Temporary cessation of activity agreement: On February 18, 2002, the Banque Populaire Group signed an early retirement (CATS) agreement, in accordance with the AFB agreement of January 15, 2001. On August 30, 2002, the Banque Populaire Group and the French Ministry for Social Affairs, Labor and Solidarity signed a CATS early retirement agreement, under which benefits paid within the framework of the agreement are exempt from social security contributions.
X.2 - Number of employees 12/31/2005 12/31/2004 EU IFRS 2004 IFRS
Actuarial gain or loss on liabilities 15 22 /////// 3 41 Actuarial gain or loss on return on plan assets (7) (1) /////// - (8) Other actuarial gains or losses 1 (1) /////// 1 1
Change in actuarial gains or losses not recognized 9 20 0 4 33
Items not recognized under IAS 19 16 30 - 7 53 Remaining changes in pension schemes - (12) - - (12)
X.4 - Share-based payment plans IFRS 2 relates to four plans allocated after November 7, 2002, rights to which had not yet vested as at January 1, 2005.
This charge concerns share-based payment plans allocated within the scope of Natexis Banques Populaires
in € millions Corporate & Private Services Receivables Other Total Institutional Equity Mana- businesses
The interim figures presented above are based on the four core businesses of Natexis Banques Populaires as defined in 2004: - Corporate and Institutional Banking and Markets [1] comprises Corporate France (including lease financing), International, Global Debt & Derivatives Markets, Natural Resources & Related Industries, Equity Group and Mergers & Acquisitions.These activities are principally conducted by Natexis Banques Populaires, Natexis Lease and Natexis Bleichroeder.
Financial assets measured at fair value through profit or loss 16,813 1,185 7,915 123 116 (139) - 26,013
Technical reserves of insurance companies - - 25,334 903 - - - 26,237
Impairment charges and other credit provisions (54) (10) (16) - - - (81)
Net income attributable to equity holders of the parent 439 119 71 (1) 70 (3)
Financial assets measured at fair value through profit or loss 21,641 712 3,286 - 419 (46) 26,013
A financial guarantee commitment is a contract that requires the issuer to compensate the business guaranteed in the event of losses incurred as a result of a debtor failing to pay contractual instalments.The exercise of these rights is subject to the realization of an uncertain future event.
XII.2 - Financing commitments In accordance with IAS 39 (§2), financing commitments outside the scope of IAS 39 are recognized in accordance with IAS 37, “Provisions, contingent liabilities and contingent assets”.
If the financial conditions of a commitment are below market conditions, a discount is recognized in expenses, with a corresponding increase in accrued income and deferred expenses.This discount is then integrated into the loan and in the calculation of the effective interest rate.
° a reliable estimate of the amount of the obligation cannot be made.
Assets ( in € millions) On Less than 3 months 1 year More than Indefinite Total demand 3 months to 1 year to 5 years 5 years
Aggregate present value of minimum lease payments 176 2,096 2,379 - 4,651 Unearned finance income //////// //////// //////// 492 492 Contingent rents recognized //////// //////// //////// - Provisions for irrecoverability of minimum lease payments //////// //////// //////// - -
Finance leases Unguaranteed residual value accruing to lessor 131 76 - 206
Financial assets measured at fair value through profit or loss 859 - - 127 - Available -for-sale financial assets 2,951 2 - 1,644 5 -
Financial liabilities at fair value through profit or loss 391 - - 31 - -
Retirement allowances The Chairman and the Chief Executive Officer of Natexis Banques Populaires belong to the supplementary group pension scheme open to all executive officers of the Banque Populaire Group, in accordance with the provisions of the status accorded to this category.
This scheme is open to the Chairman in respect of his functions at Banque Fédérale des Banques Populaires and at Natexis Banques Populaires.
On retirement or early retirement, a payment is made equal to one-fortieth of annual compensation per year of service at the Banque Populaire Group, up to a maximum of 40/40ths of annual compensation.
This table reconciles the amounts recognized in the separate accounts of insurance companies (consolidated accounts of subgroups in the case of the Coface Group) and the amounts recognized in the consolidated financial statements presented in the banking format.
The main reclassifications concern general operating expenses, which are analyzed by destination in the insurance format and by nature in the banking format. At the level of net banking income, insurance income and expenses that are similar to banking income and expenses (interest, gains and losses on financial assets at fair value through profit or loss, gains and losses on available-for-sale financial assets and fees and commissions) are reclassified under related line items in the banking format, in the interests of consistency. Movements in technical reserves and loss expenses are deducted from net banking income and not recognized as impairment losses.
Investment income transferred out of the technical account - - - - - - -
Investment income transferred from the technical account (31) (31) - (31) - - (31)
XIII.5.2 - Insurance companies’ contribution to the consolidated income statement in € millions 12/31/2005 12/31/2004 EU IFRS 2004 IFRS
Interest and similar income 820 779 Interest and similar expenses (22) (38) Fees and commission (income) 98 88 Fees and commission (expenses) (310) (242) Net gains or losses on financial instruments at fair value through profit and loss 91 (148) Net gains or losses on available-for-sale financial assets 242 23 Income from other activities 4,475 3,536 Expenses from other activities (4,521) (3,261)
Other - PTF JVO XXX- purchased 24,446 - 24,446 - - - - 24,446 24
Other - PTF JVO XXX- purchased 37,491 - 37,491 - - - - 37,491 789
Auditors’ report on the consolidated financial statements Year ended December 31, 2005
This is a free translation into English of the Statutory Auditors' report issued in the French language and is provided solely for the convenience of English speaking readers.The Statutory Auditors' report includes information specifically required by French law in all audit reports, whether qualified or not, and this is presented below in the opinion on the consolidated financial statements.This information includes an explanatory paragraph discussing the Auditors' assessments of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the consolidated financial statements.
I. Opinion on the consolidated financial statements 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 consolidated financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting methods used and significant estimates made by management, as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion.
II. Justification of our assessments In accordance with the requirements of Art. L823-9 of the French Commercial Code (Code de commerce) relating to the justification of our assessments, we draw your attention to the following matters: Estimates made within the context of banking activities
The assessments were made in the context of our audit of the consolidated financial statements, taken as a whole, and therefore contributed to the formation of the unqualified opinion expressed in the first part of this report.
III. Specific verification We also verified the information provided in the management report, in accordance with professional standards applicable in France.
Richard OLIVIER Olivier DURAND José Luis GARCIA Damien LEURENT Michel SAVIOZ
Loans and advances to banks 1 65,174 47,782 48,331 of which institutional activities 16 250 333 421 of which institutional activities 16 697 1,133 1,099
Commitments received from financial institutions 3,795 3,744 1,643 Commitments received from customers 19 869 542
Guarantees received from financial institutions 3,564 5,143 1,692 Guarantees received from customers 2,878 2,640 2,091 of which institutional activities 16 263 345 450
PARENT COMPANY FINANCIAL STATEMENTS AND NOTES TO 12/31/2005 Parent company balance sheets At December 31
Due to central banks and post offices 7 412 22 1 of which institutional activities 16 322 408 515 of which institutional activities 16 727 1,166 1,137
Regulated reserves & government grants 13b 106 111 108 of which institutional activities 16 93 100 98
Commitments given on behalf of financial institutions 2,839 2,020 1,344 Commitments given on behalf of customers 17,061 15,959 15,284 of which institutional activities 16 1 2 5
Net gains/(losses) on trading account securities 21 161 92 35 Net gains/(losses) on trading account securities 74 257 43 Net foreign exchange gains/(losses) 269 41 3 Net gains/(losses) on financial instruments (182) (206) (11)
Depreciation, amortization and impairment of property, plant & equipment and intangible assets 24 (21) (27) (26)
Net gains/(losses) on disposals of non-current assets 26 32 (108) (18)
Irrecoverable loans include loans where an event of default has occurred, restructured loans where the borrower has once again defaulted and loans classified as non-performing for more than one year once a write-off has been envisaged.
