INCREASED CROSS-FUNCTIONAL INTEGRATION 22 International network 28 Simplified corporate structure 30
FINANCIAL INFORMATION 69 Management report 71 Financial information 100 Reports on the internal control procedures 203 Legal information 214 Additional information 222
AS OF DECEMBER 31, 2003 offices, including 118 outside France shareholders (approximately)
It is a major player in the financing market, serving substantially all major French companies.Through its subsidiary Coface, it is one of the world’s leading providers of credit insurance and credit management services. At the same time, Natexis Banques Populaires is ranked amongst the leaders in private equity and financial engineering, and plays an active role in debt and equity brokerage.
A well-known and highly respected player in the bancassurance and asset management sectors, it is the leading employee savings plan manager in France.
Natexis Bleichroeder and CrédiFrance Factor which have enabled us to expand our service offering. It is a source of great satisfaction to me that these new businesses have been seamlessly integrated in our development strategy.
Natexis Banques Populaires has a wealth of strengths that can be leveraged to increase the value of its high quality business base.With the backing of a powerful Group, a stable operating framework and a solid capital base, our bank is poised to further expand the service offering, targeting all client categories.
We have recently embarked on a strategic review that will lead to the introduction of a more client-centric organization.
Natexis Banques Populaires and its subsidiaries turned in satisfactory performances in 2003.Together, they accounted for one-third of the Banque
These robust results were obtained without any reduction in our significant investments to grow the business and streamline our organization, testifying to our ability to respond swiftly to changing conditions.
This new focus is expected to deliver numerous benefits in 2004 and subsequent years.
I can count on the expertise and commitment of our staff,
I remain as confident as ever in our bank's ability to achieve further revenue and earnings growth across all of our businesses.
ffi ce r’s m es sa ge s performed unevenly, we obtained sound results from the energetic action to deal with the remaining problems related to equity derivatives. Private Equity had a good year, posting 43%
Services made considerable headway. Banking Services turned in a very satisfactory performance. Financial Services pulled out of certain businesses, leading to a dip in revenues.
Asset Management and Insurance revenues expanded 15%, reflecting solid performances by the fund management, employee savings plans and insurance businesses.
The Financing business continued to expand at a brisk pace, driven by Corporate and International
Banking which posted improved margins while keeping a tight rein on growth in the loan book.
Specialized Financing revenues also grew, albeit at a slower rate, with advances in lease financing helping to offset a modest downturn in factoring business.
Considering the work undertaken and the results obtained to date, the quality of our teams and our solid skillset, I have every confidence in our bank's development potential.
And I know that I can rely on the commitment of all of our people to help us fulfill our goals.
1st quarter 2003 626,897 2nd quarter 2003 505,675 3rd quarter 2003 573,205 4th quarter 2003 408,083
Toll-free number (calls originating in France only): 0 800 600 525
All calls are taken by members of the financial communications team in a bid to personalize shareholder relations and ensure that the information provided is of a consistently high quality.
In 2003, a new section was set up, with downloadable versions of all documents filed with the
The annual and interim results are announced in press releases and presented at meetings with the financial press and buy-side analysts.All financial publications are available in both French and
English. Results announcements are also published in the financial press.Whenever a significant event occurs, details are published in a press release and a special meeting is organized with the press and analysts.
Regular roadshow presentations are organized for institutional investors in France and internationally, and information sessions are held for employees of the Banque
Maison de la Chimie was the perfect opportunity for management and shareholders to come together and exchange views. As in prior years, it was preceded by a broadbased consultation process to identify the topics of particular interest to shareholders.
Banque Populaire Group, the bank's businesses and risk management processes, and its share performance.
P op ul ai re s sh ar e pe rf or m an ce the Bulletin des Annonces
Registered shares must be recorded in the holder's registered share account or administered registered share account at least five days prior to the Meeting date.
Holders of bearer shares can find out about the Meeting by reading the Notice of Meeting published in
■ The third independent director is a former banker and stockbroker.
Committee, and also speaks up for the interests of private shareholders.
Co rp or at e go ve rn an ce principles underlying the
Chief Executive Officer effective from November 1, 2002, with all the related powers.
The Board of Directors met seven times in 2003, with an average attendance rate of 98% at all meetings and for all directors.
Annual Shareholders' Meeting they are represented by a director selected from among three candidates proposed by the corporate mutual funds set up as the vehicle for employee stock ownership plans.
– representing one third of the Board – are due to expire at the forthcoming
Directors therefore considered these two options at its meeting on January 16, 2002, and decided that the separation of the two functions was more consistent with the general all matters related to the bank's strategy and operations.
These presentations provide the directors with a detailed overview of developments across the entire business.
The Board is responsible for approving in advance planned acquisitions of equity interests in excess of a certain amount (requirement of the bylaws).The limit on the
The Committee is responsible for reviewing the draft financial statements and related financial disclosures.Where necessary, the Committee obtains explanations about material items before the financial statements are presented to the Board. During its review, the Committee examines the accounting treatment of non-recurring transactions and obtains assurance concerning the appropriateness and consistent application of accounting principles and methods.
Banques Populaires Board for approval, to ensure that they are consistent with the Group's overall strategy.
Matters reviewed by the Board in 2003 included the setting of overall limits on market risks, the reorganization of the Capital Markets business line, the new risk management and internal control organization, the proposed preferred stock issue and the IGLOO II
As well as meeting before the publication of the interim and annual financial statements, the Committee may also hold other meetings during the year to review any issues that fall within its remit.
Committee made recommendations concerning the re-appointment of the Auditors to be proposed at the Annual
■ The Audit Committee also has four members: Daniel Duquesne, Jean-François
The Compensation Committee reviews and makes recommendations to the Board concerning all matters related the to personal situation of directors, including their fixed and variable compensation and their pension arrangements.
Whenever necessary, the Committees of the Board make inquiries of the head of Internal Audit, the Finance
Director, the Risks Director, the Auditors, or any other persons in a position to provide the technical information required. Neither the Chairman nor the Chief Executive
To this end, the Committee analyzes the bank's main areas of risk – other than those concerning the true and fair view provided by the financial statements and financial disclosures
– and assesses the effectiveness of the system of internal control. In the same way as the Financial Statements
Committee chairmen report periodically to the Board on their activities and recommendations.
The Internal Rules of the Board of Directors and the Directors' Charter were approved by the
A copy of both of these documents is given to new directors when they join the Board.
The Internal Rules describe the matters falling within the competence of the Board, its rules of procedure – including the requirement to hold at least six meetings per year – and its code of ethics.They also specifically provide for the Board to be assisted by three
EUR263,000 the fixed compensation paid to the Chairman of the Board, the same amount as in 2002 and 2001.The Chairman is also entitled to a variable bonus of EUR75,000, paid at the end of the year.
The amount of this bonus may be reduced if the bank's results fall short of expectations.
Populaires. He did not receive any fees in his capacity as director of certain subsidiaries of the bank.
6 – Compensation paid to the Chairman, the Chief Executive Officer and the directors
Committee, the Board payable at the end of the year provided that the bank's earnings targets were met.
If the bank's results fell short of expectations, the bonus would have been reduced.
The option exercise price, determined as specified in the authorization given at the Annual
The director paid the highest total fee received an amount of EUR13,725.
The table on page 21 provides details of the amounts received by each director, as a director of Natexis
At its meeting on November of Directors decided to launch a new shareholderapproved senior executive stock option plan.The option grants, which were made in accordance with the applicable regulations and were based on the recommendation of the Compensation
Committee, were as follows: ■ 6,000 options granted to the Chairman.
The list has been prepared in accordance with the applicable regulations and covers all the executive positions and directorships held during the year.
Meeting was held in May, to approve the 2002 financial statements of the bank and the Group, authorize a share buyback program, re-elect a director and authorize the Board to issue shares and share equivalents.
Co rp or at e go ve rn an ce in EUR thousands Deloitte-Touche Tohmatsu % RSM Salustro Reydel % Barbier Frinault et Autres %
* Mainly assistance in understanding and interpreting IFRS. ** Including assistance in connection with the Basel II project EUR343 thousands.
Jean-Paul Bechat Shareholders' Meeting 2003 Director Chairman and CEO of November 18, 1998 Snecma
René Clavaud Shareholders' Meeting 2005 Director Chairman of May 23, 2002 Banque Populaire Centre Atlantique
Claude Cordel Shareholders' Meeting 2007 Director Chairman of May 23, 2002 Banque Populaire du Midi
Alain Jacquier Board meeting of 2007 Director Chairman November 25, 1997 Banque Populaire Bourgogne
Francis Thibaud Shareholders' Meeting 2002 Director CEO of May 23, 2002 Banque Populaire du Sud-Ouest
Jean-Louis Tourret Shareholders' Meeting 2003 Director Chairman of May 23, 2002 Banque Populaire Provençale et Corse
Jean-Pierre Chavaillard Shareholders' Meeting 2007 Director representing of May 23, 2002 employee shareholders
■ René Clavaud Chairman of the Board of Directors: Banque Populaire Centre Atlantique, Natexis Lease Vice-Chairman of the Board of Directors: Banque Fédérale des Banques Populaires Director: Coface, Smurfit Limousin Advisor to: Banque de France
■ Jean-François Comas Chief Executive Officer: Banque Populaire Côte d’Azur Director: Banque Fédérale des Banques Populaires, Natexis Assurances, Natexis Coficiné Permanent representative of Banque Populaire Côte d’Azur, Chairman of: Foncière Victor Hugo, Société Méditerranéenne d’Investissement Permanent representative of Natexis Private Banking Luxembourg S.A., director of: Fructilux Permanent representative of Banque Populaire Côte d’Azur, manager of: SCI Domaine de l’Arenas
■ François Ladam Permanent representative of Natexis Banques Populaires, director of: Natexis Altaïr, Natexis Assurances, Natexis Private Equity Permanent representative of Natexis Assurances, member of the Supervisory Board of: Assurances BP IARD Non-voting director: Banque Fédérale des Banques Populaires
■ Christian Hébrard Chairman of the Board of Directors: Banque Monétaire et Financière (BMF) Vice-Chairman of the Board of Directors: Banque Fédérale des Banques Populaires Vice-Chairman of the Board of Directors: Parnasse MAIF Director: Natexis Assurances, Parnasse Services S.A., CASDEN Banque Populaire, Umer Permanent representative of CASDEN Banque Populaire, director of: Bicec, Parnasse Finance S.A., Filial MAIF S.A. Non-voting director: Natexis Immo Placement
Other executive positions and directorships held by members of the Board of Directors in 2003
■ Daniel Duquesne Chief Executive Officer: Banque Populaire Loire et Lyonnais Director: Banque Fédérale des Banques Populaires, Natexis Asset Management, Sepel, INSA de Lyon Member of the Supervisory Board: Volksbank CZ
■ Richard Nalpas Chief Executive Officer: Banque Populaire Toulouse-Pyrénées Vice-Chairman of the Board of Directors: Banque Fédérale des Banques Populaires, Natexis Bleichroeder S.A. Director: Natexis Assurances, Natexis Bleichroeder Inc. (New York) Permanent representative of Banque Populaire ToulousePyrénées, director of: Maison du Commerçant S.A., Multi-Croissance S.A., Natexis Immo Placement, Socama 31 (Société Coopérative de caution mutuelle à capital variable), IBP S.A., IRDI S.A.
■ Francis Thibaud Chief Executive Officer: Banque Populaire du Sud-Ouest Vice-Chairman of the Board of Directors: Natexis Paiements Director: Banque Fédérale des Banques Populaires, Soprolib Sud-Ouest, Socami Bordeaux region, Socama Sud-Ouest
■ Jean-Louis Tourret Chairman of the Board of Directors: Banque Populaire Provençale et Corse, Natexis Épargne Entreprise, Natexis Interépargne, Proclair SAS, Tourret SAS Director: Banque Fédérale des Banques Populaires, Lafarge Ciments
■ Jean Dufresne de La Chauvinière Director: Natexis Actions Europe (Sicav), Natexis Asset Management, France Entreprises, U.E.B. Monaco, CIC Obli Moyen Terme
Non-voting director: Europay France Member of the Executive Committee: Confédération Internationale des Banques Populaires Chairman: Association des Banques Populaires pour la création d’entreprise
Natexis Bleichroeder S.A., Natexis Private Equity Representative of Banque Fédérale des Banques Populaires on the Board of Directors of: Natexis Assurances Chairman of the Board of Directors: Informatique Banques Populaires
Variable Fixed Total Fee for Fee for Fee for Total Fees Fees fee fee members of members of members of amount paid by paid by the the Financial the the Audit companies company Statements Compensation Committee controlled that controls
Jean de La Chauvinière 8,540 1,525 10,065 1,830 915 - 12,810 - -
Banque Fédérale des Banques Populaires, repr. by Christian Hébrard 8,540 1,525 10,065 - - - 10,065 - -
Michel Goudard, non-voting director 8,540 1,525 10,065 - - - 10,065 - - * Fees paid in 2003 by BFBP are for attendance at Board Meetings and Committee Meetings held in 2002.
projects which will transform the banking industry's regulatory and accounting landscape, leading to sweeping changes in the way the business is managed.
Department and their correspondents in the various business lines and subsidiaries.
The diverse origins of the committee members will ensure that all aspects of the relationship with each client are taken into account.
One of the highlights of the year was the implementation of a new Capital Markets organization structure.Against a backdrop of far-reaching change in the investment banking environment and deteriorating market conditions, the business line refocused on its core business. For Capital Markets, this meant setting up a combined
Launched in May 2003, the Cap 2005 project has united Financial
During 2003, information systems management practices were harmonized. Ongoing work on the Concerto project launched in 2002 to develop standard project management processes, led to the deployment of standard processes for the prelaunch and maintenance phases.
(acceptance, qualification, transfer to production) is well underway and should be completed in 2004.
As well as upgrading our systems, we kept up our drive to contain information systems costs.
Strict risk discipline One of the priorities in 2003 was to strengthen control over risks. A coordination committee was set up with a broad overview of risk control activities, to regularly review identified risks and major incidents.
Charenton-le-Pont.This major office complex on the outskirts of Paris will provide opportunities for facilities rationalization, as well as facilitating communications among the various teams called on to work together.
Major applications upgrades were also pursued in 2003. Fund transfer applications were modernized and the bank's electronic banking organization and systems were rationalized in conjunction with the introduction of the new EMV (Europay, Mastercard,
An Internal Control Department reporting to the General Secretariat was also set up during the year, to enhance the independence of the bank's control structures.
Our headquarters departments kept up the drive to manage operational risks more tightly.
Algerian economy and the greater openness to foreign investment observed over the last three years, the aim is to become a banker of choice for Algerian companies and to help French companies establish a foothold in the country.
The sharply improved Russian economy created opportunities to expand our operations in Moscow.We first set foot in the Russian capital in 1987, through a representation office, and in 2002 we opened a local subsidiary. Our plans for the new subsidiary include diversifying its business base, by introducing new products and services to partner more effectively the growing number of French clients doing business in Russia.
In 2003, we continued to reap the benefits of our membership of a major incident affecting their facilities or of information systems being put out of action.
City and Shanghai), representation offices in Latin America and, since 2002, a subsidiary in Russia.
In 2003, we continued to deepen our international presence, opening two new branches in Algeria – in of the Banque Populaire Group.
On the marketing front, efforts were made to enhance the strategic fit between Natexis Banques
Shareholders' Meetings, our main subsidiaries switched from a two-tier management structure, with a Supervisory Board and Management Board, to a single tier structure based on a Board of Directors. At the same time, the membership of their Boards was changed to permit the chief executives of the Banque Populaire regional banks to become more closely involved in these subsidiaries' activities.
Natexis Bleichroeder, has been using DZ Bank's research since the beginning of the year to strengthen its position as a specialist broker in European equities. In factoring, the joint venture agreement signed with
Factorem, a company specialized in offering factoring services to German small and mid-sized businesses. In asset management, our respective subsidiaries
Asset Management – will step up their ten-year partnership in the Luxembourg fund EuroAction by creating a joint venture
Profitable synergies In 2002, we made several acquisitions in order to respond more effectively to client needs.
Genossenschaftsbank (DZ Bank), which was cemented in 2002 through an increase in our cross-shareholdings, began to take shape in 2003 with the launch of four initiatives.
Equities business, during 2003 we began to develop synergies between the French (Natexis
arms of the business.Various development paths have been established to facilitate the distribution of European equities in the United States and of US
August 2002, we have extended the range of services offered to companies and expanded the international network.
Natexis Factorem, our factoring subsidiary, has launched a new credit insurance offer, named
Developed in partnership with Coface, Accredia combines domestic and export credit insurance in a single policy.
nc tio na l i nt eg ra tio n been backed up by a drive to better inform, train and support candidates for internal mobility.
Action was also taken in 2003 to harmonize and upgrade management practices.The Change
Management initiative launched in 2001, targeted at local managers, was stepped up with the active participation of all business line directors.The initiative is supported by a comprehensive array of information, communication and training tools, including the Management Rendez-Vous meetings organized throughout the year to update managers on the strategy of the company or business line, and the
Managers Club launched in the spring of 2003 to provide managers with the opportunity to exchange views and share experiences in co-development groups.We have also set up our own management institute,
Natexis Banques Populaires community, by instilling in senior management a shared vision of our strategies.
Training cycles were organized for all employees, in connection with organizational changes or moves to new jobs, and also to boost individual skills.
To promote experience-sharing among our teams and strengthen the overall skill-base, while also offering our staff motivating career opportunities, increased internal mobility has been made a core objective for 2003 and also for 2004.
Natexis Management has been given the task of developing specific programs to enhance their management skills and of actively managing their career paths.
ALICANTE AMSTERDAM BARCELONA BERLIN BIELEFELD BIELLA BIRMINGHAM BONN BRATISLAVA BREDA BREMEN BRUSSELS BUCHAREST BUDAPEST COLOGNE DUBLIN DUSSELDORF ESCHBORN FRANKFURT FREDERIKSBERG HAMBURG HANOVER ISTANBUL KARLSRUHE KIEV LAMPERTHEIM LAUSANNE LEIPZIG LINZ
BOCA RATON BOGOTA BUENOS-AIRES CARACAS CHICAGO EAST WINDSOR FAIRFIELD GLENDALE GREENWICH GUAYAQUIL HOUSTON HUNT VALLEY JENKINTOWN LIMA LOS ANGELES MEDINA MEXICO CITY MIAMI NEW HAVEN NEW YORK PANAMA PIERREFONDS PORTLAND QUITO SAN JOSE SANTIAGO SÃO PAULO
In te rn at io na l n et w or k
ABIDJAN ALGIERS BAMAKO COTONOU DAKAR DOUALA DUBAI JOHANNESBURG CAIRO LOME OUAGADOUGOU TEHRAN
(1) DZ Bank AG (1.9%) and Arnhold & S. Bleichroeder Holdings (2.9%).
Credit insurance and credit management 100% Natexis Assurances Life and non-life insurance Personal risk insurance 100% Natexis Asset Management Fund management 87.8% Natexis Private Banking Luxembourg S.A.
Banking, Financial, and Technology Services 100% Natexis Paiements Electronic banking 50.6% LineBourse Online brokerage 100% Slib Banking software and facilities management 75.6% Samic Banking software 100% Natexis Altaïr IT services and data processing 98% Coface SA Credit insurance and credit management
Information Systems and Logistics 100% Coface Scrl Services and ratings 100% AK Coface Credit insurance Services and ratings (Germany)
100% Natexis Épargne Entreprise Employee savings plans Accounts/financial management 99.9% Natexis Intertitres Service vouchers 100% Natexis Asset Square Multimanager funds
This unique client segment, comprising the Banque Populaire regional banks and over 150 non-Group institutions, draws on a broad range of services offered by the Banking,
Services business line, including custody services, securities services, transaction processing, high-tech services covering back office management, market counterparty business and international financing.
Natexis Banques Populaires has developed multi-channel products tailored to the general public, which it offers to its direct clients and to the clients of the Banque
Leveraging our broad array of complementary skills, we offer not only traditional banking products and services but also high value-added technology-based services. Our core mission is to put our expertise to work for our clients by creating products and services tailored to their ever-changing needs.
Since the acquisition of Coface in 2002, all of our clients now also have access to the services of one of the world's leading providers of credit insurance and credit management services.
