The figures presented in this report are based on the new organization structure of Natexis Banques Populaires, with the following four core businesses: n Corporate and Institutional Banking and Markets, which comprises Corporate France, International, Global Debt & Derivatives Markets, Equity Group, Commodities, and Mergers & Acquisitions; n Private Equity and Wealth Management, which comprises Private Equity, Private Banking and International Estate Planning; n Services, which comprises Banking, Financial & Technology Services, together with Asset Management and Insurance; n Receivables Management, which comprises Coface and Natexis Factorem.
– Lease financing was up 7% to €100.6 million, while origination rose by 13% compared with 2003.
– Foreign exchange activities contributed €27.1 million in net banking income,down €7.2 million on 2003.This business line was radically restructured during the year to provide the foundations for more solid growth in 2005.
Banking, Financial & Technology Services Net banking income from this department was down slightly on 2003,to €237.7 million compared with €245.6 million the previous year.
n Total revenues grew by 1%: – Premium income from insurance activities rose by 1%. However, several factors masked the underlying buoyancy in this business, including the decision to stop selling policies deemed to be too risky, which led to more than €4 million (2003 base effect) in lost premium income in Germany, coupled with irrecoverable debts and deficits on liquidation of unearned premium reserves. In addition, the first few months of 2003 benefited from strong inflows held over from 2002 and major premium pricing revisions particularly in Germany and Italy (impact of 1.3%).
n By contrast, cost discipline was maintained over certain recurring items, including information systems production, logistics, and documentation and databases.
For the US subsidiary ABM Corp., which trades in the mortgage-backed securities market, stress tests are performed based on a uniform 100 bp distortion of the yield curve and its impact on the market (in the shape of early repayments, increased volatility, etc.).At December 31, 2004, the impact of the worst-case scenario would be a $16.9 million fall in the value of the portfolio.
To provide the group with the most effective possible risk management system, Natexis Banques Populaires embarked on an in-depth review of its systems and invested in restructuring and strengthening the various teams involved in risk management.The main measures taken in 2004 were: n significantly strengthening the middle office team, including hiring a middle office manager, and building up an experienced Riskmanager team to provide first tier control; n establishing a team to validate valuation models within the Risk Management department; n formally documenting the responsibilities of the various teams involved in market risk management.
n A new calibrated model for measuring interest rate risk, capable of calculating a potential loss level for a given book or other scope of activity. Following a presentation of the model, limits will be fully revised in 2005.
Cost discipline was maintained during 2004, with operating expenses up 4.5%.
Fees paid to the portfolio manager 0.5% / year 1.2 – PRESENTATION OF THE FINANCIAL STATEMENTS
property and equipment, where material, and depreciated over the expected useful life of assets of the same category.
1.9 – CONSOLIDATION ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS Prior to consolidation, the statutory financial statements of companies included in the scope of consolidation are restated to bring them into line with the group accounting policies described below.
Accounting policies and valuation rules specific to nonbanking activities are maintained in the consolidated financial statements, in particular those applicable to insurance companies. However, the elimination of transactions between insurance subsidiaries and banking subsidiaries means that investments no longer match technical reserves as they do in the insurance companies' own balance sheets. Accordingly, technical reserves are covered by both insurance and banking assets.
The loss equalization reserves carried by Coface are included in technical reserves because they cover a macro-economic risk of a change in claims experience over several years.
B – INDUSTRY AND COUNTRY RISK PROVISIONS These provisions cover certain businesses of Natexis Banques Populaires that carry potential future risks.These businesses are reviewed quarterly and where necessary included in the basis of provisioning for sound exposure in countries or industries likely to experience difficulties.During these quarterly reviews, the country and industry provisioning rates are adjusted according to Natexis Banques Populaires' perception on how the businesses will evolve, either negatively or positively. In 2003, additional provisions of €90 million were taken to cover potential risks arising as a result of major issues in the European marketplaces.This sum was maintained in the balance sheet at December 31, 2004.