In accordance with banking regulations: n unpaid accrued interest 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 receipt through the same account; n interest on non-performing loans three, or where applicable, six or nine months past due is also provided for in full by deduction from the interest account in which it was initially recorded; n all other loans made to these customers are also classified as non-performing, even where the risk appraisal does not call for an impairment charge against the principal amount outstanding; n the same rules apply to lease financing transactions, where a provision is taken for the amount outstanding when a lease payment or any incidental costs are more than three months (equipment) or six months (real estate) past due.
In 1991 and 1992, a defeasance transaction was carried out and a put option was purchased on BFCE sovereign risks. The defeasance structure, Edval Investment Ltd, and the structure set up to hold the put option, Worledge Investment Ltd, were consolidated for the first time at December 31, 2002. In accordance with paragraph 10052 of standard CRC 99-07, consolidation of these two entities led to an adjustment of provisions covering at-risk loans covered by the put option. On the assets side of the balance sheet, the net outstanding balance of the loans concerned by the put option is covered by zero-coupon 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 defeasance structure will be wound up. Over this period, the value appreciation exactly matches the provisions required to write down the full amount of the loans covered by the put option. Consequently, the operation has no impact on the income statement and the cash required to refinance the transactions is offset by a cash inflow.
1.2.2 Industry and country risk provisions These provisions cover cer tain businesses of Natexis Banques Populaires that carry potential future risks. These businesses are reviewed quarterly and where necessary included in the basis of provisioning for sound exposure in countries or industries likely to experience difficulties. During these quarterly reviews, the country and industry provisioning rates are adjusted according to Natexis Banques Populaires' perception of how the businesses will
As of January 1, 2005, assets that are not specifically identified as impaired are divided into groups of assets with similar credit risk characteristics on an industry by industry basis. Each group of assets is assessed for objective evidence of impairment based on observable data indicating a probable decrease in the estimated recoverable cash flows for that group of assets. Collective provisions are taken to cover any estimated losses. Assets that are subsequently specifically identified as impaired are no longer included in the groups of assets assessed collectively.
1.2.3 Fund for General Banking Risks (FGBR) A fund for general banking risks, consisting of amounts set aside from post-tax income, completes the range of provisions for general risks.
1.3 Securitization transactions Securitizations are transactions that transfer credit risk without disposing of the underlying portfolios.They consist of synthetic securitizations based on credit derivatives carried out jointly with third party banks and special purpose entities. In substance, the credit derivatives are equivalent to credit insurance protecting Natexis Banques Populaires against the risk of borrower default or debt rescheduling.
1.4 Conversion of assets and liabilities in foreign currencies Assets, liabilities and off-balance sheet commitments denominated in foreign currencies are converted into euros at the year-end exchange rate. Realized and unrealized exchange gains and losses are recognized in profit or loss. Exchange 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.
1.5 Securities portfolio 1.5.1 Securities transactions (trading account securities, securities held for sale, debt securities held for investment) Securities are classified according to the purpose of the transaction regardless of their legal form (equities, bonds and notes, treasury bills, certificates of deposit, negotiable instruments, money market securities, etc.), based on the following rules: n Trading account securities: these 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 in the balance sheet at cost, including transaction expenses and accrued interest. At the period-end, they are marked to market and the resulting unrealized gain or loss is recognized in profit or loss.Trading account securities that are still in the portfolio six months from the date of acquisition are transferred to “securities held for sale” at their market price on the transfer date; n Securities held for sale: these are securities acquired with the intention of holding them for a period of more than six months.They are valued individually at the year-end at the lower of cost or estimated fair value.An impairment charge is taken for unrealized losses but unrealized gains are not recognized. Premiums and discounts, corresponding to the difference between the cost of fixed-income securities (excluding accrued interest) and their redemption price, are taken to profit or loss over the remaining life of the securities; n Debt securities held for investment: these are fixedincome securities acquired with the intention of being held in principle to maturity. They are either match-funded or hedged against interest rate risk.They are recorded at cost (excluding accrued interest), and any premium or discount between cost and redemption price is deferred and taken to profit or loss over the remaining life of the securities.
In accordance with French banking regulations, provisions are not systematically taken for unrealized losses, unless there is an intention to dispose of the securities in the short term. In this case, provisions for market risk are charged to “net gains/(losses) on disposals of non-current assets” and provisions for counterparty risk to “impairment charges and other credit provisions”; n Treasury stock: treasury shares are purchased for two purposes: i) to regulate the market price under a liquidity agreement, and ii) to pay for acquisitions. The number of treasury shares held as of December 31, 2005 totaled 1,608,345 with a value of B226 million, recorded in “trading account securities”.
n Equity securities held for investment are securities acquired with the intention of being held in the medium to longterm in order to sell them at a profit. They are booked at cost and an impairment charge taken if their net book value is higher than their estimated value (based on recent transaction values, profitability, market price for listed securities or other valuation methods used at the time of acquisition).
Internally-generated computer software is measured at the total cost of development, including related hardware costs, service costs and personnel costs directly attributable to the production and preparation of the software. Expenses incurred during the development phase are only recognized as intangible assets if they meet conditions of technical feasibility, intention to complete the asset for internal use or sale, probability of future economic benefits, availability of resources and ability to measure the development expenditure reliably. Expenses incurred during the research phase are recognized in profit or loss when they are incurred.
1.7.2 Subsequent measurement After recognition, assets are carried at cost less any accumulated depreciation, amortization and impairment losses.
Where perpetual subordinated loan notes are treated as equivalent to debt repayable in installments, each periodic payment is broken down between the repayment of principal, which is deducted from the outstanding debt, and interest, which is recognized in profit or loss as interest expense.
1.9 Participating notes Remuneration paid in respect of participating notes is treated as interest payable and recognized in profit or loss on an accruals basis.
1.12 Debt and share issuance costs With effect from January 1, 1994, Natexis Banques Populaires elected to defer all debt issuance expenses over the life of the debt, as permitted by tax legislation (law of August 8, 1994) and in line with trends in the nature of such expenses, which are in substance an additional financing cost.
1.13 Financial futures and options held for own account The notional amount of these instruments is recorded offbalance sheet for internal monitoring and regulatory purposes, but they are not included in the published statement of off-balance sheet items. Further details are provided in the notes to the financial statements.
1.13.1 Interest rate instruments These instruments are classified according to the purpose for which they are acquired: – micro-hedging (hedging of specific transactions or positions ); – macro-hedging (structural balance sheet management); – speculative position-taking; – specialized management of a trading portfolio.
n The accounting treatment of speculative positions is identical with respect to interest flows. Positions are marked to market at the period end and a provision taken against any unrealized losses.
Income and expenses on hedging transactions are recognized in profit or loss on a symmetrical basis with the income and expenses on the hedged items.
In the case of non-hedging activities, positions in a class of option or forward contract are marked to market at the period end. Changes in value during the period are recognized immediately in profit or loss. For over-the-counter instruments, a discount may be taken against the market value in respect of modeling risks or uncertainty over parameters, via a charge to provisions for financial instruments.
1.13.4 Institutional activities Commitments given to banks that grant export credits financed in foreign currencies in order to fix the exchange rate of their foreign currency borrowings are not included in published off-balance sheet commitments. Income and expenses arising on institutional activities (swaps and exchange rate guarantees) are charged to or paid to the French Treasury in accordance with agreed terms and conditions.
1.14 Exceptional items Exceptional income and expenses are items of income and expense that are unusual in terms of their nature, amount or frequency.