Banque Populaire Group of all Natexis Banques Populaires entities is highlighted by including the name "Groupe Banque
Banking, 2003 was a year of strong growth, with net banking income up 11%
Populaires consolidated its position as one of the leading providers of banking services to French companies and a partner of choice of major international banks in Europe, the United States and Asia.
In a lackluster economic environment in Europe, the business line kept up its strategy to build the corporate banking business in France and internationally, to strengthen its role as arranger in structured finance deals and to extend its international business base.
Business growth was accompanied by a series of measures to further improve control over risks, including by strengthening
The Corporate and International Banking business line offers a full range of integrated banking services to a clientele of large corporates, mid-sized companies, banking and other financial institutions in France and abroad. It manages the Natexis Banques Populaires domestic and international network, with a view to bolstering the strong position that the bank has carved out for itself in the corporate and international banking arena. Corporate and International Banking is organized around three business areas comprising sixteen business units.The Corporates business area serves as the lynchpin, managing all aspects of client relationships.The Structured Finance area develops a wide range of asset financing, syndication, financial engineering, acquisition financing and LBO financing solutions. The Correspondent Banking area acts as the lynchpin for relationships with financial institutions, as well as offering a wide range of services to clients in France and abroad.
Natexis Banques Populaires for its ability to carry out this type of transaction.
London and Singapore built strong positions in certain regions – India for example –, partnering clients such as Export-Import Bank of India,
Populaires is currently the leading arranger of LBO financing in France, based on the number of transactions (source: Loanware/Dealogic).The bank arranged financing for the buyout of Frans Bonhomme and Loxam, two of the largest
Finance team to arrange leveraged financing, to refinance the acquisition of Européenne de Casino, and Saipol chose the team to arrange financing for the acquisition of Lesieur.
The business line's close relations with clients and the good fit between its services and those offered by the
Capital Markets business line also led to it being selected by Schneider,TF1 and Electra
Populaires is one of the few European banks to have operations in Algeria, serving French and local clients.
Centroleasing, Italy's tenth largest leasing company. In LBO financing, the business line partnered the financing of the Springer Group, the world's second largest publisher of scientific, technical and medical books, as well as that of Avio, Fiat's aerospace subsidiary.
decline in 2002 (source: Marc Touati press release dated January 15, 2004)
In this worsening environment, the lease financing market picked up slightly in the first half, but retreated significantly in the second half.
Faced with flat demand in its main markets – transportation, public works and machine-tools – coupled with heightened competition following mergers between major players, in equipment lease financing Natexis Lease focused on protecting margins and limiting risk. New equipment lease financing for the year came to
Specialized Financing includes lease financing offered through Natexis Lease and factoring services offered through Natexis Factorem.The bulk of specialized financing business is contributed by the Banque Populaire Group network. Natexis Lease develops and distributes real estate and equipment lease financing products for companies of all sizes. Natexis Factorem offers receivables management outsourcing solutions that help companies optimize their cash position and reduce customer credit risks. Four types of service are offered: receivables management, receivables collection, bad debt guarantees and receivables financing.
Natexis Lease outperformed the market. New lease financing totaled EUR462 million, representing a decline of 13% in a market down 14.5% (source:ASF).
Lease plans to set up operations in other countries of Southern
At the end of 2003, Natexis Lease entered into a partnership with
The company has helped to provide financing for some ten wind farms, generating over 20% of the France's wind power.
The relaunch of the product offer in the Banque Populaire retail banking network helped the company to tap more fully the potential offered by the network's clientele of self-employed professionals and small businesses.
More efficient marketing drove a significant increase in the number of contracts sold in these client segments, which represent the heart of the Banque Populaire
Natexis Factorem combined its receivables financing and receivables management teams, and modified its regional organization, to fit more closely with the organization of the Banque Populaire regional banking network and the needs of companies.
The strategy to win new clients and retain existing ones fueled steady growth in the company's business base throughout the year.
EUR98 million, an increase of 7%.This strong rise was attributable to the contribution of CFF's contracts and to the growing proportion of business generated in the self-employed professionals market.
CFF was integrated quickly and seamlessly, driving an improvement in the cost/income ratio to 57% from 58% in 2002.
The partnership with DZ Bank has been given shape by organizing work groups made up of representatives of the two organizations. These work groups provided a forum for exchanges of expertise, paving the way for the creation of a joint venture in
Natexis Banques Populaires has set up a single sales force to sell fixed income, credit and foreign exchange products.The sales force is backed up, for complex products, by a specialist structuring team which is also responsible for monitoring technological developments, and for Government securities, interest rate derivatives, asset-backed securities and convertible bonds, by a team of product specialists. Capital
European coverage, for both issuers and investors, through its branches in London, Milan and Madrid and also through the partnership with DZ Bank for North European markets.The New York and
The teams responsible for rationalizing and upgrading front and back office systems have been strengthened.The development of Straight Through Processing (STP) continued, helping to reduce and, in some cases, eliminate breaks in the process.
It is also developing expertise in the new products that represent the growth drivers of the future.
Credit derivatives and convertible bonds represent new growth engines. Convertible bond trading has been boosted by integrating the
Natexis Bleichroeder secondary market trading team, providing increased scope to leverage synergies with the asset-swap, origination, credit research and other businesses.
Banca, who placed a premium on high quality execution of their inaugural issue and on placing capabilities in a wide range of geographic markets.The bank confirmed its leadership in inflation-indexed securities, handling issues for Réseau Ferré
New publications Capital Markets launched two monthly publications in 2003: ■ Objectif Inflation which analyzes and predicts inflation rates in European Union countries and certain other countries.
delegated trading rooms and certain end-clients.These platforms will also be open to Banque
Natexis Banques Populaires regularly raises funds on the financial markets to finance its own lending activities and also those of the Banque Populaire regional banks where appropriate.
The bank stepped up the use of its issuing programs, which help to keep down borrowing costs.
(specialized in long short equity, risk arbitrage, convertible bond arbitrage, equity finance and credit arbitrage) both conduct only proprietary transactions.
Primary equity market: convertible bonds and mid-caps In France, Natexis Bleichroeder S.A.
participated in: ■ 4 of the 12 convertible and exchangeable bond ("Oceane")
■ 3 of the 11 mid-cap issues carried out during the year, including 2 as lead manager
Research and sales teams in Paris, London and New York have been strengthened and the Paris teams are providing active support in the drive to sign up US and UK institutions.
Sales to corporate clients, mainly SBF 120 companies, rose sharply in 2003, reflecting the marketing momentum achieved by Global Equities and the growing internationalization of distribution.
On the primary market, the extended geographic reach of Global Equities research and the marketing synergies with
(Paris) consolidated its position in the French convertible bond and mid-cap markets, acting as lead manager for the issue by Rallye of bonds exchangeable for Casino shares, and sole lead manager for the Affine equity notes issue and the Oeneo stock and stock warrant issue.
Synergies between the French and US entities have also yielded benefits in electronic order transmission, by enabling the Banque Populaire Group to offer its clients execution services on markets on both sides of the Atlantic.
DZ Bank research in the United States and the United Kingdom under the
Natexis Bleichroeder also acts as non-exclusive distributor of DZ Bank research and German equities in French-speaking countries.
For Private Equity, 2003 was a chequered year.After a gloomy first half, Natexis Private Equity's business picked up in the second half, with the completion of several large scale transactions.
However, there were sharp contrasts among the various businesses.While venture capital transactions served mainly to consolidate the portfolio,
■ Outside France, the offer was strengthened through the creation of unique partnerships whereby the partners retain their independence while at the same time sharing a common management model.
The uneven performances of the different businesses in 2003 gives added justification to the diversification strategy launched by Natexis Private
(expansion capital).These entities closed deals that had been in preparation for several months, such as the buyout of Eau
EUR780 million in capital on behalf of third party investors and EUR940 million of its own funds.
Over 120 private equity specialists, working in 11 specialist subsidiaries, manage a portfolio of 715 investments, mainly in unlisted companies and spanning all sectors of the economy.
Major disposals were carried out throughout the year by the French and international subsidiaries (particularly those in Asia). Examples included the sale Orpéa, a private retirement home operator, and Caravelle, an investment company, as well as the IPO of Trevisan, an Italian industrial engineering company.
The new organization will be deployed progressively across the whole of France, to better meet the new challenge facing
This new tax-advantaged product introduced in the Dutreil Act is designed for private investors looking to reduce their income tax bill and companies interested in contributing to the economic development of their region.
EUR150 million in Spain. Part of this capital is expected to be raised from third party investors.
In 2003, Natexis Private Equity signed its first large scale contract on the secondary market, investing EUR10 million with a consortium of major Norwegian and Swedish investors.
A fund invested in energy management and environmental projects In 2003, Natexis Private Equity decided to invest in a seed capital fund dedicated to the energy management and environment sectors. Investors in Emertec Energie Environnement alongside Natexis Private Equity, include CDC PME, the Atomic Energy
The three business units launched large-scale projects to improve productivity and service quality, and to remap their service activities.
Launched in 2002, these projects began to deliver tangible results in 2003.They prepared the three units to partner the Banque Populaire Group's development strategy.They also support the business line's diversification drive, by taking into account all the new regulatory
Se rv ic es requirements and the need to adapt to market changes, particularly in terms of technology.
Banking Services The Banking Services unit devoted 2003 to completing the integration in Natexis Banques Populaires systems of the transaction flows of two foremost electronic banking players. Processing volume increased significantly, to over one billion transactions, representing 13.5% of total electronic banking transactions in France
Natexis Banques Populaires is the only banking institution in France to handle processing transactions for several leading providers of electronic banking services, testifying to the maturity of its systems.
Following the integration of Crédit Coopératif in the Banque Populaire Group and the Group's link-up with Crédit Maritime Mutuel,
Télécompensation) processing for these two banks.This transfer illustrates the consistency of the open approach adopted by the Group in 2003.
In 2004, Banking Services will take over processing of the two banks' electronic banking transactions, as well as continuing to invest in a new domestic and international payment exchange system architecture.
For Natexis Paiements, 2003 was a year rich in innovation.The range of payment instruments offered by the Group to its personal banking clients was extended with the launch of the e-carte bleue service for Internet purchases.
In addition, an electronic payments system was offered to healthcare professionals, who are still under-equipped with payment terminals.
Renewed balance was achieved on the sales front, with the renewal for 10 years of one of the largest service contracts and the successful integration of new banking industry technical standards.
During the year, LineBourse kept up its development policy associating quantity with quality.Volumes increased from 280,000 orders in 2002 to 307,000 orders in 2003, significantly boosting LineBourse's penetration rate among Group clients. Over 50% of stock market orders placed by clients through the Banque Populaire regional banks are now executed by the Group's online broker.
Financial Services, listening to client needs In 2003, the Financial Services unit focused on becoming more attentive to clients' needs and expectations.
In 2003, there was a perceptible change in the behavior of both private and institutional investors.
Faced with these developments, the business line focused on adapting all of its offers to the new needs of Group clients.
The Asset Management and Insurance business line comprises four main businesses, insurance, fund management, employee savings plans and private asset management. It offers the clients of the Banque Populaire Group a very broad range of savings, investment and insurance products and services.
The business line has a complement of 1,203 staff, working in ten subsidiaries: Natexis Assurances, Natexis Asset Management, Natexis Asset Square,Axeltis, Natexis Immo Placement, Natexis Interépargne, Natexis Epargne Entreprise, Natexis Intertitres, Banque Privée Saint Dominique and Natexis Private Banking Luxembourg S.A.Together, these subsidiaries offer a comprehensive skill-set tailored to the needs of all clients, including private individuals, self-employed professionals, companies and institutions.
Asset Management and Insurance million insurance policies million employee savings plan accounts
Se rv ic es demand, the business line consolidated and, in some cases, increased its market shares in several segments.
Two years after the employee savings plan market was opened up to SMEs and self-employed professionals, and in an environment shaped by new private pensions legislation and regulations requiring the segregation of account management/custody and asset management activities,
European equity products have been endorsed by Frank Russell, the world's leading multimanager specialist. Its Natexis Asset Square subsidiary was one of the first companies licensed by the French securities regulator,AMF, to market multimanager alternative funds.
Natexis Assurances' life insurance business had assets under management of EUR19.4 billion at end-2003.
The 9% increase over the yearearlier figure testifies to the quality of its product offer for high net worth individuals and other clients.
at December 31, 2003. Net new money totaled EUR78 million, an increase of 13.7% over 2002.
Intertitres in the business line, alongside Natexis Interépargne and Natexis Assurances, companies and self-employed professionals have access to a unique, comprehensive range of solutions in the areas of employee savings plans and pensions.
The range of products for high net worth individuals has been enhanced. Banque Privée
Saint Dominique has added new real estate, investment fund and tax-advantaged products to its line-up, while also extending the offer to include more specific markets. For example, an agreement has recently been signed with a top-ranking partner to make it easier for clients to invest in works of art. Natexis Assurances launched Silona, a savings product based on a system of annuities in which the benefits pass to the surviving subscribers until only one is left. Lastly, Natexis
Group's bancassurance strategy, with the deployment of new property and casualty offerings (motor, home contents and comprehensive business insurance) and the successful launch of a comprehensive accidental injury policy (Multirisque des Accidents de la Vie).
Fructi Epargne employee savings plan product continued at a brisk pace.
Integration of Natexis Intertitres Natexis Intertitres' unique regulated service voucher offering
(including meal vouchers, welfare service vouchers, vacation vouchers and gift vouchers), extends
Natexis Intertitres is more than just a legal reorganization, it is a demonstration of Natexis
Arabe de Tunisie (BIAT) is also taking shape. As from 2004, the bancassurance offer developed by the two partners' joint subsidiary,
The two companies have set up a joint venture, Union Natexis Asset
Axeltis acts as the central distribution point for all third party funds offered by the Banque Populaire
Group, with over 3,300 European funds proposed by 77 management companies on its books.
Natexis Assurances launches Multirisque des Accidents de la Vie Launched in September 2003,
EUR1 million for victims of accidents in or outside the home, medical accidents, terrorist attacks or criminal injury. Over 30,000 contracts were sold in the first four months, a figure in line with the company's objective. Developed by Natexis
With nearly sixty years' experience and an unrivalled international presence, Coface is one of the world's leading credit insurance and credit management service providers.
General expenses were kept tightly under control, leading to a further reduction in the expense ratio to 45.7%
Insurance business underwriting result (net of reinsurance), the Service business's operating margin and net investment income.
Net income likewise improved considerably, helped by the gain on the sale of the
Coface headquarters building which also significantly reduced the company's exposure to real estate risks.
A long-term development strategy The strategy followed in 2003 is designed to secure the company's long-term growth by gradually extending the product offer and the number of countries covered, while also taking more structural measures in response to the global credit crisis.
Coface has built its expertise and reputation on providing credit insurance for French exporters.
Since the early 1990s, the company has steadily expanded its service offer in a multitude of countries, in order to achieve economies of scale, penetrate buoyant markets and offer a better service to international clients. In 2003,
The service line-up now includes credit information and company ratings, receivables management, credit insurance and guarantees,
and factoring.This approach has also delivered economies of scale and improved client service, through a gradual shift from piecemeal product offers to the marketing of complete solutions for the outsourcing of services or risks.
In 2003, the risk management business returned to profit, with the loss ratio restored to a very satisfactory level across all insurance classes and in all countries, including Germany which experienced a sharp escalation of claims in 2001 and 2002. Coface's investment in risk management paid off well, in the shape of a faster and more pronounced recovery in underwriting results compared with the periods following the previous cyclical credit crises.
In Europe, the integration of the recently-acquired Dutch and Danish credit insurance portfolios also went smoothly.
Factorem, and is now scheduled to be introduced in the United
In October 2003, Coface extended its competitive lead in Asia by
■ New markets Italy, United Kingdom, other European countries, Americas, Asia, other continents
Local service throughout the world With 3,752 employees in 57 countries,
Coface offers its clients a local service with a personal touch. In each of these countries, clients deal directly with Coface staff, obtaining a reliable and personalized service. This local service is important for companies that want to do business throughout the world, with full knowledge of the related risks and with adequate protection. It is also important for
Coface, which uses the intelligence obtained through these regular contacts to tailor its cover and services more effectively to the needs of its 85,000 clients.
setting up the first Chinese domestic credit insurance policy with our local partner, Ping An, a private multi-line insurer.
Banque Populaire regional banking network have started to pay off, with the launch of a private label credit information product and preparation of a private label insurance product for the network. Coface also consolidated its partnership strategy by entering into a major agreement with Axa, France's leading insurer, and acquiring a 40% interest in Axa's credit insurance subsidiary,
Given its history and its membership of the Banque Populaire Group, for Natexis Banques Populaires, sustainable development and corporate social responsibility are integral to its way of doing business.We have established rules and standards applicable to all employees and stepped up the system designed to guarantee the bank's integrity. We have also adopted a dynamic employment management policy, backed by an attractive compensation and benefits policy. Social development has always been a key consideration and we are also committed to widespread internal and external communications.We adopt environmentally friendly practices and have expanded our range of ethical products. We also participate in the Banque Populaire Group's active corporate philanthropy policy.
At the same time, middle managers were invited to undertake the same exercise within the framework of the Change Management project.
Compliance Officer launched a series of initiatives in 2003 to guarantee our bank's integrity.
The ethical rules applicable to employees in sensitive positions were tightened up and a major project was launched to standardize the measures applicable to the various businesses.The Compliance
Officer worked closely with the correspondent compliance officers appointed in the various Natexis
Natexis Banques Populaires is committed to meeting high standards of social, economic and environmental responsibility.
Populaire Group.The Group's values closely reflect the underpinning principles of sustainable development. Its capital is held by its 2.4 million member-stakeholders, and since its formation in 1917, the Group has consistently abided by the principles of the cooperative movement.All Group entities share a common set of values: putting people first, maintaining a strong local presence, promoting entrepreneurship, and cultivating long-term relationships, in order to strike the right balance between the interests of clients, member-stakeholders, shareholders and employees.
In 2003, we continued to actively manage jobs and careers in order to strengthen our skills base and extend our areas of expertise, refresh the age pyramid and prepare management successions.
Know Your Client procedures to be followed before accepting new clients or arranging certain financial transactions.
Lastly, in line with the obligations imposed by the French banking authorities (Comité de la Réglementation Bancaire et Financière) concerning the supervision of foreign checks, control procedures over these checks were stepped up in January 2003.
implement our development projects depends to a large extent on the commitment of our teams, in 2003 we continued to apply an attractive compensation and benefits policy.
We also pay the management costs of the employee savings plan set up in March 2001 and make matching payments in respect of employees' voluntary contributions to the plan.
In keeping with this policy, our new Charenton-Le-Pont building now under construction complies with certain
Horizons, available in printed and electronic versions, and the Cont@cts intranet base.
This base, which has already won acclaim for the wealth of information available, is gradually being made accessible to all employees and its search functions are in the process of being improved.
In the area of external communications, we maintain a constant dialogue with our shareholders, paying close attention to the quality, launched two sustainable development products in 2002,
BP Développement Durable Taux, a bond fund.The managers of both funds apply ethical principles, by selecting investments based in part on social and environmental criteria.The funds, which are offered to employees, institutional investors (mainly pension institutions and mutual insurers)
and the personal banking clients of the Banque Populaire regional banks, have achieved promising performances. In the period to
In October 2003, we extended our expertise to all asset classes by launching BP Développement
D ev el op m en t of their studies and the launch of their professional career as a soloist or a member of a leading orchestra.
In 2003, the Foundation was particularly active in all three areas.The most recent area of intervention is the enhancement and conservation of marine and river species and plants. In this area, the Foundation will support initiatives to rehabilitate sites such as lakes, water management structures and water use equipment, renovate historic vessels, create specialist museums, and sponsor artistic, research and educational initiatives related to water.
Durable Monétaire, we now have a comprehensive range of funds offering good yields, positioned at the cross-roads between traditional and ethical funds.
The Banque Populaire Group's commitment to acting as a responsible corporate citizen takes shape through the Foundation in the form of funding for cultural activities, the disadvantaged members of the population and the protection of our natural heritage.
The philosophy governing the choice of causes to support is the same as that applied in all of the Group's activities – putting people first and making a long-term commitment.
