PRESENTATION OF NATIXIS Natixis Code of Conduct 7Natixis Registration Document 2017
regular monitoring of matters pertaining to the rules of conduct, including updates to the Code and deciding on complex cases. An escalation process is also in place to consult the Committee if required.
All staff are required to complete mandatory training on the understand and adhere to the Code of Conduct and to the Code of Conduct and must each commit to complying with the internal policies and procedures ensuring its application. rules. Managers and leaders also ensure that their teams
Natixis Investment Managers’ global distribution platform comprises two major segments: institutional investors (public and private pension funds, insurers and banks, sovereign funds and central banks, etc.) and distribution/retail (fund of funds, Private Banking, platforms and IWMAs). Natixis Investment Managers has distribution operations in over 20 countries with its main support functions based in Boston, London and Paris.
Private Equity Division (€7.9 billion): Alliance Entreprendre, Caspian Private Equity, Euro Private Equity, Naxicap Partners,a Seventure Partners.
On the cash equity market, Natixis is positioned as a Europe-wide broker specializing in the French market, combining a full range of expertise including research, sales and value-added execution products. In 2017, Natixis was voted No. 3 broker in France (up from fifth place in 2016) and No. 1 by French investors in the Extel 2017 survey of 20,000 European investors.
Drawing on its leading position in infrastructure and aerospace debt vehicles, Natixis consolidated its platform devoted to institutional clients to allow them to invest in this asset class through partnerships. There are currently seven partners on the platform, with an investment capacity of €5.4 billion.
Operating on the principal European, American and Asian markets, Natixis advises and supports all issuer categories (corporates, financial institutions, sovereigns/supranationals/ branches), helping them obtain financing on the euro and foreign-currency bond markets (£, $, ¥), on the green bonds, investment grade, covered bonds, high yield, private placements (euro, dollar, Schuldschein, Formosa), RegS/144 A, Sukuk, senior non-preferred and Tier 2 segments.
Seventy years of experience and a dense geographic network have made Coface a benchmark in credit insurance, risk management and the global economy. The experts at Coface, which seeks to become the most agile credit insurance partner in its industry, operate in the heart of the global economy. They help their 50,000 customers build successful, dynamic and growth-oriented companies by protecting them from the risk of financial default by their clients. Coface’s services and solutions protect companies and help them make the necessary credit-related decisions to strengthen their ability to sell their products on both domestic and export markets.
Created in November 2007, the Natixis Shareholders’ Club had 15,277 members at December 31, 2017. Membership of the Shareholders’ Club is open to any shareholder who holds at least one registered or bearer share.
Club members receive the monthly newsletter, the half-yearly shareholder newsletter and the shareholder guide, which is updated and enhanced with new sections every year.
The Committee is in charge of all aspects of financiala communication to individual investors, and in particular the communication tools at their disposal.
Acting in accordance with the Consultative Committee’s charter,a the members of the committee evaluated the quality of work performed in 2017 and assigned ratings of 8.4 and 9 (out of 10) for the two most recent meetings respectively. The overall member satisfaction rating was 8.4.
The webcast and presentation of the General Shareholders’ Meeting are available for one year on the Natixis website’s Investors & Shareholders section under the heading “Shareholders’ Meetings”.
(financial calendar, regulated information, corporate governance, Annual General Shareholders’ Meeting, etc.) are available on Natixis’ website in the Investor Relations section. From time to time, depending on current events, we also organize specific, themed presentations to give our financial partners and colleagues a better understanding of the general climate and Natixis’ specific challenges.
The Investor Relations Department provides information and resources to analysts and investors. To this end, a variety of sources is used: formal informational meetings during major events (publication of annual, interim and quarterly financial statements, etc.), road shows, conference calls and one-on-one interviews. The materials used in these meetings (press releases, presentations, etc.) as well as any other additional information
MANAGEMENT AND OVERSIGHT 2.3 OF CORPORATE GOVERNANCE 63 Board of Directors2.3.1 64
From 2007 to 2010, she served as a technical advisor, and then as advisor to the President of the French Republic for matters related to employment and social protection. She then ran the Office of the Minister of Labor, Employment and Health from November 2010 to May 2012.
Permanent Representative of BOCE, a Chairman of the company (SAS) and Board of BPCE DOMAINES (from 07.10.2012 to end-2013) Permanent Representative of BPCE, a Chairman of SAS Issoria (from 2012 to 07.31.2013) then Chairman of SAS Issoria a and Chairman of the Board of Directors of SAS ISSORIA
Member of the Board a of Cie Européenne de Garanties et Cautions (from 10.27.2011 to 06.14.2013) Chairman of the Audit Committee a of Bpifrance Financement (2) (since 2013) (until 09.24.2015) Member of the Board of Natixis (1) a
Attendance rate in 2017 Board of Directors: Audit Committee: Strategic Committee: A graduate of the Sup de Co Nice business school, Sylvie Garcelon joined the Banque Populaire group in 1987 in the Internal Audit Department. In 1994, she became Corporate Secretary at SBE before joining the Finance Department of BRED in 2000. In 2003, she joined Natexis where she held positions first in Third-Party Asset Management and then at the Information Systems and Logistics Department. In 2006, she was appointed Chief Executive Officer of M.A. Banque, and then Chairman of the Management Board in 2010. Sylvie Garcelon joined CASDEN Banque Populaire in April 2013 as Deputy CEO in charge of Finance, Risk and Subsidiaries.
She joined Nexity in 2002 where she held the positions of Secretary General and Director of Development, before being appointed Chief Executive Officer of Nexity-Franchises in 2006, and then Deputy Chief Executive Officer of the Distribution division until 2011.
Chairman of the Board of Directors of SLE CECAZ (SLE Ouest desa Alpes-Maritimes) (since 1999)
Independent members do not make up two-thirds of the Natixis Audit Committee, as recommended by the Afep-Medef code, in order to represent the different components of the Company’s main shareholders (members from the Caisse d’Epargne and the Banque Populaire banks, in addition to a Groupe BPCE representative). Following the Afep-Medef code recommendations on the composition of the Audit Committee to the letter would require Natixis’ independent directors to sit on more than three Special Committees, at the risk of diluting the quality of those Committees’ work, in light of the resulting increased workload. That is why Natixis promotes a balance of directors within the Committees, which are, additionally, always chaired by an independent director.