1.15 Corporate income tax The tax charge for the year comprises current taxes payable in France at the rate of 34.93%, and at the local corporate tax rate for foreign branches.
Natexis Banques Populaires uses independent actuaries to measure its main liabilities as well as the supplementary banking pension.
Standard CRC 2002-10 on component accounting for property, plant and equipment has been applied as of January 1, 2005. Following a review of the company’s assets, an additional depreciation charge of B5.2 million was recognized in respect of previous years by deduction from 2005 opening equity.
Standard CRC 2002-03 requires provisions for non-performing loans to be discounted as of January 1, 2005. This impact of this change of method was recognized through 2005 opening equity in the sum of B15.7 million.
1.18 Notes to the financial statements Unless otherwise stated, the figures shown in the notes to the parent company financial statements are expressed in millions of euros.
Accrued interest receivable 2 2 2 Securities received under repurchase agreements: 36,582 28,502 28,719 Accrued interest receivable 332 179 196
Current accounts in debit 4,347 4,238 4,235 Accrued interest receivable 13 13 13 Non-performing loans 200 78 124
Securities purchased under resale agreements 544 - 1,012 Accrued interest receivable 5 - 7
Note 3 Bonds, Equities and other fixed and variable income securities
Non- Irreco- Non- Irreco- Non- Irreco- Non- Irrecoin € millions performing verable performing verable performing verable performing verable
* The pro forma 2003 figures show a breakdown between non-performing and irrecoverable loans based on the provisions of the opinion issued by the CNC Urgent Issues Task Force on December 18, 2003.
Investments in subsidiaries 4,248 3,857 3,989 Carrying value 4,370 3,970 4,029
B) Financial institutions NATEXIS PRIVATE EQUITY 17,470,555 465,121,212.11 VAL “A” 1,672,000 282,278,635.00 NATEXIS AMBS (New York) 287,051 243,324,574.04 NATEXIS ASSET MANAGEMENT 1,718,978 176,992,625.36 SOCIETE FINANCIERE BFCE 6,052,992 92,950,977.55 SPAFICA 42,823 63,472,935.72 NATEXIS COMMODITY MARKETS 20,000,000 24,037,340.85 INVEST KAPPA 576,131 5,045,513.67 NATEXIS SLIB 748,693 12,696,599.52 FINANCIERE CLADEL 607,894 10,099,315.45 NBP Preferred Capital 1 (New York) 1,000 1,004.00 NBP Preferred Capital 3 (New York) 11,500 9,748,241.07 NBP Preferred Capital 2 (New York) 10,000 8,478,270.77 NATEXIS ASSET-BACKED MANAGEMENT CORPORATION 100 10,028,858.60 INVESTIMA 6 SAS 690,922 6,562,719.00 NATEXIS SERVICOS 37,861 2,088,400.77 NATEXIS FINANCE 162,003 1,599,698.82 NATEXIS INVESTMENT CORP 3,217 2,552,930.38 NATEXIS ASSET MANAGEMENT IMMOBILIER 89,609 1,241,227.11 SPAFIC 2,494 651,221.92 CONTANGO TRADING SA 9,994 223,415.30 SAINT DOMINIQUE RADIO 3,850 38,500.00 NATEXIS US FINANCE CORPORATION (New York) 65,000 55,098.75 SAGP 990 15,092.45
C) Other COFACE 14,214,684 694,107,112.61 NATEXIS ASSURANCES 7,084,558 593,334,877.47 AUXILIAIRE ANTIN 8,338,449 127,118,835.53 NATEXIS IMMO EXPLOITATION 7,674,462 124,002,112.22 NATEXIS ALTAIR 6,274,985 14,445,332.68 NATEXIS IMMO DEVELOPPEMENT 92,673 6,775,626.92 SAMIC 250 1,804,187.29 NATEXIS INVESTOR SERVICING 110,896 5,324,166.67 SCI HAUSSMANN 90 1,809 2,757,802.72 INVEST DELTA 14,994 1,228,582.06
A) Banks and credit institutions I.K.B 2,200,000 29,430,369.72 BANCO FINANTIA 7,582,190 10,051,810.14 OSEO 133,372 3,242,831.92 W.G.Z. BANK 8,700 1,091,345.87 B.P. DI NOVARA 14,400 231,696.78 UNIGRAINS 5,467 186,978.50 PARNASSIENNE DE CREDIT 100 76,224.51 AL WASSIT - INTERMEDIATION ET CONSEIL FINANCIER 9,375 68,683.09 BANQUE GABONAISE DE DEVELOPPEMENT 16,200 67,077.57
B) Financial institutions PAI EUROPE 3 FCPR 1,369,693 6,438,662.08 MEDIAFINANCE 255,000 4,047,120.84 PROPARCO 267,300 4,017,739.19
PATRIMOINE EUROPE (SCPI) 2,941 2,767,864.37 BANQUE INTERNATIONALE ARABE DE TUNISIE ( BIAT ) 192,000 1,891,157.21 IMMOBILIERE PRIVEE 8,040 1,295,816.64 AXELTIS Ltd 627,000 1,025,777.75 AFH - AFRICAN FINANCIAL HOLDING 7,238 906,018.95 VILC - VIETNAM INTERNATIONAL LEASING CIE 1,000,000 793,563.57 MAGHREB PRIVATE EQUITY FUND LTD 995 694,222.54 SOFIPROTEOL 17,501 243,163.03 FIARO 29,166 97,508.98 PARIS TITRISATION 3,999 86,356.02 MAROC SERVICE INTERMEDIATION 10,000 66,814.00 BANQUE POPULAIRE IMAGES 7 37 37,000.00 SOFIMAC 221 33,521.89
D) Investments with a carrying value equal to or less than €15,000 - 66,054.54
NOTE 4.2 Disclosure of significant shareholdings in french companies This information is provided pursuant to the provisions of article L247-1 of the French Commercial Code
Note 4.3 Information concerning subsidiaries and associates Pursuant to Article L233-15 of the French Commercial Code
A - Investments with a carrying value in excess of 1% of the share capital of the reporting company ''000 s ''000 s
NATEXIS ALGERIE 62, chemin Mohamed Drareni - Hydra - ALGER 2,500,641 DZD 30,869 DZD 87.18% 24,990 24,990 - 64,574 894,110 DZD 333,584 DZD - *
NATEXIS ARBITRAGE 115, rue Montmartre - 75002 PARIS 60,298 EUR (17,563) EUR 100.00% 60,615 60,615 192,028 100,000 21,614 EUR 7,894 EUR - *
NATEXIS INTEREPARGNE 16 - 18, rue Jules César - 75012 PARIS 8,891 EUR 16,402 EUR 100.00% 5
NATEXIS COMMODITY MARKET ( ex Natexis Metals ) 47-53, Cannon Street - LONDON EC4M 5SH 35,788 USD (5,511) USD 100.00% 21,338 24,037 594,783 8,901 27,577 GBP 3,422 GBP - * (1)
NBP PREFERRED CAPITAL 3 1251, avenue of the Americas - NEW YORK 10020 211,500 USD (564) USD 100.00% 9,748 9,748 - - 14,037 USD 14,027 USD - *
NBP PREFERRED CAPITAL II 176, rue Montmartre - 75002 PARIS 160,000 USD (178) USD 100.00% 8,478 8,478 - - 9,910 USD 9,910 USD - *
NATEXIS SLIB 12, rue Auber - 75009 PARIS 11,979 EUR (8,559) EUR 100.00% 12,697 12,697 982 - 15,937 EUR 507 EUR - *
SPAFICA 115, rue Montmartre - 75002 PARIS 685 EUR 62,937 EUR 99.99% 63,473 63,473 31,000 - 6,862 EUR 10,200 EUR 4,625 *
Book value Outstanding Guarantees Total revenues Net income (loss) Dividends Comment of investment loans and given in previous year in previous year received in 2005
in € millions Cost Depre- Net Cost Depre- Net Cost Depre- Net ciation, ciation, ciation, amorti- amorti- amortization & zation & zation & impair- impair- impairment ment ment
Intangible assets 83 7 (8) 5 87 Purchased goodwill 24 - (3) - 21 Software 38 7 (5) - 40 Other 21 - - 5 26
Non-operating property and equipment 9 - - - 9 Land and buildings 6 - - - 6 Other 3 - - - 3 in € millions 2004 Charges and Disposals Other 2005 reversals
Intangible assets 47 (3) - (1) 43 Purchased goodwill - (1) - (1) (2) Software 33 - - - 33 Other 14 (2) - - 12
Non-operating property, plant & equipment 3 - 3 - 6 Land and buildings 3 - 2 - 5 Other - - 1 - 1
Deposits from banks 54,106 39,847 35,930 Demand deposits 10,987 8,564 9,626 Accrued interest payable 2 2 3 Other amounts due 25 27 340 Time deposits (*) 43,119 31,283 26,304 Accrued interest payable 426 207 131
(*) Including securities delivered under repurchase agreements: 31,474 23,747 18,411 Accrued interest payable 346 162 81
Accrued interest payable 4 2 2 Other amounts due 66 69 25
Securities transactions 4,791 2,389 2,695 Trading account securities 4,122 - - Liabilities on trading account securities - 2,361 2,694 Accrued interest payable 669 - -
Note 11 Provisions for contingencies and charges in € millions Employee Off- balance Country Specific Provisions Industry Tax-driven Financial Sundry Total benefits sheet risks credit for risks provisions instru- risks commitments risks litigation ment risks