The Foundation continued to assist the disabled by supporting 19 individual projects in the areas of professional training, business start-ups, higher education, participation in handisports and in artistic activities.
The Foundation has been supporting talented young musicians for many years, some of whom are now moving to center stage, including prize winners at last year's Victoires de la Musique.
A means for the Group to preserve the history of ocean racing and uphold the spirit of innovation.
FINANCIAL INFORMATION Comparative consolidated financial statements 100 Notes to the consolidated financial statements 104 Auditors’ report on the consolidated financial statements 156 Auditors’ report on related party transactions 157 Comparative Company financial statements 158 Notes to the Company financial statements 161 Auditors’ report on the Company financial statements 200
Banques Populaires were accounted for on a “Coface” pro forma basis as presented in Note 2 A to the consolidated financial statements, added to which was the management data of Crédifrance Factor and Natexis Bleichroeder Inc.
Gross operating income 716.3 368.1 + 95% Provisions for loan losses and country risks (211.4) (196.1) + 8% Net gains on disposals of fixed assets 13.9 53.0 - 74% Income from companies accounted for by the equity method 9.6 4.5 + 117%
The year 2003 was sluggish: revival of growth in the United States (+ 3%), at the cost of significant gaps in public financing and the balance of payments; first signs of recovery in Japan (+ 2%), and accelerated development in China. Conversely, there was virtual stagnation in the Eurozone (+ 0.6% for the year), with France recording the worst year since the 1993 recession, its GDP growth limited to 0.2%. However, fourth quarter GDP growth in France (+ 0.5%) would seem to announce a slight recovery for 2004, which should be true for the Eurozone as a whole.
In terms of the financial markets, 2003 will be seen as the year of the rebound, following three years of decline and a particularly difficult first quarter. Equity markets were up almost throughout the world, sustained by a turnaround in company results and improved growth prospects. The French CAC index rose by 16% over the year, closing at 3,557 points.
The third significant event to mark the 2003 economic and financial situation was the sharp depreciation of the
■ Net income before exceptional items and tax, after taking into account gains on disposals of fixed assets and income from equity affiliates, amounted to EUR528 million, compared to EUR230 million in 2002; ■ Net income stood at EUR265 million, compared to EUR112 million last year. The figure takes into account exceptional income, goodwill amortization, which includes the results of the impairment tests performed, a substantial corporate income tax charge, and minority interests.
With NBI of EUR 968 million, the financing businesses again experienced substantial growth (+ 9%), representing 41% of overall NBI for the Natexis Banques Populaires core businesses.
Natexis Banques Populaires pursued its commercial policy during the year, privileging the risk/return ratio, with a slight increase in the margin rate on last year, while retaining substantial diversification of outstandings both at the industry and geographical level, as shown in the risk management tables (see below).
■ International commerce and trading activities generated NBI of EUR183 million in 2003, compared to
EUR164 million last year, primarily fed by the development of commodity financing activities (EUR85 million, + 28%), which generated a surge in arrangement fees whereas, conversely, trade financing activities declined by 9% over the period.
The Specialized Financing sector, which encompasses the activities of the lease financing (Natexis Lease), and factoring (Natexis Factorem) subsidiaries, reported
NBI of EUR192 million, relatively stable (+ 1%) in relation to 2002.
The regional Banque Populaire banks network remains the leading prescriber with 62% of the new production, the contribution of Natexis Banques Populaires amounting to 15%.
Average lease financing outstandings totaled EUR5.3 billion, up 2% on last year.
– a decrease in capital gains on disposals (EUR10.7 million compared to EUR11.7 million in 2002),
– steady losses, the cost of which is deducted directly from NBI (- EUR4.6 million in 2003).
Natexis Lease growth relies on the diversification of its business provider network (partnerships forged with Société Centrale de Crédit Maritime or industrial groups), the intensification of international activity (pursuit of development initiated in the Maghreb and in Spain, and establishment of partnerships in Germany, Italy and Eastern European countries) and, finally, the expansion of its product range.
■ In the factoring sector, fiscal year 2003 was marked by the merger-absorption of Crédifrance Factor, a subsidiary of Crédit Coopératif, by Natexis Factorem. For the second consecutive year, the market grew at a moderate rate (+ 3.2%).Natexis Factorem, in its new configuration, increased its market share (13.2% compared to 12.5% in 2002), thus remaining the number three operator in France.
Factoring inflows are similar to last year (EUR9.7 billion), but potential inflows from new contracts fell slightly to EUR2.95 billion from EUR3.07 billion in 2002.This setback, following several years of uninterrupted growth, is due to the slumping performance of the Crédifrance Factor portfolio and a weak economy.
an ag em en t r ep or t in EUR millions 2003 2002 Change
Capital Markets activities recorded NBI of EUR223 million, steady in relation to last year, even though performances varied in quality: ■ Capital Markets NBI is EUR110 million, compared to EUR74 million last year.The financial markets crisis of 2002 triggered heavy losses in equity derivative activities, due to the inadequacy of certain valuation models in a situation of exceptionally volatile equity markets. Fiscal year 2003 was a year of major restructuring for this activity, with priority being given to the overhaul of risk management procedures and a more active management of positions.The latter were significantly reduced for the most complex products by capitalizing on more favorable market conditions in the second half. This strategy will again result in net losses for 2003, but will stabilize the situation for 2004.
The other capital market activities held up well in 2003, whether Treasury (NBI of EUR73 million compared to EUR56 million in 2002), which was able to benefit from opportunities created by the favorable trend in interest rates, Interest Rate activity (EUR32 million compared to EUR27 million), or Credit activity (stable at EUR59 million) for which substantial development on the primary market – 43 bond mandates on behalf of diversified issuers such as LVMH, Réseau Ferré de France,TFI,Veneto Banca or Bayerische Landesbank – offset the reduction in investment portfolio outstandings in connection with the restricted use of own funds. Foreign Exchange (EUR27.5 million compared to EUR32.7 million) was affected by the dollar’s significant depreciation, although the Foreign Exchange Options activity posted growth.
■ Subsidiary activities, focusing on arbitrage business lines, rendered a solid performance with NBI up by 40% in relation to 2002 (EUR34 million compared to EUR24 million). This overall contribution conceals contrasting trends: significant drop in ABM Corp. NBI (EUR7 million compared to EUR16 million), whose mortgaged debt portfolio arbitrage activities were penalized by loan renegotiations provoked by the historic fall in longterm interest rates in the United States, a decrease in Dupont-Denant Contrepartie NBI to EUR7 million (financial and foreign index arbitrage), an excellent performance for Natexis Arbitrage (EUR13 million compared to a loss of EUR8 million), with respect to risk arbitrage and convertible bond trading and, lastly, a slight NBI decline for
Natexis Metals, a company specializing in commodities trading and broking (NBI of EUR6.5 million compared to EUR7.6 million in 2002).
The Private Equity division posted NBI of EUR82 million as of December 31, 2003, a 43% increase over 2002.
■ The Merger/Acquisition activities of Natexis Banques Populaires are now the responsibility of specialists in Paris (Natexis Finance) and New York (Natexis Bleichroeder Inc.).
The total contribution of service businesses to Natexis Banques Populaires NBI increased 6% to EUR602 million, or 25% of the NBI of the Natexis Banques Populaires core businesses.
NBI of the Banking, Financial and Technology Services division declined from EUR258 million in 2002 to
Services’ activities). The divestments of certain activities (multiple clearing etc.) and the departure of @.brokers clients also contributed.
respectively. Excluding changes in group structure relating to the acquisition of 100% of the Natexis Intertitres subsidiary in the Natexis Interépargne division, the change in NBI would stand at + 12%.
Total assets under management at the year-end 80.6 72.5 + 11%
Total NBI for Asset Management and Insurance at the year-end 357 310 + 15%
The contribution of the different business lines to this total was as follows: ■ Fund management Mutual fund outstandings managed by Natexis Asset Management (NAM) increased significantly by 10% to reach EUR63 billion at the end of 2003.As a result, NAM’s market share stayed at 6.4%, thus consolidating its position in the short-term mutual fund market (market share of 10%) and gaining some ground in the long-term mutual fund market (market share of 3.1%).
The 55 management companies belonging to the French Asset Management Association represented EUR57 billion in employee savings assets at the end of December 31, 2003. Natexis Interépargne is the leader with EUR11.7 billion (+ 18%) distributed across 506 funds. At the same time, Natexis Interépargne has improved its market share by a slight margin (21% compared to 20.7% in 2002) and increased the number of its corporate clients by 31% (19,839), as a result, in particular, to the success of the Fructi-Epargne product in connection with the Fabius Act.
■ Real estate asset management Real estate assets managed by Natexis Immo Placement declined slightly (- 3%) to EUR1.08 billion, while NBI increased (+ 13%) to EUR9.1 million.
The NBI equivalent of Coface stood at EUR487.6 million at the end of 2003, an increase of 23% over 2002. It accounted for 21% of the NBI of the Natexis Banques Populaires core businesses.
This growth is 50% attributable to Insurance and 8% attributable to Services. It stems in part from a group structure impact, related to the acquisition of portfolios from C.N.A. and Gerling for the Insurance activities and to the consolidation of Kompass as of July 2003 for Services activities.
Services related to Insurance grew by 8% to EUR96 million, while information services for the Coface division generated NBI of EUR113 million, compared to EUR102 million, an increase of 11%. Finally, Public procedures management NBI was stable at EUR62 million.
■ Information systems and logistics activities reported NBI of EUR36 million, primarily generated by Natexis Altaïr, which recorded a 47% increase in NBI from own customer activities.
■ The real estate subsidiaries reported NBI of EUR14.8 million, compared to EUR10.5 million last year.
Natexis Banques Populaires operating expenses stood at EUR1,738 million compared to EUR1,715 million in 2002, the increase being limited to 1.4%. Adjusted for group structure impacts (- EUR43 million) regarding Natexis Banques Populaires (Natexis Intertitres and E.Market) and the expansion of Coface (CNA, Gerling and Kompass), operating expenses would have dropped 1%. Of the total amount, EUR980.7 million (56%) is attributable to personnel costs and EUR757.8 million (44 %) to other operating expenses, including EUR87.8 million in depreciation, amortization and provisions for impairment of property and equipment and intangible assets.
The stabilization of employee numbers at the year-end was accompanied by the implementation of a policy to reduce the use of external employees, with notably the completion of a certain number of IT convergence programs. External employees (in FTE average) were thus reduced from 1,223 to 1,035 in one year.
The average number of Natexis Banques Populaires FTE employees (internal and external) totaled 12,912, compared to 13,100 in 2002 (188 fewer employees).
The trend breaks down as follows by activity sector: ■ four divisions had an increase in employee numbers: Coface (+ 62 FTE including a change in group structure of + 122 FTE), Asset Management and Insurance (+ 58 including 41 from a change in the Intertitres group structure), Private Equity (+ 25 including 12 related to changes in group structure) and Corporate and International Banking (+ 15); ■ four divisions had a decrease in employee numbers: Banking, Financial and Technology Services (- 70, implementation of CAP 2005), Capital Markets (- 20), Specialized Financing (- 10) and Information Systems and
Other operating expenses have declined 3.2% despite an acceleration in market-related projects (IAS, McDonough etc.). The elements that contributed significantly to the reduction are a 10% decrease in the use of external personnel, a 6% drop in IT charges, and a group of charges
(communication/advertising, financial database subscriptions, etc.) that were subject to optimization measures.
The Natexis Banques Populaires risk hedging policy focuses on three areas: ■ provisions for specific credit risks cover 59.5% of non-performing loans used to calculate the solvency ratio. The net charge for the period of EUR148 million is down 33% year-on-year.
Provisions for country risks totaled EUR139 million. A net amount of EUR3 million was reversed from these provisions, essentially due to the reduction in outstandings.
International Banking activities decreased sharply by 35%, standing at EUR117 million, compared to EUR180 million in 2002. The decrease is primarily attributable to the significant provision level in 2002 (EUR42 million) for the
Capital Markets: charges to provisions cover debt securities held for investment that present counterparty risks.
The other divisions did not record any major changes. As already indicated, provisions for loan losses in respect of certain of these activities are also deducted from NBI.
Geographical analysis of the net charge to provisions for specific credit risk: in EUR millions 2003 2002
Charges to provisions for specific credit risk recorded in 2003 concern three main geographical areas: ■ Western Europe (EUR103 million, 70% of the total), where the economic recovery remains moderate.
■ the United States (EUR18 million, 12% of the total), down sharply due to the aforementioned reasons.
Divisional analysis of the net charge to provisions for overall credit risk: in EUR millions 2003 2002
■ The tax charge increased significantly for the year, totaling EUR154 million, compared to EUR22 million in 2003.The change is primarily due to a substantial increase in consolidated net income before tax, goodwill amortization and the income of companies consolidated by the equity method, which represents the theoretical base taxable at the standard rate. The EUR318 million increase in itself explains, if the 35.43% theoretical French tax rate is applied, the additional tax charge of EUR112 million. In addition, the long-term net capital gains, up EUR65 million in relation to 2002, generated an additional tax charge of EUR13 million.
■ Goodwill amortization increased due to charges for the subsidiaries acquired in 2003, including Coface (EUR3 million), Adir (EUR1 million) and Natexis Intertitres (EUR1 million), and an exceptional EUR18 million charge related to the revaluation of goodwill, including EUR12 million from “impairment tests” conducted for all the business lines at the end of 2003.
Corporate and International Banking activities generated Income before exceptional items and tax of EUR297 million, up 41% on last year. This increase was primarily due to an improvement in Gross operating income (EUR455 million, up 21%), attributable in turn to tight control over costs (down 1%), and substantial growth in NBI (up 11%). The strengthening of operating break-evens enabled the absorption of a relative deterioration in loan loss provisions (up 7%) relating to the recognition of provisions for industry and country risks for major for European financial market dossiers.The 2003 cost/income ratio of the division is 41.4%.
Specialized Financing generated Income before exceptional items and tax of EUR86 million, up 24%. Three elements account for the increase: the slight increase in NBI (+ 1%); major cost-cutting (- 6%), an improvement in provisions for loan losses and country risks (- 39%), Natexis Factorem having not recorded a “member” incident in 2003, which was not the case last year. Consequently, the management ratios of these activities remain very favorable (cost/income ratio of 31.6% for lease financing and 57% for factoring).
Capital Markets generated a loss of EUR58 million, compared to a loss of EUR65 million the previous year.
Private Equity activities generated income before exceptional items and tax of EUR12 million, related to NBI growth of 43% and a reduction in the risk charge over last year. Operating expenses rose sharply (+ 10%) due to the changes in group structure recorded over the period.
The resulting Income before exceptional items and tax is testament to the realization of this triple objective. Thanks to measures covering subscriptions, rate reviews and risk selectivity, there has been a noticeable improvement in Coface losses. The dynamism of factoring activity in Germany enabled a significantly higher contribution from Services. In addition, the financial portfolio was readjusted to accommodate a lower risk profile.
The risk management system is structured around the Large Exposures Committee and various risk management committees.
Under its chairman, the Large Exposures Committee, which includes the Operating Directors, Risk Management, Internal Control and Internal Audit, monitors the major risks to which the bank is exposed, measures the changes and takes preventive measures. The Large Exposures Committee assesses the quality of the security systems set up in each division, as well as the risk monitoring tools. In 2003, its work covered country risks, implementation of the Mc Donough ratio, and the Banking, Financial and Technology Services division.
In terms of day-to-day operations and with a greater frequency, the risk management committees set up in the principal divisions assemble the Operating Directors, Risk Management, and Internal Audit.This involves: ■ the Credit Committee of the Corporate and International Banking division and its associated subsidiaries; ■ the Risk Management Committees of the Capital Markets division and its associated subsidiaries; ■ the Risk Management Committees of the Specialized Financing division (Natexis Factorem and Natexis Lease); ■ the Risk Management Committee of the Banking, Financial and Technology Services division; ■ the Investment Committees of the Private Equity division; ■ the Risk Management Committee of the Asset Management and Insurance division; ■ various Overrun Committees.
The purpose of the Operating Risks Committee is to appraise, on a transversal basis, all Natexis Banques Populaires operating risks.
Risk management organization Risk Management is organized into five departments: ■ counterparty / country risks, ■ capital market risks, ■ risk management / control / reporting, ■ operating risks, ■ insurable risks.
Risk Management controls the internal rating system.With a view to the future solvency ratio, rating tools were set up in 2003 to assess the probability of default for our corporate counterparties. The underlying statistical modes were developed in conjunction with Banque Fédérale des Banques Populaires. The rating procedure was thus reviewed and a new rating rid was implemented. In 2003, the new counterparty rating grid, according to the new standards, was practically finalized for corporate customers, the most significant segment for Natexis Banques Populaires. The rating grid for interbank customers is in the final phase of deployment.
Credit risks Management data on corporate customer average loan outstandings in 2003 (on and off-balance sheet): ■ Corporate and International Banking: EUR64 billion – Companies: EUR42 billion – Asset financing: EUR13 billion – International commerce: EUR9 billion
Breakdown of outstandings as of December 31, 2003 1 – FOR CORPORATE AND INTERNATIONAL BANKING BY ACTIVITY SECTOR AND GEOGRAPHICAL AREA
In relation to 2002, Natexis Banques Populaires risk by activity sector has remained diversified. Outstandings for emerging countries are also under control.
an ag em en t r ep or t 2 – BY MAJOR CLASS OF COUNTERPARTY
Breakdown of risks and provisions by geographical area as of December 31, 2003 in EUR millions Specific Country Total Specific Country Industry Total credit risks risks risks credit risk risk risk provisions
■ level two control is performed by the Internal Control departments of each entity. These carry out occasional compliance tests (regulatory and accounting standards and internal procedures) and ongoing controls of general (regulatory, accounting) and specific risks generated by the activities of the entities.
The risk control organizational structure is completed by capital markets risk management committee meetings, which bring together on a monthly basis the various control managers and Front Office managers. The committee, chaired by the head of Capital Markets activities, validates any new limits, proposes changes to limits and reviews the various overruns identified.
Natexis Banques Populaires Capital Markets risks are controlled using a system which measures the capital market risks to which the different group entities are exposed.The current methodology consists of a number of standard indicators, although Natexis Banques
■ change in the delta for a change in the underlying (equity, interest rate or foreign exchange rate),
The US subsidiary, ABM Corp., which operates in the securitized mortgaged debt market, is monitored individually on a stress scenario basis which simulates a uniform movement in the interest rate curve of plus or minus 100 base points and takes account of specific market characteristics (early repayments, volatility, etc.). As of December 31, 2003, the most unfavorable scenario provokes a reduction in the portfolio value of USD16.15 million.
The maximum sensitivity of interest rate schedules to a +/-1% translation of the interest rate curve is EUR100 million. This limit also applies to a point-for-point deviation of the interest rate curve.
The foreign exchange limit is EUR3 million, with a one-day potential loss horizon and a confidence interval of 99%.
Management and Risk Management divisions, defines the general thrust of asset and liability management, liquidity and own fund investment activities.
Since 2000, interest rate, foreign exchange and liquidity risks have been centralized at Natexis Banques Populaires.These risks are monitored and managed by the Capital Markets division.
In terms of liquidity risks, the Capital Markets division refinances the needs generated by the activities of Natexis
This centralization enables the optimized management of liquidity transformation risk thanks to a precise understanding of the different gaps. Observation ratios were approved by the ALM Committee. In conjunction with
Financial Management, the Capital Markets division also monitors regulatory limits (short-term liquidity ratio and permanent resources ratio) and internal prudential ratios validated by the ALM Committee.
The authorized liquidity gap and transformation limits are monitored and reviewed by the ALM Committee.
Operating risks These risks have been monitored for several years by the Operating Risks Committee, which met on five occasions in 2003. Its work specifically covered: ■ crisis management,
The definition retained for operating risk is that of the Basle Committee: the risk of loss due to the inadequacy or failure of processes, personnel, and systems or to external events.
General risks and risks specific to the activity are covered as follows: ■ Operating buildings and their content including IT equipment are insured for amounts corresponding to their reinstatement value or replacement value.
■ The exposure of Natexis Banques Populaires and its subsidiaries to “Securities theft and fraud” risks is covered by a common insurance policy set up by the Banque Fédérale des Banques Populaires for the entire Banque Populaire Group.
