assets subject to transformation amounted to €581 million as of December 31, 2008. The corresponding fair value of €340 million has been fully depreciated.
Department in a similar way to that adopted as of December 31, 2007. For the purpose of valuing the Group’s exposures, the loss assumptions applied as of December 31, 2007 have been revised as follows: Loss assumptions by vintage 2005 2006 2007
For the previous generations of loans, the loss rate retained amounts to 7.5%.
CCC plus or minus by applying a 97% discount to those underlyings; valuation of the non-subprime underlying assets held using ■
a discount table refl ecting the type, rating and vintage of transactions.
The application of this model has generated €655 million of capital losses since the beginning of the period.
An increase of 10% in the cumulative impairment losses used to determine the fair value of the CDOs would have the following impacts: exposed ABS CDO assets: +€13 million of unrealized capital ■
losses; ABS CDO assets covered by CDSs subject to the commutation ■
agreement with CIFG (cf. Note 6.3): +€17 million of unrealized capital losses.
A decrease of 10% in the assumptions of excess spread would have the following impacts: exposed ABS CDO assets: +€7 million of unrealized capital ■
North America. Depending on the entities, these assets were originally classifi ed as “Assets at fair value through profi t and loss” or “Available-for-sale assets”. As of October 1, 2008 the
default timing (by type of collateral and vintage) based on ■
research by JP Morgan; cost of liquidity and monoline insurance; ■
probability of default of the monoline insurers and the expected loss rate in the event of default.
The portfolios presenting no subprime exposure, but for which market price data could not be identifi ed, were valued using valuation models positioned at level three of the fair value hierarchy, i.e. mainly using non-observable data.
As of October 1, 2008 the European RMBS portfolios rated AAA
“Loans and advances” as provided for by the “Reclassifi cation of
Financial Assets” amendment to IAS 39 and IFRS 7 published on October 13, 2008. The reclassifi cation was made on the basis of the assets’ €2,144 million fair value as of the date of reclassifi cation. The corresponding nominal value amounted to €2,364 million. An impairment test as of December 31, 2008 was performed for the instruments reclassifi ed as of October 1, 2008.
RMBSs as of December 31, 2008 would have generated an unrealized capital loss of €103 million. Following the reclassifi cation, a €15 million impairment loss for counterparty risk was recorded during the fourth quarter.
Available-for-sale asset portfolio 431 (283) (51) 47 143 184 29 1 3 2 39 68
Fair value option asset portfolio 33 (4) (1) 28 28 28
Available-for-sale asset portfolio 329 (325) (36) 50 18 28 4 14
To value these instruments, a model was developed enabling calculation of fair values based on the historical benchmark spreads contained in the Mark it database. The benchmarks were defi ned by type of securitization, rating and country and resulted in the preparation of spread curves which were then adjusted by a coeffi cient designed to factor in the trend in liquidity risk. The calculation of this coeffi cient was approved by the Risk
projected cash fl ows refl ecting the cumulative losses for each structure and adjusted for stress. The cumulative loss rates per structure were modulated on the basis of the losses on the underlying CRE loans estimated at 10%. The available monoline insurance cover was taken into account subject to adjustment for the probability of default of the monoline insurers and the expected loss rate in the event of default. A minimum valuation of 15% was applied given the estimated coupons refl ecting the current ratings of the structures; for Trups CDOs, application of a valuation model based on ■
projected cash fl ows refl ecting the cumulative losses for each structure and adjusted for stress. The cumulative loss rates per structure were determined using the 84 default scenarios for this class of assets published by S&P in November 2008. Each scenario was applied to each structure and the average result of the worst 42 scenarios was used to determine the value to be allocated to each transaction; for CLOs, application of a model refl ecting detailed knowledge ■
of the characteristics of transactions and credit risk evaluation adjusted for stress.
Financial Assets” amendment to IAS 39 and IFRS 7 published on October 13, 2008. The reclassifi cation was made on the basis of the assets’ €2,217 million fair value as of the date of reclassifi cation. An impairment test as of December 31, 2008 was performed for the instruments reclassifi ed as of October 1, 2008.
Without this reclassifi cation, the revaluation of the CLOs as of December 31, 2008 would have generated an unrealized capital loss of €156 million. Following the reclassifi cation, a €16 impairment loss for counterparty risk was recorded during the fourth quarter: for the ABSs of the Natixis Asset Management and Natixis ■
Assurances portfolios acquired from ABS+ (cf. Note 6.4), application of a valuation model enabling the calculation of fair values based on the historical benchmark spreads contained in the Mark it database. These values were then adjusted by a coeffi cient designed to factor in the trend in liquidity risk.
Products Companies (CDPC) was increased by €156 million during the period. The provision was calculated on the basis of the gross economic exposure plus 20% of the nominal amount and less the fair value of the contracts, thus providing a basis amount to which was applied a probability of default over 7 years based on Moody’s historical data for the level of risk of each counterparty. The cumulative CDPC provision thus calculated amounted to €190 million as of December 31, 2008, based on a depreciable amount of €2,016 million compared with €353 million as of December 31, 2007. The increase in this amount mainly refl ected the broadened credit spreads of the underlyings.
of about 11% of CIFG’s valuation of the total guarantees and essentially comprising: about $1.2 billion in cash to be shared between the ■
The specifi c agreement with Natixis provides for Natixis to pay the complement of $101.5 million and then write off the full amount of $200 million.
The consequences of this agreement have been refl ected in the
6.4 - Reanalysis of the consolidation of SPEs to which financial support has been provided
granted to Versailles, Elixir, Nacréa and the Hudson Castle entities as of December 31, 2008 amount to €6.3 billion; or, of the purchase of part of the assets held by the structures. ■
During 2008, two Group entities restructured their shareholdings in an FCP investment fund in this way. They surrendered their shares in return for a nominal amount of about €379 million of assets classifi ed as available for sale.
The related impact as of December 31, 2008 has been a charge of €17.3 million essentially relating to the residential real estate sector.
Counterparty risk guarantee provided by an OPCVM investment fund managed by NAM 61.4 (55.2)
(a) Mainly including €90 million invested in a fund on behalf of clients. The fund had invested 85% of its assets with Lehman and Lehman had in turn placed 80% of the assets in the market.
shares held by Natixis and the resulting risk of asset sales, an additional impairment loss of €42 million was recognized against those shares making for a cumulative total of €60.8 million as of
One SIV in particular deteriorated signifi cantly during the third quarter of 2008 and represents 56% of the cumulative impairment losses recognized as of December 31, 2008.
The liquidity crisis has resulted in delays in syndication and diff iculties in placing the portion of syndicated loans destined to be sold in the short term in the secondary market. Real estate and
As a result, an additional impairment loss of €53.5 million was booked making for a cumulative total of €96.1 million as of
An impairment loss of €27 million has been recognized based on the available collateral and the other details mentioned.
December 31, 2008 amounted to €189.7 million against which an impairment loss of €160.1 million was recognized by charging the cost of risk.
In addition, Natixis: provided, during September 2008, a price guarantee to two ■
OPCVM investment funds managed by NAM and holding debt securities issued by Lehman entities. A €38.9 million provision for risk was recognized as of December 31, 2008 in respect of this guarantee; had to make a payment under its counterparty risk guarantee ■
provided to an OPCVM investment fund managed by NAM that had entered into a performance swap with Lehman Brothers
International Europe. The payment on demand to the fund of €40.5 million was classifi ed in “Loans and advances” as the fund manager had provided Lehman Brothers International Europe with notifi cation of default. A €34.4 million impairment loss was recognized against this receivable by charging the cost of risk.
Specifi c impairment losses, charged to the cost of risk, of €93.6 million were recognized at the end of 2008 after analysis of each counterparty, taking into account: the nature of the Group’s commitments; ■
Bernard L. Madoff Investment Securities LLC. is subject to judicial liquidation since December 15, 2008 following the arrest and indictment of its Chairman for fraud.
(€286 million) in the hedge funds’ securitization structures, given that the equity shares issued by those SPEs, and subscribed by third party investors, have a value very signifi cantly in excess of the risk of loss on the underlying Madoff Feeder shares.
Equally, Natixis is not exposed to any risk of loss in respect of the CFOs it holds on behalf of its clients ($218.9 million equating with €155.7 million) inasmuch as the associated risks are entirely supported by its clients via pass-through instruments.
Natixis is indirectly exposed to unhedged losses of €473 million related to fund-indexed issues, since it holds shares in Madoff
Natixis has indirectly benefi ted, via its two main shareholders, from the fi nance made available to banks by the French government in the framework of the support plan for the fi nancial sector approved by the European Commission. The plan has two components: a medium-term refi nancing mechanism for the benefi t of ■
credit institutions included in the Amended Finance Act for the Purposes of Financing the Economy dated October 16, 2008. The mechanism allows the Société de Financement de l’Economie Française (SFEF) to raise state-guaranteed funds in the market and lend them on to French banks against collateral; a mechanism for reinforcing banks’ equity via the Société de ■
Populaires and Caisse Nationale des Caisses d’Epargne has been at an arm’s length basis and has taken two specifi c contractual forms: inter-bank medium-term loans guaranteed by the transfer of full ■
Caisse Nationale des Caisses d’Epargne. These issues mirror those subscribed by Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne with Société
The Group’s LBO portfolios may be broken down as follows: (in millions of euros ) 31.12.2008 31.12.2007
Their subsequent accounting treatment depends on their balance sheet classifi cation. In accordance with IAS 39, securities held and loans granted are classifi ed in one of the four categories of fi nancial assets set out below.
These are instruments held for trading purposes or designated at fair value through profi t and loss on initial recognition in accordance with the fair value option amendment to IAS 39
managed on a fair value basis; instruments that present an inconsistency in accounting ■
On initial recognition, held-to-maturity fi nancial assets are measured at fair value including transaction costs, and subsequently measured at amortized cost using the effective interest rate method. They are tested for impairment at each reporting date, and an impairment loss is recognized where appropriate in income under cost of risk. Transactions intended to hedge interest rate risk on these securities are not permitted under IFRS.
Loans and advances are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted on an active market, other than those designated as at fair value through profi t and loss or available-for-sale. This excludes assets for which the holder cannot recover the majority of its initial investment other than because of a credit deterioration, which should be classifi ed as available-for-sale. The vast majority of loans granted by Natixis are classifi ed in this category. Loans and advances also include the fair value of the hedged components of assets classifi ed in this category (fair value hedges).
After initial recognition, loans and advances are measured at amortized cost using the effective interest rate method, and tested for impairment at each reporting date. Where necessary, an impairment charge is recorded in income under “Cost of risk”.
When loans are granted at below-market interest rates, a discount corresponding to the difference between the face value of the loan and the sum of future cash fl ows discounted at the market interest rate is deducted from the face value of the loan.
The market rate of interest is the rate applied by the vast majority of fi nancial institutions at any given time for instruments and counterparties with similar characteristics. These discounts are not material for Natixis.
Loans and advances also include non-derivative fi nancial assets classifi ed as at fair value through profi t and loss or available-forsale, which have been reclassifi ed into the “Loans and advances”
IAS 39 and IFRS 7 “Reclassifi cation of fi nancial assets” published on October 13, 2008. Instruments reclassifi ed in this category met the defi nition of loans and advances at the reclassifi cation date, i.e. they were not quoted on an active market or were no longer quoted at the reclassifi cation date. Assets reclassifi ed in accordance with this amendment cannot be held with the intention of being sold in the near term.
The instruments are reclassifi ed based on their fair value as of the reclassifi cation date. The difference between this amount and the estimated cash fl ows the entity expects to recover at the reclassifi cation date is recognized within net banking income over the instrument’s expected maturity, based on the effective interest rate at that date. After reclassifi cation, the assets are measured at amortized cost using the effective interest rate method and will be tested for impairment at each reporting date.
Any resulting impairment losses will be recognized in income under “Cost of risk”.
All required disclosures regarding reclassifi ed fi nancial assets, particularly changes in the fair value of these instruments since the reclassifi cation date, are provided in Note 8.
The fair value of listed non-consolidated investments corresponds to their last listed price prior to the reporting date. The fair value of unlisted non-consolidated investments is obtained using the
P/E (price earnings ratio) or DCF (discounted cash fl ow) valuation methods.
Gains or losses arising from changes in the fair value (excluding income) of available-for-sale fi nancial assets that are not hedged are recognized directly in equity under “Unrealized or deferred gains or losses”. Accrued or earned income is recognized in the income statement under “Interest and similar income” using the effective interest rate method. Available-for-sale fi nancial assets are tested for impairment at each reporting date. When there is objective evidence that the asset is impaired and a decline in the fair value has already been recognized directly in equity, the cumulative loss carried in equity is taken to income under cost of risk (fi xed-income securities) or net banking income (variableincome securities).
existence of mediation, warning or legal reorganization procedures; counterparty bankruptcy or any other indicator pointing to a material decline in the counterparty’s fi nancial position, such as losses on completion projected by discounted cash fl ow models or stress tests0} The issuer’s fi nancial position is systematically analyzed in the case of debt instruments issued by non-investment grade entities presenting an unrealized capital loss of over 30% on their face value for a period of at least six months; equity instruments (excluding investments): indications ■
position and results of the fund are in line with the business plan, if this is not the case, the business plan is revised to determine ■
recorded in income up to the amount of the previously recorded impairment loss.
end of the lease term; the lessee has the option to purchase the asset at a price that ■
lease payments amounts to at least substantially all of the fair value of the leased asset; the leased assets are of such a specialized nature that only the ■
IAS 17 also describes three indicators that individually or in combination could also lead to a lease being classifi ed as a fi nance lease: if the lessee can cancel the lease, the lessor’s losses associated ■
value accrue to the lessee; the lessee has the ability to continue the lease at a rent that is ■
Assets provided under operating leases are shown in the balance sheet under property, plant and equipment or intangible assets in the case of equipment leases, and investment property in the case of property leases. Lease income from operating leases is recognized in the income statement on a straight-line basis over the lease term, under income or expenses from other activities.
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements
Since risk measurement under the terms of Basel II is based on the probability of default within one year, the calculation of expected losses is adjusted to refl ect the probability of default over the remaining term of the loans affected.
Where necessary, Natixis calls on the opinion of experts to adjust the results of this calculation to the Group’s actual risks.
The impairment loss is recognized as a deduction from the line on which the asset was originally shown for its net amount.