2.6 – INCOME, VALUE ADJUSTMENTS AND GAINS OR LOSSES ON SECURITIES n Income from variable income securities is recorded on a cash basis.
n The accounting treatment of speculative positions is identical with respect to interest flows, but the positions are marked to market at the period end and a provision taken against any unrealized losses.
n In the case of specialized management of a trading portfolio, each instrument is marked to market on an individual basis. Changes in value during the period are taken immediately to the income statement.Valuations are adjusted for counterparty risk and the discounted present value of future contractual management costs.
2.16 – EMPLOYEE-RELATED LIABILITIES AND RETIREMENT BENEFIT OBLIGATIONS The main provisions for employee-related liabilities concern: n end-of-career awards and allowances; n early-retirement and supplementary pension benefits; n “CATS” early retirement plan benefits; n employer’s contributions to private health insurance companies for retirees and early retirees; n long service awards.
In 2001, the accounting treatment for long-service awards was harmonized throughout all Natexis Banques Populaires entities.
Securities held for sale (2) 6,527 4,959 6,785 Equities and other variable income securities 736 547 1 017 Bonds and other fixed-income securities 5,791 4,412 5,768
Securities held for sale - net of provisions 5 11 11 6 Non-performing securities - gross - 25 19 26 Provisions for non-performing securities - (19) (14) (24)
Assets leased to third parties under operating leases 227 - (14) - - 213 2003 Charge/ Disposals Changes in Other 2004 in millions of euros (reversal) group structure
in millions of euros 2004 2003 2002 - amount in USD million - 7 20 - euro equivalent - 6 19 - Subordinated notes convertible into Natexis Banques
(7)Minority interests in subsidiaries that have issued preferred shares total €711 million.
Over-the-counter transactions 768,438 681,804 563,322 Transactions on organized or equivalent markets 82,660 123,327 80,528
Balance sheet items arising on financial instruments Options bought 1,608 1,057 2,174
Credit management services 120 85 41 29 – GENERAL OPERATING EXPENSES
COFACE SCRL (formerly Coface Scrl Participations) (20) Credit information and management 100 100 100 98 100 98
CRISTAL NEGOCIATIONS Real estate trading 100 100 100 100 100 100
NEM 2 ** Asset management (private equity) 100 100 88 88 88 88
ORCHID TELEMATICS LIMITED Business and credit information 100 100 - - - -
(18) Transfer of all assets and liabilities to NBP on June 29, 2003.
(27) Buyout of minority interests, bringing NBP's interest to 100% on June 2, 2004.
In accordance with our appointment as Statutory Auditors at the annual general meeting, we have audited the accompanying consolidated financial statements of Natexis Banques Populaires for the year ended December 31, 2004.The consolidated financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial statements, based on our audit.
n Treasury stock: treasury shares are purchased for four purposes: i) to regulate the market price by trading against market trends, ii) to take advantage of market opportunities, iii) to pay for acquisitions and iv) to allot to Group employees under stock option plans or employee share issues. The number of treasury shares held as of December 31, 2004 totaled €1,548,178 with a value of €156 million, recorded in “trading account securities”.
B) Financial institutions SICOVAM HOLDING 3,694 30,417,099.22 OFIVM 679,999 9,371,327.33 MEDIAFINANCE 255,000 4,047,120.84 PROPARCO 267,300 4,017,739.19 SOFARIS 133,372 3,242,831.92 MAGHREB PRIVATE EQUITY FUND LTD 995 526,034.91 AFH -AFRICAN FINANCIAL HOLDING 7,238 906,018.95 VIETNAM INTERNATIONAL LEASING CIE 1,000,000 793,544.41 SOFIPROTEOL 17,501 243,163.03 UNIGRAINS 5,467 186,978.50 FIARO 29,166 97,508.98 PARIS TITRISATION 3,999 86,356.02 AL WASSIT - INTERMEDIATION ET CONSEIL FINANCIER 9,375 68,683.09 VAL "E" 2,494 38,020.80
VAL A 115, rue Montmartre - 75002 PARIS 167,200 EUR 149,200 EUR 100.00% 276,873 276,873 - - 23,235 EUR 13,973 EUR - *
Property and equipment used in business 105 17 (7) (1) 114 Land and buildings 17 1 - - 18 Other 88 16 (7) (1) 96
Impact of foreign branch income taxed at different rates (3) (1) (3)
(*)Other items in 2004: – Reversal of provision for deferred taxes 16 – Impact of overpayment at New York branch 10
Financial Information Reports on internal control n Market risk management system Natexis Banques Populaires’ market risk management system is based on three pillars: n a three-tier control system comprising the middle office of each entity, Internal Control and Risk Management, the latter two providing independent control over risks; n a market risk measurement model designed to quantify the bank’s risk; n a system of limits set in accordance with the risk indicators set out in the internal risk measurement model. Limits apply to Natexis Banques Populaires and its subsidiaries.