Total consolidated assets as of December 31, 2003 amounted to EUR135.9 billion, compared to EUR133.4 billion one year previously.
Tier One capital amounted to EUR4.3 billion as of December 31, 2003, compared to EUR4.1 billion as of December 31, 2002.The increase is primarily attributable to a new issue of preferred shares for USD200 million. This issue, placed with private asset management networks in Europe, Asia and the Middle East, benefits from a favorable prudential treatment in Tier One capital, since there is no step-up after a ten-year period.
The actions carried out for Tier One capital and weighted risk translated into an international solvency ratio of 11.4%, of which 8.1% for Tier One capital, as of December 31, 2003, compared to 10.2% and 7.2%, respectively, as of December 31, 2002, thus strengthening the financial structure of Natexis Banques Populaires considerably.
Regulatory requirements state that this ratio must exceed 100%. As of December 31, 2003, the capital adequacy ratio was 154%, compared to 135% as of December 31, 2002.
Regulatory requirements state that this ratio must exceed 100%. It stood at 208% as of December 31, 2003.
The purpose of the equity capital and permanent resources ratio is to ensure the level of long-term resources, by fixing a minimum coverage level of 60% for assets with a residual duration of more than 5 years by liabilities of an identical maturity.
Refinancing Natexis Banques Populaires ensures the financing of its activities and, on a marginal basis, those of the regional
The international structuring of its treasury has facilitated the geographical diversification of fund collection: the share of capital raised on the US domestic market has risen sharply.
Generally speaking, the growing globalization of its debt placement has enabled Natexis Banques Populaires to further secure its refinancing and optimize the cost.
Of the 2003 “benchmark” issues, a clear majority was placed outside of France.
Natexis Banques Populaires issues in 2003 (equivalent in EUR millions, except USCP in USD millions)
Early redemptions for the EMTN program are subject to a cross-default clause limited to the issuer, together with a trigger threshold of EUR30 million.
The USCP (securities issued by NBP US Finance Company LLC and guaranteed by Natexis Banques Populaires) and ECP programs of Natexis Banques Populaires are not bound by any covenant, as is the case with the issue of negotiable debt securities.
In addition to the negative pledge, international bond issues (international format) contain a cross-default clause,which is the same as the clause contained in the EMTN program.
■ Subordinated debt: Redeemable subordinated securities are not bound by any specific covenants.
(EUR121 million). The increase is attributable to the following elements: In 2003, Natexis Banques Populaires granted a EUR29 million debt waiver to its US subsidiary Natexis Investment Corp, which had incurred significant losses on its CDO portfolio in 2002.
Net income stood at EUR201 million, compared to EUR206 million for 2002.
Proposed distribution of company net income The Natexis Banques Populaires company financial statements for the year ended December 31, 2003 reported a net income of EUR200,728,250.83.
Meeting of May 27, 2004 asks shareholders to decrease this net income by the retained earnings of the prior year, i.e. EUR9,304,835.82, and to transfer an amount of
Meeting will propose the following appropriation of distributable earnings: dividend distribution of
EUR120,112,847.50, transfer of EUR52,300,034.64 to the long-term capital gains tax-driven reserve, transfer of
EUR9,400,000 to the general reserve, and allocation of the remaining balance of EUR39,362.12 to retained earnings.
IFRS international accounting standards Following the example of other European listed groups, Natexis Banques Populaires is preparing the first-time
The two analysis phases enabled: ■ the preparation, by business line, of an inventory listing the differences between French GAAP and the IAS/IFRS primary basis of accounting; ■ the definition of a scenario for the preparation of the financial statements in IAS format and the impacts on the Natexis Banques Populaires accounting information system; ■ the determination of the general IT specifications and the evaluation of the development cost for each area.
The IT development phase has been carefully planned to guarantee the success of the IAS accounting roll-out as of January 1, 2005. The milestones have been set for the finalization of three major stages: ■ systems implementation; ■ acceptances; ■ accounting switchover (transfer of accounting balances).
In parallel to the IT implementation work for 2004: ■ the training program for the various Natexis Banques Populaires group populations directly or indirectly concerned by IAS will be intensified; ■ the January 1, 2004 opening balance sheet and the June 30, 2004 pro forma financial statements will be prepared; ■ the impact analyses will continue in the area of macro-hedging and for the insurance business line, as the standards covering these two issues have yet to be finalized. Likewise, analysis will continue for the final version of IAS 32 and 39 and the 14 recently revised standards (IAS 1, 2, 8, 10, 15, 16, 17, 21, 24, 27, 28, 31, 33, and 40), published only recently in December 2003.
In general, the uncertainty of the new accounting framework in terms of organizational issues has hindered completion of the project.
All project work has been conducted in conjunction with the Banque Populaire Group.
The finalization of the detailed analysis work, developments regarding the standards or the positions adopted by the IASB Board, as well as certain financial market positions could reveal new divergences between current and IFRS principles or modify those divergences already identified.
Adjustments in respect of the first-time application of IFRS (of a retroactive nature unless otherwise determined by applicable measures) will be made to shareholders’ equity in the opening balance sheet.
The various aforementioned assessment elements for the management of the Natexis Banques Populaires IFRS transition project have not been audited.
Organization of work time, length of work time for full-time and part-time employees, absenteeism and reasons
Professional equality for men and women As of December 31, 2003, women represented 48% of total employees. Of the 264 employees recruited in 2003, 43% were women.
Created in 2001, the CHSCT commission mandate to examine issues regarding stress and psychological harassment was renewed in 2003, and special training has been provided to commission members.
Employment and integration of disabled workers Sheltered workshops and centers for assistance through work are called upon for various services: processing of job application response letters, maintenance of green spaces and various printing work (refer to 2003 report on employeerelated issues).
Company benefit schemes In 2003, Natexis Banques Populaires created a single mutual insurance scheme to replace the five prior health cost coverage plans.
The Company ensures that its suppliers, with whom sub-contracting agreements are signed, apply the regulations governing personnel management.
In addition, there is no outsourcing of bank processes in developing countries.
Environmental information Consumption of water resources Consumption has remained stable over the least three years, despite an increase in group real estate assets at the end of 2002 (operation of a new building in Paris).
Energy consumption Energy consumption is stable and tightly controlled, particularly due to high-performance technical equipment and optimized configurations.
Electricity and hot/cold energy consumption (central operating buildings in the Paris region): – 2001: 31,046 MWh
– 2003: 34,518 MWh (32, 461 MWh excluding group structure impact)
Measures undertaken to improve energy efficiency Generalization of centralized technical management systems to optimize energy flows.
Conditions governing the use of soil Not applicable, given the nature of the activity.
Waste treatment Selective waste sorting was introduced in 2002 at a Paris site (Rives de Seine).
Measures undertaken to limit damage to the ecological balance Asbestos removal operations.
Expenses incurred to prevent environmental impacts Data unavailable and non-material given the nature of the activity.
When Natexis Banques Populaires presented its results on March 4, 2004, it announced its plans for an organizational restructuring in order to develop its principal customer bases. The intent of the first phase, scheduled to be operational in the summer of 2004, is to create two major divisions: ■ a corporate and institutional division, via a merger of Corporate and International Banking and Capital Markets. It will be headed by Olivier Schatz, who is currently responsible for Capital Markets.
Interbank and money market assets 3 46,987 42,084 22,757 of which institutional activities 421 1,379 1,267 of which institutional activities 1,099 96 251
Bonds, equities and other fixed and variable income securities 5 16,351 19,166 19,498
Total assets 135,909 133,400 110,354 of which institutional activities 1,520 1,475 1,519
Liabilities & shareholders’ equity in EUR millions note 2003 2002 2001
Total liabilities & shareholders’ equity 135,909 133,400 110,354 of which institutional activities 1,750 1,667 1,726
Comparative consolidated off-balance sheet items At December 31, in EUR millions 2003 2002 2001
Depreciation, amortization and provisions for impairment of property and equipment and intangible assets (88) (67) (43)
Provisions for loan losses and country risks 30 (211) (193) (184)
Net gains/(losses) on disposals of fixed assets 31 13 53 3
Earnings per share 5.57 2.42 6.73 Consolidated net income per share, based on the average number of shares outstanding during the year
The main changes during the fiscal year were as follows: ■ removal from the scope of consolidation of SAS Montmartre 1 and Sofinnova, as their activity is no longer considered material at group level; ■ removal from the scope of consolidation of SCI Cogestimmo, following its disposal.This real estate company owned the building housing the Coface registered office; ■ entry into the scope of consolidation of Assurcredit, Coface North America Insurance, Kompass Holding and its subsidiaries, which were consolidated as part of the Coface sub-group; ■ entry into the scope of consolidation of Adir, a Lebanese life, personal risk and asset damage insurance company; ■ entry into the scope of consolidation of Natexis Bleichroeder UK, a subsidiary of Natexis Bleichroeder Inc. which specializes in the same brokerage activities as its parent company; ■ entry into the scope of consolidation of the international risk capital investment companies, Finatem (Germany), Natexis Cape (Italy), Natexis Inversiones (Spain), Mercosul (Brazil), Natexis Investment Asia (NIA) and Natexis Venture Sélection, as well as Financière Natexis Singapore, an intermediate entity that holds the NIA funds; ■ entry into the scope of consolidation of Natexis Banques
– Since 2000, Natexis Banques Populaires has performed five synthetic securitization transactions for its own account, the principle behind which is described in Note 2.3.The purpose of these transactions is to transfer a significant portion of the counterparty risk arising from some loan (Collateralized Loan Obligation) or security (Collateralized Bond Obligation) portfolios using credit (Credit Default Swaps) or market (Credit Linked Notes) derivatives.
These transactions totaled EUR4.1 billion as of December 31, 2003, with a weighted risk total of EUR3.3 billion, which is presented in the table below: N A
Fi na nc ia l i nf or m at io n Co ns ol id at ed fi na nc ia l s ta te m en ts in EUR million equivalent value as of December 31, 2003
Entities Currency Creation Maturity Gross Weighted Outstanding Initial amount risks weighted losses securitized securitized risks incurred by NBP
– In 2002, using Elixir Funding, a multi-seller structure, Natexis Banques Populaires performed a securitization transaction on behalf of customers to refinance their loan portfolios on the commercial paper market. Natexis Banques Populaires acted as arranger, depository, underwriter, cash provider, and letter of credit guarantor for this transaction.
Of the three criteria used to assess control of the vehicle, the sole determinant criterion is the “majority of risks”: Initially, Natexis Banques Populaires intends to syndicate the majority of risks within one year; once in full development, the syndication of over 50% of credit lines and the letter of credit shall be effective at all times. Under these conditions, Elixir Funding is excluded from the scope of consolidation.
These cover the financing of assets (planes, boats, hotel complexes, technological centers, etc.) on behalf of customers using tax transparent structures (EIGs, real estate investment companies, limited liability companies treated as a single tax group) in which Natexis Banques Populaires is the sole shareholder or where control is shared with other banks. Under these arrangements, Natexis Banques Populaires acts as lender and vendor of tax positions. As regards the consolidation of these structures, Natexis Banques Populaires has the power of decision over ordinary activities as trustee, which it exercises in the interest of its customers.The savings generated by these arrangements are equivalent to asset management income where Natexis Banques Populaires does not control the entity, as defined in Section 10052 of CRC Regulation No. 99-07. These arrangements are therefore not consolidated.
1.2 – Presentation of the financial statements 1.21 – CONSOLIDATED FINANCIAL STATEMENTS
Due to the full consolidation of Coface in 2003 and the second half of 2002, and its recording under the equity method in the first half of 2002, the balance sheets and income statements of these years are not comparable on a uniform basis.
To provide meaningful comparisons between fiscal years 2003 and 2002, Note 2 A presents the financial statements with full consolidation of Coface at each year-end.
1.3 – Consolidation methods Companies under exclusive control are fully consolidated. Jointly controlled companies are accounted for by the proportional method.
Companies in which Natexis Banques Populaires owns a direct or indirect interest of 20% to 50% of the common stock (giving it a significant influence over such companies) are accounted for using the equity method.
1.4 – Basis of consolidation The consolidated financial statements are based on the financial statements of group companies at December 31.
The derogation method permitted by Section 215 of CRC Regulation No. 99-07 was applied to the Natexis Bleichroeder Inc. acquisition, and the related goodwill deducted from shareholders’ equity.
Accounting policies and valuation rules specific to non-banking activities are retained in the consolidated financial statements, in particular those applicable to insurance subsidiary accounts. However, eliminating transactions between these subsidiaries and the banking subsidiaries cancels the matching of investments and technical reserves in the insurance companies’ balance sheet. As a result, technical reserves are covered by insurance and banking assets.
Items specific to insurance activities are grouped together in the following headings: ■ insurance company investment portfolios in assets and insurance company technical reserves in liabilities; ■ “Gross margin on insurance operations” in the income statement.
Movements during the year in the capitalization reserve and equalization provision are reversed from consolidated net income and result in movements in deferred profit-sharing and deferred tax balances.
Conversely, the equalization provision recorded by Coface was maintained in technical reserves in liabilities, insofar as this provision covers a macro-economic risk of fluctuations in incident probabilities over several fiscal years.
The impact of Decree No. 2003-1236 of December 22, 2003, amending Article R.331-5-1 of the Insurance Code on the recording of a provision for enforceability risk were treated in accordance with Opinion No. 2004-B issued by the Urgent Issues Taskforce of the French National Accounting Council. Given that this reserve relates to a risk not covered elsewhere, Natexis Banques Populaires decided to recognize all such provisions partially recorded by the insurance subsidiaries in its consolidated financial statements. The transition from partial provisioning, as recorded as of December 31, 2002 in agreement with the Insurance Audit Commission, to full provisioning is a change in accounting method, for which the pre-tax amounts totaling EUR148.5 million were deducted from shareholders’ equity as of January 1, 2003, and EUR95.9 million, net of deferred tax totaling EUR52.6 million. No such reserve was recorded as of December 31, 2003 following favorable market trends in 2003, and as such, this amount was reversed back into closing shareholders’ equity.
2.2 – Provisions Since fiscal year 2000, Natexis Banques Populaires focuses its risk coverage policy on three provision levels: A – SPECIFIC PROVISIONS
Where there is a risk of partial or total non-recovery of loans or non-compliance with loan conditions or covenants, loan loss allowances or other provisions for risk are raised and the charge taken to the income statement within Provisions for loan losses and country risks. Provisions are valued quarterly on a case-by-case and country-bycountry basis, taking into account an appraisal of risks and security available. As regards lease financing transactions, capital gains and losses on disposal and charges to and reversals of provisions (leased assets and assets temporarily not leased) are recorded in Net Banking Income.Termination compensation is recorded within Interest income. Only the capital portion of doubtful lease installments is provided within Provisions for loan losses and country risks.
Consequently, the net income from the consolidation of these subsidiaries (EUR4.8 million) was allocated, in full, to an additional charge to provisions for country risks to maintain the balance between provision charges and entity income.
These sectors are reviewed quarterly, and can, where necessary, be included in the provision base of known risks for countries or sectors with a potentially difficult economic situation. During these quarterly reviews, the country and sector provision rates are adjusted depending on Natexis Banques Populaires's perception of negative or positive trends in these areas. In 2003, Natexis Banques Populaires increased these provisions by EUR90 million to cover potential risks arising from major European stock market transactions.
A – SECURITIES TRANSACTIONS (TRADING ACCOUNT SECURITIES, SECURITIES HELD FOR SALE, DEBT SECURITIES HELD FOR INVESTMENT)
The following rules apply irrespective of the legal form of the security (equity, bonds and notes, treasury bills, certificates of deposit, negotiable instruments, money market securities, etc.) and depend solely on the purpose of the transaction: ■ trading account securities: these securities, which are acquired or sold with the original intention of reselling or repurchasing them after a short period, are traded on markets with guaranteed liquidity. Such securities are recorded at transaction value (including expenses and any accrued interest).At the balance sheet date, they are marked to market, and the aggregate net amount of differences arising is taken to the income statement. If these securities are held for more than six months, they are reclassified as securities held for sale at their estimated value on the date of reclassification; ■ securities held for sale: these securities are acquired with the intention of holding them for a period of more than six months, and are valued individually at the year-end at the lower of cost or estimated current value. Unrealized losses are provided; unrealized gains are not recognized. Any premium or discount between the acquisition cost (excluding purchased interest) and redemption value is deferred and amortized to income over the remaining period to maturity; ■ debt securities held for investment: these are Fixed Income securities, acquired with the original intention of holding them as permanent investments and are either specifically funded or appropriately hedged with respect to interest rate risk. They are recorded at acquisition cost (excluding purchased interest), and any premium or discount between acquisition cost and redemption value is deferred and amortized to income over the remaining period to maturity.
■ Gains or losses on sales of securities and adjustments in value appear under different headings depending on the nature of the transaction: – trading account securities, securities held for sale and equity securities held for investment: The appropriate Gains/(losses) heading in Net Banking Income; – debt securities held for investment: Provisions for loan losses and country risks where the gains or losses reflect counterparty risk and Net gains/(losses) on disposals of fixed assets where the gains or losses reflect a market risk or are the result of a disposal; – investments in affiliates and other long-term equity investments: Net gains/(losses) on disposals of fixed assets.
Caisse Centrale des Banques Populaires fixed assets were transferred in at net book value following the partial asset transfer.
■ Property and equipment are depreciated, generally on a straight-line basis, over their estimated useful lives as follows: Buildings used for operations 25 to 40 years
These network assets are not amortized on an annual basis but are subject to an annual impairment test.The valuation of Coface group network assets is described in Note 9.
The majority of Natexis Banques Populaires group occupied and leased-out buildings are recorded in the balance sheets of real estate companies, which, as detailed in Note 1.3, are fully consolidated as under the exclusive control of the group.
In accordance with the aforementioned October 21, 1997 letter, a provision is raised in respect of leased buildings where their accounting value exceeds their estimated market value and where there is a probable or certain risk that the building which is the subject of the lease contract will remain, on termination, the property of the lessor.
Computer program internal development costs are expensed in the year incurred,where the computer program is intended for internal use; where it is intended for commercialization, costs are capitalized and amortized over an appropriate period of use.
2.12 – Loan and capital issuance costs ■ For all transactions performed post January 1, 1994, Natexis Banques Populaires has elected to spread loan issuance costs over the life of the related loan, as permitted by tax legislation (Law of August 8, 1994) and in line with changes in the nature of loan issuance costs, which essentially represent an additional financing cost. ■ Expenses relating to issues of parent company common stock are offset, net of tax, against the issue premium. Expenses relating to issues by subsidiaries are charged against income for the year.
2.13 – Financial instrument transactions performed on Natexis Banques Populaires’ own account The nominal amount of these instruments is recorded offbalance sheet for internal monitoring and regulatory purposes, but is not included within published off-balance sheet commitments. Further details concerning these instruments can be found in the Notes to the consolidated financial statements.
■ The accounting treatment of speculative positions is identical as regards interest flows; however, capital losses arising on the period-end mark-to-market are provided for via a charge to income, unlike hedging transactions. ■ The last category is marked to market on an individual instrument basis. Movements in value from one period-end to the next are taken immediately to the income statement. Valuations are corrected for counterparty risks and the
Commitments, which by their nature may be deemed to fall within this category, given to banks granting foreign currency export credits, in order to guarantee the exchange rate of the funding, are not disclosed in the published off-balance sheet statement. Income and expenses in respect of Institutional activities (swaps and exchange rate guarantees) are charged or credited to the French Treasury, in accordance with agreed terms and conditions.
2.14 – Exceptional items Exceptional income and expense items are determined by reference to the materiality of their amount, the extent to which they fall outside the ordinary activities of the company and the low probability of recurrence of the events concerned.
Deferred tax assets and liabilities are offset within the same tax entity.The tax entity consists of either the entity itself or the tax group where one exists. Prudence requires that deferred tax assets only be recognized where they can be effectively used in the future to reduce the overall tax charge. Accordingly, tax losses carried forward are not recognized, and it is assumed that future tax savings will not be recovered if the tax entity has reported tax losses in the last two fiscal years.