Impairment charges and reversals are recorded in the income statement under cost of risk.
Under IAS 39, derivative fi nancial instruments are recognized at fair value on the balance sheet, regardless of whether they are held for trading or hedging purposes.
when their market value is positive, and under “Financial liabilities at fair value through profi t and loss” when their market value is negative.
IAS 39 recognizes three hedging relationships eligible for hedge accounting: cash fl ow hedges, fair value hedges and hedges of a net investment in a foreign operation.
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 hedge is both prospectively and retrospectively effective. Hedging relationships are presumed to be effective when changes in the value of the hedging instrument offset changes in the value of the hedged item in a range of 80%-125%.
Cash fl ow hedges are mainly used by Natixis to hedge the parent company’s overall interest rate risk.
Prospective hedge effectiveness tests involve establishing repricing schedules (by index and currency) for (i) cumulative variable-rate borrowings and fi xed-rate borrower swaps by maturity bracket, and (ii) cumulative variable-rate loans and fi xedrate lender swaps, by maturity bracket.
If a hedging relationship is discontinued, for example when hedge effectiveness is outside the 80%-125% range, the derivative must be reclassifi ed in fi nancial instruments at fair value through profi t and loss, while the cumulative amount relating to the effective portion of the hedge that has been carried in equity under
Natixis uses plain vanilla interest rate swaps lending at fi xed rates to protect the Group against the impact of unfavorable changes in interest rates on its fi xed-rate borrowings and issues. Plain vanilla swaps borrowing at fi xed rates are used to protect it from the impact of unfavorable changes in interest rates on its fi xedrate loans and securities.
Natixis Capital Markets North America documents structural hedging of its interest rate risk in accordance with fair value hedging rules. To account for these transactions, the subsidiary applies the carve-out provisions of IAS 39 as adopted by the
At each such date, changes in the fair value of hedging instruments (excluding accrued interest) are compared with changes in the fair value of the hypothetical assets and liabilities hedged (synthetic instruments representative of the assets and liabilities to be hedged). Hedges are deemed to have been effective when changes in the fair value of the hedging instrument offset changes in the fair value of the hedged item in a range of 80%-125%.
Changes in the fair value of derivatives relating to the effective and ineffective portion of the hedge are recorded in income symmetrically with changes in the fair value of the hedged items.
Monetary assets and liabilities (mainly bonds and other fi xedincome securities) denominated in foreign currencies are translated into euros at the spot rate prevailing on the reporting date. The resulting exchange gains and losses are recognized directly in income, or in equity for derivatives designated as cash fl ow hedges.
On initial recognition, fair value is the price paid or received.
(discounted cash fl ow, Black & Scholes, interpolation techniques), and on the basis of directly observable parameters.
Parameters relating to all such instruments were demonstrated to be observable. From a methodological perspective, observability is based on four key criteria: parameters are derived from external sources (a recognized ■
characteristics of the transaction. If necessary, a proxy may be used, provided that the relevance of such an arrangement is demonstrated and documented.
The fair value of instruments obtained using valuation models is adjusted to take account of counterparty risks, modeling risks and parameter risks.
c) Over-the-counter instruments valued using models that are not commonly used or that draw on non-observable parameters
If the selected valuation model is not recognized by current market practices or if one of the parameters used is not observable, the trading profi t on the trade date cannot be recognized immediately in the income statement, but is taken to income over the life of the transaction or until the date the parameters become observable.
Any losses incurred at the trade date are immediately recognized in income.
At December 31, 2008, instruments on which the recognition of day one profi t/loss has been deferred include: structured products with multiple underlyings (equities/ ■
Shares in securitization vehicles measured at fair value for which no market price was available at December 31, 2008 have been valued using the models described above in Note 6.
On the fi rst-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, with the exception of properties held by insurance companies which are carried at fair value through profi t and loss.
Investment property held by insurance companies is measured at fair value through profi t and loss in accordance with IAS 40 and IFRS 4.
Between two appraisals, the market value of assets is certifi ed by experts on a half-yearly basis.
As soon as they are in a condition to be used by Natixis in the manner in which they are intended, property, plant and equipment and intangible assets are depreciated or amortized over their estimated useful lives on a straight-line or declining balance basis when this better refl ects the pattern in which the economic benefi ts are consumed. The residual value of the asset is deducted from its depreciable or amortizable amount when it can be measured reliably. Natixis does not believe it can reliably measure the residual value of items other than land and nondestructible buildings classifi ed as historical monuments. They are therefore assigned a residual value of zero.
Purchased software is amortized on a straight-line basis over its estimated useful life, which in most cases is less than fi ve years.
Other intangible assets primarily comprise: purchased goodwill with an indefi nite useful life, which is not ■
“Depreciation, amortization and impairment of property, plant and equipment and intangible assets”. They may be reversed if there has been a change in conditions, for example there is no longer any objective evidence of impairment.
At December 31, 2008, no assets met the criteria to be classifi ed as held for sale.
7.9 - Financial liabilities at fair value through profit and loss
These include fi nancial liabilities held for trading (including derivative fi nancial instruments) and those designated as at fair value on initial recognition pursuant to the option available under
IAS 39. The conditions for applying IAS 39 were described in the amendment to the standard published in June 2005.
Financial liabilities in this category are shown on a separate line of the balance sheet and measured at fair value at the reporting date. Changes in fair value (including the issuer spread) are recognized in the income statement under “Net gains or losses on fi nancial instruments at fair value through profi t and loss”.
On initial recognition, debt securities in issue are measured at their issue price including transaction costs. They are subsequently measured at amortized cost, with issue expenses recognized over the term of the instruments used.
At subsequent reporting dates, the securities continue to be valued by the assignor in accordance with the rules applicable to the category in which they were initially classifi ed. In the assignee’s accounts, the amount receivable from the assignor continues to be carried at amortized cost within “Loans and advances”.
Consequently, these transactions do not lead to the derecognition of the securities loaned. Loaned securities are not identifi ed under
at least: the operations or part of the operations concerned, ■
At December 31, 2008, Natixis had set aside provisions for restructuring costs in respect of: the work adjustment plan launched in September 2008 for ■
Natixis S.A. employees; the plan to transform the CIB business, approved by the ■
The main provisions for employee benefi ts concern: supplementary banking pensions; ■
The provision recognized in the balance sheet is equal to: the amount of the actuarial liability in respect of pension and ■
similar benefi ts for employees and retirees; minus the market value of plan assets; ■
This method is based on assumptions concerning demographics, salary increase rates, discount rates and infl ation. Differences resulting from changes in actuarial assumptions and experience adjustments (impact of differences between previous actuarial assumptions and actual events) give rise to actuarial gains and losses.
“corridor” method. Under this method, the portion of gains and losses that exceeds 10% of the greater of (i) the Group’s obligation and (ii) the fair value of plan assets is deferred over the remaining working lives of the employees participating in the plan.
For end-of-career allowances and long service awards, employee turnover is calculated by age bracket and grade based on a three-year average. The rate is 0% for employees over 55. Future salary increases are estimated by grade based on a constant population and a three-year average.
The corridor method is not used for other long-term employee benefi ts such as long service awards.
Natixis used the option available under IFRS 1 to recognize all unrecognized actuarial gains and losses in equity in its opening
Notes to the consolidated fi nancial statements 7.15 - Share-based payments
Natixis and certain consolidated entities have set up share-based payment plans for some of their employees. Payments are settled either directly in shares or in cash, the amount of which depends on the value of the equity instruments concerned. Under IFRS, share-based payments systematically result in the recognition of payroll costs, which are determined as described below.
Natixis has set up fi ve stock option plans since 2002 which were still outstanding at December 31, 2008. The features of these plans are set out in Note 13.4.
intended to offset the impacts of the fall in the option exercise price on the overall amount to be subscribed in shares by each benefi ciary upon exercising the options. The number of options was changed accordingly, but the option-for-share ratio remained the same.
The total subscription price also remained unchanged (before and after detachment of the preferential subscription rights).
Consequently, the expense recognized under IFRS in respect of these plans was not adjusted.
to cash-settled stock option plans. Under IFRS 2, options are stated at fair value based on a binomial model incorporating the volatility-related impact of a sample of comparable companies.
“Deferred income, accrued charges and other liabilities”. This liability is reassessed at each reporting date until settlement, with a corresponding adjustment in income.
The cost of these plans is measured as the difference, at the purchase date, between the fair value of the shares purchased, taking into account the lock-up period and subscription price paid by employees.
On November 12, 2007, Natixis’ Executive Board awarded 60 registered bonus Natixis shares to each employee in the
a credit institution affi liated to one of these central institutions; ■
indirectly, exclusively or jointly held by Natixis, the central institutions or an entity affi liated to these institutions.
The current bonus share plan is governed by the French 2006 law on the fi nancing of employee profi t-sharing and share ownership. The plan was approved by Natixis’ Extraordinary
The plan consists of three stages spread over four years: November 12, 2007: grant date and start of two-year vesting ■
At the grant date, each eligible employee is granted the right to receive 60 shares after two years provided that they continue to be employed by the Group at that date. The statutory two-year vesting period begins at the grant date. During this period, employees do not own the shares. They have a nontransferable right until the end of the vesting period, but no voting or dividend rights; November 12, 2009: vesting of the shares provided that ■
At the start of this period, each benefi ciary in employment receives his or her shares, which are placed in a registered account or employee investment trust for a lock-up period of two years. Employees therefore become the owners of their shares at the start of this lock-up period. They are entitled to dividends but may not sell their shares; November 14, 2011: shares become available. ■
Shares become available with effect from this date. They may continue to be held under the same conditions, at no cost to the holder, or may be sold at any time.
Group employees is added to the expense already recognized under IFRS 2 in respect of the initial award of 60 bonus shares.
Notes to the consolidated fi nancial statements 7.19 - Income taxes
The tax charge for the year comprises: tax payable by French companies at the standard rate of ■
carrying amount of assets and liabilities and their tax basis, which are calculated using the balance sheet liability method.
Deferred tax assets and liabilities are offset at the level of each tax entity. The tax entity may either be a single entity or a group of entities that have elected for group tax relief. Natixis does not recognize net deferred tax assets unless it is reasonably certain that they will be used to offset a future tax charge.
The capitalization reserve carried in the individual fi nancial statements of insurance companies is intended to defer capital gains arising on the sale of certain bonds to offset subsequent capital losses. The portion presumed unlikely ever to be used is reclassifi ed in equity. Under French GAAP, no deferred taxation is recognized. However, under IAS 12, it is treated as a temporary difference that gives rise to a deferred tax liability. All temporary differences have been recognized regardless of their recovery or payment date. The net deferred income tax balance is shown in the balance sheet under “Deferred tax assets”.
In accordance with paragraph 43 of the amendment to IAS 39 and IFRS 4 (published by the IASB in August 2005 and adopted by the European Union), fi nancial guarantees given are carried at their fair value plus any transaction costs directly attributable to the issuance of the guarantees. For independent agreements entered into at market rates, fair value at the inception of the agreement is equal in theory to the amount of premium(s)
appropriate, the amount of amortization recorded in line with the principles outlined in IAS 18 “Revenues”. This amortization represents the deferred recognition of the fees received over the period covered by the guarantee; the value determined under IAS 37 “Provisions, contingent ■
The discount rate applied for a given loan is the rate that Natixis would grant at the reporting date to a counterparty for a loan with similar characteristics. As these are primarily variable-rate loans,
The fair value of variable-rate borrowings and debt securities is considered to be their net carrying amount on the balance sheet.
Fixed-rate borrowings and debt securities are discounted based on the fi xed rates available on the market at the reporting date for a debt with a similar term to maturity. Where fl uctuations in the issuer spread are not material, the valuation does not take this effect into account.
The fair value of hybrid instruments not traded on an active market is calculated using valuation techniques. Valuations produced using valuation models are adjusted, depending on the instruments concerned and the associated risks, to take account of the bid and offer price for the net position, modeling risks, counterparty risk and parameter risk. The fair values obtained from these methods may differ from the actual prices at which such transactions might be concluded in the event of a sale on the market.
The valuation models used to price fi nancial instruments for which liquidity has dried up as a result of the fi nancial crisis are described in Note 6.1.
At each reporting date, Natixis assesses whether or not there is any objective evidence that loans and advances may be impaired, either on an individual basis or collectively by risk category. Natixis analyzes trends in a number of objective criteria, but also relies on the judgment of its own experts. Similarly, Natixis may use its expert judgment to establish the likely timing of future cash fl ow recoveries (where the aim is to calculate the amount of individual impairment losses), or to adjust the amount of expected losses under the Basel II framework, on which the amount of collective impairment is based.
(price earnings ratio) and DCF (discounted cash fl ow) valuation methods. Use of these methods requires certain choices and assumptions to be made in advance, particularly as regards projected future cash fl ows and discount rates.
Notes to the consolidated fi nancial statements cash fl ows to infi nity. Use of the discounted cash fl ow method involves: estimating future cash fl ows. Natixis has based these estimates ■
on forecasts included in its business units’ medium-term plans; extrapolating the cash fl ow forecasts beyond the third year ■
The fair value of unlisted loans is determined using the discounted cash fl ow method. The discount rate is based on an assessment of the rates used by the institution during the period for groups of loans with similar risk characteristics. Loans have been classifi ed into groups with similar risk characteristics based on statistical research enabling factors having an impact on credit spreads to be identifi ed. Natixis also relied on expert judgment to refi ne this segmentation.
Natixis calls on independent actuaries to calculate its principal employee benefi ts. The discount rates, future salary increase rates and rates of return on plan assets used are based on observed market rates at the reporting date, for example the yield on French government bonds for discount rates.
economic and fi nancial assumptions, mortality and morbidity tables, and behavioral statistics, for example concerning surrenders; for credit insurance, claims reserves include an estimate ■
A provision is raised when it is likely that an outfl ow of resources embodying economic benefi ts will be required to settle an obligation arising from a past event, and when the amount of the obligation can be reliably estimated. In order to calculate this amount, management is required to assess the probability of the risk occurring. Future cash fl ows are discounted where the impact of discounting is material.