At January 1, 2005 66 9 235 32 15 190 224 16 9* 796 Charges 14 22 17 14 7 53 45 16 2 190 Reversals (12) (20) (17) (5) (12) (14) (36) (14) (6) (136) Translation differences - - 16 - 1 4 1 - - 22 Other changes 77 2 - - (5) (13) 2 - (1) 62
Note 14 Share capital, share premium, reserves and retained earnings in € millions Share Share Legal General Long-term Other Retained Total capital premium reserve reserve capital gains reserves earnings reserve
At January 1, 2003 759 1,746 43 141 140 11 1 2,841 Appropriation of 2002 income - - 10 125 - - 71 206 Dividends paid in 2003 - - - - - - (71) (71) Transfer of Crédifrance Factor shares 4 15 - - - - - 19 Transfer of Sopromec shares 6 25 - - - - - 31
At January 1, 2005 772 1,796 64 275 192 11 (13) 3,097 Appropriation of 2004 income - - 10 31 - - 173 214 Dividends paid in 2005 - - - - - - (154) (154) Capital increase 4 26 - - - - - 30 Exercise of stock options 8 34 - - - - - 42 Changes in accounting methods - - - - - - (100) (100) Transfer of long-term capital gains reserve - - - - (192) 187 5 0
Off-balance sheet items: Financing commitments 20 35 33 Guarantee commitments 38 25 13 Other commitments given 3 5 (4)
Reversal of impairment charges 152 163 129 Losses covered by impairment charges (110) (104) (129) Losses not covered by impairment charges (5) (6) (8) Recovery of bad debts written off 13 14 12
Gains Investments in associates and other securities held for investment 13 8 16 Debt securities held for investment 2 4 1
Losses Investments in associates and other securities held for investment (18) (33) (9) Debt securities held for investment (1) (7) (14)
Impairment charges Investments in associates and other securities held for investment (5) (129) (33) Debt securities held for investment - - -
Financing commitments given to: 30,141 22,525 21,144 Financial institutions 3,165 2,451 2,330 Customers 26,976 20,074 18,814
Guarantees given on behalf of: 19,900 17,979 16,628 Financial institutions 2,839 2,020 1,344
Spot transactions Currencies purchased not received 6,759 8,258 5,524 Currencies sold not delivered 6,673 8,205 5,538
Foreign currency lending / borrowing Currencies loaned not delivered - 116 40 Currencies borrowed not received - 267 124
In accordance with our appointment as Statutory Auditors at the annual general meeting, we hereby present our report for the year ended December 31, 2005 on: n our audit of the accompanying financial statements of Natexis Banques Populaires; n justification of our assessments; n the specific verifications and disclosures required by law.
Without qualifying our opinion, we draw your attention to paragraph 17 of the section on accounting policies and valuation methods in the notes to the financial statements concerning changes in accounting methods.
2. Justification of our assessments In accordance with the requirements of Art. L823-9 of the French Commercial Code (Code de Commerce) relating to the justification of our assessments, we draw your attention to the following matters: n Changes in accounting methods
Paragraph 17 of the section on accounting policies and valuation methods in the notes to the financial statements describes the changes in accounting methods adopted during the year, which resulted in an overall decrease of B98.9 million in opening equity at January 1, 2005.These changes resulted from the adoption of the following standards: n Standard CRC 2002-10 on component accounting for property, plant & equipment; n Recommendation CNC 2003.R01 on accounting for employee-related liabilities in accordance with the provisions of IAS 19; n Standard CRC 2002-03 on the requirement to discount future cash flows when calculating impairment charges for nonperforming loans.
As described in paragraph 2 of the section on accounting policies and valuation methods in the notes to the financial statements, Natexis Banques Populaires recognizes impairment charges and provisions to cover the risks inherent in its business. As part of our assessment of the significant estimates used to prepare the financial statements, we examined the control procedures applicable for monitoring credit risks, assessing the risks of non-recovery and determining the related specific impairment charges as well as general provisions for industry and country risks.
Agreement authorized during the year As required by article L225-40 of the French Commercial Code (Code de Commerce),we have been advised of those agreements which were subject to prior authorization by the Board of Directors.
Agreement to transfer the payments business conducted by the Banking Services department of Natexis Banques Populaires to Natexis Paiements
This agreement was approved by the Board of Directors of Natexis Banques Populaires on September 7, 2005.The common directors are Banque Fédérale des Banques Populaires and Mr. Francis Thibaud.
1 > Corporate governance The first part of the report can be found in the section entitled “Corporate Governance” on pages 14 to 29.
2 > Internal control The internal control system of Natexis Banques Populaires is organized on a consolidated basis, including the parent company and all companies or entities over which it exercises management control (subsidiaries and branches in France and abroad).
The Finance department is responsible for the quality of financial reporting. In 2004, the entire financial reporting control system was radically restructured. A three-tier control system was established. The first level comprises accounting controllers based in and reporting to each business line.Their reports are then centralized and analyzed at the second level by internal control officers working in the Internal Control depar tment. Third-tier control is the responsibility of the Finance department’s accounting control teams.All monthly reports are produced using leadingedge shared information systems tools.
The Internal Audit depar tment reports directly to the Chairman and the Chief Executive Officer of Natexis Banques Populaires. It has functional ties to the Internal Audit depar tment of Banque Fédérale des Banques Populaires, in accordance with the char ter relating to “audit”, approved in 2005 by the Board of Directors of Banque Fédérale des Banques Populaires.
The Internal Audit department is responsible for ensuring the effectiveness of first and second-tier controls and for the smooth operation of the bank’s internal control system, as required by CRBF Regulation 97-02. It is independent from all business lines and support functions. It has no operational role and can never be in the position of both judge and interested party.
Unlike continuous control, which consists of ongoing analysis and periodical reporting, audit assignments consist of specific investigations which lead to a specific reporting process. After discussions with the audited unit, internal audit reports and the audited unit’s response are sent up the reporting line,with a copy to the Chief Executive Officer and Chairman of Natexis Banques Populaires.The Internal Audit depar tment of Banque Fédérale des Banques Populaires also receives a copy of all internal audit reports issued by Natexis Banques Populaires, in accordance with the provisions of the “audit” charter.