The responsibilities and composition of the operational risks committee have been extended to encompass management and oversight of the bank’s operational risks project. Its duties now cover the management of operational risks within the meaning of Basel requirements and the business recovery plan. The committee is chaired jointly by the Board Secretary and the head of Information Systems Security and Logistics. Other members include representatives of the core businesses.
n top-tier controls by the Internal Audit department, to ensure the existence and effectiveness of first and second tier controls.
– Deduction of 2.5% exit tax on the long-term capital gains reserve, to be transferred to an ordinary reserve account, in accordance with article 39-IV of the French 2004 amended Finance Act €4,798,181.49 n Retained earnings at December 31, 2004 €(12,749,384.47)
Summary: the purpose of the eighth to twelfth resolutions is to authorize the Board of Directors, for a period of twenty-six months under the terms and conditions set out in the French Securities Act of June 24, 2004, to increase the share capital on one or more occasions at its discretion, with or without pre-emptive rights, and to increase the capital stock in connection with certain specific transactions such as share exchange offers.
The shareholders hereby waive their pre-emptive rights over the securities to be issued in accordance with the law and empower the Board of Directors to grant existing shareholders a priority subscription right in accordance with the provisions of article L225-135 of the French Commercial Code.
This authority is valid for a period of fourteenth months with effect from the date of this meeting.
The issue price of the shares may not be more than the average share price quoted on the Paris stock exchange during the twenty trading sessions preceding the date on which the Board of Directors sets the opening date of the offer, nor more than 20% less than that average.
CORPORATE OBJECT Pursuant to Article 2 of the bylaws, the company’s corporate object in France and abroad is: n the conduct of all and any banking business and related businesses within the meaning of the French Banking Act; n the provision of all and any investment services as defined in the French Monetary and Financial Code; n the performance of specific assignments on behalf of the French State in economic and financial areas under the provisions of special agreements; n the conduct of all and any brokerage business; n the acquisition of interests in companies, groups or associations with a direct or indirect connection with the activities referred to above; n the completion of all and any private and commercial transactions.
Options may be granted to: n employees and executive directors of Natexis Banques Populaires and other companies in which Natexis Banques Populaires directly or indirectly holds the majority of the capital stock; n employees and executive directors of Banque Fédérale des Banques Populaires which controls Natexis Banques Populaires, the Banque Populaire banks and entities that are more than 50%-owned either directly or indirectly, exclusively or jointly, by Banque Fédérale des Banques Populaires or affiliated institutions.
Conversion of perpetual subordinated notes convertible into shares 83,310 1,332,960 4,191,769.44
PERSON RESPONSIBLE FOR THE SHELF-REGISTRATION DOCUMENT François Ladam Chief Executive Officer
SALUSTRO REYDEL DELOITTE & ASSOCIÉS BARBIER FRINAULT & AUTRES ERNST & YOUNG
Additional information: This shelf-registration document contains: n The Statutory Auditors’ reports on the parent company and consolidated financial statements for the year ended December 31, 2004 on pages 193 and 152 respectively, including a justification of their assessments as required by the provisions of article L225-235 of the French Commercial Code.
STATUTORY AUDITORS’ REPORT ON INTERNAL CONTROL (RELATING TO FINANCIAL REPORTING) p. 204