(loss) for the period attributable to equity holders of the parent, divided by the weighted average number of shares adjusted for the maximum impact resulting from the conversion of dilutive instruments into ordinary shares. Stock options issued are taken into account in calculating diluted earnings/(loss) per share. The conversion of these instruments does not impact net income/
Average number of shares used to calculate earnings/(loss) per share 1,786,024,375 1,219,395,341
Number of potential dilutive shares resulting from stock option plans 5,760,088 5,446,385
These assets and liabilities are measured at fair value at the balance sheet date, with changes in value, including interest, recognized in income under “Net gains or losses on fi nancial instruments at fair value through profi t and loss”.
At December 31, 2008 fi nancial assets at fair value through profi t and loss primarily comprised securities and derivative instruments.
Loans and advances designated at fair value through profi t and loss
(1) The debt instruments reclassifi ed on October 1, 2008 from this line item to “Loans and advances”, as provided for by the “Reclassifi cation of Financial Assets” amendment published by the IASB on October 13, 2008 (cf. Note 6.1 and Notes 8.6.1 to 8.6.4), represent €8.8 billion of fair value.
8.1.1.1 Variable-income securities at fair value through profit and loss ■
Natixis does not hedge, by protective purchases, the credit risk for loans and advances designated at fair value through profi t and loss.
Financial assets are designated at fair value through profi t and loss when this choice provides more pertinent information or when the instruments incorporate one or more signifi cant and separable derivatives (cf. Note 7.1).
Other assets 10,752 10,752 8.1.2 Financial liabilities at fair value through profit and loss
Financial liabilities at fair value through profi t and loss primarily comprised derivatives not used as hedging instruments.
The carrying amount of fi nancial liabilities designated at fair value through profi t and loss corresponds to their fair value.
The amount contractually due upon maturity of loans represents the amount of capital remaining due on the balance sheet date plus any accrued interest not yet due. For securities, it is the redemption value.
Difference between the carrying amount and the amount contractually due on maturity Carrying amount
Variation in the fair value of fi nancial liabilities designated at fair value through profi t and loss, attributable to credit risk
The method used to calculate the fair value attributed to credit risk is described in Note 6.11.
Financial liabilities are designated at fair value through profi t and loss when this choice provides more pertinent information or when the instruments incorporate one or more signifi cant and separable derivatives (cf. Note 7.1).
Carrying amount of hybrid instruments designated at fair value through profi t and loss because of the presence of signifi cant and separable incorporated derivatives
Hedging of net investments in foreign currencies 8.3 - Available-for-sale financial assets
The table breaks down available-for-sale fi nancial assets by type of instrument (loans outstanding, fi xed-income securities, variable-income securities). It discloses the gross value before impairment, impairment losses and the carrying amount net of impairment.
Loans outstanding 62 56 - Loans and advances 62 56 - Accrued interest
Impairment losses amounted to 69% of non-performing loans to clients at December 31, 2008 compared with 61% at 8.4.2.1 Performing loans to clients ■
Expected cash fl ows at the date of reclassifi cation 12,383
amendment to IAS 39 and IFRS 7 published by the IASB on
October 13, 2008, with effect from October 1, 2008 Natixis reclassifi ed certain debt instruments from “Financial instruments at fair value through profi t and loss – trading” and “Availablefor -sale fi nancial assets” to “Loans and advances”. The reclassifi cation was made on the basis of the assets’ fair value at the date of reclassifi cation, i.e. October 1.
The table below discloses the changes in fair value recognized in 2008 or 2007 (i.e. prior to reclassifi cation) for the instruments reclassifi ed at October 1, 2008.
The fi nancial instruments reclassifi ed in accordance with the amendment dated October 13, 2008 have been valued in accordance with the bases described in Note 6.1. The changes in fair value that would have had an impact on profi t and loss for the fourth quarter of 2008, if the October 1, 2008 reclassifi cation had not taken place, are summarized in the table below.
Instruments reclassifi ed as loans and advances 11,166 11,546 (95) (120) (165)
These are the gains and losses recognized through profi t and loss after the date of reclassifi cation of assets (cf. Notes 7.1 and 7.3)
Notes to the consolidated fi nancial statements 8.6.6 Financial assets received as security and able to be sold or reused as security
Certain assets may be transferred without derecognition (total or partial) on the grounds that they do not meet the criteria for derecognition set out in paragraphs 15 to 37 of IAS 39. Such transfers are generally performed in the framework of synthetic securitization transactions.
The table below provides, by category of fi nancial instrument, an analysis of the age of fi nancial assets which were overdue at the balance sheet date but have not been impaired.
What are known as “technical” delinquencies, meaning those related to incidents occurring in the collection process, and without any relationship to the counterparty’s fi nancial situation, are not included.
Amounts unpaid for less than 90 days represent 57% of the total.
IAS 39 establishes a hierarchy in the means of determining fair value: the best representation of fair value is the price quoted on ■
an active market. A market is considered as active if prices are easily and regularly available from a stock market, broker, negotiator, price-evaluation service or regulatory agency and these prices represent real transactions regularly occurring in the market; CONTENTS< >
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements failing this, fair value must be determined using evaluation ■
The table below presents the fair value of all fi nancial assets, whether or not they are recognized at fair value in the balance sheet. This information is broken down according to the hierarchy for determining the fair value of an instrument provided by IAS 39.
Financial assets held for trading 248,497 248,497 55,829 192,668 2,714 544
The “Fair value based on market prices” column provides the fair value of quoted securities and derivatives.
instruments, documentation exists to support the habitual nature of the pricing models applied and the observable nature of the parameters used; the fair value of complex instruments (and/or instruments with ■
at December 31, 2008 and which were therefore valued using the valuation models described in Note 6.1.
Notes to the consolidated fi nancial statements 8.7 – Deferred tax assets and liabilities
Total deferred tax recognized 1,522 614 of which: – deferred tax assets 2,200 939
(2) Including collective provisions and the impact of discounting specifi c provisions.
Insurance company items 8.8.3.2 455 291 8.8.1 Other assets and liabilities 8.8.1.1 Other assets ■
Notes to the consolidated fi nancial statements 8.8.2.2 Deferred income and accrued charges (excluding insurance) ■
The table represents the deferred margin on the fi rst day for instruments valued using valuation techniques making use of non-observable parameters or non-prevalent valuation models at the beginning of the period, at the end of the period, and for variations during the period. The nature of such instruments is described in Note 7.6.
Other items 3 4 8.9 – Property, plant and equipment, intangible assets, investment properties 8.9.1 Changes over the year in property, plant and equipment and intangible assets
(1) Insurance company investments. Changes in fair value give rise to the symmetrical recognition of a deferred participation reserve equal, on average, to 92% of the related basis amount (cf. Note 3.9).
The fair value of investment properties is obtained by discounting the rental yield of these assets at the market rate.
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 8.10 – Assets obtained by taking possession of guarantees
Notes to the consolidated fi nancial statements 8.12 – Deposits from banks and customer deposits
Deposits from banks and customer deposits are presented by nature, taking into account whether they are demand or time deposits.
Durable impairment of available-for-sale fi nancial assets 516 781 (110) (238) 20 48 1.017
Provisions for employee benefi ts 286 34 (61) (2) 1 (1) 257
(in millions of euros ) Notes 01.01.2008 Increases Utilization Reversals not used
Depending on their nature, preferred shares may be classifi ed either as debt or equity. All the preferred shares issued by Natixis are classifi ed under subordinated debt (cf. Note 7.14).
(1) Issues in 2008 comprised: Redeemable subordinated bonds: a €100 million (Group share of €25 million) tranche issued by CACEIS in March 2008 with a maturity of ■ March 29, 2018; Super-subordinated bonds: ■
two €950 million tranches subscribed respectively by Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne − and mirroring their own issues to Société de Prise de Participations de l’État (December 2008 – call December 11, 2013), a €150 million tranche issued by Natixis (March 2008),− a €204 million tranche issued by Natixis (April 2008 – USD 300 million – call April 16, 2018),− a €510 million tranche issued by Natixis (April 2008 – USD 750 million – call April 30, 2018).−
When a valuation model is applied, it must make maximum use of data from the market. In the case of certain structured products, often prepared to order, the valuation model is sometimes supplied with parameters that are not observable in the market.
For these instruments, profi t or loss cannot be established upon initial recognition. The margin shown upon initial booking must, in this situation, be deferred and spread over the lifetime of the instrument.
The table below presents the fair value of all fi nancial liabilities, whether they are booked to the balance sheet by fair value or not. This information is broken down according to the hierarchy given by the IAS 39 standard for determining the fair value of an instrument.
Financial liabilities held for trading 210,589 210,589 25,928 184,661 2,006 (1,290)
Financial liabilities designated at fair value through profi t and loss 64,791 64,791 31 64,760
These line items also include interest on fi nancial assets held to maturity.
Central banks and post offi ces 2 (26) (24) 4 (33) (29)
Impaired loans, including restructured loans 13 13 2 2 9.2 - Net fee and commission income
business-provider commission, are recognized in income as soon as the service has been provided. Fees and commissions for continuous services such as guarantee commissions or management fees are spread over the period during which the service is provided.
yield of an instrument such as commitment fees or loan setup fees are recognized as an adjustment to the effective interest rate over the estimated term of the applicable loan.
Financing, guarantee, securities, derivatives commitments 156 (24) 132 146 (58) 89
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 9.3- Gains or losses on financial assets and liabilities at fair value through profit and loss
Net gains/(losses) on fi nancial assets and liabilities excluding hedging instruments (3,096) 1,137
Net gains on other fi nancial assets and liabilities designated at fair value through profi t and loss (1,385) (1,971)
Changes in the fair value of fair value hedges 628 127
Variable-income securities classifi ed as available-for-sale are tested for impairment and an impairment loss recognized if their carrying amount is higher than their recoverable amount.
Income and expenses from other operations mainly comprises income and expenses relating to fi nance leases and investment property. This item also includes income and expenses relating to insurance operations, in particular life insurance premium income, paid benefi ts and claims and changes in insurance liabilities.
Other related income and expenses 9.5.3 594 (465) 129 680 (335) 345 9.5.1 Finance leases
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 9.5.3 Other related income and expenses
Operating expenses mainly comprise payroll costs, including wages and salaries net of rebilled expenses (cf. Note 13.1), social security charges and employee benefi ts (cf. Note 13.3) such as pensions (defi ned benefi t plans) and share-based payments
The €144 million estimated cost of the Group’s redundancy plan has been fully provided for in the 2008 consolidated fi nancial statements, within the “Payroll costs – other transactions” line item below.
This item mainly comprises cost of risk relating to credit transactions: charges net of reversals for specifi c and collective impairment, receivables written off during the period and recoveries on bad debts written off.
“Impairment of individual receivables” includes impairment of securities classifi ed as “Loans and advances” (including items so reclassifi ed following the October 13, 2008 amendment) as well as of fi xed income securities classifi ed as AFS.
Total net reversals 484 270 9.8 - Share in income from associates
Net capital gains/(losses) on disposals 104 (4) 100 244 294 538
9.10- Reconciliation of the tax charge in the financial statements and the theoretical tax charge
+ Consolidated net income/(loss) attributable to equity holders of the parent (2,799) 1,101
= Consolidated net income before tax, goodwill amortization and share of income of associates (3,843) 1,015
+ Losses for the period not recognized for deferred tax purposes (932) (9)
Supervisory Board. Up to the third quarter of 2008, Natixis had identifi ed six business segments equating with the six business divisions disclosed in its organization chart.
Investment Banking (CIB) operations were split between a segment called “ New” CIB, containing the core business operations intended to be pursued and developed, and a “Workout Portfolio
Management (GAPC) segment”. The separation is intended to optimize management of the segregated assets, to protect the ongoing operations and to highlight the performance of the “ New”
At December 31, 2008 Natixis has thus retained seven business segments based on its organizational structure and internal reporting.
The “ New” CIB offers its clients – companies, institutional investors, insurers and banks – a complete range of fi nancing and capital markets services integrating all Natixis’ know-how: advisory, origination, structuring and distribution. The segment comprises three business lines and two regional platforms: Corporate and institutional relations: manages the client ■
foreign currencies, commodities, credit and equity; Two regional platforms, North America and Asia, dispose ■
division in order to wind down both the asset portfolios hardest hit by the fi nancial crisis and the portfolios no longer considered part of Natixis’ core business given its new strategic orientation focusing on customer operations. These portfolios comprise in particular: Natixis’ own investments in credit instruments and derivatives, credit correlation, the mortgage portfolios held by ABM Corp in New York and the more complex operations involving interest rate and equity derivatives.
administration, back-offi ce outsourcing, depository control), fund administration and accounting, issuer services, order receipt and transmission, offi ce services; payments – systems and infrastructure: electronic banking, ■
issuance and collection of high-volume electronic transfers, check processing; insurance: life insurance, non-life insurance, personal risk ■
from the CIB division) and consumer fi nance; guarantees and bail bonds: this business line is operated by ■
This business line was restructured in 2007. The fi rst step taken was to merge GCE Affacturage with Natixis Factor, thus consolidating its position as the No. 3 factoring company in
Over half of its revenue is derived from international markets, which continue to enjoy signifi cant potential for development.
Receivables management has an extensive distribution network comprising: its own network inherited from Coface covering 64 countries, ■
supported by the Credit Alliance network (91 countries); the Banques Populaires and Caisses d’Epargne retail banking ■
These companies are thus able to focus on their core business of achieving high performance, while retaining the option of developing their own institutional clientele and benefi ting from the business line’s other support functions, based on appropriate economic models. A number of them have forged a strong reputation, such as Harris Associates, Loomis Sayles, IXIS AEW
Natixis’ main objectives in terms of capital management are to ensure that the Group meets the capital requirements imposed by its external environment and maintains an adequate rating to sustain its activity and to maximize shareholder value.
Natixis adapts the management of its capital structure in line with the changes taking place in economic conditions and in the risk characteristics of its operations.
The purpose of controlling large exposures is to prevent an excessive concentration of risks on a single benefi ciary. The requirement is based on an ongoing dual obligation: all of the risks carried on a single benefi ciary must not exceed 25% of the bank’s regulatory capital, and all of the risks carried on benefi ciaries who individually exceed 10% of the bank’s regulatory capital must not exceed 800% of its regulatory capital. Natixis complied with this requirement during 2008.