Internal Audit prepares an internal audit plan on a consolidated basis, which is presented to Executive Management, the Risk Management committee and the Board of Directors.
The plan also takes account of any assignments planned by the Internal Audit department of Banque Fédérale des Banques Populaires, in accordance with the “audit” charter.
In addition to conventional audit assignments, the Internal Audit department also has the means to conduct ad hoc audits to meet needs arising in the course of the year which were not originally covered by the annual audit plan.
It also broadened the type of assignment undertaken, with the aim of adapting them to changes in the bank’s environment, in terms of both risk and regulations. Several assignments were conducted with the purpose of ensuring Natexis Banques Populaires’ compliance with professional and regulatory requirements, as well as supervisory authorities ’ recommendations.
Lastly, for more effective reporting, Internal Audit made detailed presentations of its conclusions to Executive Management in 2005, as was the case in 2004.Three presentations took place in 2005.
Executive Management is responsible for defining and implementing the internal control system. An overarching committee, comprising the Board Secretary and the heads of Internal Control, Risk Management, Internal Audit, Finance, Group Compliance, Fraud Prevention and Information Systems Security meets monthly.
The committee met eleven times in 2005 to review the results of continuous and periodic internal controls and audits carried out by external organizations (Banque Fédérale des Banques Populaires, French Banking Commission etc.).
It also discussed issues relating to the structure of the bank’s internal control system and changes required by regulatory developments or developments in the bank’s business activities or environment.
It also invited various business line heads to present their progress report on recommendations made as a result of internal or external audit assignments.
2.1.2 The role of the Board of Directors See section on the Board of Directors on page 22.
Credit risk is measured and monitored using a program that covers almost all of Natexis Banques Populaires’ exposure and most of its subsidiaries’ exposure.
Quantitative monitoring is assured through procedures to measure limit violations via ad hoc committee meetings.
Bad and doubtful debts are monitored by the Special Affairs department and – in the case of legal proceedings – by the Litigation service of the Legal and Fiscal Affairs department.
Each core business has a provisioning committee that meets quarterly to review any loans that might require provisions and to determine the appropriate level.The committees are organized by the Finance department and comprise the
Chief Executive Officer, representatives from Risk Management, Internal Audit, Legal & Fiscal Affairs and Special Affairs, and the heads of the business lines concerned.
The provisioning policy includes provisions for country and industry risk, as well as specific provisions.To accompany the transition to IFRS, these provisions have been adapted into collective provisions, based on similar assets according to three factors: credit rating for loans to individuals and small businesses, and sector risk and geographical risk for other borrowers (corporate, sovereign loans etc.). Objective evidence of impairment is obtained from the analysis and extensive monitoring of business sectors and countries and usually consists of a combination of micro- or macroeconomic indicators relating to the industry or country.
Natexis Banques Populaires bases its credit decisions on an internal rating system that covers both banking and other counterparties. In preparation for the new Basel II capital requirements, Natexis Banques Populaires is taking an active part in the Banque Populaire Group’s internal project.The internal rating system, which has a scale of 16 ratings for healthy borrowers and four default categories, is supported by specialist opinion. Natexis Banques Populaires has also implemented the regulatory method for assessing structured financing. A rating model for sovereign risks will be implemented in 2006.
Proprietary trading activities can take different forms: n facilitation for Natexis Banques Populaires clients; n trading activities; n arbitrage activities; n structural interest rate risk management and maturity mismatch management through the treasury department.
The key standard metrics used are sensitivities to specific risks inherent in the various business activities (interest rate, exchange rate, equities, commodities, volatilities, counterparty, correlations etc.).
In addition to these standard metrics, Natexis Banques Populaires also uses the historical Value at Risk (VaR) to quantify the risk of losses from capital markets activities, using conservative assumptions.
Limits are set by the market risks committee, which meets monthly.
The middle office is responsible for measuring market risk on a daily basis using front office systems or specific tools.
They also control compliance with limits on a daily basis and report any violations to the head of the business line concerned, Internal Control and Risk Management.The procedure for violations of limits is then applied.
Maximum sensitivity of interest rate maturing schedules to a +/-1% shift in the yield curve remains unchanged at B100 million. This limit applies to capital markets activities, including cash flow portfolios.
On December 20, 2004, the ALM committee validated the principle of expressing sensitivity limits for refinancing books as a percentage of regulatory capital. For sensitivity to a 200 bp change in interest rates, the committee set an overall limit of 2.5% of regulatory capital, or B164 million. The Chief Executive Officer may delegate all or part of this limit.
This centralized system permits optimum management of liquidity risk through a detailed knowledge of the various gaps. Observation ratios have been approved by the ALM committee. In conjunction with the Finance Department, Global Debt & Derivatives Markets is also responsible for monitoring prudential requirements (short-term liquidity ratio and long-term financing ratio) and internal prudential ratios validated by the ALM committee.
The authorized liquidity gap and maturity mismatch limits are monitored and reviewed by the ALM committee.
Currency risk is broken down into two components: n Operational currency risk, generated by trading activities. This risk is monitored by the market risks committee and the ALM committee; n Structural currency risk, which is monitored by the ALM committee.
operational risks. The implementation of this procedure at the end of 2004 enabled the Group in 2005 to step up the process for the recording of these incidents, conduct more extensive analysis and improve the reporting system.
2.2.5 Group compliance As of January 1, 2006, under CRBF regulation 97-02 as amended relating to internal control in credit institutions, Natexis Banques Populaires is required to implement a permanent control system for compliance, security and validation of operations.
The new department covers the following areas: n Monitoring and control of the legal compliance of operations with all regulations applicable to banking and financial activities; n Compliance with professional standards (in particular those pertaining to financial activities, as set out in the General Regulations of the Autorité des Marchés Financiers); n Prevention and monitoring of fraud (in particular measures to prevent money laundering, terrorism financing and fraud); n Personal data protection and the monitoring of regulations imposed by the CNIL.
All business entities consolidated or controlled by Natexis Banques Populaires and all activities entailing a risk of noncompliance, including outsourced activities, are concerned by the control and monitoring of non-compliance risk.
The actions of the Group Compliance department are centered around two core responsibilities: n Prevention of non-compliance risk, which comprises: - Legal and operational supervision; - Defining standards and methods; - Advising operational staff; - Systematic pre-approval of new products and processes; - Training and raising the awareness of employees about compliance issues.
n Continuous supervision, through three types of checks: - Checks of the conformity of procedures; - Ad hoc checks of operations conducted as a result of warning tools; - Checks of the correct application of compliance procedures.
In 2005, the Group Compliance department’s missions were based primarily on specific functions, namely compliance, fraud prevention and protection of personal data, as well as cross-departmental functions to conduct and coordinate the actions of various compliance officers and ensure actions relating directly to compliance under CRBF regulation 97-02.
The Ethics and Compliance department is responsible for ensuring that all entities comprising the Natexis Banques Populaires Group and their employees are aware of and comply with all applicable rules of conduct, as defined by the supervisory authorities (Autorité des Marchés Financiers etc.), European directives and regulations, laws, business practices and financial market regulations.
Coordination with other control functions is carried out on a monthly basis thanks to the committee for the coordination of control functions, and regularly with teams from the Internal Control department in the business lines.
In general, the integration of compliance officers into the different entities has been satisfactory in terms of access to
information and involvement in the various committees on which their presence is required.