The Board of Directors paid special attention to the appraisal of whether the business relationship between the companies in which the independent directors perform director duties, and Natixis or its corporate group, is significant.
– Legal and statutory requirements, and A internal rules of the Board of Directors
Finally, the Chairman of the Board of Directors sees to the smooth operation of the Board by creating a forum for discussion conducive to constructive decision-making. He ensures that the Board spends the required time on its duties.
Together with the other members of the Board, he sees to it that the guidance and control duties are accomplished in accordance with the laws and regulations in force.
The director strives to preserve his independence in judgment, decision and action in all circumstances. He refuses to be influenced by any element foreign to the corporate interest of Natixis, which it is his remit to defend.
The results of these interviews were included in a detailed assessment report, presented as a summary to the meeting of the Board of Directors held on February 13, 2018.
– OrganizationA During 2017, the Audit Committee comprised five members: As of March 1, 2018, these members were: Catherine Pariset (position previously held by Bernard Oppetit until February 9, 2017)
Information on prior authorizations given by the leader of the Audit Committee for the completion of the a Statutory Auditors’ services
76 Natixis Registration Document 2017 to examine compliance risk monitoring-related items at leasta once a year, pursuant to Article 253 of the French Ministerial Order of November 3, 2014 on internal control of banking sector businesses, payment services, and investment services; to give its opinion on the appointment or dismissal of the Heada of Internal Audit at Natixis; to see to it that the findings of assignments by the Internala Audit Department and by regulatory and supervisory authorities (specifically the Autorité de Contrôle Prudentiel et de Résolution, ACPR – French Prudential Supervisory Authority for the Banking and Insurance Sector) are followed up on; to that end, a summary of reports by the Internal Audit Department on Natixis and its subsidiaries is made to the Risk Committee which also receives all reports from the regulatory and supervisory authorities (specifically the ACPR) on Natixis and its subsidiaries; to address Natixis’ annual internal audit program, includinga audits of subsidiaries, with this program being presented to the Committee at least one week prior to its approval.
The Compensation Committee met four times in fiscal year 2017. Its members’ attendance rate was 96% for the year as a whole (vs. 100% in 2016).
Since February 18, 2015, the Appointments Committee has been chaired by Henri Proglio.
CORPORATE GOVERNANCE Management and oversight of corporate governance 79Natixis Registration Document 2017
Within a reasonable amount of time before meeting, and via a secure website, each director receives a file containing the items on the agenda in order to review and analyze the matters to be addressed.
It oversaw the finalization of the Insurance division within Natixis, as part of the “I 2018” project, with the acquisition of 40% of BPCE Assurance from Macif and Maïf. It also finalized the merger of all Natixis’ Payment activities dedicated to Groupe BPCE. In addition, the Senior Management Committee was attentive to continuing the development of trade cooperation with the networks.
New Dimension sets out three strong initiatives aimed at developing solutions offering high added value to Natixis clients: to deepen the transformation of our business model, which we achieved under the New Frontier plan, to allocate a significant portion of our investments to digital technologies, reflecting our clear resolve to differentiate ourselves to become a benchmark in the areas where Natixis’ teams boast strong and recognized skills.
The components of Laurent Mignon’s compensation for 2017 comply with the principles approved by the General Shareholders’ Meeting of May 23, 2017.
A non-compete indemnity should the CEO leave office The non-compete agreement is limited to a period of six months and carries an indemnity equal to six months of fixed compensation, as in force on the date on which the CEO leaves office.
Cash portion of variable compensation for fiscal year 2016 paid in March 2017
Benefits in kind in respect of BPCE (company car, housing (13), other) 0 0 0 0
No subscription or call options were granted in fiscal year 2017.
AMF TABLE NO. 8R Group (Natixis, BPCE, Caisse d’Epargne, Banque Populaire) – Record of purchase or subscription options granted
Number of exercisable options, including those exercisable by: 1) Natixis directors in 2017: Marguerite Bérard-Andrieu n/a
The components of the compensation due or granted to each executive corporate officer in respect of fiscal year 2017 must be submitted to Natixis’ General Shareholders’ Meeting for approval. For Natixis, this recommendation concerns the compensation of Laurent Mignon.
No stock options were granted to Laurent Mignon during fiscal year 2017.a
OVERALL INTEREST RATE, 3.9 LIQUIDITY AND STRUCTURAL FOREIGN EXCHANGE RISKS 151 Governance and structure3.9.1 151 Management of liquidity and funding risk3.9.2 151
LEGAL RISKS3.11 167 Legal and arbitration proceedings3.11.1 167 Situation of dependency3.11.2 169
Natixis is exposed to a number of types of risks associated with its Asset & Wealth Management, Corporate & Investment Banking, Insurance, and Specialized Financial Services businesses, including in particular the following: credit risk, which is the risk of financial loss relating to thea failure of a counterparty to honor its contractual obligations. The counterparty may be a bank, a financial institution, an industrial or commercial enterprise, a government, an investment fund, or a natural person. Credit risk arises from financing activities and guarantees, and also in other activities where Natixis is exposed to the risk of counterparty default, such as its trading, Capital markets, Insurance and settlement activities; market risk, which is the risk of loss generated by anya negative fluctuations in market parameters, such as interest rates, share prices, foreign exchange rates and commodity values. Market risk arises in connection with substantially all the activities of Natixis. It includes both direct exposures to market parameters arising from activities such as trading and Asset Management (where commissions are largely based on the market value of managed portfolios), as well as the risk of mismatches between assets and liabilities (for example, where assets carry different interest rate bases or currencies than liabilities); liquidity risk, which is the risk that Natixis will be unable toa honor its commitments to its creditors due to the mismatching of maturities between assets and liabilities, or that Natixis may be unable to sell assets and realize their value at a time when it needs to do so in order to meet its obligations to creditors; operational risk, which is the risk of losses due to inadequatea or failed internal processes, or due to external events, whether deliberate, accidental or natural occurrences. Operational risk also includes non-compliance and reputational risk, including legal and tax-related risks, and the risk to the image of Natixis that may arise in cases of non-compliance with legal or regulatory obligations, or with ethical standards; insurance risk is the risk to profits arising from anya discrepancy between expected and incurred claims under insurance policies issued by Natixis group insurance companies.