Payroll costs not only include wages and salaries net of rebilled expenses but also employee benefi ts such as pensions (defi ned benefi t plans) and share-based payments in accordance with
The main provisions for employee-related liabilities concern: CAR supplementary banking pension; ■
Retraites) pension fund, for which Natixis employees from the former Caisse Centrale des Banques Populaires were also eligible, was closed on December 31, 1993 in accordance with the industry agreement of September 13, 1993 applicable to the Banque Populaire banks under the Group agreement of
Pension liabilities to active and retired employees comprise supplementary pensions specifi c to the Banque Populaire
The Social Security fi nancing act for 2009 amends the ■
The Group does not believe that this modifi cation will change the current assumptions as to employees’ age of retirement.
The new measure is thus without impact on the amount of the
If the employer decides to retire an employee, a lump-sum benefi t becomes payable the amount of which must equal either the amount of termination benefi t calculated as above or, if more advantageous, the specifi c end-of-career award provided for by the applicable collective bargaining agreement or individual employment contract.
January 1, 2008; former Natixis Altaïr employees were included in the Natixis ■
benefi t plan with effect from April 1, 2008 following the absorption of this entity; former Gestitres employees were included in the Natixis benefi t ■
On July 1, 2008, following the contribution of certain Group operations to CACEIS, the employees concerned left the Natixis benefi t plan.
The drift rate for healthcare expenses is 4.3%, of which 1.8%
relates to infl ation and 2.5% to aging of the population.
For end-of-career and long service awards, employee turnover is calculated by age bracket and grade based on a three-year average. The rate is 0% for employees over 55. Future salary increases are estimated by grade based on a constant population and three-year average.
Actuarial gain or loss on return on plan assets 23 3 26
Change in actuarial gains or losses not recognized 41 17 (8) 51
The signifi cant fall in the expected return on plan assets mainly relates to ex-Crédit National’s pension plan. It refl ects the sharp drop in the equity markets at December 31, 2008.
Natixis grants share subscription options to certain of its employees. The options may be exercised during a 3 year period following a 4 year vesting period. As provided for by IFRS 2, options granted after November 7, 2002 and the rights to which have not yet vested at the balance sheet date are measured at their fair value at the date on which they were granted. The fair value is computed using a Black and Scholes valuation model and is charged to payroll costs over the vesting period by crediting equity. The amount is adjusted at each balance sheet date to refl ect in particular any changes in the number of options outstanding. Any adjustment required also affects both the current and subsequent accounting periods.
for the loss in value of the share arising as a result of the creation of preferential rights of subscription to the September 2008 share issue; the change in the number of shares subject to option is ■
intended to compensate for the reduction in the share option exercise price whilst remaining consistent with the total share subscription price expected to be paid by each benefi ciary at the time of exercise of his or her options.
(1) Volatility has been based on past experience for the Natixis share and on the estimated gap between the historical and implicit volatility for companies with a similar profi le.
(2) Based on the Bank’s standard rate curve applying to interbank swaps.
(3) Dividend payment rates generally correspond to the last dividend payment made without future progression while maintaining this last level.
Natixis shares to each member of staff with the Natixis, Banque
Populaire and Caisse d’Epargne Groups. More specifi cally, this allocation concerned employees working in France and with at least three months seniority on the allocation date, within the following entities: Natixis; ■
entities whose capital is at least 50%-owned – directly or ■
indirectly, exclusively or jointly – by Natixis, one of its central institutions or an affi liated bank.
Altogether, 101,402 employees were awarded a total of 6,084,120 shares on November 12, 2007.
This bonus share allocation is governed by the French Law of 2006 for fi nancing profi t-sharing and employee shareholding. It was authorized at Natixis’ Extraordinary General Shareholders’
The Plan is based on three stages spread over four years: November 12, 2007: allocation date and start of the two year ■
At the start of this period, each employee still present will receive their shares and will allocate them to a registered account or mutual fund for a mandatory two-year holding period. Employees thus own the shares from the start of this period. They are entitled to dividends, but are not allowed to sell their shares.
As of this date, the shares will be available to be held under the same conditions as before, at no cost for benefi ciaries, or to be sold at any time.
Number of options allotted Date of acquisition Date of availability Share value
(1) 24.08.2007 for US benefi ciaries & 24.08.2008 for European benefi ciaries.
All options under the 2004 NGAM and Natixis Multimanager plans were exercised in the course of 2008.
Following the reorganization of Corporate and Investment Banking (CIB) and the refocusing of its business, its results are now reviewed by new CIB and CIB – GAPC (Workout Portfolio Management). They were as follows as of December 31, 2008: (in millions of euros )
Assets at fair value through profi t and loss 275,183 657 1,756 7,183 130 585 285,493
Financial liabilities at fair value through profi t and loss 273,723 73 859 29 696 275,380
Assets at fair value through profi t and loss 202,918 72,265 275,183
(in millions of euros ) New CIB CIB - WPM CIB Total
Financial liabilities at fair value through profi t and loss 221,211 52,512 273,723
CIB division segregated assets. These portfolios comprise the assets most affected by the crisis along with the assets that no longer fi t within the new Natixis strategy (see Note 10); Asset Management [3] is responsible for the asset management ■
activities performed by various subsidiaries, including NGAM; Private Equity and Wealth Management [4] comprises private ■
(Pramex and Natixis Algérie); Receivables Management [6] houses the credit insurance ■
operational, including its own holding company activities serving its direct subsidiaries. Net banking income derives from the management of its corporate treasury, real estate income and institutional activities performed on behalf of the
Net amortization, depreciation and impairment (146) (20) (35) (1) (7) (208)
Assets at fair value through profi t and loss 204,807 29,945 48,967 84 1,691 285,493
Financial liabilities at fair value through profi t and loss 200,559 23,192 48,628 85 2,916 275,380
assets/liabilities; fi nancial guarantees treated as derivatives; these are credit ■
derivatives and are included in the derivatives table; fi nancial guarantees that meet the defi nition of an insurance ■
To customers 105,339 100,861 - Real estate guarantees 1,133 1,597 - Administrative and tax bonds 550 669 - Other bonds and endorsements extended 82,154 72,111
In accordance with IAS 39 (§ 2), fi nancing commitments outside the scope of IAS 39 are recognized in accordance with IAS 37,
IAS 39: commitments classifi ed as fi nancial liabilities at fair value ■
through profi t and loss. If an entity has a practice of reselling or securitizing credits just after they are issued, these loans are subject to IAS 39 beginning in the commitment phase; commitments which are subject to netting (disposal); ■
A fi nancing commitment extended is a contingent liability, defi ned by IAS 37 as: a possible obligation arising from past events whose existence ■
not recognized because: it is not probable that an outfl ow of resources representing ■
FINANCIAL DATA6 Financial data Notes to the consolidated fi nancial statements 15.3 - Commitments on securitizations
The Natixis Group structures securitization transactions on behalf of its customers and investors using specifi c conduits.
(Versailles, Elixir Funding and FCC Nacréa); these totaled €3.5 billion as of December 31, 2008.
A liquidity line in the amount of €2.8 billion was also extended to a vehicle (Hudson Castle) for which the Group is a co-sponsor.
Victory Receivables Chase, Banca Pop Dell Aadige, Northwest and Cedulas) for a total of €1.4 billion.
The following table presents assets and liabilities by their remaining contractual maturity.
(in millions of euros ) Less than 1 month 3 months 3 months to 1 year 1 to 2 years 2 to 5 years
Available-for-sale fi nancial assets 436 1,194 1,969 4,840 17,133 5,340 30,911
Financial liabilities at fair value through profi t and loss 38,383 14,515 4,670 4,713 12,540 16,205 91,027
Debts and payables with fi nancial institutions 47,460 21,586 9,444 5,158 7,536 5,416 96,600 16.2 - Information on finance leases and operating leases 16.2.1 Leases as lessor
Less than 1 year > or equal to 1 year 1 to 5 years Over 5 years Total
The main transactions between Natixis and related parties (Groupe Banque Populaire, including Banque Fédérale and its subsidiaries and Banque Populaire banks and their subsidiaries, Groupe Caisse d’Epargne, including CNCE and its subsidiaries and Caisses d’Epargne banks and their subsidiaries, investments consolidated proportionally with respect to the portion not eliminated for consolidation purposes and all affi liates consolidated by the equity method) are described below: (in millions of euros )
Assets at fair value through profi t and loss 1,130 5,311 50 3,877 2,407 42 Available-for-sale fi nancial assets 2,465 5,752 1,618 4,175 55 Loans and advances to banks 16,511 9,557 86 16,960 10,087 2,337 Customer loans and receivables 583 4 482 6 Held-to-maturity fi nancial assets 131 44 162
Financial liabilities at fair value through profi t and loss 5,086 12,046 1,095 949 3,769 252
Net fee and commission income (18) (69) (12) (242) 58 (11) Net gains or losses on fi nancial instruments at fair value through profi t and loss 154 8 (45) 103 (957) 6 Net gains (losses) on available-for-sale fi nancial assets 1 Income and expenses from other activities (70) (46) 2 45 (31)
Revaluation adjustments on portfolios hedged against interest rate risk 29 149
Financial liabilities at fair value through profi t and loss 2,832 871
Revaluation adjustments on portfolios hedged against interest rate risk 7 188
(in millions of euros ) Banque Populaire CCI’s Caisse d’Epargne CCI’s
Net gains or losses on available-for-sale fi nancial assets 446 827
Share of income from affi liates consolidated by the equity method 10
Consolidation restatements: - Profi t from the increase in the share in income 25 78
(1) In 2008, as in previous years, attendance fees paid to members of the Supervisory Board included a fi xed portion (€10,000 per year per person) and a variable portion (€2,000 per Board meeting per person). Members of the Audit Committee and of the Compensation Committee a fi xed payment (€5,000 and €3,000, respectively) and a variable payment of €1,000 per meeting per person. This compensation was paid in full at the end of the year.
Mr. Dominique Ferrero, Chief Executive Offi ce and member of the Executive Board of Natixis 904,270 1,104,262
Mr. Dominique Ferrero, Chief Executive Offi ce and member of the Executive Board of Natixis - 292,600
Mr. Dominique Ferrero, Chief Executive Offi ce and member of the Executive Board of Natixis - -
This plan provides defi ned benefi ts based on a variable percentage determined by the date of entry into the plan, with a maximum benefi t of €370,000 less all Social Security, ARRCO,
The closing of this plan was approved by the Compensation committee and the Supervisory Board on December 18, 2008.
The following members of the Executive Board became potential benefi ciaries of this plan during the period November 17, 2006 to December 18, 2008: Mr. Dominique Ferrero; Mr. Anthony
Assurances and its subsidiaries (life insurance, personal risk insurance, non-life insurance), Foncier Assurances (life insurance)
It also shows the consolidated contribution by the insurance companies in the banking format.
The main reclassifi cations concern general operating expenses, which are analyzed by application in the insurance format and by nature in the banking format.
Technical reserves and claims expenses are charged to net banking income rather than recognized as cost of risk.
Capital gains and losses on disposal of investments (net of reversals of depreciation and amortization) 27 27 27 27
Investment income (net of expenses) (459) (372) (4) (376) (83) (459)
Net gains or losses on available-for-sale fi nancial assets (155) 345
In return for their services, the Statutory Auditors were paid the following fees: (in millions of euros )
Audit, certifi cation, review of individual and consolidated fi nancial statements 7,230 3,914 73% 61% 3,480 2,737 74% 65% 3,428 2,270 87% 99%
Fully and proportionally consolidated subsidiaries and branches 765 1,039 8% 16% 39 1,298 1% 31% 4 20 0% 1%
Legal, tax and employee-related 607 367 6% 6% 108 0 2% 0% 62 8 2% 0%
Patrick de Cambourg, Immeuble Exaltis – 61, rue Henri-Régnault – 92075 La Défense Cedex. ■
Reydel will expire with the General Annual Meeting called to approve the 2009 fi nancial statements.
General Annual Meeting of November 17, 2006, for a term of six years ending as of the General Annual Meeting called to approve the 2012 fi nancial statements.