The main measures taken in 2005 include: n The creation of a list of compliance procedures for all business lines of Natexis Banques Populaires and its subsidiaries; n Actions to train and raise the awareness of several hundred employees; n Regulatory advice activities in all business lines; n Systematic involvement in the works of various professional organizations (AFEI,AFG,AFTI,AFIC,AFB etc.); n Checks of all aspects regarded as sensitive by regulators, such as: - monitoring of primary bond and equity market transactions; checks of the pre-allocation of orders, portfolio turnover by asset management companies; checks of staff share dealings, management of insider dealing lists; - checks of customer knowledge, account agreements, customer complaints, time-dating of orders, compliance with Chinese wall policies, correct handling of conflicts of interest etc.; n Finally, regular reporting to regulators.
The Fraud Prevention department continued in 2005 to improve internal procedures at Natexis Banques Populaires and its subsidiaries to counter money laundering and terrorism financing. Its resources were increased further for this purpose.
The various measures taken in 2004 were continued in 2005: nearly 1,800 employees underwent training in the issues involved in money laundering, including 524 at the parent company, bringing the total rate of training to 77%.
The new actions undertaken by the Fraud Prevention depar tment in 2006 include notably the decision to acquire Norkom behavioral analysis software following the study initiated in 2004.The license agreement for the software was signed at the end of September 2005.When it enters production in the second half of 2006, this software will help to enhance procedures to monitor transactions, accounts and customers that may break anti-money laundering regulations. This makes Natexis Banques Populaires one of the first banks in France to use software of this kind.
2.2.6 Information systems security The Information systems Security department is responsible for drawing up information systems security policy and rules to be respected within Natexis Banques Populaires. The information systems security officer plays a central role in designing, developing and overseeing information systems security. His role in managing information technology risk is as follows: n Providing advice to Executive Management and all employees, and providing an interface with external partners (service providers, auditors etc.) and internal units (IS unit, departments, subsidiaries, Executive Management etc.); n Drawing up rules, procedures and products to ensure information systems security, encompassing both logical and physical security; n Providing training and awareness campaigns, in close coordination with the communications department, for all group staff, par tners and even institutional and retail clients. Organizing training seminars for employees is an integral part of the awareness function; n Control and oversight incorporating a risk approach, effective action plans and procedures to follow in case of incidents; n Managing information technology risks and developing business backup and recovery plans.
These actions resulted in: n Approval of the bank’s general security policy and the determination of regulations relating to the various areas of ISO 17799; n Application of the IT security charter (security of digital and technological IT resources) and its distribution to all employees; n Development of tools to analyze threat exposure and the vulnerability of the IT system; n Meetings of committees for the coordination of information systems security functions within Natexis Banques Populaires and its subsidiaries, in particular Coface and Natexis Altaïr ; n The follow-up of recommendations resulting from internal audits and analysis of compliance plans.
for a full audit trail between the consolidated financial statements under French accounting standards and those presented under IFRS.
Reflecting the decentralized nature of the Natexis Banques Populaires group, as most subsidiaries have their own management and control functions, internal control procedures are tailored to the organization of each of the consolidated entities. In all cases, the process includes several layers of controls: n Basic permanent controls are included in processing programs at the operational level; n Second-tier independent checks of processing operations performed by the Finance and Accounting departments, to ensure the accuracy and completeness of accounting data; n Top-tier controls by the Internal Audit department, to ensure the existence and effectiveness of first and second tier controls.
These continuous and periodic controls include reviews of account analyses produced by various departments, checks to ensure that suspense items are cleared and errors corrected on a timely basis and monitoring of indicators for “sensitive” accounts.They are conducted using the various accounting information systems throughout the Group.
At group level, the change in the consolidation system as of the third quarter of 2006 should allow for Coface and its subsidiaries to be integrated into the direct decentralized consolidation system – in accordance with existing principles – while also offering a greater volume of consolidated data and extending the analysis and control functionalities.
2.4 Conclusion During 2005, Natexis Banques Populaires pursued its strategy of optimizing risk control and management systems to ensure that they meet the highest technical standards and all regulatory requirements related to its business activities.
Under the guidance of Executive Management, effor ts undertaken over a number of years were maintained in order to reinforce the human and technical resources of the bank’s risk control and monitoring teams, as well as to ensure that its structures comply with new regulatory requirements, in particular with the creation of the Compliance department.
Management is responsible for defining and implementing appropriate and effective internal control procedures, overseen by the Board of Directors.The Chairman is required to report on the company’s corporate governance system and its internal control procedures.
We conducted our investigations in accordance with the professional standards applied in France.Those standards require that we perform our procedures to assess the fairness of the information contained in the Chairman’s report with respect to internal control procedures over the financial reporting process.These procedures principally consisted of: - familiarizing ourselves with the internal control objectives and general organization, as well as internal controls over the financial reporting process, as presented in the Chairman’s report; - familiarizing ourselves with the procedures underlying the information presented in the report.
Admission to meetings All shareholders are entitled to attend and vote at general meetings, either in person or by proxy in accordance with the applicable legal and regulatory provisions, and regardless of the number of shares that they own.
Shareholders may vote by mail using a voting form completed and returned to the company in accordance with the applicable legal and regulatory provisions.
Under the conditions provided by law, double voting rights are attached to all fully paid up registered shares which have been registered in the name of the same shareholder for at least two years, as well as to any registered shares issued to shareholders free of charge for old shares conferring such rights, upon an increase in the capital stock by the capitalization of reserves, premiums or retained earnings.
Identification of shareholders Pursuant to article 5 of the bylaws and in accordance with the applicable legal and regulatory provisions, the company may request any authorized body or intermediary to provide any information about the holders of securities conferring immediate or future voting rights at shareholders’ meetings, and in particular as to their identity, nationality and address, the number of securities that they hold and any restrictions attached thereto.
Legal information Any natural or legal person that, directly or indirectly, and whether alone or in concert with other natural or legal persons, comes to hold or transfer 1%, or any multiple of that percentage, of the voting rights, must notify the company of the number of voting rights held or transferred, by registered letter with proof of receipt requested, within a period of fifteen days of their acquisition or transfer.
In the event of failure to comply with the obligation to supply information set out in the foregoing paragraph, and on the application of a shareholder representing at least 1% of the voting rights, duly recorded in the minutes of the meeting, any shares in excess of the threshold, which ought to have been declared, shall be stripped of their voting rights until the expiry of a period of two years commencing on the date on which the notification is properly given.
Approval of financial statements – Dividends The first resolution seeks approval of the Natexis Banques Populaires parent company financial statements for the year ended December 31, 2005, reporting net income for the year of B459,177,494.14.
In the third resolution, shareholders are asked to approve the proposed appropriation of earnings and the payment of a dividend.The Board is proposing to pay a dividend of B5 per share for each of the 48,995,480 shares comprising the capital stock. The dividend will be payable as of June 12, 2006.
Authority to increase the capital stock in favor of employees of the Banque Populaire Group In order to offer employees the possibility of investing or reinvesting their savings, particularly those invested in funds maturing in 2006, new investment vehicles will be proposed.
The total amount of the capital increases that may take place pursuant to this authority may not exceed 1,500,000 shares.
3 > Resolutions to be put to the vote at the Annual General Meeting of May 18, 2006 Ordinary business
Having received and considered: - the management report on the operations of Natexis Banques Populaires for the year ended December 31, 2005, - the financial statements for that year, and - the reports of the Acting Auditors, the shareholders hereby approve the financial statements as presented, including the following transfers to and from the retained earnings account since December 31, 2004: n Retained earnings at December 31, 2004 B9,121.97 - Implementation of the component approach for property assets (change of method) B(5,224,947.93)
- Adjustment of provisions for bad and doubtful receivables and securities (change of method) B(15,765,486.00)
Second resolution: Acting Auditors’ report Summary: the purpose of this resolution is to seek approval of any related party agreements governed by article L225-38 of the French Commercial Code as presented in the Acting Auditors’ special report.