Accordingly, in the interests of prudence, deferred tax assets totaling EUR317 million were not recognized as of
In accordance with Opinion No. 2004-A issued by the Urgent Issues Taskforce of the French National Accounting Council, the impacts of the law of August 21, 2003 on retirement reforms amending employee retirement conditions are considered as pension plan amendments, the effects of which are spread over the residual period of activity of employees.
Accordingly, EUR0.5 million was expensed in the financial statements in respect of fiscal year 2003.
CRC Regulation No. 2002-03 regarding classification of nonperforming loans and the accounting treatment of restructured loans at non-market conditions is applicable from January 1, 2003. After identifying the loans impacted by this regulation, the difference in future interest between the rate granted upon restructuring and the market rate was discounted and totaled EUR11 million. As this concerns loans restructured in previous fiscal years, the discount was deducted from fiscal year 2003 opening shareholders’ equity and recorded as Interest income for the year in the amount of EUR1.8 million.
CRC Regulation No. 2002-10 regarding the depreciation and impairment of assets is applicable from January 1, 2005.
Natexis Banques Populaires opted against early application of this regulation. This regulation contains transitional provisions applicable from January 1, 2003 regarding expenses arising from multi-annual major repair or revision programs and renewal expenses.Accordingly, a provision for major repairs totaling EUR1 million, of which EUR0.7 million was deducted from opening shareholders’ equity, was recorded in fiscal year 2003.
Bonds, equities and other fixed and variable income securities 16,351 19,166
Investments in affiliates and associated undertakings and other securities held for investment 1,585 1,685
Interbank and money market liabilities 36,100 46,184 of which institutional activities 515 1,453
Total liabilities and shareholders’ equity 135,909 133,388 of which institutional activities 1,750 1,667
Commitments on securities 329 463 of which securities with repurchase options - -
Commitments on securities 596 436 of which securities sold with repurchase options - -
Depreciation, amortization and provisions for impairment of property and equipment and intangible assets (88) (75)
Earnings per share 5.57 2.39 Consolidated net income per share, based on the average number of shares outstanding during the year
Diluted earnings per share 5.53 2.25 Consolidated net income per share, based on the number of shares outstanding at the year-end.
Government securities and equivalent (1) 4,093 4,893 5,851 Trading account securities 1,799 1,113 1,571 Securities held for sale 1,772 2,769 3,471 Debt securities held for investment (2) 443 881 646
(3) Including accrued interest receivable on: 79 130 163 securities held for sale 66 117 143 debt securities held for investment 13 13 20 accrued interest receivable 6 3 3
France Western Eastern North Latin Africa & Asia Not broken Total in EUR millions Europe Europe America America Middle East Oceania down
Loans and advances to banks 30,705 8,113 195 330 431 586 1,986 423 42,769
Fi na nc ia l i nf or m at io n Co ns ol id at ed fi na nc ia l s ta te m en ts 4 – Customer loans and lease financing in EUR millions 2003 2002 2001
France Western Eastern North Latin Africa & Asia Not broken Total in EUR millions Europe Europe America America Middle East Oceania down 4.1 – Other loans to customers in EUR millions 2003 2002 2001
Assets temporarily not leased and non-performing loans 238 253 215 Accrued interest receivable 66 94 110 Provisions for asset impairment (13) (16) (19) Provisions for loan losses (131) (134) (137)
Assets temporarily not leased and non-performing loans 9 3 3 Accrued interest receivable 1 1 1 Provisions for asset impairment (1) (1) Provisions for loan losses (2) (2) (3)
Non-performing loans and advances to banks 28 27 24 Gross non-performing loans 3 37 79 Provisions for non-performing loans - (20) (55) Gross irrecoverable loans 83 53 Provisions for irrecoverable loans (59) (42) -
Coverage: Provisions for loan losses against gross non-performing loans 41% 40% 62% Provisions for irrecoverable loan losses against gross irrecoverable loans 66% 67% Provisions for total non-performing loans against total gross non-performing loans 60% 58% 62%
Irrecoverable outstandings and provisions for irrecoverable outstanding losses were identified for the years ended December
Securities held for sale (2) 4,959 6,785 6,598 Equities and other variable income securities 547 1,017 862 Bonds and other fixed income securities 4,412 5,768 5,736
(1) Of which: receivables representing securities loaned 89 281 716 transferred to securities held for sale - - (5,430)
(2) Of which: receivables representing securities loaned - - transferred from trading account securities - - 5,430 transferred to/from debt securities held for investment - 18 1,678 subordinated 48 51 105 issued by public institutions 67 71 treasury shares - - 47 unrealized capital gains (excess of market value over cost) 29 38 12 unrealized capital losses provided in the balance sheet (125) (103) (92)
(5) Of which: listed 29 22 189 net of provisions of (212) (210) (150)
ESTIMATED VALUE OF EQUITY SECURITIES HELD FOR INVESTMENT: Net book Estimated Net book Estimated Net book Estimated in EUR millions value value value value value value
Coverage: provisions for non-performing securities against gross non-performing securities 47% 76% 59% provisions for irrecoverable securities against gross irrecoverable securities 66% 68% provisions for non-performing securities against gross non-performing securities – all securities 58% 71% 59%
As of December 31, 2002, reinsurers’ shares of technical reserves were transferred from Insurance company investment portfolios to Accrued income, prepaid expenses and other assets, while amounts receivable on deposits with grantor companies were transferred from Accrued income, prepaid expenses and other assets to Insurance company investment portfolios. The account balances as of December 31, 2001 were adjusted accordingly for this reclassification to enable yearon -year comparison, in the amount of EUR2,291 for fiscal year 2001.
in EUR millions 2003 2002 2001 of which: ■ life insurance 16,037 14,935 13,684
Insurance activities 35 28 97 COFACE division (1) 15 15 86 Natexis Assurances division (formerly Assurances BP) 20 13 11 of which Share in net income/(loss) 9 4 10 of which Share in net income/(loss) - (1) -
(1) COFACE SA shares equity accounted in 2001 COFACE consolidated group shares equity accounted in 2002 and 2003
7.1 – Investments in unconsolidated subsidiaries and affiliates in EUR millions 2003 2002 2001
Main shareholdings: Soparind 43 43 43 SCI Colomb Magellan 22 21 38 Sicovam Holding 30 30 30 IKB Deutsche Industriebank 29 29 29 Athlon Groep 23 23 8 – Property and equipment and intangible assets in EUR millions Gross Deprec., Net Gross Deprec., Net Gross Deprec., Net book amort., book book amort., book book amort., book value provs. value value provs. value value provs. value
Intangible assets 586 (151) 435 560 (126) 434 139 (86) 53 Property and equipment 711 (308) 403 692 (300) 392 526 (208) 318
Assets leased out under non-financial operating leases 227 (110) 117 226 (105) 121 256 (123) 133 Total property and equipment and intangible assets 1,551 (574) 977 1,507 (536) 971 951 (422) 529
Operating property and equipment 692 71 (45) 4 (11) 711 Operating land and buildings 349 43 (1) 2 (3) 390 Other operating property and equipment 343 28 (44) 2 (8) 321
Non-operating property and equipment 29 0 (2) 0 0 27 Non-operating land and buildings 26 - (2) - - 24 Other non-operating property and equipment 3 - - - - 3
Assets leased out under non-financial operating leases 226 1 - - - 227 2002 Charge/ Disposals Changes in Other 2003 in EUR millions (reversal) group structure
Other operating property and equipment (202) (36) 36 - 4 (198)
New Amortization Removals Net Net Net in EUR millions goodwill charges
The results of this method were validated using standard market comparisons, revalued net worth method, etc.
Fi na nc ia l i nf or m at io n Co ns ol id at ed fi na nc ia l s ta te m en ts 10 – Accrued income, prepaid expenses and other assets in EUR millions 2003 2002 2001
11 – Interbank and money market liabilities in EUR millions 2003 2002 2001
Fi na nc ia l i nf or m at io n Co ns ol id at ed fi na nc ia l s ta te m en ts 14 – Deferred income, accrued charges and other liabilities in EUR millions 2003 2002 2001
Trading account securities – liabilities on borrowed securities 2,872 2,339 2,478
Provisions for litigation recorded in the bank’s financial statements cover most of the claims (repayment of damages, action for damages for unfair support or unjustified contract termination, etc.) instigated by customers or legal representatives. In 2002, the provisions for litigation were recorded under Specific credit risk provisions totaling EUR16 million. In 2001, litigation was covered by general provisions recorded under Provisions for industry risks (EUR13 million) and Provisions for specific risks (EUR8 million). The 2001 and 2002 figures were adjusted to facilitate the comparison.
(2) In 2002, the increase in employee-related liabilities (+EUR51 million) was due to changes in group structure with the full consolidation of Coface (+EUR34 million), an additional charge to provisions in respect of the Natexis Employment Assistance Plan (+EUR10 million), a charge to provisions in respect of the Early Cessation of Salaried Employment contracts (+EUR3 million) and miscellaneous adjustments (+EUR4 million).
(3) Movements in other provisions between 2001 and 2002 are due to changes group structure with the full consolidation of Coface in the amount of EUR5 million.
Provisions for real estate promotion risks 6 1 (2) - - 5
in EUR millions 2003 2002 2001 - amount in USD million 7 20 31 - euro equivalent 6 19 36 - convertible into Natexis Banques Populaires share, issued in May 1996 - 1 115 of USD150 million issued in December 1996 of USD100 million issued in February 1997 - Non-redeemable participating securities issued in 1985 by BFCE, where the remuneration comprises a fixed-dividend component payable at TAM x 45% (benchmark money market rate for variable issues) and a variable component linked to the year-on-year increase in consolidated net income 100 107 107
Equity and equivalents at 12/31/2003 after appropriation (7) 769 1,791 1,233 3,793 242 4,035 784
(1) Reserves, retained earnings, consolidation differences, revaluation reserves, translation reserves and consolidated net income attributable to the group. (2) Change in method regarding the amortization of the difference between the purchase and redemption price of inflation-indexed bonds 1 (3) Of which: Natexis Bleichroeder Inc. goodwill (107)
(4) Of which: Change in accounting method for net deferred tax assets regarding the first-time application of CRC regulation No. 2002-03 (7) Change in accounting method for net deferred tax assets regarding the provision for enforceability risks of insurance companies according to the terms and conditions of Decree No. 2003-1236 and Opinion No. 2004-B issued by the Urgent Issues Taskforce of the French National Accounting Council (96) Reversal of the provision for enforceability risks in 2003 recognized in shareholders’ equity within the limit of the opening adjustment 96 Total (7)
Fi na nc ia l i nf or m at io n Co ns ol id at ed fi na nc ia l s ta te m en ts 18 – Information concerning counterparty risk on derivatives in EUR millions 2003 2002 2001
Hedging transactions (micro and macro hedging) 286,299 247,368 145,767 Management of trading positions 518,832 396,482 446,934
in EUR millions 2003 2002 2001 Currency Country of issue Long Short Long Short Long Short 21 – Interest income in EUR millions 2003 2002 2001
Macro-hedging transactions 3 3 6 22 – Interest expense in EUR millions 2003 2002 2001
27 – Gross margin on insurance operations in EUR millions 2003 2002 2001
Fi na nc ia l i nf or m at io n Co ns ol id at ed fi na nc ia l s ta te m en ts 28 – Other net banking income in EUR millions 2003 2002 2001
Country and industry risks (liabilities) 424 86 (21) - (28) 460 *Provisions for unpaid interest are recorded within NBI. **Other primarily consists of translation differences and inter-account reclassifications.
Investments in affiliates and other securities held for investment 34 51 23 Debt securities held for investment 1 1 1
Charges to provisions Investments in affiliates and other securities held for investment (21) (10) (15) Debt securities held for investment - - -
Reversals from provisions Investments in affiliates and other securities held for investment 16 24 20 Debt securities held for investment 7 - -
Property and equipment and intangible assets 1 9 9 32 – Exceptional items in EUR millions 2003 2002 2001
IT convergence and euro costs Charge to the provision - - -
Net income of defeasance and put-option structures Charge to country risk provisions for loans hedged by options - (6) Exceptional income from first consolidation of Edval and Worledge structures - 6 -
Net loss from the first-time consolidation of companies in the scope of consolidation (10) - -
33.1 – Reconciliation of the tax charge per the financial statements and the theoretical tax charge in EUR millions 2003 2002 2001 plus: Corporate income tax charge 154 13 79 less: Income from companies accounted for by the equity method (10) (3) (13)
= Consolidated accounting net income before tax, goodwill amortization, and income from companies accounted for by the equity method 532 211 435 plus/minus permanent timing differences (1) (194) (209) (185)
= Corporate income tax charge for the year (154) (13) (79)
(1) The main deductions in respect of permanent timing differences concern the tax-exempt net income of venture capital subsidiaries and subsidiaries which have issued preferred shares, the dividends of which are treated as interest expenses for tax purposes.
General operating expenses, depreciation, amortization and provisions (406) (305) (447) (410) (171) (1,739)
Provisions for loan losses and country risks (188) (15) (3) - (5) (211)
Income/(loss) before exceptional items and tax 382 (46) 149 81 (38) 528 34.1 – Contribution of fully consolidated non-banking companies to consolidated net income The principal fully consolidated companies belong to the Natexis Assurances business line (Natexis Life, ABP Prévoyance, ABP Vie, La Prosperité,Vitalia Vie and Bancassurance Popolari), and the Coface consolidated group.
Net fee and commission income (128) (234) (112) (157) (90) (91)
Net gains/(losses) on securities held for sale - - (3) - - -
Depreciation, amortization and provisions for impairment of property and equipment and intangible assets (24) (16) (9) (10) (1) (1)
35 A – Executive officer compensation Total gross compensation paid to executive officers was as follows: Chief Executive Officer (01/01/2002 to 10/31/2002) - 373,334 459,000
The number of share subscription options allotted in respect of offices held in the issuing company and associated undertakings was as follows: Chief Executive Officer (01/01/2002 to 10/31/2002) - 11,000 20,000
Chief Executive Officer, former Deputy Chief Operating Officer (10/15/2001 to 12/31/2001) 12,000 5,500 4,500
Fi na nc ia l i nf or m at io n Co ns ol id at ed fi na nc ia l s ta te m en ts 36 – Comparative balance sheet - institutional activities
Loans and advances to banks 9,470 23,390 8,234 2,811 - 43,905
Loans and advances from banks 3,671 18,666 3,700 526 - 26,563 38 - Companies included in the scope of consolidation in 2001, 2002 and 2003
AK COFACE HOLDING (formerly COFACE VERMÖGENSVERWALTUNG GMBH) Holding company 100 98 100 98 (2) (2)
ALLGEMEINE KREDIT COFACE (AK COFACE) Credit insurance and services 100 98 100 98 (2) (2)
AXELTIS LTD (Asset Square London) Mutual fund distribution 100 100 100 100 - -
COFACE INSURANCE NORTH AMERICA Credit insurance and services 100 98 - - - -
COFACE INTERCREDIT BULGARIA Information and debt management services 100 73 65 48 (2) (2)
COFACE INTERCREDIT HRATSKA (CROATIA) Information and debt management services 100 73 100 73 (2) (2)
COFACE INTERCREDIT HUNGARY Information and debt management services 100 73 100 73 (2) (2)
COFACE INTERCREDIT HOLDING AG Holding company 75 73 75 73 (2) (2)
COFACE INTERCREDIT ROMANIA Information and debt management services 60 44 60 44 (2) (2)
COFACE MOPE Information and debt management services 100 98 100 98 (2) (2)
COFACE NORTH AMERICA Credit insurance and services 100 98 100 98 (2) (2)
COFACE RECEIVABLE MANAGEMENT Information and debt management services (12) (12) 100 98 (2) (2) (formerly VERITAS BRAZIL)
COFACE SCRL (formerly Coface Scrl Participations) Information and debt management services 100 98 100 98 (2) (2)
COFACE SERVICE (formerly La Viscontea Servizi) Information and debt management services 100 98 100 98 (2) (2)
COFACE SERVICE ECUADOR (formerly VERITAS ANDINA) Information and debt management services 100 98 100 98 (2) (2)
COFACE SERVICES COLOMBIA (formerly VERITAS COLOMBIA) Information and debt management services 100 98 100 98 (2) (2)
(COFACE SERVICES PERU (formerly VERITAS PERU) Information and debt management services 100 98 100 98 (2) (2)
COFACE SERVICES VENEZUELA (formerly VERITAS VENEZUELA) Information and debt management services 100 98 100 98 (2) (2)
COFACE SERVICIOS (formerly VERITAS CHILE) Information and debt management services 100 98 100 98 (2) (2)
COFACE UK (formerly London Bridge Finance Group) Holding company 100 98 100 98 (2) (2)
(COFACE UK SERVICES LTD (formerly Cofacerating.uk) Information and debt management services 100 98 100 98 (2) (2)
COFACERATING.AT Information and debt management services (13) (13) 100 92 (2) (2)
COFACERATING.COM Information and debt management services 100 98 100 98 (2) (2)
COFACERATING.IT Information and debt management services 100 98 100 98 (2) (2)
COFACERATING.SP Information and debt management services 100 98 - - - -
COGERI Information and debt management services 100 98 100 98 (2) (2)
COMPAGNIE FONCIERE NATEXIS Real estate investment 100 100 100 100 100 100
CREDITORS GROUP HOLDING LTD Information and debt management services 100 98 100 98 (2) (2)
FCPR NATEXIS INDUSTRIE Growth capital 100 100 - - - -
Fi na nc ia l i nf or m at io n Co ns ol id at ed fi na nc ia l s ta te m en ts
FINANCIERE NATEXIS SINGAPOUR International investment fund holding company 100 100 - - - -
FRUCTIBAIL Real estate lease financing 100 100 100 100 100 100
FRUCTICOMI Real estate lease financing 100 100 100 100 100 100
INITIATIVE ET FINANCE INVESTISSEMENT Buy-out/Buy-in financing 92 77 92 77 92 75
JI INTERNATIONAL Information and debt management services (12) (12) 100 98 (2) (2)
KOMPASS INTERNATIONAL NEUENSCHWANDER Holding company 100 98 100 98 - -
KOMPASS SOUTH EAST ASIA Marketing and other services 100 98 - - - -
NATEXIS ACTIONS AVENIR (4) Growth capital 75 74 79 77 80 78
NATEXIS ACTIONS NOUVEAUX MARCHES (4) Growth capital 80 77 81 77 81 77
NATEXIS AMBS Preferred share issues 51 34 50 20 50 17
NATEXIS ARBITRAGE (formerly SPAFIN) Share and derivative arbitrage 100 100 100 100 100 100
NATEXIS ASSET MANAGEMENT (formerly B.P.A.M.) (6) Management of Collective Savings Schemes 100 100 100 100 70 70
NATEXIS ASSET SQUARE (formerly Asset Square) Mutual fund distribution 100 100 100 100 100 100
NATEXIS CAPE International investment fund 99 85 - - - -
NATEXIS EPARGNE ENTREPRISE (5) Employee savings management company 100 100 100 100 - -
NATEXIS FACTOREM (formerly Factorem) Factoring company 100 100 100 100 100 100
NATEXIS IMMO PLACEMENT (formerly Fructiger) (3) Real estate management 100 100 100 100 90 90
NATEXIS INTEREPARGNE (formerly Interépargne) (6) Employee savings management company 100 100 100 100 50 50
NATEXIS INVERSIONES International investment fund 100 100 - - - -
NATEXIS INVESTISSEMENT (formerly SOFININDEX) Growth capital 99 90 99 93 99 93
NATEXIS PRAMEX ASIA LTD International commerce promotion and operations 100 99 100 99 - -
NATEXIS PRAMEX IBERICA SA International commerce promotion and operations 100 99 100 99 100 99
NATEXIS PRAMEX INTERNATIONAL International commerce promotion (formerly Pramex International) and operations 99 99 99 99 99 99
NATEXIS PRAMEX NORTH AMERICA CORP. International commerce promotion and operations 100 99 100 99 100 99
NATEXIS PRAMEX POLSKA International commerce promotion and operations 100 99 100 99 - -
NATEXIS PRAMEX UK LTD International commerce promotion and operations 100 99 100 99 100 99
NATEXIS PRIVATE EQUITY ASIA Management company (private equity) (1) (1) 100 100 100 100
NATEXIS VENTURE SELECTION Investment fund 100 100 - - - -
NBP PREFERRED CAPITAL III** Preferred share issues 100 100 - - - -
OKV KREDITINFORMATIONS GMBH (OKI) Information and debt management services 100 92 100 92 (2) (2)
OSTERREICHISCHE KREDITVERSICHERUNGS COFACE (OKV COFACE) Credit insurance and services 94 92 94 92 (2) (2)
SOCIETE DE BANQUE FRANCAISE ET INTERNATIONALE Bank 100 100 100 100 100 100
SOPRANE ASSURANCES Private asset management 100 100 100 100 100 100
VERITAS ARGENTINA Information and debt management services 100 98 100 98 (2) (2)
VISCONTEA COFACE Credit insurance and services 100 98 100 98 (2) (2)
WORLEDGE A INVESTMENTS Ltd Country risk put-option structure 100 100 100 100 - -
ZAO NATEXIS BANQUES POPULAIRES Foreign bank 100 100 100 100 - -
ASSURANCES BANQUE POPULAIRE IARD (formerly Fructi-maaf) Asset damage insurance 50 50 50 50 50 50
COFACREDIT Credit insurance and services 36 35 36 35 (2) (2)
GRAYDON HOLDING Information and debt management services 28 27 28 27 (2) (2)
IDF NORD CROISSANCE Private equity (18) (18) 33 33 33 33
** In earnings: For those companies with share classes conferring different rights to earnings, the percentages indicated represent the group portion of their earnings; for those companies no longer within the scope of consolidation, the percentage indicated is that existing on the date of removal from scope. For companies with preferred shares, net income/(loss) is comprised of the company’s net income/(loss) after payment of the preferred dividend to holders of preferred shares.