The continuing uncertainty regarding the new legislative and regulatory measures makes its impossible to predict what impact they will have on Natixis. Natixis has incurred and may continue to incur significant costs in connection with updating or expanding its compliance structures and information technology systems in response to, or in anticipation of, the new measures. Despite its efforts, Natixis might find itself unable to achieve full compliance with all applicable legislation and regulations, in which case it may be subject to penalties. Moreover, the new legislative and regulatory measures could require significant changes to Natixis’ business and/or adversely impact the results of operations and financial condition of Natixis. The new regulations may require Natixis to raise new capital at a time when it is costly or difficult to do so, or could increase the overall funding costs of Natixis.
A substantial increase in asset impairment charges in respect of Natixis’ loan and receivables portfolio could adversely affect its results of operations and financial condition
A market downturn is likely to lower the volume of transactions that Natixis executes for its customers and in its capacity as a market maker, thus reducing net revenues from these transactions. In addition, Asset Management fees charged by Natixis to its customers are often based on the value or performance of the portfolios, so that any market downturn, legislative, regulatory or policy change or political or geopolitical event that reduces the value of the assets under management in such portfolios or increases the amount of redemptions would reduce Natixis’ revenues from its Asset & Wealth Management businesses.
Natixis is exposed to numerous financial counterparties, such as investment service providers, commercial or investment banks, mutual funds and hedge funds, as well as other institutional clients with which it conducts transactions in the ordinary course of business. Natixis is therefore exposed to a risk of insolvency should one of its counterparties or customers fail to meet their commitments. This risk would be compounded if the assets held as collateral by Natixis were unable to be sold or if their price was insufficient to cover all of Natixis’ exposure to loans or derivatives in default. In addition, fraud or misappropriation committed by financial sector participants may have a highly detrimental impact on financial institutions due to interconnected nature of institutions operating in the financial markets. The potential losses arising from the above-mentioned risks could have a significant bearing on Natixis’ results.
Natixis is required to comply with recently adopted reporting requirements which are part of the global fight against tax evasion and, more generally, with any mechanisms that could be adopted being part of the global fight against tax evasion. Natixis reports transparently on its organizational structure and operations, and discloses its revenues and the corresponding taxes on a country-by-country basis for greater clarity on the determining factors of its tax expense, and observes the Code of Practice on Taxation for Banks.
Natixis organizes its control functions on a global basis in order to ensure consistency of the internal control mechanism throughout the company. Second-level permanent and periodic control functions within subsidiaries or businesses report to Natixis’ corresponding central control departments, either on a functional basis in the case of subsidiaries or on a hierarchical basis in the case of business lines.
The work of Natixis’ Internal Audit Department is based on an annual Audit Plan drafted and executed jointly with Groupe BPCE’s General Inspection, and after consulting the Senior Management Committee. It is part of a four-year plan that sets out the intervention frequency and adapts resources to the risks.
The Risk Division, which reports to the Chief Executive Officer since October 1, 2017, is responsible for measuring, monitoring and managing the risks inherent to the business activities, in particular market risk, credit risk and operational risk; The Compliance Department, reporting to the Corporate Secretary, is responsible mainly for managing non-compliance risk and for overseeing the control system.
T2 capital comprises: subordinated debt instruments recognized as T2 capital aftera applying phase-in arrangements; deductions made from this category via the phase-in provisionsa applied to CET1; any surplus provisions related to expected losses.a
The -€1.9 billion decrease in credit risk over the period was primarily due to the following factors: an increase in outstandings (+€4.5 billion), driven mainly by aa higher level of activity; the impact of the dollar’s depreciation (-€2.2 billion);a an improvement in risk inputs (improved ratings, shortening ofa maturities), amounting to -€3.1 billion; a guarantee effect of -€0.6 billion.a a net impact of acquisitions and disposals of -€0.4 billion.a
Capital planning consists of determining Natixis’ target capital adequacy level, continually ensuring compliance with regulatory capital requirements in all compartments and capital adequacy in line with the risk appetite defined by the institution, and adapting capital allocation and measurement of business line profitability accordingly.
Specific wrong-way risk gives rise to specific own funds requirements (Article 291.5 of the European regulation of June 26, 2013, on prudential requirements for credit institutions and investment firms) and to prior approval of specific limits.
RISKS AND CAPITAL ADEQUACY Credit and counterparty risks 131Natixis Registration Document 2017
Credit risk is supervised by making the various business lines accountable, and by various second-level control measures overseen by a dedicated Risk division team.
Exposures to institutions and corporates with a short-term credit assessment 270 147 12 162 41 3
A counter-analysis is then carried out by the Risk division and, if necessary, a quantitative analysis of the portfolio’s default risks. Transactions are examined and decisions are made based on all of the loan application’s parameters, including the expected profit margin on the loan, the capital burn and compliance with the current risk policy.
Adjustments for market risks are divided into: adjustments for the cost of position reversals/liquidity positionsa in an active market; adjustments for uncertainty relating to observable anda unobservable valuation inputs and modeling risks in non-active markets; adjustments specific to risks inherent to positionsa (discontinuity risks, risks relating to uncertainty regarding size, etc.); adjustments for modeling risk to hedge model-relateda uncertainties (numerical method, calibration, etc.).
The structure of the function mirrors the organization of: the divisions under the responsibility of the operational riska managers; the foreign offices under the responsibility of the operational riska managers of the Americas, EMEA and Asia-Pacific platforms. They report hierarchically to the local Chief Risk Officer, and functionally to the Head of Operational Risk; the support and control functions under the responsibility of ana operational risk manager covering – in addition to the activities within his or her remit – overall risks (loss of access to premises or information systems, or loss of employee availability) to which Natixis is exposed.
The function has some 60 staff members (operational risk managers) dedicated to operational risk management. Within their designated scopes (subsidiary, business line or support function), they are responsible for instilling the operational risk culture, reporting and analyzing incidents, mapping risks, proposing and following up corrective actions, compiling reports and escalating information to management. Analyses are carried out across the Bank where the support or control functions are involved, or where the processes have an impact on teams, whether in the front, middle or back office.