NATIXIS ASIA Ltd Other fi nancial company FC 100 100 100 100 Hong Kong
NATIXIS AUSTRALIA PTY Ltd (23) Financial institution FC 100 100 0 0 Australia
NATIXIS ABM CORP LLC Trading in securitized instruments FC 100 100 100 100 United States
NATIXIS BLEICHROEDER Inc Investment company FC 100 100 100 100 United States
NATIXIS FUNDING (1) ** Market making on secondary debt market FC 100 100 100 100 France
CALIFANO INVESTMENTS LIMITED Structured fi nancing FC 100 100 100 100 Malta
NATIXIS LUXEMBOURG INVESTISSEMENTS Investment company FC 100 100 100 100 Luxembourg
NATIXIS MALTA INVESTMENTS LIMITED Funds management FC 100 100 100 100 Great Britain
IXIS ALTERNATIVE HOLDING LIMITED Holding company FC 100 100 100 100 Great Britain
NATIXIS NORTH AMERICA Inc. Holding company FC 100 100 100 100 United States
NATIXIS REAL ESTATE CAPITAL Inc Property fi nancing FC 100 100 100 100 United States
NATIXIS CAPITAL ARRANGER CORP Intermediation services FC 100 100 100 100 United States
CDC HOLDING TRUST Financing on secondary market FC 100 100 100 100 United States
IXIS LOAN FUNDING I LLC (1) Financing on secondary market FC 100 100 100 100 United States
Other fi nance company FC 0 0 100 100 United States
Financing of commercial property FC 100 100 100 100 United States
IXIS LT INVESTOR LLC (1) Other fi nance company FC 100 100 100 100 United States
CM REO HOLDINGS TRUST (1) (2) Financing on secondary market FC 100 100 0 0 United States
Other fi nance company FC 100 100 0 0 United States
NEXGEN FINANCIAL HOLDINGS Ltd Investment company FC 100 100 100 100 Ireland
NEXGEN REINSURANCE Ltd (formerly NEXGEN RE Ltd) * Reinsurance FC 100 100 100 100 Ireland
UNIVERSE HOLDINGS Ltd Investment company FC 100 100 100 100 Cayman Islands
NEXGEN MAURITIUS Ltd Investment company FC 100 100 100 100 Mauritius
NATIXIS CORPORATE SOLUTIONS (ASIA) Pte Ltd Investment company FC 100 100 100 100 Singapore
DHALIA A SICAR SCA (1) Capital-investment FC 100 100 100 100 Luxembourg
FCPR IXEN (1) Buy-in/buy-out fi nancing FC 100 88 100 87 France
NATEXIS ACTIONS CAPITAL STRUCTURANT Development capital FC 75 75 64 64 France
NATEXIS INVERSIONES SL International investment fund FC 100 81 100 52 Spain
NATIXIS PRIVATE EQUITY OPPORTUNITIES Capital-investment FC 99 98 99 94 France
BANQUE PRIVEE ST DOMINIQUE ** Private Banking FC 100 100 100 100 France
ANTEIS EPARGNE (36) Insurance brokerage FC 51 50 51 38 France
NATIXIS GLOBAL ASSET MANAGEMENT Holding company FC 89 89 89 89 France
AEW ADVISORS, Inc. Asset Management FC 89 89 89 89 United States
AEW CAPITAL MANAGEMENT, Inc. Asset Management FC 89 89 89 89 United States
AEW CAPITAL MANAGEMENT, LP. Asset Management FC 89 89 89 89 United States
AEW II CORPORATION Asset Management FC 89 89 89 89 United States
AEW INVESTMENT GROUP, Inc. Asset Management FC 89 89 89 89 United States
AEW PARTNERS IV, Inc. Asset Management FC 89 89 89 89 United States
AEW REAL ESTATE ADVISORS, Inc. Asset Management FC 89 89 89 89 United States
AEW SECURITIES LIMITED PARTNERSHIP (7) Distribution 0 0 89 89 United States
AEW VIA Co-INVESTORS, LP (2) Asset Management FC 89 89 0 0 United States
ASG LASER FUND (1) (2) Asset Management FC 89 89 0 0 United States
ASG GLOBAL ALTERNATIVES FUND (1) (2) Asset Management FC 89 89 0 0 United States
CAPITAL GROWTH MANAGEMENT, LP Asset Management EM 50 44 50 44 United States
CURZON GLOBAL Ltd Asset Management FC 89 53 89 53 Great Britain
CURZON GLOBAL PARTNERS Asset Management FC 89 53 89 53 Great Britain
NATIXIS EPARGNE FINANCIÈRE GESTION (formerly Ecureuil Gestion) * Asset Management FC 89 89 89 89 France
NATIXIS EPARGNE FINANCIÈRE GESTION FCP (formerly Ecureuil Gestion Fonds Commun Placement) * Asset Management FC 89 89 89 89 France
FEDERAL STREET MANAGEMENT, Inc. Asset Management FC 89 89 89 89 United States
GATEWAY INVESTMENT ADVISERS, LP (3) Asset Management FC 89 89 0 0 United States
HARRIS ALTERNATIVES, LLC Asset Management FC 89 89 89 89 United States
HARRIS ASSOCIATES INVESTMENT TRUST Asset Management FC 89 89 89 89 United States
HARRIS ASSOCIATES LP Asset Management FC 89 89 89 89 United States
HARRIS ASSOCIATES SECURITIES, LP Distribution FC 89 89 89 89 United States
NATIXIS DISTRIBUTORS, LP Distribution FC 89 89 89 89 United States
KOBRICK FUNDS, LLC Asset Management FC 89 89 89 89 United States
LOOMIS SAYLES DISTRIBUTORS, LP Distribution FC 89 89 89 89 United States
LOOMIS SAYLES ENERGY HEDGE FUND II, LP (1) (7) Asset Management 0 0 89 89 United States
LOOMIS SAYLES INTERNATIONAL BOND FUND (1) (2) Asset Management FC 89 89 0 0 United States
LOOMIS SAYLES SOLUTIONS, Inc. Asset Management FC 89 89 89 89 United States
LOOMIS SAYLES TRUST COMPANY, LLC (1) Asset Management FC 89 89 89 89 United States
MC MANAGEMENT, LP Holding company FC 89 89 89 89 United States
NATIXIS ASSET MANAGEMENT Asset Management FC 89 89 89 89 France
NATIXIS GLOBAL ASSET MANAGEMENT PARTICIPATIONS 1 Holding company FC 89 89 89 89 France
NATIXIS GLOBAL ASSET MANAGEMENT PARTICIPATIONS 2 Holding company FC 89 89 89 89 France
NATIXIS GLOBAL ASSET MANAGEMENT PARTICIPATIONS 4 Holding company FC 89 89 89 89 France
NATIXIS GLOBAL ASSET MANAGEMENT, LP Holding company FC 89 89 89 89 United States
NATIXIS GLOBAL ASSOCIATES ITALIA Asset Management FC 89 89 89 89 Italy
NATIXIS GLOBAL ASSOCIATES UK Distribution FC 89 89 89 89 Great Britain
NATIXIS GLOBAL ASSOCIATES, LLC Distribution FC 89 89 89 89 United States
PERCIPIO CAPITAL MANAGEMENT, LLC (34) Asset Management 0 0 30 27 United States
SEAPORT SENIOR HOUSING, LLC Asset Management FC 89 89 89 89 United States
SNYDER CAPITAL MANAGEMENT, Inc. Asset Management FC 89 89 89 89 United States
SNYDER CAPITAL MANAGEMENT, LP Asset Management FC 89 89 89 89 United States
VAUGHAN NELSON INVESTMENT MANAGEMENT, LP Asset Management FC 89 89 89 89 United States
WESTPEAK INVESTMENT ADVISORS, Inc. Asset Management FC 89 89 89 89 United States
NATIXIS AXELTIS Ltd (formerly AXELTIS Ltd) * UCITS distribution FC 100 100 100 100 Great Britain
COFACE FACTORING ITALIA SpA Factoring FC 100 100 100 100 Italy
COFACE FINANS A/S DANMARK (formerly MidtFactoring) (3) Factoring FC 75 75 0 0 Denmark
COFACE POLAND CMS (21) Financial data FC 100 75 0 0 Poland
COFACE RECEIVABLE FINANCES Factoring FC 100 100 100 100 Great Britain
COFACE SERVICE SPA Receivables management data FC 100 100 100 100 Italy
COFACE UK HOLDINGS Holding company FC 100 100 100 100 Great Britain
COFACERATING HOLDING Receivables management data FC 100 100 100 100 Germany
LA VISCONTEA IMMOBILIARE (25) Real estate company 0 0 100 100 Italy
COFACE ARGENTINA -SUCC (COFACE SA) Insurance FC 100 100 100 100 Argentina
COFACE CHILE -SUCC (COFACE SA) Insurance FC 100 100 100 100 Chile
COFACE CANADA - SUCC (COFACE SA) Insurance FC 100 100 100 100 Canada
COFACE AUSTRALIE (SUCCCOFACE SA) (2) Insurance FC 100 100 0 0 Australia
COFACE BULGARIA (Branch) (2) Insurance FC 100 100 0 0 Bulgaria
COFACE FACTORING LITHUANIA - SUCC (Coface Factoring Poland) (2) Insurance FC 100 100 0 0 Lithuania
NATIXIS BAIL ** Financial leasing FC 100 100 100 100 France
NATIXIS ENERGECO ** Equipment leasing FC 100 100 100 100 France
NATIXIS LEASE ** Equipment leasing FC 100 100 100 100 France
Promotion and international trade operations FC 100 99 100 99 Hong Kong
Promotion and international trade operations FC 100 99 100 99 Great Britain
CACEIS (USA) Inc. (formerly Brooke Securities Holding Inc.) * Holding company PC 50 50 50 50 United States
CACEIS FASTNET AMERICAN ADMINISTRATION Holding company PC 50 50 50 50 France
CACEIS FASTNET SUISSE Funds Administration PC 50 50 50 50 Switzerland
INVESTOR SERVICES HOUSE Real estate operations PC 50 50 50 50 Luxembourg
CACEIS CAYMAN Ltd (formerly Olympia Capital Cayman Ltd) * Funds Administration PC 50 50 50 50
WINCHESTER GLOBAL TRUST COMPANY Ltd Funds Administration PC 50 50 50 50 Bermuda
COMPAGNIE EUROPÉENNE DE GARANTIES ET CAUTIONS (37) Insurance FC 100 100 100 100 France
NATIXIS GARANTIES ** Lending institution FC 100 100 100 100 France
NATIXIS ALTAÏR (formerly NATEXIS ALTAÏR) * (10) Data services 0 0 100 100 France
NATIXIS PARTICIPATIONS 1 (formerly NXBP1) Holding company FC 100 100 100 100 France
FONCIÈRE VICTOR HUGO Financier institution/ extension of activity EM 20 20 20 20 France
GROUPEMENT DE FAIT Non-fi nancial institution/other EM 20 20 20 20 France
L F I (26) Financier institution/ extension of activity 0 0 20 20 France
IPAB (2) Financier institution/ extension of activity EM 20 20 0 0 France
SCI BPSO Non-fi nancial/real estate company EM 20 20 20 20 France
SCI du CRÉDIT COOPÉRATIF Non-fi nancial/real estate company EM 20 20 20 20 France
SGTI Financier institution/ extension of activity EM 20 20 20 20 France
Lending institution/ Real estate leasing EM 16 16 14 14 France
SPIG Financier institution/ extension of activity EM 20 20 20 20 France
CAISSE D’EPARGNE BRETAGNE-PAYS DE LOIRE (formerly Caisse d’épargne des Pays de la Loire) * (17)
** French subsidiaries whose individual prudential oversight is performed based on Group consolidated ratios in conformity with the provisions of Article 4.1 of Rule 2000.03 of the Accounting and Finance Rules Committee. (1) Special purpose company. (2) Established in 2008.
(3) Acquisition during 2008. (4) Deconsolidated because below materiality thresholds. (5) Disposal of 33% of the capital to non-Group entity. (6) Disposal of the subsidiary to Crédit Agricole Luxembourg. (7) Liquidated companies. (8) Cessation of operations.
(15) Deconsolidated as of 30.09.2008 because below materiality thresholds. (16) Merger of Caisses d’Epargne of Basse and Haute Normandie in fi rst half 2008. (17) Merger of Caisses d’Epargne of Bretagne and Pays de la Loire in fi rst half 2008. (18) Merger of Caisses d’Epargne Île-de France Ouest, Île-de-France Nord and Île-de-France Paris in fi rst half 2008. (19) Result of merger Caisse Régionale du Finistère and Caisse régionale Littoral Manche. (20) Result of merger Caisse Régionale de Vendée and Caisse régionale Morbihan/Loire Atlantique. (21) Reconsolidated because above materiality thresholds (22) Absorption by La Banque Monétaire et Financière. (23) First consolidation as of fourth quarter 2008. (24) Absorption by B-Process.
(27) Merger with Natixis as of 30.06.2008. (28) Acquisition of retail banks from HSBC.
(29) 3.01% buyback from minority shareholders and 1.19% earnings-per-share increase effect. (30) Merged into NAMI.
(35) Acquisition of 23.76% of CIE 1818 shares from GCE Group. (36) Effect of acquisition of 23.76% of CIE 1818 shares from GCE Group. (37) Merger into CEGC. (38) Merged into CACEIS (USA) Inc.
(39) Merger into Caceis Fasnet as of 31.12.2008. (40) 19.55% buyback from minority shareholders.
the specifi c verifi cations and disclosures required by law. ■
In our opinion, the consolidated fi nancial statements give a true and fair view of the fi nancial position and the assets and liabilities of the group of consolidated companies, and of the results of its operations in accordance with IFRS as adopted by the European
IAS 39 adopted on October 15, 2008. The amendment allows certain fi nancial assets to be reclassifi ed and is described in Note 2
As described in Note 6 to the consolidated fi nancial statements and in the management report, the fi nancial and economic crisis has prompted an unprecedented spike in volatility, a shortage of liquidity on certain markets, and a lack of visibility as regards the economic and fi nancial outlook going forward. This results in specifi c conditions for the preparation of this year’s consolidated fi nancial statements, particularly in terms of accounting estimates. In this context, pursuant to Article L.823-9 of the French Commercial Code regarding the justifi cation of our assessments, we draw your attention to the issues set out below.
As described in Notes 2, 6.1 and 7, the Group reclassifi ed a portfolio of fi nancial assets within the “Loans and advances” category, in accordance with the amendment to IAS 39 and IFRS 7 adopted on October 15, 2008. We ensured that these assets were eligible for reclassifi cation and that the accounting treatment applied and disclosures provided were in accordance with the above-mentioned amendment.
FINANCIAL DATA6 Financial data Statutory Auditors’ report on the consolidated fi nancial statements
The Group recognizes impairment losses to cover the credit and counterparty risks inherent in its businesses (Notes 6.2, 7.1, 7.3, 8.4 and 9.7 to the consolidated fi nancial statements). We examined the control procedures relating to credit and counterparty risk monitoring, impairment methodology, the assessment of risks of non-collection and the provisions set aside in this respect for individual and collective impairment.
The Group recognizes impairment losses against available-for-sale assets when there is objective evidence that such assets have suffered a prolonged or signifi cant decline in value (Notes 7.1, 8.3, 9.4 and 9.7 to the consolidated fi nancial statements). We examined the control procedures relating to the identifi cation of impairment indicators and measurement of the largest impairment losses, as well as the estimates made in recognizing impairment losses to cover the decline in value of these assets where applicable.
The Group recognized deferred tax assets in respect of tax loss carryforwards (Notes 7.19 and 8.7 to the consolidated fi nancial statements). We examined the main estimates and assumptions on which the recognition of deferred tax assets was based.
The Group records provisions to cover employee benefi ts (Notes 7.13 and 13.3 to the consolidated fi nancial statements). We examined the methodology used to measure these benefi t obligations, as well as the main assumptions and parameters applied.
These assessments were made in the context of our audit of the consolidated fi nancial statements taken as a whole, and therefore contributed to the formation of the unqualifi ed opinion expressed in the fi rst part of this report.
Investment in associates and other securities held for investment 9,644 9,385 8,996 7 Investments in related companies 14,760 12,788 14,107 4 Leasing 4 Operating leases
Revaluation adjustments 20b Regulated provisions and investment subsidies 24 47 94
See Note No.Off-balance sheet items – Commitments given 2008 2007 2006
Other interest and similar income 760 1,137 170 25 Interest and similar expenses (16,508) (18,689) (5,318)
26 Income from non-fi xed-income securities 1,417 1,078 433 27 Fee and commission income 745 798 719
Net gains/(losses) on fi nancial instrument transactions (1,567) (235) 134 29 Net gains/(losses) on securities held for sale (1,194) (789) (5)
to focus on recurring business, cutting costs, strengthening its fi nancial structure and reducing the Corporate and Investment
States (discontinuing equities derivatives activities), increasing discipline regarding risks in all businesses, ■
September 2008. The impact of this plan was assessed and provisions in the amount of -€144 million were funded, charging the 2008 accounts; in September, it carried out a capital increase in the amount ■
Natixis notes that it throughout 2008 it was able to cover its day-to-day and long-term fi nancing requirements by obtaining liquidity from the ECB and seeking loans from its two major shareholders. The Company does not foresee any diffi culties with respect to its future fi nancial obligations.