The shareholders hereby approve the special report of the Acting Auditors on related party agreements governed by article L225-38 of the French Commercial Code.
The dividend for the year ended December 31, 2005 is therefore B5 per share for each of the 48,995,480 shares comprising the capital stock.The dividend will be payable as of June 12, 2006.
Sixth resolution: authority to trade in the company ’s own shares Summary: the purpose of this resolution is to authorize the company to trade in its own shares
In accordance: - with the provisions of articles L225-209 et seq. of the French Commercial Code, - with the provisions of European Directive 2003/6 and of European regulation 2273/2003 of December 22, 2003, - with articles 631-1 et seq., and articles 241–1 et seq., of the general regulations of the Autorité des Marchés Financiers, - with market practices as accepted by the Autorité des Marchés Financiers in its decision of March 22, 2005, and having regard to the description of the program published in the manner provided by the Autorité des Marchés Financiers, the shareholders, having received and considered the report of the Board of Directors, hereby grant the Board of Directors authority to purchase shares in the company.
The issue price of the new shares, which will carry entitlement to dividends as of January 1, 2006, will be 90% of the average opening prices quoted on the twenty stock market days preceding the date of this meeting, less the net amount of the dividend.
The shareholders grant all necessary powers to the Board of Directors to record the number of shares issued and the resulting increase in the capital stock, and to amend article 3 of the bylaws accordingly.
Fifth resolution: approval of the consolidated financial statements Summary: the purpose of this resolution is to approve the consolidated financial statements for 2005.
The shareholders resolve that the number of shares that may be purchased pursuant to this resolution may not exceed 5% of the company’s capital stock, namely a total of 2,449,774 shares on the date of this meeting, and that the total investment cost may not exceed B612.44 million.
For the purpose of implementing this authority, the shareholders confer all necessary powers on the Board of Directors, including the power to delegate such powers: - to place any stock market orders and enter into any agreements, particularly with respect to the keeping of registers of share purchases and sales; - to make any declarations and complete any other formalities and, more generally, do whatever is necessary to implement this authority.
With effect from the date of this meeting, this authority cancels and replaces any similar authority previously granted, and in particular that granted by the sixth resolution of the annual general meeting held on May 19, 2005.
The shareholders hereby re-elect Stève Gentili as a Director for a term of six years ending on the date of the annual general meeting held to approve the financial statements for the year ending December 31, 2011.
The shareholders hereby appoint Bernard Jeannin as a Director to replace Richard Nalpas, who is resigning from office, for the remainder of the latter’s term of office, namely until the annual general meeting held to approve the financial statements for the year ending December 31, 2009.
The shareholders hereby appoint Yves Gevin as a Director to replace Francis Thibaud, who is resigning from office, for the remainder of the latter’s term of office, namely until the annual general meeting held to approve the financial statements for the year ending December 31, 2008.
Having received and considered the report of the Board of Directors and the special report of the Acting Auditors, the shareholders hereby authorize the Board of Directors, on one or more occasions, to grant options to subscribe for new, or to purchase existing, shares to such beneficiaries as it may designate, and who may include: n employees and executive directors of Natexis Banques Populaires and of other companies in which Natexis Banques Populaires directly or indirectly holds the majority of the capital stock, n employees and executive directors of Banque Fédérale des Banques Populaires, which controls Natexis Banques Populaires, and of Banque Populaire banks and entities that are more than 50%-owned either directly or indirectly, exclusively or jointly, by Banque Fédérale des Banques Populaires or affiliated institutions.
The shareholders accordingly authorize the Board of Directors to increase the capital stock on one or more occasions up to a maximum of 500,000 options, plus the additional number of options to be granted as required by law to preserve the rights of stock option holders.
average share price quoted on the Paris stock exchange during the twenty trading sessions preceding the date the options are granted, nor less than 95% of that average rounded up to the nearest one tenth of a euro.
The shareholders confer all necessary powers on the Board of Directors to designate the beneficiaries of the options, to fix any additional terms and conditions for their allocation and exercise in accordance with the above principles, and to complete any formalities required to record the capital increase arising from the exercise of the options.
The maximum number of shares that may be issued pursuant to this authority shall be 1,500,000.
The Board of Directors may set the terms and conditions of eligibility for the share issues, and in particular any length of service conditions, the period during which employees may exercise their rights, and any other terms and conditions of the capital increase, including particularly the manner of reduction of applications in the event of excess subscriptions.
This authority shall automatically involve a waiver by the shareholders and in favor of the employees of any preferential subscription rights in respect of this increase in the capital stock.
In accordance with the regulations in force, this authority is granted for a period of twenty-six months.
Fourteenth resolution: authority to reduce the capital stock in the context of a share buyback program Summary: the purpose of this resolution is to authorize the Board of Directors, if it sees fit, to reduce the capital stock of the company by the cancellation of shares.
Fifteenth resolution: powers for formalities The shareholders hereby confer all necessary powers on the bearer of a copy or extract of the minutes of this meeting for the purpose of completing any filing or publication formalities required by law.
Date of incorporation and term The Company was incorporated on November 20, 1919 under the name Crédit National. Its term was increased to 99 years on November 9, 1994, unless extended or wound up early.The name “Natexis Banques Populaires” was adopted by the shareholders at their meeting on July 27, 1999.
Corporate object Pursuant to Article 2 of the bylaws, the company’s corporate object in France and abroad is: n the conduct of all and any banking business and related businesses within the meaning of the French Banking Act; n the provision of all and any investment services as defined in the French Monetary and Financial Code; n the performance of specific assignments on behalf of the French State in economic and financial areas under the provisions of special agreements; n the conduct of all and any brokerage business; n the acquisition of interests in companies, groups or associations with a direct or indirect connection with the activities referred to above; n the completion of all and any private and commercial transactions.
As permitted by law, the Board of Directors may decide to pay an interim dividend either in cash or in shares.
Annual dividends shall be paid on the date or dates set by the Board of Directors but no later than nine months after the year end.
No more than one third of the directors in office may be more than 70 years of age.
A temporary vacancy in the directorship representing employee shareholders, particularly following the process of first appointment or replacement of the incumbent for whatever reason, shall not affect the validity of the Board’s deliberations.
Article 11 – Powers of the Board of Directors The Board of Directors shall determine the company’s business strategy and ensure that it is implemented.Within the limitations of the corporate object and subject to powers expressly attributed by law or by these bylaws to general meetings shareholders, it shall consider any matters affecting the running of the company and shall pass resolutions governing its business. The Board of Directors may carry out such inspections and verifications as it considers appropriate.
It may decide to create committees responsible for considering and reporting to the Board on matters referred to them for examination by the Board and its Chairman. The Board of Directors shall give an opinion on substantial investments in the capital of other companies or the creation of new subsidiaries.
The same provisions shall apply to the Vice Chairman, if one has been appointed.
The Chairman of the Board of Directors shall represent the Board of Directors. He shall organize and direct its work and report thereon to the general meeting of shareholders. He shall ensure that company bodies operate correctly, and in particular that the directors are in a position to carry out their functions.
The remuneration of the Chairman shall be determined by the Board of Directors.
Article 13 – Meetings of the Board of Directors Meetings of the Board of Directors shall be called by its Chairman as often as the interests of the company require. In the event that the Chairman is unable to act, meetings of the Board may be caught by the Vice Chairman, if one has been appointed, or failing that, by the Chief Executive Officer, whether a director or not.
In the event that the Chairman and, if applicable, the Vice Chairman, is absent or unable to attend, the Board shall appoint one of its members present to chair the meeting. The Chairman or Vice Chairman, if one has been appointed, shall chair meetings of the Board. In the event of a tied vote, he shall have a casting vote save in respect of the appointment of the Chairman of the Board of Directors.The Board shall appoint a secretary from among its members or otherwise. Minutes of meetings shall be prepared and copies or extracts of resolutions shall be issued and certified in accordance with current regulations.