Every year the Operational Risk Department, in conjunction with the other control functions, works with each business line, entity and support function to map operational risks. The exercise involves identifying and descriptively analyzing risks, quantifying the risk situations (average frequency, average and maximum loss), and taking into account existing risk management mechanisms. This mapping is based on process analysis and is carried out for all of the bank's activities. Its consistency is verified through backtesting, in other words by using the incident history, as well as external data where relevant.
For now, the impact of these moves by central banks on long rates has remained modest and yield curves have significantly flattened, suggesting that the markets are awaiting the moment when economic activity calls for significant, long-lasting monetary stimulus.
RISKS AND CAPITAL ADEQUACY Overall interest rate, liquidity and structural foreign exchange risks 155Natixis Registration Document 2017
Conflict of interest is managed through: compliance with the conflict of interest prevention framework;a cooperation among the business lines, Compliance anda Management in order to identify and manage conflicts of interest; close monitoring by Compliance with the help of aa transactional conflict detection tool; and
The procedures for customer onboarding are in line with the various regulatory requirements governing money laundering, terrorist financing, management, financial sanctions and international embargoes for the entities in question.
The framework draws on systems that verify client databases and filter transactions with a view to identify, on an ongoing basis, any person or entity subject to financial sanctions, specifically account freezes or restricted access to bank financing. It can apply account freezes aimed at Natixis clients in a timely manner, as well as prevent any transaction linked to sectors, goods or technologies that are subject to restrictions or bans pursuant to embargo measures. The jurisdictions subject to embargo undergo constant supervision and heightened diligence as part of a prudent and restrictive approach to prevent interpretation of regulatory scope.
In September 2014, the Paris District Court ruled in favor of Natixis Asset Management and dismissed all of the employees’ complaints. The employees appealed the ruling to the Paris Court of Appeal. On May 9, 2016, the Court of Appeal upheld the ruling and rejected the appeal filed by the plaintiffs. Employees have collectively submitted an appeal to the Court of Cassation. In a ruling on February 28, 2018, the Court of Cassation rejected the employees’ collective appeal.
contested swap agreement and ordered Natixis to repay to SWL the amounts paid by SWL as part of the swap agreement, less any amounts paid by Natixis to SWL under the same agreement and taking into account any amounts that would have been paid had the previous swap agreement not been terminated.
In addition to weekly and monthly monitoring of each region and country, Coface has implemented a system based on: the centralization of claims reserves exceeding a certaina amount per debtor which are then analyzed ex-post to improve the information, underwriting and recovery activity’s performance; monitoring at the risk underwriting level, which, above a givena level of DRA-based outstandings, generates an approval and the establishment of an overall budget by Coface’s Underwriting Department; and a DRA-based risk assessment system covering all debtors.a
Gross exposure: gross carrying amount on the balance sheet at December 31, 2016.(a)
In 2017, Private Banking, now called Natixis Wealth Management, enjoyed solid sales momentum in its individual, business owner and senior executive customer segments, bringing its assets under management up to €31.6 billion at the end of 2017 (including VEGA IM, in which Natixis Investment Management owns a 60% interest).
In November 2017, Corporate & Investment Banking presented its strategic objectives as part of Natixis’ new strategic plan, New Dimension 2018-2020: to be recognized as a bank that offers innovative solutions;a to become a leading bank in four key sectors (energy anda natural resources, aviation, infrastructure, real estate and hospitality). To this end, the CIB announced a project to restructure Global Finance in order to better capitalize on the expertise acquired in these sectors. The project aims to develop commercial relationships with clients in these sectors by offering them a complete set of expertise, and by promoting the development of the CIB business lines and M&A activity; to increase business with insurers and investment funds;a to become a leading player in the green market (relying on thea new Green & Sustainable Hub, created in July 2017, to deliver a continuum of dedicated solutions and expertise); and to continue to expand internationally with the goal ofa generating more than 40% of its revenues in the Americas and the Asia-Pacific region by the end of the plan.
Natixis expanded its business abroad by building up its Fixed Income teams and focusing on diversifying the solutions it offers in equity derivatives. It has formed two partnerships in South Korea and in the US (creation of the Kospi 3 index, in partnership with Korea Exchange, and the Nasdaq-100 Target 25 Excess Return index for which it has an exclusive operating license). Accordingly, the Fixed Income business created a cross-business European Sales and Financial Engineering team to place financial engineering at the heart of its strategy.
Through its global network of origination teams, the bank consolidated its franchise on the euro bond market, particularly in the green bond segment. It also worked with the new senior non-preferred notes and strengthened its presence in emerging markets, where it has developed its USD issue capacity.
The Specialized Financial Services division stepped up its relations with the BPCE networks and rolled out new products and services and new tools adapted to changes in distribution and customer needs in an increasingly digital world.
In addition, as announced at the end of 2016, all Groupe BPCE Payments teams were merged with Natixis Payment Solutions in order to be more efficient and competitive. Natixis Intertitres (service vouchers), S-Money, Le Pot Commun (online fundraising), E-Cotiz (payments for non-profits), Depopass (secure peer-to-peer payments). This new structure, which serves both business development and priority areas (payment security, data management, etc.), combines a commercial focus and technological thinking with an entrepreneurial approach. With this merger comes an external growth policy with the addition of numerous start-ups to enhance retailer services: PayPlug, a system enabling small retailers and VSBs to accepta bank card payments online or via smartphone without the need for a device; Dalenys, which strengthens Natixis’ presence on the Europeana payment solutions market for retailers and e-retailers.
At 22.1%, the division's ROE improved by 1.3 points compared to 2016.
The Payments business did well, particularly in Electronic Banking and Service Vouchers. Electronic Banking continued to grow, particularly in clearing transactions, which rose by 10%. The Flows and Services business turned in a more mixed performance, with national check processing down and mass transaction processing up. Service Vouchers performed well once again, with its Chèque de Table meal vouchers boosting its market share by 1.2 points to 17.7% in 2017. Combined revenue generated by PayPlug and Dalenys' Merchant Acquiring activities increased a substantial 64% compared with 2016.
The provision for credit losses of the Corporate Center totaled €71 million in 2017 and mainly consisted of a €60 million general provision for litigation.
Together, these items brought operating income to +€1,106 million, down €236 million.