(3) Buy-out of minority interests (10%) bringing the group interest to 100%. (4) Liquidated and transferred to Natexis Actions Capital Structurant on September 1, 2003. (5) As a result of the spin-off of Natexis Interépargne. (6) Buy-out of minority interests in 2002 increasing the group interest’s to 100%. (7) Merged with Natexis Private Equity (formerly FNBP) in 2002. (8) After transfer of venture capital mutual investment fund manager and venture capital subsidiary activities of Spef and Spef Venture. (9) After transfer of venture capital mutual investment fund manager activities of Spef Venture.
(10) After a partial asset transfer to Invest Sigma, the real estate company ABC was absorbed by Natexis Banques Populaires on March 31, 2002.
(13) Merger with OKV Kreditinformations during the first half of 2003. (14) Merger with ABP Vie on September 8, 2003.
(18) Absorbed by +X Développement now BP Développement. (19) Transfer of all assets and liabilities to Natexis Banques Populaires on June 29, 2003. (20) Buy-out by Natexis Altaïr of shares held by Casden increasing the group’s interest to 100%. (21) Merger with Coface SCRL Participations in the second half of 2003, renamed Coface SCRL.
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 principles 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. In our opinion, the consolidated financial statements give a true and fair view of the financial position and the assets and liabilities of the group as of December 31,2003 and the results of its operations for the year then ended in accordance with accounting principles generally accepted in France. Without qualifying the opinion expressed above, we draw your attention to Note 2.17 to the consolidated financial statements, which describes the changes in accounting methods made during the year, arising from the first-time application of CRC Regulation No.2002-03 on the accounting treatment of credit risks in companies falling within the scope of the French Banking and Financial Regulation Committee and CRC Regulation No. 2002-10 on the depreciation and impairment of assets.
II – Justification of our assessments Pursuant to Article L.225-235 of the French Commercial Code governing the justification of our assessments, as introduced by the French Financial Security Act of August 1, 2003, which applies for the first time this year, we hereby report on the following: ■ your group records provisions to cover the risks arising from the performance of its activities. As part of our assessment of the significant estimates made by management to prepare the financial statements,we reviewed the control mechanism for monitoring credit risk, the assessment of risks of non-recovery and their coverage by both individual, as well as industry and country risk provisions; ■ in addition,Note 2.17 to the consolidated financial statements describes a change in accounting method for non-performing loans pursuant to CRC Regulation No. 2002-03.As this concerns loans restructured in previous fiscal years at non-market conditions, the discount was deducted from shareholders’ equity in the amount of EUR11 million.This change in method is justified by the application of the new regulation and the compliance of the accounting translation with current policies; ■ as indicated in Note 9 to the Notes to the financial statements, and pursuant to the recommendation of the Autorité des Marchés Financiers (AMF), the French Securities Regulator, your Company, for the preparation of its financial statements for the year ended December 31, 2003 has valued intangible assets and goodwill recorded in the consolidated balance sheet based on an independent expert appraisal for the most material investments. As part of our assessment of the significant estimates made by management to prepare the financial statements, we familiarized ourselves with the conclusions of the independent expert and verified their inclusion in the consolidated balance sheet as of December 31, 2003.
These assessments were performed as part of our audit approach for the consolidated financial statements taken as a whole and contributed to the expression of the unqualified opinion in the first part of this report.
DELOITTE TOUCHE TOHMATSU RSM SALUSTRO REYDEL BARBIER FRINAULT & AUTRES Philippe Vassor Michel Savioz Richard Olivier / Olivier Durand
Pursuant to Article L225-40 of the French Commercial Code, we hereby inform you that an agreement approved by your Board of Directors has been brought to our attention.
We conducted our procedures in accordance with professional standards applicable in France.Those standards require that we agree the information provided to us with the relevant source documents.
This transaction was authorized at the Board of Directors’meeting of November 19, 2003.
The Company granted Banque Privée Saint Dominique a subsidy in the amount of EUR1.5 million.
Loans and advances to banks 1 48,331 41,718 21,666 of which institutional activities 16 421 1,379 1,267 of which institutional activities 16 1,099 96 251
Investments in affiliates and other securities held for investments 4 174 179 209
Accrued income and prepaid expenses 6 2,941 2,273 4,567 of which institutional activities 16 - - 1
Commitments received from financial institutions 1,643 897 1,601 Commitments received from customers 542 150 65
Liabilities & shareholders' equity in EUR millions note 2003 2002 2001
Deferred income and accrued charges 10 2,829 2,561 4,900 of which institutional activities 16 - 4 12
Tax-driven provisions & investment grants 13A 108 114 102 of which institutional activities 16 98 104 94
Interest income 17 3,874 5,452 5,121 Transactions with financial institutions 2,051 2,568 1,740 Customer transactions 1,114 1,944 2,397 Finance lease transactions 1 - Operating lease transactions 1 - Bonds and other fixed income securities 492 673 915 Other interest income 215 267 69
Depreciation, amortization and provisions for impairment of property and equipment and intangible assets 24 (26) (29) (24)
Provisions for loan losses and country risks 25 (231) (121) (162)
The Natexis Banques Populaires financial statements have been prepared in accordance with generally accepted accounting principles applicable to credit institutions and, in particular, CRC Regulation No. 2000-03 regarding the presentation of financial statements.
1.2 – Provisions Since fiscal year 2000, Natexis Banques Populaires focuses its risk coverage policy on three provision levels: 1.21 – SPECIFIC PROVISIONS
The sectors are reviewed quarterly, and can, where necessary, be included in the provision base of known risks for countries or sectors with a potentially difficult economic situation. During these quarterly reviews, the country and sector provision rates are adjusted depending on Natexis Banques Populaires perception of negative or positive trends in these areas. In 2003, Natexis Banques Populaires increased these provisions by EUR90 million to cover potential risks arising from major European stock market transactions.
In order to complete the range of general risk coverage, Natexis Banques Populaires maintains a Fund for General Banking Risks out of post-tax income.
Accordingly, the number of treasury shares held as of December 31, 2003 totaled 1,423,843 with a total value of EUR126 million, recorded as trading account securities.
1.52 – INVESTMENTS IN AFFILIATES AND EQUITY SECURITIES HELD FOR INVESTMENT
■ Consolidated investments in affiliates: Natexis Banques Populaires valued its consolidated investments in affiliates as
Fi na nc ia l i nf or m at io n Co m pa ny fi na nc ia l s ta te m en ts part of the preparation of the financial statements for the year ended December 31, 2003. The most material investments were valued by an independent expert.
The net present value of future cash flows was used to calculate the value of these investments. This method is based on the business plans drawn up by the management of the main subsidiaries and validated by Natexis Banques Populaires Executive Management.
The discount rate of the future cash flows was calculated for each subsidiary based on the following: – the average OAT (French government bond) 10-year yield; – the risk premium in the subsidiary’s market; – a beta value based on a sample of comparable companies.
1.7 – Property and equipment and intangible assets 1.71 – OPERATING PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
■ Former Crédit National assets purchased prior to December 31, 1976 are stated at the value resulting from the 1976 statutory revaluation. Purchases since this date are stated at acquisition cost.
The former BFCE assets are recorded in the Natexis Banques Populaires financial statements at their fair value attributed on the acquisition of BFCE by Crédit National. Caisse Centrale des Banques Populaires fixed assets were transferred in at net book value following the partial asset transfer.
Other property and equipment 5 to 10 years 1.72 – NON-OPERATING PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
program is intended for internal use; where it is intended for commercialization, costs are capitalized and amortized over an appropriate period of use.
1.8 – Perpetual and fixed-term subordinated notes Natexis Banques Populaires has perpetual and fixed-term subordinated notes in circulation, the redemption of which, in the case of liquidation, ranks after the satisfaction of all other creditors.
1.9 – Participating securities Debt service costs in respect of participating securities are considered equivalent to an interest cost and expensed in the income statement on a time-apportioned basis.
1.10 – Interest, premiums, fees and commission Interest, together with premiums, fees and commission considered as equivalent to interest income are recorded in the income statement on a time-apportioned basis. Other commission is recognized on a receipts basis.
1.11 – Interest rate review charges and early repayment penalties Interest rate review charges and early repayment penalties are considered as unearned interest income and are amortized to income over the life of the loan, allocated to each year in proportion to the loss of interest income for the year according to the loan repayment schedule.
1.13 – Financial instrument transactions performed on Natexis Banques Populaires’ own account The nominal amount of these instruments is recorded offbalance sheet for internal monitoring and regulatory purposes, but is not included within published off-balance sheet commitments. Further details concerning these instruments can be found in the Notes to the financial statements.
■ The last category is marked to market on an individual instrument basis. Movements in value from one period-end to the next are taken immediately to the income statement. Valuations are corrected for counterparty risks and the discounted present value of future management charges under the contracts.
1.132 – CURRENCY SWAPS: ■ Open spot swap transactions are valued at closing rates at the period-end.
■ Forward currency hedging transactions are taken to income on a time-apportioned basis, either as premiums and discounts where the transactions form part of commercial activities, or as accrued interest where they are intended to hedge long-term foreign currency denominated assets and liabilities.
Fi na nc ia l i nf or m at io n Co m pa ny fi na nc ia l s ta te m en ts 1.133 – INTEREST RATE, CURRENCY AND STOCK
1.134 – INSTITUTIONAL ACTIVITIES: Commitments, which by their nature may be deemed to fall within this category, given to banks granting foreign currency export credits, in order to guarantee the exchange rate of the funding, are not disclosed in the published off-balance sheet statement. Income and expenses in respect of Institutional activities (swaps and exchange rate guarantees) are charged or credited to the French Treasury, in accordance with agreed terms and conditions.
1.17 – Changes in accounting method CRC Regulation No. 2000-06 regarding liabilities was applied for the first time on January 1, 2002. This regulation lays down the terms and conditions for recognition of provisions for contingencies and losses not directly relating to banking or associated activities and defines a liability as “an obligation of the company to a third party which is probable or certain to lead to an outflow of resources, without an expected consideration at least equivalent in amount from this third party.”
CRC Regulation No. 2002-03 regarding classification of non-performing loans and the accounting treatment of restructured loans at non-market conditions is applicable from January 1, 2003. After identifying the loans impacted by this regulation, the difference in future interest between the rate granted upon restructuring and the market rate was discounted and totaled EUR11 million. As this concerns loans restructured in previous fiscal years, the discount was deducted from fiscal year 2003 opening shareholders’ equity and recorded as Interest income for the year in the amount of EUR1.8 million.
1.18 – Notes to the financial statements Unless otherwise stated, the figures shown in the Notes are in EUR millions.
Note 1 – Interbank and money market assets in EUR millions 2003 2002 2001
Government securities and equivalent 4,088 4,874 6,125 Trading account securities 1,798 1,113 1,845 Securities held for sale 1,833 2,867 3,615 of which accrued interest receivable 66 117 143 of which impairment provisions (8) (9) (13) Debt securities held for investment 457 894 665 of which accrued interest receivable 13 13 20
Cash loans and consumer credit 10,296 11,206 11,609 of which accrued interest receivable 47 52 66 of which accrued interest receivable 12 20 30 of which accrued interest receivable 9 13 20
Assets temporarily not leased and non-performing loans - - Accrued interest receivable - - Provisions for asset impairment - - Provisions for loan losses - - -
Note 3 – Bonds, equities and other fixed and variable income securities in EUR millions 2003 2002 2001
Bonds and other fixed income securities 9,505 10,543 10,235 Trading account securities 2,373 946 633 Securities held for sale 1,299 2,101 1,625 Debt securities held for investment 5,777 7,459 7,917 Non-performing securities 56 37 60 of which non-performing loans 120 75 102 of which provisions for loan losses (64) (38) (42)
Recoverable Irrecoverable Recoverable Irrecoverable in EUR millions non-performing non-performing non-performing non-performing
Current account advances - - Currency translation adjustments 1 - -
Current account advances - - Currency translation adjustments - - -
Treasury shares Trading account securities 126 73 47 Securities on loan - - Long -term investments 4 - -
IINVESTIMA 13 3,700 37,000.00 INVESTIMA 14 3,700 37,000.00 INVESTIMA 3 3,850 19,250.00 INVESTIMA 8 3,850 19,250.00 INVESTIMA 9 3,850 19,250.00 OMNIUM NATEXIS GIE (formerly Natexis Marché Primaire) 1,250 19,056.13 SAGP 990 15,092.45
D) Investments with a carrying value equal to or less than EUR15,000 - 43,062.14
C) Other SOPARIND 36,956 25,887,797.52 EMBRAER 273,120 10,492,370.08 CABLECOM (London) - 6,638,000.00 PAI EUROPE 3 FCPR 625,200 5,106,600.00 LUCIA 186,000 3,965,687.02 PATRIMOINE EUROPE (SCPI) 2,941 2,767,864.37 GIE SPRING RAIN 17,599,140 2,682,971.60 SYSTRA 7,300 1,779,789.65 JACQUET SA 142,141 1,625,282.10 BANQUE INTERNATIONALE ARABE DE TUNISIE 160,000 1,568,576.07 IMMOBILIERE PRIVEE 8,040 1,295,816.64 SAINT AUBIN CHIMIE GIE 7,617,500 1,161,280.39 AXELTIS 627,000 1,025,777.75
D) Investments with a carrying value equal to or less than EUR15,000 - 131,427.74
Subsidiaries and investments in affiliates not included under A 21 - France (in aggregate) 22 - Other (in aggregate)
* Figures taken from accounting documents at December 31, 2003. (1) For these securities, the book value is greater than the gross value as a result of a positive foreign exchange impact.
Fi na nc ia l i nf or m at io n Co m pa ny fi na nc ia l s ta te m en ts
Note 5 – Property and equipment and intangible assets in EUR millions Gross Deprec., Net Gross Deprec., Net Gross Deprec., Net book amort. book book amort. book book amort. book value provs. value value provs. value value provs. value
Non-operating assets 12 (3) 9 14 (4) 10 15 (4) 11 Intangible assets - - - - - - - - - Property and equipment 12 (3) 9 14 (4) 10 15 (4) 11 in EUR millions 2002 Additions Disposals Other 2003
Operating intangible assets 74 7 (1) (2) 78 Purchased goodwill 23 - - - 23 Software 32 5 (1) - 36 Other intangible assets 19 2 - (2) 19
Operating property and equipment 101 19 (13) (2) 105 Operating land and buildings 16 1 - - 17 Other operating property and equipment 85 18 (13) (2) 88
Central banks and post office banks 1 3 143 of which accrued interest payable 3 5 4 of which other amounts due 340 106 110 of which accrued interest payable 131 355 47
(*) Including securities delivered under repurchase agreements: 18,411 20,013 3,304 of which accrued interest payable 81 247 30
Interbank market and money market securities 21,990 18,464 16,097 of which accrued interest payable 154 172 206 of which accrued interest payable 100 140 195
Treasury notes and savings certificates 1 - 3 of which accrued interest payable - - -
Note 10 – Deferred income, accrued charges and other liabilities in EUR millions 2003 2002 2001
Note 11 – Provisions for contingencies and losses in EUR millions Off- balance Country Specific Provisions Industry Tax-driven Fin. instr. Misc. Total sheet (signature risks credit risks for litigation risks provisions risks risks commitments)
At January 1, 2003 16 276 65 13 136 211 74 3 839 Charges 6 85 37 2 70 54 34 8 313 Reversals (4) (90) (54) (3) - (61) (65) (3) (291) Currency translation adjustments - (23) (1) - (6) (1) - - (31) Other changes - - - - - - - 1 1
(*) Of which provisions for major repairs: 1 Of which risks in Investments in affiliates and associated undertakings: 5
At January 1, 2003 190 29 26 245 Charges - - - 0 Reversals - - - 0 Currency translation adjustments - (5) (4) (9) Other changes - - - 0
Note 13 A – Tax-driven provisions in EUR millions Revaluation reserve for Provisions for Accelerated Total depreciable assets investment depreciation
Reversals - - - 0 Currency translation adjustments - - - 0 Other changes - - - 0
At January 1, 2003 0 10 0 10 Charges - 1 - 1 Reversals - (1) - (1) Currency translation adjustments - - - 0 Other changes - - - 0
At January 1, 2001 684 1,706 40 287 140 11 0 2,868 Appropriation of 2000 income - (231) - - - - - (231) Dividends paid in 2001 - - - (107) - - - (107) Alizé Action common stock increase 3 10 - - - - - 13 Alizé Levier common stock increase 18 71 - - - - - 89 Natexis Capital merger surplus - 7 - - - - - 7 Conversion of perpetual subordinated securities convertible into shares 4 13 - - - - - 17 Other movements in equity - 3 - - - - - 3
Financing commitments given in favor of: Guarantees given on behalf of:
Accrued income, prepaid expenses and other assets 0 0 1 in EUR millions 2003 2002 2001
Accrued income, prepaid expenses and other assets 98 108 106 in EUR millions 2003 2002 2001
Note 17 – Interest income in EUR millions 2003 2002 2001
Note 18 – Interest expense in EUR millions 2003 2002 2001
Fee and commission income from: Off-balance sheet items: Forward financial instruments 8 7 11 Financing commitments 33 25 19 Guarantee commitments 13 7 7 Other commitments given (4) 153 151 Other 2 3 2
Gains Investments in affiliates and other securities held for investment 16 62 7 Debt securities held for investment 1 - 1
Reversals from provisions Investments in affiliates and other securities held for investment 13 14 16 Debt securities held for investment 6 - -
Note 27 – Exceptional items in EUR millions 2003 2002 2001
Personnel costs Charges to provisions for departures as part of the employee assistance program - (15) Charges to restructuring provisions - (5) (14) Reversals from restructuring provisions - 5 14 Reversals from provision for departures as part of the employee assistance program 5 - Transfer of provision reversal to personnel costs (5) - -
(2) Reversals from provisions recognized subsequently 15 Shoah Victim Foundation 2 NBP convergence costs 7 Euro conversion costs 6
Impact of foreign branch income taxed at different rates (1) (3) 1
Note 30 – Off-balance sheet – forward instruments in EUR millions 2003 2002 2001
Guarantee commitments given on behalf of 16,628 15,669 15,598 Financial institutions 1,344 1,859 1,465 Customers 15,284 13,810 14,133
Spot swap transactions Currencies purchased and not received 5,524 1,788 1,283 Currencies sold and not delivered 5,538 1,789 1,282
Forward currency transactions Euro to be received / currencies to be delivered 42,217 36,360 33,781 Currencies to be received / euro to be delivered 46,268 28,600 29,271 Currencies to be received / currencies to be delivered 16,330 16,247 6,482 Currencies to be delivered / currencies to be received 16,801 16,760 15,732 Premium / discount to be received 109 112 45 Premium / discount to be paid 131 119 99
Income before tax, depreciation, amortization and provisions 141,743,636.13 (91,999,342.33) 233,781,303.11 269,073,078.06 213,068,968.00
Income after tax, depreciation, amortization and provisions 3.22 (5.40) 1.68 4.34 4.18
Social security, pension costs and other employee benefits (in EUR) 38,646,789.53 123,272,964.19 138,251,232.60 130,778,397.65 144,067,570.23
In accordance with our appointment as auditors at your Annual General Meeting, we hereby report to you for the year ended December 31, 2003 on: ■ the audit of the accompanying financial statements of Natexis Banques Populaires,
II – Justification of our assessments Pursuant to Article L225-235 of the French Commercial Code governing the justification of our assessments, as introduced by the French Financial Security Act of August 1, 2003, which applies for the first time this year, we hereby report on the following: ■ your Company records provisions to cover the credit risks arising from the performance of its activities. As part of our assessment of the significant estimates made by management, we reviewed the control mechanism for monitoring credit risk, the assessment of risks of non-recovery and their coverage by both individual, as well as industry and country risk provisions; ■ in addition, Note 17 (accounting policies) to the financial statements describes a change in accounting method for non-performing loans pursuant to CRC Regulation No. 2002-03. As this concerns loans restructured in previous fiscal years at non-market conditions, the discount set forth in this regulation was deducted from shareholders’ equity in the amount of EUR11 million.This change in method is justified by the application of the new regulation and the compliance of the accounting translation with current policies; ■ as indicated in Note 5.2 (accounting policies) to the financial statements, Natexis Banques Populaires valued its investments in affiliates based on an independent expert appraisal for the most material investments. As part of our assessment of the significant estimates made by management, we familiarized ourselves with the conclusions of the independent expert and verified their inclusion in the balance sheet as of December 31, 2003.