Article 16 – Chief Executive Officer The Board of Directors may appoint a Chief Executive Officer from among its members or otherwise.
The Chief Executive Officer shall have the broadest powers to act in all circumstances on behalf of the company, and shall exercise such powers within the limitations of the corporate object and subject to those powers expressly attributed by law to general meetings of shareholders and to the Board of Directors.The Chief Executive Officer shall represent the company in its relations with third parties. The chief executive officer may be dismissed at any time by the Board of Directors.
The chief executive officer may delegate part of his powers to any representative of his choice, with or without the ability to nominate a replacement.
The remuneration of the chief executive officer shall be determined by the Board of Directors.
Article 17 – Deputy Chief Executive Officers On a proposal from the chief executive officer, the Board of Directors may appoint between and five deputy chief executive officers.
Article 18 – Liability of executive directors The directors and the chief executive officer shall be liable to the company or to third parties for breaches of the legal provisions governing société anonymes, for breaches of these bylaws and for mismanagement, in accordance with and subject to the penalties provided by the current legislation.
They may receive remuneration the amount of which shall be determined by the Board of Directors.
Other securities conferring rights in the capital stock At their annual general meeting in 2001, the shareholders for the first time, and for a period of three years, authorized the granting to employees of Natexis Banques Populaires and its subsidiaries, and to other employees of the Banque Populaire Group, of options to subscribe for new or purchase existing shares.
Stock options granted 2001 Plan 2002 Plan 2003 Plan 2004 Plan 2005 Plan
Options exercised by the 10 employees Total number Average weighted who exercised the most options of shares subscribed price (€)
Other information about the capital stock Natexis Banques Populaires has not pledged any of its shares.
Conversion of perpetual subordinated notes convertible into shares 1,717,431 27,478,896 86,413,090.39
Shares issued in exchange for the transfer of Sopromec Participations shares 336,647 5,386,352 25,248,563.45
Shares issued in respect of the increase in the capital stock reserved for Banque Fédérale des Banques Populaires 256,039 4,096,624 25,903,465.63
The following table shows the amount of the issue premiums in respect of each increase in the capital stock.
Shares held by directors and executive directors Members of the Board of Directors, whether natural or legal persons, own 72.88% of the capital stock of Natexis Banques Populaires (and almost all of this percentage is owned by Banque Fédérale des Banques Populaires).
The number of shares owned by executive directors is not significant. Please see page 265 for stock options granted to certain employees and executive directors.
Quantity Purchase Average Quantity Exit Average Final % of purchased price (€) purchase price sold price (€) exit stock capital per share (€) price (€) stock
Natural or legal persons that exercise or have the power to exercise control over Natexis Banques Populaires As the majority shareholder of Natexis Banques Populaires, the Banque Populaire Group exercises the responsibilities provided for by the banking regulations.
As far as Natexis Banques Populaires is aware, there is no agreement in existence the implementation of which could result in a change of control of the company at a later date.
There is no provision in the bylaws or otherwise which could have the effect of delaying, deferring or preventing a change of control of the company.
On January 3, 2005, the share was removed from the SBF 250 index due to an annualized turnover rate of less than 5% (number of shares traded over the total number of shares in issue). It was reinstated to the index on September 1, 2005 in accordance with a decision of the Scientific Committee of Euronext Paris, having regard to the increase in the turnover rate (7.57% in the period May 2004-June 2005).
Trends in average monthly prices and trading volumes since September 2004
Number of shares comprising the capital stock 44,314,352 47,442,837 48,045,139 48,255,962 48,995,480
Dividends paid in the past five years: *To be proposed at the annual general meeting on May 18, 2006.
In October 1997, CCBP acquired a 23.35% holding in Natexis S.A.This was followed by a friendly takeover bid as a result of which the Banque Populaire Group held 71.4% of Natexis S.A. on June 2, 1998.This percentage was raised to 74.36% at the end of 1998.
History of the entities comprising Natexis Founded in 1919, Crédit National initially focused on developing its business as a medium and long-term lender before branching out into related activities in order to offer its corporate clients a broader and more comprehensive solution to their needs.
In June 1997, Crédit National, now renamed Natexis S.A., transferred its entire commercial banking arm to BFCE, which was renamed Natexis Banque. Natexis S.A. became a holding company and was responsible for the consistency and strategic management of all Natexis Group activities.
Simplification and unification of legal structures Natexis Banques Populaires was created in July 1999 following the transfer of CCBP’s operating activities to Natexis S.A.
Statement by the person responsible for the annual report “To the best of my knowledge, the information contained in this annual report is true and accurate, and contains no omissions liable to impair its significance.
I have obtained a letter from the statutory auditors certifying the completion of their work, in which they indicate that they have verified the information relating to the financial situation and the accounts given in this report and have read the whole of the annual report.”
This annual report is available on the website of the Autorité des Marchés Financiers (www.amf-france.org) and under the heading “shareholders and investors”on the company’s institutional website at www.nxbp.banquepopulaire.fr.
Any person wishing to obtain additional information about Natexis Banques Populaires can request documents free of charge and without obligation: n By letter, from: Natexis Banques Populaires Group Financial Communications Investor Relations Department Le Ponant de Paris 5 rue Leblanc 75511 Paris Cedex 15
4. Risk factors 81 to 91, 145 to 149, 155 to 159 5. Information about the issuer 5.1 History and development of the issuer 271 6. Business overview 6.1. Principal activities 38 to 51 6.2. Principal markets 160 6.3. Exceptional factors N.A.
14. Administrative, management, and supervisory bodies and senior management 14.1.Administrative bodies 15 14.2.Administrative, management, and supervisory bodies and senior management conflicts of interests 16 15. Remuneration and benefits 15.1.Amount of remuneration and benefits 24 15.2.Total amounts set aside or accrued by the issuer or its subsidiaries to provide pension, retirement or similar benefits 28 16. Board practices 16.1. Date of expiration of current term of office 17 16.2. Service contracts with members of the administrative bodies 16 16.3. Information about the issuer’s audit committee and remuneration committee 23 - 24 16.4.Whether or not the issuer complies with the corporate governance regime(s) in its country of incorporation 29
20.8. Legal and arbitration proceedings 91 20.9. Significant change in the issuer’s financial position 94 21. Additional information 21.2. Memorandum and articles of association 262 to 264 23. Third party information and statement by experts and declarations of any interest N.A.
Pursuant to article 28 of Commission regulation no. (EC) 809/2004 of April 29, 2004, the following information is incorporated by reference in this annual report: - the consolidated financial statements for the year ended December 31, 2004, the statutory auditors’ report thereon and the Group management report, on pages 108 to 155, 156 to 157 and 83 to 106 of the annual report filed with the AMF on March 25, 2005 under number D.05-0285; - the consolidated financial statements for the year ended December 31, 2003, the statutory auditors’ report thereon and the Group management report, on pages 100 to 155, 156 and 71 to 98 of the annual report filed with the AMF on April 2, 2004 under number D.04-0392.
All other chapters of annual reports D.05-0285 and D.04-0392 are either of no material interest to investors or covered elsewhere in this annual report.
The document de référence was produced by the issuer, and the signatories to it are responsible for its contents.
Printed using vegetable inks by IMP Graphic (Cosne-sur-Loire, France), an Imprim’vert printer. The Imprim’vert label is awarded to printers implementing industrial strategies on environmental protection (waste management, exclusion of toxic products, etc.). The paper selected for the cover of the Annual Report was made by an ISO 14001 certified plant complying with EMAS environmental management standards. The paper used in this document is 100% recycled, produced by an ISO 14001 certified plant meeting EMAS environmental management standards.