Financial assets at fair value through profit or loss 6.1 184,497 187,628
Loans and receivables due from banks 6.5 45,289 58,783 o/w institutional operations
Revaluation adjustments on portfolios hedged against interest rate risk 138 193
Issue premiums, legal reserve, contractual reserves, long-term capital gains reserve and other Natixis reserves.(a). Other equity instruments issued: refers to perpetual deeply subordinated notes. At December 31, 2017, BPCE subscribed to two new issuances of (b) perpetual deeply subordinated notes for a total amount of €897 million, while the repayment of -€276 million for perpetual deeply subordinated notes issued in 2017 was recognized. At December 31, 2016, BPCE had subscribed to a new issuance of perpetual deeply subordinated notes worth €400 million (in January 2016), while the partial repayment of -€2 million had been recognized. Data restated for the impact of the early application of the provisions of IFRS 9 “Financial instruments” on financial liabilities designated at fair value (c) through profit or loss as from January 1, 2016.
Moreover, the choice of business model must be made at a level which reflects the way in which groups of financial assets are managed collectively with a view to achieving a given economic objective. The business model is therefore not decided on an instrument-by-instrument basis, but rather at a higher level of aggregation, by portfolio.
The carrying amounts used are those listed in the consolidated financial statements of the ultimate parent company at the date of completion of the transaction.
Pursuant to paragraph 30 of IFRS 4, insurance policies and investment contracts with discretionary participation (life insurance) are measured using shadow accounting, which consists in recognizing the portion of unrealized gains or losses potentially attributable to policyholders as a deferred profit-sharing reserve. The deferred profit-sharing reserve thus reflects the potential entitlement of policyholders to unrealized gains for financial investments or their portion of unrealized losses. Considering the pay-out ratio in the 2017 budget and in accordance with the pay-out ratio recorded for 2016, the deferred profit-sharing rate adopted at December 31, 2017 was 89% compared with 87% at December 31, 2016.
Natixis exercises control over this entity within the meaning of IFRS 10, and fully consolidates it.
As this acquisition had no impact on Natixis’ control, goodwill was charged directly against shareholders’ equity in the amount of €94 million.
As the acquisition of InterCoop and Bati Lease took place between entities under the same ownership structure, the assets and liabilities of the acquired entities were recorded at their book value in Natixis’ consolidated financial statements and the difference between the price paid and Natixis’ share in the book value of the acquired entity’s assets and liabilities was added (negative goodwill) to shareholders’ equity in the amount of €18.4 million.
Natixis did not encounter significant restrictions on interests held in associates and joint-ventures.
Auto-pilot mechanisms are generally in place for these structures. In the case of leasing contracts, the transaction must be structured such that its income always amounts to zero. As such, only default events would be capable of modifying the structured entity’s income, by leading to the disposal of the rights to the assets once the guarantees have been exercised. Natixis has the power to have the assets sold in the event of a default event, acting either alone or via the bank syndicate agent. This right equates to a protective right because Natixis would never benefit from the income from the sale beyond the amount of the balance due under the loan agreement. As such, Natixis does not have power over such entities’ relevant activities.
The relevant activities of these funds are those involving the investment and divestment of real estate assets. These funds are managed on behalf of investors by the management companies of Natixis Investment Managers (AEW Europe, AEW Central Europe, etc.).
As part of its Private Equity operations, Natixis makes equity investments in unlisted companies via private equity investment vehicles (Fonds Communs de Placement à Risque – FCPRs – private equity investment funds and SICARs – Sociétés d’Investissement à Capital Risque – venture capital companies) and limited partnerships which it has typically managed.
In contrast, given that Natixis is not part of the governing body holding the power to decide on activities relevant to the Magenta conduit, it is not consolidated in Natixis’ accounts.
Financial instruments at fair value through profit or loss 21 5,065 213 - 5,298
Financial assets at fair value through profit or loss 234 9,380 718 150 10,482
For operating leases, the leased assets are not recognized in the lessee’s assets. Payments made for operating leases are recognized in the income statement on a straight-line basis over the lease term under “expenses from other activities”.
Non-monetary items denominated in foreign currencies and measured at fair value are translated at the prevailing exchange rate at the end of the reporting period. Gains or losses on a non-monetary item (e.g., equity instruments) denominated in a foreign currency are recognized as income when the asset is classified as “Financial assets at fair value through profit or loss” and in equity when the asset is classified as “Available-for-sale financial assets”, unless the financial asset is designated as a hedged item in a fair value hedge, in which case foreign exchange gains and losses are recorded as income.
This adjustment applies to valuations that do not account for the counterparty’s credit quality. It corresponds to the expected loss related to a counterparty’s default risk and aims to account for the fact that Natixis cannot recover all the transactions’ market value.
The following criteria are used to determine whether a market is active: the level of activity and trend of the market (including the levela of activity on the primary market); the length of historical data of prices observed in similara market transactions; scarcity of prices recovered by a service provider;a sharp bid-ask price spread;a steep price volatility over time or between different marketa participants.
It also takes account of the expected depreciation of exposures and the counterparty spread implied from the market data.
FINANCIAL DATA Consolidated financial statements and notes 239Natixis Registration Document 2017
IFRS 5 was maintained as the completion of the sale was outside of Natixis’ control.
FINANCIAL DATA Consolidated financial statements and notes 243Natixis Registration Document 2017
However, given the predominant impact of operational risk on the fair value of the guarantee, guarantees granted to mutual funds are treated as financial guarantees.
deposits recognized as assets on the balance sheet (15% in cash security deposits) and in contributions recorded in income as “Taxes and regulatory contributions” (see Note 7.6).
The valuation models used to price illiquid financial instruments are described in Note 5.6.
At the reporting date, Natixis assesses whether there is any objective evidence of impairment for loans and receivables, either on an individual basis or collectively by risk category. To identify evidence of impairment, Natixis analyzes trends in a number of objective criteria, but also relies on the judgment of its own expert teams. Similarly, Natixis may use its expert judgment to establish the likely timing of recoveries (where the aim is to calculate the amount of individual impairment losses), or to adjust the amount of expected losses under the Basel framework, on which the amount of collective provision is based.