Auditors' report on the financial statements For the year ended December 31, 2003
III – Specific procedures and disclosures We have also performed the other procedures required by law, in accordance with professional standards applicable in France.
We have no comment to make as to the fair presentation and consistency with the financial statements of the information given in the Management Report and in the documents addressed to the shareholders with respect to the financial position and the financial statements.
Auditors’ report on the report prepared by the Chairman with respect to the internal control procedures 212
It was submitted to the Board of Directors of Natexis Banques Populaires on March 3, 2004 and to its Audit Committee.
1 – Functioning of the Board 1.1 – Composition of the Board of Directors Natexis Banques Populaires has applied the principles of corporate governance for several years. Beginning in 1996, special Board committees were created, and other measures followed pursuant to the recommendations set forth in the Viénot and Bouton reports.
The Company attaches a particular importance to the functioning of its Board of Directors, in terms of both the frequency of meetings and the content of information provided to directors. It strives, by various means, to ensure that Board members are associated as closely as possible with the operation of the Company and its subsidiaries.
The Board has 15 directors (including one director representing employee shareholders) and a censor. The Chief Executive Officer is not a director.
The three independent directors, who have no direct or indirect relationship with Company shareholders, are not part of Company Executive Management and have been in office less than 12 years.The companies managed by them, where such is the case, do not realize a significant portion of their revenue with the Company: ■ one independent director manages a major French high-tech industrial group; ■ a second director manages one of the two leading French companies in the collective catering sector; ■ the third independent director, who is now retired, is the former manager of a bank and stock market company, thus ensuring full independence vis-à-vis any financial group. As over 4% of the common stock is held by the employees of Natexis Banques Populaires and its subsidiaries, as well as the employees of the Banque Populaire Group, they have been represented on the Board of Directors since the Annual General Meeting of May 2002 by a director chosen from among three candidates presented to the General Meeting on behalf of the employee savings mutual funds.
Mr. François Ladam was appointed Chief Executive Officer (non-director) by the Board of Directors meeting of October 23, 2002, with all the powers associated with this function. The appointment was effective from 1.3 – Organization of the Board’s work The Natexis Banques Populaires Board of Directors met seven times during 2003. The attendance rate was high, at 98% on average over the year, for all directors and meetings.
The Board of Directors regularly hears, throughout the year, presentations by the heads of each of the Natexis Banques Populaires business lines on their position and future outlook, providing the directors with a detailed picture of developments for each activity component. The Board also hears presentations on major issues likely to impact Company operations (reorganizations, internal organizational reviews, etc.).
Internal restructuring operations between subsidiaries are also systematically reviewed by the Natexis Banques Populaires Board of Directors.
To date, there has been no formal evaluation of the work carried out by the Natexis Banques Populaires Board of Directors.
1.4 – Board of Directors’ special committees The Natexis Banques Populaires Board of Directors has had three special committees for some time: ■ the Financial Statements Review Committee (created in 1996); ■ the Audit Committee (created in 2000); ■ the Compensation Committee (created in 1996).
The Internal Regulations detail the areas of competence of the Board, its methods of operation (with, in particular, an obligation to meet at least six times a year) and principles of professional ethics. They explicitly call for the existence of three special committees and contain various directions regarding the ethical obligations of directors.
The Directors’ Charter details the rights and obligations of Board members. It presents the provisions of the bylaws whereby each Director must hold at least one hundred shares in the Company. It sets the rules forbidding directors to trade in the Company’s shares during sensitive periods preceding the publication of results. Accordingly, directors are prohibited from trading in the Company’s shares directly or by intermediary during the 30 calendar days preceding the publication of the quarterly, half-yearly or
Fi na nc ia l i nf or m at io n Re po rt s on th e in te rn al c on tr ol p ro ce du re s annual results of Natexis Banques Populaires.They are also prohibited from conducting speculative or leveraged transactions involving Company shares.
2 – Internal control The internal control system of Natexis Banques Populaires was set up in accordance with the applicable banking regulations and the corporate governance principles of the Banque Populaire Group to which it belongs.
These principles were defined by the Board of Directors of Banque Fédérale des Banques Populaires, the central body of the Banque Populaire Group, and recorded in a corporate governance charter, as well as in the Banque Populaire Group internal control system.
They are completed by reference bases, so as to ensure a tailored and consistent level of control according to financial and operational risk groupings within the Banque Populaire Group. The implementation of the new "McDonough" international prudential standards, to be coordinated at the Banque Populaire Group level, will enrich the existing reference bases beginning in 2004.
In addition, as with all the other Group banks, Natexis Banques Populaires is regularly audited by the Banque Fédérale des Banques Populaires and by Internal Audit, among which controls performed by its monitoring department.
In accordance with the principles stipulated in the Banque Populaire Group internal control system charter, Natexis Banques Populaires has set up three control levels that are coordinated by Executive Management.
Transactions are subject to prior or simultaneous internal checks by each contributor as part of the actions carried out with respect to his or her function or professional duties, and by management. This is the indispensable cornerstone of the internal control system. These internal checks are formalized in procedures and documented.They include, for example, measures for ensuring the segregation of duties principle, the procedures used by the Board to appoint authorized representatives, the procedure for authorizing credit commitments, or the supervisory procedure for capital market risks.
A permanent control verifies compliance with the professional rules or the rules specific to the institutions and the existence, permanence and relevance of the level one controls. It covers both the functional controls applicable to areas such as accounting, commitments and risks, and the regulatory controls. The main level two control units are Risk Management (counterparty, market, country, etc.), the Ethics department (compliance with AMF regulations, etc.), the department for the Prevention of Financial Crime (money laundering), and the Information System Security department (IT clearances, financial crime, etc.). In order to reinforce the independence of its control activities, Natexis Banques Populaires created an Internal Control division in October 2003. The division unites all the controllers previously attached to the business lines. The controllers ensure that the internal rules are properly applied by the operators. Finally, Financial Management is responsible for ensuring the quality of accounting and financial reporting.
Reporting to the Chairman and to the Chief Executive Officer of Natexis Banques Populaires, Internal Audit is responsible for compliance controls and the smooth operation of the bank’s internal control system within the meaning of CRBF Regulation No. 97-02. Accordingly, it acts independently of all the operational and functional entities of Natexis Banques Populaires and has no operational role.
Internal Audit conducts its work in the form of audits throughout the entire Natexis Banques Populaires group structure (parent company, branches and subsidiaries).
Internal Audit has access to all the information necessary for the accomplishment of its mission, and no professional secrecy domain or restricted area is excluded from its requests.
Contrary to permanent control tasks – consisting in recurring analyses resulting in periodic indicators – audits consist in selective investigations resulting in the issue of reports. Following discussions with the audited parties, the reports – together with the responses of the auditees – are sent to the latter and their management, as well as to the Chief Executive Office and to the Chairman of Natexis Banques Populaires. In addition, Internal Audit of Banque Fédérale des Banques Populaires receives a copy of all reports issued by Natexis Banques Populaires Internal Audit.
Audit reports are systematically accompanied by recommendations ranked in order of priority.
The group annual audit plan covers the procedures carried out by Internal Audit, as well as those conducted by the decentralized internal control departments of the various Natexis Banques Populaire subsidiaries.
In accordance with banking regulations, the purpose of the group’s annual audit plan is to ensure that the entire Natexis Banques Populaires group structure is fully covered within a reasonable time period (five years), by taking into account the scale of the risks to which the activities of Natexis Banques Populaires are exposed.
The audit plan may be reviewed during the year, at the request of Executive Management or when circumstances so require.
This committee covers issues regarding the organization of the control departments, as well as the changes made necessary by banking and financial regulations, or professional and technological developments.
Finally, the committee can hear presentations from the operational managers as to the measures undertaken in the subsidiaries regarding application of the recommendations issued by the internal or external control departments.
The Board has created an Audit Committee whose aim is to examine, in accordance with banking regulations, on a parent company and consolidated basis, the main lessons to be drawn from risk monitoring, the internal control results and the principal internal and external audit conclusions.
The Audit Committee’s composition was described in the first section of this report.
The Inspector General, General Secretary and the Risk Director of Natexis Banques Populaires, as well as the Inspector General of Banque Fédérale des Banques Populaires systematically attend Audit Committee meetings.
At its request, the committee hears from the operational managers of Natexis Banques Populaires, its auditors or any other individual whose expertise it deems useful.
The chairman of the Audit Committee submits a report to the Board of Directors twice yearly. One of the two reports must include an opinion on the reports required by Articles 42 and 43 of CRBF Regulation No. 97-02 covering internal control.
In 2003, the committee met four times and discussed the following matters: ■ internal control annual report; ■ status of information system convergence; ■ IT project management methods; ■ update on IT audit assignments conducted in 2002 and early 2003; ■ update on the work conducted by Banque Fédérale des Banques Populaires at Coface; ■ brokerage activities of Natexis Banques Populaires.
A detailed analysis of these risks, particularly in regard to quantitative aspects, is presented in the Natexis Banques Populaires management report.
Loan decisions are made within the context of authorizations (the authorized amount is low), or by the Credit committees. The authorizations are formalized and depend upon the hierarchical level of the person receiving the authorization and the nature, term and quality of the commitments.
Doubtful or disputed debts are monitored by the Special Affairs department and, for legal proceedings, by the Litigation department of the Tax and Legal Affairs division.
Provision committees are organized on a quarterly basis for each division. They examine all the files likely to require provisions and determine any potential provision level. Organized under the Chief Executive Officer by Financial Management, the groups assemble the Risk Management division, Internal Audit, the Tax and Legal Affairs division, the Special Affairs department, and the managers of the relevant divisions.
Monitoring of the Natexis Banques Populaires business is based on an internal rating system and the type of customer. Natexis Banques Populaires maintains a prudent risk coverage policy. In addition to customer dossier provisions,
■ Rating of companies For financial and other counterparties, Natexis Banques Populaires bases its decisions on an internal rating system tailored to each counterparty. In order to prepare for the application of the new McDonough ratio standards, Natexis Banques Populaires is actively participating in the Banque Populaire Group internal review. In 2003, the internal rating system was therefore modified. There are now 16 rating categories for loans in bonis and 4 rating categories for loan defaults. As of June 2003, Company counterparties are graded based on rating models in addition to expert assessment.
The transactions on the bank’s own account take various forms: ■ facilitation for Natexis Banques Populaires customers; ■ trading activities; ■ arbitrage activities; ■ management of the overall interest rate risk and transformation by the Natexis Banques Populaires treasury.
In parallel to these standard indicators, Natexis Banques Populaires performs global VaR calculations. The VaR formulated by the Natexis Banques Populaires group uses the historical rate. It seeks to quantify, based on prudent assumptions, the potential loss risk to which capital market activities are exposed.
Each of the capital markets activity managers are delegated limits for risk measurement indicators in order to control the risks to which the activity is exposed.
The capital markets risk management committee decides on the delegation of limits on a monthly basis.
Compliance with the limits delegated is verified daily by the middle offices, which inform the capital markets activity managers, Internal Control and the Risk Management division of any limits that are exceeded.
Management, Risk Management and operational divisions, defines the general management thrust for assets and liabilities, liquidity and own fund investment activities.
Since 2000, management of the interest rate, exchange rate and liquidity risks of Natexis Banques Populaires and its subsidiaries has been centralized.These risks are monitored and managed by the Capital Markets division.
EUR100 million. This limit also applies to a point-for-point deviation of the interest rate curve.
This centralization enables the optimized management of liquidity transformation risk as a result of specific understanding of the different gaps. Observation ratios were approved by the ALM Committee. In conjunction with
The authorized liquidity gap and transformation limits are monitored and reviewed by the ALM committee.
The initial work identified the principal operating risks of Natexis Banques Populaires, set up training sessions for personnel and defined an operating risk framework and a process for collecting incidents.
2.3 – Internal control procedures relating to accounting and financial information 2.31 – PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The reliability of this process is based on the following main principles: ■ the definition and communication of accounting polices applicable to Group companies, including the analysis and interpretation of new regulations and laws enacted during the period; ■ the direct consolidation method (now being developed in the Coface sub-group) enabling a thorough review of each of the consolidation reporting packages using a formalized review procedure; ■ the uniformity of the consolidation tool for Group subconsolidations (now being developed in the Coface subgroup ), to ensure internal consistency of consolidation scopes, definitions, standards, charts of accounts, treatments and analyses; ■ control of individual reporting from consolidated entities using a consolidation reporting package comprising over 5,800 accuracy and consistency checks, with a failure to comply blocking the transmission of data; ■ the unitary analysis of any entries having an impact on consolidated shareholders’ equity and a tax proof for each consolidated entity enabling, respectively, the individualized clearance of consolidated shareholders’ equity and the individual justification of recorded deferred taxes; ■ an audit trail system justifying all the accounting data published in the financial statements and accompanying notes, using the individual accounts of each consolidated entity and the consolidation entries; ■ archiving and security procedures including a twice daily back-up of the single consolidation data base with regular recovery tests; ■ regular training sessions for the accounting teams of the consolidated entities and communication of best practices within the Group.
Specifically, these periodic and permanent controls cover the monitoring of account justifications performed by the departments, the clearance of suspense accounts, the monitoring of adjustments made to anomalies and the supervision of indicators for a population of accounts characterized as sensitive. They are performed using a variety of Group accounting information systems.
The audit trail tools for all of these systems are currently being perfected by Natexis Banques Populaires and its subsidiaries.
Management divisions responsible for the preparation of the individual or consolidated financial statements, the quality of the accounting controls is verified by: ■ ad hoc procedures carried out by Banque Fédérale des
Statements Review Committee meets at least twice yearly, with the participation of the statutory auditors. Specifically, the Financial Statements Review Committee analyzes the yearly and half-yearly draft consolidated and parent company financial statements and all financial documents issued by the
Company at the fiscal year-end, and reviews certain matters in greater depth prior to their presentation to the Board.
Under the responsibility of the Board of Directors, management is responsible for defining and implementing appropriate and effective internal control procedures. In his report, the Chairman reports on the conditions and organization of the Board’s procedures and the internal control procedures implemented by the company.
On the basis of our procedures, we have no comment to make on the information and the assertions given in respect to the internal control procedures relating to the preparation and treatment of financial and accounting information, set forth in the report of the Chairman of the Board, prepared in accordance with Article L225-37 of the French Commercial Code.
This is a free translation of the original French text for information purposes only.
All shareholders may vote by correspondence using a voting form sent to the Company in accordance with applicable law and regulations.
The merger of the Company has no impact on double voting rights, which may be exercised in the absorbing company, where permitted by the bylaws of such company.
2 – Board of Directors’ report on the resolutions presented to the General Meeting of May 27, 2004
Resolutions presented to the annual general meeting The first resolution asks shareholders to approve the 2003 Natexis Banques Populaires financial statements, which show a net income for the year of EUR200,728,250.83.
The Board of Directors asks shareholders to approve the distribution of a dividend of EUR2.50 to each of the 48,045,139 shares making up the common stock. The dividend shall fall due for payment on June 3, 2004.
The fourth resolution concerns the approval of the consolidated financial statements as presented to shareholders, in accordance with the regulations of the
General Meeting held to adopt the 2003 financial statements. However, for reasons arising from the legal organization of the audit firms or personal convenience, the auditors shall be "renewed" or "appointed” as set forth in resolutions seven to twelve.
Shareholders are also asked to appoint as Director Mr.Yvan de La Porte du Theil, Chief Executive Officer of Banque
3 – Resolutions presented to the General Meeting of May 27, 2004
Overview: This resolution asks shareholders to set the net dividend per share at EUR2.50, to which will be added a tax credit, the amount of which will depend on the shareholder’s situation.
Shareholders hereby set, for the year ended December 31, 2003, the net dividend at EUR2.50, payable to each of the 48,045,139 shares making up the common stock. The tax credit shall be EUR1.25.
The dividend shall fall due for payment on June 3, 2004.
Shareholders, having reviewed: ■ the report on the business activities of Natexis Banques
Populaires and the companies included in its scope of consolidation during the fiscal year ended December 31, 2003; ■ the consolidated financial statements; ■ and having heard the Auditors’ Report on the consolidated financial statements; approve the 2003 consolidated financial statements as presented to them.
Overview: This resolution asks shareholders to allocate the 2003 dividends payable on treasury shares held by the Company at the payment date.
These shares may be purchased, in one or more installments, using any means, for the following purposes: ■ the regularization of the stock market price by trading against market trends; ■ as part of stock market interventions; ■ to accompany external growth transactions, with the possibility that all or part of the acquired shares may subsequently be presented as consideration, sold or exchanged; ■ with a view to their subsequent transfer to employees of Natexis Banques Populaires, its subsidiaries, and the Banque Populaire Group, in particular as part of share purchase programs and/or under share purchase option schemes; ■ with a view to their cancellation, subject to adoption by the Extraordinary General Meeting of the twentieth-first resolution, as set forth below and the terms and conditions therein.
This authorization is granted for a period of 18 months as from this date and replaces the authorization granted by the General Meeting of May 22, 2003.
Overview: This resolution asks shareholders to appoint Deloitte Touche Tohmatsu-Audit as Statutory Auditor for a period of six years in replacement of Deloitte Touche Tohmatsu, whose mandate expires this year.
Shareholders hereby appoint Deloitte Touche TohmatsuAudit as Statutory Auditor in replacement of Deloitte Touche Tohmatsu for a period of six years, expiring at the end of the Annual General Meeting held to adopt the 2009 financial statements.
Overview: This resolution asks shareholders to renew the mandate of RSM Salustro Reydel, whose current mandate expires this year, as Statutory Auditor for a period of six years.
Overview: This resolution asks shareholders to renew the mandate of Barbier Frinault et Autres, whose current mandate expires this year, as Statutory Auditor for a period of six years.
Shareholders hereby renew the mandate of Barbier Frinault et Autres as Statutory Auditor for a period of six years, expiring at the end of the Annual General Meeting held to adopt the 2009 financial statements.
Overview: This resolution asks shareholders to appoint BEAS as Alternate Auditor for a period of six years in replacement of Mr. Bernard Boiton, whose mandate expires this year.
Eleventh resolution: Appointment of an Alternate Auditor Overview: This resolution asks shareholders to appoint Mr. Pascal Macioce as Alternate Auditor
for a period of six years in replacement of Mr.Aldo Cardoso, whose mandate expires this year.
Shareholders hereby appoint Mr. Pascal Macioce as Alternate Auditor, in replacement of Mr. Aldo Cardoso, for a period of six years, expiring at the end of the Annual General Meeting held to adopt the 2009 financial statements.