European Commission. This plan has two key components: a medium-term refi nancing mechanism targeting banks ■
Prise de Participation de l’État (SPPE), which is authorized to subscribe subordinated notes that can be included in the regulatory capital of the issuing banks.
Main impacts of the crisis on the 2008 financial statements: Natixis has not taken advantage of the possible securities ■
In the total absence of a market benchmark, the valuation of the assets represented by this exposure was established based on a valuation model. The valuation technique used is based on an assumed rate of loss calculated for each year in which loans were originated. The loss-rate assumptions were calculated as follows: 30% for loans originated in 2007 (versus 23% as of ■
and 7.5% for loans originated in prior years (versus 5.75% as ■
of December 31, 2007); Securitization holdings, excluding subprime exposure for which it has not been possible to identify a price, were valued using valuation models: a correlation model (for CSOs), ■
In addition, the stock of monoline industry provisions increased to €300 million with an additional funding €162 million.
European and American real estate markets. The German bank’s fi nancial diffi culties linked to the subprime crisis led
After the failure of certain banks in September 2008, Iceland nationalized the principality’s three leading banks (Landsbanki,
Natixis’ fi nancial statements have been prepared in accordance with generally accepted accounting principles applicable to banks, including standard CRC 2000-03 on fi nancial statement presentation.
Undisbursed amounts of loans already committed are included in off-balance sheet items on the line “fi nancing commitments given”.
Since 2000, Natixis has provided for loan impairment at three levels: 2.1 Specific provisions 2.1.1 ■ Loan principal
(leased assets and temporarily unleased assets) are recognized in “net banking income”. Termination compensation is booked as “interest and similar income”. Only the principal amount of payments on non-performing leases is provisioned under “cost of risk”.
In accordance with banking regulations: unpaid accrued interest due on loans to borrowers subject to ■
bankruptcy proceedings is deducted from the interest account in which it was initially recorded. If the interest is subsequently recovered, it is credited to income upon collection through the same account; interest on non-performing loans three, or where applicable, six ■
or nine months past due is also provisioned in full by deduction from the interest account in which it was initially recorded; all other loans made to these customers are also classifi ed as ■
non-performing, even when the risk appraisal does not require an impairment charge against the outstanding principal; the same rules apply to lease fi nancing transactions; they are ■
Edval Investment Ltd, and the vehicle set up to hold the put,
On the assets side of the balance sheet, the net outstanding balance of the loans subject to the put is covered by zerocoupon bonds held by the two entities. The results of the two entities consist solely of annual accruals to recognize the value appreciation of the zero-coupon bonds up to their redemption value in 2014, when the bonds mature and the structures will be wound up. Over this period, the value appreciation exactly matches the 100% for the loans covered by the put. Consequently, the operation has no impact on the income statement and the cash fl ow is neutral.
Assets, liabilities and off-balance sheet commitments denominated in foreign currencies are converted into euros at the exchange rates prevailing at year end. Exchange gains and losses are recognized directly on the income statement.
Translation differences arising on conversion of borrowings for which the currency risk is guaranteed by the State or which relate to institutional activities are recorded in an accruals account.
5 - Securities portfolio 5.1 Securities transactions (securities held for trading, securities held for sale, and securities held for investment)
The following rules, in conformity with the provisions of the amended Bank Regulation Committee Standard No. 90-01 on recognizing securities transactions, amended by Accounting
Regulation Committee Standard No. 2008-17 are applicable regardless of their legal form (equities, bonds and notes, treasury bills, certifi cates of deposit, negotiable instruments, money market securities, etc.), based on the purpose of the transactions: securities held for trading: ■ are securities traded on liquid markets which are bought or sold with the intention of reselling or repurchasing them within a short period. They are carried on the balance sheet at the transaction price, including any transaction expenses and accrued interest. At the period-end, they are marked to market and the resulting unrealized gain or loss is recognized in income; securities held for sale: ■ are securities not recorded as securities held for trading or securities held for investment. They are valued individually at year end at the lower of acquisition cost or fair value. An impairment charge is taken for unrealized losses but no unrealized gains are recognized. Any difference between the acquisition cost (excluding accrued interest) and the redemption price is recorded in income over the remaining life of the securities; securities held for investment: ■ are fi xed-income securities acquired with the stated intention of holding them to maturity.
They are either specifi cally funded or hedged against interest rate risk. Securities held for investment are recorded at acquisition cost (excluding accrued interest), and any difference between cost and redemption price is recorded in income over the remaining life of the securitie.
In conformity with French regulations, unrealized losses on these securities do not give rise to impairments unless they are very likely to be divested before they mature as a result of new circumstances, notwithstanding any impairment to be recognized pursuant to the provisions of CRC Standard 200203 in the event there is a risk that the issuer of the securities will default (cost of risk). No unrealized gains are recognized; treasury shares: ■ are purchased for various purposes, primarily to regulate the market price under a liquidity agreement. To this end, a total of 6,688,651 shares were held in the treasury stock portfolio as of December 31, 2008, with shares valued at a total of €10.7 million classifi ed as securities held for trading.
As a result of the capital increase in September 2008, the Executive Board at its meeting of December 8, 2008,
IFRS 7 on reclassifi cation of fi nancial assets, on December 10, 2008, the CNC issued a notice allowing banks to carry out reclassifi cations under terms similar to those cited in IFRS 7. The notice was restated in CRC Standard No. 2008-17 published on
The rules authorize banks to dispose of all or a portion of the securities reclassifi ed to “Securities held for investment” when such disposal satisfi es the following conditions: the reclassifi cation was triggered by an exceptional situation; ■
The valuation method applied was the net present value of future cash fl ows method. This method is based on business plans prepared by Management of the main subsidiaries and validated by Natixis’ Executive Management.
Income on equity securities is recorded on a cash basis. ■
Income on fi xed-income securities is recorded on an accruals ■
securities held for investment: “gains or losses” are recorded in net banking income, securities held for investment: value adjustments and gains ■
FINANCIAL DATA6 Financial data Parent company fi nancial statements and notes to the production and preparation of the software. Expenses incurred during the development phase are only capitalized if they satisfy the following conditions: technical feasibility, intention to complete the asset for internal use or sale, probability of future economic benefi ts, availability of resources and ability to reliably measure the development expenses. Expenses incurred during the research phase are not capitalized; they are charged to income when incurred.
In conformity with the new standards, a specifi c depreciation schedule is drawn up for each signifi cant component of property, plant and equipment component which has a different useful life or rate of consumption of future economic benefi ts than property, plant and equipment as a whole. For buildings used in the business and investment property, Natixis has identifi ed the following components and depreciation periods: land: ■ ns indestructible constructions: ■ ns facades, roof, waterproofi ng: ■ 20-40 years foundations, framework: ■ 30-60 years external rendering ■ 10-20 years equipment and installations: ■ 10-20 years internal fi xtures and fi ttings ■ 8-15 years
Other property, plant and equipment items are depreciated over their estimated useful lives, which range from fi ve to ten years.
Purchased software is amortized over its estimated useful life, which in most cases is less than fi ve years. Internally-generated software is amortized over a period which may not exceed fi fteen years.
11 - Interest rate adjustment charges and customer loan prepayment penalties
Interest rate adjustment charges and prepayment penalties are treated as deferred interest income and recognized on the income statement over the life of the loan in proportion to the interest income lost in each year based on the original loan repayment schedule.
Parent company fi nancial statements and notes 13 - Financial futures and options held for Natixis’ proprietary account
The notional amount of these instruments is recorded off-balance sheet for internal monitoring and regulatory purposes, but they are not included in the published statement of off-balance sheet items. Further details are provided in the notes to the fi nancial statements.
purposes as equivalent to lending or borrowing transactions and the amounts received or paid are recognized on the income statements on an accrual basis.
with respect to interest fl ows. Positions are marked to market at the period end and a provision is funded for any unrealized losses.
In the case of specialized management of a trading portfolio, ■
Changes in value during the period are recognized immediately on the income statement. Valuations are adjusted for counterparty risk and the discounted present value of future contractual management costs.
are charged or paid to the French Treasury in accordance with agreed upon terms and conditions.
Non-recurring income and expenses are unusual in terms of their nature, amount or frequency.
France at the rate of 34.43%, and at the local corporate tax rate for foreign branches.
The provision recognized on the balance sheet is equal to: the amount of the actuarial liability in respect of post-retirement ■
FINANCIAL DATA6 Financial data Parent company fi nancial statements and notes less the market value of plan assets; ■
variables, changes in actuarial assumptions such as the discount rate, ■
employee turnover and future salary increases, differences between the actual return and expected return ■
In conformity with CNC recommendation R. 2003-01, Natixis funds a provision for the entire amount of employee benefi t obligations.
Cash and balances with central banks and post offi ces 857 175 44
Securities held for sale 263 430 516 accrued interest receivable 2 11 20
(*) Subordinated loans: 214 120 accrued interest receivable 0 5 5
FINANCIAL DATA6 Financial data Parent company fi nancial statements and notes
NOTE 4 TRANSACTIONS WITH CUSTOMERS AND LEASE FINANCING AND SIMILAR TRANSACTIONS
Current accounts in debit 3,977 4,688 5,315 accrued interest receivable 17 23 18 accrued interest receivable 0 5 0
Securities held under resale agreements 10,526 18,527 2,158 accrued interest receivable 34 5 10 accrued interest receivable 5 6 4 accrued interest receivable 225 396 88
NET NON-PERFORMING AND UNRECOVERABLE LOANS 487 140 204 15 223 9
INVESTMENTS IN AFFILIATES AND OTHER SECURITIES HELD FOR INVESTMENT 9,644 9,385 8,996
D) Investments with a book value of less than or equal to €150,000 1,671,745.52
A - Breakdown of investmens with a carrying value of more than 1% of the share capital of the reporting company
30, RUE PIERRE MENDES-FRANCE 75013 PARIS 107,120 EUR 1,098,898 EUR 100.00%
62, CHEMIN DRARENI MOHAMED HYDRA ALGERIA 3,483,193 DZD 2,217,650 DZD 100.00%
68-76, QUAI DE LA RAPÉE 75012 PARIS 91,962 EUR 577,039 EUR 100.00%
1345 AV. OF THE AMERICAS NEW YORK, NY 10105-4300 151,503 USD (4,089) USD 100.00%
30, RUE PIERRE MENDES-FRANCE 75013 PARIS 117,036 EUR 16,063 EUR 100.00%
47, QUAI D’AUSTERLITZ 75648 PARIS CÉDEX 13 150,060 EUR (52,539) EUR 100.00%
68, QUAI DE LA RAPÉE 75012 PARIS 8 891 EUR 18 585 EUR 100,00 %
51, AVENUE J.F. KENNEDY L-1855 LUXEMBOURG 591,151 EUR 196,929 EUR 100.00%
36TH FLOOR 9W 57TH STREET NEW YORK, NY 10019 25 USD 1,725,749 USD 100.00%
51, AVENUE JF KENNEDY L-1855 LUXEMBOURG 53,957 EUR 5,148 EUR 100.00%
Property, plant & equipment used in the business 367 74 (28) (3) 410
Intangible assets used in the business 101 899 (75) 27 952
Property, plant & equipment used in the business 180 47 (30) 14 211
(in millions of euros ) 2008 2007 2006 securities held for trading 0 0 0 liabilities securities held for trading 48,833 46,665 3,735 accrued interest payable 0 (18) 0
Investments in affi liates and other securities held for investment (1) (71) (606) (5)
Investment in affi liates and other securities held for investment (1) 0 2
Company financial performance over the last five periods Articles 133, 135 and 148 of the Commercial Companies Decree
Income after tax, depreciation, amortization and provisions 4.43 9.37 0.61 (0.38) (1.74)
We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free of material misstatement. An audit includes examining, on a test basis or using other sampling techniques, evidence supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and signifi cant estimates made by management, as well as evaluating the overall fi nancial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the fi nancial statements give a true and fair view of the fi nancial position and assets and liabilities of the Company as of December 31, 2008, and of the results of its operations for the year then ended.
As described in Note 1 to the fi nancial statements and in the management report, the fi nancial and economic crisis has prompted an unprecedented spike in volatility, a shortage of liquidity on certain markets, and a lack of visibility as regards the economic and fi nancial outlook going forward. This results in specifi c conditions for the preparation of this year’s consolidated fi nancial statements, particularly in terms of accounting estimates. In this context, pursuant to Article L.823-9 of the French Commercial Code regarding the justifi cation of our assessments, we draw your attention to the issues set out below.
Natixis uses signifi cant estimates within the scope of its banking activities: the Company uses internal models and methodologies to measure fi nancial instruments that are not traded on an active market, −
Natixis revises its measurement of goodwill and investments in subsidiaries carried on the balance sheet (see paragraphs 5.2 and 7.3 of the note discussing signifi cant accounting policies). We examined how this work was carried out as well as the main assumptions and parameters used.
We have nothing to report regarding: the fairness of the information provided in the management report of the Executive Board and in the documents addressed to ■
shareholders on the Company’s fi nancial position and fi nancial statements, and its consistency with the parent company fi nancial statements; the fairness of information provided in the management report concerning compensation and benefi ts paid to certain corporate ■
As required by law, we verifi ed that the management report contains the appropriate disclosures concerning the acquisition of controlling interests and other shareholdings, and the identity of the Company’s shareholders.
To enable Natixis to act as the arranger in the €25 billion secured bond issue program launched by the Caisse d’Epargne Group, the
Revenue recognized with respect to this agreement in 2008 totaled €404,666.
Gentili, Yvan de la Porte du Theil, Nicolas Mérindol, Jean-Claude Créquit, Francis Henry, Bruno Mettling, Didier Patault, Jean Clochet,
On March 28, 2008, the Supervisory Board approved the shareholder advance agreement between Natixis, BFBP and CNCE for €1.5 billion, contributed in equal portions by the BFBP and the CNCE.