Insurance technical reserves are calculated using assumptions and estimates that may lead to adjustments in amounts reported over the subsequent period: for personal protection insurance, claims reserves area calculated by modeling claims experience; for life insurance, underwriting reserves are computed baseda on economic and financial assumptions, mortality and morbidity tables, and behavioral statistics, for example concerning surrenders; for general insurance, technical reserves comprise provisionsa for unearned premium income (calculated on an accrual basis and representing the portion of premiums issued during the period that relate to a period after the reporting date) and reserves for claims to be paid, corresponding to known and unknown claims that have occurred but not yet paid at the reporting date; for credit insurance, claims reserves include an estimate ofa claims reported but not settled at the reporting date. In addition to the amount of claims payable, a provision is set aside for unknown claims, calculated on a statistical basis in reference to the final amount of claims to be paid following settlement of risks and any debt recovery measures. Provisions for debt recovery procedures, representing estimates of expected recoveries, are calculated by applying a terminal recovery rate to all subscription periods not yet settled.
FINANCIAL DATA Consolidated financial statements and notes 247Natixis Registration Document 2017
Loans and receivables measured under the fair value 6.1.1.1 option through profit or loss and credit risk
Derivative instruments not eligible for hedge accounting (a) 6.1.3 59,783 65,285
FINANCIAL DATA Consolidated financial statements and notes 253Natixis Registration Document 2017
The fair value of financial assets received as security that Natixis may sell or reuse as security was €215 billion at December 31, 2017, versus €205 billion at December 31, 2016.
Financial assets designated under the fair value option through profit or loss 2 0
Life insurance loss reserves cover the capital payable upon the occurrence of a loss. In credit insurance and non-life insurance, they include an estimate of the total cost of losses reported but not yet settled at the end of the reporting period. Accrued losses are topped up by a reserve for unknown losses calculated on a statistical basis.
Of which €144 million in reversals used following disposals of receivables made during the year.(a)
Impact on the income statement (in millions of euros) Charges Reversals Net impact
FINANCIAL DATA Consolidated financial statements and notes 277Natixis Registration Document 2017
Fair value of financial liabilities carried at fair value in the balance sheet6.18
Other financial liabilities under the fair value option through profit or loss 3
The impairment of fixed-income securities classified as available-for-sale is charged to “Provision for credit losses”.
Wealth Management: this business line encompasses wealtha management activities in France and Luxembourg, financial planning solutions, and services for independent wealth management advisors (IWMAs). Natixis Wealth Management holds a key place on the French market. The bank mainly develops its customer base from the clientele of the Caisse d’Epargne and Banque Populaire banks, and to a lesser extent from that of Natixis. Wealth Management offers advisory services, financial planning and expertise, and fund management solutions.
Building on the technical expertise of its teams, Natixis designs tailored solutions for its customers incorporating the most recent market developments.
This information is determined based on the accounting principles applied in accordance with IFRS as adopted by the European Union at December 31, 2016.
Assets at fair value through profit or loss 167,413 15,596 1,934 2,407 278 187,628
The amounts of the guarantees shown are those used under Basel prudential regulations to reduce capital requirements. Guarantees for insurance companies accounted for by the equity method in the prudential accounting scope are therefore excluded, as are exposures relative to these entities.
The main defined-contribution plans available to Natixis employees are operated in France. They include the mandatory pension scheme and the national schemes AGIRC and ARRCO.
Revaluation adjustments on other long-term employee benefits 0 0 (1) (0) (1) 0 0 2 1 2
Fair value of assets at end of period 270 88 359 267 9 276
Ordinary shares Number of shares Par value Capital in euros 1,431,936 treasury shares at December 31, 2017, and 1,457,006 shares at December 31, 2016.
Tranche B corresponds to the fraction of annual compensation between €39,228 and €156,912.(2)
The insurance industry companies within Natixis’ scope of consolidation are: Coface and its subsidiaries, Natixis Assurances and its subsidiaries (life insurance, personal protection insurance, property and casualty insurance) and CEGC (Compagnie Européenne de Garanties et de Cautions).
NATIXIS Investment Managers Middle East*(y) Retail FC 100 100 100 100
Buyback in the fourth quarter of 2017 of 40% held by minority interests (MACIF and MAIF).(w)
Natixis’ ownership interest in the entity decreased from 92% to 84% following the free allocation of shares to executive officers in the fourth (dd) quarter of 2017.
Please refer to Notes 5.1, 5.2, 5.3, 5.23, 6.5, 6.16.1, 7.7 and 10.2 to the consolidated financial statements for more details
The estimate of the ability to generate future taxable profits within this period requires the exercise of judgement on the part of management, including in developing tax business plans, to justify the recognition of deferred tax assets.
See Note No. Year ended December 31 2017 2016 12 Due to central banks 12 Due to banks 124,254 118,718 22 o/w institutional operations: 16 Provisions for risks and other expenses 2,293 2,436
See Note No. Off-balance sheet items – Commitments given 2017 2016
Write-down, amortization and impairment of property, plant and equipment and intangible assets (78) (69)
Provisions for sector risk are based on combinations of indexes specific to each sector (sector growth, cash held by businesses in the sector, cost of commodities, etc.). The method for calculating the impairment loss is the “expected loss” method calculated at maturity.
“Post-employment benefits” such as pensions, other supplementary retirement benefits applicable to the banking industry, end-of-career awards and other contractual benefits payable to retirees. Natixis distinguishes between two types of post-employment benefits: defined-contribution plans, which mainly consist of the sociala security basic pension scheme and the supplementary schemes Agirc and Arco, under which an entity has no obligation to pay a specified benefit amount. Contributions paid under defined contribution plans are expensed in the corresponding period; defined-benefit plans under which Natixis has a legal ora constructive obligation to pay a specified benefit amount are valued and funded.
The annual payroll costs recognized in respect of defined-benefit plans consist of: rights vested by beneficiaries over the period;a the interest cost reflecting the impact of unwinding thea discount on the obligation; the expected return on plan assets;a amortization of actuarial gains and losses and past servicea costs; the effects of plan curtailments and settlements.a
In accordance with Delegated Regulation 2015/63 and Implementing Regulation 2015/81 supplementing the BRRD Directive on ex-ante contributions to financing mechanisms for the resolution, the Single Resolution Board set the level of contributions to the Single Resolution Fund. Contributions paid to the fund may be made in cash security deposits recognized as assets on the balance sheet (15% in cash security deposits) and in contributions recorded in income as “Taxes other than on income”.