Shareholders hereby renew the mandate of Mr. François Chevreux as Alternate Auditor for a period of six years, expiring at the end of the Annual General Meeting held to adopt the 2009 financial statements.
Shareholders hereby renew the term of office as Director of Mr. Daniel Duquesne for a period of six years, expiring at the end of the Annual General Meeting held to adopt the 2009 financial statements.
Overview: This resolution asks shareholders to renew the term of office as Director of Mr. Richard
Nalpas, which expires this year, for the period provided in the bylaws.
Mr. Richard Nalpas for a period of six years, expiring at the end of the Annual General Meeting held to adopt the 2009 financial statements.
Overview: This resolution asks shareholders to renew the term of office as Director of Mr. Jean-
Louis Tourret, which expires this year, for the period provided in the bylaws.
Mr. Jean-Louis Tourret for a period of six years, expiring at the end of the Annual General Meeting held to adopt the 2009 financial statements.
Shareholders hereby appoint Mr.Vincent Bolloré as Director in replacement of Mr. Jean-Paul Bechat, who has resigned from his functions, for a period of six years, expiring at the end of the Annual General Meeting held to adopt the 2009 financial statements.
Director in replacement of Mr. Alain Jacquier, who has resigned from his functions, for the remaining term of office of his predecessor, notably the end of the Annual General
Overview: This resolution asks shareholders to appoint Mr.Yvan de La Porte du Theil as Director in replacement of Mr. René Clavaud, who has resigned from his functions.
Overview:This resolution ask shareholders to renew the authorization granted by the Extraordinary General Meeting of May 31, 2001, due to expire this year, in order to enable the allotment of share subscription or purchase options to employees of Natexis Banques Populaires and its subsidiaries, as well as other Banque Populaire Group employees
Shareholders, after hearing the Board of Directors' report and the Auditors’ Special Report, confer on the Board of Directors full powers to grant, on one or more occasions, share subscription or purchase options as it deems appropriate, to: ■ employees and company officers of Natexis Banques Populaires, together with employees and company officers of companies in which Natexis Banques Populaires holds a majority interest, either directly or indirectly; ■ employees and company officers of Banque Fédérale des Banques Populaires, which controls Natexis Banques Populaires, the Banque Populaire regional banks, and entities in which Banque Fédérale des Banques Populaires or associated undertakings hold, directly or indirectly, individually or jointly, over 50% of common stock. Pursuant to prevailing regulations, each option granted shall confer the right to subscribe or purchase one company share.
This limit may be increased by the issue of additional options to preserve the rights of beneficiaries of share subscription options as provided for by the law.
The option subscription exercise price, which shall be set by the Board of Directors, may not be greater than the average listed share price of the twenty trading days preceding the option issue date, or less than 95% of this average share price rounded up to the nearest tenth of a euro.
Twenty-first resolution: Authorization granted to the Board of Directors to decrease the common stock by cancellation of treasury shares
Overview:This resolution ask shareholders to grant the Board of Directors authorization to decrease the Company common stock, where deemed necessary, by cancellation of a portion of its treasury shares.
Shareholders hereby grant full powers to the holder of copies or extracts of the minutes of this meeting to file any necessary documents and comply with all registration, publication or other formalities provided for 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 with effect from November 9, 1994, unless subject to extension or early dissolution. The name “Natexis Banques Populaires” was adopted by the Shareholders’ Meeting of July 27, 1999.
The Annual General Meeting may also decide on the distribution of amounts taken from retained earnings or available reserves; in this case, the decision shall expressly indicate those reserve headings from which such amounts will be taken.
The Annual General Meeting may offer shareholders the option of receiving dividends in the form of cash or shares (scrip), for all or part of such dividend. For dividends paid in shares, such shares shall be allocated in accordance with applicable rules and regulations.
Pursuant to applicable law, the Board of Directors may decide to pay an interim dividend in the form of cash or shares.
Fi na nc ia l i nf or m at io n A
dd iti on al in fo rm at io n 2 – General information on the common stock
Authorized common stock, not issued The Combined General Meeting of May 31, 2001, fully authorized the Board of Directors to increase the common stock, for a period of 26 months and on one or more occasions, in accordance with Article L225-129, paragraph 3, of the French Commercial Code, and set a non-cumulative maximum of EUR150 million.
The Extraordinary General Meeting of June, 22 2003 accepted the renewal of these amounts for the same duration and the same limit.
Other securities conferring rights to common stock The Extraordinary General Meeting of May 31, 2001 renewed for a further three years the authorization granted by the 1996 Extraordinary General Meeting, which expired in 2001, enabling the allotment of share subscription or purchase options to employees of Natexis Banques Populaires and its subsidiaries, as well as other Banque Populaire Group employees, where permitted by law.
The maximum number of new shares that may be created is 2,524,000, corresponding to the exercise of options granted since May 31, 2001 (2,000,000 options) and options granted previously and likely to be exercised within the period set at the time of allotment (maximum of 524,000 options).
These options may be allotted to: ■ employees and company officers of Natexis Banques
Populaires, together with employees and company officers of companies in which Natexis Banques Populaires holds a majority capital stake, directly or indirectly; ■ employees and company officers of Banque Fédérale des
The subscription price is equal to the average closing listed price during the twenty stock market sessions preceding the
In respect of 2003, the Board of Directors, during their meetings of September 10, and November 19, 2003, after approval by the Compensation Committee decided to allot a maximum of 430,000 share subscription options. This number takes into account the distribution of Natexis
Banques Populaires share subscription options for the first time to Coface employees.
Populaires and its direct or indirect subsidiaries; ■ 220,990 to employees and executives of Banque Fédérale des Banques Populaires, the Banque Populaire regional banks and entities in which Banque Fédérale des Banques
Options available for exercise from 09/22/2004(*) 11/25/2005 09/20/2005 09/11/2006 09/11/2007 Number of options exercised 8,000 0 0 0 0
Share subscription options granted to executive officers ** 1999 plan 2000 plan 2001 plan 2002 plan 2003 plan
Share subscription options granted to 10 highest ranking non-executive officer employees Total number Strike price Number plan of shares allotted (in EUR)
Options exercised by the 10 non-executive company officers who exercised the most options Total number Weighted average 1997 plan 1998 plan of shares subscribed price (in EUR)
The following table breaks down the additional paid-in capital for each common stock transaction.
New shares issued in consideration for the partial asset transfer by CCBP to Natexis S.A. 16,081,704 257,307,264 534,123,748.55
Shares issued in consideration for the transfer to NBP of Bail Banque Populaire shares held by Banque Populaire
Year Heading Number of shares Common stock Additional paid-in capital (in EUR) following common stock increase (in EUR)
Shares conversion of Perpetual subordinated securities convertible into shares 258,527 4,136,432 13,007,869.36
Shares conversion of Perpetual subordinated securities convertible into shares 1,717,431 27,478,896 86,413,090.39
Shares issued in contribution for Arnhold & S. Bleichroeder securities 1,401,082 22,417,312 83,448,443.92
Other information on the common stock Natexis Banques Populaires did not pledge any of its securities.
dd iti on al in fo rm at io n 3 – Share ownership and voting rights
Breakdown of common stock as of December 31, 2003 As of December 31, 2003, the main Natexis Banques Populaires shareholders were as follows: % common stock % voting rights
Shares held by directors, executive management and members of supervisory bodies.
Members of the Board of Directors, both individuals and legal entities, hold 73.09% of the common stock of Natexis Banques Populaires (almost exclusively Banque Fédérale des Banques Populaires).
The following table breaks down the treasury shares by quantity and percentage as of February 29, 2004.
Employee share ownership The Extraordinary General Meeting of June 16, 1998 renewed for 5 years the measures adopted by the Extraordinary General Meeting of April 27, 1993 in respect of the creation of employee share ownership plans (ESOP), namely by means of a Company mutual investment fund subject to a maximum common stock increase of FRF 100 million or its equivalent in euro. As of December 31, 2003, these plans held 1,978,836 shares.
The Extraordinary General Meeting of May 31, 2001 authorized the Board of Directors to increase the common stock over a period of five years, on one or more occasions, up to a maximum of 2,500,000 shares, by way of share issues reserved for Banque Populaire Group employees.
Group, 17,275 employees, or 50% of the total number of employees, subscribed to these shares. The securities are held in two new Company mutual investment funds, which represent 2.54% of Natexis Banques Populaires common stock as of December 31, 2003.Taking into account previous
CHANGES IN AVERAGE MONTHLY PRICES AND TRADING VOLUMES SINCE SEPTEMBER 2002
Year Month Average High Low Number of Capital traded in EUR in EUR in EUR shares traded in EUR
In May 1996, 2,068,968 subordinated securities convertible into shares up until December 31, 2002 on the basis of one share for one subordinated security, were issued for a total par amount of FRF900,001,080.
In 2002, 1,717,431 subordinated securities were converted into ordinary shares. Authorizations were granted to proceed with the early redemption on January 1, 2003 of all non-converted subordinated securities.
** This proposal will be submitted for approval to the Annual General Meeting of May 27, 2004.
Natexis Banques Populaires offered shareholders the option of receiving payment of dividends in shares (scrip), up to the dividend paid in respect of fiscal year 1999.This option will not be offered in 2004 in respect of fiscal year 2003.
S.A.This was followed by a friendly takeover bid after which, on June 2, 1998, the Banque Populaire Group held 71.4% of
After the transfer of its operating activities in July 1999 to
At the end of 1999, Banque Populaire Group held 88.06% of the common stock of the new Natexis Banques Populaires entity. At the end of 2000, the shareholding interest had fallen back to 79.23%, following the share issue placed primarily with private investors.
Formed in 1919, Crédit National initially concentrated on developing its activities as a medium and long-term lender, before branching out into complementary activities in order to offer its corporate clients a wider and more comprehensive response to their needs.
In June 1997, Crédit National, renamed Natexis S.A., transferred its entire commercial banking arm to BFCE, renamed Natexis Banque. Natexis S.A. became a holding company and was responsible for the consistency and strategic management of all Natexis Group activities.
Assurances Banque Populaire and Factorem. Similar transactions were performed in 2001, particularly in the private equity and asset management divisions.The program was completed in 2002 with the buy-out of participating interests held by the Banque Populaire regional banks in BPAM and Interépargne.
In July 2002, an agreement was signed between Natexis Banques Populaires and Arnhold & S. Bleichroeder Holdings Inc. (“ASB”), under which Natexis Banques Populaires acquired the entire common stock of Arnhold & S. Bleichroeder Inc., a company incorporated under New York State law, for a consideration of USD105 million, payable in Natexis Banques Populaires shares.
The Natexis Banques Populaires Extraordinary General Meeting held on December 6, 2002 approved all provisions of the aforementioned contribution, together with the valuation of the contribution performed by ASB. A Natexis Banques Populaires common stock increase was approved in the amount of EUR22,417,312, through the creation of 1,401,082 fully paid-up shares with a par value of EUR16 each, issued in consideration of the contribution in kind described above.
As of December 31, 2003, ASB held 2.92% of the common stock of Natexis Banques Populaires.
After the Banque du Dôme-Crédifrance Factor transfer, this was the second and final transfer as part of the merger of the Banque Populaire and Crédit Coopératif Groups.
This transaction only had a minor diluting impact for minority shareholders as the Banque Fédérale des Banques Populaires shareholding increased from 72.97% to 73.16%.
Dependence Natexis Banques Populaires is not dependent on any patent, license or on any industrial, commercial or financial sourcing agreement.
Exceptional events and litigation At the present time, no exceptional event or litigation exists that may have a material adverse effect on the activity, results and financial situation of the Company.
Attestation of the person responsible for the reference document To the best of our knowledge, the information presented in this reference document fairly reflects the current situation and includes all information required by investors to assess the net asset position, activities, financial solvency, results and future prospects of the issuer. We confirm that no information likely to have a material impact on the interpretation of these documents has been omitted.
– Aldo Cardoso, residing 4, rue de l'Ouest – 92200 Nanterre
This is a free translation into English of the statutory auditors’ report on the reference document issued in the French language and is provided solely for the convenience of English speaking readers. The statutory auditors' reports on the individual company financial statements and consolidated financial statements, referred to in this report, include information specifically required by French law in all audit reports, whether qualified or not, and this is presented after the opinion on the financial statements. This information includes explanatory paragraphs 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 individual company financial statements and consolidated financial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the individual company financial statements and consolidated financial statements. This report should be read in conjunction with, and construed in accordance with French law and professional auditing standards applicable in France.
As statutory auditors of Natexis Banques Populaires and in accordance with Regulation No. 98-01 of the Commission des Opérations de Bourse and professional standards applicable in France, we have performed certain procedures on the information contained in this “Reference Document” relating to the historical financial statements of the Company.
We have conducted our work in accordance with professional standards applicable in France.Those standards require that we assess the fairness of the information presented relating to the financial situation and the financial statements and its consistency with the financial statements on which we have issued a report. Our procedures also include reading the other information contained in the "Reference Document" in order to identify material inconsistencies with the information relating to the financial situation and the financial statements and to report any apparent material misstatement of facts that we may have found in reading the other information based on our general knowledge of the company obtained during the course of our engagement. As the reference document does not contain any prospective data resulting from an organized process, our procedures did not need to take account of management assumptions or the resulting figures.
We have audited in accordance with professional standards applicable in France the Company financial statements for the year ended December 31, 2003, approved by the Board of Directors.We expressed an unqualified opinion, including an observation drawing attention to Note 17 to the financial statements on changes in accounting method regarding the provisions raised for non-performing loans and treatment of major repair programs.
Pursuant to Article L225-235 of the French Commercial Code governing the justification of our assessments, as introduced by the French Financial Security Act of August 1, 2003, which applies for the first time this year, we referred to the justification of the following assessments in our report on the consolidated financial statements: ■ your group records provisions to cover the risks arising from the performance of its activities. As part of our assessment of the significant estimates made by management, we reviewed the control mechanism for monitoring credit risk, the assessment of risks of nonrecovery and their coverage by both individual, as well as industry and country risk provisions; ■ in addition, Note 2.17 to the financial statements describes a change in accounting method for nonperforming loans pursuant to CRC Regulation No. 2002-03.
As this concerns loans restructured in previous fiscal years at non-market conditions, the discount set forth in this regulation was deducted from shareholders’ equity in the amount of EUR11 million.This change in method is justified by the application of the new regulation and the compliance of the accounting translation with current policies; ■ as indicated in Note 9 to the financial statements, and pursuant to the recommendation of the Autorité des Marchés Financiers (AMF), the French Securities Regulator, your Company, for the preparation of its financial statements for the year ended December 31, 2003 has valued intangible assets and goodwill recorded in the consolidated balance sheet based on an independent expert appraisal for the most material investments.As part of our assessment of the significant estimates made by management, we familiarized ourselves with the conclusions of the independent expert and verified their inclusion in the consolidated balance sheet as of December 31, 2003.
These assessments were performed as part of our audit approach for the Company and consolidated financial statements taken as a whole and contributed to the expression of the unqualified opinion in the first part of our reports.
Based on the procedures performed, we have no matters to report regarding the fairness of the information relating to the financial situation and the financial statements presented in the "Reference Document".
Barbier Frinault & Autres - Ernst & Young Richard Olivier - Olivier Durand
Person responsible for investor relations Mr. Pierre Jacob Head of Investor and Shareholder Relations
Common stock and voting rights Current share ownership and voting rights p. 227 Changes in share ownership p. 227, 228 Shareholders’ agreements None
Assets, financial situation, and results Consolidated financial statements and notes p. 99 Off-balance sheet commitments p. 102 Statutory auditors’ fees p. 17 Regulatory prudential ratios p. 92 Company financial statements and notes p. 158
Pursuant to Regulation No. 98-01, the original version of this reference document in French was filed with the Autorité des Marchés Financiers (AMF) on April 2, 2004.This document may only be used in connection with a financial transaction when accompanied by a prospectus approved by the AMF.This reference document was prepared by the issuers and is the responsibility of its signatories.
Profile Chairman’s and Chief Executive Officer’s messages 2 Natexis Banques Populaires share performance 4
CORPORATE GOVERNANCE 8 Executive Management Committee 8 Board of Directors 9 Corporate governance rules 10
CDC IXIS Capital Markets is a credit institution regulated as a financial company under French law and a leading player on French and European capital markets.
CDC IXIS Securities, offer investors an extensive array of broking, structured finance, engineering and research services.
Contents 1 Group profile 2 Capital ownership 3 Message from the Chairman of the Supervisory Board 5 Message from the Chairman of the Executive Board 6 Organisational chart 8 Corporate governance 22 Economic and financial environment
Consolidated figures 60 Consolidated balance sheet 61 Consolidated profit & loss statement 62 Consolidated off-balance sheet items 63 Notes to the consolidated financial statements 85 Auditors’ report on the consolidated financial statements
86 Parent company balance sheet 87 Parent company profit & loss statement 88 Parent company off-balance sheet items 89 Notes to the parent company financial statements (extracts)
As at 31 December 2003, CDC IXIS Capital Markets was a wholly-owned subsidiary of CDC IXIS, which was itself owned by Compagnie Financière EULIA (53%), Caisse des dépôts et consignations Group (43.55%) and Sanpaolo IMI (3.45%).
Compagnie Financière EULIA is a holding company owned jointly between Caisse des dépôts Group (50.1%) and Caisse d’Epargne Group (49.9%), and which was set up on 31 December 2001 as part of the alliance between the two Groups.
With a view to preparing the definitive agreements by the end of the first half of 2004, the current project and any future developments will be presented to the various internal bodies within the companies concerned and to the regulatory authorities.
In conditions similar to those that prevailed in 2002, CDC IXIS Capital Markets experienced a remarkable year in 2003, both qualitatively and in terms of the results achieved by our personnel.
Net profit rose 16.5% relative to 2002 and ensured we enjoyed our best-ever year, as was the case for our parent company, CDC IXIS.
The month of October saw Caisse des dépôts Group and Caisse d’Epargne
Group lay the foundations for a major new full-service bank, by signing a memorandum of understanding on their new partnership project, which is set to culminate at the end of the first half of 2004. The new combine will rank as one of France’s largest banking groups, with 55,000 employees, €17 billion of shareholders’ equity and a significant international presence.
During its six meetings in 2003 and with support from the Financial and Internal
Control Committee, the Supervisory Board notably ensured itself that there was no let-up in the quality of our risk-management measures, the efficiency of control mechanisms or the tight grip on costs within the Company.
The move to group the personnel of CDC IXIS Capital Markets and its subsidiary,
CDC IXIS Securities, at the new Paris Austerlitz offices, was achieved without hiccups and within very short timescales, and was a tribute to all support functions. This relocation was coupled with reorganisation measures geared to clarifying the business lines and adapting them as best as possible to market conditions.
Further to the common accord signed between Caisse des dépôts et consignations and
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C h a ir m a n o f th e
Pierre Servant, Member of Executive Board of CNCEP Chairman - Member Date first appointed: 3 November 1998
Antoine Lissowski, Member of Executive Board of CNP Vice-Chairman Chairman Date first appointed: 3 November 1998
CDC IXIS Member - Member Date first appointed: 21 June 2000 Permanent representative (since 17 February 2003): Francis Mayer, Chief Executive Officer of CDC
CNCEP Member - Date first appointed: 13 October 1999 Permanent representative (since 13 October 2003): Bruno Mettling, Member of Executive Board of CNCEP
Laurent Vieillevigne, Member of Executive Board of CDC IXIS Member - Date first appointed: 17 October 2003
The mandates of the Executive Board will be subject to renewal on 14 January 2008.
* Pursuant to the final paragraph of article L.225-68 of the French Companies Act, this forms an integral part of the Chairman of the Supervisory Board’s report on the preparation and organisation of tasks undertaken by the Board and the Company’s internal control procedures.
CDC IXIS Capital Markets’ Supervisory Board convened on six occasions in 2003, each time in the presence of personnel representatives. The average attendance rate was 76%. The Company Secretary’s Department takes responsibility for organising the Board and Specialised Committee meetings (issuing convocations a fortnight in advance; preparing folders; establishing the agenda; preparing attendance sheets, etc.). Minutes were drawn up after each Supervisory Board meeting.