Furthermore, on June 26, 2008, the Supervisory Board approved an addendum to the agreement for a further €1 billion, also contributed in equal portions by BFBP and CNCE.
Charges recognized with respect to this agreement in 2008 totaled €89,616,000.
Within the scope of the €3.7 billion capital increase carried out with preferential subscription rights, on September 3, 2008 the
Supervisory Board approved a guarantee and placement agreement between Natixis, Banque Fédérale des Banques Populaires,
Caisse Nationale des Caisses d’Epargne and the banks in the placement syndicate set up in connection with said capital increase.
On December 18, 2008, the Supervisory Board approved a number of measures.
The regulations exclude any indemnities resulting from the termination of professional relations with members of the Executive
This agreement did not have any fi nancial impact in 2008.
Corporate offi cers concerned: Philippe Dupont, Jean-Louis Tourret, Philippe Queuille, Jean Clochet, Stève Gentili, Yvan de la Porte du Theil, Bruno Mettling and Bernard Jeannin.
On December 18, 2008, the Supervisory Board approved an agreement providing for the distribution of Natixis products and services to the regional banks acquired by Banque Populaire from HSBC, pursuant to which Natixis shall be the exclusive supplier of the regional banks in the businesses concerned by the agreement as from 2009. The agreement also stipulates that the terms and conditions governing dealings between Natixis and the Banque Populaire Group shall apply to the former HSBC banks.
2 AGREEMENTS AND COMMITMENTS APPROVED IN PRIOR FISCAL YEARS AND STILL IN EFFECT DURING THE YEAR
On May 30, 2007, the Supervisory Board approved the provisions of an invoicing agreement regarding the affi liation of Natixis to the
Charges recognized with respect to this agreement in 2008 totaled €11,299,423.71.
Banques Populaires banks; a letter setting out hedging transactions between Banques Populaires Covered Bonds, ■ BFBP and Natixis.
Revenue recognized in respect of these two agreements in 2008 totaled €840,000 excluding VAT.
if ■ BFBP and CNCE were to sell over 34% of the capital of CIFG Holding to a third party before December 31, 2009, Natixis would receive additional price consideration; Natixis’ entitlement to the additional price consideration would apply for up to US$800 million of any gross capital gains (before ■
factoring in capital gains tax) generated by BFBP and CNCE; Natixis would not be entitled to any additional price consideration on the portion of the capital gains exceeding US$800 million.
2.4 Mandate for risk control and assistance with the control and supervision of the CIFG Group in the interests of BFBP and CNCE
On December 19, 2007, the Supervisory Board approved a risk control and assistance mandate with BFBP and CNCE, under which
Natixis is responsible, up to December 31, 2009 (subject to renewal) or until CIFG Holding is sold to a third party, for the control and supervision of the CIFG Group (risk policy, portfolio supervision, new fi le acceptance procedures, IT systems, models, etc.) in the interests of BFBP and CNCE (the “Mandate”).
Under the Mandate, Natixis is entitled to fees equal to the costs it incurs, plus 10%.
In a letter dated April 15, 2008, Natixis was informed that CNCE and BFBP had decided to jointly terminate the December 20, 2007
Revenue recognized with respect to this agreement in 2008 totaled €31,319.04.
2.5 “Clic’n Trade” partnership and service agreement between Ixis CIB, CNCE and Banque Palatine
2.6 Letters of joint and several guarantees and commitments terminated or expired
Similarly, Ixis CIB signed a number of letters of joint and several guarantees and commitments with its US subsidiaries, namely
For joint and several guarantees entered into with CDC Finance-CDC Ixis, the creditors of Ixis CIB for transactions secured under these guarantees that were entered into before the expiry of the respective guarantees, may, in accordance with the letter from the
Chief Executive Offi cer of CDC dated October 12, 2004, exercise their rights directly against CDC through to the maturity of the transactions guaranteed, as if this commitment had been taken out directly by CDC on behalf of Ixis CIB’s creditors.
Charges recognized by Natixis with respect to this agreement in 2008 totaled €8,926,805.
2.7 Letters of joint and several guarantees and commitments in force
and: a) Natixis Financial Products Inc. (formerly Ixis Financial Products Inc.) for the USMTN program. The guarantee given by Ixis CIB in connection with this agreement may be invoiced at 0.02%; b) Natixis Financial Products Inc. (formerly Ixis Financial Products Inc.) for the USMTN program. The guarantee given by Ixis CIB in connection with this agreement may be invoiced at 0.02%; c) Natixis Securities North America Inc. (formerly Ixis Securities NA) for lending/borrowing transactions. The guarantee given by Ixis
CIB in connection with this agreement may be invoiced at 0.02% per year, applicable to the overall exposure with average risk over the period.
2.8 De facto association agreement between CDC, CNCE (replacing CDC Ixis in its rights and obligations) and Ixis CIB (formerly CDC Ixis Capital Markets)
CDC Ixis in its rights and obligations) and Ixis CIB (formerly CDC Ixis Capital Markets).
2.9 Agreement entered into between Ixis CIB (formerly CDC Ixis Capital Markets) and Natixis Securities (formerly CDC Ixis Securities) relative to research office services
On December 19, 2001, the Supervisory Board approved an agreement between Ixis CIB (formerly CDC Ixis Capital Markets) and
Charges recognized by Natixis with respect to this agreement in 2008 totaled €3,867,864.
On June 15, 2006, the Supervisory Board approved a number of agreements providing for the transfer of software user rights and services between Ixis CIB and Crédit Foncier de France (“CFF”).
Under the agreement, Natixis can indirectly benefi t from the facilities granted by the SFEF, according to the following principles: each central institution borrows from the SFEF against a pledge of collateral;−
The purpose of master agreements is to defi ne the terms and conditions for intra-Group loans. The purpose of fi nancial guarantee master agreements is to organize Natixis’ collateral arrangements.
Charges recognized by Natixis with respect to this agreement in 2008 totaled €4,473,199.40.
Composition, preparation and organization of tasks undertaken by the Supervisory Board
Information about the composition of the Supervisory Board and the preparation and organization of the tasks it undertakes is provided in the section on corporate governance.
Populaire and Caisse d’Epargne Groups. The merger took place on November 17, 2006, following the CECEI’s authorization on
Natixis’ internal control system respects the principles underlying the CECEI’s approval dated November 15, 2007 and complies with the legal and regulatory requirements arising from amended
Natixis is subject to the joint controls of its two shareholders and central institutions, Banque Fédérale des Banques Populaires and Caisse Nationale des Caisses d’Epargne. These institutions are responsible for ensuring that their respective groups respect risk monitoring requirements on a consolidated basis. To ensure overall consistency, structures and systems for coordinating permanent and periodic controls were set up when Natixis was created. Similarly, the Risk, Compliance and Audit departments are integrated into the business units of the two shareholder groups.
Many external standards apply, due to the diversity of business lines in which Natixis operates, however the principal standards are as follows: as a lending establishment, Natixis is governed by the ■
Modernization Act of July 2, 1996); as regards internal controls, it is subject to the specifi c banking guidelines resulting from
CRBF regulation 97-02 and its additional clauses; as a provider of investment services, Natixis is subject to the ■
published by professional associations whenever the regulator recommends or enforces their application (for example, the
the Group’s organization standards and also the regulations defi ned by the regulators in the markets in which Natixis has offi ces (in particular, the Financial Services Authority in the
United Kingdom, BAFIN in Germany, Banca Centrale in Italy, the Financial Supervisory Authority in Japan, the Federal
Regulatory Authority in Ireland), where the activities exercised locally are subject to these regulations; regarding periodic control, Natixis enforces the standards set ■
Natixis’ internal control system is organized around several sets of rules: a set of charters and procedures which standardizes and ■
Natixis’ lending decision process, market risk charter, charter for measuring, controlling and managing operational risk, charter for managing compliance risk, etc.); Natixis Group’s audit charter; ■
conduct applicable to Natixis’ staff (especially concerning confl icts of interest, money laundering, professional compliance and the protection of confi dential information, etc.).
Natixis’ permanent and periodic controls are organized as operational or functional fi rst-tier controls, up to the highest level.
different levels of control. This separation results in: a distinction between front- and back-offi ce functions, ■
Although responsibility for fi rst-tier controls rests with the heads of operational or functional departments, secondtier permanent controls and periodic controls are carried out by independent central functional departments, the heads of which, within the meaning of Articles 7 and 11 of CRBF
regulation 97-02, report directly to Natixis’ executive body within the meaning of Article 4 of the same rule; Natixis organizes its internal control functions into global units ■
Banque Populaire. This organization is geared to ensuring a consolidated approach to risk within the framework of the joint control exercised by the two shareholder groups (and central institutions), and the regulatory requirement to monitor risk on a consolidated basis as specifi ed in amended CRBF
These controls are carried out by operational or functional departments under managerial supervision. These departments are responsible for: verifying the compliance of transaction processing ■
Second-tier control has remained unchanged during 2008; its actors are the Compliance Department and the IT Systems
Internal control procedures recommendations and covers all of the Natixis Group, including subsidiaries and branches.
processes, products and transactions, and signifi cant changes to existing products. This opinion is accompanied by the right of blockage or appeal, within the framework of New Product
compliance risk at the consolidated Group level, in conjunction with the business lines; ensuring centralized recording of dysfunctions that entail ■
amended regulation 97-02, at subsidiary or business-line level, with a view to consolidating them at Group level and reporting them to the two shareholder groups; defi ning the conditions for exercising the alert facility provided for in the above article, in keeping with confi dentiality requirements regarding information providers; preparing regular summary reports for use by Natixis’ Executive ■
The Compliance Department reports to the Chairman of the Executive Board, and is independent of operational departments. The Chief Compliance Offi cer is responsible for permanent compliance risk controls, as defi ned in Article 11 of regulation 97-02.
Natixis’ Compliance Department operates on a business line basis, guiding and prompting action by Compliance managers in subsidiaries and branches via a strong functional and hierarchical link.
approval to the attachment, appointment or withdrawal of a subsidiary’s Compliance manager; Natixis’ Chief Compliance Offi cer participates in annual ■
The professional ethics function is in charge of ensuring that all regulations applicable to providers of investment services governing Natixis, its subsidiaries and all of its employees, are appropriately publicized and enforced.
Natixis S.A. issued new internal regulations and a compliance manual at the beginning of 2008. Particular attention has been paid to reminding employees of their obligations when engaging in personal transactions and in improving control over such transactions in parallel to the application of the European Markets in Financial Instruments Directive (MiFID). These new standards have been appropriately adapted by subsidiaries.
The circulation of sensitive information and the detection of confl icts of interest are now processed via a modern IT system that is widely used within the Corporate and Investment Banking business lines. This facilitates the holding of lists of insiders and
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND INTERNAL CONTROL (ARTICLE L.225-68 OF THE FRENCH COMMERCIAL CODE)7 Internal control procedures improves the recording and archiving of information in respect of actual or potential confl icts of interest.
Monitoring of transactions has been largely reinforced thanks, in part, to the implementation of the new “know your client”
Measures to counter the fi nancing of terrorism were also pursued by frequent updating of the European and American (OFAC)
listings, monthly review of client databases, training sessions, and improved software and fi ltering of transactions. Order originators are subject to verifi cation of identity for payments both issued and received, as provided for by European regulation 1781/2006, and action has been taken (in particular with banking correspondents)
The Compliance Department’s permanent second-tier controls focus on: transaction compliance: this involves checking that both ■
especially related to anti-money laundering efforts and the detection of market abuse; controls based on document checks and, if appropriate, on-site ■
(knowledge of and classifi cation of the client, applying Chinese walls, managing confl icts of interest, etc.).
The approach takes into account the areas of risk highlighted by the operational risk function and which might have an impact in the fi eld of compliance.
The Head of ITSS works for Natixis and its subsidiaries, and with service providers, vendors and clients. Responsibilities include: ensuring that policy is always appropriate to the risks ■
The Head of ITSS for Natixis and subsidiaries reports directly to the Head of IT Systems and Shared Services, and works closely with the Compliance, Internal Audit and Risk Departments. He also takes part in the main Management Committees in charge of the Bank’s controls and operational risks, and especially in: the Control Functions Coordinating Committee; ■
IT security mechanism and the various parties engaged in managing, implementing and controlling IT systems security policy: heads of ITSS within subsidiaries are in charge of applying ■
security policy locally as appropriate for each subsidiary; the business lines are in charge of implementing security policy ■
locally and providing advice and assistance within their area of responsibility; IT project management teams who are in charge of setting up ■
systems from security failures by means of instantaneous correction of information fl ows; redefi nition of the infrastructure for technical alerts and its ■
Fédérale des Banques Populaires (BFBP) and Caisse Nationale des Caisses d’Epargne (CNCE) – in accordance with the principles approved by the CECEI on November 15, 2007. Also in accordance with these principles, Internal Audit heads up a global audit function.
Group (parent company, subsidiaries and branches), covering all classes of risk involved in the Bank’s various business activities.
It has full and unrestricted access to all information, confi dential
Internal audit reports are sent to the audited units, to the Executive
CNCE’s internal audit departments also receive a copy of all internal audit reports issued by Natixis, in accordance with the provisions fi led by the CECEI on November 15, 2007.
Internal Audit is responsible for following up progress in implementing its recommendations. It conducts follow-up audits, making use of recurrent work carried out by permanent control teams when this is required.
The audit plan may be revised during the year at the request of the Executive Board or if required by circumstances.
BFBP and CNCE’s Internal Audit Departments. To this end, seven Internal Audit Coordination Committee meetings took place during the year.
were proposed to Natixis’ main subsidiaries in France. They have been approved by Natixis’ Audit Committee. Most of them have been signed by the persons in charge of the companies concerned, whilst others are still subject to the approval of the companies’ executive bodies during 2009; work continued on the integration of the auditors located in ■
Natixis’ main French and foreign subsidiaries and branches into the audit function run by the Internal Audit Department; continuing efforts were made in 2008 to rationalize and ■
standardize Internal Audit’s methodologies and tools, particularly as regards the follow-up of audit recommendations which was addressed by specifi c surveys and by implementing a dedicated system.
The Risk Department contributes to the secure development of the Natixis Group by ensuring that the risk control system is both effective and exhaustive. Its scope of action extends to the following risks: credit risks; ■
The Risk Department plays a key role in the Bank’s permanent control system by identifying, measuring and controlling risk. It makes proposals to the Executive Board and keeps it informed about Natixis’ exposures and their development. It also reports to the Supervisory Board and Audit Committee by providing them with reports and periodic analyses.