Expected return on plan assets 1.32% 1.05% 0.80% 1.22% 0.95% 0.65%
Debt representing 10% of the total amount of subordinated debt: Date of issuance Maturity date Currency
Rate and duration before first redemption date Rate after first redemption date 2017 2016
The non-voting shares issued by Natixis in November 1985 may only be redeemed if the company is liquidated but may be eligible for buyback under the terms set out by the law dated
Monitoring of Natixis’ subsidiaries and branches in non-cooperative countries forms an integral part of Natixis’ risk monitoring process overseen by the Risk function. This process involves: local Risk Officers/functions that have a functional link to thea central Risk Control Department; specific reporting procedures that respect local constraints buta also comply with overall risk requirements.
Company financial performance over the last five years (Articles 133, 135 and 148 of the French Decree on Commercial Companies)
Pursuant to the provisions of Articles L. 823-9 and R. 823-7 of the French Commercial Code (code de commerce) relating to the justification of our assessments, we draw to your attention the key audit matters relating to risks of material misstatement that, in our professional judgement, were of most significance in our audit of the parent company financial statements of the current period, as well as how we addressed those risks.
We evaluated the design and tested the effectiveness of the key controls put in place by Natixis S.A., in particular those related to: the identification of indicators of impairment (such as past-duea payments) and the counterparty rating process, the classification of exposures as non-performing,a the monitoring and valuation of guarantees,a the determination of individual impairment losses ona non-performing loans and the associated governance and validation system.
We tested the controls we considered relevant to our audit, particularly those related to: the validation and periodic review, by the Risk Division, ofa valuation models, the independent verification of valuation inputs,a the determination of the main valuation adjustments, as wella as the value adjustments made.
FINANCIAL DATA Internal control procedures relating to accounting and financial information 387Natixis Registration Document 2017
To satisfy our customers’ growing needs for cost management, Natixis Energeco amended its credit application processes, offsetting a 70% rise in the number of deals carried out.
Natixis is also committed to ceasing its financing of oil extraction from oil sands or companies whose activities are mainly based on the production of oil derived from oil sands. Lastly, Natixis will no longer finance the exploration and production of oil in the Arctic. (see Chapter 6.3.3 for details).
Several additional projects were initiated at the same time, with the aim of establishing a duty of care plan for Natixis employees at its own offices, and also applied to purchases of products and services. Work was also begun to expand the due diligence procedures implemented in the bank's financing activities.
Natixis updated its whistleblowing system in 2017 to reflect the latest regulatory changes. The global policy is considered to be the minimum standard applied throughout Natixis and at all Natixis subsidiaries and branches around the world.
Pursuant to Article 173 of the French Energy Transition Act, Natixis is required to report on the climate risk management tools it has put in place and on its low-carbon strategy.
certified for the management of 12 of its buildings (representing 220,279 m² or 74% of its total surface area in France). These certifications were renewed in 2015 for a period of three years. In addition, the ISO 14001 certificate was expanded to include the operating departments of Natixis’ data centers.
Since 2011, Natixis has provided its employees with several different solutions to help them organize themselves differently or adopt different methods of transportation in a bid to protection the environment. Accordingly, the mobility plan was based on already existing initiatives and is part of a long-term project spanning a five-year period.
22,993 Natixis Worldwide permanent-contract staff = 20,898 FTEs(1). Excl. Coface, the number of FTEs was 17,771.(d)
This method falls under the scope of the commitments made in the Collective Agreement on Quality of Life in the Workplace, and addresses the need to better anticipate the impacts of transformation projects on working conditions and better incorporate human factors in the approach to change management.
It also meets transparency requirements vis-à-vis its external stakeholders, such as the ACPR, the ECB and the AMF, but also internal stakeholders. A compensation “logbook” gives Natixis employees in France an individualized view of their salary, additional forms of compensation, social security coverage, and employee savings plan for the previous year.
WINN promotes gender diversity within Natixis’ management and runs a women’s network that focus on various themes pertaining to professional and personal development. In 2017,
In Frankfurt, the bank helps female employees find spaces in daycare facilities for their young children and thus make it easier for them to return to work.
Natixis’ commitments are as follows: Promoting the retention of employees with disabilities bya adapting positions and working conditions, and providing access to professional training. In 2017, Natixis implemented almost 80 new disability compensation measures.
ENVIRONMENTAL AND SOCIAL RESPONSIBILITY Internal mobilization and management of our direct impacts 429Natixis Registration Document 2017 2017 Key Events
Within the Managed Scope: in France, in the Asset & Wealth Management division, AEWa Europe, AEW Europe SGP, NAMI-AEW Europe and Ciloger were combined to form AEW Ciloger; in the Specialized Financial Services division, Natixis Intertitresa joined the Payment Solutions business line; outside France, a new Natixis S.A. branch was created ina Portugal, reporting to the Support Departments division.
Likewise, actions against food waste were not included, this item being immaterial to the nature of Natixis’ operations. The same holds true for biodiversity protection. Natixis did not record any environmental provisions or guarantees in 2017.
ENVIRONMENTAL AND SOCIAL RESPONSIBILITY Reporting frameworks and methodology 435Natixis Registration Document 2017
In our capacity as the Statutory Auditors to the company Natixis S.A. appointed as an independent third-party body, accredited by the French Accreditation Commission (COFRAC) under No. 3-1048, we hereby present our report on the consolidated social, environmental and societal information (hereinafter the “CSR Information”) prepared for the fiscal year ended December 31, 2017, as presented in the Management Report, pursuant to the provisions of Article L. 225-102-1 of the French Commercial Code.
DISTRIBUTION OF SHARE 7.3 CAPITAL AND VOTING RIGHTS 450 Distribution of share capital at December 31, 7.3.1
INFORMATION FROM 7.4 ARTICLE L.225-37-5 OF THE FRENCH COMMERCIAL CODE 453
Throughout his term, each director shall own at least one hundred and forty (140) Company shares.
The Board of Directors is qualified to decide or authorize12.3 the issuing of bonds and all other securities representing debt securities.
All shareholders are entitled to receive, on the conditions and on the dates stipulated by law, the documents necessary to enable them to make an informed decision on the Company’s management and control.
The Board of Directors of Natixis, at its meeting on July 28,a 2016, by virtue of the authorization granted by the Combined General Shareholders’ Meeting of May 24, 2016, resolution twenty, decided to award 3,081,642 free shares to the recipients designated by the Board of Directors. These shares will be permanently vested in part on March 1, 2018, and in part on March 1, 2019, subject to presence and/or performance conditions (systematic performance conditions applicable to “regulated” categories of staff).
At its meeting on November 7, 2017, the Board of Directors decided to use in 2018 the authorization to carry out a capital increase – without preferential subscription rights – reserved for members of employee savings plans that was granted by the Combined General Shareholders’ Meeting of May 23, 2017 (resolution twenty), for the launch of the Mauve 2018 employee share ownership plan with an overall par value ceiling of €50,000,000, representing a maximum of 31,250,000 shares. In order to implement the Mauve 2018 plan, the Board of Directors invested the Chief Executive Officer with all the necessary powers, in particular to set the Subscription Price and the subscription period for the shares to be issued.
SUMMARY TABLE OF CURRENT AUTHORIZATIONS GRANTED TO THE BOARD OF DIRECTORS BY THE GENERAL R SHAREHOLDERS’ MEETING AND THEIR USE BY THE BOARD OF DIRECTORS
None None 05.23.2017 15 To carry out a capital increase, through the issue – without preferential subscription rights by a public offer – of shares and/or securities providing access to the Company's share capital or entitling holders to the allotment of debt securities.
Amount deducted from the ceiling decided in resolution No. 14 of the General Shareholders’ Meeting of May 23, 2017 (a) (€1.5 billion).
In 2008, the Natixis Management Board approved a plan to grant stock options to certain employees and directors of Groupe Banque Populaire and Groupe Caisse d’Epargne. The directors of these two groups waived their right to their options.
Options awarded by the issuer during the year to the 10 salaried employees of the issuer and of all the companies within its scope who were awarded the most options 0 n/a n/a
which 0.68% held outside of employee savings plans by employees and former employees.Of which 0.69% held under the BPCE Actions Natixis employee share ownership plan, including bearers of Groupe BPCE shares.Of
Please refer to the detailed information in section 2.4 of the 2017 Natixis registration document.
Natixis’ financial performance 45% 11.25% net revenuesa 11.25% net income (Group share)*a 11.25% cost/income ratioa 11.25% ROTE*a
The total amount of compensation paid to the above-mentioned Natixis employees during the fiscal year ended December 31, 2017, which, due to the deferred payment of variable compensation and the system of deferred payment is not equal to the compensation awarded for fiscal year 2017, amounted to €175.69 million (excluding employer social security charges). This amount includes the fixed compensation paid in 2017, the variable compensation paid in 2017 for 2016, the variable compensation paid in 2017 for previous fiscal years (2013, 2014 and 2015) and the performance shares awarded in 2012 and 2013 and delivered in 2017.
Finally, resolution twenty-one relates to the granting of the powers required to complete the legal formalities and disclosures relating to this Combined General Shareholders’ Meeting.
The General Shareholders’ Meeting, deliberating in accordance with the quorum and majority requirements for ordinary business, having reviewed the report of the Statutory Auditors on the consolidated financial statements for the fiscal year ended on December 31, 2017, hereby approves the said consolidated financial statements as presented, including the balance sheet, income statement and notes to the financial statements, as well as the transactions reflected in these financial statements or summarized in these reports.
The General Shareholders' Meeting, deliberating pursuant to the quorum and majority requirements for ordinary business, pursuant to Article L.225-37-2 of the French Commercial Code, hereby approves the principles and criteria for determining, distributing and granting the fixed, variable and non-recurring items constituting the total pay and benefits in kind of the Chief Executive Officer, as set out in the corporate governance report, presented in Natixis’ 2017 registration document in Chapter 2, Section 2.4 and Chapter 7, Section 7.5.1.
provisions, contingent upon ratification of these amendments at the next Extraordinary General Shareholders’ Meeting.
As part of Laurent Mignon’s reappointment as Chief Executive Officer for a duration of four years, on February 18, 2015, the Board of Directors authorized the renewal, as required, of the commitments and agreements made in favor of Laurent Mignon, namely: The commitment related to the severance payment and relateda amendment n°1, as authorized by the Board of Directors on February 22, 2011, and February 19, 2014. The Chief Executive Officer will not receive severance payments in the event of gross negligence or willful misconduct, if he leaves the Company at his initiative to take another position or changes his position within Groupe BPCE. The rules for calculating the amount of Laurent Mignon’s severance pay are compliant with the principles in effect for members of BPCE’s Executive Board. This agreement, along with amendment n°1 to this agreement, were approved by the May 20, 2014 General Shareholders' Meeting.
Laurent Mignon, Chief Executive Officer of Natixis andj member of the BPCE Management Board,
On June 6, 2007, the Supervisory Board approved a service agreement between IXIS CIB, CNCE and Banque Palatine pertaining to CNCE’s transfer to Banque Palatine of the operating and technical management of the “Click’n Trade” website, with CNCE retaining ownership of the website, and remaining the forward and cash currency transactions counterparty for IXIS CIB.
ADDITIONAL INFORMATION Cross-reference table of registration document 479Natixis Registration Document 2017
18.1. Shareholders owning more than 5% of the share capital or voting rights 450 18.2. Different voting rights of the aforementioned shareholders 452 18.3. Control of the issuer 452 18.4. Arrangements, known to the issuer, the operation of which may at a subsequent date result in a change in its control 19. Related-party transactions N/A
Article 435 (1) (EBA) CCRA - Qualitative disclosure related to counterparty credit risk 6.1. Counterparty risk management 84 128
NX05 - EAD by geography and by exposure class Table 13 55 137
Table 19 (EU CRB – B): Total and average net amount of exposures 65
Table 60: Breakdown of financial liabilities by contractual maturity 120-121 161
Introduction 1 Cross-reference table 163 to 165 482 to 486 2 Terminology and risk measurement, key inputs used 16-17 69 to 76; 3 Description of principal and/or emerging risks 16-17 115 to 117 4 Definition of regulatory changes and new key ratios 45; 115; Risk management governance and strategy 5 Organization of risk management and control 12-13 113 6 Risk culture description 13-14 114
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