Natixis’ risk management mechanism is coordinated and consistent with those of the Groupe Banque Populaire and the
The Risk Department is responsible for analyzing counterparty credit risk using a formalized credit dossier for each counterparty and benefi ciary group. This dossier includes all relevant information for reaching a decision, such as: information about the client and its business operations, ■
Department prior to entering into business relations, and internal ratings, taking country risk into account; external data, e.g. external credit agency ratings, sector ■
analyses, country risk and sovereign risk ratings, etc.; information regarding commitments, and the credit fi le ■
Each credit dossier submitted for a decision must include a ratings proposal and a recommended limit.
(without the right to sub-delegate), by the Chief Executive Offi cer or any person with the appropriate authority. They are graded according to the counterparty’s category and internal credit rating, and to the type and duration of the commitment.
Natixis bases its credit management decisions on an individualized internal rating system (decision-making, monitoring, etc.).
In coordination with the central institutions, Natixis chose the rating methodologies applicable to the asset classes held jointly by the three groups. A joint tripartite organization for assigning roles and monitoring in the ratings area was also developed in collaboration with Groupe Banque Populaire and Groupe Caisse d’Epargne. The objective was to ensure the uniformity and consistency of the methodologies used and ratings attributed.
The Bank’s commitments are measured and monitored on a daily basis using dedicated consolidation tools.
An IT system is used to consolidate overall limits and credit exposures across the whole of Natixis and most of its subsidiaries. Counterparty groups were set up and incorporated into the counterparty database. These groups are maintained on a dedicated basis: each counterparty is allocated a unique identifi cation number, one for the regulatory group to which it belongs, and another for the counterparty’s group rating.
Internal management criteria (business lines, offi ce, etc.) are also taken into account.
Each business line is accountable for monitoring its own credit risk, while a dedicated team within the Risk Department carries out different control actions.
Affairs and Litigation Department, and to the business line involved, in accordance with watch list and alert procedures.
Special Affairs and Litigation Department, which intervenes in the management of diffi cult cases when necessary. It also handles the recovery of receivables in the event of legal proceedings.
Each core business has a Provisioning Committee that meets quarterly. Provisioning Committees examine cases liable to require provisions or adjustments to existing provisions.
Offi cer and comprises the Risk and Special Affairs and Litigation
Since the transition to IFRS, these provisions have been categorized as collective provisions and established for similar types of assets according to the following criteria: credit rating for loans to private individuals and small ■
Where necessary, an expert opinion is sought in order to confi rm the result obtained.
The market risk management and control system is primarily the responsibility of the front offi ce, which manages and monitors the limits allocated to them on a daily basis.
The market risk management mechanism is based on a validated risk measurement methodology, the allocation of limits in accordance with this methodology and ex-post checks to ensure these limits are respected.
Carlo VaR simulation and, following a review in 2008, has been approved by the French Banking Commission for use for regulatory purposes.
for different time periods in order to take account of the recent evolution of the fi nancial markets. The reviews enabled the establishment of a new basis of calculation refl ecting a system of econometrics with standard variations defi ned as the maximum standard variations observed over the following periods: 12 months, 3 months and from September 1, 2008 to the date of calculation. The change in methodology was accompanied by an adjustment of risk limits.
As a result, six global historical stress tests were set up and two new global hypothetical stress tests were defi ned (Emerging
As regards specifi c stress tests, a review was undertaken with CIB
GAPC (Workout Portfolio Management). In parallel, signifi cant changes were made to the process of risk monitoring (in particular by defi ning new limits) and to the Risk Department’s reporting requirements.
The functions and organization of Market Risk Control at Natixis are described in Natixis’ Market Risk Regulation Charter, which was approved by the Group Risk Committee in March 2007 and amended in February 2008 and January 2009. The charter defi nes: the principles and system governing Natixis’ market risk ■
Natixis’ Risk Department plays a key role in the market risk management mechanism: it provides an independent (i.e. non-business line) view during ■
the market risk decision process; it defi nes risk measurement and fair value adjustment methods ■
and submits them to the Market Risk Committee for approval; it proposes or examines limits, whether they are requested by ■
Market Risk Committee; it is responsible for the day-to-day analysis and measurement ■
of risks, using a process designed to ensure that all risks to which Natixis has signifi cant exposure are duly taken into account and, secondly, the reliability and uniformity of the calculations made within the Group; it is responsible for defi ning, implementing and operating ■
As regards limit allocations, the Market Risk Committee (which exists since Natixis was created) meets twice monthly under the chairmanship of the Chief Executive Offi cer or his delegate, a member of the Executive Board.
The system is based on business line delegations and determining factors such as: VaR amounts; ■
percentage increase in the event of a request for an increase ■
structural balance sheet risks. It meets once a quarter to defi ne relevant risk management policy and concentrates on the following duties: monitoring on- and off-balance sheet movements; ■
defi ning internal refi nancing (transfer pricing) rules for the ■
The ALMS Committee’s remit covers the banking portfolios of the Bank’s head offi ce and of those branches and subsidiaries presenting signifi cant structural balance sheet risks. In line with the tripartite convergence plan for monitoring structural balance sheet risks taken through Natixis’ double affi liation, the supporting documents and minutes of all committee meetings are sent to the central institutions where Natixis’ risk is monitored on a consolidated basis. As provided for by the convergence plan, Natixis’ ALMS system is about to be interfaced with those of the central institutions.
The Corporate and Investment Bank’s Treasury function is located in its offi ces in Paris, New York and Singapore. It handles refi nancing for all of Natixis’ operations. By centralizing the overall short-, medium- and long-term refi nancing requirements for a large number of currencies, the Treasury function constantly optimizes liquidity costs for the benefi t of the Group as a whole. It also facilitates an issuing policy that seeks maximum diversifi cation of Natixis’ debt, in terms of both instrument and geographic area.
As a corporate and investment bank, the bulk of Natixis’ overall liquidity and interest-rate risks stem from the mismatching of transactions with contractual maturities. As a result, with the exception of structural positions, the impact of ALMS
Overall interest-rate risk on the Treasury Department’s portfolio, which is primarily linear, is measured and tracked daily by the
Subsidiaries managing their own interest rate exposure and possessing material positions are subject to predefi ned sensitivity limits for a rate change of 100 bp (approved by the
The fi nancial crisis, which began during the summer of 2007 and worsened in 2008 following the failure of Lehman Brothers, led to signifi cant tensions in the markets and a considerable rise in the cost of liquidity. Natixis reacted early in 2008 by a policy of prudent management, restricting its market operations requiring signifi cant liquidities in order to limit its very short-term borrowings to the strict minimum. It also set up and optimized a bank of collateral eligible for central bank refi nancing and took advantage of the opportunities provided by the authorities for such collateralized fi nancing. Natixis’ own measures, taken in conjunction with the policies implemented by its central institutions, enabled it to cope with the failure of the inter-bank market experienced in 2008.
Finally, Natixis was able to complete its medium-term refi nancing program for 2008, which mainly took the form of private and public issues as well as of use of the new measures instituted by the French ministry of fi nance.
The Operational Risk function is in charge of monitoring and controlling risks arising from the inappropriateness or failure of procedures, employees and internal systems or from outside events.
The missions and organization in respect of operational risks are described in Natixis’ Charter for Measuring, Controlling and Managing Operational Risks which was approved by its Operational Risk Committee in September 2007. The Charter defi nes: procedures for measuring operational risks: ■
The Group’s Operational Risk System is placed under the supervision of Natixis’ Operational Risk Committee. This policymaking body acts by delegation of the Executive Board and as such, has full powers in respect of all matters within its scope of responsibility. The Committee is chaired by a member of the
The main achievements of 2008 have been as follows: group-wide rollout of the dedicated reporting system and ■
December 31, 2008; support for key action plans such as: ■
consolidated fi nancial statements using the consolidation system and manual now developed and administered by
Natixis S.A. As a listed company Natixis is required to prepare its own consolidated fi nancial statements, albeit the group of which it is the parent is included as part of the two consolidated groups formed by Groupe Banque Populaire and Groupe Caisse d’Epargne.
applicable to Group companies, including analysis and interpretation of new IFRS texts issued during the period; use of the direct consolidation method (now being rolled out ■
consolidated entities providing input to the consolidation system, promoting the use of best practices throughout the
Copernic consolidation system on schedule which: allows for the preparation of IFRS compliant local reporting ■
packages, including deferred tax transactions and balances, and includes automated notes to the consolidated fi nancial statements; ensures unifi ed data for the Group’s banking and insurance ■
The development of a regular, formal approach to closing procedures, which began with the September 2007 quarterly consolidation, continued during 2008. It aided the scheduled compliance with the new regulatory constraints (the transparency directive) as well as the quarterly publication of fi nancial statements.
Despite the change in IT systems, the process of reduction of reporting deadlines thus continued and enabled a gain of seven days in publishing the annual fi nancial statements compared to 2007.
systems so they can be input automatically; continuing to revise the accounting for intra-Group transactions ■
The fact that most subsidiaries have their own management and control functions means that internal control procedures are decentralized. Procedures are tailored to the organization of each of the consolidated entities. In all cases, the process includes several layers of controls: basic permanent and local controls included in processing ■
For all systems, Natixis and its subsidiaries continued efforts to upgrade their accounting and fi nancial control procedures and develop adequate audit trail tools. The Group’s Finance
At the parent company level, Natixis has undertaken the preparation of an overall plan for its accounting systems (SSDS)
Structure) so as to ensure consistent use by the Group’s various systems; a specifi c database enabling centralization of all the information ■
required by the systems generating fi nancial statements and regulatory returns; an inventory and accounting reconciliation engine integrated ■
(inventory and transactions) and adaptable to different accounting code parameters; dedicated data warehouses enabling the confi guration of ■
During this phase, the coexistence of two accounting systems, magnifi ed by the migration of other applications towards the targeted management systems, complicated the accounting processes and increased the number of specifi c reconciliations performed.
suspense monitoring processes. In addition to the standard reconciliation and comparison functions, the tool includes a suspense control module that applies a risk-based approach to fl ag each item and monitor its elimination.
justifi ed maintaining, despite the merger of the accounting teams, separate control programs for Capital Markets and other operations.
responsibility for data justifi cation and product information, and which also executes additional controls.
Most of the guiding principles for Accounting Control, as set out in its charter, have now been deployed although they are not yet fully harmonized nor based on the same systems.
Dedicated projects had to be set up to restructure accounting interfaces and add certain new functionalities.
and the associated new databases, the transfer of certain functionalities previously handled by ■
Control, without compromising the scope of control or the level of quality required for fi nancial statement preparation. The aim is to improve the function’s competencies and productivity within the context of the planned adjustments to levels of employment.
processes or changes to systems; simplifi cation of fi rst-tier control by regrouping the control teams ■
In this context, and once GEAC has migrated to Matisse, a review will be performed to assess the scope for increased convergence of the accounting control systems.
The use of a unique application solution will enable accounting control to be reinforced and to provide for Group-wide centralized monitoring.
be performed within the business lines, thus complementing the periodic second-tier controls performed.
2009 will also see the centralization of the accounting control programs applied locally by each consolidated Natixis entity, thus contributing to the continuous improvement of fi nancial statement preparation.
In addition to the control procedures followed by the fi nancial departments responsible for preparing individual or consolidated accounts, the quality of accounting controls is verifi ed by: ad hoc audit assignments conducted by the Internal Audit ■
as banking regulator; audits carried out by the three fi rms of external auditors, who ■
Natixis’ compliance with Group policies and the effectiveness of local internal control procedures.
Board and the Audit Committee – which met fourteen times during the year – has paid particular attention.
Natixis has also continued to assume the constraints of the merger process initiated at the end of 2006, and to progress towards its objective of consolidating its approach to corporate governance and integrating and rationalizing its internal control systems.
COMMERCIAL CODE (CODE DE COMMERCE), ON THE REPORT PREPARED BY THE CHAIRMAN OF THE SUPERVISORY
This is a free translation into English of the Statutory Auditors’ report issued in French prepared in accordance with Article L.225-235 of the French Commercial Code on the report prepared by the Chairman of the Supervisory Board of Natixis on the internal control procedures relating to the preparation and processing of accounting and fi nancial information issued in French and is provided solely for the convenience of English-speaking users.
This report should be read in conjunction with, and construed in accordance with, French law and the relevant professional standards applicable in France.
It is our responsibility: to report to you on the information contained in the Chairman’s report in respect of the internal control procedures relating to the ■
preparation and processing of accounting and fi nancial information; and to attest that this report contains the other disclosures required by Article L.225-68 of the French Commercial Code, it being ■
specifi ed that we are not responsible for verifying the fairness of these disclosures.
Chairman’s report in respect of the internal control procedures relating to the preparation and processing of accounting and fi nancial information. These procedures mainly consisted of: obtaining an understanding of the internal control procedures relating to the preparation and processing of accounting and fi nancial ■
On the basis of our work, we have nothing to report on the information in respect of the company’s internal control procedures relating to the preparation and processing of accounting and fi nancial information contained in the report prepared by the Chairman of the
We hereby attest that the Chairman’s report includes the other disclosures required by Article L.225-68 of the French Commercial
Ownership of shares by members of management and supervisory bodies 444
Report from the Executive Board on the resolutions to be put to the vote at the General Shareholders’ Meeting
They can be broken down into three groups: the fi rst nine resolutions (from the 1st to the 9th) are ordinary ■
business for 2008 (accounts, regulated agreements) as well as the ratifi cation of co-optations and appointments to the
Supervisory Board since the last General Meeting; the next nine resolutions (from the 10th to the 18th) are ■
extraordinary business and relate to the change in company administration and management as well as the transfer or renewal of authorizations and delegated fi nancial powers; the last 22 resolutions (from the 19th to the 40th) are more ■
In the first and second resolution, the Shareholders’ Meeting is being asked to approve, respectively, Natixis individual and consolidated fi nancial statements for 2008.
The third resolution aims to appropriate earnings by charging it entirely to retained earnings and the issue premium.
The fourth resolution concerns the approval of regulated agreements, in application of Article L.225-86 of the French
The fifth and sixth resolution aim to approve and expressly ratify the master credit and fi nancial guarantee agreements concluded, respectively with Banque Fédérale des Banques